G.R. No.
101163 January 11, 1993 act which will discharge a simple contract for the payment of money; (e) When the principal debtor becomes the
STATE INVESTMENT HOUSE, INC., petitioner, vs. COURT OF APPEALS and NORA B.
MOULIC, respondents.
BELLOSILLO, J.:
The liability to a holder in due course of the drawer of checks issued to another merely as security, and the right of a
real estate mortgagee after extrajudicial foreclosure to recover the balance of the obligation, are the issues in this
Petition for Review of the Decision of respondent Court of Appeals.
Private respondent Nora B. Moulic issued to Corazon Victoriano, as security for pieces of jewelry to be sold on
commission, two (2) post-dated Equitable Banking Corporation checks in the amount of Fifty Thousand Pesos
(P50,000.00) each, one dated 30 August 1979 and the other, 30 September 1979. Thereafter, the payee negotiated the
checks to petitioner State Investment House. Inc. (STATE).
MOULIC failed to sell the pieces of jewelry, so she returned them to the payee before maturity of the checks. The
checks, however, could no longer be retrieved as they had already been negotiated. Consequently, before their
maturity dates, MOULIC withdrew her funds from the drawee bank.
Upon presentment for payment, the checks were dishonored for insufficiency of funds. On 20 December 1979,
STATE allegedly notified MOULIC of the dishonor of the checks and requested that it be paid in cash instead,
although MOULIC avers that no such notice was given her.
On 6 October 1983, STATE sued to recover the value of the checks plus attorney's fees and expenses of litigation.
In her Answer, MOULIC contends that she incurred no obligation on the checks because the jewelry was never sold
and the checks were negotiated without her knowledge and consent. She also instituted a Third-Party Complaint
against Corazon Victoriano, who later assumed full responsibility for the checks.
On 26 May 1988, the trial court dismissed the Complaint as well as the Third-Party Complaint, and ordered STATE
to pay MOULIC P3,000.00 for attorney's fees.
STATE elevated the order of dismissal to the Court of Appeals, but the appellate court affirmed the trial court on the
ground that the Notice of Dishonor to MOULIC was made beyond the period prescribed by the Negotiable
Instruments Law and that even if STATE did serve such notice on MOULIC within the reglementary period it would
be of no consequence as the checks should never have been presented for payment. The sale of the jewelry was never
effected; the checks, therefore, ceased to serve their purpose as security for the jewelry.
We are not persuaded.
The negotiability of the checks is not in dispute. Indubitably, they were negotiable. After all, at the pre-trial, the
parties agreed to limit the issue to whether or not STATE was a holder of the checks in due course. 1
In this regard, Sec. 52 of the Negotiable Instruments Law provides —
Sec. 52. What constitutes a holder in due course. — 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 was 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.
Culled from the foregoing, a prima facie presumption exists that the holder of a negotiable instrument is a holder in
due course.2 Consequently, the burden of proving that STATE is not a holder in due course lies in the person who
disputes the presumption. In this regard, MOULIC failed.
The evidence clearly shows that: (a) on their faces the post-dated checks were complete and regular: (b) petitioner
bought these checks from the payee, Corazon Victoriano, before their due dates;3 (c) petitioner took these checks in
good faith and for value, albeit at a discounted price; and, (d) petitioner was never informed nor made aware that
these checks were merely issued to payee as security and not for value.
Consequently, STATE is indeed a holder in due course. As such, it holds the instruments free from any defect of title
of prior parties, and from defenses available to prior parties among themselves; STATE may, therefore, enforce full
payment of the checks.4
MOULIC cannot set up against STATE the defense that there was failure or absence of consideration. MOULIC can
only invoke this defense against STATE if it was privy to the purpose for which they were issued and therefore is not
a holder in due course.
That the post-dated checks were merely issued as security is not a ground for the discharge of the instrument as
against a holder in due course. For the only grounds are those outlined in Sec. 119 of the Negotiable Instruments
Law:
Sec. 119. Instrument; how discharged. — A negotiable instrument is discharged: (a) By payment in due course by or
on behalf of the principal debtor; (b) By payment in due course by the party accommodated, where the instrument is
made or accepted for his accommodation; (c) By the intentional cancellation thereof by the holder; (d) By any other
holder of the instrument at or after maturity in his own right.
Obviously, MOULIC may only invoke paragraphs (c) and (d) as possible grounds for the discharge of the instrument.
But, the intentional cancellation contemplated under paragraph (c) is that cancellation effected by destroying the
instrument either by tearing it up,5 burning it,6 or writing the word "cancelled" on the instrument. The act of
destroying the instrument must also be made by the holder of the instrument intentionally. Since MOULIC failed to
get back possession of the post-dated checks, the intentional cancellation of the said checks is altogether impossible.
On the other hand, the acts which will discharge a simple contract for the payment of money under paragraph (d) are
determined by other existing legislations since Sec. 119 does not specify what these acts are, e.g., Art. 1231 of the
Civil Code7 which enumerates the modes of extinguishing obligations. Again, none of the modes outlined therein is
applicable in the instant case as Sec. 119 contemplates of a situation where the holder of the instrument is the creditor
while its drawer is the debtor. In the present action, the payee, Corazon Victoriano, was no longer MOULIC's
creditor at the time the jewelry was returned.
Correspondingly, MOULIC may not unilaterally discharge herself from her liability by the mere expediency of
withdrawing her funds from the drawee bank. She is thus liable as she has no legal basis to excuse herself from
liability on her checks to a holder in due course.
Moreover, the fact that STATE failed to give Notice of Dishonor to MOULIC is of no moment. The need for such
notice is not absolute; there are exceptions under Sec. 114 of the Negotiable Instruments Law:
Sec. 114. When notice need not be given to drawer. — Notice of dishonor is not required to be given to the drawer in
the following cases: (a) Where the drawer and the drawee are the same person; (b) When the drawee is a fictitious
person or a person not having capacity to contract; (c) When the drawer is the person to whom the instrument is
presented for payment: (d) Where the drawer has no right to expect or require that the drawee or acceptor will honor
the instrument; (e) Where the drawer had countermanded payment.
Indeed, MOULIC'S actuations leave much to be desired. She did not retrieve the checks when she returned the
jewelry. She simply withdrew her funds from her drawee bank and transferred them to another to protect herself.
After withdrawing her funds, she could not have expected her checks to be honored. In other words, she was
responsible for the dishonor of her checks, hence, there was no need to serve her Notice of Dishonor, which is simply
bringing to the knowledge of the drawer or indorser of the instrument, either verbally or by writing, the fact that a
specified instrument, upon proper proceedings taken, has not been accepted or has not been paid, and that the party
notified is expected to pay it.8
In addition, the Negotiable Instruments Law was enacted for the purpose of facilitating, not hindering or hampering
transactions in commercial paper. Thus, the said statute should not be tampered with haphazardly or lightly. Nor
should it be brushed aside in order to meet the necessities in a single case. 9
The drawing and negotiation of a check have certain effects aside from the transfer of title or the incurring of liability
in regard to the instrument by the transferor. The holder who takes the negotiated paper makes a contract with the
parties on the face of the instrument. There is an implied representation that funds or credit are available for the
payment of the instrument in the bank upon which it is drawn. 10 Consequently, the withdrawal of the money from the
drawee bank to avoid liability on the checks cannot prejudice the rights of holders in due course. In the instant case,
such withdrawal renders the drawer, Nora B. Moulic, liable to STATE, a holder in due course of the checks.
Under the facts of this case, STATE could not expect payment as MOULIC left no funds with the drawee bank to
meet her obligation on the checks,11 so that Notice of Dishonor would be futile.
The Court of Appeals also held that allowing recovery on the checks would constitute unjust enrichment on the part
of STATE Investment House, Inc. This is error.
The record shows that Mr. Romelito Caoili, an Account Assistant, testified that the obligation of Corazon Victoriano
and her husband at the time their property mortgaged to STATE was extrajudicially foreclosed amounted to P1.9
million; the bid price at public auction was only P1 million.12 Thus, the value of the property foreclosed was not even
enough to pay the debt in full.
Where the proceeds of the sale are insufficient to cover the debt in an extrajudicial foreclosure of mortgage, the
mortgagee is entitled to claim the deficiency from the debtor.13 The step thus taken by the mortgagee-bank in
resorting to an extra-judicial foreclosure was merely to find a proceeding for the sale of the property and its action
cannot be taken to mean a waiver of its right to demand payment for the whole debt. 14 For, while Act 3135, as
amended, does not discuss the mortgagee's right to recover such deficiency, it does not contain any provision either,
expressly or impliedly, prohibiting recovery. In this jurisdiction, when the legislature intends to foreclose the right of
a creditor to sue for any deficiency resulting from foreclosure of a security given to guarantee an obligation, it so
expressly provides. For instance, with respect to pledges, Art. 2115 of the Civil Code15 does not allow the creditor to
recover the deficiency from the sale of the thing pledged. Likewise, in the case of a chattel mortgage, or a thing sold
on installment basis, in the event of foreclosure, the vendor "shall have no further action against the purchaser to
recover any unpaid balance of the price. Any agreement to the contrary will be void". 16
It is clear then that in the absence of a similar provision in Act No. 3135, as amended, it cannot be concluded that the
creditor loses his right recognized by the Rules of Court to take action for the recovery of any unpaid balance on the
principal obligation simply because he has chosen to extrajudicially foreclose the real estate mortgage pursuant to a
Special Power of Attorney given him by the mortgagor in the contract of mortgage. 17
The filing of the Complaint and the Third-Party Complaint to enforce the checks against MOULIC and the
VICTORIANO spouses, respectively, is just another means of recovering the unpaid balance of the debt of the
VICTORIANOs.
In fine, MOULIC, as drawer, is liable for the value of the checks she issued to the holder in due course, STATE,
without prejudice to any action for recompense she may pursue against the VICTORIANOs as Third-Party
Defendants who had already been declared as in default.
WHEREFORE, the petition is GRANTED. The decision appealed from is REVERSED and a new one entered
declaring private respondent NORA B. MOULIC liable to petitioner STATE INVESTMENT HOUSE, INC., for the
value of EBC Checks Nos. 30089658 and 30089660 in the total amount of P100,000.00, P3,000.00 as attorney's fees,
and the costs of suit, without prejudice to any action for recompense she may pursue against the VICTORIANOs as
Third-Party Defendants.
Costs against private respondent.
SO ORDERED.
[G.R. No. 154127. December 8, 2003]
ROMEO C. GARCIA, petitioner, vs. DIONISIO V. LLAMAS, respondent.
DECISION
PANGANIBAN, J.:
Novation cannot be presumed. It must be clearly shown either by the express assent of the parties or by the complete
incompatibility between the old and the new agreements. Petitioner herein fails to show either requirement
convincingly; hence, the summary judgment holding him liable as a joint and solidary debtor stands.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to nullify the November 26,
2001 Decision[2] and the June 26, 2002 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. 60521. The
appellate court disposed as follows:
UPON THE VIEW WE TAKE OF THIS CASE, THUS, the judgment appealed from, insofar as it pertains to
[Petitioner] Romeo Garcia, must be, as it hereby is, AFFIRMED, subject to the modification that the award for
attorneys fees and cost of suit is DELETED. The portion of the judgment that pertains to x x x Eduardo de Jesus
is SET ASIDE and VACATED. Accordingly, the case against x x xEduardo de Jesus is REMANDED to the court
of origin for purposes of receiving ex parte [Respondent] Dionisio Llamas evidence against x x x Eduardo de Jesus.[4]
The challenged Resolution, on the other hand, denied petitioners Motion for Reconsideration.
The Antecedents
The antecedents of the case are narrated by the CA as follows:
This case started out as a complaint for sum of money and damages by x x x [Respondent] Dionisio Llamas against
x x x [Petitioner] Romeo Garcia and Eduardo de Jesus. Docketed as Civil Case No. Q97-32-873, the complaint
alleged that on 23 December 1996[,] [petitioner and de Jesus] borrowed P400,000.00 from [respondent]; that, on the
same day, [they] executed a promissory note wherein they bound themselves jointly and severally to pay the loan on
or before 23 January 1997 with a 5% interest per month; that the loan has long been overdue and, despite repeated
demands, [petitioner and de Jesus] have failed and refused to pay it; and that, by reason of the[ir] unjustified refusal,
[respondent] was compelled to engage the services of counsel to whom he agreed to pay 25% of the sum to be
recovered from [petitioner and de Jesus], plus P2,000.00 for every appearance in court. Annexed to the complaint
were the promissory note above-mentioned and a demand letter, dated 02 May 1997, by [respondent] addressed to
[petitioner and de Jesus].
Resisting the complaint, [Petitioner Garcia,] in his [Answer,] averred that he assumed no liability under the
promissory note because he signed it merely as an accommodation party for x x x de Jesus; and, alternatively, that he
is relieved from any liability arising from the note inasmuch as the loan had been paid by x x x de Jesus by means of
a check dated 17 April 1997; and that, in any event, the issuance of the check and [respondents] acceptance
thereof novated or superseded the note.
[Respondent] tendered a reply to [Petitioner] Garcias answer, thereunder asserting that the loan remained unpaid for
the reason that the check issued by x x x de Jesus bounced, and that [Petitioner] Garcias answer was not even
accompanied by a certificate of non-forum shopping. Annexed to the reply were the face of the check and the reverse
side thereof.
For his part, x x x de Jesus asserted in his [A]nswer with [C]ounterclaim that out of the supposed P400,000.00 loan,
he received only P360,000.00, the P40,000.00 having been advance interest thereon for two months, that is, for
January and February 1997; that[,] in fact[,] he paid the sum of P120,000.00 by way of interests; that this was made
when [respondents] daughter, one Nits Llamas-Quijencio, received from the Central Police District Command
at Bicutan, Taguig, Metro Manila (where x x x de Jesus worked), the sum of P40,000.00, representing the peso
equivalent of his accumulated leave credits, another P40,000.00 as advance interest, and still another P40,000.00 as
interest for the months of March and April 1997; that he had difficulty in paying the loan and had asked [respondent]
for an extension of time; that [respondent] acted in bad faith in instituting the case, [respondent] having agreed to
accept the benefits he (de Jesus) would receive for his retirement, but [respondent] nonetheless filed the instant case
while his retirement was being processed; and that, in defense of his rights, he agreed to pay his counsel P20,000.00
[as] attorneys fees, plus P1,000.00 for every court appearance.
During the pre-trial conference, x x x de Jesus and his lawyer did not appear, nor did they file any pre-trial
brief. Neither did [Petitioner] Garcia file a pre-trial brief, and his counsel even manifested that he would no [longer]
present evidence. Given this development, the trial court gave [respondent] permission to present his
evidence ex parte against x x x de Jesus; and, as regards [Petitioner] Garcia, the trial court directed [respondent] to
file a motion for judgment on the pleadings, and for [Petitioner] Garcia to file his comment or opposition thereto.
Instead, [respondent] filed a [M]otion to declare [Petitioner] Garcia in default and to allow him to present his
evidence ex parte. Meanwhile, [Petitioner] Garcia filed a [M]anifestation submitting his defense to a judgment on the
pleadings. Subsequently, [respondent] filed a [M]anifestation/[M]otion to submit the case for judgement on the
pleadings, withdrawing in the process his previous motion. Thereunder, he asserted that [petitioners and de
Jesus] solidary liability under the promissory note cannot be any clearer, and that the check issued by de Jesus did not
discharge the loan since the check bounced.[5]
On July 7, 1998, the Regional Trial Court (RTC) of Quezon City (Branch 222) disposed of the case as follows:
WHEREFORE, premises considered, judgment on the pleadings is hereby rendered in favor of [respondent] and
against [petitioner and De Jesus], who are hereby ordered to pay, jointly and severally, the [respondent] the following
sums, to wit:
1) P400,000.00 representing the principal amount plus 5% interest thereon per month from January 23, 1997 until the
same shall have been fully paid, less the amount of P120,000.00 representing interests already paid by x x x de Jesus;
2) P100,000.00 as attorneys fees plus appearance fee of P2,000.00 for each day of [c]ourt appearance, and;
3) Cost of this suit.[6]
Ruling of the Court of Appeals
The CA ruled that the trial court had erred when it rendered a judgment on the pleadings against De Jesus. According
to the appellate court, his Answer raised genuinely contentious issues. Moreover, he was still required to present his
evidence ex parte. Thus, respondent was not ipso facto entitled to the RTC judgment, even though De Jesus had been
declared in default. The case against the latter was therefore remanded by the CA to the trial court for
the ex parte reception of the formers evidence.
As to petitioner, the CA treated his case as a summary judgment, because his Answer had failed to raise even a single
genuine issue regarding any material fact.
The appellate court ruled that no novation -- express or implied -- had taken place when respondent accepted the check
from De Jesus. According to the CA, the check was issued precisely to pay for the loan that was covered by the
promissory note jointly and severally undertaken by petitioner and De Jesus. Respondents acceptance of the check did
not serve to make De Jesus the sole debtor because, first, the obligation incurred by him and petitioner was joint and
several; and, second, the check -- which had been intended to extinguish the obligation -- bounced upon its presentment.
Hence, this Petition.[7]
Issues
Petitioner submits the following issues for our consideration:
I 1) There must be a previous valid obligation.
Whether or not the Honorable Court of Appeals gravely erred in not holding that novation applies in the instant case
as x x x Eduardo de Jesus had expressly assumed sole and exclusive liability for the loan obligation he obtained from
x x x Respondent Dionisio Llamas, as clearly evidenced by:
a) Issuance by x x x de Jesus of a check in payment of the full amount of the loan of P400,000.00 in favor of
Respondent Llamas, although the check subsequently bounced[;]
b) Acceptance of the check by the x x x respondent x x x which resulted in [the] substitution by x x x de Jesus or [the
superseding of] the promissory note;
c) x x x de Jesus having paid interests on the loan in the total amount of P120,000.00;
d) The fact that Respondent Llamas agreed to the proposal of x x x de Jesus that due to financial difficulties, he be
given an extension of time to pay his loan obligation and that his retirement benefits from the Philippine National
Police will answer for said obligation.
II
Whether or not the Honorable Court of Appeals seriously erred in not holding that the defense of petitioner that he
was merely an accommodation party, despite the fact that the promissory note provided for a joint
and solidary liability, should have been given weight and credence considering that subsequent events showed that
the principal obligor was in truth and in fact x x x de Jesus, as evidenced by the foregoing circumstances showing his
assumption of sole liability over the loan obligation.
III
Whether or not judgment on the pleadings or summary judgment was properly availed of by Respondent Llamas,
despite the fact that there are genuine issues of fact, which the Honorable Court of Appeals itself admitted in its
Decision, which call for the presentation of evidence in a full-blown trial.[8]
Simply put, the issues are the following: 1) whether there was novation of the obligation; 2) whether the defense that
petitioner was only an accommodation party had any basis; and 3) whether the judgment against him -- be it a judgment
on the pleadings or a summary judgment -- was proper.
The Courts Ruling
The Petition has no merit.
First Issue:
Novation
Petitioner seeks to extricate himself from his obligation as joint and solidary debtor by insisting that novation took
place, either through the substitution of De Jesus as sole debtor or the replacement of the promissory note by the check.
Alternatively, the former argues that the original obligation was extinguished when the latter, who was his co-obligor,
paid the loan with the check.
The fallacy of the second (alternative) argument is all too apparent. The check could not have extinguished the
obligation, because it bounced upon presentment. By law, [9] the delivery of a check produces the effect of payment
only when it is encashed.
We now come to the main issue of whether novation took place.
Novation is a mode of extinguishing an obligation by changing its objects or principal obligations, by substituting a
new debtor in place of the old one, or by subrogating a third person to the rights of the creditor. [10] Article 1293 of the
Civil Code defines novation as follows:
Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even
without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the
new debtor gives him rights mentioned in articles 1236 and 1237.
In general, there are two modes of substituting the person of the debtor: (1) expromision and
(2) delegacion. In expromision, the initiative for the change does not come from -- and may even be made without the
knowledge of -- the debtor, since it consists of a third persons assumption of the obligation. As such, it logically requires
the consent of the third person and the creditor. In delegacion, the debtor offers, and the creditor accepts, a third person
who consents to the substitution and assumes the obligation; thus, the consent of these three persons are
necessary.[11] Both modes of substitution by the debtor require the consent of the creditor. [12]
Novation may also be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation
of a new one that takes the place of the former. It is merely modificatory when the old obligation subsists to the extent
that it remains compatible with the amendatory agreement.[13] Whether extinctive or modificatory, novation is made
either by changing the object or the principal conditions, referred to as objective or real novation; or by substituting
the person of the debtor or subrogating a third person to the rights of the creditor, an act known as subjective or
personal novation.[14] For novation to take place, the following requisites must concur:
2) The parties concerned must agree to a new contract.
3) The old contract must be extinguished.
4) There must be a valid new contract.[15]
Novation may also be express or implied. It is express when the new obligation declares in unequivocal terms that the
old obligation is extinguished. It is implied when the new obligation is incompatible with the old one on every
point.[16] The test of incompatibility is whether the two obligations can stand together, each one with its own
independent existence.[17]
Applying the foregoing to the instant case, we hold that no novation took place.
The parties did not unequivocally declare that the old obligation had been extinguished by the issuance and the
acceptance of the check, or that the check would take the place of the note. There is no incompatibility between the
promissory note and the check. As the CA correctly observed, the check had been issued precisely to answer for the
obligation. On the one hand, the note evidences the loan obligation; and on the other, the check answers for it. Verily,
the two can stand together.
Neither could the payment of interests -- which, in petitioners view, also constitutes novation[18] -- change the terms
and conditions of the obligation. Such payment was already provided for in the promissory note and, like the check,
was totally in accord with the terms thereof.
Also unmeritorious is petitioners argument that the obligation was novated by the substitution of debtors. In order to
change the person of the debtor, the old one must be expressly released from the obligation, and the third person or
new debtor must assume the formers place in the relation.[19] Well-settled is the rule that novation is never
presumed.[20] Consequently, that which arises from a purported change in the person of the debtor must be clear and
express.[21] It is thus incumbent on petitioner to show clearly and unequivocally that novation has indeed taken place.
In the present case, petitioner has not shown that he was expressly released from the obligation, that a third person was
substituted in his place, or that the joint and solidary obligation was cancelled and substituted by the solitary
undertaking of De Jesus. The CA aptly held:
x x x. Plaintiffs acceptance of the bum check did not result in substitution by de Jesus either, the nature of the
obligation being solidary due to the fact that the promissory note expressly declared that the liability of appellants
thereunder is joint and [solidary.] Reason: under the law, a creditor may demand payment or performance from one
of the solidary debtors or some or all of them simultaneously, and payment made by one of them extinguishes the
obligation. It therefore follows that in case the creditor fails to collect from one of the solidary debtors, he may still
proceed against the other or others. x x x [22]
Moreover, it must be noted that for novation to be valid and legal, the law requires that the creditor expressly consent
to the substitution of a new debtor.[23] Since novation implies a waiver of the right the creditor had before the novation,
such waiver must be express.[24] It cannot be supposed, without clear proof, that the present respondent has done away
with his right to exact fulfillment from either of the solidary debtors.[25]
More important, De Jesus was not a third person to the obligation. From the beginning, he was a joint
and solidary obligor of the P400,000 loan; thus, he can be released from it only upon its extinguishment. Respondents
acceptance of his check did not change the person of the debtor, because a joint and solidary obligor is required to pay
the entirety of the obligation.
It must be noted that in a solidary obligation, the creditor is entitled to demand the satisfaction of the whole obligation From the records, it also appears that petitioner himself moved to submit the case for judgment on the basis of the
from any or all of the debtors.[26] It is up to the former to determine against whom to enforce collection. [27] Having pleadings and documents. In a written Manifestation,[42] he stated that judgment on the pleadings may now be rendered
made himself jointly and severally liable with De Jesus, petitioner is therefore liable[28] for the entire obligation.[29] without further evidence, considering the allegations and admissions of the parties.[43]
Second Issue: In view of the foregoing, the CA correctly considered as a summary judgment that which the trial court had issued
Accommodation Party against petitioner.
Petitioner avers that he signed the promissory note merely as an accommodation party; and that, as such, he was WHEREFORE, this Petition is hereby DENIED and the assailed Decision AFFIRMED. Costs against petitioner.
released as obligor when respondent agreed to extend the term of the obligation. SO ORDERED.
This reasoning is misplaced, because the note herein is not a negotiable instrument. The note reads:
PROMISSORY NOTE
P400,000.00
RECEIVED FROM ATTY. DIONISIO V. LLAMAS, the sum of FOUR HUNDRED THOUSAND PESOS,
Philippine Currency payable on or before January 23, 1997 at No. 144 K-10 St. Kamias, QuezonCity, with interest at
the rate of 5% per month or fraction thereof.
It is understood that our liability under this loan is jointly and severally [sic].
Done at Quezon City, Metro Manila this 23rd day of December, 1996.[30]
By its terms, the note was made payable to a specific person rather than to bearer or to order [31] -- a requisite for
negotiability under Act 2031, the Negotiable Instruments Law (NIL).Hence, petitioner cannot avail himself of
the NILs provisions on the liabilities and defenses of an accommodation party. Besides, a non-negotiable note is merely
a simple contract in writing and is evidence of such intangible rights as may have been created by the assent of the
parties.[32] The promissory note is thus covered by the general provisions of the Civil Code, not by the NIL.
Even granting arguendo that the NIL was applicable, still, petitioner would be liable for the promissory note. Under
Article 29 of Act 2031, an accommodation party is liable for the instrument to a holder for value even if, at the time of
its taking, the latter knew the former to be only an accommodation party. The relation between an accommodation
party and the party accommodated is, in effect, one of principal and surety -- the accommodation party being the
surety.[33] It is a settled rule that a surety is bound equally and absolutely with the principal and is deemed an
original promissor and debtor from the beginning. The liability is immediate and direct.[34]
Third Issue:
Propriety of Summary Judgment
or Judgment on the Pleadings
The next issue illustrates the usual confusion between a judgment on the pleadings and a summary judgment. Under
Section 3 of Rule 35 of the Rules of Court, a summary judgment may be rendered after a summary hearing if the
pleadings, supporting affidavits, depositions and admissions on file show that (1) except as to the amount of damages,
there is no genuine issue regarding any material fact; and (2) the moving party is entitled to a judgment as a matter of
law.
A summary judgment is a procedural device designed for the prompt disposition of actions in which the pleadings raise
only a legal, not a genuine, issue regarding any material fact. [35]Consequently, facts are asserted in the complaint
regarding which there is yet no admission, disavowal or qualification; or specific denials or affirmative defenses are
set forth in the answer, but the issues are fictitious as shown by the pleadings, depositions or admissions.[36] A summary
judgment may be applied for by either a claimant or a defending party. [37]
On the other hand, under Section 1 of Rule 34 of the Rules of Court, a judgment on the pleadings is proper when an
answer fails to render an issue or otherwise admits the material allegations of the adverse partys pleading. The essential
question is whether there are issues generated by the pleadings.[38] A judgment on the pleadings may be sought only by
a claimant, who is the party seeking to recover upon a claim, counterclaim or cross-claim; or to obtain a declaratory
relief. [39] G.R. No. L-56169 June 26, 1992
Apropos thereto, it must be stressed that the trial courts judgment against petitioner was correctly treated by the TRAVEL-ON, INC., petitioner, vs. COURT OF APPEALS and ARTURO S. MIRANDA, respondents.
appellate court as a summary judgment, rather than as a judgment on the pleadings. His Answer[40] apparently raised RESOLUTION
several issues -- that he signed the promissory note allegedly as a mere accommodation party, and that the obligation
was extinguished by either payment or novation. However, these are not factual issues requiring trial. We quote with FELICIANO, J.:
approval the CAs observations: Petitioner Travel-On. Inc. ("Travel-On") is a travel agency selling airline tickets on commission basis for and in
Although Garcias [A]nswer tendered some issues, by way of affirmative defenses, the documents submitted by behalf of different airline companies. Private respondent Arturo S. Miranda had a revolving credit line with
[respondent] nevertheless clearly showed that the issues so tendered were not valid issues. Firstly, Garcias claim that petitioner. He procured tickets from petitioner on behalf of airline passengers and derived commissions therefrom.
he was merely an accommodation party is belied by the promissory note that he signed. Nothing in the note indicates On 14 June 1972, Travel-On filed suit before the Court of First Instance ("CFI") of Manila to collect on six (6)
that he was only an accommodation party as he claimed to be.Quite the contrary, the promissory note bears the checks issued by private respondent with a total face amount of P115,000.00. The complaint, with a prayer for the
statement: It is understood that our liability under this loan is jointly and severally [sic]. Secondly, his claim that his issuance of a writ of preliminary attachment and attorney's fees, averred that from 5 August 1969 to 16 January 1970,
co-defendant de Jesus already paid the loan by means of a check collapses in view of the dishonor thereof as shown petitioner sold and delivered various airline tickets to respondent at a total price of P278,201.57; that to settle said
at the dorsal side of said check.[41] account, private respondent paid various amounts in cash and in kind, and thereafter issued six (6) postdated checks
amounting to P115,000.00 which were all dishonored by the drawee banks. Travel-On further alleged that in March
1972, private respondent made another payment of P10,000.00 reducing his indebtedness to P105,000.00. The writ of
attachment was granted by the court a quo.
In his answer, private respondent admitted having had transactions with Travel-On during the period stipulated in the
complaint. Private respondent, however, claimed that he had already fully paid and even overpaid his obligations and
that refunds were in fact due to him. He argued that he had issued the postdated checks for purposes of
accommodation, as he had in the past accorded similar favors to petitioner. During the proceedings, private
respondent contested several tickets alleged to have been erroneously debited to his account. He claimed
reimbursement of his alleged over payments, plus litigation expenses, and exemplary and moral damages by reason
of the allegedly improper attachment of his properties.
In support of his theory that the checks were issued for accommodation, private respondent testified that he bad
issued the checks in the name of Travel-On in order that its General Manager, Elita Montilla, could show to Travel-
On's Board of Directors that the accounts receivable of the company were still good. He further stated that Elita
Montilla tried to encash the same, but that these were dishonored and were subsequently returned to him after the
accommodation purpose had been attained.
Travel-On's witness, Elita Montilla, on the other hand explained that the "accommodation" extended to Travel-On by
private respondent related to situations where one or more of its passengers needed money in Hongkong, and upon
request of Travel-On respondent would contact his friends in Hongkong to advance Hongkong money to the
passenger. The passenger then paid Travel-On upon his return to Manila and which payment would be credited by
Travel-On to respondent's running account with it.
In its decision dated 31 January 1975, the court a quo ordered Travel-On to pay private respondent the amount of
P8,894.91 representing net overpayments by private respondent, moral damages of P10,000.00 for the wrongful
issuance of the writ of attachment and for the filing of this case, P5,000.00 for attorney's fees and the costs of the suit.
The trial court ruled that private respondent's indebtedness to petitioner was not satisfactorily established and that the
postdated checks were issued not for the purpose of encashment to pay his indebtedness but to accommodate the
General Manager of Travel-On to enable her to show to the Board of Directors that Travel-On was financially stable.
Petitioner filed a motion for reconsideration that was, however, denied by the trial court, which in fact then increased
the award of moral damages to P50,000.00.
On appeal, the Court of Appeals affirmed the decision of the trial court, but reduced the award of moral damages to
P20,000.00, with interest at the legal rate from the date of the filing of the Answer on 28 August 1972.
Petitioner moved for reconsideration of the Court of Appeal's' decision, without success.
In the instant Petition for Review, it is urged that the postdated checks are per se evidence of liability on the part of
private respondent. Petitioner further argues that even assuming that the checks were for accommodation, private
respondent is still liable thereunder considering that petitioner is a holder for value.
Both the trial and appellate courts had rejected the checks as evidence of indebtedness on the ground that the various
statements of account prepared by petitioner did not show that Private respondent had an outstanding balance of
P115,000.00 which is the total amount of the checks he issued. It was pointed out that while the various exhibits of
petitioner showed various accountabilities of private respondent, they did not satisfactorily establish the amount of
the outstanding indebtedness of private respondent. The appellate court made much of the fact that the figures
representing private respondent's unpaid accounts found in the "Schedule of Outstanding Account" dated 31 January
1970 did not tally with the figures found in the statement which showed private respondent's transactions with
petitioner for the years 1969 and 1970; that there was no satisfactory explanation as to why the total outstanding
amount of P278,432.74 was still used as basis in the accounting of 7 April 1972 considering that according to the
table of transactions for the year 1969 and 1970, the total unpaid account of private respondent amounted
to P239,794.57.
We have, however, examined the record and it shows that the 7 April 1972 Statement of Account had simply not
been updated; that if we use as basis the figure as of 31 January 1970 which is P278,432.74 and from it deduct
P38,638.17 which represents some of the payments subsequently made by private respondent, the figure —
P239,794.57 will be obtained.
Also, the fact alone that the various statements of account had variances in figures, simply did not mean that private
respondent had no more financial obligations to petitioner. It must be stressed that private respondent's account with
petitioner was a running or open one, which explains the varying figures in each of the statements rendered as of a
given date.
The appellate court erred in considering only the statements of account in determining whether private respondent
was indebted to petitioner under the checks. By doing so, it failed to give due importance to the most telling piece of
evidence of private respondent's indebtedness — the checks themselves which he had issued.
Contrary to the view held by the Court of Appeals, this Court finds that the checks are the all important evidence of
petitioner's case; that these checks clearly established private respondent's indebtedness to petitioner; that private
respondent was liable thereunder.
It is important to stress that a check which is regular on its face is deemed prima facie to have been issued for a
valuable consideration and every person whose signature appears thereon is deemed to have become a party thereto
for value. 1 Thus, the mere introduction of the instrument sued on in evidence prima facie entitles the plaintiff to
recovery. Further, the rule is quite settled that a negotiable instrument is presumed to have been given or indorsed for
a sufficient consideration unless otherwise contradicted and overcome by other competent evidence. 2
In the case at bar, the Court of Appeals, contrary to these established rules, placed the burden of proving the
existence of valuable consideration upon petitioner. This cannot be countenanced; it was up to private respondent to
show that he had indeed issued the checks without sufficient consideration. The Court considers that Private
respondent was unable to rebut satisfactorily this legal presumption. It must also be noted that those checks were
issued immediately after a letter demanding payment had been sent to private respondent by petitioner Travel-On.
The fact that all the checks issued by private respondent to petitioner were presented for payment by the latter would
lead to no other conclusion than that these checks were intended for encashment. There is nothing in the checks
themselves (or in any other document for that matter) that states otherwise.
We are unable to accept the Court of Appeals' conclusion that the checks here involved were issued for
"accommodation" and that accordingly private respondent maker of those checks was not liable thereon to petitioner
payee of those checks.
In the first place, while the Negotiable Instruments Law does refer to accommodation transactions, no such
transaction was here shown. Section 29 of the Negotiable Instruments Law provides as follows:
Sec. 29. Liability of accommodation party. — An accommodation party is one 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. Such a person is liable on the instrument to a holder for value, notwithstanding such holder, at the
time of taking the instrument, knew him to be only an accommodation party.
In accommodation transactions recognized by the Negotiable Instruments Law, an accommodating party lends his
credit to the accommodated party, by issuing or indorsing a check which is held by a payee or indorsee as a holder in
due course, who gave full value therefor to the accommodated party. The latter, in other words, receives or realizes
full value which the accommodated party then must repay to the accommodating party, unless of course the
accommodating party intended to make a donation to the accommodated party. But the accommodating party is
bound on the check to the holder in due course who is necessarily a third party and is not the accommodated party.
Having issued or indorsed the check, the accommodating party has warranted to the holder in due course that he will
pay the same according to its tenor. 3
In the case at bar, Travel-On was payee of all six (6) checks, it presented these checks for payment at the drawee
bank but the checks bounced. Travel-On obviously was not an accommodated party; it realized no value on the
checks which bounced.
Travel-On was entitled to the benefit of the statutory presumption that it was a holder in due course, 4 that the checks
were supported by valuable consideration. 5 Private respondent maker of the checks did not successfully rebut these
presumptions. The only evidence aliunde that private respondent offered was his own self-serving uncorroborated
testimony. He claimed that he had issued the checks to Travel-On as payee to "accommodate" its General Manager
who allegedly wished to show those checks to the Board of Directors of Travel-On to "prove" that Travel-On's
account receivables were somehow "still good." It will be seen that this claim was in fact a claim that the checks were
merely simulated, that private respondent did not intend to bind himself thereon. Only evidence of the clearest and
most convincing kind will suffice for that purpose; 6 no such evidence was submitted by private respondent. The
latter's explanation was denied by Travel-On's General Manager; that explanation, in any case, appears merely
contrived and quite hollow to us. Upon the other hand, the "accommodation" or assistance extended to Travel-On's
passengers abroad as testified by petitioner's General Manager involved, not the accommodation transactions
recognized by the NIL, but rather the circumvention of then existing foreign exchange regulations by passengers
booked by Travel-On, which incidentally involved receipt of full consideration by private respondent.
Thus, we believe and so hold that private respondent must be held liable on the six (6) checks here involved. Those
checks in themselves constituted evidence of indebtedness of private respondent, evidence not successfully
overturned or rebutted by private respondent.
Since the checks constitute the best evidence of private respondent's liability to petitioner Travel-On, the amount of
such liability is the face amount of the checks, reduced only by the P10,000.00 which Travel-On admitted in its
complaint to have been paid by private respondent sometime in March 1992.
The award of moral damages to Private respondent must be set aside, for the reason that Petitioner's application for
the writ of attachment rested on sufficient basis and no bad faith was shown on the part of Travel-On. If anyone was
in bad faith, it was private respondent who issued bad checks and then pretended to have "accommodated"
petitioner's General Manager by assisting her in a supposed scheme to deceive petitioner's Board of Directors and to
misrepresent Travel-On's financial condition.
ACCORDINGLY, the Court Resolved to GRANT due course to the Petition for Review on Certiorari and to
REVERSE and SET ASIDE the Decision dated 22 October 1980 and the Resolution of 23 January 1981 of the Court
of Appeals, as well as the Decision dated 31 January 1975 of the trial court, and to enter a new decision requiring
private respondent Arturo S. Miranda to pay to petitioner Travel-On the amount of P105,000.00 with legal interest
thereon from 14 June 1972, plus ten percent (10%) of the total amount due as attorney's fees. Costs against Private
respondent.
G.R. No. L-63419 December 18, 1986
FLORENTINA A. LOZANO, petitioner, vs. THE HONORABLE ANTONIO M. MARTINEZ, in his capacity
as Presiding Judge, Regional Trial Court, National Capital Judicial Region, Branch XX, Manila, and the
HONORABLE JOSE B. FLAMINIANO, in his capacity as City Fiscal of Manila, respondents.
G.R. No. L-66839-42 December 18, 1986
LUZVIMINDA F. LOBATON petitioner, vs. HONORABLE GLICERIO L. CRUZ, in his capacity as
Presiding Executive Judge, Branch V, Region IV, Regional Trial Court, sitting at Lemery, Batangas, THE
PROVINCIAL FISCAL OF BATANGAS, and MARIA LUISA TORDECILLA, respondents.
G.R No. 71654 December 18, 1986
ANTONIO DATUIN and SUSAN DATUIN, petitioners, vs. HONORABLE JUDGE ERNANI C. PANO,
Regional Trial Court, Quezon City, Branch LXXXVIII, HONORABLE ClTY FISCAL OF QUEZON
CITY, respondents.
G.R. No. 74524-25 December 18, 1986
OSCAR VIOLAGO, petitioner, vs. HONORABLE JUDGE ERNANI C. PAÑ;O Regional Trial Court, Quezon
City, Branch LXXXVIII, HONORABLE CITY FISCAL OF QUEZON CITY, respondents.
G.R. No. 75122-49 December 18, 1986
ELINOR ABAD, petitioner, vs. THE HONORABLE NICOLAS A. GEROCHI, JR., in his capacity as
Presiding Judge, Regional Trial Court, National Capital Judicial Region, Branch 139, Makati and
FEDERICO L. MELOCOTTON JR., in his capacity as Trial Fiscal Regional Trial Court, Branch 139,
Makati, respondents.
G.R No. 75812-13 December 18, 1986
AMABLE R. AGUILUZ VII and SYLVIA V. AGUILUZ, spouses, petitioners, vs. HONORABLE
PRESIDING JUDGE OF BRANCH 154, now vacant but temporarily presided by HONORABLE ASAALI S.
ISNANI Branch 153, Court of First Instance of Pasig, Metro Manila, respondent.
G.R No. 75765-67 December 18, 1986
LUIS M. HOJAS, petitioner, vs. HON. JUDGE SENEN PENARANDA, Presiding Judge, Regional Trial Court
of Cagayan de Oro City, Branch XX, HONORABLE JUDGE ALFREDO LAGAMON, Presiding Judge,
Regional Trial Court of Cagayan de Oro City, Branch XXII, HONORABLE CITY FISCAL NOLI T. CATHI,
City Fiscal of Cagayan de Oro City, respondents.
G.R. No. 75789 December 18, 1986
THE PEOPLE OF THE PHILIPPINES, petitioner, vs. HON. DAVID G. NITAFAN, Presiding Judge,
Regional Trial Court, National Capital Judicial Region, Branch 52, Manila and THELMA
SARMIENTO, respondents.
YAP, J.:
The constitutionality of Batas Pambansa Bilang 22 (BP 22 for short), popularly known as the Bouncing Check Law,
which was approved on April 3, 1979, is the sole issue presented by these petitions for decision. The question is
definitely one of first impression in our jurisdiction.
These petitions arose from cases involving prosecution of offenses under the statute. The defendants in those cases
moved seasonably to quash the informations on the ground that the acts charged did not constitute an offense, the
statute being unconstitutional. The motions were denied by the respondent trial courts, except in one case, which is
the subject of G. R. No. 75789, wherein the trial court declared the law unconstitutional and dismissed the case. The
parties adversely affected have come to us for relief.
As a threshold issue the former Solicitor General in his comment on the petitions, maintained the posture that it was
premature for the accused to elevate to this Court the orders denying their motions to quash, these orders being
interlocutory. While this is correct as a general rule, we have in justifiable cases intervened to review the lower
court's denial of a motion to quash. 1 In view of the importance of the issue involved here, there is no doubt in our
mind that the instant petitions should be entertained and the constitutional challenge to BP 22 resolved promptly, one
way or the other, in order to put to rest the doubts and uncertainty that exist in legal and judicial circles and the
general public which have unnecessarily caused a delay in the disposition of cases involving the enforcement of the
statute.
For the purpose of resolving the constitutional issue presented here, we do not find it necessary to delve into the
specifics of the informations involved in the cases which are the subject of the petitions before us. 2 The language of
BP 22 is broad enough to cover all kinds of checks, whether present dated or postdated, or whether issued in payment
of pre-existing obligations or given in mutual or simultaneous exchange for something of value.
I
BP 22 punishes a person "who makes or draws and issues any check on account or for value, knowing at the time of
issue that he does not have sufficient funds in or credit with the drawee bank for the payment of said check in full
upon presentment, which check is subsequently dishonored by the drawee bank for insufficiency of funds or credit or
would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to
stop payment." The penalty prescribed for the offense is imprisonment of not less than 30 days nor more than one
year or a fine or not less than the amount of the check nor more than double said amount, but in no case to exceed
P200,000.00, or both such fine and imprisonment at the discretion of the court. 3
The statute likewise imposes the same penalty on "any person who, having sufficient funds in or credit with the
drawee bank when he makes or draws and issues a check, shall fail to keep sufficient funds or to maintain a credit to
cover the full amount of the check if presented within a period of ninety (90) days from the date appearing thereon,
for which reason it is dishonored by the drawee bank. 4
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 facie presumption 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. 5 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.
Another provision of the statute, also in the nature of a rule of evidence, provides that the introduction in evidence of
the unpaid and dishonored check with the drawee bank's refusal to pay "stamped or written thereon or attached
thereto, giving the reason therefor, "shall constitute prima facie proof of "the making or issuance of said check, and
the due presentment to the drawee for payment and the dishonor thereof ... for the reason written, stamped or attached
by the drawee on such dishonored check." 6
The presumptions being merely prima facie, it is open to the accused of course to present proof to the contrary to
overcome the said presumptions.
II
BP 22 is aimed at putting a stop to or curbing the practice of issuing checks that are worthless, i.e. checks that end up
being rejected or dishonored for payment. The practice, as discussed later, is proscribed by the state because of the
injury it causes to t public interests.
Before the enactment of BP 22, provisions already existed in our statute books which penalize the issuance of
bouncing or rubber checks. Criminal law has dealth with the problem within the context of crimes against property
punished as "estafa" or crimes involving fraud and deceit. The focus of these penal provisions is on the damage
caused to the property rights of the victim.
The Penal Code of Spain, which was in force in the Philippines from 1887 until it was replaced by the Revised Penal
Code in 1932, contained provisions penalizing, among others, the act of defrauding another through false pretenses.
Art. 335 punished a person who defrauded another "by falsely pretending to possess any power, influence,
qualification, property, credit, agency or business, or by means of similar deceit." Although no explicit mention was
made therein regarding checks, this provision was deemed to cover within its ambit the issuance of worthless or
bogus checks in exchange for money. 7
In 1926, an amendment was introduced by the Philippine Legislature, which added a new clause (paragraph 10) to
Article 335 of the old Penal Code, this time referring in explicit terms to the issuance of worthless checks. The
amendment penalized any person who 1) issues a check in payment of a debt or for other valuable consideration,
knowing at the time of its issuance that he does not have sufficient funds in the bank to cover its amount, or 2)
maliciously signs the check differently from his authentic signature as registered at the bank in order that the latter
would refuse to honor it; or 3) issues a postdated check and, at the date set for its payment, does not have sufficient
deposit to cover the same.8
In 1932, as already adverted to, the old Penal Code was superseded by the Revised Penal Code. 9 The above
provisions, in amended form, were incorporated in Article 315 of the Revised Penal Code defining the crime of
estafa. The revised text of the provision read as follows:
Art. 315. Swindling (estafa).—Any person who shall defraud another by any of the means mentioned hereinbelow
shall be punished by:
xxx xxx xxx
2. By means of any of the following false pretenses or fraudulent acts executed prior to or simultaneously with the
commis sion of the fraud:
(a) By using fictitious name, or falsely pretending to possess power, influence, qualifications, property, credit,
agency, business or imaginary transactions, or by means of other similar deceits;
xxx xxx xxx
(d) By postdating a check, or issuing a check in payment of an obligation the offender knowing that at the time he
had no funds in the bank, or the funds deposited by him were not sufficient to cover the amount of the cheek without
informing the payee of such circumstances.
The scope of paragraph 2 (d), however, was deemed to exclude checks issued in payment of pre-existing
obligations. 10 The rationale of this interpretation is that in estafa, the deceit causing the defraudation must be prior to
or simultaneous with the commission of the fraud. In issuing a check as payment for a pre-existing debt, the drawer
does not derive any material benefit in return or as consideration for its issuance. On the part of the payee, he had
already parted with his money or property before the check is issued to him hence, he is not defrauded by means of
any "prior" or "simultaneous" deceit perpetrated on him by the drawer of the check.
With the intention of remedying the situation and solving the problem of how to bring checks issued in payment of
pre-existing debts within the ambit of Art. 315, an amendment was introduced by the Congress of the Philippines in
1967, 11 which was enacted into law as Republic Act No. 4885, revising the aforesaid proviso to read as follows:
(d) By postdating a check, or issuing a check in payment of an obligation when the offender had no funds in the
bank, or his funds deposited therein were not sufficient to cover the amount of the check. The failure of the drawer of
the check to deposit the amount necessary to cover his check within three (3) days from receipt of notice from the
bank and/or the payee or holder that said check has been dishonored for lack or insufficiency of funds shall be puma
facie evidence of deceit constituting false pretense or fraudulent act.
However, the adoption of the amendment did not alter the situation materially. A divided Court held in People vs.
Sabio, Jr. 12 that Article 315, as amended by Republic Act 4885, does not cover checks issued in payment of pre-
existing obligations, again relying on the concept underlying the crime of estafa through false pretenses or deceit—
which is, that the deceit or false pretense must be prior to or simultaneous with the commission of the fraud.
Since statistically it had been shown that the greater bulk of dishonored checks consisted of those issued in payment
of pre-existing debts, 13 the amended provision evidently failed to cope with the real problem and to deal effectively
with the evil that it was intended to eliminate or minimize.
With the foregoing factual and legal antecedents as a backdrop, the then Interim Batasan confronted the problem
squarely. It opted to take a bold step and decided to enact a law dealing with the problem of bouncing or worthless
checks, without attaching the law's umbilical cord to the existing penal provisions on estafa. BP 22 addresses the
problem directly and frontally and makes the act of issuing a worthless check malum prohibitum. 14
The question now arises: Is B P 22 a valid law?
Previous efforts to deal with the problem of bouncing checks within the ambit of the law on estafa did not evoke any
constitutional challenge. In contrast, BP 22 was challenged promptly.
Those who question the constitutionality of BP 22 insist that: (1) it offends the constitutional provision forbidding
imprisonment for debt; (2) it impairs freedom of contract; (3) it contravenes the equal protection clause; (4) it unduly
delegates legislative and executive powers; and (5) its enactment is flawed in that during its passage the Interim
Batasan violated the constitutional provision prohibiting amendments to a bill on Third Reading.
The constitutional challenge to BP 22 posed by petitioners deserves a searching and thorough scrutiny and the most
deliberate consideration by the Court, involving as it does the exercise of what has been described as "the highest and
most delicate function which belongs to the judicial department of the government." 15
As we enter upon the task of passing on the validity of an act of a co-equal and coordinate branch of the government,
we need not be reminded of the time-honored principle, deeply ingrained in our jurisprudence, that a statute is
presumed to be valid. Every presumption must be indulged in favor of its constitutionality. This is not to say that we
approach our task with diffidence or timidity. Where it is clear that the legislature has overstepped the limits of its
authority under the constitution we should not hesitate to wield the axe and let it fall heavily, as fall it must, on the
offending statute.
III
Among the constitutional objections raised against BP 22, the most serious is the alleged conflict between the statute
and the constitutional provision forbidding imprisonment for debt. It is contended that the statute runs counter to the
inhibition in the Bill of Rights which states, "No person shall be imprisoned for debt or non-payment of a poll
tax." 16 Petitioners insist that, since the offense under BP 22 is consummated only upon the dishonor or non-payment
of the check when it is presented to the drawee bank, the statute is really a "bad debt law" rather than a "bad check
law." What it punishes is the non-payment of the check, not the act of issuing it. The statute, it is claimed, is nothing
more than a veiled device to coerce payment of a debt under the threat of penal sanction.
First of all it is essential to grasp the essence and scope of the constitutional inhibition invoked by petitioners.
Viewed in its historical context, the constitutional prohibition against imprisonment for debt is a safeguard that
evolved gradually during the early part of the nineteenth century in the various states of the American Union as a
result of the people's revulsion at the cruel and inhumane practice, sanctioned by common law, which permitted
creditors to cause the incarceration of debtors who could not pay their debts. At common law, money judgments
arising from actions for the recovery of a debt or for damages from breach of a contract could be enforced against the
person or body of the debtor by writ of capias ad satisfaciendum. By means of this writ, a debtor could be seized and
imprisoned at the instance of the creditor until he makes the satisfaction awarded. As a consequence of the popular
ground swell against such a barbarous practice, provisions forbidding imprisonment for debt came to be generally
enshrined in the constitutions of various states of the Union. 17
This humanitarian provision was transported to our shores by the Americans at the turn of t0he century and embodied
in our organic laws. 18 Later, our fundamental law outlawed not only imprisonment for debt, but also the infamous
practice, native to our shore, of throwing people in jail for non-payment of the cedula or poll tax. 19
The reach and scope of this constitutional safeguard have been the subject of judicial definition, both by our Supreme
Court 20 and by American State courts.21 Mr. Justice Malcolm speaking for the Supreme Court in Ganaway vs.
Queen, 22 stated: "The 'debt' intended to be covered by the constitutional guaranty has a well-defined meaning.
Organic provisions relieving from imprisonment for debt, were intended to prevent commitment of debtors to prison
for liabilities arising from actions ex contractu The inhibition was never meant to include damages arising in
actions ex delicto, for the reason that damages recoverable therein do not arise from any contract entered into
between the parties but are imposed upon the defendant for the wrong he has done and are considered as punishment,
nor to fines and penalties imposed by the courts in criminal proceedings as punishments for crime."
The law involved in Ganaway was not a criminal statute but the Code of Procedure in Civil Actions (1909) which
authorized the arrest of the defendant in a civil case on grounds akin to those which justify the issuance of a writ of
attachment under our present Rules of Court, such as imminent departure of the defendant from the Philippines with
intent to defraud his creditors, or concealment, removal or disposition of properties in fraud of creditors, etc. The
Court, in that case, declared the detention of the defendant unlawful, being violative of the constitutional inhibition
against imprisonment for debt, and ordered his release. The Court, however, refrained from declaring the statutory
provision in question unconstitutional.
Closer to the case at bar is People v. Vera Reyes,23 wherein a statutory provision which made illegal and punishable
the refusal of an employer to pay, when he can do so, the salaries of his employees or laborers on the fifteenth or last
day of every month or on Saturday every week, was challenged for being violative of the constitutional prohibition
against imprisonment for debt. The constitutionality of the law in question was upheld by the Court, it being within
the authority of the legislature to enact such a law in the exercise of the police power. It was held that "one of the
purposes of the law is to suppress possible abuses on the part of the employers who hire laborers or employees
without paying them the salaries agreed upon for their services, thus causing them financial difficulties. "The law
was viewed not as a measure to coerce payment of an obligation, although obviously such could be its effect, but to
banish a practice considered harmful to public welfare.
IV
Has BP 22 transgressed the constitutional inhibition against imprisonment for debt? To answer the question, it is
necessary to examine what the statute prohibits and punishes as an offense. Is it the failure of the maker of the check
to pay a debt? Or is it the making and issuance of a worthless check in payment of a debt? What is the gravamen of
the offense? This question lies at the heart of the issue before us.
The gravamen of the offense punished by BP 22 is the act of making and issuing a worthless check or a check that is
dishonored upon its presentation for payment. It is not the non-payment of an obligation which the law punishes. The
law is not intended or designed to coerce a debtor to pay his debt. The thrust of the law is to prohibit, under pain of
penal sanctions, the making of worthless checks and putting them in circulation. Because of its deleterious effects on
the public interest, the practice is proscribed by the law. The law punishes the act not as an offense against property,
but an offense against public order.
Admittedly, the distinction may seem at first blush to appear elusive and difficult to conceptualize. But precisely in
the failure to perceive the vital distinction lies the error of those who challenge the validity of BP 22.
It may be constitutionally impermissible for the legislature to penalize a person for non-payment of a debt ex
contractu But certainly it is within the prerogative of the lawmaking body to proscribe certain acts deemed pernicious
and inimical to public welfare. Acts mala in se are not the only acts which the law can punish. An act may not be
considered by society as inherently wrong, hence, not malum in se but because of the harm that it inflicts on the
community, it can be outlawed and criminally punished as malum prohibitum. The state can do this in the exercise of
its police power.
The police power of the state has been described as "the most essential, insistent and illimitable of powers" which
enables it to prohibit all things hurtful to the comfort, safety and welfare of society. 24 It is a power not emanating
from or conferred by the constitution, but inherent in the state, plenary, "suitably vague and far from precisely
defined, rooted in the conception that man in organizing the state and imposing upon the government limitations to
safeguard constitutional rights did not intend thereby to enable individual citizens or group of citizens to obstruct
unreasonably the enactment of such salutary measures to ensure communal peace, safety, good order and welfare." 25
The enactment of BP 22 is a declaration by the legislature that, as a matter of public policy, the making and issuance
of a worthless check is deemed public nuisance to be abated by the imposition of penal sanctions.
It is not for us to question the wisdom or impolicy of the statute. It is sufficient that a reasonable nexus exists
between means and end. Considering the factual and legal antecedents that led to the adoption of the statute, it is not
difficult to understand the public concern which prompted its enactment. It had been reported that the approximate
value of bouncing checks per day was close to 200 million pesos, and thereafter when overdrafts were banned by the
Central Bank, it averaged between 50 minion to 80 million pesos a day. 26
By definition, a check is a bill of exchange drawn on a bank and payable on demand. 27 It is a written order on a
bank, purporting to be drawn against a deposit of funds for the payment of all events, of a sum of money to a certain
person therein named or to his order or to cash and payable on demand. 28 Unlike a promissory note, a check is not a
mere undertaking to pay an amount of money. It is an order addressed to a bank and partakes of a representation that
the drawer has funds on deposit against which the check is drawn, sufficient to ensure payment upon its presentation
to the bank. There is therefore an element of certainty or assurance that the instrument wig be paid upon presentation.
For this reason, checks have become widely accepted as a medium of payment in trade and commerce. Although not
legal tender, checks have come to be perceived as convenient substitutes for currency in commercial and financial
transactions. The basis or foundation of such perception is confidence. If such confidence is shakes the usefulness of
checks as currency substitutes would be greatly diminished or may become nit Any practice therefore tending to
destroy that confidence should be deterred for the proliferation of worthless checks can only create havoc in trade
circles and the banking community.
Recent statistics of the Central Bank show that one-third of the entire money supply of the country, roughly totalling
P32.3 billion, consists of peso demand deposits; the remaining two. 29 These de deposit thirds consists of currency in
circulation. ma deposits in the banks constitute the funds against which among others, commercial papers like
checks, are drawn. The magnitude of the amount involved amply justifies the legitimate concern of the state in
preserving the integrity of the banking system. Flooding the system with worthless checks is like pouring garbage
into the bloodstream of the nation's economy.
The effects of the issuance of a worthless check transcends the private interests of the parties directly involved in the
transaction and touches the interests of the community at large. The mischief it creates is not only a wrong to the
payee or holder, but also an injury to the public. The harmful practice of putting valueless commercial papers in
circulation, multiplied a thousand fold, can very wen pollute the channels of trade and commerce, injure the banking
system and eventually hurt the welfare of society and the public interest. As aptly stated — 30
The 'check flasher' does a great deal more than contract a debt; he shakes the pillars of business; and to my mind, it is
a mistaken charity of judgment to place him in the same category with the honest man who is unable to pay his debts,
and for whom the constitutional inhibition against' imprisonment for debt, except in cases of fraud was intended as a
shield and not a sword.
In sum, we find the enactment of BP 22 a valid exercise of the police power and is not repugnant to the constitutional
inhibition against imprisonment for debt.
This Court is not unaware of the conflicting jurisprudence obtaining in the various states of the United States on the
constitutionality of the "worthless check" acts. 31 It is needless to warn that foreign jurisprudence must be taken with
abundant caution. A caveat to be observed is that substantial differences exist between our statute and the worthless
check acts of those states where the jurisprudence have evolved. One thing to remember is that BP 22 was not lifted
bodily from any existing statute. Furthermore, we have to consider that judicial decisions must be read in the context
of the facts and the law involved and, in a broader sense, of the social economic and political environment—in short,
the milieu—under which they were made. We recognize the wisdom of the old saying that what is sauce for the
goose may not be sauce for the gander.
As stated elsewhere, police power is a dynamic force that enables the state to meet the exigencies of changing times.
There are occasions when the police power of the state may even override a constitutional guaranty. For example,
there have been cases wherein we held that the constitutional provision on non-impairment of contracts must yield to
the police power of the state. 32 Whether the police power may override the constitutional inhibition against
imprisonment for debt is an issue we do not have to address. This bridge has not been reached, so there is no
occasion to cross it.
We hold that BP 22 does not conflict with the constitutional inhibition against imprisonment for debt.
V
We need not detain ourselves lengthily in the examination of the other constitutional objections raised by petitioners,
some of which are rather flimsy.
We find no valid ground to sustain the contention that BP 22 impairs freedom of contract. The freedom of contract
which is constitutionally protected is freedom to enter into "lawful" contracts. Contracts which contravene public
policy are not lawful. 33 Besides, we must bear in mind that checks can not be categorized as mere contracts. It is a
commercial instrument which, in this modem day and age, has become a convenient substitute for money; it forms
part of the banking system and therefore not entirely free from the regulatory power of the state.
Neither do we find substance in the claim that the statute in question denies equal protection of the laws or is
discriminatory, since it penalizes the drawer of the check, but not the payee. It is contended that the payee is just as
responsible for the crime as the drawer of the check, since without the indispensable participation of the payee by his
acceptance of the check there would be no crime. This argument is tantamount to saying that, to give equal
protection, the law should punish both the swindler and the swindled. The petitioners' posture ignores the well-
accepted meaning of the clause "equal protection of the laws." The clause does not preclude classification of
individuals, who may be accorded different treatment under the law as long as the classification is no unreasonable or
arbitrary. 34
It is also suggested that BP 22 constitutes undue or improper delegation of legislative powers, on the theory that the
offense is not completed by the sole act of the maker or drawer but is made to depend on the will of the payee. If the
payee does not present the check to the bank for payment but instead keeps it, there would be no crime. The logic of
the argument stretches to absurdity the meaning of "delegation of legislative power." What cannot be delegated is the
power to legislate, or the power to make laws. 35 which means, as applied to the present case, the power to define the
offense sought to be punished and to prescribe the penalty. By no stretch of logic or imagination can it be said that
the power to define the crime and prescribe the penalty therefor has been in any manner delegated to the payee.
Neither is there any provision in the statute that can be construed, no matter how remotely, as undue delegation of
executive power. The suggestion that the statute unlawfully delegates its enforcement to the offended party is
farfetched.
Lastly, the objection has been raised that Section 9 (2) of Article VII of the 1973 Constitution was violated by the
legislative body when it enacted BP 22 into law. This constitutional provision prohibits the introduction of
amendments to a bill during the Third Reading. It is claimed that during its Third Reading, the bill which eventually
became BP 22 was amended in that the text of the second paragraph of Section 1 of the bill as adopted on Second
Reading was altered or changed in the printed text of the bill submitted for approval on Third Reading.
A careful review of the record of the proceedings of the Interim Batasan on this matter shows that, indeed, there was
some confusion among Batasan Members on what was the exact text of the paragraph in question which the body
approved on Second Reading. 36 Part of the confusion was due apparently to the fact that during the deliberations on
Second Reading (the amendment period), amendments were proposed orally and approved by the body or accepted
by the sponsor, hence, some members might not have gotten the complete text of the provisions of the bill as
amended and approved on Second Reading. However, it is clear from the records that the text of the second
paragraph of Section 1 of BP 22 is the text which was actually approved by the body on Second Reading on February
7, 1979, as reflected in the approved Minutes for that day. In any event, before the bin was submitted for final
approval on Third Reading, the Interim Batasan created a Special Committee to investigate the matter, and the
Committee in its report, which was approved by the entire body on March 22, 1979, stated that "the clause in
question was ... an authorized amendment of the bill and the printed copy thereof reflects accurately the provision in
question as approved on Second Reading. 37 We therefore, find no merit in the petitioners' claim that in the enactment
of BP 22 the provisions of Section 9 (2) of Article VIII of the 1973 Constitution were violated.
WHEREFORE, judgment is rendered granting the petition in G.R. No. 75789 and setting aside the order of the
respondent Judge dated August 19, 1986. The petitions in G.R. Nos. 63419, 66839-42, 71654, 74524-25, 75122-49,
75812-13 and 75765-67 are hereby dismissed and the temporary restraining order issued in G.R. Nos. 74524-25 is
lifted. With costs against private petitioners.
SO ORDERED.
G.R. No. L-31831 April 28, 1983
JESUS PINEDA, petitioner, vs. JOSE V. DELA RAMA and COURT OF APPEALS, respondents.
GUTIERREZ, JR., J.:
This is a petition to review on certiorari a decision of the Court of Appeals which declared petitioner Jesus Pineda
liable on his promissory note for P9,300.00 and directed him to pay attorney's fees of P400.00 to private respondent,
Jose V. dela Rama.
Dela Rama is a practising lawyer whose services were retained by Pineda for the purpose of making representations
with the chairman and general manager of the National Rice and Corn Administration (NARIC) to stop or delay the
institution of criminal charges against Pineda who allegedly misappropriated 11,000 cavans of palay deposited at his
ricemill in Concepcion, Tarlac. The NARIC general manager was allegedly an intimate friend of Dela Rama.
According to Dela Rama, petitioner Pineda has used up all his funds to buy a big hacienda in Mindoro and, therefore,
borrowed the P9,300.00 subject of his complaint for collection. In addition to filling the suit to collect the loan
evidenced by the matured promissory note, Dela Rama also sued to collect P5,000.00 attorney's fees for legal
services rendered as Pineda's counsel in the case being investigated by NARIC.
The Court of First Instance of Manila decided Civil Case No. 45762 in favor of petitioner Pineda. The court believed
the evidence of Pineda that he signed the promissory note for P9,300.00 only because Dela Rama had told him that
this amount had already been advanced to grease the palms of the 'Chairman and General Manager of NARIC in
order to save Pineda from criminal prosecution.
The court stated:
xxx xxx xxx
... The Court, after hearing the testimonies of the witness and examining the exhibits in question, finds that Exhibit A
proves that the defendant himself did not receive the amount stated therein, because according to said exhibit that
amount was advanced by the plaintiff in connection with the defendant's case, entirely contradicting the testimony of
the plaintiff himself, who stated in open Court that he gave the amount in cash in two installments to the defendant.
The Court is more inclined to believe the contents of Exhibit A, than the testimony of the plaintiff. On this particular
matter, the defendant has established that the plaintiff made him believe that he was giving money to the authorities
of the NARIC to grease their palms to suspend the prosecution of the defendant, but the defendant, upon inquiry,
found out that none of the authorities has received that amount, and there was no case that was ever contemplated to
be filed against him. It clearly follows, therefore, that the amount involved in this Exhibit A was imaginary. It was
given to the defendant, not to somebody else. The purpose for which the amount was intended was illegal.
However, the Court believes that plaintiff was able to get from the defendant the amount of P3,000.00 on October 7,
as shown by the check issued by the defendant, Exhibit 2, and the letter, Exhibit 7, was antedated October 6, as per
plaintiff's wishes to show that defendant was indebted for P3,000.00 when, as a matter of fact, such amount was
produced in order to grease the palms of the NARIC officials for withholding an imaginary criminal case. Such
amount was never given to such officials nor was there any contemplated case against the defendant. The purpose for
which such amount was intended was indeed illegal.
The trial court rendered judgment as follows:
WHEREFORE, the Court finds by a preponderance of evidence that the amount of P9,300.00 evidenced by Exhibit
A was not received by the defendant, nor given to any party for the defendant's benefit.Consequently, the plaintiff
has no right to recover said amount. The amount of P3,000.00 was given by the defendant to grease the palms of the
NARIC officials. The purpose was illegal, null and void. Besides, it was not given at all, nor was it true that there
was a contemplated case against the defendant. Such amount should be returned to the defendant. The services
rendered by the plaintiff to the defendant is worth only P400.00, taking into consideration that the plaintiff received
an air-conditioner and six sacks of rice. The court orders that the plaintiff should return to the defendant the amount
of P3,000.00, minus P400.00 plus costs.
The Court of Appeals reversed the decision of the trial court on a finding that Pineda, being a person of more than
average intelligence, astute in business, and wise in the ways of men would not "sign any document or paper with his
name unless he was fully aware of the contents and important thereof, knowing as he must have known that the
language and practices of business and of trade and commerce call to account every careless or thoughtless word or
deed."
The appellate court stated:
No rule is more fundamental and by men of honor and goodwill more dearly cherished, than that which declares that
obligations arising from contracts have the force of law between the contracting parties and should be complied with
in good faith. Corollary to and in furtherance of this principle, Section 24 of the Negotiable instruments Law (Act
No. 2031) explicitly provides that every negotiable instrument is deemed prima facie to have been issued for a
valuable consideration, and every person whose signature appears thereon to have become a party thereto for value.
We find this petition meritorious.
The Court of Appeals relied on the efficacy of the promissory note for its decision, citing Section 24 of the
Negotiable Instruments Law which reads:
SECTION 24. Presumption of consideration.—Every negotiable instrument is deemed prima facie to have been
issued for a valuable consideration; and every person whose signature appears thereon to have become a party thereto
for value.
The Court of Appeals' reliance on the above provision is misplaced. The presumption that a negotiable instrument is
issued for a valuable consideration is only puma facie. It can be rebutted by proof to the contrary. (Bank of the
Philippine Islands v. Laguna Coconut Oil Co. et al., 48 Phil. 5).
According to Dela Rama, he loaned the P9,300.00 to Pineda in two installments on two occasions five days apart -
first loan for P5,000.00 and second loan for P4,300.00, both given in cash. He also alleged that previously he loaned
P3,000.00 but Pineda paid this other loan two days afterward.
These allegations of Dela Rama are belied by the promissory note itself. The second sentence of the note reads -
"This represents the cash advances made by him in connection with my case for which he is my attorney-in- law."
The terms of the note sustain the version of Pineda that he signed the P9,300.00 promissory note because he believed
Dela Rama's story that these amounts had already been advanced by Dela Rama and given as gifts for NARIC
officials.
Dela Rama himself admits that Pineda engaged his services to delay by one month the filing of the NARIC case
against Pineda while the latter was trying to work out an amicable settlement. There is no question that Dela Rama
was indeed a close friend of then NARIC Administrator Jose Rodriquez having worked with him in the Philippine
consulate at Hongkong and that Dela Rama made what he calls "proper representations" with Rodriguez and with
other NARIC officials in connection with the investigation of the criminal charges against Pineda.
We agree with the trial court which believed Pineda. It is indeed unusual for a lawyer to lend money to his client
whom he had known for only three months, with no security for the loan and on interest. Dela Rama testified that he
did not even know what Pineda was going to do with the money he borrowed from him. The petitioner had just
purchased a hacienda in Mindoro for P210,000.00, owned sugar and rice lands in Tarlac of around 800 hectares, and
had P60,000.00 deposits in three banks when he executed the note. It is more logical to believe that Pineda would not
borrow P5,000.00 and P4,300.00 five days apart from a man whom he calls a "fixer" and whom he had known for
only three months.
There is no dispute that an air-conditioning unit valued at P1,250.00 was purchased by Pineda's son and given to
Dela Rama although the latter claims he paid P1,250.00 for the unit when he received it. Pineda, however, alleged
that he gave the air-conditioning unit because Dela Rama told him that Dr. Rodriguez was asking for one air-
conditioning machine of 1.5 horsepower for the latter's NARIC office. Pineda further testified that six cavans of first
class rice also intended for the NARIC Chairman and General Manager, together with the airconditioning unit, never
reached Dr. Rodriguez but were kept by the lawyer.
Considering the foregoing, we agree with the trial court that the promissory note was executed for an illegal
consideration. Articles 1409 and 1412 of the Civil Code in part, provide:
Art. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order and public policy;
Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the
following rules shall be observed:
(1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the
contract, or demand the performance of the other's undertaking.
Whether or not the supposed cash advances reached their destination is of no moment. The consideration for the
promissory note - to influence public officers in the performance of their duties - is contrary to law and public policy.
The promissory note is void ab initio and no cause of action for the collection cases can arise from it.
WHEREFORE, the decision of the Court of Appeals is SET ASIDE. The complaint and the counterclaim in Civil
Case No. 45762 are both DISMISSED. SO ORDERED.
Citibank vs Sabeniano GR No. 156132
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari,[1] under Rule 45 of the Revised Rules of Court, of the
Decision[2] of the Court of Appeals in CA-G.R. CV No. 51930, dated 26 March 2002, and the Resolution, [3] dated 20
November 2002, of the same court which, although modifying its earlier Decision, still denied for the most part the
Motion for Reconsideration of herein petitioners.
Petitioner Citibank, N.A. (formerly known as the First National City Bank) is a banking corporation duly authorized
and existing under the laws of the United States of America and licensed to do commercial banking activities and
perform trust functions in the Philippines.
Petitioner Investors Finance Corporation, which did business under the name and style of FNCB Finance, was an
affiliate company of petitioner Citibank, specifically handling money market placements for its clients. It is now, by
virtue of a merger, doing business as part of its successor-in-interest, BPI Card Finance Corporation. However, so as
to consistently establish its identity in the Petition at bar, the said petitioner shall still be referred to herein as FNCB
Finance.[4]
Respondent Modesta R. Sabeniano was a client of both petitioners Citibank and FNCB Finance. Regrettably, the
business relations among the parties subsequently went awry.
On 8 August 1985, respondent filed a Complaint[5] against petitioners, docketed as Civil Case No. 11336, before the
Regional Trial Court (RTC) of Makati City.Respondent claimed to have substantial deposits and money market
placements with the petitioners, as well as money market placements with the Ayala Investment and Development
Corporation (AIDC), the proceeds of which were supposedly deposited automatically and directly to respondents
accounts with petitioner Citibank. Respondent alleged that petitioners refused to return her deposits and the proceeds
of her money market placements despite her repeated demands, thus, compelling respondent to file Civil Case No.
11336 against petitioners for Accounting, Sum of Money and Damages. Respondent eventually filed an Amended
Complaint[6] on 9 October 1985 to include additional claims to deposits and money market placements inadvertently
left out from her original Complaint.
In their joint Answer[7] and Answer to Amended Complaint,[8] filed on 12 September 1985 and 6 November 1985,
respectively, petitioners admitted that respondent had deposits and money market placements with them, including
dollar accounts in the Citibank branch in Geneva, Switzerland (Citibank-Geneva). Petitioners further alleged that the
respondent later obtained several loans from petitioner Citibank, for which she executed Promissory Notes (PNs), and
secured by (a) a Declaration of Pledge of her dollar accounts in Citibank-Geneva, and (b) Deeds of Assignment of her
money market placements with petitioner FNCB Finance. When respondent failed to pay her loans despite repeated
demands by petitioner Citibank, the latter exercised its right to off-set or compensate respondents outstanding loans
with her deposits and money market placements, pursuant to the Declaration of Pledge and the Deeds of Assignment
executed by respondent in its favor. Petitioner Citibank supposedly informed respondent Sabeniano of the foregoing
compensation through letters, dated 28 September 1979 and 31 October 1979. Petitioners were therefore surprised
when six years later, in 1985, respondent and her counsel made repeated requests for the withdrawal of respondents
deposits and money market placements with petitioner Citibank, including her dollar accounts with Citibank-Geneva
and her money market placements with petitioner FNCB Finance. Thus, petitioners prayed for the dismissal of the
Complaint and for the award of actual, moral, and exemplary damages, and attorneys fees.
When the parties failed to reach a compromise during the pre-trial hearing,[9] trial proper ensued and the parties
proceeded with the presentation of their respective evidence. Ten years after the filing of the Complaint on 8 August
1985, a Decision[10] was finally rendered in Civil Case No. 11336 on 24 August 1995 by the fourth Judge[11]who handled
the said case, Judge Manuel D. Victorio, the dispositive portion of which reads
WHEREFORE, in view of all the foregoing, decision is hereby rendered as follows:
(1) Declaring as illegal, null and void the setoff effected by the defendant Bank [petitioner Citibank] of plaintiffs
[respondent Sabeniano] dollar deposit with Citibank, Switzerland, in the amount of US$149,632.99, and ordering the
said defendant [petitioner Citibank] to refund the said amount to the plaintiff with legal interest at the rate of twelve
percent (12%) per annum, compounded yearly, from 31 October 1979 until fully paid, or its peso equivalent at the time
of payment;
(2) Declaring the plaintiff [respondent Sabeniano] indebted to the defendant Bank [petitioner Citibank] in the amount
of P1,069,847.40 as of 5 September 1979 and ordering the plaintiff [respondent Sabeniano] to pay said amount,
however, there shall be no interest and penalty charges from the time the illegal setoff was effected on 31 October
1979;
(3) Dismissing all other claims and counterclaims interposed by the parties against each other.
Costs against the defendant Bank.
All the parties appealed the foregoing Decision of the RTC to the Court of Appeals, docketed as CA-G.R. CV No.
51930. Respondent questioned the findings of the RTC that she was still indebted to petitioner Citibank, as well as the
failure of the RTC to order petitioners to render an accounting of respondents deposits and money market placements
with them. On the other hand, petitioners argued that petitioner Citibank validly compensated respondents outstanding
loans with her dollar accounts with Citibank-Geneva, in accordance with the Declaration of Pledge she executed in its
favor. Petitioners also alleged that the RTC erred in not declaring respondent liable for damages and interest.
On 26 March 2002, the Court of Appeals rendered its Decision [12] affirming with modification the RTC Decision in
Civil Case No. 11336, dated 24 August 1995, and ruling entirely in favor of respondent in this wise
Wherefore, premises considered, the assailed 24 August 1995 Decision of the court a quo is hereby AFFIRMED with
MODIFICATION, as follows:
1. Declaring as illegal, null and void the set-off effected by the defendant-appellant Bank of the plaintiff-appellants
dollar deposit with Citibank, Switzerland, in the amount of US$149,632.99, and ordering defendant-appellant Citibank
to refund the said amount to the plaintiff-appellant with legal interest at the rate of twelve percent (12%) per annum,
compounded yearly, from 31 October 1979 until fully paid, or its peso equivalent at the time of payment;
2. As defendant-appellant Citibank failed to establish by competent evidence the alleged indebtedness of plaintiff-
appellant, the set-off of P1,069,847.40 in the account of Ms. Sabeniano is hereby declared as without legal and factual
basis;
3. As defendants-appellants failed to account the following plaintiff-appellants money market placements, savings
account and current accounts, the former is hereby ordered to return the same, in accordance with the terms and
conditions agreed upon by the contending parties as evidenced by the certificates of investments, to wit:
(i) Citibank NNPN Serial No. 023356 (Cancels and Supersedes NNPN No. 22526) issued on 17 March
1977, P318,897.34 with 14.50% interest p.a.;
(ii) Citibank NNPN Serial No. 23357 (Cancels and Supersedes NNPN No. 22528) issued on 17 March
1977, P203,150.00 with 14.50 interest p.a.;
(iii) FNCB NNPN Serial No. 05757 (Cancels and Supersedes NNPN No. 04952), issued on 02 June 1977, P500,000.00
with 17% interest p.a.;
(iv) FNCB NNPN Serial No. 05758 (Cancels and Supersedes NNPN No. 04962), issued on 02 June 1977, P500,000.00
with 17% interest per annum;
(v) The Two Million (P2,000,000.00) money market placements of Ms. Sabeniano with the Ayala Investment &
Development Corporation (AIDC) with legal interest at the rate of twelve percent (12%) per annum compounded
yearly, from 30 September 1976 until fully paid;
4. Ordering defendants-appellants to jointly and severally pay the plaintiff-appellant the sum of FIVE HUNDRED
THOUSAND PESOS (P500,000.00) by way of moral damages, FIVE HUNDRED THOUSAND PESOS
(P500,000.00) as exemplary damages, and ONE HUNDRED THOUSAND PESOS (P100,000.00) as attorneys fees.
Apparently, the parties to the case, namely, the respondent, on one hand, and the petitioners, on the other, made separate
attempts to bring the aforementioned Decision of the Court of Appeals, dated 26 March 2002, before this Court for
review.
G.R. No. 152985
Respondent no longer sought a reconsideration of the Decision of the Court of Appeals in CA-G.R. CV No. 51930,
dated 26 March 2002, and instead, filed immediately with this Court on 3 May 2002 a Motion for Extension of Time
to File a Petition for Review,[13] which, after payment of the docket and other lawful fees, was assigned the docket
number G.R. No. 152985. In the said Motion, respondent alleged that she received a copy of the assailed Court of
Appeals Decision on 18 April 2002 and, thus, had 15 days therefrom or until 3 May 2002 within which to file her
Petition for Review. Since she informed her counsel of her desire to pursue an appeal of the Court of Appeals Decision
only on 29 April 2002, her counsel neither had enough time to file a motion for reconsideration of the said Decision
with the Court of Appeals, nor a Petition for Certiorari with this Court. Yet, the Motion failed to state the exact
extension period respondent was requesting for.
Since this Court did not act upon respondents Motion for Extension of Time to file her Petition for Review, then the
period for appeal continued to run and still expired on 3 May 2002.[14] Respondent failed to file any Petition for Review
within the prescribed period for appeal and, hence, this Court issued a Resolution, [15] dated 13 November 2002, in
which it pronounced that
G.R. No. 152985 (Modesta R. Sabeniano vs. Court of Appeals, et al.). It appearing that petitioner failed to file the
intended petition for review on certiorari within the period which expired on May 3, 2002, the Court Resolves
to DECLARE THIS CASE TERMINATED and DIRECT the Division Clerk of Court to INFORM the parties that
the judgment sought to be reviewed has become final and executory.
The said Resolution was duly recorded in the Book of Entries of Judgments on 3 January 2003.
G.R. No. 156132
Meanwhile, petitioners filed with the Court of Appeals a Motion for Reconsideration of its Decision in CA-G.R. CV
No. 51930, dated 26 March 2002. Acting upon the said Motion, the Court of Appeals issued the Resolution, [16] dated
20 November 2002, modifying its Decision of 26 March 2002, as follows
WHEREFORE, premises considered, the instant Motion for Reconsideration is PARTIALLY GRANTED as Sub-
paragraph (V) paragraph 3 of the assailed Decisionsdispositive portion is hereby ordered DELETED.
The challenged 26 March 2002 Decision of the Court is AFFIRMED with MODIFICATION.
Assailing the Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 51930, dated 26 March 2002 and
20 November 2002, respectively, petitioners filed the present Petition, docketed as G.R. No. 156132. The Petition was
initially denied[17] by this Court for failure of the petitioners to attach thereto a Certification against Forum
Shopping. However, upon petitioners Motion and compliance with the requirements, this Court resolved[18] to reinstate
the Petition.
The Petition presented fourteen (14) assignments of errors allegedly committed by the Court of Appeals in its Decision,
dated 26 March 2002, involving both questions of fact and questions of law which this Court, for the sake of
expediency, discusses jointly, whenever possible, in the succeeding paragraphs.
I
The Resolution of this Court, dated 13 November 2002, in G.R. No. 152985, declaring the Decision of the Court of
Appeals, dated 26 March 2002, final and executory, pertains to respondent Sabeniano alone.
Before proceeding to a discussion of the merits of the instant Petition, this Court wishes to address first the argument,
persistently advanced by respondent in her pleadings on record, as well as her numerous personal and unofficial letters
to this Court which were no longer made part of the record, that the Decision of the Court of Appeals in CA-G.R. CV
No. 51930, dated 26 March 2002, had already become final and executory by virtue of the Resolution of this Court in
G.R. No. 152985, dated 13 November 2002.
G.R. No. 152985 was the docket number assigned by this Court to respondents Motion for Extension of Time to File
a Petition for Review. Respondent, though, did not file her supposed Petition. Thus, after the lapse of the prescribed
period for the filing of the Petition, this Court issued the Resolution, dated 13 November 2002, declaring the Decision
of the Court of Appeals, dated 26 March 2002, final and executory. It should be pointed out, however, that the
Resolution, dated 13 November 2002, referred only to G.R. No. 152985, respondents appeal, which she failed to perfect
through the filing of a Petition for Review within the prescribed period. The declaration of this Court in the same
Resolution would bind respondent solely, and not petitioners which filed their own separate appeal before this Court,
docketed as G.R. No. 156132, the Petition at bar. This would mean that respondent, on her part, should be bound by
the findings of fact and law of the Court of Appeals, including the monetary amounts consequently awarded to her by
the appellate court in its Decision, dated 26 March 2002; and she can no longer refute or assail any part thereof. [19]
This Court already explained the matter to respondent when it issued a Resolution[20] in G.R. No. 156132, dated 2
February 2004, which addressed her Urgent Motion for the Release of the Decision with the Implementation of the
Entry of Judgment in the following manner
[A]cting on Citibanks and FNCB Finances Motion for Reconsideration, we resolved to grant the motion, reinstate the
petition and require Sabeniano to file a comment thereto in our Resolution of June 23, 2003. Sabeniano filed
a Comment dated July 17, 2003 to which Citibank and FNCB Finance filed a Reply dated August 20, 2003.
From the foregoing, it is clear that Sabeniano had knowledge of, and in fact participated in, the proceedings in G.R.
No. 156132. She cannot feign ignorance of the proceedings therein and claim that the Decision of the Court of Appeals
has become final and executory. More precisely, the Decision became final and executory only with regard to
Sabeniano in view of her failure to file a petition for review within the extended period granted by the Court, and not
to Citibank and FNCB Finance whose Petition for Reviewwas duly reinstated and is now submitted for decision.
Accordingly, the instant Urgent Motion is hereby DENIED.
To sustain the argument of respondent would result in an unjust and incongruous situation wherein one party may
frustrate the efforts of the opposing party to appeal the case by merely filing with this Court a Motion for Extension of
Time to File a Petition for Review, ahead of the opposing party, then not actually filing the intended Petition. [21] The
party who fails to file its intended Petition within the reglementary or extended period should solely bear the
consequences of such failure.
Respondent Sabeniano did not commit forum shopping.
Another issue that does not directly involve the merits of the present Petition, but raised by petitioners, is whether
respondent should be held liable for forum shopping.
Petitioners contend that respondent committed forum shopping on the basis of the following facts:
While petitioners Motion for Reconsideration of the Decision in CA-G.R. CV No. 51930, dated 26 March 2002, was
still pending before the Court of Appeals, respondent already filed with this Court on 3 May 2002 her Motion for
Extension of Time to File a Petition for Review of the same Court of Appeals Decision, docketed as G.R. No.
152985.Thereafter, respondent continued to participate in the proceedings before the Court of Appeals in CA-G.R. CV
No. 51930 by filing her Comment, dated 17 July 2002, to petitioners Motion for Reconsideration; and a Rejoinder,
dated 23 September 2002, to petitioners Reply. Thus, petitioners argue that by seeking relief concurrently from this
Court and the Court of Appeals, respondent is undeniably guilty of forum shopping, if not indirect contempt.
This Court, however, finds no sufficient basis to hold respondent liable for forum shopping.
Forum shopping has been defined as the filing of two or more suits involving the same parties for the same cause of
action, either simultaneously or successively, for the purpose of obtaining a favorable judgment. [22] The test for
determining forum shopping is whether in the two (or more) cases pending, there is an identity of parties, rights or
causes of action, and relief sought.[23] To guard against this deplorable practice, Rule 7, Section 5 of the revised Rules
of Court imposes the following requirement
SEC. 5. Certification against forum shopping. The plaintiff or principal party shall certify under oath in the complaint
or other initiatory pleading asserting a claim for relief, or in a sworn certification annexed thereto and simultaneously
filed therewith: (a) that he has not theretofore commenced any action or filed any claim involving the same issues in
any court, tribunal or quasi-judicial agency and, to the best of his knowledge, no such other action or claim is pending
therein; (b) if there is such other pending action or claim, a complete statement of the present status thereof; and (c) if
he should thereafter learn that the same or similar action or claim has been filed or is pending, he shall report that fact
within five (5) days therefrom to the court wherein his aforesaid complaint or initiatory pleading has been filed.
Failure to comply with the foregoing requirements shall not be curable by mere amendment of the complaint or other
initiatory pleading but shall be cause for the dismissal of the case without prejudice, unless otherwise provided, upon
motion and after hearing. The submission of a false certification or non-compliance with any of the undertakings
therein shall constitute indirect contempt of court, without prejudice to the corresponding administrative and criminal
actions. If the acts of the party or his counsel clearly constitute willful and deliberate forum shopping, the same shall
be ground for summary dismissal with prejudice and shall constitute direct contempt, as well as cause for administrative
sanctions.
Although it may seem at first glance that respondent was simultaneously seeking recourse from the Court of Appeals
and this Court, a careful and closer scrutiny of the details of the case at bar would reveal otherwise.
It should be recalled that respondent did nothing more in G.R. No. 152985 than to file with this Court a Motion for
Extension of Time within which to file her Petition for Review. For unexplained reasons, respondent failed to submit
to this Court her intended Petition within the reglementary period. Consequently, this Court was prompted to issue a
Resolution, dated 13 November 2002, declaring G.R. No. 152985 terminated, and the therein assailed Court of Appeals
Decision final and executory. G.R. No. 152985, therefore, did not progress and respondents appeal was unperfected.
The Petition for Review would constitute the initiatory pleading before this Court, upon the timely filing of which, the
case before this Court commences; much in the same way a case is initiated by the filing of a Complaint before the
trial court. The Petition for Review establishes the identity of parties, rights or causes of action, and relief sought from
this Court, and without such a Petition, there is technically no case before this Court. The Motion filed by respondent
seeking extension of time within which to file her Petition for Review does not serve the same purpose as the Petition
for Review itself. Such a Motion merely presents the important dates and the justification for the additional time
requested for, but it does not go into the details of the appealed case.
Without any particular idea as to the assignments of error or the relief respondent intended to seek from this Court, in
light of her failure to file her Petition for Review, there is actually no second case involving the same parties, rights or
causes of action, and relief sought, as that in CA-G.R. CV No. 51930.
It should also be noted that the Certification against Forum Shopping is required to be attached to the initiatory pleading,
which, in G.R. No. 152985, should have been respondents Petition for Review. It is in that Certification wherein
respondent certifies, under oath, that: (a) she has not commenced any action or filed any claim involving the same
issues in any court, tribunal or quasi-judicial agency and, to the best of her knowledge, no such other action or claim
is pending therein; (b) if there is such other pending action or claim, that she is presenting a complete statement of the
present status thereof; and (c) if she should thereafter learn that the same or similar action or claim has been filed or is
pending, she shall report that fact within five days therefrom to this Court. Without her Petition for Review, respondent
had no obligation to execute and submit the foregoing Certification against Forum Shopping. Thus, respondent did not
violate Rule 7, Section 5 of the Revised Rules of Court; neither did she mislead this Court as to the pendency of another
similar case.
Lastly, the fact alone that the Decision of the Court of Appeals, dated 26 March 2002, essentially ruled in favor of
respondent, does not necessarily preclude her from appealing the same. Granted that such a move is ostensibly
irrational, nonetheless, it does not amount to malice, bad faith or abuse of the court processes in the absence of further
proof. Again, it should be noted that the respondent did not file her intended Petition for Review. The Petition for
Review would have presented before this Court the grounds for respondents appeal and her arguments in support
thereof. Without said Petition, any reason attributed to the respondent for appealing the 26 March 2002 Decision would
be grounded on mere speculations, to which this Court cannot give credence.
II
As an exception to the general rule, this Court takes cognizance of questions of fact raised in the Petition at bar.
It is already a well-settled rule that the jurisdiction of this Court in cases brought before it from the Court of Appeals
by virtue of Rule 45 of the Revised Rules of Court is limited to reviewing errors of law. Findings of fact of the Court
of Appeals are conclusive upon this Court. There are, however, recognized exceptions to the foregoing rule, namely:
(1) when the findings are grounded entirely on speculation, surmises, or conjectures; (2) when the interference made
is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when in making its findings, the
Court of Appeals went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant
and the appellee; (7) when the findings are contrary to those of the trial court; (8) when the findings are conclusions
without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in
the petitioners main and reply briefs are not disputed by the respondent; and (10) when the findings of fact are premised
on the supposed absence of evidence and contradicted by the evidence on record. [24]
Several of the enumerated exceptions pertain to the Petition at bar.
It is indubitable that the Court of Appeals made factual findings that are contrary to those of the RTC, [25] thus, resulting
in its substantial modification of the trial courts Decision, and a ruling entirely in favor of the respondent. In addition,
petitioners invoked in the instant Petition for Review several exceptions that would justify this Courts review of the
factual findings of the Court of Appeals, i.e., the Court of Appeals made conflicting findings of fact; findings of fact
which went beyond the issues raised on appeal before it; as well as findings of fact premised on the supposed absence
of evidence and contradicted by the evidence on record.
On the basis of the foregoing, this Court shall proceed to reviewing and re-evaluating the evidence on record in order
to settle questions of fact raised in the Petition at bar.
The fact that the trial judge who rendered the RTC Decision in Civil Case No. 11336, dated 24 August 1995, was
not the same judge who heard and tried the case, does not, by itself, render the said Decision erroneous.
The Decision in Civil Case No. 11336 was rendered more than 10 years from the institution of the said case. In the
course of its trial, the case was presided over by four (4) different RTC judges. [26] It was Judge Victorio, the fourth
judge assigned to the case, who wrote the RTC Decision, dated 24 August 1995. In his Decision,[27] Judge Victorio
made the following findings
After carefully evaluating the mass of evidence adduced by the parties, this Court is not inclined to believe the plaintiffs
assertion that the promissory notes as well as the deeds of assignments of her FNCB Finance money market placements
were simulated. The evidence is overwhelming that the plaintiff received the proceeds of the loans evidenced by the
various promissory notes she had signed. What is more, there was not an iota of proof save the plaintiffs bare testimony
that she had indeed applied for loan with the Development Bank of the Philippines.
More importantly, the two deeds of assignment were notarized, hence they partake the nature of a public document. It
makes more than preponderant proof to overturn the effect of a notarial attestation. Copies of the deeds of assignments
were actually filed with the Records Management and Archives Office.
Finally, there were sufficient evidence wherein the plaintiff had admitted the existence of her loans with the defendant
Bank in the total amount of P1,920,000.00 exclusive of interests and penalty charges (Exhibits 28, 31, 32, and 33).
In fine, this Court hereby finds that the defendants had established the genuineness and due execution of the various
promissory notes heretofore identified as well as the two deeds of assignments of the plaintiffs money market
placements with defendant FNCB Finance, on the strength of which the said money market placements were applied
to partially pay the plaintiffs past due obligation with the defendant Bank. Thus, the total sum of P1,053,995.80 of the
plaintiffs past due obligation was partially offset by the said money market placement leaving a balance
of P1,069,847.40 as of 5 September 1979 (Exhibit 34).
Disagreeing in the foregoing findings, the Court of Appeals stressed, in its Decision in CA-G.R. CV No. 51930, dated
26 March 2002, that the ponente of the herein assailed Decision is not the Presiding Judge who heard and tried the
case.[28] This brings us to the question of whether the fact alone that the RTC Decision was rendered by a judge other
than the judge who actually heard and tried the case is sufficient justification for the appellate court to disregard or set
aside the findings in the Decision of the court a quo?
This Court rules in the negative.
What deserves stressing is that, in this jurisdiction, there exists a disputable presumption that the RTC Decision was
rendered by the judge in the regular performance of his official duties. While the said presumption is only disputable,
it is satisfactory unless contradicted or overcame by other evidence. [29] Encompassed in this presumption of regularity
is the presumption that the RTC judge, in resolving the case and drafting his Decision, reviewed, evaluated, and
weighed all the evidence on record. That the said RTC judge is not the same judge who heard the case and received
the evidence is of little consequence when the records and transcripts of stenographic notes (TSNs) are complete and
available for consideration by the former.
In People v. Gazmen,[30] this Court already elucidated its position on such an issue
Accused-appellant makes an issue of the fact that the judge who penned the decision was not the judge who heard and
tried the case and concludes therefrom that the findings of the former are erroneous. Accused-appellants argument does
not merit a lengthy discussion. It is well-settled that the decision of a judge who did not try the case is not by that
reason alone erroneous.
It is true that the judge who ultimately decided the case had not heard the controversy at all, the trial having been
conducted by then Judge Emilio L. Polig, who was indefinitely suspended by this Court. Nonetheless, the transcripts
of stenographic notes taken during the trial were complete and were presumably examined and studied by Judge
Baguilat before he rendered his decision. It is not unusual for a judge who did not try a case to decide it on the basis of
the record. The fact that he did not have the opportunity to observe the demeanor of the witnesses during the trial but
merely relied on the transcript of their testimonies does not for that reason alone render the judgment erroneous.
(People vs. Jaymalin, 214 SCRA 685, 692 [1992])
Although it is true that the judge who heard the witnesses testify is in a better position to observe the witnesses on the
stand and determine by their demeanor whether they are telling the truth or mouthing falsehood, it does not necessarily
follow that a judge who was not present during the trial cannot render a valid decision since he can rely on the transcript
of stenographic notes taken during the trial as basis of his decision.
Accused-appellants contention that the trial judge did not have the opportunity to observe the conduct and demeanor
of the witnesses since he was not the same judge who conducted the hearing is also untenable. While it is true that the
trial judge who conducted the hearing would be in a better position to ascertain the truth and falsity of the testimonies
of the witnesses, it does not necessarily follow that a judge who was not present during the trial cannot render a valid
and just decision since the latter can also rely on the transcribed stenographic notes taken during the trial as the basis
of his decision.
(People vs. De Paz, 212 SCRA 56, 63 [1992])
At any rate, the test to determine the value of the testimony of the witness is whether or not such is in conformity with
knowledge and consistent with the experience of mankind (People vs. Morre, 217 SCRA 219 [1993]). Further, the
credibility of witnesses can also be assessed on the basis of the substance of their testimony and the surrounding
circumstances (People v. Gonzales, 210 SCRA 44 [1992]). A critical evaluation of the testimony of the prosecution
witnesses reveals that their testimony accords with the aforementioned tests, and carries with it the ring of truth end
perforce, must be given full weight and credit.
Irrefragably, by reason alone that the judge who penned the RTC Decision was not the same judge who heard the case
and received the evidence therein would not render the findings in the said Decision erroneous and unreliable. While
the conduct and demeanor of witnesses may sway a trial court judge in deciding a case, it is not, and should not be, his
only consideration. Even more vital for the trial court judges decision are the contents and substance of the witnesses
testimonies, as borne out by the TSNs, as well as the object and documentary evidence submitted and made part of the
records of the case.
This Court proceeds to making its own findings of fact.
Since the Decision of the Court of Appeals in CA-G.R. CV No. 51930, dated 26 March 2002, has become final and
executory as to the respondent, due to her failure to interpose an appeal therefrom within the reglementary period, she
is already bound by the factual findings in the said Decision. Likewise, respondents failure to file, within the
reglementary period, a Motion for Reconsideration or an appeal of the Resolution of the Court of Appeals in the same
case, dated 20 November 2002, which modified its earlier Decision by deleting paragraph 3(v) of its dispositive portion,
ordering petitioners to return to respondent the proceeds of her money market placement with AIDC, shall already bar
her from questioning such modification before this Court. Thus, what is for review before this Court is the Decision of
the Court of Appeals, dated 26 March 2002, as modified by the Resolution of the same court, dated 20 November 2002.
Respondent alleged that she had several deposits and money market placements with petitioners. These deposits and
money market placements, as determined by the Court of Appeals in its Decision, dated 26 March 2002, and as
modified by its Resolution, dated 20 November 2002, are as follows
Deposit/Placement Amount
 Dollar deposit with Citibank-Geneva $ 149,632.99 capacity than that alleged in the pleading setting it out (Payne vs. National Bank, 16 Kan., 147); or that it was never
Money market placement with Citibank, evidenced by Promissory Note (PN) No. 23356 (which
cancels and supersedes PN No. 22526), earning 14.5% interest per annum (p.a.)
delivered (Hunt vs. Weir, 29 Ill., 83; Elbring vs. Mullen, 4 Idaho, 199; Thorp vs. Keokuk Coal Co., 48 N.Y., 253; Fire
Association of Philadelphia vs. Ruby, 60 Neb., 216) are cut off by the admission of its genuineness and due execution.
P 318,897.34
Money market placement with Citibank, evidenced by PN No. 23357 (which cancels and supersedes The effect of the admission is such that in the case of a promissory note a prima facie case is made for the plaintiff
PN No. 22528), earning 14.5% interest p.a.
P 203,150.00 which dispenses with the necessity of evidence on his part and entitles him to a judgment on the pleadings unless a
Money market placement with FNCB Finance, evidenced by PN No. 5757 (which cancels and special defense of new matter, such as payment, is interposed by the defendant (Papa vs. Martinez, 12 Phil. Rep., 613;
supersedes PN No. 4952), earning 17% interest p.a. Chinese Chamber of Commerce vs. Pua To Ching, 14 Phil. Rep., 222; Banco Espaol-Filipino vs. McKay & Zoeller, 27
P 500,000.00
Phil. Rep., 183). x x x
Money market placement with FNCB Finance, evidenced by PN No. 5758 (which cancels and
supersedes PN No. 2962), earning 17% interest p.a.
P 500,000.00
This Court is tasked to determine whether petitioners are indeed liable to return the foregoing amounts, together with Since the genuineness and due execution of PNs No. 23356 and 23357 are uncontested, respondent was able to
the appropriate interests and penalties, to respondent. It shall trace respondents transactions with petitioners, from her establish prima facie that petitioner Citibank is liable to her for the amounts stated therein. The assertion of petitioner
money market placements with petitioner Citibank and petitioner FNCB Finance, to her savings and current accounts Citibank of payment of the said PNs is an affirmative allegation of a new matter, the burden of proof as to such resting
with petitioner Citibank, and to her dollar accounts with Citibank-Geneva. on petitioner Citibank. Respondent having proved the existence of the obligation, the burden of proof was upon
petitioner Citibank to show that it had been discharged.[33] It has already been established by this Court that
Money market placements with petitioner Citibank
As a general rule, one who pleads payment has the burden of proving it. Even where the plaintiff must allege non-
The history of respondents money market placements with petitioner Citibank began on 6 December 1976, when she payment, the general rule is that the burden rests on the defendant to prove payment, rather than on the plaintiff to
made a placement of P500,000.00 as principal amount, which was supposed to earn an interest of 16% p.a. and for prove non-payment. The debtor has the burden of showing with legal certainty that the obligation has been discharged
which PN No. 20773 was issued. Respondent did not yet claim the proceeds of her placement and, instead, rolled-over by payment.
or re-invested the principal and proceeds several times in the succeeding years for which new PNs were issued by
petitioner Citibank to replace the ones which matured. Petitioner Citibank accounted for respondents original When the existence of a debt is fully established by the evidence contained in the record, the burden of proving that it
placement and the subsequent roll-overs thereof, as follows has been extinguished by payment devolves upon the debtor who offers such defense to the claim of the creditor. Where
the debtor introduces some evidence of payment, the burden of going forward with the evidence as distinct from the
Date Maturity Date general burden of proof shifts to the creditor, who is then under the duty of producing some evidence of non-
(mm/dd/yyyy) PN No. Cancels PN (mm/dd/yyyy) Amount Interest payment.[34]
No. (P) (p.a.)
12/06/1976 20773 None 01/13/1977 500,000.00 16% Reviewing the evidence on record, this Court finds that petitioner Citibank failed to satisfactorily prove that PNs No.
01/14/1977 21686 20773 02/08/1977 508,444.44 15% 23356 and 23357 had already been paid, and that the amount so paid was actually used to open one of respondents TD
accounts with petitioner Citibank.
02/09/1977 22526 21686 03/16/1977 313,952.59 15-3/4%
22528 21686 03/16/1977 200,000.00 15-3/4% Petitioner Citibank presented the testimonies of two witnesses to support its contention of payment: (1) That of Mr.
03/17/1977 23356 22526 04/20/1977 318,897.34 14-1/2% Herminio Pujeda,[35] the officer-in-charge of loans and placements at the time when the questioned transactions took
23357 22528 04/20/1977 203,150.00 14-1/2% place; and (2) that of Mr. Francisco Tan,[36] the former Assistant Vice-President of Citibank, who directly dealt with
respondent with regard to her deposits and loans.
Petitioner Citibank alleged that it had already paid to respondent the principal amounts and proceeds of PNs No. 23356
and 23357, upon their maturity. Petitioner Citibank further averred that respondent used the P500,000.00 from the The relevant portion[37] of Mr. Pujedas testimony as to PNs No. 23356 and 23357 (referred to therein as Exhibits No.
payment of PNs No. 23356 and 23357, plus P600,000.00 sourced from her other funds, to open two time deposit (TD) 47 and 48, respectively) is reproduced below
accounts with petitioner Citibank, namely, TD Accounts No. 17783 and 17784.
Atty. Mabasa: Okey [sic]. Now Mr. Witness, you were asked to testify in this case and this case is [sic] consist [sic] of
Petitioner Citibank did not deny the existence nor questioned the authenticity of PNs No. 23356 and 23357 it issued in several documents involving transactions between the plaintiff and the defendant. Now, were you able to make your
favor of respondent for her money market placements. In fact, it admitted the genuineness and due execution of the own memorandum regarding all these transactions?
said PNs, but qualified that they were no longer outstanding. [31] In Hibberd v. Rohde and McMillian,[32] this Court
delineated the consequences of such an admission A Yes, based on my recollection of these facts, I did come up of [sic] the outline of the chronological sequence of
events.
By the admission of the genuineness and due execution of an instrument, as provided in this section, is meant that the
party whose signature it bears admits that he signed it or that it was signed by another for him with his authority; that Court: Are you trying to say that you have personal knowledge or participation to these transactions?
at the time it was signed it was in words and figures exactly as set out in the pleading of the party relying upon it; that
the document was delivered; and that any formal requisites required by law, such as a seal, an acknowledgment, or A Yes, your Honor, I was the officer-in charge of the unit that was processing these transactions. Some of the
revenue stamp, which it lacks, are waived by him. Hence, such defenses as that the signature is a forgery (Puritan Mfg. documents bear my signature.
Co. vs. Toti & Gradi, 14 N. M., 425; Cox vs. Northwestern Stage Co., 1 Idaho, 376; Woollen vs. Whitacre, 73 Ind.,
198; Smith vs. Ehnert, 47 Wis., 479; Faelnar vs. Escao, 11 Phil. Rep., 92); or that it was unauthorized, as in the case of Court: And this resume or summary that you have prepared is based on purely your recollection or documents?
an agent signing for his principal, or one signing in behalf of a partnership (Country Bank vs. Greenberg, 127 Cal., 26;
Henshaw vs. Root, 60 Inc., 220; Naftzker vs. Lantz, 137 Mich., 441) or of a corporation (Merchant vs. International A Based on documents, your Honor.
Banking Corporation, 6 Phil Rep., 314; Wanita vs. Rollins, 75 Miss., 253; Barnes vs.Spencer & Barnes Co., 162 Mich.,
509); or that, in the case of the latter, that the corporation was authorized under its charter to sign the instrument Court: Are these documents still available now?
(Merchant vs. International Banking Corporation, supra); or that the party charged signed the instrument in some other
A Yes, your honor.
Atty. Mabasa : Exhibits E and F?
Court: Better present the documents.
Before anything else, it should be noted that when Mr. Pujedas testimony before the RTC was made on 12 March 1990
Atty. Mabasa: Yes, your Honor, that is why your Honor. and Mr. Tans deposition in Hong Kong was conducted on 3 September 1990, more than a decade had passed from the
time the transactions they were testifying on took place. This Court had previously recognized the frailty and
Atty. Mabasa: unreliability of human memory with regards to figures after the lapse of five years. [38] Taking into consideration the
Q Now, basing on the notes that you prepared, Mr. Witness, and according to you basing also on your personal substantial length of time between the transactions and the witnesses testimonies, as well as the undeniable fact that
recollection about all the transactions involved between Modesta Sabeniano and defendant City Bank [sic] in this bank officers deal with multiple clients and process numerous transactions during their tenure, this Court is reluctant
case. Now, would you tell us what happened to the money market placements of Modesta Sabeniano that you have to give much weight to the testimonies of Mr. Pujeda and Mr. Tan regarding the payment of PNs No. 23356 and 23357
earlier identified in Exhs. 47 and 48? and the use by respondent of the proceeds thereof for opening TD accounts. This Court finds it implausible that they
should remember, after all these years, this particular transaction with respondent involving her PNs No. 23356 and
A The transactions which I said earlier were terminated and booked to time deposits. 23357 and TD accounts. Both witnesses did not give any reason as to why, from among all the clients they had dealt
with and all the transactions they had processed as officers of petitioner Citibank, they specially remembered
Q And you are saying time deposits with what bank? respondent and her PNs No. 23356 and 23357. Their testimonies likewise lacked details on the circumstances
surrounding the payment of the two PNs and the opening of the time deposit accounts by respondent, such as the date
A With First National Citibank. of payment of the two PNs, mode of payment, and the manner and context by which respondent relayed her instructions
to the officers of petitioner Citibank to use the proceeds of her two PNs in opening the TD accounts.
Q Is it the same bank as Citibank, N.A.?
Moreover, while there are documentary evidences to support and trace respondents money market placements with
A Yes, sir. petitioner Citibank, from the original PN No. 20773, rolled-over several times to, finally, PNs No. 23356 and 23357,
there is an evident absence of any documentary evidence on the payment of these last two PNs and the use of the
Q And how much was the amount booked as time deposit with defendant Citibank? proceeds thereof by respondent for opening TD accounts. The paper trail seems to have ended with the copies of PNs
No. 23356 and 23357. Although both Mr. Pujeda and Mr. Tan said that they based their testimonies, not just on their
A In the amount of P500,000.00. memories but also on the documents on file, the supposed documents on which they based those portions of their
testimony on the payment of PNs No. 23356 and 23357 and the opening of the TD accounts from the proceeds
Q And outside this P500,000.00 which you said was booked out of the proceeds of Exhs. 47 and 48, were there other thereof, were never presented before the courts nor made part of the records of the case. Respondents money
time deposits opened by Mrs. Modesta Sabeniano at that time. market placements were of substantial amounts consisting of the principal amount of P500,000.00, plus the interest it
should have earned during the years of placement and it is difficult for this Court to believe that petitioner Citibank
A Yes, she also opened another time deposit for P600,000.00. would not have had documented the payment thereof.
When Mr. Pujeda testified before the RTC on 6 February 1990, [39] petitioners counsel attempted to present in evidence
Q So all in all Mr. Witness, sometime in April of 1978 Mrs. Modesta Sabeneano [sic] had time deposit placements a document that would supposedly support the claim of petitioner Citibank that the proceeds of PNs No. 23356 and
with Citibank in the amount of P500,000.00 which is the proceeds of Exh. 47 and 48 and another P600,000.00, is it 23357 were used by respondent to open one of her two TD accounts in the amount of P500,000.00.Respondents counsel
not? objected to the presentation of the document since it was a mere xerox" copy, and was blurred and hardly
readable. Petitioners counsel then asked for a continuance of the hearing so that they can have time to produce a better
A Yes, sir. document, which was granted by the court. However, during the next hearing and continuance of Mr. Pujedas testimony
on 12 March 1990, petitioners counsel no longer referred to the said document.
Q And would you know where did the other P600,000 placed by Mrs. Sabeneano [sic] in a time deposit with Citibank, As respondent had established a prima facie case that petitioner Citibank is obligated to her for the amounts stated in
N.A. came [sic] from? PNs No. 23356 and 23357, and as petitioner Citibank failed to present sufficient proof of payment of the said PNs and
the use by the respondent of the proceeds thereof to open her TD accounts, this Court finds that PNs No. 23356 and
A She funded it directly. 23357 are still outstanding and petitioner Citibank is still liable to respondent for the amounts stated therein.

Q What are you saying Mr. Witness is that the P600,000 is a [sic] fresh money coming from Mrs. Modesta Sabeneano?
A That is right.
In his deposition in Hong Kong, Mr. Tan recounted what happened to PNs No. 23356 and 23357 (referred to therein
as Exhibits E and F, respectively), as follows
Atty. Mabasa : Now from the Exhibits that you have identified Mr. Tan from Exhibits A to F, which are Exhibits of
the plaintiff. Now, do I understand from you that the original amount is Five Hundred Thousand and thereafter renewed
in the succeeding exhibits?
The significance of this Courts declaration that PNs No. 23356 and 23357 are still outstanding becomes apparent in
the light of petitioners next contentions that respondent used the proceeds of PNs No. 23356 and 23357, together with
additional money, to open TD Accounts No. 17783 and 17784 with petitioner Citibank; and, subsequently, respondent
pre-terminated these TD accounts and transferred the proceeds thereof, amounting to P1,100,000.00, to petitioner
FNCB Finance for money market placements. While respondents money market placements with petitioner FNCB
Finance may be traced back with definiteness to TD Accounts No. 17783 and 17784, there is only flimsy and
unsubstantiated connection between the said TD accounts and the supposed proceeds paid from PNs No. 23356 and
23357. With PNs No. 23356 and 23357 still unpaid, then they represent an obligation of petitioner Citibank separate
and distinct from the obligation of petitioner FNCB Finance arising from respondents money market placements with
the latter.

Mr. Tan : Yes, Sir. Money market placements with petitioner FNCB Finance
According to petitioners, respondents TD Accounts No. 17783 and 17784, in the total amount of P1,100,000.00, were
Atty. Mabasa : Alright, after these Exhibits E and F matured, what happened thereafter? supposed to mature on 15 March 1978. However, respondent, through a letter dated 28 April 1977, [40] pre-terminated
the said TD accounts and transferred all the proceeds thereof to petitioner FNCB Finance for money market
Mr. Tan : Split into two time deposits. placement. Pursuant to her instructions, TD Accounts No. 17783 and 17784 were pre-terminated and petitioner
Citibank (then still named First National City Bank) issued Managers Checks (MC) No. 199253 [41] and 199251[42] for existence of Check No. 100168, but with the qualification that the proceeds thereof were turned over to petitioner
the amounts of P500,000.00 and P600,00.00, respectively. Both MCs were payable to Citifinance (which, according to Citibank.[49] Respondent did not clarify the circumstances attending the supposed turn over, but on the basis of the
Mr. Pujeda,[43] was one with and the same as petitioner FNCB Finance), with the additional notation that A/C allegations of petitioner Citibank itself, the proceeds of PNs No. 20138 and 20139, amounting to P1,022,916.66, was
MODESTA R. SABENIANO. Typewritten on MC No. 199253 is the phrase Ref. Proceeds of TD 17783, and on MC used by it to liquidate respondents outstanding loans. Therefore, the determination of whether or not respondent is still
No. 199251 is a similar phrase, Ref. Proceeds of TD 17784. These phrases purportedly established that the MCs were entitled to the return of the proceeds of PNs No. 20138 and 20139 shall be dependent on the resolution of the issues
paid from the proceeds of respondents pre-terminated TD accounts with petitioner Citibank. Upon receipt of the MCs, raised as to the existence of the loans and the authority of petitioner Citibank to use the proceeds of the said PNs,
petitioner FNCB Finance deposited the same to its account with Feati Bank and Trust Co., as evidenced by the rubber together with respondents other deposits and money market placements, to pay for the same.
stamp mark of the latter found at the back of both MCs. In exchange, petitioner FNCB Finance booked the amounts
received as money market placements, and accordingly issued PNs No. 4952 and 4962, for the amounts of P500,000.00 Savings and current accounts with petitioner Citibank
and P600,000.00, respectively, payable to respondents savings account with petitioner Citibank, S/A No. 25-13703-4, Respondent presented and submitted before the RTC deposit slips and bank statements to prove deposits made to
upon their maturity on 1 June 1977. Once again, respondent rolled-over several times the principal amounts of her several of her accounts with petitioner Citibank, particularly, Accounts No. 00484202, 59091, and 472-751, which
money market placements with petitioner FNCB Finance, as follows would have amounted to a total of P3,812,712.32, had there been no withdrawals or debits from the said accounts from
the time the said deposits were made.
Date Maturity Date
(mm/dd/yyyy) PN No. Cancels PN No. (mm/dd/yyyy) Amount Interest
(P) (p.a.)
Although the RTC and the Court of Appeals did not make any definitive findings as to the status of respondents savings
04/29/1977 4952 None 06/01/1977 500,000.00 17% and current accounts with petitioner Citibank, the Decisions of both the trial and appellate courts effectively recognized
4962 None 06/01/1977 600,000.00 17% only the P31,079.14 coming from respondents savings account which was used to off-set her alleged outstanding loans
06/02/1977 5757 4952 08/31/1977 500,000.00 17% with petitioner Citibank.[50]
5758 4962 08/31/1977 500,000.00 17%
08/31/1977 8167 5757 08/25/1978 500,000.00 14% Since both the RTC and the Court of Appeals had consistently recognized only the P31,079.14 of respondents savings
8169 5752 08/25/1978 500,000.00 14%
account with petitioner Citibank, and that respondent failed to move for reconsideration or to appeal this particular
finding of fact by the trial and appellate courts, it is already binding upon this Court. Respondent is already precluded
As presented by the petitioner FNCB Finance, respondent rolled-over only the principal amounts of her money market from claiming any greater amount in her savings and current accounts with petitioner Citibank. Thus, this Court shall
placements as she chose to receive the interest income therefrom. Petitioner FNCB Finance also pointed out that when limit itself to determining whether or not respondent is entitled to the return of the amount of P31,079.14 should the
PN No. 4962, with principal amount of P600,000.00, matured on 1 June 1977, respondent received a partial payment off-set thereof by petitioner Citibank against her supposed loans be found invalid.
of the principal which, together with the interest, amounted to P102,633.33;[44] thus, only the amount of P500,000.00
from PN No. 4962 was rolled-over to PN No. 5758. Dollar accounts with Citibank-Geneva
Respondent made an effort of preparing and presenting before the RTC her own computations of her money market
Based on the foregoing records, the principal amounts of PNs No. 5757 and 5758, upon their maturity, were rolled placements and dollar accounts with Citibank-Geneva, purportedly amounting to a total of United States (US)
over to PNs No. 8167 and 8169, respectively. PN No. 8167[45]expressly canceled and superseded PN No. 5757, while $343,220.98, as of 23 June 1985.[51] In her Memorandum filed with the RTC, she claimed a much bigger amount of
PN No. 8169[46] also explicitly canceled and superseded PN No. 5758. Thus, it is patently erroneous for the Court of deposits and money market placements with Citibank-Geneva, totaling US$1,336,638.65.[52] However, respondent
Appeals to still award to respondent the principal amounts and interests covered by PNs No. 5757 and 5758 when these herself also submitted as part of her formal offer of evidence the computation of her money market placements and
were already canceled and superseded. It is now incumbent upon this Court to determine what subsequently happened dollar accounts with Citibank-Geneva as determined by the latter.[53] Citibank-Geneva accounted for respondents
to PNs No. 8167 and 8169. money market placements and dollar accounts as follows
Petitioner FNCB Finance presented four checks as proof of payment of the principal amounts and interests of PNs No. MODESTA SABENIANO &/OR
8167 and 8169 upon their maturity. All the checks were payable to respondents savings account with petitioner ==================
Citibank, with the following details
US$ 30000.-- Principal Fid. Placement
+ US$ 339.06 Interest at 3,875% p.a. from 12.07. 25.10.79
Date of Issuance Amount - US$ 95.-- Commission (minimum)
(mm/dd/yyyy) Check No. (P) Notation
09/01/1978 76962 12,833.34 Interest payment on PN#08167 US$ 30244.06 Total proceeds on 25.10.1979

09/01/1978 76961 12,833.34 Interest payment on PN#08169

US$ 114000.-- Principal Fid. Placement
09/05/1978 77035 500,000.00 Full payment of principal on PN#08167 which is hereby + US$ 1358.50 Interest at 4,125% p.a. from 12.07. 25.10.79
cancelled - US$ 41.17 Commission
09/05/ 1978 77034 500,000.00 Full payment of principal on PN#08169 which is hereby
cancelled US$ 115317.33 Total proceeds on 25.10.1979

Then again, Checks No. 77035 and 77034 were later returned to petitioner FNCB Finance together with a US$ 145561.39 Total proceeds of both placements on 25.10.1979
memo,[47] dated 6 September 1978, from Mr. Tan of petitioner Citibank, to a Mr. Bobby Mendoza of petitioner FNCB + US$ 11381.31 total of both current accounts
Finance. According to the memo, the two checks, in the total amount of P1,000,000.00, were to be returned to
US$ 156942.70 Total funds available
respondents account with instructions to book the said amount in money market placements for one more year. Pursuant
to the said memo, Checks No. 77035 and 77034 were invested by petitioner FNCB Finance, on behalf of respondent, - US$ 149632.99 Transfer to Citibank Manila on 26.10.1979
in money market placements for which it issued PNs No. 20138 and 20139. The PNs each covered P500,000.00, to (counter value of Pesos 1102944.78)
earn 11% interest per annum, and to mature on 3 September 1979.
US$ 7309.71 Balance in current accounts

On 3 September 1979, petitioner FNCB Finance issued Check No. 100168, pay to the order of Citibank N.A. A/C - US$ 6998.84 Transfer to Citibank Zuerich ac no. 121359 on March
Modesta Sabeniano, in the amount of P1,022,916.66, as full payment of the principal amounts and interests of both 13, 1980
PNs No. 20138 and 20139 and, resultantly, canceling the said PNs.[48] Respondent actually admitted the issuance and
 US$ 310.87 various charges including closing charges 34741 01/26/1979 03/12/1979 100,000.00
According to the foregoing computation, by 25 October 1979, respondent had a total of US$156,942.70, from which, 35689 02/23/1979 05/29/1979 300,000.00
US$149,632.99 was transferred by Citibank-Geneva to petitioner Citibank in Manila, and was used by the latter to off- 35694 03/19/1979 05/29/1979 150,000.00
35695 03/19/1979 05/29/1979 100,000.00
set respondents outstanding loans. The balance of respondents accounts with Citibank-Geneva, after the remittance to
356946 03/20/1979 05/29/1979 250,000.00
petitioner Citibank in Manila, amounted to US$7,309.71, which was subsequently expended by a transfer to another 35697 03/30/1979 05/29/1979 220,000.00
account with Citibank-Zuerich, in the amount of US$6,998.84, and by payment of various bank charges, including
closing charges, in the amount of US$310.87. Rightly so, both the RTC and the Court of Appeals gave more credence Total P 1,920,000.00
to the computation of Citibank-Geneva as to the status of respondents accounts with the said bank, rather than the one
prepared by respondent herself, which was evidently self-serving. Once again, this Court shall limit itself to All the PNs stated that the purpose of the loans covered thereby is To liquidate existing obligation, except for PN No.
determining whether or not respondent is entitled to the return of the amount of US$149,632.99 should the off-set 34534, which stated for its purpose personal investment.
thereof by petitioner Citibank against her alleged outstanding loans be found invalid. Respondent cannot claim any
greater amount since she did not perfect an appeal of the Decision of the Court of Appeals, dated 26 March 2002, Respondent secured her foregoing loans with petitioner Citibank by executing Deeds of Assignment of her money
which found that she is entitled only to the return of the said amount, as far as her accounts with Citibank-Geneva is market placements with petitioner FNCB Finance. On 2 March 1978, respondent executed in favor of petitioner
concerned. Citibank a Deed of Assignment[57] of PN No. 8169, which was issued by petitioner FNCB Finance, to secure payment
III of the credit and banking facilities extended to her by petitioner Citibank, in the aggregate principal amount
Petitioner Citibank was able to establish by preponderance of evidence the existence of respondents loans. of P500,000.00. On 9 March 1978, respondent executed in favor of petitioner Citibank another Deed of
Petitioners version of events Assignment,[58] this time, of PN No. 8167, also issued by petitioner FNCB Finance, to secure payment of the credit and
banking facilities extended to her by petitioner Citibank, in the aggregate amount of P500,000.00. When PNs No. 8167
In sum, the following amounts were used by petitioner Citibank to liquidate respondents purported outstanding loans and 8169, representing respondents money market placements with petitioner FNCB Finance, matured and were rolled-
over to PNs No. 20138 and 20139, respondent executed new Deeds of Assignment, [59] in favor of petitioner Citibank,
Description Amount on 25 August 1978. According to the more recent Deeds, respondent assigned PNs No. 20138 and 20139, representing
Principal and interests of PNs No. 20138 and 20139 her rolled-over money market placements with petitioner FNCB Finance, to petitioner Citibank as security for the
(money market placements with petitioner FNCB Finance) P 1,022,916.66 banking and credit facilities it extended to her, in the aggregate principal amount of P500,000.00 per Deed.
Savings account with petitioner Citibank 31,079.14
In addition to the Deeds of Assignment of her money market placements with petitioner FNCB Finance, respondent
Dollar remittance from Citibank-Geneva (peso equivalent
Of US$149,632.99) 1,102,944.78 also executed a Declaration of Pledge,[60] in which she supposedly pledged [a]ll present and future fiduciary placements
held in my personal and/or joint name with Citibank, Switzerland, to secure all claims the petitioner Citibank may have
Total P 2,156,940.58 or, in the future, acquire against respondent. The petitioners copy of the Declaration of Pledge is undated, while that of
the respondent, a copy certified by a Citibank-Geneva officer, bore the date 24 September 1979.[61]
According to petitioner Citibank, respondent incurred her loans under the circumstances narrated below.
As early as 9 February 1978, respondent obtained her first loan from petitioner Citibank in the principal amount When respondent failed to pay the second set of PNs upon their maturity, an exchange of letters ensued between
of P200,000.00, for which she executed PN No. 31504.[54]Petitioner Citibank extended to her several other loans in the respondent and/or her representatives, on one hand, and the representatives of petitioners, on the other.
succeeding months. Some of these loans were paid, while others were rolled-over or renewed. Significant to the Petition
at bar are the loans which respondent obtained from July 1978 to January 1979, appropriately covered by PNs (first The first letter[62] was dated 5 April 1979, addressed to respondent and signed by Mr. Tan, as the manager of petitioner
set).[55] The aggregate principal amount of these loans was P1,920,000.00, which could be broken down as follows Citibank, which stated, in part, that

Date of Issuance Date of Maturity Date of Release Despite our repeated requests and follow-up, we regret you have not granted us with any response or payment.
PN No. (mm/dd/yyyy) (mm/dd/yyyy) Principal (mm/dd/yyyy) MC No.
Amount
32935 07/20/1978 09/18/1978 P 400,000.00 07/20/1978 220701 We, therefore, have no alternative but to call your loan of P1,920,000.00 plus interests and other charges due and
33751 10/13/1978 12/12/1978 100,000.00 Unrecovered demandable. If you still fail to settle this obligation by 4/27/79, we shall have no other alternative but to refer your
33798 10/19/1978 11/03/1978 100,000.00 10/19/1978 226285 account to our lawyers for legal action to protect the interest of the bank.
34025 11/15/1978 01/15/1979 150,000.00 11/16/1978 226439
34079 11/21/1978 01/19/1979 250,000.00 11/21/1978 226467 Respondent sent a reply letter[63] dated 26 April 1979, printed on paper bearing the letterhead of respondents company,
34192 12/04/1978 01/18/1979 100,000.00 12/05/1978 228057
34402 12/26/1978 02/23/1979 300,000.00 12/26/1978 228203
MC Adore International Palace, the body of which reads
34534 01/09/1979 03/09/1979 150,000.00 01/09/1979 228270
34609 01/17/1979 03/19/1979 150,000.00 01/17/1979 228357 This is in reply to your letter dated April 5, 1979 inviting my attention to my loan which has become due. Pursuant to
34740 01/30/1979 03/30/1979 220,000.00 01/30/1979 228400 our representation with you over the telephone through Mr. F. A. Tan, you allow us to pay the interests due for the
meantime.
Total P1,920,000.00

Please accept our Comtrust Check in the amount of P62,683.33.

When respondent was unable to pay the first set of PNs upon their maturity, these were rolled-over or renewed several
times, necessitating the execution by respondent of new PNs in favor of petitioner Citibank. As of 5 April 1979,
Please bear with us for a little while, at most ninety days. As you know, we have a pending loan with the Development
respondent had the following outstanding PNs (second set), [56] the principal amount of which remained
Bank of the Philippines in the amount of P11-M. This loan has already been recommended for approval and would be
at P1,920,000.00
submitted to the Board of Governors. In fact, to further facilitate the early release of this loan, we have presented and
furnished Gov. J. Tengco a xerox copy of your letter.
Date of Issuance Date of Maturity
PN No. (mm/dd/yyyy) (mm/dd/yyyy) Principal Amount
34510 01/01/1979 03/02/1979 P 400,000.00 You will be doing our corporation a very viable service, should you grant us our request for a little more time.
34509 01/02/1979 03/02/1979 100,000.00
34534 01/09/1979 03/09/1979 150,000.00
34612 01/19/1979 03/16/1979 150,000.00
A week later or on 3 May 1979, a certain C. N. Pugeda, designated as Executive Secretary, sent a letter [64] to petitioner
Citibank, on behalf of respondent. The letter was again printed on paper bearing the letterhead of MC Adore
International Palace. The pertinent paragraphs of the said letter are reproduced below
Per instructions of Mrs. Modesta R. Sabeniano, we would like to request for a re-computation of the interest and penalty
charges on her loan in the aggregate amount of P1,920,000.00 with maturity date of all promissory notes at June 30,
1979. As she has personally discussed with you yesterday, this date will more or less assure you of early settlement.
In this regard, please entrust to bearer, our Comtrust check for P62,683.33 to be replaced by another check with amount
resulting from the new computation. Also, to facilitate the processing of the same, may we request for another set of
promissory notes for the signature of Mrs. Sabeniano and to cancel the previous ones she has signed and forwarded to
you.
This was followed by a telegram,[65] dated 5 June 1979, and received by petitioner Citibank the following day. The
telegram was sent by a Dewey G. Soriano, Legal Counsel.The telegram acknowledged receipt of the telegram sent by
petitioner Citibank regarding the re-past due obligation of McAdore International Palace. However, it reported that
respondent, the President and Chairman of MC Adore International Palace, was presently abroad negotiating for a big
loan. Thus, he was requesting for an extension of the due date of the obligation until respondents arrival on or before
31 July 1979.
The next letter,[66] dated 21 June 1979, was signed by respondent herself and addressed to Mr. Bobby Mendoza, a
Manager of petitioner FNCB Finance. Respondent wrote therein
Re: PN No. 20138 for P500,000.00 & PN No. 20139 for P500,000.00 totalling P1 Million, both PNs will mature on
9/3/1979.
This is to authorize you to release the accrued quarterly interests payment from my captioned placements and forward
directly to Citibank, Manila Attention: Mr. F. A. Tan, Manager, to apply to my interest payable on my outstanding loan
with Citibank.
Please note that the captioned two placements are continuously pledged/hypothecated to Citibank, Manila to support
my personal outstanding loan. Therefore, please do not release the captioned placements upon maturity until you have
received the instruction from Citibank, Manila.
On even date, respondent sent another letter[67] to Mr. Tan of petitioner Citibank, stating that
Re: S/A No. 25-225928
and C/A No. 484-946
This letter serves as an authority to debit whatever the outstanding balance from my captioned accounts and credit the
amount to my loan outstanding account with you.
Unlike respondents earlier letters, both letters, dated 21 June 1979, are printed on plain paper, without the letterhead
of her company, MC Adore International Palace.
By 5 September 1979, respondents outstanding and past due obligations to petitioner Citibank totaled P2,123,843.20,
representing the principal amounts plus interests. Relying on respondents Deeds of Assignment, petitioner Citibank
applied the proceeds of respondents money market placements with petitioner FNCB Finance, as well as her deposit
account with petitioner Citibank, to partly liquidate respondents outstanding loan balance, [68] as follows
Respondents outstanding obligation (principal and interest) P 2,123,843.20
Less: Proceeds from respondents money market placements
with petitioner FNCB Finance (principal and interest) (1,022,916.66)
Deposits in respondents bank accounts with petitioner
Citibank (31,079.14)
Balance of respondents obligation P 1,069,847.40
Mr. Tan of petitioner Citibank subsequently sent a letter, [69] dated 28 September 1979, notifying respondent of the
status of her loans and the foregoing compensation which petitioner Citibank effected. In the letter, Mr. Tan informed
respondent that she still had a remaining past-due obligation in the amount of P1,069,847.40, as of 5 September 1979,
and should respondent fail to pay the amount by 15 October 1979, then petitioner Citibank shall proceed to off-set the
unpaid amount with respondents other collateral, particularly, a money market placement in Citibank-Hongkong.
On 5 October 1979, respondent wrote Mr. Tan of petitioner Citibank, on paper bearing the letterhead of MC Adore
International Palace, as regards the P1,920,000.00 loan account supposedly of MC Adore Finance & Investment, Inc.,
and requested for a statement of account covering the principal and interest of the loan as of 31 October 1979. She
stated therein that the loan obligation shall be paid within 60 days from receipt of the statement of account.
Almost three weeks later, or on 25 October 1979, a certain Atty. Moises Tolentino dropped by the office of petitioner
Citibank, with a letter, dated 9 October 1979, and printed on paper with the letterhead of MC Adore International
Palace, which authorized the bearer thereof to represent the respondent in settling the overdue account, this time,
purportedly, of MC Adore International Palace Hotel. The letter was signed by respondent as the President and
Chairman of the Board.
Eventually, Atty. Antonio Agcaoili of Agcaoili & Associates, as counsel of petitioner Citibank, sent a letter to
respondent, dated 31 October 1979, informing her that petitioner Citibank had effected an off-set using her account
with Citibank-Geneva, in the amount of US$149,632.99, against her outstanding, overdue, demandable and unpaid
obligation to petitioner Citibank. Atty. Agcaoili claimed therein that the compensation or off-set was made pursuant to
and in accordance with the provisions of Articles 1278 through 1290 of the Civil Code. He further declared that
respondents obligation to petitioner Citibank was now fully paid and liquidated.
Unfortunately, on 7 October 1987, a fire gutted the 7th floor of petitioner Citibanks building at Paseo de Roxas St.,
Makati, Metro Manila. Petitioners submitted a Certification[70] to this effect, dated 17 January 1991, issued by the Chief
of the Arson Investigation Section, Fire District III, Makati Fire Station, Metropolitan Police Force.The 7 th floor of
petitioner Citibanks building housed its Control Division, which was in charge of keeping the necessary documents for
cases in which it was involved. After compiling the documentary evidence for the present case, Atty. Renato J.
Fernandez, internal legal counsel of petitioner Citibank, forwarded them to the Control Division. The original copies
of the MCs, which supposedly represent the proceeds of the first set of PNs, as well as that of other documentary
evidence related to the case, were among those burned in the said fire. [71]
Respondents version of events
Respondent disputed petitioners narration of the circumstances surrounding her loans with petitioner Citibank and the
alleged authority she gave for the off-set or compensation of her money market placements and deposit accounts with
petitioners against her loan obligation.
Respondent denied outright executing the first set of PNs, except for one (PN No. 34534 in particular). Although she
admitted that she obtained several loans from petitioner Citibank, these only amounted to P1,150,000.00, and she had
already paid them. She secured from petitioner Citibank two loans of P500,000.00 each. She executed in favor of
petitioner Citibank the corresponding PNs for the loans and the Deeds of Assignment of her money market placements
with petitioner FNCB Finance as security.[72] To prove payment of these loans, respondent presented two provisional
receipts of petitioner Citibank No. 19471,[73] dated 11 August 1978, and No. 12723,[74] dated 10 November 1978 both
signed by Mr. Tan, and acknowledging receipt from respondent of several checks in the total amount of P500,744.00
and P500,000.00, respectively, for liquidation of loan.
She borrowed another P150,000.00 from petitioner Citibank for personal investment, and for which she executed PN
No. 34534, on 9 January 1979. Thus, she admitted to receiving the proceeds of this loan via MC No. 228270. She
invested the loan amount in another money market placement with petitioner FNCB Finance. In turn, she used the very
same money market placement with petitioner FNCB Finance as security for her P150,000.00 loan from petitioner
Citibank. When she failed to pay the loan when it became due, petitioner Citibank allegedly forfeited her money market
placement with petitioner FNCB Finance and, thus, the loan was already paid.[75]
Respondent likewise questioned the MCs presented by petitioners, except for one (MC No. 228270 in particular), as
proof that she received the proceeds of the loans covered by the first set of PNs. As recounted in the preceding
paragraph, respondent admitted to obtaining a loan of P150,000.00, covered by PN No. 34534, and receiving MC No.
228270 representing the proceeds thereof, but claimed that she already paid the same. She denied ever receiving MCs
No. 220701 (for the loan of P400,000.00, covered by PN No. 33935) and No. 226467 (for the loan of P250,000.00,
covered by PN No. 34079), and pointed out that the checks did not bear her indorsements. She did not deny receiving
all other checks but she interposed that she received these checks, not as proceeds of loans, but as payment of the
principal amounts and/or interests from her money market placements with petitioner Citibank. She also raised doubts
as to the notation on each of the checks that reads RE: Proceeds of PN#[corresponding PN No.], saying that such
notation did not appear on the MCs when she originally received them and that the notation appears to have been
written by a typewriter different from that used in writing all other information on the checks (i.e., date, payee, and
amount).[76] She even testified that MCs were not supposed to bear notations indicating the purpose for which they
were issued.
As to the second set of PNs, respondent acknowledged having signed them all. However, she asserted that she only
executed these PNs as part of the simulated loans she and Mr. Tan of petitioner Citibank concocted. Respondent
explained that she had a pending loan application for a big amount with the Development Bank of the Philippines
(DBP), and when Mr. Tan found out about this, he suggested that they could make it appear that the respondent had
outstanding loans with petitioner Citibank and the latter was already demanding payment thereof; this might persuade
DBP to approve respondents loan application. Mr. Tan made the respondent sign the second set of PNs, so that he may
have something to show the DBP investigator who might inquire with petitioner Citibank as to respondents loans with
the latter. On her own copies of the said PNs, respondent wrote by hand the notation, This isa (sic) simulated non-
negotiable note, signed copy given to Mr. Tan., (sic) per agreement to be shown to DBP representative. itwill (sic) be
returned to me if the P11=M (sic) loan for MC Adore Palace Hotel is approved by DBP.[77]
Findings of this Court as to the existence of the loans
After going through the testimonial and documentary evidence presented by both sides to this case, it is this Courts
assessment that respondent did indeed have outstanding loans with petitioner Citibank at the time it effected the off-
set or compensation on 25 July 1979 (using respondents savings deposit with petitioner Citibank), 5 September 1979
(using the proceeds of respondents money market placements with petitioner FNCB Finance) and 26 October 1979
(using respondents dollar accounts remitted from Citibank-Geneva).The totality of petitioners evidence as to the
existence of the said loans preponderates over respondents. Preponderant evidence means that, as a whole, the evidence
adduced by one side outweighs that of the adverse party.[78]
Respondents outstanding obligation for P1,920,000.00 had been sufficiently documented by petitioner Citibank.
The second set of PNs is a mere renewal of the prior loans originally covered by the first set of PNs, except for PN No.
34534. The first set of PNs is supported, in turn, by the existence of the MCs that represent the proceeds thereof received
by the respondent.
It bears to emphasize that the proceeds of the loans were paid to respondent in MCs, with the respondent specifically
named as payee. MCs checks are drawn by the banks manager upon the bank itself and regarded to be as good as the
money it represents.[79] Moreover, the MCs were crossed checks, with the words Payees Account Only.
In general, a crossed check cannot be presented to the drawee bank for payment in cash. Instead, the check can only be
deposited with the payees bank which, in turn, must present it for payment against the drawee bank in the course of
normal banking hours. The crossed check cannot be presented for payment, but it can only be deposited and the drawee
bank may only pay to another bank in the payees or indorsers account.[80] The effect of crossing a check was described
by this Court in Philippine Commercial International Bank v. Court of Appeals[81]
[T]he crossing of a check with the phrase Payees Account Only is a warning that the check should be deposited in the
account of the payee. Thus, it is the duty of the collecting bank PCI Bank to ascertain that the check be deposited in
payees account only. It is bound to scrutinize the check and to know its depositors before it can make the clearing
indorsement all prior indorsements and/or lack of indorsement guaranteed.
The crossed MCs presented by petitioner Bank were indeed deposited in several different bank accounts and cleared
by the Clearing Office of the Central Bank of the Philippines, as evidenced by the stamp marks and notations on the
said checks. The crossed MCs are already in the possession of petitioner Citibank, the drawee bank, which was
ultimately responsible for the payment of the amount stated in the checks. Given that a check is more than just an
instrument of credit used in commercial transactions for it also serves as a receipt or evidence for the drawee bank of
the cancellation of the said check due to payment,[82] then, the possession by petitioner Citibank of the said MCs, duly
stamped Paid gives rise to the presumption that the said MCs were already paid out to the intended payee, who was in
this case, the respondent.
This Court finds applicable herein the presumptions that private transactions have been fair and regular,[83] and that the
ordinary course of business has been followed.[84] There is no question that the loan transaction between petitioner
Citibank and the respondent is a private transaction. The transactions revolving around the crossed MCs from their
issuance by petitioner Citibank to respondent as payment of the proceeds of her loans; to its deposit in respondents
accounts with several different banks; to the clearing of the MCs by an independent clearing house; and finally, to the
payment of the MCs by petitioner Citibank as the drawee bank of the said checks are all private transactions which
shall be presumed to have been fair and regular to all the parties concerned. In addition, the banks involved in the
foregoing transactions are also presumed to have followed the ordinary course of business in the acceptance of the
crossed MCs for deposit in respondents accounts, submitting them for clearing, and their eventual payment and
cancellation.
The afore-stated presumptions are disputable, meaning, they are satisfactory if uncontradicted, but may be contradicted
and overcome by other evidence.[85] Respondent, however, was unable to present sufficient and credible evidence to
dispute these presumptions.
It should be recalled that out of the nine MCs presented by petitioner Citibank, respondent admitted to receiving one
as proceeds of a loan (MC No. 228270), denied receiving two (MCs No. 220701 and 226467), and admitted to receiving
all the rest, but not as proceeds of her loans, but as return on the principal amounts and interests from her money market
placements.
Respondent admitted receiving MC No. 228270 representing the proceeds of her loan covered by PN No.
34534. Although the principal amount of the loan is P150,000.00, respondent only received P146,312.50, because the
interest and handling fee on the loan transaction were already deducted therefrom. [86] Stamps and notations at the back
of MC No. 228270 reveal that it was deposited at the Bank of the Philippine Islands (BPI), Cubao Branch, in Account
No. 0123-0572-28.[87] The check also bore the signature of respondent at the back.[88] And, although respondent would
later admit that she did sign PN No. 34534 and received MC No. 228270 as proceeds of the loan extended to her by
petitioner Citibank, she contradicted herself when, in an earlier testimony, she claimed that PN No. 34534 was among
the PNs she executed as simulated loans with petitioner Citibank.[89]
Respondent denied ever receiving MCs No. 220701 and 226467. However, considering that the said checks were
crossed for payees account only, and that they were actually deposited, cleared, and paid, then the presumption would
be that the said checks were properly deposited to the account of respondent, who was clearly named the payee in the
checks. Respondents bare allegations that she did not receive the two checks fail to convince this Court, for to sustain
her, would be for this Court to conclude that an irregularity had occurred somewhere from the time of the issuance of
the said checks, to their deposit, clearance, and payment, and which would have involved not only petitioner Citibank,
but also BPI, which accepted the checks for deposit, and the Central Bank of the Philippines, which cleared the
checks. It falls upon the respondent to overcome or dispute the presumption that the crossed checks were issued,
accepted for deposit, cleared, and paid for by the banks involved following the ordinary course of their business.
The mere fact that MCs No. 220701 and 226467 do not bear respondents signature at the back does not negate deposit
thereof in her account. The liability for the lack of indorsement on the MCs no longer fall on petitioner Citibank, but
on the bank who received the same for deposit, in this case, BPI Cubao Branch. Once again, it must be noted that the
MCs were crossed, for payees account only, and the payee named in both checks was none other than respondent. The
crossing of the MCs was already a warning to BPI to receive said checks for deposit only in respondents account. It
was up to BPI to verify whether it was receiving the crossed MCs in accordance with the instructions on the face
thereof. If, indeed, the MCs were deposited in accounts other than respondents, then the respondent would have a cause
of action against BPI.[90]
BPI further stamped its guarantee on the back of the checks to the effect that, All prior endorsement and/or Lack of
endorsement guaranteed. Thus, BPI became the indorser of the MCs, and assumed all the warranties of an
indorser,[91] specifically, that the checks were genuine and in all respects what they purported to be; that it had a good
title to the checks; that all prior parties had capacity to contract; and that the checks were, at the time of their
indorsement, valid and subsisting.[92] So even if the MCs deposited by BPI's client, whether it be by respondent herself
or some other person, lacked the necessary indorsement, BPI, as the collecting bank, is bound by its warranties as an
indorser and cannot set up the defense of lack of indorsement as against petitioner Citibank, the drawee bank. [93]
Furthermore, respondents bare and unsubstantiated denial of receipt of the MCs in question and their deposit in her
account is rendered suspect when MC No. 220701 was actually deposited in Account No. 0123-0572-28 of BPI Cubao
Branch, the very same account in which MC No. 228270 (which respondent admitted to receiving as proceeds of her
loan from petitioner Citibank), and MCs No. 228203, 228357, and 228400 (which respondent admitted to receiving as
proceeds from her money market placements) were deposited. Likewise, MC No. 226467 was deposited in Account
No. 0121-002-43 of BPI Cubao Branch, to which MCs No. 226285 and 226439 (which respondent admitted to
receiving as proceeds from her money market placements) were deposited. It is an apparent contradiction for
respondent to claim having received the proceeds of checks deposited in an account, and then deny receiving the
proceeds of another check deposited in the very same account.
Another inconsistency in respondents denial of receipt of MC No. 226467 and her deposit of the same in her account,
is her presentation of Exhibit HHH, a provisional receipt which was supposed to prove that respondent turned
over P500,000.00 to Mr. Tan of petitioner Citibank, that the said amount was split into three money market placements,
and that MC No. 226467 represented the return on her investment from one of these placements.[94] Because of her
Exhibit HHH, respondent effectively admitted receipt of MC No. 226467, although for reasons other than as proceeds
of a loan.
Neither can this Court give credence to respondents contention that the notations on the MCs, stating that they were
the proceeds of particular PNs, were not there when she received the checks and that the notations appeared to be
written by a typewriter different from that used to write the other information on the checks. Once more, respondents
allegations were uncorroborated by any other evidence. Her and her counsels observation that the notations on the MCs
appear to be written by a typewriter different from that used to write the other information on the checks hardly
convinces this Court considering that it constitutes a mere opinion on the appearance of the notation by a witness who
does not possess the necessary expertise on the matter. In addition, the notations on the MCs were written using both
capital and small letters, while the other information on the checks were written using capital letters only, such
difference could easily confuse an untrained eye and lead to a hasty conclusion that they were written by different
typewriters.
Respondents testimony, that based on her experience transacting with banks, the MCs were not supposed to include
notations on the purpose for which the checks were issued, also deserves scant consideration. While respondent may
have extensive experience dealing with banks, it still does not qualify her as a competent witness on banking procedures
and practices. Her testimony on this matter is even belied by the fact that the other MCs issued by petitioner Citibank
(when it was still named First National City Bank) and by petitioner FNCB Finance, the existence and validity of which
were not disputed by respondent, also bear similar notations that state the reason for which they were issued.
Respondent presented several more pieces of evidence to substantiate her claim that she received MCs No. 226285,
226439, 226467, 226057, 228357, and 228400, not as proceeds of her loans from petitioner Citibank, but as the return
of the principal amounts and payment of interests from her money market placements with petitioners. Part of
respondents exhibits were personal checks[95] drawn by respondent on her account with Feati Bank & Trust Co., which
she allegedly invested in separate money market placements with both petitioners, the returns from which were paid to
her via MCs No. 226285 and 228400. Yet, to this Court, the personal checks only managed to establish respondents
issuance thereof, but there was nothing on the face of the checks that would reveal the purpose for which they were
issued and that they were actually invested in money market placements as respondent claimed.
Respondent further submitted handwritten notes that purportedly computed and presented the returns on her money
market placements, corresponding to the amount stated in the MCs she received from petitioner Citibank. Exhibit
HHH-1[96] was a handwritten note, which respondent attributed to Mr. Tan of petitioner Citibank, showing the
breakdown of her BPI Check for P500,000.00 into three different money market placements with petitioner
Citibank. This Court, however, noticed several factors which render the note highly suspect. One, it was written on the
reversed side of Provisional Receipt No. 12724 of petitioner Citibank which bore the initials of Mr. Tan acknowledging
receipt of respondents BPI Check No. 120989 for P500,000.00; but the initials on the handwritten note appeared to be
that of Mr. Bobby Mendoza of petitioner FNCB Finance.[97]Second, according to Provisional Receipt No. 12724, BPI
Check No. 120989 for P500,000.00 was supposed to be invested in three money market placements with petitioner
Citibank for the period of 60 days. Since all these money market placements were made through one check deposited
on the same day, 10 November 1978, it made no sense that the handwritten note at the back of Provisional Receipt No.
12724 provided for different dates of maturity for each of the money market placements (i.e., 16 November 1978, 17
January 1979, and 21 November 1978), and such dates did not correspond to the 60 day placement period stated on the
face of the provisional receipt. And third, the principal amounts of the money market placements as stated in the
handwritten note P145,000.00, P145,000.00 and P242,000.00 totaled P532,000.00, and was obviously in excess of
the P500,000.00 acknowledged on the face of Provisional Receipt No. 12724.
Exhibits III and III-1, the front and bank pages of a handwritten note of Mr. Bobby Mendoza of petitioner FNCB
Finance,[98] also did not deserve much evidentiary weight, and this Court cannot rely on the truth and accuracy of the
computations presented therein. Mr. Mendoza was not presented as a witness during the trial before the RTC, so that
the document was not properly authenticated nor its contents sufficiently explained. No one was able to competently
identify whether the initials as appearing on the note were actually Mr. Mendozas.
Also, going by the information on the front page of the note, this Court observes that payment of respondents alleged
money market placements with petitioner FNCB Finance were made using Citytrust Checks; the MCs in question,
including MC No. 228057, were issued by petitioner Citibank. Although Citytrust (formerly Feati Bank & Trust Co.),
petitioner FNCB Finance, and petitioner Citibank may be affiliates of one another, they each remained separate and
distinct corporations, each having its own financial system and records. Thus, this Court cannot simply assume that
one corporation, such as petitioner Citibank or Citytrust, can issue a check to discharge an obligation of petitioner
FNCB Finance. It should be recalled that when petitioner FNCB Finance paid for respondents money market
placements, covered by its PNs No. 8167 and 8169, as well as PNs No. 20138 and 20139, petitioner FNCB Finance
issued its own checks.
As a last point on this matter, if respondent truly had money market placements with petitioners, then these would have
been evidenced by PNs issued by either petitioner Citibank or petitioner FNCB Finance, acknowledging the principal
amounts of the investments, and stating the applicable interest rates, as well as the dates of their of issuance and
maturity. After respondent had so meticulously reconstructed her other money market placements with petitioners and
consolidated the documentary evidence thereon, she came surprisingly short of offering similar details and
substantiation for these particular money market placements.
Since this Court is satisfied that respondent indeed received the proceeds of the first set of PNs, then it proceeds to
analyze her evidence of payment thereof.
In support of respondents assertion that she had already paid whatever loans she may have had with petitioner Citibank,
she presented as evidence Provisional Receipts No. 19471, dated 11 August 1978, and No. 12723, dated 10 November
1978, both of petitioner Citibank and signed by Mr. Tan, for the amounts of P500,744.00 and P500,000.00,
respectively. While these provisional receipts did state that Mr. Tan, on behalf of petitioner Citibank, received
respondents checks as payment for her loans, they failed to specifically identify which loans were actually
paid. Petitioner Citibank was able to present evidence that respondent had executed several PNs in the years 1978 and
1979 to cover the loans she secured from the said bank. Petitioner Citibank did admit that respondent was able to pay
for some of these PNs, and what it identified as the first and second sets of PNs were only those which remained
unpaid. It thus became incumbent upon respondent to prove that the checks received by Mr. Tan were actually applied
to the PNs in either the first or second set; a fact that, unfortunately, cannot be determined from the provisional receipts
submitted by respondent since they only generally stated that the checks received by Mr. Tan were payment for
respondents loans.
Mr. Tan, in his deposition, further explained that provisional receipts were issued when payment to the bank was made
using checks, since the checks would still be subject to clearing. The purpose for the provisional receipts was merely
to acknowledge the delivery of the checks to the possession of the bank, but not yet of payment. [99] This bank practice
finds legitimacy in the pronouncement of this Court that a check, whether an MC or an ordinary check, is not legal
tender and, therefore, cannot constitute valid tender of payment. In Philippine Airlines, Inc. v. Court of
Appeals, [100] this Court elucidated that:
Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does
not, by itself, operate as payment (Sec. 189, Act 2031 on Negs. Insts.; Art. 1249, Civil Code; Bryan Landon Co. v.
American Bank, 7 Phil. 255; Tan Sunco, v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61). A check, whether a manager's check
or ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and
may be refused receipt by the obligee or creditor. Mere delivery of checks does not discharge the obligation under a
judgment. The obligation is not extinguished and remains suspended until the payment by commercial document is
actually realized (Art. 1249, Civil Code, par. 3).
In the case at bar, the issuance of an official receipt by petitioner Citibank would have been dependent on whether the
checks delivered by respondent were actually cleared and paid for by the drawee banks.
As for PN No. 34534, respondent asserted payment thereof at two separate instances by two different means. In her
formal offer of exhibits, respondent submitted a deposit slip of petitioner Citibank, dated 11 August 1978, evidencing
the deposit of BPI Check No. 5785 for P150,000.00.[101] In her Formal Offer of Documentary Exhibits, dated 7 July
1989, respondent stated that the purpose for the presentation of the said deposit slip was to prove that she already paid
her loan covered by PN No. 34534.[102] In her testimony before the RTC three years later, on 28 November 1991, she
changed her story. This time she narrated that the loan covered by PN No. 34534 was secured by her money market
placement with petitioner FNCB Finance, and when she failed to pay the said PN when it became due, the security was
applied to the loan, therefore, the loan was considered paid.[103] Given the foregoing, respondents assertion of payment
of PN No. 34534 is extremely dubious.
According to petitioner Citibank, the PNs in the second set, except for PN No. 34534, were mere renewals of the unpaid
PNs in the first set, which was why the PNs stated that they were for the purpose of liquidating existing obligations. PN
No. 34534, however, which was part of the first set, was still valid and subsisting and so it was included in the second
set without need for its renewal, and it still being the original PN for that particular loan, its stated purpose was for
personal investment.[104] Respondent essentially admitted executing the second set of PNs, but they were only meant
to cover simulated loans. Mr. Tan supposedly convinced her that her pending loan application with DBP would have a
greater chance of being approved if they made it appear that respondent urgently needed the money because petitioner
Citibank was already demanding payment for her simulated loans.
Respondents defense of simulated loans to escape liability for the second set of PNs is truly a novel one. It is regrettable,
however, that she was unable to substantiate the same.Yet again, respondents version of events is totally based on her
own uncorroborated testimony. The notations on the second set of PNs, that they were non-negotiable simulated notes,
were admittedly made by respondent herself and were, thus, self-serving. Equally self-serving was respondents letter,
written on 7 October 1985, or more than six years after the execution of the second set of PNs, in which she demanded
return of the simulated or fictitious PNs, together with the letters relating thereto, which Mr. Tan purportedly asked her
to execute. Respondent further failed to present any proof of her alleged loan application with the DBP, and of any
circumstance or correspondence wherein the simulated or fictitious PNs were indeed used for their supposed purpose.
In contrast, petitioner Citibank, as supported by the testimonies of its officers and available documentation, consistently
treated the said PNs as regular loans accepted, approved, and paid in the ordinary course of its business.
The PNs executed by the respondent in favor of petitioner Citibank to cover her loans were duly-filled out and signed,
including the disclosure statement found at the back of the said PNs, in adherence to the Central Bank requirement to
disclose the full finance charges to a loan granted to borrowers.
Mr. Tan, then an account officer with the Marketing Department of petitioner Citibank, testified that he dealt directly
with respondent; he facilitated the loans; and the PNs, at least in the second set, were signed by respondent in his
presence.[105]
Mr. Pujeda, the officer who was previously in charge of loans and placements, confirmed that the signatures on the
PNs were verified against respondents specimen signature with the bank. [106]
Ms. Cristina Dondoyano, who worked at petitioner Citibank as a loan processor, was responsible for booking
respondents loans. Booking the loans means recording it in the General Ledger. She explained the procedure for
booking loans, as follows: The account officer, in the Marketing Department, deals directly with the clients who wish
to borrow money from petitioner Citibank. The Marketing Department will forward a loan booking checklist, together
with the borrowing clients PNs and other supporting documents, to the loan pre-processor, who will check whether the
details in the loan booking checklist are the same as those in the PNs. The documents are then sent to Signature Control
for verification of the clients signature in the PNs, after which, they are returned to the loan pre-processor, to be
forwarded finally to the loan processor. The loan processor shall book the loan in the General Ledger, indicating therein
the client name, loan amount, interest rate, maturity date, and the corresponding PN number. Since she booked
respondents loans personally, Ms. Dondoyano testified that she saw the original PNs. In 1986, Atty. Fernandez of
petitioner Citibank requested her to prepare an accounting of respondents loans, which she did, and which was
presented as Exhibit 120 for the petitioners. The figures from the said exhibit were culled from the bookings in the
General Ledger, a fact which respondents counsel was even willing to stipulate.[107]
Ms. Teresita Glorioso was an Investigation and Reconcilement Clerk at the Control Department of petitioner
Citibank. She was presented by petitioner Citibank to expound on the microfilming procedure at the bank, since most
of the copies of the PNs were retrieved from microfilm. Microfilming of the documents are actually done by people at
the Operations Department. At the end of the day or during the day, the original copies of all bank documents, not just
those pertaining to loans, are microfilmed. She refuted the possibility that insertions could be made in the microfilm
because the microfilm is inserted in a cassette; the cassette is placed in the microfilm machine for use; at the end of the
day, the cassette is taken out of the microfilm machine and put in a safe vault; and the cassette is returned to the machine
only the following day for use, until the spool is full.This is the microfilming procedure followed everyday. When the
microfilm spool is already full, the microfilm is developed, then sent to the Control Department, which double checks
the contents of the microfilms against the entries in the General Ledger. The Control Department also conducts a
random comparison of the contents of the microfilms with the original documents; a random review of the contents is
done on every role of microfilm.[108]
Ms. Renee Rubio worked for petitioner Citibank for 20 years. She rose from the ranks, initially working as a secretary
in the Personnel Group; then as a secretary to the Personnel Group Head; a Service Assistant with the Marketing Group,
in 1972 to 1974, dealing directly with corporate and individual clients who, among other things, secured loans from
petitioner Citibank; the Head of the Collection Group of the Foreign Department in 1974 to 1976; the Head of the
Money Transfer Unit in 1976 to 1978; the Head of the Loans and Placements Unit up to the early 1980s; and, thereafter,
she established operations training for petitioner Citibank in the Asia-Pacific Region responsible for the training of the
officers of the bank. She testified on the standard loan application process at petitioner Citibank. According to Ms.
Rubio, the account officer or marketing person submits a proposal to grant a loan to an individual or
corporation. Petitioner Citibank has a worldwide policy that requires a credit committee, composed of a minimum of
three people, which would approve the loan and amount thereof. There can be no instance when only one officer has
the power to approve the loan application. When the loan is approved, the account officer in charge will obtain the
corresponding PNs from the client. The PNs are sent to the signature verifier who would validate the signatures therein
against those appearing in the signature cards previously submitted by the client to the bank. The Operations Unit will
check and review the documents, including the PNs, if it is a clean loan, and securities and deposits, if it is
collateralized. The loan is then recorded in the General Ledger. The Loans and Placements Department will not book
the loans without the PNs.When the PNs are liquidated, whether they are paid or rolled-over, they are returned to the
client.[109] Ms. Rubio further explained that she was familiar with respondents accounts since, while she was still the
Head of the Loan and Placements Unit, she was asked by Mr. Tan to prepare a list of respondents outstanding
obligations.[110] She thus calculated respondents outstanding loans, which was sent as an attachment to Mr. Tans letter
to respondent, dated 28 September 1979, and presented before the RTC as Exhibits 34-B and 34-C.[111]
Lastly, the exchange of letters between petitioner Citibank and respondent, as well as the letters sent by other people
working for respondent, had consistently recognized that respondent owed petitioner Citibank money.
In consideration of the foregoing discussion, this Court finds that the preponderance of evidence supports the existence
of the respondents loans, in the principal sum ofP1,920,000.00, as of 5 September 1979. While it is well-settled that
the term preponderance of evidence should not be wholly dependent on the number of witnesses, there are certain
instances when the number of witnesses become the determining factor
The preponderance of evidence may be determined, under certain conditions, by the number of witnesses testifying to
a particular fact or state of facts. For instance, one or two witnesses may testify to a given state of facts, and six or
seven witnesses of equal candor, fairness, intelligence, and truthfulness, and equally well corroborated by all the
remaining evidence, who have no greater interest in the result of the suit, testify against such state of facts. Then the
preponderance of evidence is determined by the number of witnesses. (Wilcox vs. Hines, 100 Tenn. 524, 66 Am. St.
Rep., 761.)[112]
Best evidence rule
This Court disagrees in the pronouncement made by the Court of Appeals summarily dismissing the documentary
evidence submitted by petitioners based on its broad and indiscriminate application of the best evidence rule.
In general, the best evidence rule requires that the highest available degree of proof must be produced. Accordingly,
for documentary evidence, the contents of a document are best proved by the production of the document itself, [113] to
the exclusion of any secondary or substitutionary evidence.[114]
The best evidence rule has been made part of the revised Rules of Court, Rule 130, Section 3, which reads
SEC. 3. Original document must be produced; exceptions. When the subject of inquiry is the contents of a document,
no evidence shall be admissible other than the original document itself, except in the following cases:
(a) When the original has been lost or destroyed, or cannot be produced in court, without bad faith on the part of the
offeror;
(b) When the original is in the custody or under the control of the party against whom the evidence is offered, and the
latter fails to produce it after reasonable notice;
(c) When the original consists of numerous accounts or other documents which cannot be examined in court without
great loss of time and the fact sought to be established from them is only the general result of the whole; and
(d) When the original is a public record in the custody of a public officer or is recorded in a public office.
As the afore-quoted provision states, the best evidence rule applies only when the subject of the inquiry is the contents
of the document. The scope of the rule is more extensively explained thus
But even with respect to documentary evidence, the best evidence rule applies only when the content of such document
is the subject of the inquiry. Where the issue is only as to whether such document was actually executed, or exists, or
on the circumstances relevant to or surrounding its execution, the best evidence rule does not apply and testimonial
evidence is admissible (5 Moran, op. cit., pp. 76-66; 4 Martin, op. cit., p. 78). Any other substitutionary evidence is
likewise admissible without need for accounting for the original.
Thus, when a document is presented to prove its existence or condition it is offered not as documentary, but as real,
evidence. Parol evidence of the fact of execution of the documents is allowed (Hernaez, et al. vs. McGrath, etc., et al.,
91 Phil 565). x x x [115]
In Estrada v. Desierto,[116] this Court had occasion to rule that
It is true that the Court relied not upon the original but only copy of the Angara Diary as published in the Philippine
Daily Inquirer on February 4-6, 2001. In doing so, the Court, did not, however, violate the best evidence rule.
Wigmore, in his book on evidence, states that:
Production of the original may be dispensed with, in the trial courts discretion, whenever in the case in hand the
opponent does not bona fide dispute the contents of the document and no other useful purpose will be served by
requiring production.24
xxxx
In several Canadian provinces, the principle of unavailability has been abandoned, for certain documents in which
ordinarily no real dispute arised. This measure is a sensible and progressive one and deserves universal adoption (post,
sec. 1233). Its essential feature is that a copy may be used unconditionally, if the opponent has been given an
opportunity to inspect it.(Emphasis supplied.)
This Court did not violate the best evidence rule when it considered and weighed in evidence the photocopies and
microfilm copies of the PNs, MCs, and letters submitted by the petitioners to establish the existence of respondents
loans. The terms or contents of these documents were never the point of contention in the Petition at bar. It was
respondents position that the PNs in the first set (with the exception of PN No. 34534) never existed, while the PNs in
the second set (again, excluding PN No. 34534) were merely executed to cover simulated loan transactions. As for the
MCs representing the proceeds of the loans, the respondent either denied receipt of certain MCs or admitted receipt of
the other MCs but for another purpose. Respondent further admitted the letters she wrote personally or through her
representatives to Mr. Tan of petitioner Citibank acknowledging the loans, except that she claimed that these letters
were just meant to keep up the ruse of the simulated loans. Thus, respondent questioned the documents as to their
existence or execution, or when the former is admitted, as to the purpose for which the documents were executed,
matters which are, undoubtedly, external to the documents, and which had nothing to do with the contents thereof.
Alternatively, even if it is granted that the best evidence rule should apply to the evidence presented by petitioners
regarding the existence of respondents loans, it should be borne in mind that the rule admits of the following exceptions
under Rule 130, Section 5 of the revised Rules of Court
SEC. 5. When the original document is unavailable. When the original document has been lost or destroyed, or cannot
be produced in court, the offeror, upon proof of its execution or existence and the cause of its unavailability without
bad faith on his part, may prove its contents by a copy, or by a recital of its contents in some authentic document, or
by the testimony of witnesses in the order stated.
The execution or existence of the original copies of the documents was established through the testimonies of witnesses,
such as Mr. Tan, before whom most of the documents were personally executed by respondent. The original PNs also
went through the whole loan booking system of petitioner Citibank from the account officer in its Marketing
Department, to the pre-processor, to the signature verifier, back to the pre-processor, then to the processor for
booking.[117] The original PNs were seen by Ms. Dondoyano, the processor, who recorded them in the General
Ledger. Mr. Pujeda personally saw the original MCs, proving respondents receipt of the proceeds of her loans from
petitioner Citibank, when he helped Attys. Cleofe and Fernandez, the banks legal counsels, to reconstruct the records
of respondents loans. The original MCs were presented to Atty. Cleofe who used the same during the preliminary
investigation of the case, sometime in years 1986-1987. The original MCs were subsequently turned over to the Control
and Investigation Division of petitioner Citibank.[118]
It was only petitioner FNCB Finance who claimed that they lost the original copies of the PNs when it moved to a new
office. Citibank did not make a similar contention; instead, it explained that the original copies of the PNs were returned
to the borrower upon liquidation of the loan, either through payment or roll-over. Petitioner Citibank proffered the
excuse that they were still looking for the documents in their storage or warehouse to explain the delay and difficulty
in the retrieval thereof, but not their absence or loss. The original documents in this case, such as the MCs and letters,
were destroyed and, thus, unavailable for presentation before the RTC only on 7 October 1987, when a fire broke out
on the 7th floor of the office building of petitioner Citibank. There is no showing that the fire was intentionally set. The
fire destroyed relevant documents, not just of the present case, but also of other cases, since the 7 th floor housed the
Control and Investigation Division, in charge of keeping the necessary documents for cases in which petitioner Citibank
was involved.
The foregoing would have been sufficient to allow the presentation of photocopies or microfilm copies of the PNs,
MCs, and letters by the petitioners as secondary evidence to establish the existence of respondents loans, as an
exception to the best evidence rule.
The impact of the Decision of the Court of Appeals in the Dy case
In its assailed Decision, the Court of Appeals made the following pronouncement
Besides, We find the declaration and conclusions of this Court in CA-G.R. CV No. 15934 entitled Sps. Dr. Ricardo L.
Dy and Rosalind O. Dy vs. City Bank, N.A., et al, promulgated on 15 January 1990, as disturbing taking into
consideration the similarities of the fraud, machinations, and deceits employed by the defendant-appellant Citibank
and its Account Manager Francisco Tan.
Worthy of note is the fact that Our declarations and conclusions against Citibank and the person of Francisco Tan
in CA-G.R. CV No. 15934 were affirmed in toto by the Highest Magistrate in a Minute Resolution dated 22 August
1990 entitled Citibank, N.A., vs. Court of Appeals, G.R. 93350.
As the factual milieu of the present appeal created reasonable doubts as to whether the nine (9) Promissory Notes were
indeed executed with considerations, the doubts, coupled by the findings and conclusions of this Court in CA-G.R.
CV No. 15934 and the Supreme Court in G.R. No. 93350. should be construed against herein defendants-appellants
Citibank and FNCB Finance.
What this Court truly finds disturbing is the significance given by the Court of Appeals in its assailed Decision to the
Decision[119] of its Third Division in CA-G.R. CV No. 15934 (or the Dy case), when there is an absolute lack of legal
basis for doing such.
Although petitioner Citibank and its officer, Mr. Tan, were also involved in the Dy case, that is about the only
connection between the Dy case and the one at bar. Not only did the Dy case tackle transactions between parties other
than the parties presently before this Court, but the transactions are absolutely independent and unrelated to those in
the instant Petition.
In the Dy case, Severino Chua Caedo managed to obtain loans from herein petitioner Citibank amounting
to P7,000,000.00, secured to the extent of P5,000,000.00 by a Third Party Real Estate Mortgage of the properties of
Caedos aunt, Rosalind Dy. It turned out that Rosalind Dy and her husband were unaware of the said loans and the
mortgage of their properties. The transactions were carried out exclusively between Caedo and Mr. Tan of petitioner
Citibank. The RTC found Mr. Tan guilty of fraud for his participation in the questionable transactions, essentially
because he allowed Caedo to take out the signature cards, when these should have been signed by the Dy spouses
personally before him.Although the Dy spouses signatures in the PNs and Third Party Real Estate Mortgage were
forged, they were approved by the signature verifier since the signature cards against which they were compared to
were also forged. Neither the RTC nor the Court of Appeals, however, categorically declared Mr. Tan personally
responsible for the forgeries, which, in the narration of the facts, were more likely committed by Caedo.
In the Petition at bar, respondent dealt with Mr. Tan directly, there was no third party involved who could have
perpetrated any fraud or forgery in her loan transactions. Although respondent attempted to raise suspicion as to the
authenticity of her signatures on certain documents, these were nothing more than naked allegations with no
corroborating evidence; worse, even her own allegations were replete with inconsistencies. She could not even establish
in what manner or under what circumstances the fraud or forgery was committed, or how Mr. Tan could have been
directly responsible for the same.
While the Court of Appeals can take judicial notice of the Decision of its Third Division in the Dy case, it should not
have given the said case much weight when it rendered the assailed Decision, since the former does not constitute a
precedent. The Court of Appeals, in the challenged Decision, did not apply any legal argument or principle established
in the Dy case but, rather, adopted the findings therein of wrongdoing or misconduct on the part of herein petitioner
Citibank and Mr. Tan. Any finding of wrongdoing or misconduct as against herein petitioners should be made based
on the factual background and pieces of evidence submitted in this case, not those in another case.
It is apparent that the Court of Appeals took judicial notice of the Dy case not as a legal precedent for the present case,
but rather as evidence of similar acts committed by petitioner Citibank and Mr. Tan. A basic rule of evidence, however,
states that, Evidence that one did or did not do a certain thing at one time is not admissible to prove that he did or did
not do the same or similar thing at another time; but it may be received to prove a specific intent or knowledge, identity,
plan, system, scheme, habit, custom or usage, and the like.[120] The rationale for the rule is explained thus
The rule is founded upon reason, public policy, justice and judicial convenience. The fact that a person has committed
the same or similar acts at some prior time affords, as a general rule, no logical guaranty that he committed the act in
question. This is so because, subjectively, a mans mind and even his modes of life may change; and, objectively, the
conditions under which he may find himself at a given time may likewise change and thus induce him to act in a
different way. Besides, if evidence of similar acts are to be invariably admitted, they will give rise to a multiplicity of
collateral issues and will subject the defendant to surprise as well as confuse the court and prolong the trial. [121]
The factual backgrounds of the two cases are so different and unrelated that the Dy case cannot be used to prove specific
intent, knowledge, identity, plan, system, scheme, habit, custom or usage on the part of petitioner Citibank or its officer,
Mr. Tan, to defraud respondent in the present case.
IV
The liquidation of respondents outstanding loans were valid in so far as petitioner Citibank used respondents
savings account with the bank and her money market placements with petitioner FNCB Finance; but illegal and
void in so far as petitioner Citibank used respondents dollar accounts with Citibank-Geneva.
Savings Account with petitioner Citibank
Compensation is a recognized mode of extinguishing obligations. Relevant provisions of the Civil Code provides
Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other.
Art. 1279. In order that compensation may be proper, it is necessary;
(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.
There is little controversy when it comes to the right of petitioner Citibank to compensate respondents outstanding
loans with her deposit account. As already found by this Court, petitioner Citibank was the creditor of respondent for
her outstanding loans. At the same time, respondent was the creditor of petitioner Citibank, as far as her deposit account
was concerned, since bank deposits, whether fixed, savings, or current, should be considered as simple loan
or mutuum by the depositor to the banking institution.[122]Both debts consist in sums of money. By June 1979, all of
respondents PNs in the second set had matured and became demandable, while respondents savings account was
demandable anytime. Neither was there any retention or controversy over the PNs and the deposit account commenced
by a third person and communicated in due time to the debtor concerned. Compensation takes place by operation of
law,[123] therefore, even in the absence of an expressed authority from respondent, petitioner Citibank had the right to
effect, on 25 June 1979, the partial compensation or off-set of respondents outstanding loans with her deposit account,
amounting to P31,079.14.
Money market placements with FNCB Finance
Things though are not as simple and as straightforward as regards to the money market placements and bank account
used by petitioner Citibank to complete the compensation or off-set of respondents outstanding loans, which came
from persons other than petitioner Citibank.
Respondents money market placements were with petitioner FNCB Finance, and after several roll-overs, they were
ultimately covered by PNs No. 20138 and 20139, which, by 3 September 1979, the date the check for the proceeds of
the said PNs were issued, amounted to P1,022,916.66, inclusive of the principal amounts and interests. As to these
money market placements, respondent was the creditor and petitioner FNCB Finance the debtor; while, as to the
outstanding loans, petitioner Citibank was the creditor and respondent the debtor. Consequently, legal compensation,
under Article 1278 of the Civil Code, would not apply since the first requirement for a valid compensation, that each
one of the obligors be bound principally, and that he be at the same time a principal creditor of the other, was not met.
What petitioner Citibank actually did was to exercise its rights to the proceeds of respondents money market placements
with petitioner FNCB Finance by virtue of the Deeds of Assignment executed by respondent in its favor.
The Court of Appeals did not consider these Deeds of Assignment because of petitioners failure to produce the original
copies thereof in violation of the best evidence rule.This Court again finds itself in disagreement in the application of
the best evidence rule by the appellate court.
To recall, the best evidence rule, in so far as documentary evidence is concerned, requires the presentation of the
original copy of the document only when the context thereof is the subject of inquiry in the case. Respondent does not
question the contents of the Deeds of Assignment. While she admitted the existence and execution of the Deeds of
Assignment, dated 2 March 1978 and 9 March 1978, covering PNs No. 8169 and 8167 issued by petitioner FNCB
Finance, she claimed, as defense, that the loans for which the said Deeds were executed as security, were already
paid. She denied ever executing both Deeds of Assignment, dated 25 August 1978, covering PNs No. 20138 and
20139. These are again issues collateral to the contents of the documents involved, which could be proven by evidence
other than the original copies of the said documents.
Moreover, the Deeds of Assignment of the money market placements with petitioner FNCB Finance were notarized
documents, thus, admissible in evidence. Rule 132, Section 30 of the Rules of Court provides that
SEC. 30. Proof of notarial documents. Every instrument duly acknowledged or proved and certified as provided by
law, may be presented in evidence without further proof, the certificate of acknowledgement being prima
facie evidence of the execution of the instrument or document involved.
Significant herein is this Courts elucidation in De Jesus v. Court of Appeals,[124] which reads
On the evidentiary value of these documents, it should be recalled that the notarization of a private document converts
it into a public one and renders it admissible in court without further proof of its authenticity (Joson vs. Baltazar, 194
SCRA 114 [1991]). This is so because a public document duly executed and entered in the proper registry is presumed
to be valid and genuine until the contrary is shown by clear and convincing proof (Asido vs. Guzman, 57 Phil. 652
[1918]; U.S. vs. Enriquez, 1 Phil 241 [1902]; Favor vs. Court of Appeals, 194 SCRA 308 [1991]). As such, the party
challenging the recital of the document must prove his claim with clear and convincing evidence (Diaz vs. Court of
Appeals, 145 SCRA 346 [1986]).
The rule on the evidentiary weight that must be accorded a notarized document is clear and unambiguous. The
certificate of acknowledgement in the notarized Deeds of Assignment constituted prima facie evidence of the execution
thereof. Thus, the burden of refuting this presumption fell on respondent. She could have presented evidence of any
defect or irregularity in the execution of the said documents[125] or raised questions as to the verity of the notary publics
acknowledgment and certificate in the Deeds.[126] But again, respondent admitted executing the Deeds of Assignment,
dated 2 March 1978 and 9 March 1978, although claiming that the loans for which they were executed as security were
already paid. And, she assailed the Deeds of Assignment, dated 25 August 1978, with nothing more than her bare
denial of execution thereof, hardly the clear and convincing evidence required to trounce the presumption of due
execution of a notarized document.
Petitioners not only presented the notarized Deeds of Assignment, but even secured certified literal copies thereof from
the National Archives.[127] Mr. Renato Medua, an archivist, working at the Records Management and Archives Office
of the National Library, testified that the copies of the Deeds presented before the RTC were certified literal copies of
those contained in the Notarial Registries of the notary publics concerned, which were already in the possession of the
National Archives. He also explained that he could not bring to the RTC the Notarial Registries containing the original
copies of the Deeds of Assignment, because the Department of Justice (DOJ) Circular No. 97, dated 8 November 1968,
prohibits the bringing of original documents to the courts to prevent the loss of irreplaceable and priceless
documents.[128]
Accordingly, this Court gives the Deeds of Assignment grave importance in establishing the authority given by the
respondent to petitioner Citibank to use as security for her loans her money her market placements with petitioner
FNCB Finance, represented by PNs No. 8167 and 8169, later to be rolled-over as PNs No. 20138 and 20139. These
Deeds of Assignment constitute the law between the parties, and the obligations arising therefrom shall have the force
of law between the parties and should be complied with in good faith.[129] Standard clauses in all of the Deeds provide
that
The ASSIGNOR and the ASSIGNEE hereby further agree as follows:
xxxx
2. In the event the OBLIGATIONS are not paid at maturity or upon demand, as the case may be, the ASSIGNEE is
fully authorized and empowered to collect and receive the PLACEMENT (or so much thereof as may be necessary)
and apply the same in payment of the OBLIGATIONS. Furthermore, the ASSIGNOR agrees that at any time, and from
time to time, upon request by the ASSIGNEE, the ASSIGNOR will promptly execute and deliver any and all such
further instruments and documents as may be necessary to effectuate this Assignment.
xxxx
5. This Assignment shall be considered as sufficient authority to FNCB Finance to pay and deliver the PLACEMENT
or so much thereof as may be necessary to liquidate the OBLIGATIONS, to the ASSIGNEE in accordance with terms
and provisions hereof.[130]
Petitioner Citibank was only acting upon the authority granted to it under the foregoing Deeds when it finally used the
proceeds of PNs No. 20138 and 20139, paid by petitioner FNCB Finance, to partly pay for respondents outstanding
loans. Strictly speaking, it did not effect a legal compensation or off-set under Article 1278 of the Civil Code, but
rather, it partly extinguished respondents obligations through the application of the security given by the respondent
for her loans. Although the pertinent documents were entitled Deeds of Assignment, they were, in reality, more of a
pledge by respondent to petitioner Citibank of her credit due from petitioner FNCB Finance by virtue of her money
market placements with the latter. According to Article 2118 of the Civil Code
ART. 2118. If a credit has been pledged becomes due before it is redeemed, the pledgee may collect and receive the
amount due. He shall apply the same to the payment of his claim, and deliver the surplus, should there be any, to the
pledgor.
PNs No. 20138 and 20139 matured on 3 September 1979, without them being redeemed by respondent, so that
petitioner Citibank collected from petitioner FNCB Finance the proceeds thereof, which included the principal amounts
and interests earned by the money market placements, amounting to P1,022,916.66, and applied the same against
respondents outstanding loans, leaving no surplus to be delivered to respondent.
Dollar accounts with Citibank-Geneva
Despite the legal compensation of respondents savings account and the total application of the proceeds of PNs No.
20138 and 20139 to respondents outstanding loans, there still remained a balance of P1,069,847.40. Petitioner Citibank
then proceeded to applying respondents dollar accounts with Citibank-Geneva against her remaining loan balance,
pursuant to a Declaration of Pledge supposedly executed by respondent in its favor.
Certain principles of private international law should be considered herein because the property pledged was in the
possession of an entity in a foreign country, namely, Citibank-Geneva. In the absence of any allegation and evidence
presented by petitioners of the specific rules and laws governing the constitution of a pledge in Geneva, Switzerland,
they will be presumed to be the same as Philippine local or domestic laws; this is known as processual presumption.[131]
Upon closer scrutiny of the Declaration of Pledge, this Court finds the same exceedingly suspicious and irregular.
First of all, it escapes this Court why petitioner Citibank took care to have the Deeds of Assignment of the PNs
notarized, yet left the Declaration of Pledge unnotarized. This Court would think that petitioner Citibank would take
greater cautionary measures with the preparation and execution of the Declaration of Pledge because it involved
respondents all present and future fiduciary placements with a Citibank branch in another country, specifically, in
Geneva, Switzerland. While there is no express legal requirement that the Declaration of Pledge had to be notarized to
be effective, even so, it could not enjoy the same prima facie presumption of due execution that is extended to notarized
documents, and petitioner Citibank must discharge the burden of proving due execution and authenticity of the
Declaration of Pledge.
Second, petitioner Citibank was unable to establish the date when the Declaration of Pledge was actually executed. The
photocopy of the Declaration of Pledge submitted by petitioner Citibank before the RTC was undated. [132] It presented
only a photocopy of the pledge because it already forwarded the original copy thereof to Citibank-Geneva when it
requested for the remittance of respondents dollar accounts pursuant thereto. Respondent, on the other hand, was able
to secure a copy of the Declaration of Pledge, certified by an officer of Citibank-Geneva, which bore the date 24
September 1979.[133] Respondent, however, presented her passport and plane tickets to prove that she was out of the
country on the said date and could not have signed the pledge. Petitioner Citibank insisted that the pledge was signed
before 24 September 1979, but could not provide an explanation as to how and why the said date was written on the
pledge. Although Mr. Tan testified that the Declaration of Pledge was signed by respondent personally before him, he
could not give the exact date when the said signing took place. It is important to note that the copy of the Declaration
of Pledge submitted by the respondent to the RTC was certified by an officer of Citibank-Geneva, which had possession
of the original copy of the pledge. It is dated 24 September 1979, and this Court shall abide by the presumption that
the written document is truly dated.[134] Since it is undeniable that respondent was out of the country on 24 September
1979, then she could not have executed the pledge on the said date.
Third, the Declaration of Pledge was irregularly filled-out. The pledge was in a standard printed form. It was constituted
in favor of Citibank, N.A., otherwise referred to therein as the Bank. It should be noted, however, that in the space
which should have named the pledgor, the name of petitioner Citibank was typewritten, to wit
The pledge right herewith constituted shall secure all claims which the Bank now has or in the future acquires
against Citibank, N.A., Manila (full name and address of the Debtor), regardless of the legal cause or the transaction
(for example current account, securities transactions, collections, credits, payments, documentary credits and
collections) which gives rise thereto, and including principal, all contractual and penalty interest, commissions,
charges, and costs.
The pledge, therefore, made no sense, the pledgor and pledgee being the same entity. Was a mistake made by whoever
filled-out the form? Yes, it could be a possibility.Nonetheless, considering the value of such a document, the mistake
as to a significant detail in the pledge could only be committed with gross carelessness on the part of petitioner Citibank,
and raised serious doubts as to the authenticity and due execution of the same. The Declaration of Pledge had passed
through the hands of several bank officers in the country and abroad, yet, surprisingly and implausibly, no one noticed
such a glaring mistake.
Lastly, respondent denied that it was her signature on the Declaration of Pledge. She claimed that the signature was a
forgery. When a document is assailed on the basis of forgery, the best evidence rule applies
Basic is the rule of evidence that when the subject of inquiry is the contents of a document, no evidence is admissible
other than the original document itself except in the instances mentioned in Section 3, Rule 130 of the Revised Rules
of Court. Mere photocopies of documents are inadmissible pursuant to the best evidence rule. This is especially true
when the issue is that of forgery.
As a rule, forgery cannot be presumed and must be proved by clear, positive and convincing evidence and the burden
of proof lies on the party alleging forgery. The best evidence of a forged signature in an instrument is the instrument
itself reflecting the alleged forged signature. The fact of forgery can only be established by a comparison between the
alleged forged signature and the authentic and genuine signature of the person whose signature is theorized upon to
have been forged. Without the original document containing the alleged forged signature, one cannot make a definitive
comparison which would establish forgery. A comparison based on a mere xerox copy or reproduction of the document
under controversy cannot produce reliable results.[135]
Respondent made several attempts to have the original copy of the pledge produced before the RTC so as to have it
examined by experts. Yet, despite several Orders by the RTC,[136] petitioner Citibank failed to comply with the
production of the original Declaration of Pledge. It is admitted that Citibank-Geneva had possession of the original
copy of the pledge. While petitioner Citibank in Manila and its branch in Geneva may be separate and distinct entities,
they are still incontestably related, and between petitioner Citibank and respondent, the former had more influence and
resources to convince Citibank-Geneva to return, albeit temporarily, the original Declaration of Pledge. Petitioner
Citibank did not present any evidence to convince this Court that it had exerted diligent efforts to secure the original
copy of the pledge, nor did it proffer the reason why Citibank-Geneva obstinately refused to give it back, when such
document would have been very vital to the case of petitioner Citibank. There is thus no justification to allow the
presentation of a mere photocopy of the Declaration of Pledge in lieu of the original, and the photocopy of the pledge
presented by petitioner Citibank has nil probative value.[137] In addition, even if this Court cannot make a categorical
finding that respondents signature on the original copy of the pledge was forged, it is persuaded that petitioner Citibank
willfully suppressed the presentation of the original document, and takes into consideration the presumption that the
evidence willfully suppressed would be adverse to petitioner Citibank if produced. [138]
Without the Declaration of Pledge, petitioner Citibank had no authority to demand the remittance of respondents dollar
accounts with Citibank-Geneva and to apply them to her outstanding loans. It cannot effect legal compensation under
Article 1278 of the Civil Code since, petitioner Citibank itself admitted that Citibank-Geneva is a distinct and separate
entity. As for the dollar accounts, respondent was the creditor and Citibank-Geneva is the debtor; and as for the
outstanding loans, petitioner Citibank was the creditor and respondent was the debtor. The parties in these transactions
were evidently not the principal creditor of each other.
Therefore, this Court declares that the remittance of respondents dollar accounts from Citibank-Geneva and the
application thereof to her outstanding loans with petitioner Citibank was illegal, and null and void. Resultantly,
petitioner Citibank is obligated to return to respondent the amount of US$149,632,99 from her Citibank-Geneva
accounts, or its present equivalent value in Philippine currency; and, at the same time, respondent continues to be
obligated to petitioner Citibank for the balance of her outstanding loans which, as of 5 September 1979, amounted
to P1,069,847.40.
V
The parties shall be liable for interests on their monetary obligations to each other, as determined herein.
In summary, petitioner Citibank is ordered by this Court to pay respondent the proceeds of her money market
placements, represented by PNs No. 23356 and 23357, amounting to P318,897.34 and P203,150.00, respectively,
earning an interest of 14.5% per annum as stipulated in the PNs, [139] beginning 17 March 1977, the date of the
placements.
Petitioner Citibank is also ordered to refund to respondent the amount of US$149,632.99, or its equivalent in Philippine
currency, which had been remitted from her Citibank-Geneva accounts. These dollar accounts, consisting of two
fiduciary placements and current accounts with Citibank-Geneva shall continue earning their respective stipulated
interests from 26 October 1979, the date of their remittance by Citibank-Geneva to petitioner Citibank in Manila and
applied against respondents outstanding loans.
As for respondent, she is ordered to pay petitioner Citibank the balance of her outstanding loans, which amounted
to P1,069,847.40 as of 5 September 1979. These loans continue to earn interest, as stipulated in the corresponding PNs,
from the time of their respective maturity dates, since the supposed payment thereof using respondents dollar accounts
from Citibank-Geneva is deemed illegal, null and void, and, thus, ineffective.
VI
Petitioner Citibank shall be liable for damages to respondent.
Petitioners protest the award by the Court of Appeals of moral damages, exemplary damages, and attorneys fees in
favor of respondent. They argued that the RTC did not award any damages, and respondent, in her appeal before the
Court of Appeals, did not raise in issue the absence of such.
While it is true that the general rule is that only errors which have been stated in the assignment of errors and properly
argued in the brief shall be considered, this Court has also recognized exceptions to the general rule, wherein it
authorized the review of matters, even those not assigned as errors in the appeal, if the consideration thereof is necessary
in arriving at a just decision of the case, and there is a close inter-relation between the omitted assignment of error and
those actually assigned and discussed by the appellant. [140]Thus, the Court of Appeals did not err in awarding the
damages when it already made findings that would justify and support the said award.
Although this Court appreciates the right of petitioner Citibank to effect legal compensation of respondents local
deposits, as well as its right to the proceeds of PNs No. 20138 and 20139 by virtue of the notarized Deeds of
Assignment, to partly extinguish respondents outstanding loans, it finds that petitioner Citibank did commit wrong
when it failed to pay and properly account for the proceeds of respondents money market placements, evidenced by
PNs No. 23356 and 23357, and when it sought the remittance of respondents dollar accounts from Citibank-Geneva
by virtue of a highly-suspect Declaration of Pledge to be applied to the remaining balance of respondents outstanding
loans. It bears to emphasize that banking is impressed with public interest and its fiduciary character requires high
standards of integrity and performance.[141] A bank is under the obligation to treat the accounts of its depositors with
meticulous care whether such accounts consist only of a few hundred pesos or of millions of pesos.[142] The bank must
record every single transaction accurately, down to the last centavo, and as promptly as possible.[143] Petitioner Citibank
evidently failed to exercise the required degree of care and transparency in its transactions with respondent, thus,
resulting in the wrongful deprivation of her property.
Respondent had been deprived of substantial amounts of her investments and deposits for more than two
decades. During this span of years, respondent had found herself in desperate need of the amounts wrongfully withheld
from her. In her testimony[144] before the RTC, respondent narrated
Q By the way Mrs. Witness will you kindly tell us again, you said before that you are a businesswoman, will you tell
us again what are the businesses you are engaged into [sic]?
A I am engaged in real estate. I am the owner of the Modesta Village 1 and 2 in San Mateo, Rizal. I am also the
President and Chairman of the Board of Macador [sic] Co. and Business Inc. which operates the Macador [sic]
International Palace Hotel. I am also the President of the Macador [sic] International Palace Hotel, and also the
Treasures Home Industries, Inc. which I am the Chairman and president of the Board and also operating affiliated
company in the name of Treasures Motor Sales engaged in car dealers [sic] like Delta Motors, we are the dealers of
the whole Northern Luzon and I am the president of the Disto Company, Ltd., based in Hongkong licensed in Honkong
[sic] and now operating in Los Angeles, California.
Q What is the business of that Disto Company Ltd.?
A Disto Company, Ltd., is engaged in real estate and construction.
Q Aside from those businesses are you a member of any national or community organization for social and civil
activities?
A Yes sir.
Q What are those?
A I am the Vice-President of thes [sic] Subdivision Association of the Philippines in 1976, I am also an officer of the
Chamber of Real Estate Business Association; I am also an officer of the Chatholic [sic] Womens League and I am
also a member of the CMLI, I forgot the definition.
Q How about any political affiliation or government position held if any?
A I was also a candidate for Mayo last January 30, 1980.

Q Where?
A In Dagupan City, Pangasinan.
Q What else?
A I also ran as an Assemblywoman last May, 1984, Independent party in Regional I, Pangasinan.
Q What happened to your businesses you mentioned as a result of your failure to recover you [sic] investments and
bank deposits from the defendants?
A They are not all operating, in short, I was hampered to push through the businesses that I have.
A [sic] Of all the businesses and enterprises that you mentioned what are those that are paralyzed and what remain
inactive?
A Of all the company [sic] that I have, only the Disto Company that is now operating in California.
Q How about your candidacy as Mayor of Dagupan, [sic] City, and later as Assemblywoman of Region I, what
happened to this?
A I won by voting but when election comes on [sic] the counting I lost and I protested this, it is still pending and
because I dont have financial resources I was not able to push through the case.I just have it pending in the Comelec.
Q Now, do these things also affect your social and civic activities?
A Yes sir, definitely.
Q How?
A I was embarrassed because being a businesswoman I would like to inform the Honorable Court that I was awarded
as the most outstanding businesswoman of the year in 1976 but when this money was not given back to me I was not
able to comply with the commitments that I have promised to these associations that I am engaged into [sic], sir.
For the mental anguish, serious anxiety, besmirched reputation, moral shock and social humiliation suffered by the
respondent, the award of moral damages is but proper.However, this Court reduces the amount thereof to P300,000.00,
for the award of moral damages is meant to compensate for the actual injury suffered by the respondent, not to enrich
her.[145]
Having failed to exercise more care and prudence than a private individual in its dealings with respondent, petitioner
Citibank should be liable for exemplary damages, in the amount of P250,000.00, in accordance with Article
2229[146] and 2234[147] of the Civil Code.
With the award of exemplary damages, then respondent shall also be entitled to an award of attorneys
fees.[148] Additionally, attorney's fees may be awarded when a party is compelled to litigate or to incur expenses to
protect his interest by reason of an unjustified act of the other party.[149] In this case, an award of P200,000.00 attorneys
fees shall be satisfactory.
In contrast, this Court finds no sufficient basis to award damages to petitioners. Respondent was compelled to institute
the present case in the exercise of her rights and in the protection of her interests. In fact, although her Complaint before
the RTC was not sustained in its entirety, it did raise meritorious points and on which this Court rules in her favor. Any
injury resulting from the exercise of ones rights is damnum absque injuria.[150]
IN VIEW OF THE FOREGOING, the instant Petition is PARTLY GRANTED. The assailed Decision of the Court
of Appeals in CA-G.R. No. 51930, dated 26 March 2002, as already modified by its Resolution, dated 20 November
2002, is hereby AFFIRMED WITH MODIFICATION, as follows
1. PNs No. 23356 and 23357 are DECLARED subsisting and outstanding. Petitioner Citibank is ORDERED to return
to respondent the principal amounts of the said PNs, amounting to Three Hundred Eighteen Thousand Eight Hundred
Ninety-Seven Pesos and Thirty-Four Centavos (P318,897.34) and Two Hundred Three Thousand One Hundred Fifty
Pesos (P203,150.00), respectively, plus the stipulated interest of Fourteen and a half percent (14.5%) per annum,
beginning 17 March 1977;
2. The remittance of One Hundred Forty-Nine Thousand Six Hundred Thirty Two US Dollars and Ninety-Nine Cents
(US$149,632.99) from respondents Citibank-Geneva accounts to petitioner Citibank in Manila, and the application of
the same against respondents outstanding loans with the latter, is DECLARED illegal, null and void. Petitioner
Citibank is ORDERED to refund to respondent the said amount, or its equivalent in Philippine currency using the
exchange rate at the time of payment, plus the stipulated interest for each of the fiduciary placements and current
accounts involved, beginning 26 October 1979;
3. Petitioner Citibank is ORDERED to pay respondent moral damages in the amount of Three Hundred Thousand
Pesos (P300,000.00); exemplary damages in the amount of Two Hundred Fifty Thousand Pesos (P250,000.00); and
attorneys fees in the amount of Two Hundred Thousand Pesos (P200,000.00); and
4. Respondent is ORDERED to pay petitioner Citibank the balance of her outstanding loans, which, from the
respective dates of their maturity to 5 September 1979, was computed to be in the sum of One Million Sixty-Nine
Thousand Eight Hundred Forty-Seven Pesos and Forty Centavos (P1,069,847.40), inclusive of interest. These
outstanding loans shall continue to earn interest, at the rates stipulated in the corresponding PNs, from 5 September
1979 until payment thereof.
SO ORDERED.
[G.R. No. 148582. January 16, 2002]
FAR EAST BANK AND TRUST COMPANY, petitioner, vs. ESTRELLA O. QUERIMIT, respondent.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari seeking review of the decision, dated March 6, 2001, and resolution, dated
June 19, 2001, of the Court of Appeals[1] in CA-G.R. CV No. 67147, entitled Estrella O. Querimit v. Far East Bank
and Trust Company, which affirmed with modification the decision of the Regional Trial Court, Branch 38,
Manila,[2] ordering petitioner Far East Bank and Trust Co. (FEBTC) to allow respondent Estrella O. Querimit to
withdraw her time deposit with the FEBTC.
The facts are as follows:
Respondent Estrella O. Querimit worked as internal auditor of the Philippine Savings Bank (PSB) for 19 years, from
1963 to 1992.[3] On November 24, 1986, she opened a dollar savings account in petitioners Harrison Plaza branch,[4] for
which she was issued four (4) Certificates of Deposit (Nos. 79028, 79029, 79030, and 79031), each certificate
representing the amount of $15,000.00, or a total amount of $60,000.00. The certificates were to mature in 60 days,
on January 23, 1987, and were payable to bearer at 4.5% interest per annum. The certificates bore the word accrued,
which meant that if they were not presented for encashment or pre-terminated prior to maturity, the money
deposited with accrued interest would be rolled over by the bank and annual interest
would accumulate automatically.[5] The petitioner banks manager assured respondent that her deposit would be
renewed and earn interest upon maturity even without the surrender of the certificates if these were not indorsed and
withdrawn.[6] Respondent kept her dollars in the bank so that they would earn interest and so that she could use the
fund after she retired.[7]
In 1989, respondent accompanied her husband Dominador Querimit to the United States for medical treatment. She
used her savings in the Bank of the Philippine Islands (BPI) to pay for the trip and for her husbands medical
expenses.[8] In January 1993, her husband died and Estrella returned to the Philippines. She went to petitioner FEBTC
to withdraw her deposit but, to her dismay, she was told that her husband had withdrawn the money in
deposit.[9] Through counsel, respondent sent a demand letter to petitioner FEBTC. In another letter, respondent
reiterated her request for updating and payment of the certificates of deposit, including interest earned. [10] As petitioner
FEBTC refused respondents demands, the latter filed a complaint, joining in the action Edgardo F. Blanco, Branch
Manager of FEBTC Harrison Plaza Branch, and Octavio Espiritu, FEBTC President.[11]
Petitioner FEBTC alleged that it had given respondents late husband Dominador an accommodation to allow him to
withdraw Estrellas deposit.[12] Petitioner presented certified true copies of documents showing that payment had been
made, to wit:
1. Four FEBTC Harrison Plaza Branch Dollar Demand Drafts Nos. 886694903, 886694904, 886694905 and
886694906 for US$15,110.96 each, allegedly issued by petitioner to respondents husband Dominador after payment
on the certificates of deposit;[13]
2. A letter of Alicia de Bustos, branch cashier of FEBTC at Harrison Plaza, dated January 23, 1987, which was sent to
Citibank, N.A., Citibank Center, Paseo de Roxas, Makati, Metro Manila, informing the latter that FEBTC had issued
the four drafts and requesting Citibank New York to debit from petitioners account $60,443.84, the aggregate value of
the four drafts;[14]
3. Citicorp Remittance Service: Daily Summary and Payment Report dated January 23, 1987;[15]
4. Debit Ticket dated January 23, 1987, showing the debit of US$60,443.84 or its equivalent at the time
of P1,240,912.04 from the FEBTC Harrison Plaza Branch;[16] and
5. An Interbranch Transaction Ticket Register or Credit Ticket dated January 23, 1987 showing that US$60,443.84
or P1,240,912.04 was credited to petitioners International Operation Division (IOD). [17]
On May 6, 2000, the trial court rendered judgment for respondent. The dispositive portion of the decision stated:
WHEREFORE, judgment is hereby rendered in favor of plaintiff [Estrella O. Querimit] and against defendants
[FEBTC et al.]:
1. ORDERING defendants to allow plaintiff to withdraw her U.S.$ Time Deposit of $60,000.00 plus accrued interests;
2. ORDERING defendants to pay moral damages in the amount of P50,000.00;
3. ORDERING defendants to pay exemplary damages in the amount of P50,000.00;
4. ORDERING defendants to pay attorneys fees in the amount of P100,000.00 plus P10,000.00 per appearance of
counsel; and
5. ORDERING defendants to pay the costs of the suit.
SO ORDERED.[18]
On May 15, 2000, petitioner appealed to the Court of Appeals which, on March 6, 2001, affirmed through its
Fourteenth Division the decision of the trial court, with the modification that FEBTC was declared solely liable for the
amounts adjudged in the decision of the trial court. The appeals court stated that petitioner FEBTC failed to prove that
the certificates of deposit had been paid out of its funds, since the evidence by the [respondent] stands unrebutted that
the subject certificates of deposit until now remain unindorsed, undelivered and unwithdrawnby [her].[19] But the Court
of Appeals held that the individual defendants, Edgardo F. Blanco, FEBTC-Harrison Plaza Branch Manager,
and Octavio Espiritu, FEBTC President, could not be held solidarily liable with the FEBTC because the latter has a
personality separate from its officers and stockholders.[20]
Hence this appeal.
As stated by the Court of Appeals, the main issue in this case is whether the subject certificates of deposit have already
been paid by petitioner.[21] Petitioner contends that-
I. Petitioner is not liable to respondent for the value of the four (4) Certificates of Deposit, including the interest thereon
as well as moral and exemplary damages, attorneys and appearance fees.
II. The aggregate value - both principal and interest earned at maturity - of the four (4) certificates of deposit was
already paid to or withdrawn at maturity by the late Dominador Querimit who was the respondents deceased husband.
III. Respondent is guilty of laches since the four (4) certificates of deposit were all issued on 24 November 1986 but
she attempted to withdraw their aggregate value on 29 July 1996 only on or after the lapse of more than nine (9) years
and eight (8) months.
IV. Respondent is not liable to petitioner for attorneys fees.[22]
After reviewing the records, we find the petition to be without merit.
First. Petitioner bank failed to prove that it had already paid Estrella Querimit, the bearer and lawful holder of the
subject certificates of deposit. The finding of the trial court on this point, as affirmed by the Court of Appeals, is that
petitioner did not pay either respondent Estrella or her husband the amounts evidenced by the subject certificates of
deposit. This Court is not a trier of facts and generally does not weigh anew the evidence already passed upon by the
Court of Appeals.[23] The finding of respondent court which shows that the subject certificates of deposit are still in the
possession of Estrella Querimit and have not been indorsed or delivered to petitioner FEBTC is substantiated by the
record and should therefore stand.[24]
A certificate of deposit is defined as a written acknowledgment by a bank or banker of the receipt of a sum of money
on deposit which the bank or banker promises to pay to the depositor, to the order of the depositor, or to some other
person or his order, whereby the relation of debtor and creditor between the bank and the depositor is created. The
principles governing other types of bank deposits are applicable to certificates of deposit, [25] as are the rules governing
promissory notes when they contain an unconditional promise to pay a sum certain of money
absolutely.[26] The principle that payment, in order to discharge a debt, must be made to someone authorized to receive
it is applicable to the payment of certificates of deposit. Thus, a bank will be protected in making payment to the holder
of a certificate indorsed by the payee, unless it has notice of the invalidity of the indorsement or the holders want of
title.[27] A bank acts at its peril when it pays deposits evidenced by a certificate of deposit, without its production and
surrender after proper indorsement.[28] As a rule, one who pleads payment has the burden of proving it. Even where the
plaintiff must allege non-payment, the general rule is that the burden rests on the defendant to prove payment, rather
than on the plaintiff to prove payment. The debtor has the burden of showing with legal certainty that the obligation
has been discharged by payment.[29]
In this case, the certificates of deposit were clearly marked payable to bearer, which means, to [t]he person in
possession of an instrument, document of title or security payable to bearer or indorsed in blank. [30] Petitioner should
not have paid respondents husband or any third party without requiring the surrender of the certificates of deposit.
Petitioner claims that it did not demand the surrender of the subject certificates of deposit since respondents
husband, Dominador Querimit, was one of the banks senior managers. But even long after respondents husband had
allegedly been paid respondents deposit and before his retirement from service, the FEBTC never required him
to deliver the certificates of deposit in question.[31] Moreover, the accommodation given to respondents husband was
made in violation of the banks policies and procedures.[32]
Petitioner FEBTC thus failed to exercise that degree of diligence required by the nature of its business.[33] Because the
business of banks is impressed with public interest, the degree of diligence required of banks is more than that of a
good father of the family or of an ordinary business firm. The fiduciary nature of their relationship with their depositors
requires them to treat the accounts of their clients with the highest degree of care.[34] A bank is under obligation to treat
the accounts of its depositors with meticulous care whether such accounts consist only of a few hundred pesos or of
millions of pesos. Responsibility arising from negligence in the performance of every kind of obligation is
demandable.[35] Petitioner failed to prove payment of the subject certificates of deposit issued to the respondent and,
therefore, remains liable for the value of the dollar deposits indicated thereon with accrued interest.
Second. The equitable principle of laches is not sufficient to defeat the rights of respondent over the subject certificates
of deposit.
Laches is the failure or neglect, for an unreasonable length of time, to do that which, by exercising due diligence, could
or should have been done earlier. It is negligence or omission to assert a right within a reasonable time, warranting a
presumption that the party entitled to assert it either has abandoned it or declined to assert it. [36]
There is no absolute rule as to what constitutes laches or staleness of demand; each case is to be determined according
to its particular circumstances. The question of laches is addressed to the sound discretion of the court and, being an
equitable doctrine, its application is controlled by equitable considerations. It cannot be used to defeat justice or
perpetrate fraud and injustice. Courts will not be guided or bound strictly by the statute of limitations or the doctrine
of laches when to do so, manifest wrong or injustice would result.[37]
In this case, it would be unjust to allow the doctrine of laches to defeat the right of respondent to recover her savings
which she deposited with the petitioner. She did not withdraw her deposit even after the maturity date of the certificates
of deposit precisely because she wanted to set it aside for her retirement. She relied on the banks assurance, as reflected
on the face of the instruments themselves, that interest would accrue or accumulate annually even after their maturity. [38]
Third. Respondent is entitled to moral damages because of the mental anguish and humiliation she suffered as a result
of the wrongful refusal of the FEBTC to pay her even after she had delivered the certificates of deposit. [39] In addition,
petitioner FEBTC should pay respondent exemplary damages, which the trial court imposed by way of example or
correction for the public good.[40] Finally, respondent is entitled to attorneys fees since petitioners act or omission
compelled her to incur expenses to protect her interest, making such award just and equitable. [41] However, we find the
award of attorneys fees to be excessive and accordingly reduce it to P20,000.00.[42]
WHEREFORE, premises considered, the present petition is hereby DENIED and the Decision in CA-G.R. CV No.
67147 AFFIRMED, with the modification that the award of attorneys fees is reduced to P20,000.00.
SO ORDERED.

G.R. No. 92591 April 30, 1991
CITYTRUST BANKING CORPORATION, petitioner vs. THE COURT OF APPEALS, and WILLIAM
SAMARA, respondents.
GUTIERREZ, JR., J.:
The Court is beset with the issue involving two defendants in a case for recovery of a sum of money where the trial
court adjudged them to be jointly and severally liable as judgment debtors to pay the plaintiff but who are now
required, as a result of a modification on appeal by only one of them, to pay substantially different amounts while
being solidarity liable.
As a prefatory note, this is the second time the petitioner has gone to this Court but the issues raised at the first
instance are distinct from the one at bar.
The case arose from a complaint filed by private respondent William Samara, an American who does business in the
Philippines, against petitioner Citytrust Banking Corporation (hereinafter referred to as Citytrust) and a foreign bank,
Marine Midland Bank, N.A. (hereinafter referred to as Marine Midland).
The facts as established by the trial court show that plaintiff-private respondent Samara purchased on December 10,
1980 from defendant petitioner Citytrust Bank Draft Number 23681 for US $40,000.00, the payee being Thai
International Airways and the corresponding bank in the United States or the drawee, defendant Marine Midland. On
December 23, 1980, Samara executed a stop-payment order of the bank draft instructing Citytrust to inform Marine
Midland about the order through telex. Citytrust transmitted the message to Marine Midland the next day and
followed it up with a cable, which the latter bank acknowledged to have received on January 14, 1981 stating in its
receipt that it has noted the stop-payment order and has not paid the bank draft. Citytrust credited back Samara's
account for U.S. $40,000.00 due to the non-payment. After seven months or on July 3, 1981, Citytrust re-debited
Samara's account for U.S. $40,000.00 upon discovering that Marine Midland had already debited Citytrust's own
account for the same amount allegedly on December 22, 1980, Despite the alleged discovery, however, there is
evidence to show that Marine Midland informed Citytrust through a letter of the non-payment or non-encashment of
the bank draft as of August 4, 1981. It is also shown that Marine Midland even confirmed in a telex letter dated
August 31, 1981 that the bank draft had not been paid as of that date.
Based on the above findings, the trial court brushed aside Marine Midland's contention that it had already paid the
bank draft of Samara on December 22, 1980 or before it received the stop payment order. The trial court was not
convinced regarding the denial of the confirmation made as to the non-payment of the bank draft since the time it
received the stop payment order. Marine Midland was held bound by its letters admitting knowledge of the stop
payment order and compliance with it. The trial court also overruled the ground relied on by Citytrust in re-debiting
Samara's dollar account, i.e., the discovery that Marine Midland debited Citytrust's account before the stop payment
order was given by Samara, this being unjustifiable. Hence, a decision was rendered on March 4, 1986, the
dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered:
1. Ordering the defendants, jointly and severally, to pay the plaintiff the sum of US $40,000.00, plus twelve percent
(12%) interest per annum from July 3, 1981, until full payment is made, and the further interest of twelve percent
(12%) per annum on the accrued interest from December 23, 1980 up to the filing of the complaint on October 4,
1983, inclusive; Exemplary damages in the sum of One Hundred Thousand Pesos (P100,000.00) and the sum of Fifty
Thousand Pesos (P50,000.00) as and for attorney's fees, and costs;
2. Dismissing the defendant's counter-claims for lack of merit;
3. Ordering defendant Marine Midland to reimburse defendant Citytrust of whatever amount the latter will be made
to pay the plaintiff by reason of this judgment and costs. (Rollo, pp. 29-30)
Only Marine Midland filed a motion for reconsideration of the decision. It was denied. The petitioner did not do
anything except to move for a reconsideration of an order of execution of the judgment against it which was granted.
The petitioner and Marine Midland filed separate appeals.
The petitioner's appeal was, however, dismissed on December 15, 1987 for having been filed out of time or fifty-one
(51) days after (i.e., May 7, 1986) it received a copy of the trial court decision on March 17, 1986. A motion to
reconsider the dismissal was denied by the Court of Appeals.
On February 26, 1988, the petitioner questioned before the Supreme Court the dismissal of its appeal. That case was
docketed as G.R. No. 82009 where the petitioner raised the following issues: (1) whether or not the timely appeal of
Marine Midland inured to petitioner's benefit; and (2) whether or not plaintiff-private respondent Samara was entitled
to immediate execution even assuming the petitioner's appeal was indeed filed out of time.
While the petition for certiorari to review the dismissal of the appeal was still pending before this Court, the Court of
Appeals on February 23, 1989 affirmed the trial court decision with modification consisting of a reduction of the rate
of interest and attorney's fees, as well as the exclusion of exemplary damages. Thus, the dispositive portion of the
decision of the appellate court in CA-G.R. CV No. 14128 reads:
WHEREFORE, judgment is hereby rendered AFFIRMING the Decision appealed from except paragraph 1 thereof
which is hereby modified to read as follows:
1. Ordering the defendants jointly and severally, to pay the plaintiff the sum of US $40,000.00, plus six percent (6%)
interest per annum from July 3, 1981 until full payment is made, and the sum of Ten Thousand (P10,000.00) Pesos,
as and for attorney's fees. (Rollo, pp. 45-46)
About a month and a half later or on April 10, 1989, this Court, through its First Division, denied the petition in G.R.
No. 82009 for lack of merit. In response to the allegation that the prescriptive period for filing an appeal was also
suspended as to the petitioner when co-defendant Marine Midland filed a motion for reconsideration, the Court ruled
that the rights and liabilities of the two defendants are not so interwoven as to show similarity in defenses and
warrant reversal of the judgment as to both. This Court stressed specifically the finding of the appellate court that
although the petitioner and Marine Midland were solidarily liable, only the latter was ultimately held responsible for
damages because it was the one ordered to reimburse the petitioner for "whatever amount" the petitioner will be
made to pay the plaintiff by reason of the judgment. (See Citytrust Banking Corp. v. Court of Appeals, 171 SCRA
758 [1989]). Moreover, in filing a motion for reconsideration, Marine Midland was in fact acting only for itself.
Regarding the second issue, we held that respondent Samara is entitled to immediate execution when the trial court
decision became final and executory as to the petitioner. In overcoming the petitioner's argument that execution
pending appeal of its co-defendant should not be allowed to prevent an absurd result in case of possible reversal, we
held that the law is clear that a final judgment must be executed against a defeated party. Since both defendants are
jointly and severally liable, it is irrelevant whether or not the co-defendant would be absolved.
Some four months later or on August 7, 1989, the Supreme Court declared the decision in G.R. No. 82009 to be final
and executory. The petitioner's motion for reconsideration was denied.
On September 28, 1989, Samara filed a motion for execution which the trial court granted on October 23, 1989. The
petitioner assailed the Order of Execution before the Court of Appeals on November 6, 1989 in CA-G.R. SP No.
19176. The trial court was upheld and subsequent motion for reconsideration was denied.
Hence, the instant petition was filed on March 29, 1990 which raises the main issue of whether or not the respondent
appellate court committed reversible error in ruling that the liability of the petitioner should be based on the original
decision of the trial court and not the modified one.
The private respondent contends that the petition is barred by res judicata alleging that the issue in the case at bar had
already been raised, passed upon, and judicially determined by this Court in G.R. No. 82009.
It is our considered opinion that the issue here is distinct from the ones raised earlier. In the present petition, the
Court is faced with the issue of the propriety of the execution of judgments in favor of private respondent Samara
who is entitled to recover on execution: against the petitioner, the amount of US $40,000.00 plus 12% compounded
interest per annum, exemplary damages of P100,000.00 attorney's fees of P50,000.00 and costs; and as against
Marine Midland, the amount of US $40,000.00 plus 6% simple interest per annum, and attorney's fees of only
P10,000.00.
We are less concerned now with the issues of whether or not a co-defendant's appeal inures to the benefit of another
who failed to appeal on time and on the right of a judgment creditor to immediate execution of a final and executory
judgment since such issues have become moot and academic.
It is worthy to note that the Court was not apprised of the February 23, 1989 decision of the Court of Appeals until
after we had promulgated a decision denying Citytrust's petition for certiorari to review the dismissal of its own
appeal. We were so notified through Citytrust's motion for reconsideration of our decision n in G.R. No. 82009. It is
a sad fact, however, that the motion did not present sufficiently compelling grounds to convince the Court to rule
otherwise on the issues presented in G.R. No. 82009 which pertain to the validity of the dismissal of the petitioner's
appeal.
The present petition was given due course in line with our settled rule that while a decision has already become final
and executory and can no longer be challenged, the manner of its execution can be reviewed by proper appeal (Abbot
v. National Labor Relations Commission, 145 SCRA 206 [1986]). It is not only the difference in the issue raised that
makes us allow this petition. It is also because of a different Court of Appeals decision (this time in CA- G.R. SP No.
19176) that is the subject of our review. The petitioner now assails the affirmation of the order of execution based on
the trial court judgment in spite of the modified judgment which reduced the liability of co-defendants to pay private
respondent. What bothers the private respondent is the similarity of the arguments used by the petitioner in all the
pleadings filed with this Court in G.R. No. 82009 and in the present petition.
The Court reiterates what it has held in the Abbot case:
xxx xxx xxx
In the instant case, however, what is sought to be reviewed is not the decision itself but the manner of its execution.
There is a big difference. While it is true that the decision itself has become final and executory and so can no longer
be challenged, there is no question either that it must be enforced in accordance with its terms and conditions. Any
deviation therefrom can be the subject of a proper appeal. (pp. 209-210)
The petitioner alleges that the appellate court decision dated February 23, 1989 has superseded and renderedfunctus
oficio the March 4, 1986 decision of the trial court invoked by the private respondent and is applicable not only to
Marine Midland but also to the petitioner.
The Court does not agree with this allegation which hinges on the petitioner's insistence that it can benefit from a
reversal or modification of a judgment even if it has lost its own appeal. We do not depart from our earlier analysis in
G.R. No. 82009 that the rights and liabilities of the petitioner and Marine Midland are not so interwoven in such a
manner that their defenses are similar as to readily warrant an operative effect upon a party who failed to appeal.
As found by this Court in G.R. No. 82009:
It must be noted that two defendants, Marine Midland and Citytrust, filed cross claims against each other in their
answer. Citytrust alleged that the proximate cause of the injury should be attributed to co-defendant Marine Midland
when the latter failed to promptly inform Citytrust that the demand draft Citytrust issued was really paid by Marine
Midland on December 22, 1980. For its part, Marine Midland alleged that Citytrust did not properly advise it of the
actual circumstances relating to the dates of payment of the draft and of the receipt by the latter of the stop-payment
instructions. The rights and liabilities of both parties concerned are not so interwoven in such a manner that their
defenses are similar and that a reversal of the judgment as to one should operate as a reversal to the other.
Furthermore, a perusal of the decision appealed from shows that Marine Midland, though jointly and severally liable
with petitioner, is the one ultimately held responsible for the damages incurred by the private respondent inasmuch as
the trial court ordered "defendant Marine Midland to reimburse defendant Citytrust of whatever amount the latter will
be made to pay the plaintiff by reason of this judgment and costs." (Citytrust Banking Corp. v. Court of
Appeals, supra at page 765)
The Court is of the considered view that it was the trial court judgment that created a joint and several obligation to
pay the private respondent certain sums. No solidary liability as between them existed from the drawer-drawee
relationship in the draft transaction.
The joint and several obligation imposed by the lower court had a three-fold purpose: (1) to declare the prevailing
party to be entitled to recover damages on account of the prejudice which resulted from the acts of the co-defendants;
(2) to give the prevailing party the right to proceed against either one of them to recover the amounts awarded to him;
and (3) to impress upon Marine Midland its ultimate liability to fully reimburse the petitioner Citytrust consistent
with the finding that the proximate cause of the injury to the private respondent was the wrongful deed of Marine
Midland.
The trial court judgment, however, does not alter the fact that the respective defenses of the co-defendants are distinct
on trial and even on appeal. Citytrust and Marine Midland were not in privity with each other in a transaction
involving payment through a bank draft. A bank draft is a "bill of exchange drawn by a bank upon its correspondent
bank, . . . issued at the solicitation of a stranger who purchases and pays therefor" (Kohler v. First National Bank, 289
P 47, 49, 157 Wash. 417 [1930]). It is also defined as an "order for payment of money." (Polotsky v. Artisans
Savings Bank, Del. 180 A. 791, 792, 7 WW. Harr 142 [1935]). In the case at bar, Citytrust from which the private
respondent purchased the bank draft, was the drawer of the draft through which it ordered Marine Midland, the
drawee bank, to pay the amount of US $40,000.00 in favor of Thai International Airways, the payee. The drawee
bank acting as a "payor" bank is solely liable for acts not done in accordance with the instructions of the drawer bank
or of the purchaser of the draft. The drawee bank has the burden of proving that it did not violate. Meanwhile, the
drawer, if sued by the purchaser of the draft is liable for the act of debiting the customer's account despite an
instruction to stop payment. The drawer has the duty to prove that he complied with the order to inform the drawee.
The fact that the petitioner previously filed a cross-claim against Marine Midland does not make the former a party in
the latter's appeal where all reliefs granted to the plaintiff and/or to the petitioner who was a co-defendant are up for
review. The rights and liabilities of Citytrust as a defensive cross-claimant, which alleged that the proximate cause of
the injury to the plaintiff was the wrongful action of Marine Midland, have already been litigated before the trial
court which ordered full reimbursement in favor of Citytrust. Until petitioner Citytrust appeals for the review of the
trial court decision either in part or in toto, its rights and obligations as pre-determined cannot generally be affected
by an appeal of a co-defendant. The respondent appellate court made this clear in its decision dated February 23,
1989, when it stated that even assuming that the petitioner may be considered an appellee, "such a standing was only
with respect to the cross-claim against (appellant Marine Midland) and not with respect to its (petitioner's) liability in
favor or private respondent Samara", the judgment on which had already become final and executory as to the
Petitioner. The petitioner cannot now present a subverted interpretation of what the appellate court meant.
The Court examines the execution of judgment rendered in favor of private respondent Samara from a perspective
which shows a glaring disparity between the amounts which each of the two judgment debtors are bound to pay
despite: (1) their being held jointly and severally liable, and (2) the right of one of them to be reimbursed for the
whole amount of whatever it is obliged to pay.
A judgment may determine the ultimate rights of the parties on the same side as between themselves such that
questions of primary and secondary liability between joint tort-feasors may be determined. (Montgomery v. Blades, 9
SE 2d 397, 217 NC 654 [1940]). This rule reaffirms that principles of joint and several liability have survived so that
the plaintiff is entitled to recover the entire judgment from a single defendant even though the responsibility of that
defendant for personal injury is of a lesser extent. (Gorelick v. Department of State Highways, 339 NW 2d. 635,127
Mich. App. 324 [1983])
A review of the trial court judgment and the appellate court judgment here shows that the only difference is the
amount of damages in paragraph 1 of the dispositive portion of the March 4, 1986 decision as restated and reduced in
the February 23, 1989 decision. All other orders of the trial court were affirmed by the respondent appellate court.
The joint and several obligation to pay the private respondent and the right of the petitioner to be reimbursed are
retained. The problem now lies in interpreting the said modification as likewise reducing the total amount which can
be executed against the petitioner.
If we go by a literal procedure, execution against petitioner Citytrust would be based on the March 4, 1986 decision.
However, the Court can not close its eyes to the inexplicable situation where private respondent Samara would be
given a choice of executing his claim for US $40,000.00 plus bigger interest (compounded), exemplary damages, and
attorney's fees from petitioner Citytrust, or US $40,000.00 plus a smaller sum inclusive of simple interest and
reduced attorney's fees from Marine Midland. Even if it is admitted that Citytrust would anyway be reimbursed for
the whole amount which Citytrust may be ordered to pay, such reimbursement would be a circumvention of the
appellate court's judgment that Marine Midland is liable only for the modified sum.
There are two final judgments arising from one and the same basic claim of Mr. Samara. The obligations arising from
the same stop payment order on the same U.S. $40,000.00 bank draft are sought to be enforced by the two conflicting
final and executory judgments. We cannot enforce one judgment while allowing a violation of the other. We apply
basic principles of justice and equity.
It is clear from the records that "the draft was not paid or cashed before the receipt of the stop payment order by the
appellant (Marine Midland)" but was certainly paid at some other date as evidenced by a reconciliation entry
showing a debit of the corresponding amount in the books of Marine Midland. (See Rollo, pp. 40 and 42).
Furthermore, there was substantial evidence to show that Marine Midland is the one actually responsible for the
personal injury to the private respondent. The respondent court made the following findings, to wit:
xxx xxx xxx
It must be noted that it was the appellant's certifications and repeated reaffimation of non-payment of the bank draft
that led defendant Citytrust to re-credit appellee's account. Also, the appellant negligently failed to implement the
stop payment order upon receipt. It tarried in actually executing it until January 13, 1981. Furthermore, it was the
appellant's debiting of the account of the defendant-Citytrust which also led the defendant Citytrust to again debit the
appellee's dollar account despite prior acknowledgment of the non-payment of the draft. No doubt, it was the
appellant's actuations that triggered the whole mess. Therefore, the lower court correctly ordered the appellant to
reimburse defendant Citytrust of whatever amount the latter may pay the appellee by virtue of its judgment. (Rollo, p.
44)
Considering the above circumstances, the Court will not allow the absurd situation where a co-defendant who is
adjudged to be primarily liable for sums of money and for tort would be charged for an amount lesser than what its
co-defendant is bound to pay to the common creditor and allowed to collect from the first co-defendant. Such a
situation runs counter to the principle of solidarity in obligations as between co-defendants established by a judgment
for recovery of sum of money and damages. Substantial justice shall not allow Marine Midland, which is the source
of the injury afflicted, to be unjustly enriched either by the direct execution against him of the judgment for the
reduced amount or by the indirect execution by way of reimbursement at a later time.
Additionally, the Court notes the modification made by the respondent court which ordered not only Marine Midland
(the appellant therein) but both "defendants jointly and severally" to pay the new amount. Though, as a matter of
procedure, the modification shall be applied only to the appellant, substantial justice and equity also demand that we
re-interpret the decision to refer to petitioner Citytrust as well. There exists a strong and compelling reason to warrant
an exception to the rule that a judgment creditor is entitled to execution of a final and executory judgment against a
party especially if that party failed to appeal. (Olacao v. National Labor Relations Commission, 177 SCRA 38
[1989]; Quigui v. Boncaros 151 SCRA 416 [1987]; Orata v. Intermediate Appellate Court, 185 SCRA 148 [1990])
WHEREFORE, the decision of the Court of Appeals in CA-G.R. SP No. 19176 dated January 18, 1990 as well as the
resolution denying reconsideration are hereby REVERSED and SET ASIDE. The court a quo is ordered to effect
execution of its judgment subject to the modifications supplied by the Court of Appeals in its judgment on February
23, 1989.
SO ORDERED.
[G.R. No. 156940. December 14, 2004]
ASSOCIATED BANK (Now WESTMONT BANK), petitioner, vs. VICENTE HENRY TAN, respondent.
DECISION
PANGANIBAN, J.:
While banks are granted by law the right to debit the value of a dishonored check from a depositors account, they must
do so with the highest degree of care, so as not to prejudice the depositor unduly.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assailing the January 27, 2003 Decision [2] of
the Court of Appeals (CA) in CA-GR CV No. 56292. The CA disposed as follows:
WHEREFORE, premises considered, the Decision dated December 3, 1996, of
the Regional Trial Court of Cabanatuan City, Third Judicial Region, Branch 26, in Civil Case No. 892-AF is
hereby AFFIRMED. Costs against the [petitioner].[3]
The Facts
The CA narrated the antecedents as follows:
Vicente Henry Tan (hereafter TAN) is a businessman and a regular depositor-creditor of the Associated Bank
(hereinafter referred to as the BANK). Sometime in September 1990, he deposited a postdated UCPB check with the
said BANK in the amount of P101,000.00 issued to him by a certain Willy Cheng from Tarlac. The check was duly
entered in his bank record thereby making his balance in the amount of P297,000.00, as of October 1, 1990, from his
original deposit of P196,000.00. Allegedly, upon advice and instruction of the BANK that the P101,000.00 check
was already cleared and backed up by sufficient funds, TAN, on the same date, withdrew the sum of P240,000.00,
leaving a balance of P57,793.45. A day after, TAN deposited the amount of P50,000.00 making his existing balance
in the amount of P107,793.45, because he has issued several checks to his business partners, to wit:
CHECK NUMBERS DATE AMOUNT
a. 138814 Sept. 29, 1990 P9,000.00
b. 138804 Oct. 8, 1990 9,350.00
c. 138787 Sept. 30, 1990 6,360.00
d. 138847 Sept. 29, 1990 21,850.00
e. 167054 Sept. 29, 1990 4,093.40
f. 138792 ` Sept. 29, 1990 3,546.00
g. 138774 Oct. 2, 1990 6,600.00
h. 167072 Oct. 10, 1990 9,908.00
i. 168802 Oct. 10, 1990 3,650.00
However, his suppliers and business partners went back to him alleging that the checks he issued bounced for
insufficiency of funds. Thereafter, TAN, thru his lawyer, informed the BANK to take positive steps regarding the
matter for he has adequate and sufficient funds to pay the amount of the subject checks. Nonetheless, the BANK did
not bother nor offer any apology regarding the incident. Consequently, TAN, as plaintiff, filed a Complaint for
Damages on December 19, 1990, with the Regional Trial Court of Cabanatuan City, Third Judicial Region, docketed
as Civil Case No. 892-AF, against the BANK, as defendant.
In his [C]omplaint, [respondent] maintained that he ha[d] sufficient funds to pay the subject checks and alleged that
his suppliers decreased in number for lack of trust. As he has been in the business community for quite a time and has
established a good record of reputation and probity, plaintiff claimed that he suffered embarrassment, humiliation,
besmirched reputation, mental anxieties and sleepless nights because of the said unfortunate incident. [Respondent]
further averred that he continuously lost profits in the amount of P250,000.00. [Respondent] therefore prayed for
exemplary damages and that [petitioner] be ordered to pay him the sum of P1,000,000.00 by way of moral
damages, P250,000.00 as lost profits, P50,000.00 as attorneys fees plus 25% of the amount claimed
including P1,000.00 per court appearance.
Meanwhile, [petitioner] filed a Motion to Dismiss on February 7, 1991, but the same was denied for lack of merit in
an Order dated March 7, 1991. Thereafter, [petitioner] BANK on March 20, 1991 filed its Answer denying, among
others, the allegations of [respondent] and alleged that no banking institution would give an assurance to any of its
client/depositor that the check deposited by him had already been cleared and backed up by sufficient funds but it
could only presume that the same has been honored by the drawee bank in view of the lapse of time that ordinarily
takes for a check to be cleared. For its part, [petitioner] alleged that on October 2, 1990, it gave notice to the
[respondent] as to the return of his UCPB check deposit in the amount of P101,000.00, hence, on even date,
[respondent] deposited the amount of P50,000.00 to cover the returned check.
By way of affirmative defense, [petitioner] averred that [respondent] had no cause of action against it and argued that
it has all the right to debit the account of the [respondent] by reason of the dishonor of the check deposited by the
[respondent] which was withdrawn by him prior to its clearing. [Petitioner] further averred that it has no liability with
respect to the clearing of deposited checks as the clearing is being undertaken by the Central Bank and in accepting
[the] check deposit, it merely obligates itself as depositors collecting agent subject to actual payment by the drawee
bank. [Petitioner] therefore prayed that [respondent] be ordered to pay it the amount of P1,000,000.00 by way of loss
of goodwill, P7,000.00 as acceptance fee plus P500.00 per appearance and by way of attorneys fees.
Considering that Westmont Bank has taken over the management of the affairs/properties of the BANK, [respondent]
on October 10, 1996, filed an Amended Complaint reiterating substantially his allegations in the original complaint,
except that the name of the previous defendant ASSOCIATED BANK is now WESTMONT BANK.
Trial ensured and thereafter, the court rendered its Decision dated December 3, 1996 in favor of the [respondent] and
against the [petitioner], ordering the latter to pay the [respondent] the sum of P100,000.00 by way of moral
damages, P75,000.00 as exemplary damages, P25,000.00 as attorneys fees, plus the costs of this suit. In making said
ruling, it was shown that [respondent] was not officially informed about the debiting of the P101,000.00 [from] his
existing balance and that the BANK merely allowed the [respondent] to use the fund prior to clearing merely for
accommodation because the BANK considered him as one of its valued clients. The trial court ruled that the bank
manager was negligent in handling the particular checking account of the [respondent] stating that such lapses caused
all the inconveniences to the [respondent]. The trial court also took into consideration that [respondents] mother was
originally maintaining with the x x x BANK [a] current account as well as [a] time deposit, but [o]n one occasion,
although his mother made a deposit, the same was not credited in her favor but in the name of another. [4]
Petitioner appealed to the CA on the issues of whether it was within its rights, as collecting bank, to debit the account
of its client for a dishonored check; and whether it had informed respondent about the dishonor prior to debiting his
account.
Ruling of the Court of Appeals
Affirming the trial court, the CA ruled that the bank should not have authorized the withdrawal of the value of the
deposited check prior to its clearing. Having done so, contrary to its obligation to treat respondents account with
meticulous care, the bank violated its own policy. It thereby took upon itself the obligation to officially inform
respondent of the status of his account before unilaterally debiting the amount of P101,000. Without such notice, it is
estopped from blaming him for failing to fund his account.
The CA opined that, had the P101,000 not been debited, respondent would have had sufficient funds for the postdated
checks he had issued. Thus, the supposed accommodation accorded by petitioner to him is the proximate cause of his
business woes and shame, for which it is liable for damages.
Because of the banks negligence, the CA awarded respondent moral damages of P100,000. It also granted him
exemplary damages of P75,000 and attorneys fees of P25,000.
Hence this Petition.[5]
Issue
In its Memorandum, petitioner raises the sole issue of whether or not the petitioner, which is acting as a collecting
bank, has the right to debit the account of its client for a check deposit which was dishonored by the drawee bank.[6]
The Courts Ruling
The Petition has no merit.
Sole Issue:
Debit of Depositors Account
Petitioner-bank contends that its rights and obligations under the present set of facts were misappreciated by the CA. It
insists that its right to debit the amount of the dishonored check from the account of respondent is clear and
unmistakable. Even assuming that it did not give him notice that the check had been dishonored, such right remains
immediately enforceable.
In particular, petitioner argues that the check deposit slip accomplished by respondent on September 17, 1990,
expressly stipulated that the bank was obligating itself merely as the depositors collecting agent and -- until such time
as actual payment would be made to it -- it was reserving the right to charge against the depositors account any amount
previously credited. Respondent was allowed to withdraw the amount of the check prior to clearing, merely as an act
of accommodation, it added.
At the outset, we stress that the trial courts factual findings that were affirmed by the CA are not subject to review by
this Court.[7] As petitioner itself takes no issue with those findings, we need only to determine the legal consequence,
based on the established facts.
Right of Setoff
A bank generally has a right of setoff over the deposits therein for the payment of any withdrawals on the part of a
depositor.[8] The right of a collecting bank to debit a clients 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. [9] Thus, legal
compensation under Article 1278[10] of the Civil Code may take place when all the requisites mentioned in Article 1279
are present,[11] 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.[12]
Nonetheless, the real issue here is not so much the right of petitioner to debit respondents account but, rather, the
manner in which it exercised such right. The Court has held that even while the right of setoff is conceded, separate is
the question of whether that remedy has properly been exercised. [13]
The liability of petitioner in this case ultimately revolves around the issue of whether it properly exercised its right of
setoff. The determination thereof hinges, in turn, on the banks role and obligations, first, as respondents depositary
bank; and second, as collecting agent for the check in question.
Obligation as Depositary Bank
In BPI v. Casa Montessori,[14] the Court has emphasized that the banking business is impressed with public
interest. Consequently, the highest degree of diligence is expected, and high standards of integrity and performance are
even required of it. By the nature of its functions, a bank is under obligation to treat the accounts of its depositors with
meticulous care.[15]
Also affirming this long standing doctrine, Philippine Bank of Commerce v. Court of Appeals[16] has held that the
degree of diligence required of banks is more than that of a good father of a family where the fiduciary nature of their
relationship with their depositors is concerned.[17] Indeed, the banking business is vested with the trust and confidence
of the public; hence the appropriate standard of diligence must be very high, if not the highest, degree of
diligence.[18] The standard applies, regardless of whether the account consists of only a few hundred pesos or of
millions.[19]
The fiduciary nature of banking, previously imposed by case law,[20] is now enshrined in Republic Act No. 8791 or the
General Banking Law of 2000. Section 2 of the law specifically says that the State recognizes the fiduciary nature of
banking that requires high standards of integrity and performance.
Did petitioner treat respondents account with the highest degree of care? From all indications, it did not.
It is undisputed -- nay, even admitted -- that purportedly as an act of accommodation to a valued client, petitioner
allowed the withdrawal of the face value of the deposited check prior to its clearing. That act certainly disregarded the
clearance requirement of the banking system. Such a practice is unusual, because a check is not legal tender or
money;[21] and its value can properly be transferred to a depositors account only after the check has been cleared by the
drawee bank.[22]
Under ordinary banking practice, after receiving a check deposit, a bank either immediately credit the amount to a
depositors account; or infuse value to that account only after the drawee bank shall have paid such amount. [23] Before
the check shall have been cleared for deposit, the collecting bank can only assume at its own risk -- as herein petitioner
did -- that the check would be cleared and paid out.
Reasonable business practice and prudence, moreover, dictated that petitioner should not have authorized the absence of notice to him that the bank has applied the funds so deposited in extinguishment of past due claims held against
withdrawal by respondent of P240,000 on October 1, 1990, as this amount was over and above his outstanding cleared him. (Callahan vs. Bank of Anderson [1904], 2 Ann. Cas., 203.) However this may be, as to an indorser the situation is different, and
balance of P196,793.45.[24] Hence, the lower courts correctly appreciated the evidence in his favor. notice should actually have been given him in order that he might protect his interests.[40]
Obligation as Collecting Agent Third, regarding the deposit of P50,000 made by respondent on October 2, 1990, we fully subscribe to the CAs
Indeed, the bank deposit slip expressed this reservation: observations that it was not unusual for a well-reputed businessman like him, who ordinarily takes note of the amount
In receiving items on deposit, this Bank obligates itself only as the Depositors Collecting agent, assuming no of money he takes and releases, to immediately deposit money in his current account to answer for the postdated checks
responsibility beyond carefulness in selecting correspondents, and until such time as actual payments shall have he had issued.[41]
come to its possession, this Bank reserves the right to charge back to the Depositors account any amounts previously Damages
credited whether or not the deposited item is returned. x x x."[25] Inasmuch as petitioner does not contest the basis for the award of damages and attorneys fees, we will no longer address
However, this reservation is not enough to insulate the bank from any liability. In the past, we have expressed doubt these matters.
about the binding force of such conditions unilaterally imposed by a bank without the consent of the depositor. [26] It is WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.
indeed arguable that in signing the deposit slip, the depositor does so only to identify himself and not to agree to the SO ORDERED.
conditions set forth at the back of the deposit slip.[27]
Further, by the express terms of the stipulation, petitioner took upon itself certain obligations as respondents agent, G.R. No. 97753 August 10, 1992
consonant with the well-settled rule that the relationship between the payee or holder of a commercial paper and the CALTEX (PHILIPPINES), INC., petitioner, vs. COURT OF APPEALS and SECURITY BANK AND TRUST
collecting bank is that of principal and agent.[28] Under Article 1909[29] of the Civil Code, such bank could be held liable COMPANY, respondents.
not only for fraud, but also for negligence.
As a general rule, a bank is liable for the wrongful or tortuous acts and declarations of its officers or agents within the REGALADO, J.:
course and scope of their employment.[30] Due to the very nature of their business, banks are expected to exercise the This petition for review on certiorari impugns and seeks the reversal of the decision promulgated by respondent
highest degree of diligence in the selection and supervision of their employees. [31] Jurisprudence has established that court on March 8, 1991 in CA-G.R. CV No. 23615 1 affirming with modifications, the earlier decision of the
the lack of diligence of a servant is imputed to the negligence of the employer, when the negligent or wrongful act of Regional Trial Court of Manila, Branch XLII, 2 which dismissed the complaint filed therein by herein petitioner
the former proximately results in an injury to a third person; [32] in this case, the depositor. against respondent bank.
The manager of the banks Cabanatuan branch, Consorcia Santiago, categorically admitted that she and the employees The undisputed background of this case, as found by the court a quo and adopted by respondent court, appears of
under her control had breached bank policies. They admittedly breached those policies when, without clearance from record:
the drawee bank in Baguio, they allowed respondent to withdraw on October 1, 1990, the amount of the check 1. On various dates, defendant, a commercial banking institution, through its Sucat Branch issued 280 certificates of
deposited. Santiagotestified that respondent was not officially informed about the debiting of the P101,000 from his time deposit (CTDs) in favor of one Angel dela Cruz who deposited with herein defendant the aggregate amount of
existing balance of P170,000 on October 2, 1990 x x x.[33] P1,120,000.00, as follows: (Joint Partial Stipulation of Facts and Statement of Issues, Original Records, p. 207;
Being the branch manager, Santiago clearly acted within the scope of her authority in authorizing the withdrawal and Defendant's Exhibits 1 to 280);
the subsequent debiting without notice. Accordingly, what remains to be determined is whether her actions proximately CTD CTD
caused respondents injury. Proximate cause is that which -- in a natural and continuous sequence, unbroken by any Dates Serial Nos. Quantity Amount
efficient intervening cause --produces the injury, and without which the result would not have occurred.[34] 22 Feb. 82 90101 to 90120 20 P80,000
Let us go back to the facts as they unfolded. It is undeniable that the banks premature authorization of the withdrawal 26 Feb. 82 74602 to 74691 90 360,000
by respondent on October 1, 1990, triggered -- in rapid succession and in a natural sequence -- the debiting of his 2 Mar. 82 74701 to 74740 40 160,000
account, the fall of his account balance to insufficient levels, and the subsequent dishonor of his own checks for lack 4 Mar. 82 90127 to 90146 20 80,000
of funds. The CA correctly noted thus: 5 Mar. 82 74797 to 94800 4 16,000
x x x [T]he depositor x x x withdrew his money upon the advice by [petitioner] that his money was already 5 Mar. 82 89965 to 89986 22 88,000
cleared. Without such advice, [respondent] would not have withdrawn the sum of P240,000.00.Therefore, it cannot 5 Mar. 82 70147 to 90150 4 16,000
be denied that it was [petitioners] fault which allowed [respondent] to withdraw a huge sum which he believed was 8 Mar. 82 90001 to 90020 20 80,000
already his. 9 Mar. 82 90023 to 90050 28 112,000
To emphasize, it is beyond cavil that [respondent] had sufficient funds for the check. Had the P101,000.00 not [been] 9 Mar. 82 89991 to 90000 10 40,000
debited, the subject checks would not have been dishonored. Hence, we can say that [respondents] injury arose from 9 Mar. 82 90251 to 90272 22 88,000
the dishonor of his well-funded checks. x x x.[35] ——— ————
Aggravating matters, petitioner failed to show that it had immediately and duly informed respondent of the debiting of Total 280 P1,120,000
his account. Nonetheless, it argues that the giving of notice was discernible from his act of depositing P50,000 ===== ========
on October 2, 1990, to augment his account and allow the debiting. This argument deserves short shrift. 2. Angel dela Cruz delivered the said certificates of time (CTDs) to herein plaintiff in connection with his purchased
First, notice was proper and ought to be expected. By the bank managers account, respondent was considered a valued of fuel products from the latter (Original Record, p. 208).
client whose checks had always been sufficiently funded from 1987 to 1990, [36] until the October imbroglio. Thus, he 3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo Tiangco, the Sucat Branch Manger, that he lost
deserved nothing less than an official notice of the precarious condition of his account. all the certificates of time deposit in dispute. Mr. Tiangco advised said depositor to execute and submit a notarized
Second, under the provisions of the Negotiable Instruments Law regarding the liability of a general indorser[37] and the Affidavit of Loss, as required by defendant bank's procedure, if he desired replacement of said lost CTDs (TSN,
procedure for a notice of dishonor,[38] it was incumbent on the bank to give proper notice to respondent. In Gullas v. February 9, 1987, pp. 48-50).
National Bank,[39] the Court emphasized: 4. On March 18, 1982, Angel dela Cruz executed and delivered to defendant bank the required Affidavit of Loss
x x x [A] general indorser of a negotiable instrument engages that if the instrument the check in this case is (Defendant's Exhibit 281). On the basis of said affidavit of loss, 280 replacement CTDs were issued in favor of said
dishonored and the necessary proceedings for its dishonor are duly taken, he will pay the amount thereof to the depositor (Defendant's Exhibits 282-561).
holder (Sec. 66) It has been held by a long line of authorities that notice of dishonor is necessary to charge an 5. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan from defendant bank in the amount of Eight
indorser and that the right of action against him does not accrue until the notice is given. Hundred Seventy Five Thousand Pesos (P875,000.00). On the same date, said depositor executed a notarized Deed of
x x x. The fact we believe is undeniable that prior to the mailing of notice of dishonor, and without waiting for any action by Gullas, Assignment of Time Deposit (Exhibit 562) which stated, among others, that he (de la Cruz) surrenders to defendant
the bank made use of the money standing in his account to make good for the treasury warrant. At this point recall that Gullas was bank "full control of the indicated time deposits from and after date" of the assignment and further authorizes said
merely an indorser and had issued checks in good faith. As to a depositor who has funds sufficient to meet payment of a check drawn bank to pre-terminate, set-off and "apply the said time deposits to the payment of whatever amount or amounts may
by him in favor of a third party, it has been held that he has a right of action against the bank for its refusal to pay such a check in the 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
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 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:
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 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.
 The Metropolitan Bank and Trust Co. is a commercial bank with branches throughout the Philippines and even
abroad. Golden Savings and Loan Association was, at the time these events happened, operating in Calapan,
Mindoro, with the other private respondents as its principal officers.
In January 1979, a certain Eduardo Gomez opened an account with Golden Savings and deposited over a period of
two months 38 treasury warrants with a total value of P1,755,228.37. They were all drawn by the Philippine Fish
Marketing Authority and purportedly signed by its General Manager and countersigned by its Auditor. Six of these
were directly payable to Gomez while the others appeared to have been indorsed by their respective payees, followed
by Gomez as second indorser.1
On various dates between June 25 and July 16, 1979, all these warrants were subsequently indorsed by Gloria
Castillo as Cashier of Golden Savings and deposited to its Savings Account No. 2498 in the Metrobank branch in
Calapan, Mindoro. They were then sent for clearing by the branch office to the principal office of Metrobank, which
forwarded them to the Bureau of Treasury for special clearing. 2
More than two weeks after the deposits, Gloria Castillo went to the Calapan branch several times to ask whether the
warrants had been cleared. She was told to wait. Accordingly, Gomez was meanwhile not allowed to withdraw from
his account. Later, however, "exasperated" over Gloria's repeated inquiries and also as an accommodation for a
"valued client," the petitioner says it finally decided to allow Golden Savings to withdraw from the proceeds of the
warrants.3
The first withdrawal was made on July 9, 1979, in the amount of P508,000.00, the second on July 13, 1979, in the
amount of P310,000.00, and the third on July 16, 1979, in the amount of P150,000.00. The total withdrawal was
P968.000.00.4
In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own account, eventually
collecting the total amount of P1,167,500.00 from the proceeds of the apparently cleared warrants. The last
withdrawal was made on July 16, 1979.
On July 21, 1979, Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the Bureau of
Treasury on July 19, 1979, and demanded the refund by Golden Savings of the amount it had previously withdrawn,
to make up the deficit in its account.
The demand was rejected. Metrobank then sued Golden Savings in the Regional Trial Court of Mindoro. 5 After trial,
judgment was rendered in favor of Golden Savings, which, however, filed a motion for reconsideration even as
Metrobank filed its notice of appeal. On November 4, 1986, the lower court modified its decision thus:
ACCORDINGLY, judgment is hereby rendered:
1. Dismissing the complaint with costs against the plaintiff;
2. Dissolving and lifting the writ of attachment of the properties of defendant Golden Savings and Loan Association,
Inc. and defendant Spouses Magno Castillo and Lucia Castillo;
3. Directing the plaintiff to reverse its action of debiting Savings Account No. 2498 of the sum of P1,754,089.00 and
to reinstate and credit to such account such amount existing before the debit was made including the amount of
P812,033.37 in favor of defendant Golden Savings and Loan Association, Inc. and thereafter, to allow defendant
Golden Savings and Loan Association, Inc. to withdraw the amount outstanding thereon before the debit;
4. Ordering the plaintiff to pay the defendant Golden Savings and Loan Association, Inc. attorney's fees and expenses
of litigation in the amount of P200,000.00.
5. Ordering the plaintiff to pay the defendant Spouses Magno Castillo and Lucia Castillo attorney's fees and expenses
of litigation in the amount of P100,000.00.
SO ORDERED.
On appeal to the respondent court,6 the decision was affirmed, prompting Metrobank to file this petition for review
on the following grounds:
1. Respondent Court of Appeals erred in disregarding and failing to apply the clear contractual terms and conditions
G.R. No. 88866 February 18, 1991 on the deposit slips allowing Metrobank to charge back any amount erroneously credited.
METROPOLITAN BANK & TRUST COMPANY, petitioner, (a) Metrobank's right to charge back is not limited to instances where the checks or treasury warrants are forged or
vs. unauthorized.
COURT OF APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC., LUCIA CASTILLO, (b) Until such time as Metrobank is actually paid, its obligation is that of a mere collecting agent which cannot be
MAGNO CASTILLO and GLORIA CASTILLO, respondents. held liable for its failure to collect on the warrants.
Angara, Abello, Concepcion, Regala & Cruz for petitioner. 2. Under the lower court's decision, affirmed by respondent Court of Appeals, Metrobank is made to pay for warrants
Bengzon, Zarraga, Narciso, Cudala, Pecson & Bengson for Magno and Lucia Castillo. already dishonored, thereby perpetuating the fraud committed by Eduardo Gomez.
Agapito S. Fajardo and Jaime M. Cabiles for respondent Golden Savings & Loan Association, Inc. 3. Respondent Court of Appeals erred in not finding that as between Metrobank and Golden Savings, the latter
should bear the loss.
4. Respondent Court of Appeals erred in holding that the treasury warrants involved in this case are not negotiable
CRUZ, J.: instruments.
This case, for all its seeming complexity, turns on a simple question of negligence. The facts, pruned of all non- The petition has no merit.
essentials, are easily told.
From the above undisputed facts, it would appear to the Court that Metrobank was indeed negligent in giving Golden
Savings the impression that the treasury warrants had been cleared and that, consequently, it was safe to allow
Gomez to withdraw the proceeds thereof from his account with it. Without such assurance, Golden Savings would
not have allowed the withdrawals; with such assurance, there was no reason not to allow the withdrawal. Indeed,
Golden Savings might even have incurred liability for its refusal to return the money that to all appearances belonged
to the depositor, who could therefore withdraw it any time and for any reason he saw fit.
It was, in fact, to secure the clearance of the treasury warrants that Golden Savings deposited them to its account with
Metrobank. Golden Savings had no clearing facilities of its own. It relied on Metrobank to determine the validity of
the warrants through its own services. The proceeds of the warrants were withheld from Gomez until Metrobank
allowed Golden Savings itself to withdraw them from its own deposit.7 It was only when Metrobank gave the go-
signal that Gomez was finally allowed by Golden Savings to withdraw them from his own account.
The argument of Metrobank that Golden Savings should have exercised more care in checking the personal
circumstances of Gomez before accepting his deposit does not hold water. It was Gomez who was entrusting the
warrants, not Golden Savings that was extending him a loan; and moreover, the treasury warrants were subject to
clearing, pending which the depositor could not withdraw its proceeds. There was no question of Gomez's identity or
of the genuineness of his signature as checked by Golden Savings. In fact, the treasury warrants were dishonored
allegedly because of the forgery of the signatures of the drawers, not of Gomez as payee or indorser. Under the
circumstances, it is clear that Golden Savings acted with due care and diligence and cannot be faulted for the
withdrawals it allowed Gomez to make.
By contrast, Metrobank exhibited extraordinary carelessness. The amount involved was not trifling — more than one
and a half million pesos (and this was 1979). There was no reason why it should not have waited until the treasury
warrants had been cleared; it would not have lost a single centavo by waiting. Yet, despite the lack of such clearance
— and notwithstanding that it had not received a single centavo from the proceeds of the treasury warrants, as it now
repeatedly stresses — it allowed Golden Savings to withdraw — not once, not twice, but thrice — from
the uncleared treasury warrants in the total amount of P968,000.00
Its reason? It was "exasperated" over the persistent inquiries of Gloria Castillo about the clearance and it also wanted
to "accommodate" a valued client. It "presumed" that the warrants had been cleared simply because of "the lapse of
one week."8 For a bank with its long experience, this explanation is unbelievably naive.
And now, to gloss over its carelessness, Metrobank would invoke the conditions printed on the dorsal side of the
deposit slips through which the treasury warrants were deposited by Golden Savings with its Calapan branch. The
conditions read as follows:
Kindly note that in receiving items on deposit, the bank obligates itself only as the depositor's collecting agent,
assuming no responsibility beyond care in selecting correspondents, and until such time as actual payment shall have
come into possession of this bank, the right is reserved to charge back to the depositor's account any amount
previously credited, whether or not such item is returned. This also applies to checks drawn on local banks and
bankers and their branches as well as on this bank, which are unpaid due to insufficiency of funds, forgery,
unauthorized overdraft or any other reason. (Emphasis supplied.)
According to Metrobank, the said conditions clearly show that it was acting only as a collecting agent for Golden
Savings and give it the right to "charge back to the depositor's account any amount previously credited, whether or
not such item is returned. This also applies to checks ". . . which are unpaid due to insufficiency of funds, forgery,
unauthorized overdraft of any other reason." It is claimed that the said conditions are in the nature of contractual
stipulations and became binding on Golden Savings when Gloria Castillo, as its Cashier, signed the deposit slips.
Doubt may be expressed about the binding force of the conditions, considering that they have apparently been
imposed by the bank unilaterally, without the consent of the depositor. Indeed, it could be argued that the depositor,
in signing the deposit slip, does so only to identify himself and not to agree to the conditions set forth in the given
permit at the back of the deposit slip. We do not have to rule on this matter at this time. At any rate, the Court feels
that even if the deposit slip were considered a contract, the petitioner could still not validly disclaim responsibility
thereunder in the light of the circumstances of this case.
In stressing that it was acting only as a collecting agent for Golden Savings, Metrobank seems to be suggesting that
as a mere agent it cannot be liable to the principal. This is not exactly true. On the contrary, Article 1909 of the Civil
Code clearly provides that —
Art. 1909. — The agent is responsible not only for fraud, but also for negligence, which shall be judged 'with more or
less rigor by the courts, according to whether the agency was or was not for a compensation.
The negligence of Metrobank has been sufficiently established. To repeat for emphasis, it was the clearance given by
it that assured Golden Savings it was already safe to allow Gomez to withdraw the proceeds of the treasury warrants
he had deposited Metrobank misled Golden Savings. There may have been no express clearance, as Metrobank
insists (although this is refuted by Golden Savings) but in any case that clearance could be implied from its allowing
Golden Savings to withdraw from its account not only once or even twice but three times. The total withdrawal was
in excess of its original balance before the treasury warrants were deposited, which only added to its belief that the
treasury warrants had indeed been cleared.
Metrobank's argument that it may recover the disputed amount if the warrants are not paid for any reason is not
acceptable. Any reason does not mean no reason at all. Otherwise, there would have been no need at all for Golden
Savings to deposit the treasury warrants with it for clearance. There would have been no need for it to wait until the
warrants had been cleared before paying the proceeds thereof to Gomez. Such a condition, if interpreted in the way
the petitioner suggests, is not binding for being arbitrary and unconscionable. And it becomes more so in the case at
bar when it is considered that the supposed dishonor of the warrants was not communicated to Golden Savings before
it made its own payment to Gomez.
The belated notification aggravated the petitioner's earlier negligence in giving express or at least implied clearance
to the treasury warrants and allowing payments therefrom to Golden Savings. But that is not all. On top of this, the
supposed reason for the dishonor, to wit, the forgery of the signatures of the general manager and the auditor of the
drawer corporation, has not been established.9 This was the finding of the lower courts which we see no reason to
disturb. And as we said in MWSS v. Court of Appeals:10
Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139 SCRA 238). It must be established by clear, positive
and convincing evidence. This was not done in the present case.
A no less important consideration is the circumstance that the treasury warrants in question are not negotiable
instruments. Clearly stamped on their face is the word "non-negotiable." Moreover, and this is of equal significance,
it is indicated that they are payable from a particular fund, to wit, Fund 501.
The following sections of the Negotiable Instruments Law, especially the underscored parts, are pertinent:
Sec. 1. — Form of negotiable instruments. — An instrument to be negotiable must conform to the following
requirements:
(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.
xxx xxx xxx
Sec. 3. When promise is unconditional. — An unqualified order or promise to pay is unconditional within the
meaning of this Act though coupled with —
(a) An indication of a particular fund out of which reimbursement is to be made or a particular account to be debited
with the amount; or
(b) A statement of the transaction which gives rise to the instrument judgment.
But an order or promise to pay out of a particular fund is not unconditional.
The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the order or
promise to pay "not unconditional" and the warrants themselves non-negotiable. There should be no question that the
exception on Section 3 of the Negotiable Instruments Law is applicable in the case at bar. This conclusion conforms
to Abubakar vs. Auditor General11 where the Court held:
The petitioner argues that he is a holder in good faith and for value of a negotiable instrument and is entitled to the
rights and privileges of a holder in due course, free from defenses. But this treasury warrant is not within the scope of
the negotiable instrument law. For one thing, the document bearing on its face the words "payable from the
appropriation for food administration, is actually an Order for payment out of "a particular fund," and is not
unconditional and does not fulfill one of the essential requirements of a negotiable instrument (Sec. 3 last sentence
and section [1(b)] of the Negotiable Instruments Law).
Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed that they were
"genuine and in all respects what they purport to be," in accordance with Section 66 of the Negotiable Instruments
Law. The simple reason is that this law is not applicable to the non-negotiable treasury warrants. The indorsement
was made by Gloria Castillo not for the purpose of guaranteeing the genuineness of the warrants but merely to
deposit them with Metrobank for clearing. It was in fact Metrobank that made the guarantee when it stamped on the
back of the warrants: "All prior indorsement and/or lack of endorsements guaranteed, Metropolitan Bank & Trust
Co., Calapan Branch."
The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the Philippine Islands, 12 but we feel this case is
inapplicable to the present controversy.1âwphi1 That case involved checks whereas this case involves treasury
warrants. Golden Savings never represented that the warrants were negotiable but signed them only for the purpose
of depositing them for clearance. Also, the fact of forgery was proved in that case but not in the case before us.
Finally, the Court found the Jai Alai Corporation negligent in accepting the checks without question from one
Antonio Ramirez notwithstanding that the payee was the Inter-Island Gas Services, Inc. and it did not appear that he
was authorized to indorse it. No similar negligence can be imputed to Golden Savings.
We find the challenged decision to be basically correct. However, we will have to amend it insofar as it directs the
petitioner to credit Golden Savings with the full amount of the treasury checks deposited to its account.
The total value of the 32 treasury warrants dishonored was P1,754,089.00, from which Gomez was allowed to
withdraw P1,167,500.00 before Golden Savings was notified of the dishonor. The amount he has withdrawn must be
charged not to Golden Savings but to Metrobank, which must bear the consequences of its own negligence. But the
balance of P586,589.00 should be debited to Golden Savings, as obviously Gomez can no longer be permitted to
withdraw this amount from his deposit because of the dishonor of the warrants. Gomez has in fact disappeared. To
also credit the balance to Golden Savings would unduly enrich it at the expense of Metrobank, let alone the fact that
it has already been informed of the dishonor of the treasury warrants.
WHEREFORE, the challenged decision is AFFIRMED, with the modification that Paragraph 3 of the dispositive
portion of the judgment of the lower court shall be reworded as follows:
3. Debiting Savings Account No. 2498 in the sum of P586,589.00 only and thereafter allowing defendant Golden
Savings & Loan Association, Inc. to withdraw the amount outstanding thereon, if any, after the debit.
SO ORDERED.
G.R. No. 16454 September 29, 1921
GEORGE A. KAUFFMAN, plaintiff-appellee, vs. THE PHILIPPINE NATIONAL BANK, defendant-appellant.
STREET, J.:
At the time of the transaction which gave rise to this litigation the plaintiff, George A. Kauffman, was the president
of a domestic corporation engaged chiefly in the exportation of hemp from the Philippine Islands and known as the
Philippine Fiber and Produce Company, of which company the plaintiff apparently held in his own right nearly the
entire issue of capital stock. On February 5, 1918, the board of directors of said company, declared a dividend of
P100,000 from its surplus earnings for the year 1917, of which the plaintiff was entitled to the sum of P98,000. This
amount was accordingly placed to his credit on the books of the company, and so remained until in October of the
same year when an unsuccessful effort was made to transmit the whole, or a greater part thereof, to the plaintiff in
New York City.
In this connection it appears that on October 9, 1918, George B. Wicks, treasurer of the Philippine Fiber and Produce
Company, presented himself in the exchange department of the Philippine National Bank in Manila and requested
that a telegraphic transfer of $45,000 should be made to the plaintiff in New York City, upon account of the
Philippine Fiber and Produce Company. He was informed that the total cost of said transfer, including exchange and
cost of message, would be P90,355.50. Accordingly, Wicks, as treasurer of the Philippine Fiber and Produce
Company, thereupon drew and delivered a check for that amount on the Philippine National Bank; and the same was
accepted by the officer selling the exchange in payment of the transfer in question. As evidence of this transaction a
document was made out and delivered to Wicks, which is referred to by the bank's assistant cashier as its official
receipt. This memorandum receipt is in the following language:
October 9th, 1918.
CABLE TRANSFER BOUGHT FROM
PHILIPPINE NATIONAL BANK,
Manila, P.I. Stamp P18
Foreign Amount Rate
$45,000. 3/8 % P90,337.50
Payable through Philippine National Bank, New York. To G. A. Kauffman, New York. Total P90,355.50. Account of Philippine Fiber
and Produce Company. Sold to Messrs. Philippine Fiber and Produce Company, Manila.
(Sgd.) Y LERMA,
Manager, Foreign Department.
On the same day the Philippine National Bank dispatched to its New York agency a cablegram to the following
effect:
Pay George A. Kauffman, New York, account Philippine Fiber Produce Co., $45,000. (Sgd.) PHILIPPINE
NATIONAL BANK, Manila.
Upon receiving this telegraphic message, the bank's representative in New York sent a cable message in reply
suggesting the advisability of withholding this money from Kauffman, in view of his reluctance to accept certain bills
of the Philippine Fiber and Produce Company. The Philippine National Bank acquiesced in this and on October 11
dispatched to its New York agency another message to withhold the Kauffman payment as suggested.
Meanwhile Wicks, the treasurer of the Philippine Fiber and Produce Company, cabled to Kauffman in New York,
advising him that $45,000 had been placed to his credit in the New York agency of the Philippine National Bank; and
in response to this advice Kauffman presented himself at the office of the Philippine National Bank in New York
City on October 15, 1918, and demanded the money. By this time, however, the message from the Philippine
National Bank of October 11, directing the withholding of payment had been received in New York, and payment
was therefore refused.
In view of these facts, the plaintiff Kauffman instituted the present action in the Court of First Instance of the city of
Manila to recover said sum, with interest and costs; and judgment having been there entered favorably to the
plaintiff, the defendant appealed.
Among additional facts pertinent to the case we note the circumstance that at the time of the transaction above-
mentioned, the Philippines Fiber and Produce Company did not have on deposit in the Philippine National Bank
money adequate to pay the check for P90,355.50, which was delivered in payment of the telegraphic order; but the
company did have credit to that extent, or more, for overdraft in current account, and the check in question was
charged as an overdraft against the Philippine Fiber and Produce Company and has remained on the books of the
bank as an interest-bearing item in the account of said company.
It is furthermore noteworthy that no evidence has been introduced tending to show failure of consideration with
respect to the amount paid for said telegraphic order. It is true that in the defendant's answer it is suggested that the
failure of the bank to pay over the amount of this remittance to the plaintiff in New York City, pursuant to its
agreement, was due to a desire to protect the bank in its relations with the Philippine Fiber and Produce Company,
whose credit was secured at the bank by warehouse receipts on Philippine products; and it is alleged that after the
exchange in question was sold the bank found that it did not have sufficient to warrant payment of the remittance. In
view, however, of the failure of the bank to substantiate these allegations, or to offer any other proof showing failure
of consideration, it must be assumed that the obligation of the bank was supported by adequate consideration.
In this court the defense is mainly, if not exclusively, based upon the proposition that, inasmuch as the plaintiff
Kauffman was not a party to the contract with the bank for the transmission of this credit, no right of action can be
vested in him for the breach thereof. "In this situation," — we here quote the words of the appellant's brief, — "if
there exists a cause of action against the defendant, it would not be in favor of the plaintiff who had taken no part at
all in the transaction nor had entered into any contract with the plaintiff, but in favor of the Philippine Fiber and
Produce Company, the party which contracted in its own name with the defendant."
The question thus placed before us is one purely of law; and at the very threshold of the discussion it can be stated
that the provisions of the Negotiable Instruments Law can come into operation there must be a document in existence
of the character described in section 1 of the Law; and no rights properly speaking arise in respect to said instrument
until it is delivered. In the case before us there was an order, it is true, transmitted by the defendant bank to its New
York branch, for the payment of a specified sum of money to George A. Kauffman. But this order was not made
payable "to order or "to bearer," as required in subsection (d) of that Act; and inasmuch as it never left the possession
of the bank, or its representative in New York City, there was no delivery in the sense intended in section 16 of the
same Law. In this connection it is unnecessary to point out that the official receipt delivered by the bank to the
purchaser of the telegraphic order, and already set out above, cannot itself be viewed in the light of a negotiable
instrument, although it affords complete proof of the obligation actually assumed by the bank.
Stated in bare simplicity the admitted facts show that the defendant bank for a valuable consideration paid by the
Philippine Fiber and Produce Company agreed on October 9, 1918, to cause a sum of money to be paid to the
plaintiff in New York City; and the question is whether the plaintiff can maintain an action against the bank for the
nonperformance of said undertaking. In other words, is the lack of privity with the contract on the part of the plaintiff
fatal to the maintenance of an action by him?
The only express provision of law that has been cited as bearing directly on this question is the second paragraph of
article 1257 of the Civil Code; and unless the present action can be maintained under the provision, the plaintiff
admittedly has no case. This provision states an exception to the more general rule expressed in the first paragraph of
the same article to the effect that contracts are productive of effects only between the parties who execute them; and
in harmony with this general rule are numerous decisions of this court (Wolfson vs. Estate of Martinez, 20 Phil., 340;
Ibañez de Aldecoa vs. Hongkong and Shanghai Banking Corporation, 22 Phil., 572, 584; Manila Railroad
Co. vs. Compañia Trasatlantica and Atlantic, Gulf and Pacific Co., 38 Phil., 873, 894.)
The paragraph introducing the exception which we are now to consider is in these words:
Should the contract contain any stipulation in favor of a third person, he may demand its fulfillment, provided he has
given notice of his acceptance to the person bound before the stipulation has been revoked. (Art. 1257, par. 2, Civ.
Code.)
In the case of Uy Tam and Uy Yet vs. Leonard (30 Phil., 471), is found an elaborate dissertation upon the history and
interpretation of the paragraph above quoted and so complete is the discussion contained in that opinion that it would
be idle for us here to go over the same matter. Suffice it to say that Justice Trent, speaking for the court in that case,
sums up its conclusions upon the conditions governing the right of the person for whose benefit a contract is made to
maintain an action for the breach thereof in the following words:
So, we believe the fairest test, in this jurisdiction at least, whereby to determine whether the interest of a third person
in a contract is a stipulation pour autrui, or merely an incidental interest, is to rely upon the intention of the parties as
disclosed by their contract.
If a third person claims an enforcible interest in the contract, the question must be settled by determining whether the
contracting parties desired to tender him such an interest. Did they deliberately insert terms in their agreement with
the avowed purpose of conferring a favor upon such third person? In resolving this question, of course, the ordinary
rules of construction and interpretation of writings must be observed. (Uy Tam and Uy Yet vs. Leonard, supra.)
Further on in the same opinion he adds: "In applying this test to a stipulation pour autrui, it matters not whether the
stipulation is in the nature of a gift or whether there is an obligation owing from the promise to the third person. That
no such obligation exists may in some degree assist in determining whether the parties intended to benefit a third
person, whether they stipulated for him." (Uy Tam and Uy Yet vs. Leonard, supra.)
In the light of the conclusion thus stated, the right of the plaintiff to maintain the present action is clear enough; for it
is undeniable that the bank's promise to cause a definite sum of money to be paid to the plaintiff in New York City is
a stipulation in his favor within the meaning of the paragraph above quoted; and the circumstances under which that
promise was given disclose an evident intention on the part of the contracting parties that the plaintiff should have the
money upon demand in New York City. The recognition of this unqualified right in the plaintiff to receive the money
implies in our opinion the right in him to maintain an action to recover it; and indeed if the provision in question
were not applicable to the facts now before us, it would be difficult to conceive of a case arising under it.
It will be noted that under the paragraph cited a third person seeking to enforce compliance with a stipulation in his
favor must signify his acceptance before it has been revoked. In this case the plaintiff clearly signified his acceptance
to the bank by demanding payment; and although the Philippine National Bank had already directed its New York
agency to withhold payment when this demand was made, the rights of the plaintiff cannot be considered to as there
used, must be understood to imply revocation by the mutual consent of the contracting parties, or at least by direction
of the party purchasing he exchange.
In the course of the argument attention was directed to the case of Legniti vs. Mechanics, etc. Bank (130 N.E. Rep.,
597), decided by the Court of Appeals of the State of New York on March 1, 1921, wherein it is held that, by selling
a cable transfer of funds on a foreign country in ordinary course, a bank incurs a simple contractual obligation, and
cannot be considered as holding the money which was paid for the transfer in the character of a specific trust. Thus, it
was said, "Cable transfers, therefore, mean a method of transmitting money by cable wherein the seller engages that
he has the balance at the point on which the payment is ordered and that on receipt of the cable directing the transfer
his correspondent at such point will make payment to the beneficiary described in the cable. All these transaction are
matters of purchase and sale create no trust relationship."
As we view it there is nothing in the decision referred to decisive of the question now before us, wish is merely that
of the right of the beneficiary to maintain an action against the bank selling the transfer.
Upon the considerations already stated, we are of the opinion that the right of action exists, and the judgment must be
affirmed. It is so ordered, with costs against the appellant. Interest will be computed as prescribed in section 510 of
the Code of Civil Procedure.
[G.R. No. 75908. October 22, 1999]
FEDERICO O. BORROMEO, LOURDES O. BORROMEO and FEDERICO O. BORROMEO, INC,
petitioners vs. AMANCIO SUN and the COURT OF APPEALS,respondents.
DECISION
PURISIMA, J.:
At bar is a Petition for review on Certiorari under Rule 45 of the Revised Rules of Court seeking to set aside the
Resolution of the then Intermediate Appellate Court [1], dated March 13, 1986, in AC-G.R. CV NO. 67988, which
reversed its earlier Decision dated February 12, 1985, setting aside the Decision of the former Court of the First Instance
of Rizal, Branch X, in Civil Case No. 19466.
The antecedent facts are as follows:
Private respondent Amancio Sun brought before the then Court of the First Instance of Rizal, Branch X, an action
against Lourdes O. Borromeo (in her capacity as corporate secretary), Federico O. Borromeo and Federico O.
Borromeo (F.O.B.), Inc., to compel the transfer to his name in the books of F.O.B., Inc., 23,223 shares of stock
registered in the name of Federico O. Borromeo, as evidenced by a Deed of Assignment dated January 16, 1974.
Private respondent averred[2] that all the shares of stock of F.O.B. Inc. registered in the name of Federico O. Borromeo
belong to him, as the said shares were placed in the name of Federico O. Borromeo only to give the latter personality
and importance in the business world.[3] According to the private respondent, on January 16, 1974 Federico O.
Borromeo executed in his favor a Deed of Assignment with respect to the said 23,223 shares of stock.
On the other hand, petitioner Federico O. Borromeo disclaimed any participation in the execution of the Deed of
Assignment, theorizing that his supposed signature thereon was forged.
After trial, the lower court of origin came out with a decision declaring the questioned signature on subject Deed of
Assignment, dated January 16, 1974, as the genuine signature of Federico O. Borromeo; ratiocinating thus:
After considering the testimonies of the two expert witnesses for the parties and after a careful and judicious study
and analysis of the questioned signature as compared to the standard signatures, the Court is not in a position to
declare that the questioned signature in Exh. A is a forgery. On the other hand, the Court is of the opinion that the
questioned signature is the real signature of Federico O. Borromeo between the years 1954 to 1957 but definitely is
not his signature in 1974 for by then he has changed his signature. Consequently, to the mind of the Court Exhibit A
was signed by defendant Federico O. Borromeo between the years 1954 to 1957 although the words in the blank
were filled at a much later date.[4]
On appeal by petitioners, the Court of Appeals adjudged as forgery the controverted signature of Federico O. Borromeo;
disposing as follows:
WHEREFORE, the judgment of the Court a quo as to the second cause of action dated March 12, 1980 is hereby
reversed and set aside and a new judgment is hereby rendered:
1. Ordering the dismissal of the complaint as to defendant-appellants;
2. Ordering plaintiff-appellee on appellants counterclaim to pay the latter:
a) P 20,000.00 as moral damages;
b) P 10,000.00 as exemplary damages;
c) P 10,000.00 as attorneys fees.
3. Ordering plaintiff-appellee to pay the costs.[5]
On March 29, 1985, Amancio Sun interposed a motion for reconsideration of the said decision, contending that
Segundo Tabayoyong, petitioners expert witness, is not a credible witness as found and concluded in the following
disposition by this Court in Cesar vs. Sandigan Bayan[6]:
The testimony of Mr. Segundo Tabayoyong on March 5, 1980, part of which is cited on pages 19-23 of the petition,
shows admissions which are summarized by the petitioner as follows:
He never finished any degree in Criminology. Neither did he obtain any degree in physics or chemistry. He was a
mere trainee in the NBI laboratory. He said he had gone abroad only once-to Argentina which, according to him is
the only one country in the world that gives this degree (?) People go there where they obtain this sort of degree (?)
where they are authorized to practice (sic) examination of questioned documents.
His civil service eligibility was second grade (general clerical). His present position had to be re-classified
confidential in order to qualify him to it. He never passed any Board Examination.
He has never authored any book on the subject on which he claimed to be an expert. Well, he did write a so-called
pamphlet pretentiously called Fundamentals of Questioned Documents Examination and Forgery Detection. In that
pamphlet, he mentioned some references (some) are Americans and one I think is a British, sir, like in the case of Dr.
Wilson Harrison, a British (he repeated with emphasis). Many of the theories contained in his pamphlet were lifted
body and soul from those references, one of them being Albert Osborn. His pamphlet has neither quotations nor
footnotes, although he was too aware of the crime committed by many an author called plagiarism. But that did not
deter him, nor bother him in the least. He has never been a member of any professional organization of experts in his
supposed field of expertise, because he said there is none locally. Neither is he on an international level.[7]
Acting on the aforesaid motion for reconsideration, the Court of Appeals reconsidered its decision of February 12,
1985 aforementioned. Thereafter, the parties agreed to have subject Deed of Assignment examined by the Philippine
Constabulary (PC) Crime Laboratory, which submitted a Report on January 9, 1986, the pertinent portion of which,
stated:
1. Comparative examination and analysis of the questioned and the standard signature reveal significant similarities
in the freedom of movement, good quality of lines, skills and individual handwriting characteristics.
2. By process of interpolation the questioned signature fits in and can be bracketed in time with the standard signatures
written in the years between 1956 to 1959. Microscopic examination of the ink used in the questioned signature and
the standard signature in document dated 30 July 1959 marked Exh. E indicate gallotanic ink.
xxx
1. The questioned signature FEDERICO O. BORROMEO marked Q appearing in the original Deed of Assignment
dated 16 January 1974 and the submitted standard signatures of Federico O. Borromeo marked S-1 to S-49 inclusive
were written BY ONE AND THE SAME PERSON.
2. The questioned signature FEDERICO O. BORROMEO marked Q COULD HAVE BEEN SIGNED IN THE YEARS
BETWEEN 1950-1957.[8]
After hearing the arguments the lawyers of record advanced on the said Report of the PC Crime Laboratory, the Court
of Appeals resolved:
"xxx
1) to ADMIT the Report dated Jan. 9, 1986 of the PC Crime Laboratory on the Deed of Assignment in evidence, without
prejudice to the parties assailing the credibility of said Report;
2) to GIVE both parties a non-extendible period of FIVE (5) DAYS from February 27, 1986, within which to file
simultaneous memoranda.[9]
On March 13, 1986, the Court of Appeals reversed its decision of February 12, 1985, which affirmed in toto the
decision of the trial court of origin; resolving thus:
WHEREFORE, finding the Motion for Reconsideration meritorious, We hereby set aside our Decision, dated
February 12, 1985 and in its stead a new judgment is hereby rendered affirming in toto the decision of the trial
Court, dated March 12, 1980, without pronouncement as to costs.
SO ORDERED.[10]
Therefrom, petitioners found their way to this court via the present Petition; theorizing that:
I.
THE RESPONDENT COURT ERRED IN HOLDING THAT WHEN PETITIONER AGREED TO THE
SUGGESTION OF RESPONDENT COURT TO HAVE THE QUESTIONED DOCUMENT EXAMINED BY THE
PC CRIME LABORATORY THEY COULD NO LONGER QUESTION THE COMPETENCY OF THE
DOCUMENT.
II
THE COURT OF APPEALS ERRED IN HOLDING THAT THE QUESTIONED DOCUMENT WAS SIGNED IN
1954 BUT WAS DATED IN 1974.
III
THE COURT OF APPEALS ERRED IN HOLDING THAT THE SIGNATURE OF FEDERICO O. BORROMEO
IN THE DEED OF ASSIGNMENT (EXHIBIT A ) IS A GENUINE SIGNATURE CIRCA 1954-1957.
The Petition is barren of merit.
Well-settled is the rule that factual finding of the Court of Appeals are conclusive on the parties and not reviewable by
the Supreme Court and they carry even more weight when the Court of Appeals affirms the factual findings of the trial
court. [11]
In the present case, the trial court found that the signature in question is the genuine signature of Federico O. Borromeo
between the years 1954 to 1957 although the words in the blank space of the document in question were written on a
much later date. The same conclusion was arrived at by the Court of Appeals on the basis of the Report of the PC crime
Laboratory corroborating the findings of Col. Jose Fernandez that the signature under controversy is genuine.
It is significant to note that Mr. Tabayoyong, petitioners expert witness, limited his comparison of the questioned
signature with the 1974 standard signature of Federico O. Borromeo. No comparison of the subject signature with the
1950 - 1957 standard signature was ever made by Mr. Tabayoyong despite his awareness that the expert witness of
private respondent, Col. Jose Fernandez, made a comparison of said signatures and notwithstanding his (Tabayoyongs)
access to such signatures as they were all submitted to the lower Court. As correctly ratiocinated[12] by the Court of
origin, the only conceivable reason why Mr. Tabayoyong avoided making such a comparison must have been, that
even to the naked eye, the questioned signature affixed to the Deed of Assignment, dated January 16, 1974, is strikingly
similar to the 1950 to 1954 standard signature of Federico O. Borromeo, such that if a comparison thereof was made
by Mr. Tabayoyong, he would have found the questioned signature genuine.
That the Deed of Assignment is dated January 16, 1974 while the questioned signature was found to be circa 1954-
1957, and not that of 1974, is of no moment. It does not necessarily mean, that the deed is a forgery. Pertinent records
reveal that the subject Deed of Assignment is embodied in a blank form for the assignment of shares with authority to
transfer such shares in the books of the corporation. It was clearly intended to be signed in blank to facilitate the
assignment of shares from one person to another at any future time. This is similar to Section 14 of the Negotiable
Instruments Law where the blanks may be filled up by the holder, the signing in blank being with the assumed authority
to do so. Indeed, as the shares were registered in the name of Federico O. Borromeo just to give him personality and
standing in the business community, private respondent had to have a counter evidence of ownership of the shares
involve. Thus the execution of the deed of assignment in blank, to be filled up whenever needed. The same explains
the discrepancy between the date of the deed of assignment and the date when the signature was affixed thereto.
While it is true that the 1974 standard signature of Federico O. Borromeo is to the naked eye dissimilar to his questioned
signature circa 1954-1957, which could have been caused by sheer lapse of time, Col. Jose Fernandez, respondents
expert witness, found the said signatures similar to each other after subjecting the same to stereomicroscopic
examination and analysis because the intrinsic and natural characteristic of Federico O. Borromeos handwriting were
present in all the exemplar signatures used by both Segundo Tabayoyong and Col. Jose Fernandez.
It is therefore beyond cavil that the findings of the Court of origin affirmed by the Court of Appeals on the basis of the
corroborative findings of the Philippine Constabulary Crime Laboratory confirmed the genuineness of the signature of
Federico O. Borromeo in the Deed of Assignment dated January 16, 1974.
Petitioners, however, question the Report of the document examiner on the ground that they were not given an
opportunity to cross-examine the Philippine Constabulary document examiner; arguing that they never waived their
right to question the competency of the examiner concerned. While the Court finds merit in the contention of
petitioners, that they did not actually waived their right to cross-examine on any aspect of subject Report of the
Philippine Constabulary Crime Laboratory, the Court discerns no proper basis for deviating from the findings of the
Court of Appeals on the matter. It is worthy to stress that courts may place whatever weight due on the testimony of
an expert witness.[13] Conformably, in giving credence and probative value to the said Report of the Philippine
Constabulary Crime Laboratory, corroborating the findings of the trial Court, the Court of Appeals merely exercised
its discretion. There being no grave abuse in the exercise of such judicial discretion, the findings by the Court of
Appeals should not be disturbed on appeal.
Premises studiedly considered, the Court is of the irresistible conclusion, and so holds, that the respondent court erred
not in affirming the decision of the Regional Trial Court a quo in Civil Case No. 19466.
WHEREFORE, the Petition is DISMISSED for lack of merit and the assailed Resolution, dated March 13, 1986,
AFFIRMED. No pronouncement as to costs.
SO ORDERED.

G.R. Nos. L-25836-37 January 31, 1981
THE PHILIPPINE BANK OF COMMERCE, plaintiff-appellee, vs. JOSE M. ARUEGO, defendant-appellant.
FERNANDEZ, J.:
The defendant, Jose M. Aruego, appealed to the Court of Appeals from the order of the Court of First Instance of
Manila, Branch XIII, in Civil Case No. 42066 denying his motion to set aside the order declaring him in
default, 1 and from the order of said court in the same case denying his motion to set aside the judgment rendered
after he was declared in default. 2 These two appeals of the defendant were docketed as CA-G.R. NO. 27734-R and
CA-G.R. NO. 27940-R, respectively.
Upon motion of the defendant on July 25, 1960, 3 he was allowed by the Court of Appeals to file one consolidated
record on appeal of CA-G.R. NO. 27734-R and CA-G.R. NO. 27940-R. 4
In a resolution promulgated on March 1, 1966, the Court of Appeals, First Division, certified the consolidated appeal
to the Supreme Court on the ground that only questions of law are involved. 5
On December 1, 1959, the Philippine Bank of Commerce instituted against Jose M. Aruego Civil Case No. 42066 for
the recovery of the total sum of about P35,000.00 with daily interest thereon from November 17, 1959 until fully
paid and commission equivalent to 3/8% for every thirty (30) days or fraction thereof plus attorney's fees equivalent
to 10% of the total amount due and costs. 6 The complaint filed by the Philippine Bank of Commerce contains
twenty-two (22) causes of action referring to twenty-two (22) transactions entered into by the said Bank and Aruego
on different dates covering the period from August 28, 1950 to March 14, 1951. 7 The sum sought to be recovered
represents the cost of the printing of "World Current Events," a periodical published by the defendant. To facilitate
the payment of the printing the defendant obtained a credit accommodation from the plaintiff. Thus, for every
printing of the "World Current Events," the printer, Encal Press and Photo Engraving, collected the cost of printing
by drawing a draft against the plaintiff, said draft being sent later to the defendant for acceptance. As an added
security for the payment of the amounts advanced to Encal Press and Photo-Engraving, the plaintiff bank also
required defendant Aruego to execute a trust receipt in favor of said bank wherein said defendant undertook to hold
in trust for plaintiff the periodicals and to sell the same with the promise to turn over to the plaintiff the proceeds of
the sale of said publication to answer for the payment of all obligations arising from the draft. 8
Aruego received a copy of the complaint together with the summons on December 2, 1959. 9 On December 14, 1959
defendant filed an urgent motion for extension of time to plead, and set the hearing on December 16, 1959. 10At the
hearing, the court denied defendant's motion for extension. Whereupon, the defendant filed a motion to dismiss the
complaint on December 17, 1959 on the ground that the complaint states no cause of action because:
a) When the various bills of exchange were presented to the defendant as drawee for acceptance, the amounts thereof
had already been paid by the plaintiff to the drawer (Encal Press and Photo Engraving), without knowledge or
consent of the defendant drawee.
b) In the case of a bill of exchange, like those involved in the case at bar, the defendant drawee is an accommodating
party only for the drawer (Encal Press and Photo-Engraving) and win be liable in the event that the accommodating
party (drawer) fails to pay its obligation to the plaintiff. 11
The complaint was dismissed in an order dated December 22, 1959, copy of which was received by the defendant on
December 24, 1959. 12
On January 13, 1960, the plaintiff filed a motion for reconsideration. 13 On March 7, 1960, acting upon the motion for
reconsideration filed by the plaintiff, the trial court set aside its order dismissing the complaint and set the case for
hearing on March 15, 1960 at 8:00 in the morning. 14 A copy of the order setting aside the order of dismissal was
received by the defendant on March 11, 1960 at 5:00 o'clock in the afternoon according to the affidavit of the deputy
sheriff of Manila, Mamerto de la Cruz. On the following day, March 12, 1960, the defendant filed a motion to
postpone the trial of the case on the ground that there having been no answer as yet, the issues had not yet been
joined. 15 On the same date, the defendant filed his answer to the complaint interposing the following defenses: That
he signed the document upon which the plaintiff sues in his capacity as President of the Philippine Education
Foundation; that his liability is only secondary; and that he believed that he was signing only as an accommodation
party. 16
On March 15, 1960, the plaintiff filed an ex parte motion to declare the defendant in default on the ground that the
defendant should have filed his answer on March 11, 1960. He contends that by filing his answer on March 12, 1960,
defendant was one day late. 17 On March 19, 1960 the trial court declared the defendant in default. 18 The defendant
learned of the order declaring him in default on March 21, 1960. On March 22, 1960 the defendant filed a motion to
set aside the order of default alleging that although the order of the court dated March 7, 1960 was received on March
11, 1960 at 5:00 in the afternoon, it could not have been reasonably expected of the defendant to file his answer on
the last day of the reglementary period, March 11, 1960, within office hours, especially because the order of the court
dated March 7, 1960 was brought to the attention of counsel only in the early hours of March 12, 1960. The
defendant also alleged that he has a good and substantial defense. Attached to the motion are the affidavits of deputy
sheriff Mamerto de la Cruz that he served the order of the court dated March 7, 1960 on March 11, 1960, at 5:00
o'clock in the afternoon and the affidavit of the defendant Aruego that he has a good and substantial defense. 19 The
trial court denied the defendant's motion on March 25, 1960. 20 On May 6, 1960, the trial court rendered judgment
sentencing the defendant to pay to the plaintiff the sum of P35,444.35 representing the total amount of his obligation
to the said plaintiff under the twenty-two (22) causes of action alleged in the complaint as of November 15, 1957 and
the sum of P10,000.00 as attorney's fees. 21
On May 9, 1960 the defendant filed a notice of appeal from the order dated March 25, 1961 denying his motion to set
aside the order declaring him in default, an appeal bond in the amount of P60.00, and his record on appeal. The
plaintiff filed his opposition to the approval of defendant's record on appeal on May 13, 1960. The following day,
May 14, 1960, the lower court dismissed defendant's appeal from the order dated March 25, 1960 denying his motion
to set aside the order of default. 22 On May 19, 1960, the defendant filed a motion for reconsideration of the trial
court's order dismissing his appeal. 23 The plaintiff, on May 20, 1960, opposed the defendant's motion for
reconsideration of the order dismissing appeal. 24 On May 21, 1960, the trial court reconsidered its previous order
dismissing the appeal and approved the defendant's record on appeal. 25 On May 30, 1960, the defendant received a
copy of a notice from the Clerk of Court dated May 26, 1960, informing the defendant that the record on appeal filed
ed by the defendant was forwarded to the Clerk of Court of Appeals. 26
On June 1, 1960 Aruego filed a motion to set aside the judgment rendered after he was declared in default reiterating
the same ground previously advanced by him in his motion for relief from the order of default. 27 Upon opposition of
the plaintiff filed on June 3, 1960, 28 the trial court denied the defendant's motion to set aside the judgment by default
in an order of June 11, 1960. 29 On June 20, 1960, the defendant filed his notice of appeal from the order of the court
denying his motion to set aside the judgment by default, his appeal bond, and his record on appeal. The defendant's
record on appeal was approved by the trial court on June 25, 1960. 30 Thus, the defendant had two appeals with the
Court of Appeals: (1) Appeal from the order of the lower court denying his motion to set aside the order of default
docketed as CA-G.R. NO. 27734-R; (2) Appeal from the order denying his motion to set aside the judgment by
default docketed as CA-G.R. NO. 27940-R.
In his brief, the defendant-appellant assigned the following errors:
I. THE LOWER COURT ERRED IN HOLDING THAT THE DEFENDANT WAS IN DEFAULT.
II. THE LOWER COURT ERRED IN ENTERTAINING THE MOTION TO DECLARE DEFENDANT IN
DEFAULT ALTHOUGH AT THE TIME THERE WAS ALREADY ON FILE AN ANSWER BY HIM WITHOUT
FIRST DISPOSING OF SAID ANSWER IN AN APPROPRIATE ACTION.
III. THE LOWER COURT ERRED IN DENYING DEFENDANT'S PETITION FOR RELIEF OF ORDER OF
DEFAULT AND FROM JUDGMENT BY DEFAULT AGAINST DEFENDANT. 31
It has been held that to entitle a party to relief from a judgment taken against him through his mistake, inadvertence,
surprise or excusable neglect, he must show to the court that he has a meritorious defense. 32 In other words, in order
to set aside the order of default, the defendant must not only show that his failure to answer was due to fraud,
accident, mistake or excusable negligence but also that he has a meritorious defense.
The record discloses that Aruego received a copy of the complaint together with the summons on December 2, 1960;
that on December 17, 1960, the last day for filing his answer, Aruego filed a motion to dismiss; that on December 22,
1960 the lower court dismissed the complaint; that on January 23, 1960, the plaintiff filed a motion for
reconsideration and on March 7, 1960, acting upon the motion for reconsideration, the trial court issued an order
setting aside the order of dismissal; that a copy of the order was received by the defendant on March 11, 1960 at 5:00
o'clock in the afternoon as shown in the affidavit of the deputy sheriff; and that on the following day, March 12,
1960, the defendant filed his answer to the complaint.
The failure then of the defendant to file his answer on the last day for pleading is excusable. The order setting aside
the dismissal of the complaint was received at 5:00 o'clock in the afternoon. It was therefore impossible for him to
have filed his answer on that same day because the courts then held office only up to 5:00 o'clock in the afternoon.
Moreover, the defendant immediately filed his answer on the following day.
However, while the defendant successfully proved that his failure to answer was due to excusable negligence, he has
failed to show that he has a meritorious defense. The defendant does not have a good and substantial defense.
Defendant Aruego's defenses consist of the following:
a) The defendant signed the bills of exchange referred to in the plaintiff's complaint in a representative capacity, as
the then President of the Philippine Education Foundation Company, publisher of "World Current Events and
Decision Law Journal," printed by Encal Press and Photo-Engraving, drawer of the said bills of exchange in favor of
the plaintiff bank;
b) The defendant signed these bills of exchange not as principal obligor, but as accommodation or additional party
obligor, to add to the security of said plaintiff bank. The reason for this statement is that unlike real bills of exchange,
where payment of the face value is advanced to the drawer only upon acceptance of the same by the drawee, in the
case in question, payment for the supposed bills of exchange were made before acceptance; so that in effect, although
these documents are labelled bills of exchange, legally they are not bills of exchange but mere instruments
evidencing indebtedness of the drawee who received the face value thereof, with the defendant as only additional
security of the same. 33
The first defense of the defendant is that he signed the supposed bills of exchange as an agent of the Philippine
Education Foundation Company where he is president. Section 20 of the Negotiable Instruments Law provides that
"Where the instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a
principal or in a representative capacity, he is not liable on the instrument if he was duly authorized; but the mere
addition of words describing him as an agent or as filing a representative character, without disclosing his principal,
does not exempt him from personal liability."
An inspection of the drafts accepted by the defendant shows that nowhere has he disclosed that he was signing as a
representative of the Philippine Education Foundation Company. 34 He merely signed as follows: "JOSE ARUEGO
(Acceptor) (SGD) JOSE ARGUEGO For failure to disclose his principal, Aruego is personally liable for the drafts he
accepted.
The defendant also contends that he signed the drafts only as an accommodation party and as such, should be made
liable only after a showing that the drawer is incapable of paying. This contention is also without merit.
An accommodation party is one who has signed the instrument as maker, drawer, indorser, without receiving value
therefor and for the purpose of lending his name to some other person. Such person is liable on the instrument to a
holder for value, notwithstanding such holder, at the time of the taking of the instrument knew him to be only an
accommodation party.35 In lending his name to the accommodated party, the accommodation party is in effect a
surety for the latter. He lends his name to enable the accommodated party to obtain credit or to raise money. He
receives no part of the consideration for the instrument but assumes liability to the other parties thereto because he
wants to accommodate another. In the instant case, the defendant signed as a drawee/acceptor. Under the Negotiable
Instrument Law, a drawee is primarily liable. Thus, if the defendant who is a lawyer, he should not have signed as an
acceptor/drawee. In doing so, he became primarily and personally liable for the drafts.
The defendant also contends that the drafts signed by him were not really bills of exchange but mere pieces of
evidence of indebtedness because payments were made before acceptance. This is also without merit. Under the
Negotiable Instruments Law, a bill of exchange is an unconditional order in writting addressed by one person to
another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or
determinable future time a sum certain in money to order or to bearer. 36 As long as a commercial paper conforms
with the definition of a bill of exchange, that paper is considered a bill of exchange. The nature of acceptance is
important only in the determination of the kind of liabilities of the parties involved, but not in the determination of
whether a commercial paper is a bill of exchange or not.
It is evident then that the defendant's appeal can not prosper. To grant the defendant's prayer will result in a new trial
which will serve no purpose and will just waste the time of the courts as well as of the parties because the defense is
nil or ineffective. 37
WHEREFORE, the order appealed from in Civil Case No. 42066 of the Court of First Instance of Manila denying the
petition for relief from the judgment rendered in said case is hereby affirmed, without pronouncement as to costs. SO
ORDERED.
G.R. No. 74917 January 20, 1988
BANCO DE ORO SAVINGS AND MORTGAGE BANK, petitioner, vs. EQUITABLE BANKING
CORPORATION, PHILIPPINE CLEARING HOUSE CORPORATION, AND REGIONAL TRIAL COURT
OF QUEZON CITY, BRANCH XCII (92), respondents.
GANCAYCO, J.:
This is a petition for review on certiorari of a decision of the Regional Trial Court of Quezon City promulgated on
March 24, 1986 in Civil Case No. Q-46517 entitled Banco de Oro Savings and Mortgage Bank versus Equitable
Banking Corporation and the Philippine Clearing House Corporation after a review of the Decision of the Board of
Directors of the Philippine Clearing House Corporation (PCHC) in the case of Equitable Banking Corporation (EBC)
vs. Banco de Oro Savings and Mortgage (BCO), ARBICOM Case No. 84033.
The undisputed facts are as follows:
It appears that some time in March, April, May and August 1983, plaintiff through its Visa Card Department, drew
six crossed Manager's check (Exhibits "A" to "F", and herein referred to as Checks) having an aggregate amount of
Forty Five Thousand Nine Hundred and Eighty Two & 23/100 (P45,982.23) Pesos and payable to certain member
establishments of Visa Card. Subsequently, the Checks were deposited with the defendant to the credit of its
depositor, a certain Aida Trencio.
Following normal procedures, and after stamping at the back of the Checks the usual endorsements. All prior and/or
lack of endorsement guaranteed the defendant sent the checks for clearing through the Philippine Clearing House
Corporation (PCHC). Accordingly, plaintiff paid the Checks; its clearing account was debited for the value of the
Checks and defendant's clearing account was credited for the same amount,
Thereafter, plaintiff discovered that the endorsements appearing at the back of the Checks and purporting to be that
of the payees were forged and/or unauthorized or otherwise belong to persons other than the payees.
Pursuant to the PCHC Clearing Rules and Regulations, plaintiff presented the Checks directly to the defendant for
the purpose of claiming reimbursement from the latter. However, defendant refused to accept such direct presentation
and to reimburse the plaintiff for the value of the Checks; hence, this case.
In its Complaint, plaintiff prays for judgment to require the defendant to pay the plaintiff the sum of P45,982.23 with
interest at the rate of 12% per annum from the date of the complaint plus attorney's fees in the amount of P10,000.00
as well as the cost of the suit.
In accordance with Section 38 of the Clearing House Rules and Regulations, the dispute was presented for
Arbitration; and Atty. Ceasar Querubin was designated as the Arbitrator.
After an exhaustive investigation and hearing the Arbiter rendered a decision in favor of the plaintiff and against the
defendant ordering the PCHC to debit the clearing account of the defendant, and to credit the clearing account of the
plaintiff of the amount of P45,982.23 with interest at the rate of 12% per annum from date of the complaint and
Attorney's fee in the amount of P5,000.00. No pronouncement as to cost was made. 1
In a motion for reconsideration filed by the petitioner, the Board of Directors of the PCHC affirmed the decision of
the said Arbiter in this wise:
In view of all the foregoing, the decision of the Arbiter is confirmed; and the Philippine Clearing House Corporation
is hereby ordered to debit the clearing account of the defendant and credit the clearing account of plaintiff the amount
of Forty Five Thousand Nine Hundred Eighty Two & 23/100 (P45,982.23) Pesos with interest at the rate of 12% per
annum from date of the complaint, and the Attorney's fee in the amount of Five Thousand (P5,000.00) Pesos.
Thus, a petition for review was filed with the Regional Trial Court of Quezon City, Branch XCII, wherein in due
course a decision was rendered affirming in toto the decision of the PCHC.
Hence this petition.
The petition is focused on the following issues:
1. Did the PCHC have any jurisdiction to give due course to and adjudicate Arbicom Case No. 84033?
2. Were the subject checks non-negotiable and if not, does it fall under the ambit of the power of the PCHC?
3. Is the Negotiable Instrument Law, Act No. 2031 applicable in deciding controversies of this nature by the PCHC?
4. What law should govern in resolving controversies of this nature?
5. Was the petitioner bank negligent and thus responsible for any undue payment?
Petitioner maintains that the PCHC is not clothed with jurisdiction because the Clearing House Rules and
Regulations of PCHC cover and apply only to checks that are genuinely negotiable. Emphasis is laid on the primary
purpose of the PCHC in the Articles of Incorporation, which states:
To provide, maintain and render an effective, convenient, efficient, economical and relevant exchange and facilitate
service limited to check processing and sorting by way of assisting member banks, entities in clearing checks and
other clearing items as defined in existing and in future Central Bank of the Philippines circulars, memoranda,
circular letters, rules and regulations and policies in pursuance to the provisions of Section 107 of R.A. 265. ...
and Section 107 of R.A. 265 which provides:
xxx xxx xxx
The deposit reserves maintained by the banks in the Central Bank, in accordance with the provisions of Section 1000
shall serve as a basis for the clearing of checks, and the settlement of interbank balances ...
Petitioner argues that by law and common sense, the term check should be interpreted as one that fits the articles of
incorporation of the PCHC, the Central Bank and the Clearing House Rules stating that it is a negotiable instrument
citing the definition of a "check" as basically a "bill of exchange" under Section 185 of the NIL and that it should be
payable to "order" or to "bearer" under Section 126 of game law. Petitioner alleges that with the cancellation of the
printed words "or bearer from the face of the check, it becomes non-negotiable so the PCHC has no jurisdiction over
the case.
The Regional Trial Court took exception to this stand and conclusion put forth by the herein petitioner as it held:
Petitioner's theory cannot be maintained. As will be noted, the PCHC makes no distinction as to the character or
nature of the checks subject of its jurisdiction. The pertinent provisions quoted in petitioners memorandum simply
refer to check(s). Where the law does not distinguish, we shall not distinguish.
In the case of Reyes vs. Chuanico (CA-G.R. No. 20813 R, Feb. 5, 1962) the Appellate Court categorically stated that
there are four kinds of checks in this jurisdiction; the regular check; the cashier's check; the traveller's check; and the
crossed check. The Court, further elucidated, that while the Negotiable Instruments Law does not contain any
provision on crossed checks, it is coon practice in commercial and banking operations to issue checks of this
character, obviously in accordance with Article 541 of the Code of Commerce. Attention is likewise called to Section
185 of the Negotiable Instruments Law:
Sec. 185. Check defined. — A check is a bill of exchange drawn on a bank payable on demand. Except as herein
otherwise provided, the provisions of this act applicable to a bill of exchange payable on demand apply to a check
and the provisions of Section 61 (supra) that the drawer may insert in the instrument an express stipulation negating
or limiting his own liability to the holder. Consequently, it appears that the use of the term "check" in the Articles of
Incorporation of PCHC is to be perceived as not limited to negotiable checks only, but to checks as is generally
known in use in commercial or business transactions.
Anent Petitioner's liability on said instruments, this court is in full accord with the ruling of the PCHC Board of
Directors that:
In presenting the Checks for clearing and for payment, the defendant made an express guarantee on the validity of
"all prior endorsements." Thus, stamped at the back of the checks are the defendant's clear warranty; ALL PRIOR
ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS GUARANTEED. With. out such warranty, plaintiff
would not have paid on the checks.
No amount of legal jargon can reverse the clear meaning of defendant's warranty. As the warranty has proven to be
false and inaccurate, the defendant is liable for any damage arising out of the falsity of its representation.
The principle of estoppel, effectively prevents the defendant from denying liability for any damage sustained by the
plaintiff which, relying upon an action or declaration of the defendant, paid on the Checks. The same principle of
estoppel effectively prevents the defendant from denying the existence of the Checks. (Pp. 1011 Decision; pp. 4344,
Rollo)
We agree.
As provided in the aforecited articles of incorporation of PCHC its operation extend to "clearing checks and other
clearing items." No doubt transactions on non-negotiable checks are within the ambit of its jurisdiction.
In a previous case, this Court had occasion to rule: "Ubi lex non distinguish nec nos distinguere debemos." 2 It was
enunciated in Loc Cham v. Ocampo, 77 Phil. 636 (1946):
The rule, founded on logic is a corollary of the principle that general words and phrases in a statute should ordinarily
be accorded their natural and general significance. In other words, there should be no distinction in the application of
a statute where none is indicated.
There should be no distinction in the application of a statute where none is indicated for courts are not authorized to
distinguish where the law makes no distinction. They should instead administer the law not as they think it ought to
be but as they find it and without regard to consequences. 3
The term check as used in the said Articles of Incorporation of PCHC can only connote checks in general use in
commercial and business activities. It cannot be conceived to be limited to negotiable checks only.
Checks are used between banks and bankers and their customers, and are designed to facilitate banking operations. It
is of the essence to be payable on demand, because the contract between the banker and the customer is that the
money is needed on demand. 4
The participation of the two banks, petitioner and private respondent, in the clearing operations of PCHC is a
manifestation of their submission to its jurisdiction. Sec. 3 and 36.6 of the PCHC-CHRR clearing rules and
regulations provide:
SEC. 3. AGREEMENT TO THESE RULES. — It is the general agreement and understanding that any participant in
the Philippine Clearing House Corporation, MICR clearing operations by the mere fact of their participation, thereby
manifests its agreement to these Rules and Regulations and its subsequent amendments."
Sec 36.6. (ARBITRATION) — The fact that a bank participates in the clearing operations of the PCHC shall be
deemed its written and subscribed consent to the binding effect of this arbitration agreement as if it had done so in
accordance with section 4 of the Republic Act No. 876, otherwise known as the Arbitration Law.
Further Section 2 of the Arbitration Law mandates:
Two or more persons or parties may submit to the arbitration of one or more arbitrators any controversy existing
between them at the time of the submission and which may be the subject of an action, or the parties of any contract
may in such contract agree to settle by arbitration a controversy thereafter arising between them. Such submission or
contract shall be valid and irrevocable, save upon grounds as exist at law for the revocation of any contract.
Such submission or contract may include question arising out of valuations, appraisals or other controversies which
may be collateral, incidental, precedent or subsequent to any issue between the parties. ...
Sec. 21 of the same rules, says:
Items which have been the subject of material alteration or items bearing forged endorsement when such
endorsement is necessary for negotiation shall be returned by direct presentation or demand to the Presenting
Bank and not through the regular clearing house facilities within the period prescribed by law for the filing of a legal
action by the returning bank/branch, institution or entity sending the same. (Emphasis supplied)
Viewing these provisions the conclusion is clear that the PCHC Rules and Regulations should not be interpreted to be
applicable only to checks which are negotiable instruments but also to non-negotiable instruments and that the PCHC
has jurisdiction over this case even as the checks subject of this litigation are admittedly non-negotiable.
Moreover, petitioner is estopped from raising the defense of non-negotiability of the checks in question. It stamped
its guarantee on the back of the checks and subsequently presented these checks for clearing and it was on the basis
of these endorsements by the petitioner that the proceeds were credited in its clearing account.
The petitioner by its own acts and representation can not now deny liability because it assumed the liabilities of an
endorser by stamping its guarantee at the back of the checks.
The petitioner having stamped its guarantee of "all prior endorsements and/or lack of endorsements" (Exh. A-2 to F-
2) is now estopped from claiming that the checks under consideration are not negotiable instruments. The checks
were accepted for deposit by the petitioner stamping thereon its guarantee, in order that it can clear the said checks
with the respondent bank. By such deliberate and positive attitude of the petitioner it has for all legal intents and
purposes treated the said cheeks as negotiable instruments and accordingly assumed the warranty of the endorser
when it stamped its guarantee of prior endorsements at the back of the checks. It led the said respondent to believe
that it was acting as endorser of the checks and on the strength of this guarantee said respondent cleared the checks in
question and credited the account of the petitioner. Petitioner is now barred from taking an opposite posture by
claiming that the disputed checks are not negotiable instrument.
This Court enunciated in Philippine National Bank vs. Court of Appeals 5 a point relevant to the issue when it stated
the doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith and justice and its
purpose is to forbid one to speak against his own act, representations or commitments to the injury of one to whom
they were directed and who reasonably relied thereon.
A commercial bank cannot escape the liability of an endorser of a check and which may turn out to be a forged
endorsement. Whenever any bank treats the signature at the back of the checks as endorsements and thus logically
guarantees the same as such there can be no doubt said bank has considered the checks as negotiable.
Apropos the matter of forgery in endorsements, this Court has succinctly emphasized 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. This is laid down in the case of PNB
vs. National City Bank. 6 In another case, this court held that if the drawee-bank discovers that the signature of the
payee was forged after it has paid the amount of the check to the holder thereof, it can recover the amount paid from
the collecting bank. 7
A truism stated by this Court is that — "The doctrine of estoppel precludes a party from repudiating an obligation
voluntarily assumed after having accepted benefits therefrom. To countenance such repudiation would be contrary to
equity and put premium on fraud or misrepresentation". 8
We made clear in Our decision in Philippine National Bank vs. The National City Bank of NY & Motor Service Co.
that:
Where a check is accepted or certified by the bank on which it is drawn, the bank is estopped to deny the genuineness
of the drawers signature and his capacity to issue the instrument.
If a drawee bank pays a forged check which was previously accepted or certified by the said bank, it can not recover
from a holder who did not participate in the forgery and did not have actual notice thereof.
The payment of a check does not include or imply its acceptance in the sense that this word is used in Section 62 of
the Negotiable Instruments Act. 9
The point that comes uppermost is whether the drawee bank was negligent in failing to discover the alteration or the
forgery. Very akin to the case at bar is one which involves a suit filed by the drawer of checks against the collecting
bank and this came about in Farmers State Bank 10 where it was held:
A cause of action against the (collecting bank) in favor of the appellee (the drawer) accrued as a result of the bank
breaching its implied warranty of the genuineness of the indorsements of the name of the payee by bringing about the
presentation of the checks (to the drawee bank) and collecting the amounts thereof, the right to enforce that cause of
action was not destroyed by the circumstance that another cause of action for the recovery of the amounts paid on the
checks would have accrued in favor of the appellee against another or to others than the bank if when the checks
were paid they have been indorsed by the payee. (United States vs. National Exchange Bank, 214 US, 302, 29 S
CT665, 53 L. Ed 1006, 16 Am. Cas. 11 84; Onondaga County Savings Bank vs. United States (E.C.A.) 64 F 703)
Section 66 of the Negotiable Instruments ordains that:
Every indorser who indorsee without qualification, warrants to all subsequent holders in due course' (a) that the
instrument is genuine and in all respects what it purports to be; (b) that he has good title to it; (c) that all prior parties
have capacity to contract; and (d) that the instrument is at the time of his indorsement valid and subsisting. 11
It has been enunciated in an American case particularly in American Exchange National Bank vs. Yorkville
Bank 12that: "the drawer owes no duty of diligence to the collecting bank (one who had accepted an altered check and
had paid over the proceeds to the depositor) except of seasonably discovering the alteration by a comparison of its
returned checks and check stubs or other equivalent record, and to inform the drawee thereof." In this case it was
further held that:
The real and underlying reasons why negligence of the drawer constitutes no defense to the collecting bank are that
there is no privity between the drawer and the collecting bank (Corn Exchange Bank vs. Nassau Bank, 204 N.Y.S.
80) and the drawer owe to that bank no duty of vigilance (New York Produce Exchange Bank vs. Twelfth Ward
Bank, 204 N.Y.S. 54) and no act of the collecting bank is induced by any act or representation or admission of the
drawer (Seaboard National Bank vs. Bank of America (supra) and it follows that negligence on the part of the drawer
cannot create any liability from it to the collecting bank, and the drawer thus is neither a necessary nor a proper party
to an action by the drawee bank against such bank. It is quite true that depositors in banks are under the obligation of
examining their passbooks and returned vouchers as a protection against the payment by the depository bank against
forged checks, and negligence in the performance of that obligation may relieve that bank of liability for the
repayment of amounts paid out on forged checks, which but for such negligence it would be bound to repay. A
leading case on that subject is Morgan vs. United States Mortgage and Trust Col. 208 N.Y. 218, 101 N.E. 871 Amn.
Cas. 1914D, 462, L.R.A. 1915D, 74.
Thus We hold that while the drawer generally owes no duty of diligence to the collecting bank, the law imposes a
duty of diligence on the collecting bank to scrutinize checks deposited with it for the purpose of determining their
genuineness and regularity. The collecting bank being primarily engaged in banking holds itself out to the public as
the expert and the law holds it to a high standard of conduct.
And although the subject checks are non-negotiable the responsibility of petitioner as indorser thereof remains.
To countenance a repudiation by the petitioner of its obligation would be contrary to equity and would deal a
negative blow to the whole banking system of this country.
The court reproduces with approval the following disquisition of the PCHC in its decision —
II. Payments To Persons Other
Than The Payees Are Not Valid
And Give Rise To An Obligation
To Return Amounts Received
Nothing is more clear than that neither the defendant's depositor nor the defendant is entitled to receive payment
payable for the Checks. As the checks are not payable to defendant's depositor, payments to persons other than
payees named therein, their successor-in-interest or any person authorized to receive payment are not valid. Article
1240, New Civil Code of the Philippines unequivocably provides that:
"Art. 1240. Payment shall be made to the person in whose favor the obligation has been constituted, or his successo-
in-interest, or any person authorized to receive it. "
Considering that neither the defendant's depositor nor the defendant is entitled to receive payments for the Checks,
payments to any of them give rise to an obligation to return the amounts received. Section 2154 of the New Civil
Code mandates that:
Article 2154. If something is received when there is no right to demand it, and it was unduly delivered through
mistake, the obligation to return it arises.
It is contended that plaintiff should be held responsible for issuing the Checks notwithstanding that the underlying
transactions were fictitious This contention has no basis in our jurisprudence.
The nullity of the underlying transactions does not diminish, but in fact strengthens, plaintiffs right to recover from
the defendant. Such nullity clearly emphasizes the obligation of the payees to return the proceeds of the Checks. If a
failure of consideration is sufficient to warrant a finding that a payee is not entitled to payment or must return
payment already made, with more reason the defendant, who is neither the payee nor the person authorized by the
payee, should be compelled to surrender the proceeds of the Checks received by it. Defendant does not have any title
to the Checks; neither can it claim any derivative title to them.
III. Having Violated Its Warranty
On Validity Of All Endorsements,
Collecting Bank Cannot Deny
liability To Those Who Relied
On Its Warranty
In presenting the Checks for clearing and for payment, the defendant made an express guarantee on the validity of
"all prior endorsements." Thus, stamped at the bank of the checks are the defendant's clear warranty: ALL PRIOR
ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS GUARANTEED. Without such warranty, plaintiff
would not have paid on the checks.
No amount of legal jargon can reverse the clear meaning of defendant's warranty. As the warranty has proven to be
false and inaccurate, the defendant is liable for any damage arising out of the falsity of its representation.
The principle of estoppel effectively prevents the defendant from denying liability for any damages sustained by the
plaintiff which, relying upon an action or declaration of the defendant, paid on the Checks. The same principle of
estoppel effectively prevents the defendant from denying the existence of the Checks.
Whether the Checks have been issued for valuable considerations or not is of no serious moment to this case. These
Checks have been made the subject of contracts of endorsement wherein the defendant made expressed warranties to
induce payment by the drawer of the Checks; and the defendant cannot now refuse liability for breach of warranty as
a consequence of such forged endorsements. The defendant has falsely warranted in favor of plaintiff the validity of
all endorsements and the genuineness of the cheeks in all respects what they purport to be.
The damage that will result if judgment is not rendered for the plaintiff is irreparable. The collecting bank has privity
with the depositor who is the principal culprit in this case. The defendant knows the depositor; her address and her
history, Depositor is defendant's client. It has taken a risk on its depositor when it allowed her to collect on the
crossed-checks.
Having accepted the crossed checks from persons other than the payees, the defendant is guilty of negligence; the
risk of wrongful payment has to be assumed by the defendant.
On the matter of the award of the interest and attorney's fees, the Board of Directors finds no reason to reverse the
decision of the Arbiter. The defendant's failure to reimburse the plaintiff has constrained the plaintiff to regular the
services of counsel in order to protect its interest notwithstanding that plaintiffs claim is plainly valid just and
demandable. In addition, defendant's clear obligation is to reimburse plaintiff upon direct presentation of the checks;
and it is undenied that up to this time the defendant has failed to make such reimbursement.
WHEREFORE, the petition is DISMISSED for lack of merit without pronouncement as to costs. The decision of the
respondent court of 24 March 1986 and its order of 3 June 1986 are hereby declared to be immediately executory.
SO ORDERED.
G.R. No. 166018 June 4, 2014 On August 23, 1999, the Bureau of Internal Revenue (BIR), thru its then Commissioner, Beethoven Rualo, issued
THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED-PHILIPPINE BIR Ruling No. 132-99 to the effect that instructions or advises from abroad on the management of funds located in
BRANCHES, Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent; the Philippines which do not involve transfer of funds from abroad are not subject to DST. BIR Ruling No. 132-99
G.R. No. 167728 reads:
THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED-PHILIPPINE Date: August 23, 1999
BRANCHES, Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent. FERRY TOLEDO VICTORINO GONZAGA
& ASSOCIATES
DECISION G/F AFC Building, Alfaro St.
LEONARDO-DE CASTRO, J.: Salcedo Village, Makati
These petitions for review on certiorari1 assail the Decision2 and Resolution dated July 8, 2004 and October 25, 2004, Metro Manila
respectively, of the Court of Appeals in CA-G.R. SP No. 77580, as well as the Decision3 and Resolution dated Attn: Atty. Tomas C. Toledo
September 2, 2004 and April 4, 2005, respectively, of the Court of Appeals in CA-G.R. SP No. 70814. The Tax Counsel
respective Decisions in the said cases similarly reversed and set aside the decisions of the Court of Tax Appeals Gentlemen:
(CTA) in CTA Case Nos. 59514 and 6009,5 respectively, and dismissed the petitions of petitioner Hongkong and This refers to your letter dated July 26, 1999 requesting on behalf of your clients, the CITIBANK & STANDARD
Shanghai Banking Corporation Limited-Philippine Branches (HSBC). The corresponding Resolutions, on the other CHARTERED BANK, for a ruling as to whether or not the electronic instructions involving the following
hand, denied the respective motions for reconsideration of the said Decisions. transactions of residents and non-residents of the Philippines with respect to their local or foreign currency accounts
HSBC performs, among others, custodial services on behalf of its investor-clients, corporate and individual, resident are subject to documentary stamp tax under Section 181 of the 1997 Tax Code, viz:
or non-resident of the Philippines, with respect to their passive investments in the Philippines, particularly A. Investment purchase transactions:
investments in shares of stocks in domestic corporations. As a custodian bank, HSBC serves as the An overseas client sends instruction to its bank in the Philippines to either:
collection/payment agent with respect to dividends and other income derived from its investor-clients’ passive (i) debit its local or foreign currency account and to pay a named recipient in the Philippines; or
investments.6 (ii) receive funds from another bank in the Philippines for deposit into its account and to pay a named recipient in the
HSBC’s investor-clients maintain Philippine peso and/or foreign currency accounts, which are managed by HSBC Philippines."
through instructions given through electronic messages. The said instructions are standard forms known in the The foregoing transactions are carried out under instruction from abroad and [do] not involve actual fund transfer
banking industry as SWIFT, or "Society for Worldwide Interbank Financial Telecommunication." In purchasing since the funds are already in the Philippine accounts. The instructions are in the form of electronic messages (i.e.,
shares of stock and other investment in securities, the investor-clients would send electronic messages from abroad SWIFT MT100 or MT 202 and/or MT 521). In both cases, the payment is against the delivery of investments
instructing HSBC to debit their local or foreign currency accounts and to pay the purchase price therefor upon receipt purchased. The purchase of investments and the payment comprise one single transaction. DST has already been paid
of the securities.7 under Section 176 for the investment purchase.
Pursuant to the electronic messages of its investor-clients, HSBC purchased and paid Documentary Stamp Tax (DST) B. Other transactions:
from September to December 1997 and also from January to December 1998 amounting to ₱19,572,992.10 and An overseas client sends an instruction to its bank in the Philippines to either:
₱32,904,437.30, respectively, broken down as follows: (i) debit its local or foreign currency account and to pay a named recipient, who may be another bank, a corporate
A. September to December 1997
entity or an individual in the Philippines; or
September 1997 P 6,981,447.90 (ii) receive funds from another bank in the Philippines for deposit to its account and to pay a named recipient, who
October 1997 6,209,316.60 may be another bank, a corporate entity or an individual in the Philippines."
The above instruction is in the form of an electronic message (i.e., SWIFT MT 100 or MT 202) or tested cable, and
November 1997 3,978,510.30
may not refer to any particular transaction.
December 1997 2,403,717.30 The opening and maintenance by a non-resident of local or foreign currency accounts with a bank in the Philippines
is permitted by the Bangko Sentral ng Pilipinas, subject to certain conditions.
Total ₱19,572,992.10
In reply, please be informed that pursuant to Section 181 of the 1997 Tax Code, which provides that –
B. January to December 1998
SEC. 181. Stamp Tax Upon Acceptance of Bills of Exchange and Others.– Upon any acceptance or payment of any
January 1998 P 3,328,305.60
bill of exchange or order for the payment of money purporting to be drawn in a foreign country but payable in the
February 1998 4,566,924.90 Philippines, there shall be collected a documentary stamp tax of Thirty centavos (P0.30) on each Two hundred pesos
(₱200), or fractional part thereof, of the face value of any such bill of exchange, or order, or Philippine equivalent of
March 1998 5,371,797.30
such value, if expressed in foreign currency.
April 1998 4,197,235.50 a documentary stamp tax shall be imposed on any bill of exchange or order for payment purporting to be drawn in a
May 1998 2,519,587.20
foreign country but payable in the Philippines.
Under the foregoing provision, the documentary stamp tax shall be levied on the instrument, i.e., a bill of exchange
June 1998 2,301,333.00 or order for the payment of money, which purports to draw money from a foreign country but payable in the
July 1998 1,586,404.50 Philippines. In the instant case, however, while the payor is residing outside the Philippines, he maintains a local and
foreign currency account in the Philippines from where he will draw the money intended to pay a named recipient.
August 1998 1,787,359.50
The instruction or order to pay shall be made through an electronic message, i.e., SWIFT MT 100 or MT 202 and/or
September 1998 1,231,828.20 MT 521. Consequently, there is no negotiable instrument to be made, signed or issued by the payee. In the meantime,
such electronic instructions by the non-resident payor cannot be considered as a transaction per se considering that
October 1998 1,303,184.40
the same do not involve any transfer of funds from abroad or from the place where the instruction originates. Insofar
November 1998 2,026,379.70 as the local bank is concerned, such instruction could be considered only as a memorandum and shall be entered as
December 1998 2,684,097.50
such in its books of accounts. The actual debiting of the payor’s account, local or foreign currency account in the
Philippines, is the actual transaction that should be properly entered as such.
Total ₱32,904,437.30 Under the Documentary Stamp Tax Law, the mere withdrawal of money from a bank deposit, local or foreign
currency account, is not subject to DST, unless the account so maintained is a current or checking account, in which
case, the issuance of the check or bank drafts is subject to the documentary stamp tax imposed under Section 179 of
the 1997 Tax Code. In the instant case, and subject to the physical impossibility on the part of the payor to be present
and prepare and sign an instrument purporting to pay a certain obligation, the withdrawal and payment shall be made
in cash. In this light, the withdrawal shall not be subject to documentary stamp tax. The case is parallel to an
automatic bank transfer of local funds from a savings account to a checking account maintained by a depositor in one
bank.
Likewise, the receipt of funds from another bank in the Philippines for deposit to the payee’s account and thereafter
upon instruction of the non-resident depositor-payor, through an electronic message, the depository bank to debit his
account and pay a named recipient shall not be subject to documentary stamp tax.
It should be noted that the receipt of funds from another local bank in the Philippines by a local depository bank for
the account of its client residing abroad is part of its regular banking transaction which is not subject to documentary
stamp tax. Neither does the receipt of funds makes the recipient subject to the documentary stamp tax. The funds are
deemed to be part of the deposits of the client once credited to his account, and which, thereafter can be disposed in
the manner he wants. The payor-client’s further instruction to debit his account and pay a named recipient in the
Philippines does not involve transfer of funds from abroad. Likewise, as stated earlier, such debit of local or foreign
currency account in the Philippines is not subject to the documentary stamp tax under the aforementioned Section
181 of the Tax Code.
In the light of the foregoing, this Office hereby holds that the instruction made through an electronic message by non-
resident payor-client to debit his local or foreign currency account maintained in the Philippines and to pay a certain
named recipient also residing in the Philippines is not the transaction contemplated under Section 181 of the 1997
Tax Code. Such being the case, such electronic instruction purporting to draw funds from a local account intended to
be paid to a named recipient in the Philippines is not subject to documentary stamp tax imposed under the foregoing
Section.
This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it shall
be disclosed that the facts are different, this ruling shall be considered null and void.
Very truly yours,
(Sgd.) BEETHOVEN L. RUALO
Commissioner of Internal Revenue8
With the above BIR Ruling as its basis, HSBC filed on October 8, 1999 an administrative claim for the refund of the
amount of ₱19,572,992.10 allegedly representing erroneously paid DST to the BIR for the period covering
September to December 1997.
Subsequently, on January 31, 2000, HSBC filed another administrative claim for the refund of the amount of
₱32,904,437.30 allegedly representing erroneously paid DST to the BIR for the period covering January to December
1998.
As its claims for refund were not acted upon by the BIR, HSBC subsequently brought the matter to the CTA as CTA
Case Nos. 5951 and 6009, respectively, in order to suspend the running of the two-year prescriptive period.
The CTA Decisions dated May 2, 2002 in CTA Case No. 6009 and dated December 18, 2002 in CTA Case No. 5951
favored HSBC. Respondent Commissioner of Internal Revenue was ordered to refund or issue a tax credit certificate
in favor of HSBC in the reduced amounts of ₱30,360,570.75 in CTA Case No. 6009 and ₱16,436,395.83 in CTA
Case No. 5951, representing erroneously paid DST that have been sufficiently substantiated with documentary
evidence. The CTA ruled that HSBC is entitled to a tax refund or tax credit because Sections 180 and 181 of the 1997
Tax Code do not apply to electronic message instructions transmitted by HSBC’s non-resident investor-clients:
The instruction made through an electronic message by a nonresident investor-client, which is to debit his local or
foreign currency account in the Philippines and pay a certain named recipient also residing in the Philippines is not
the transaction contemplated in Section 181 of the Code. In this case, the withdrawal and payment shall be made in
cash. It is parallel to an automatic bank transfer of local funds from a savings account to a checking account
maintained by a depositor in one bank. The act of debiting the account is not subject to the documentary stamp tax
under Section 181. Neither is the transaction subject to the documentary stamp tax under Section 180 of the same
Code. These electronic message instructions cannot be considered negotiable instruments as they lack the feature of
negotiability, which, is the ability to be transferred (Words and Phrases).
These instructions are considered as mere memoranda and entered as such in the books of account of the local bank,
and the actual debiting of the payor’s local or foreign currency account in the Philippines is the actual transaction that
should be properly entered as such.9
The respective dispositive portions of the Decisions dated May 2, 2002 in CTA Case No. 6009 and dated December
18, 2002 in CTA Case No. 5951 read:
II. CTA Case No. 6009
WHEREFORE, in the light of all the foregoing, the instant Petition for Review is PARTIALLY GRANTED.
Respondent is hereby ORDERED to REFUND or ISSUE A TAX CREDIT CERTIFICATE in favor of Petitioner the
amount of ₱30,360,570.75 representing erroneous payment of documentary stamp tax for the taxable year 1998. 10
II. CTA Case No. 5951
WHEREFORE, in the light of the foregoing, the instant petition is hereby partially granted. Accordingly, respondent
is hereby ORDERED to REFUND, or in the alternative, ISSUE A TAX CREDIT CERTIFICATE in favor of the
petitioner in the reduced amount of ₱16,436,395.83 representing erroneously paid documentary stamp tax for the
months of September 1997 to December 1997.11
However, the Court of Appeals reversed both decisions of the CTA and ruled that the electronic messages of HSBC’s
investor-clients are subject to DST. The Court of Appeals explained:
At bar, [HSBC] performs custodial services in behalf of its investor-clients as regards their passive investments in the
Philippines mainly involving shares of stocks in domestic corporations. These investor-clients maintain Philippine
peso and/or foreign currency accounts with [HSBC]. Should they desire to purchase shares of stock and other
investments securities in the Philippines, the investor-clients send their instructions and advises via electronic
messages from abroad to [HSBC] in the form of SWIFT MT 100, MT 202, or MT 521 directing the latter to debit
their local or foreign currency account and to pay the purchase price upon receipt of the securities (CTA Decision,
pp. 1-2; Rollo, pp. 41-42). Pursuant to Section 181 of the NIRC, [HSBC] was thus required to pay [DST] based on its
acceptance of these electronic messages – which, as [HSBC] readily admits in its petition filed before the [CTA],
were essentially orders to pay the purchases of securities made by its client-investors (Rollo, p. 60).
Appositely, the BIR correctly and legally assessed and collected the [DST] from [HSBC] considering that the said
tax was levied against the acceptances and payments by [HSBC] of the subject electronic messages/orders for
payment. The issue of whether such electronic messages may be equated as a written document and thus be subject to
tax is beside the point. As We have already stressed, Section 181 of the law cited earlier imposes the [DST] not on
the bill of exchange or order for payment of money but on the acceptance or payment of the said bill or order. The
acceptance of a bill or order is the signification by the drawee of its assent to the order of the drawer to pay a given
sum of money while payment implies not only the assent to the said order of the drawer and a recognition of the
drawer’s obligation to pay such aforesaid sum, but also a compliance with such obligation (Philippine National Bank
vs. Court of Appeals, 25 SCRA 693 [1968]; Prudential Bank vs. Intermediate Appellate Court, 216 SCRA 257
[1992]). What is vital to the valid imposition of the [DST] under Section 181 is the existence of the requirement of
acceptance or payment by the drawee (in this case, [HSBC]) of the order for payment of money from its investor-
clients and that the said order was drawn from a foreign country and payable in the Philippines. These requisites are
surely present here.
It would serve the parties well to understand the nature of the tax being imposed in the case at bar. In Philippine
Home Assurance Corporation vs. Court of Appeals (301 SCRA 443 [1999]), the Supreme Court ruled that [DST is]
levied on the exercise by persons of certain privileges conferred by law for the creation, revision, or termination of
specific legal relationships through the execution of specific instruments, independently of the legal status of the
transactions giving rise thereto. In the same case, the High Court also declared – citing Du Pont vs. United States
(300 U.S. 150, 153 [1936])
The tax is not upon the business transacted but is an excise upon the privilege, opportunity, or facility offered at
exchanges for the transaction of the business. It is an excise upon the facilities used in the transaction of the business
separate and apart from the business itself. x x x.
To reiterate, the subject [DST] was levied on the acceptance and payment made by [HSBC] pursuant to the order
made by its client-investors as embodied in the cited electronic messages, through which the herein parties’ privilege
and opportunity to transact business respectively as drawee and drawers was exercised, separate and apart from the
circumstances and conditions related to such acceptance and subsequent payment of the sum of money authorized by
the concerned drawers. Stated another way, the [DST] was exacted on [HSBC’s] exercise of its privilege under its
drawee-drawer relationship with its client-investor through the execution of a specific instrument which, in the case
at bar, is the acceptance of the order for payment of money. The acceptance of a bill or order for payment may be
done in writing by the drawee in the bill or order itself, or in a separate instrument (Prudential Bank vs. Intermediate
Appellate Court, supra.)Here, [HSBC]’s acceptance of the orders for the payment of money was veritably ‘done in
writing in a separate instrument’ each time it debited the local or foreign currency accounts of its client-investors
pursuant to the latter’s instructions and advises sent by electronic messages to [HSBC]. The [DST] therefore must be
paid upon the execution of the specified instruments or facilities covered by the tax – in this case, the acceptance by
[HSBC] of the order for payment of money sent by the client-investors through electronic messages. x x x.12
Hence, these petitions.
HSBC asserts that the Court of Appeals committed grave error when it disregarded the factual and legal conclusions
of the CTA. According to HSBC, in the absence of abuse or improvident exercise of authority, the CTA’s ruling
should not have been disturbed as the CTA is a highly specialized court which performs judicial functions,
particularly for the review of tax cases. HSBC further argues that the Commissioner of Internal Revenue had already
settled the issue on the taxability of electronic messages involved in these cases in BIR Ruling No. 132-99 and
reiterated in BIR Ruling No. DA-280-2004.13
The Commissioner of Internal Revenue, on the other hand, claims that Section 181 of the 1997 Tax Code imposes
DST on the acceptance or payment of a bill of exchange or order for the payment of money. The DST under Section
18 of the 1997 Tax Code is levied on HSBC’s exercise of a privilege which is specifically taxed by law. BIR Ruling
No. 132-99 is inconsistent with prevailing law and long standing administrative practice, respondent is not barred
from questioning his own revenue ruling. Tax refunds like tax exemptions are strictly construed against the
taxpayer.14
The Court finds for HSBC.
The Court agrees with the CTA that the DST under Section 181 of the Tax Code is levied on the acceptance or
payment of "a bill of exchange purporting to be drawn in a foreign country but payable in the Philippines" and that "a
bill of exchange is an unconditional order in writing addressed by one person to another, signed by the person giving
it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum
certain in money to order or to bearer." A bill of exchange is one of two general forms of negotiable instruments
under the Negotiable Instruments Law.15
The Court further agrees with the CTA that the electronic messages of HSBC’s investor-clients containing
instructions to debit their respective local or foreign currency accounts in the Philippines and pay a certain named
recipient also residing in the Philippines is not the transaction contemplated under Section 181 of the Tax Code as
such instructions are "parallel to an automatic bank transfer of local funds from a savings account to a checking
account maintained by a depositor in one bank." The Court favorably adopts the finding of the CTA that the
electronic messages "cannot be considered negotiable instruments as they lack the feature of negotiability, which, is
the ability to be transferred" and that the said electronic messages are "mere memoranda" of the transaction
consisting of the "actual debiting of the [investor-client-payor’s] local or foreign currency account in the Philippines"
and "entered as such in the books of account of the local bank," HSBC. 16
More fundamentally, the instructions given through electronic messages that are subjected to DST in these cases are
not negotiable instruments as they do not comply with the requisites of negotiability under Section 1 of the Negotiable
Instruments Law, which provides:
Sec. 1. Form of negotiable instruments.– An instrument to be negotiable must conform to the following requirements:
(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 electronic messages are not signed by the investor-clients as supposed drawers of a bill of exchange; they do not
contain an unconditional order to pay a sum certain in money as the payment is supposed to come from a specific
fund or account of the investor-clients; and, they are not payable to order or bearer but to a specifically designated
third party. Thus, the electronic messages are not bills of exchange. As there was no bill of exchange or order for the
payment drawn abroad and made payable here in the Philippines, there could have been no acceptance or payment
that will trigger the imposition of the DST under Section 181 of the Tax Code.
Section 181 of the 1997 Tax Code, which governs HSBC’s claim for tax refund for taxable year 1998 subject of G.R.
No. 167728, provides:
SEC. 181. Stamp Tax Upon Acceptance of Bills of Exchange and Others. – Upon any acceptance or payment of any
bill of exchange or order for the payment of money purporting to be drawn in a foreign country but payable in the
Philippines, there shall be collected a documentary stamp tax of Thirty centavos (P0.30) on each Two hundred pesos
(₱200), or fractional part thereof, of the face value of any such bill of exchange, or order, or the Philippine equivalent
of such value, if expressed in foreign currency. (Emphasis supplied.)
Section 230 of the 1977 Tax Code, as amended, which governs HSBC’s claim for tax refund for DST paid during the
period September to December 1997 and subject of G.R. No. 166018, is worded exactly the same as its counterpart
provision in the 1997 Tax Code quoted above.
The origin of the above provision is Section 117 of the Tax Code of 1904,17 which provided: SECTION 117. The
acceptor or acceptors of any bill of exchange or order for the payment of any sum of money drawn or purporting to
be drawn in any foreign country but payable in the Philippine Islands, shall, before paying or accepting the same,
place thereupon a stamp in payment of the tax upon such document in the same manner as is required in this Act for
the stamping of inland bills of exchange or promissory notes, and no bill of exchange shall be paid nor negotiated
until such stamp shall have been affixed thereto.18 (Emphasis supplied.)
It then became Section 30(h) of the 1914 Tax Code19:
SEC. 30. Stamp tax upon documents and papers. – Upon documents, instruments, and papers, and upon acceptances,
assignments, sales, and transfers of the obligation, right, or property incident thereto documentary taxes for and in
respect of the transaction so had or accomplished shall be paid as hereinafter prescribed, by the persons making,
signing, issuing, accepting, or transferring the same, and at the time such act is done or transaction had:
xxxx
(h) Upon any acceptance or payment upon acceptance of any bill of exchange or order for the payment of money
purporting to be drawn in a foreign country but payable in the Philippine Islands, on each two hundred pesos, or
fractional part thereof, of the face value of any such bill of exchange or order, or the Philippine equivalent of such
value, if expressed in foreign currency, two centavos[.] (Emphasis supplied.)
It was implemented by Section 46 in relation to Section 39 of Revenue Regulations No. 26,20 as amended:
SEC. 39. A Bill of Exchange is one that "denotes checks, drafts, and all other kinds of orders for the payment of
money, payable at sight or on demand, or after a specific period after sight or from a stated date."
SEC. 46. Bill of Exchange, etc. – When any bill of exchange or order for the payment of money drawn in a foreign
country but payable in this country whether at sight or on demand or after a specified period after sight or from a
stated date, is presented for acceptance or payment, there must be affixed upon acceptance or payment of
documentary stamp equal to P0.02 for each ₱200 or fractional part thereof. (Emphasis supplied.)
It took its present form in Section 218 of the Tax Code of 1939, 21 which provided:
SEC. 218. Stamp Tax Upon Acceptance of Bills of Exchange and Others. – Upon any acceptance or payment of any
bill of exchange or order for the payment of money purporting to be drawn in a foreign country but payable in the
Philippines, there shall be collected a documentary stamp tax of four centavos on each two hundred pesos, or
fractional part thereof, of the face value of any such bill of exchange or order, or the Philippine equivalent of such
value, if expressed in foreign currency. (Emphasis supplied.)
It then became Section 230 of the 1977 Tax Code,22 as amended by Presidential Decree Nos. 1457 and 1959,which,
as stated earlier, was worded exactly as Section 181 of the current Tax Code:
SEC. 230. Stamp tax upon acceptance of bills of exchange and others. – Upon any acceptance or payment of any bill
of exchange or order for the payment of money purporting to be drawn in a foreign country but payable in the
Philippines, there shall be collected a documentary stamp tax of thirty centavos on each two hundred pesos, or
fractional part thereof, of the face value of any such bill of exchange, or order, or the Philippine equivalent of such
value, if expressed in foreign currency. (Emphasis supplied.)
The pertinent provision of the present Tax Code has therefore remained substantially the same for the past one
hundred years. The identical text and common history of Section 230 of the 1977 Tax Code, as amended, and the
1997 Tax Code, as amended, show that the law imposes DST on either (a) the acceptance or (b) the payment of a
foreign bill of exchange or order for the payment of money that was drawn abroad but payable in the Philippines.
DST is an excise tax on the exercise of a right or privilege to transfer obligations, rights or properties incident
thereto.23 Under Section 173 of the 1997 Tax Code, the persons primarily liable for the payment of the DST are those
(1) making, (2) signing, (3) issuing, (4) accepting, or (5) transferring the taxable documents, instruments or papers. 24
In general, DST is levied on the exercise by persons of certain privileges conferred by law for the creation, revision,
or termination of specific legal relationships through the execution of specific instruments. Examples of such
privileges, the exercise of which, as effected through the issuance of particular documents, are subject to the payment
of DST are leases of lands, mortgages, pledges and trusts, and conveyances of real property. 25
As stated above, Section 230 of the 1977 Tax Code, as amended, now Section 181 of the 1997 Tax Code, levies DST
on either (a) the acceptance or (b) the payment of a foreign bill of exchange or order for the payment of money that
was drawn abroad but payable in the Philippines. In other words, it levies DST as an excise tax on the privilege of the
drawee to accept or pay a bill of exchange or order for the payment of money, which has been drawn abroad but
payable in the Philippines, and on the corresponding privilege of the drawer to have acceptance of or payment for the
bill of exchange or order for the payment of money which it has drawn abroad but payable in the Philippines.
Acceptance applies only to bills of exchange.26 Acceptance of a bill of exchange has a very definite meaning in
law.27 In particular, Section 132 of the Negotiable Instruments Law provides:
Sec. 132. Acceptance; how made, by and so forth. – The acceptance of a bill [of exchange28] is the signification by
the drawee of his assent to the order of the drawer. The acceptance must be in writing and signed by the drawee. It
must not express that the drawee will perform his promise by any other means than the payment of money.
Under the law, therefore, what is accepted is a bill of exchange, and the acceptance of a bill of exchange is both the
manifestation of the drawee’s consent to the drawer’s order to pay money and the expression of the drawee’s promise
to pay. It is "the act by which the drawee manifests his consent to comply with the request contained in the bill of
exchange directed to him and it contemplates an engagement or promise to pay."29 Once the drawee accepts, he
becomes an acceptor.30 As acceptor, he engages to pay the bill of exchange according to the tenor of his acceptance. 31
Acceptance is made upon presentment of the bill of exchange, or within 24 hours after such
presentment.32Presentment for acceptance is the production or exhibition of the bill of exchange to the drawee for the
purpose of obtaining his acceptance.33
Presentment for acceptance is necessary only in the instances where the law requires it. 34 In the instances where
presentment for acceptance is not necessary, the holder of the bill of exchange can proceed directly to presentment
for payment.
Presentment for payment is the presentation of the instrument to the person primarily liable for the purpose of
demanding and obtaining payment thereof.35
Thus, whether it be presentment for acceptance or presentment for payment, the negotiable instrument has to be
produced and shown to the drawee for acceptance or to the acceptor for payment.
Revenue Regulations No. 26 recognizes that the acceptance or payment (of bills of exchange or orders for the
payment of money that have been drawn abroad but payable in the Philippines) that is subjected to DST under
Section 181 of the 1997 Tax Code is done after presentment for acceptance or presentment for payment, respectively.
In other words, the acceptance or payment of the subject bill of exchange or order for the payment of money is done
when there is presentment either for acceptance or for payment of the bill of exchange or order for the payment of
money.
Applying the above concepts to the matter subjected to DST in these cases, the electronic messages received by
HSBC from its investor-clients abroad instructing the former to debit the latter's local and foreign currency accounts
and to pay the purchase price of shares of stock or investment in securities do not properly qualify as either
presentment for acceptance or presentment for payment. There being neither presentment for acceptance nor
presentment for payment, then there was no acceptance or payment that could have been subjected to DST to speak
of.
Indeed, there had been no acceptance of a bill of exchange or order for the payment of money on the part of HSBC.
To reiterate, there was no bill of exchange or order for the payment drawn abroad and made payable here in the
Philippines. Thus, there was no acceptance as the electronic messages did not constitute the written and signed
manifestation of HSBC to a drawer's order to pay money. As HSBC could not have been an acceptor, then it could
not have made any payment of a bill of exchange or order for the payment of money drawn abroad but payable here
in the Philippines. In other words, HSBC could not have been held liable for DST under Section 230 of the 1977 Tax
Code, as amended, and Section 181 of the 1997 Tax Code as it is not "a person making, signing, issuing, accepting,
or, transferring" the taxable instruments under the said provision. Thus, HSBC erroneously paid DST on the said
electronic messages for which it is entitled to a tax refund.
WHEREFORE, the petitions are hereby GRANTED and the Decisions dated May 2, 2002 in CTA Case No. 6009
and dated December 18, 2002 in CT A Case No. 5951 of the Court of Tax Appeals are REINSTATED. SO
ORDERED.
G.R. No. L-10221 February 28, 1958
Intestate of Luther Young and Pacita Young, spouses. PACIFICA JIMENEZ, petitioner-appellee, vs. DR.
JOSE BUCOY, administrator-appellant.
BENGZON, J.:
In this intestate of Luther Young and Pacita Young who died in 1954 and 1952 respectively, Pacifica Jimenez
presented for payment four promissory notes signed by Pacita for different amounts totalling twenty-one thousand
pesos (P21,000).
Acknowledging receipt by Pacita during the Japanese occupation, in the currency then prevailing, the administrator
manifested willingness to pay provided adjustment of the sums be made in line with the Ballantyne schedule.
The claimant objected to the adjustment insisting on full payment in accordance with the notes.
Applying doctrines of this Court on the matter, the Hon. Primitive L. Gonzales, Judge, held that the notes should be
paid in the currency prevailing after the war, and that consequently plaintiff was entitled to recover P21,000 plus
attorneys fees for the sum of P2,000.
Hence this appeal.
Executed in the month of August 1944, the first promissory note read as follows:
Received from Miss Pacifica Jimenez the total amount of P10,000) ten thousand pesos payable six months after the
war, without interest.
The other three notes were couched in the same terms, except as to amounts and dates.
There can be no serious question that the notes were promises to pay "six months after the war," the amounts
mentioned.
But the important question, which obviously compelled the administrator to appeal, is whether the amounts should be
paid, peso for peso, or whether a reduction should be made in accordance with the well-known Ballantyne schedule.
This matter of payment of loans contracted during the Japanese occupation has received our attention in many
litigations after the liberation. The gist of our adjudications, in so far as material here, is that if the loan should be
paid during the Japanese occupation, the Ballantyne schedule should apply with corresponding reduction of the
amount.1 However, if the loan was expressly agreed to be payable only after the war or after liberation, or became
payable after those dates, no reduction could be effected, and peso-for-peso payment shall be ordered in Philippine
currency.2
The Ballantyne Conversion Table does not apply where the monetary obligation, under the contract, was not payable
during the Japanese occupation but until after one year counted for the date of ratification of the Treaty of Peace
concluding the Greater East Asia War. (Arellano vs. De Domingo, 101 Phil., 902.)
When a monetary obligation is contracted during the Japanese occupation, to be discharged after the war, the
payment should be made in Philippine Currency. (Kare et al. vs. Imperial et al., 102 Phil., 173.)
Now then, as in the case before us, the debtor undertook to pay "six months after the war," peso for peso payment is
indicated.
The Ang Lam3 case cited by appellant is not controlling, because the loan therein given could have been repaid
during the Japanese occupation. Dated December 26, 1944, it was payable within one year. Payment could therefore
have been made during January 1945. The notes here in question were payable only after the war.
The appellant administrator calls attention to the fact that the notes contained no express promise to pay a specified
amount. We declare the point to be without merit. In accordance with doctrines on the matter, the note herein-above
quoted amounted in effect to "a promise to pay ten thousand pesos six months after the war, without interest." And so
of the other notes.
"An acknowledgment may become a promise by the addition of words by which a promise of payment is naturally
implied, such as, "payable," "payable" on a given day, "payable on demand," "paid . . . when called for," . . . (10
Corpus Juris Secundum p. 523.)
"To constitute a good promissory note, no precise words of contract are necessary, provided they amount, in legal
effect, to a promise to pay. In other words, if over and above the mere acknowledgment of the debt there may be
collected from the words used a promise to pay it, the instrument may be regarded as a promissory note. 1 Daniel,
Neg. Inst. sec. 36 et seq.; Byles, Bills, 10, 11, and cases cited . . . "Due A. B. $325, payable on demand," or, "I
acknowledge myself to be indebted to A in $109, to be paid on demand, for value received," or, "I O. U. $85 to be
paid on May 5th," are held to be promissory notes, significance being given to words of payment as indicating a
promise to pay." 1 Daniel Neg. Inst. see. 39, and cases cited. (Cowan vs. Hallack, (Colo.) 13 Pacific Reporter 700,
703.)
Another argument of appellant is that as the deceased Luther Young did not sign these notes, his estate is not liable
for the same. This defense, however, was not interposed in the lower court. There the only issue related to the amount
to be amount, considering that the money had been received in Japanese money. It is now unfair to put up this new
defense, because had it been raised in the court below, appellees could have proved, what they now alleged that
Pacita contracted the obligation to support and maintain herself, her son and her husband (then concentrated at Santo
Tomas University) during the hard days of the occupation.
It is now settled practice that on appeal a change of theory is not permitted.
In order that a question may be raised on appeal, it is essential that it be within the issues made by the parties in their
pleadings. Consequently, when a party deliberately adopts a certain theory, and the case is tried and decided upon
that theory in the court below, he will not be permitted to change his theory on appeal because, to permit him to do
so, would be unfair to the adverse party. (Rules of Court by Moran-1957 Ed. Vol. I p. 715 citing Agoncillo vs. Javier,
38 Phil., 424; American Express Company vs. Natividad, 46 Phil., 207; San Agustin vs. Barrios, 68 Phil., 475, 480;
Toribio vs. Dacasa, 55 Phil., 461.)
Appellant's last assignment of error concerns attorneys fees. He says there was no reason for making this and
exception to the general rule that attorney's fees are not recoverable in the absence of stipulation.
Under the new Civil Code, attorney's fees and expenses of litigation new be awarded in this case if defendant acted in
gross and evident bad faith in refusing to satisfy plaintiff's plainly valid, just and demandable claim" or "where the
court deems it just and equitable that attorney's fees be recovered" (Article 2208 Civil Code). These are — if
applicable — some of the exceptions to the general rule that in the absence of stipulation no attorney's fees shall be
awarded.
The trial court did not explain why it ordered payment of counsel fees. Needless to say, it is desirable that the
decision should state the reason why such award is made bearing in mind that it must necessarily rest on an
exceptional situation. Unless of course the text of the decision plainly shows the case to fall into one of the
exceptions, for instance "in actions for legal support," when exemplary damages are awarded," etc. In the case at bar,
defendant could not obviously be held to have acted in gross and evident bad faith." He did not deny the debt, and
merely pleaded for adjustment, invoking decisions he thought to be controlling. If the trial judge considered it "just
and equitable" to require payment of attorney's fees because the defense — adjustment under Ballantyne schedule —
proved to be untenable in view of this Court's applicable rulings, it would be error to uphold his view. Otherwise,
every time a defendant loses, attorney's fees would follow as a matter of course. Under the article above cited, even a
clearly untenable defense would be no ground for awarding attorney's fees unless it amounted to "gross and evident
bad faith."
Plaintiff's attorneys attempt to sustain the award on the ground of defendant's refusal to accept her offer, before the
suit, to take P5,000 in full settlement of her claim. We do not think this is tenable, defendant's attitude being merely a
consequence of his line of defense, which though erroneous does not amount to "gross and evident bad faith." For
one thing, there is a point raised by defendant, which so far as we are informed, has not been directly passed upon in
this jurisdiction: the notes contained no express promise to pay a definite amount.
There being no circumstance making it reasonable and just to require defendant to pay attorney's fees, the last
assignment of error must be upheld.
Wherefore, in view of the foregoing considerations, the appealed decision is affirmed, except as to the attorney's fees
which are hereby disapproved. So ordered.
G.R. No. L-7271 August 30, 1957
PHILIPPINE NATIONAL BANK, plaintiff-appellant, vs. JOSE ZULUETA, defendant-appellee.
BENGZON, J.:
In the Manila court of first instance, the Philippine National Bank sued the defendant upon a letter of credit and a
draft for the amount of $14,449.15. Although willing to pay the equivalent in pesos of the draft, plus bank charges,
the defendant objected to the 17% excise tax imposed by Republic Act No. 601 which the Bank tried to collect. Both
documents, he contended, had been issued and had matured before the approval of said Act, therefore the excise tax
should not be charged.
After the trial, the court rendered judgment exempting defendant from the 17% excise tax; but ordered him to deliver
to plaintiff the sum of P37,622.11 plus daily interest of P3.9938 on P29,154.55 beginning from January 9, 1953.
The plaintiff appealed, insisting on the right to collect 17% excise or exchange tax. This is the only issue between the
parties now.
For a statement of the facts we may quote from plaintiff's brief. "On October 26, 1948, Defendant-Appellee applied
for a commercial letter of credit with Plaintiff-Appellant, Philippine National Bank (Manila) and was granted L/C
No. 35171 (Exhibit "B") on November 6, 1948, in favor of Otis Elevator Co., 260 Eleventh Avenue, New York City,
U.S.A., for $14,449.15 for the purchase of an electric passenger elevator; on May 17, 1949, and under the said letter
of credit (Exhibit "B"), Otis Elevator Co. drew a 90 day sight draft for $14,449.15 (Exhibit "A") which draft was duly
presented to and accepted by Defendant-Appellee on July 6, 1949. Said acceptance matured on October 4, 1949.
Upon Defendant-Appellee's signing a 90 day trust receipt (Exhibit "C") on June 3, 1949, Plaintiff-Appellant released
to Defendant-Appellee the covering documents of the shipment. In the meantime, debit advice (Exhibit "G") was
received from Plaintiff-Appellant's New York Agency to the effect that it advanced or paid the draft (Exhibit "A") to
Otis Elevator Co. on May 17, 1949, and charged Plaintiff-Appellant the sum of $14,467.21 representing the face
value of the draft (Exhibit "A") plus $18.06 as 1/8 of 1% commission. After the maturity date (October 4, 1949)
Plaintiff-Appellant presented the draft to Defendant-Appellee for payment but the latter failed, neglected and refused
to pay.
During its special session in January, 1951, Congress passed House Bill No. 1513, now Republic Act No. 601,
approved on March 28, 1951, imposing a 17% special excise tax (otherwise known as foreign exchange tax) on the
value in Philippine peso of foreign exchange sold by the Central Bank of the Philippines or its authorized agents.
Plaintiff-appellant, as any other commercial bank in the Philippines, is an authorized agent of the Central Bank of the
Philippines.
On October 17, 1952, and January 18, 1953, Plaintiff-Appellant sent bills or statements of collection (Exhibits "D"
and "D-1") to Defendant-Appellee but the latter failed and refused to effect payment thereof. In those statements, the
sum of P4,955.74 was included representing the 17% special excise tax on the peso value of the draft for US
$14,449.15 (Exhibit "A"), . . . .
Defendant's application for a letter of credit party read as follows:
Please arrange by cable for the establishment of an Irrevocable Letter of Credit on New York in favor of Otis
Elevator Co., 260 Eleventh Avenue, New York City for account of Ho. Jose C. Zulueta for the sum of FOURTEEN
THOUSAND FOUR HUNDRED FORTY-NINE AND 15/100 ($14,449.15) DOLLARS against drawn at NINETY
DAYS accompanied by shipping documents covering of One COMPLETE ELECTRIC PASSENGER ELEVATOR .
Drafts must be drawn and presented or negotiated not later than May 31, 1949.
IN CONSIDERATION THEREOF, I/we promise and agree to pay you at maturity in Philippine Currency, the
equivalent of the above amount or such portion thereof as may be drawn or paid upon the faith of said credit, together
with your usual charges, and I/we authorize you and your respective correspondents to pay or to accept drafts under
this credit, . . .
And the draft issued thereunder (Exhibit A) was negotiable and addressed to herein defendant as the drawee.
From plaintiff's statement of its position it is not clear whether recovery is demanded upon the letter of credit, or
upon the draft Exhibit A. Plaintiff may, undoubtedly, proceed on either cause of action. (See Art. 571 Code of
Commerce; Sec. 51 Negotiable Instruments Law.)
Had the plaintiff elected to recover on said letter of credit, then it would meet with the doctrines in Araneta vs.
Philippine National Bank, 95 Phil., 160, 50 Off. Gaz., (11) 5350), According to the majority opinion in that case,
plaintiff should receive the equivalent in pesos, on May 17, 1949, of what the New York Agency paid to Otis
Elevator, i.e. $14,467.21 (plus bank fees of course.) According to the minority opinion, the equivalent in pesos of the
same amount of dollars on October 4, 1949. No. 17% tax on both dates. In converting dollars into pesos, no 17%
exchange tax would be imposable, since it was created only in March 1951. The plaintiff knows the case, for it was a
party to it; and anticipating, in this appeal, the obvious conclusions, it insists not so much on the letter of credit, as on
the bill of exchange Exhibit A1 . As stated before, such draft was drawn by Otis Elevator Co. in New York. It was
addressed to defendant as drawee, who is due course accepted it. There is no, question that upon accepting it,
defendant became a party primarily liable2; and the holder (Philippine National Bank) may sue him, even if there had Air Mail 2.00
been no presentation for payment on the day of maturity. (Sec. 70 Negotiable Instruments Law.)
17% Excise Tax on P29,151.43 4,955.74
Admittedly, defendant's responsibility is for $14,449.15 due in Manila on October 4, 1949 (plus bank fees). He is
under obligation to deliver such amount in pesos as were the equivalent of $14,449.15. At what rate of exchange? Other charges 3.00
The rate prevailing on the day of issuance, day of acceptance, day of maturity, the day suit is filed, or that prevailing From the above it may be deduced that the amount of the draft had been remitted or paid to the New York Agency in
on the day judgment is rendered requiring him to pay? Herein lies the center of the controversy. Appellant will win May 1949, for the reason that Zulueta is charged with remitter's commission" and 5% interest on the amount of the
this appeal only if the rate on the last days above mentioned is held to be the legal rate. draft (and such commission) beginning from May 17, 1949. This necessarily impllies that in accordance with Exhibit
The document is negotiable and is governed by the Negotiable Instruments Law. But this statute does not certain any G, the New York Agency had been reimbursed of the draft's amount (or such amount was remitted) on May 17,
express provision on the question. We know the draft is a foreign bill of exchange, because, drawn in New York, it is 1949.10 Now, in May 1949 no 17% exchange tax was payable upon such remittance; and the Manila office did not
payable here. (See. 129 Negotiable Instruments Law.) We also know that although the amount payable is expressed pay it. Therefore Zulueta should not pay it too.
in dollars — not current money here — it is still negotiable, for it may be discharged with pesos of equivalent In view of the foregoing the judgment will be affirmed, with costs against appellant. So ordered.
amount3. The problem arises when we try to determine the "equivalent amount", because the rate of exchange
fluctuates from day to day.
There are decisions in America to the effect that, "the rate of exchange in effect at the time the bill should have been
paid" controls. (11 C.J.S. p. 264.)
Such decisions agree with the provisions of the Bills of Exchange Act of England 4 and could be taken as enunciating
the correct principle, inasmuch as our Negotiable Instruments Law, practically copied the American Uniform
Negotiable Instruments Law which in turn was based largely on the Bills of Exchange Act of England of 1882. In
fact we practically followed this rule in Westminster Bank vs. K. Nassor, 58 Phil. 855.
There is one decision applying the rate of exchange at the time judgment is entered. (11 C. J. S. p.264.)5
This decision however seems not to have taken into account the Bills of Exchange Act above mentioned. And we
have rejected its view in the Westminster case, supra. Furthermore it related to a bill expressly made payable in a
foreign currency — which is not the case here. And the theory would probably produce undesirable effects upon
commercial documents, for it would make the amount uncertain, the parties to the bill not being able to foresee the
day judgment would be rendered.6
But the appellant argues, the defendant had promised to pay $14,419.15 in dollars; therefore he must be ordered to
pay the sum in dollars at current rates plus 17%.
The argument rests on a wrong premise. Defendant had not promised to pay in dollars. He agreed to pay the
equivalent of $14,419.15 dollars, in Philippine currency 7.
But if we admit that defendant had agreed to pay in dollars, then we have to apply Republic Act No. 529 and say that
his obligation "shall be discharged in Philippine currency measured at the prevailing rates of exchange at the time the
obligation was incurred."
Now then, Zulueta's obligation having been incurred 8 before the creation of the 17% tax, it may not be validly
burdened with such tax, because the law imposing it could not be deemed to have impaired obligations already
existing at the time of its approval..
The plaintiff's theory seems to be that in remitting dollars to its New York Agency, after it collects from the
defendant, it has to pay for the said excise tax.9 The trial judge expressed the belief that such amount had been
remitted before the enactment of Republic Act 601, because considering the practice of banks of replenishing their
agencies abroad with necessary funds, he deemed it improbable that the Manila Office of the Bank — in two years
had not reimburse its New York Agency for the amount advanced on account of the draft Exhibit A. This belief most
probably accorded with reality; because as early as May 17, 1949 (Exhibit G) the New York Agency had "charged"
the amount of this draft against the account of the Manila office there, — which means the Agency had reimbursed
itself the amount of the draft out of the funds of the Manila Office then in its possession (in New York) or coming to
its possession afterwards. And it is unbelievable that in two years the Manila office never had in New York sufficient
funds to effect the reimbursement.
In fact, the statement of account rendered by plaintiff to defendant on October 17, 1952, (Exhibit D) enumerated
these charges:
To your acceptance amounting to $14,449.15
Plus: Remitter's Commission 18.06
$14,567.21
Converted at 3/4 % P29,151.43
5% int. 5/17/49-10/19/52-1251 da. 4,995.68
P34,147.11
10% comm. on $14,449.15 2,911.51
Documentary stamps 8.70
PNB vs. Rodriguez
DECISION
REYES, R.T., J.:
WHEN the payee of the check is not intended to be the true recipient of its proceeds, is it payable to order or
bearer? What is the fictitious-payee rule and who is liable under it?Is there any exception?
These questions seek answers in this petition for review on certiorari of the Amended Decision[1] of the Court of
Appeals (CA) which affirmed with modification that of the Regional Trial Court (RTC). [2]
The Facts
The facts as borne by the records are as follows:
Respondents-Spouses Erlando and Norma Rodriguez were clients of petitioner Philippine National Bank (PNB),
Amelia Avenue Branch, Cebu City. They maintained savings and demand/checking accounts, namely, PNBig Demand
Deposits (Checking/Current Account No. 810624-6 under the account name Erlando and/or Norma Rodriguez), and
PNBig Demand Deposit (Checking/Current Account No. 810480-4 under the account name Erlando T. Rodriguez).
The spouses were engaged in the informal lending business. In line with their business, they had a
discounting[3] arrangement with the Philnabank Employees Savings and Loan Association (PEMSLA), an association
of PNB employees. Naturally, PEMSLA was likewise a client of PNB Amelia Avenue Branch. The association
maintained current and savings accounts with petitioner bank.
PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount the postdated checks issued to
members whenever the association was short of funds. As was customary, the spouses would replace the postdated
checks with their own checks issued in the name of the members.
It was PEMSLAs policy not to approve applications for loans of members with outstanding debts. To subvert this
policy, some PEMSLA officers devised a scheme to obtain additional loans despite their outstanding loan
accounts. They took out loans in the names of unknowing members, without the knowledge or consent of the latter. The
PEMSLA checks issued for these loans were then given to the spouses for rediscounting. The officers carried this out
by forging the indorsement of the named payees in the checks.
In return, the spouses issued their personal checks (Rodriguez checks) in the name of the members and delivered the
checks to an officer of PEMSLA. The PEMSLA checks, on the other hand, were deposited by the spouses to their
account.
Meanwhile, the Rodriguez checks were deposited directly by PEMSLA to its savings account without any
indorsement from the named payees. This was an irregular procedure made possible through the facilitation of
Edmundo Palermo, Jr., treasurer of PEMSLA and bank teller in the PNB Branch. It appears that this became the usual
practice for the parties.
For the period November 1998 to February 1999, the spouses issued sixty nine (69) checks, in the total amount
of P2,345,804.00. These were payable to forty seven (47) individual payees who were all members of PEMSLA.[4]
Petitioner PNB eventually found out about these fraudulent acts. To put a stop to this scheme, PNB closed the current
account of PEMSLA. As a result, the PEMSLA checks deposited by the spouses were returned or dishonored for the
reason Account Closed. The corresponding Rodriguez checks, however, were deposited as usual to the PEMSLA
savings account. The amounts were duly debited from the Rodriguez account. Thus, because the PEMSLA checks
given as payment were returned, spouses Rodriguez incurred losses from the rediscounting transactions.
RTC Disposition
Alarmed over the unexpected turn of events, the spouses Rodriguez filed a civil complaint for damages against
PEMSLA, the Multi-Purpose Cooperative of Philnabankers (MCP), and petitioner PNB. They sought to recover the
value of their checks that were deposited to the PEMSLA savings account amounting to P2,345,804.00. The spouses
contended that because PNB credited the checks to the PEMSLA account even without
indorsements, PNB violated its contractual obligation to them as depositors. PNBpaid the wrong payees, hence, it
should bear the loss.
PNB moved to dismiss the complaint on the ground of lack of cause of action. PNB argued that the claim for damages
should come from the payees of the checks, and not from spouses Rodriguez. Since there was no demand from the said
payees, the obligation should be considered as discharged.
In an Order dated January 12, 2000, the RTC denied PNBs motion to dismiss.
In its Answer,[5] PNB claimed it is not liable for the checks which it paid to the PEMSLA account without any
indorsement from the payees. The bank contended that spouses Rodriguez, the makers, actually did not intend for the
named payees to receive the proceeds of the checks. Consequently, the payees were considered as fictitious
payees as defined under the Negotiable Instruments Law (NIL). Being checks made to fictitious payees which are
bearer instruments, the checks were negotiable by mere delivery. PNBs Answer included its cross-claim against its co-
defendants PEMSLA and the MCP, praying that in the event that judgment is rendered against the bank, the cross-
defendants should be ordered to reimburse PNB the amount it shall pay.
After trial, the RTC rendered judgment in favor of spouses Rodriguez (plaintiffs). It ruled that PNB (defendant) is
liable to return the value of the checks. All counterclaims and cross-claims were dismissed. The dispositive portion of
the RTC decision reads:
WHEREFORE, in view of the foregoing, the Court hereby renders judgment, as follows:
1. Defendant is hereby ordered to pay the plaintiffs the total amount of P2,345,804.00 or reinstate or restore
the amount of P775,337.00 in the PNBig Demand Deposit Checking/Current Account No. 810480-4 of
Erlando T. Rodriguez, and the amount of P1,570,467.00 in the PNBig Demand Deposit, Checking/Current
Account No. 810624-6 of Erlando T. Rodriguez and/or Norma Rodriguez, plus legal rate of interest thereon
to be computed from the filing of this complaint until fully paid;
2. The defendant PNB is hereby ordered to pay the plaintiffs the following reasonable amount of damages
suffered by them taking into consideration the standing of the plaintiffs being sugarcane planters, realtors,
residential subdivision owners, and other businesses:
(a) Consequential damages, unearned income in the amount of P4,000,000.00, as a result of their
having incurred great dificulty (sic) especially in the residential subdivision business, which was
not pushed through and the contractor even threatened to file a case against the plaintiffs;
(b) Moral damages in the amount of P1,000,000.00;
(c) Exemplary damages in the amount of P500,000.00;
(d) Attorneys fees in the amount of P150,000.00 considering that this case does not involve very
complicated issues; and for the
(e) Costs of suit.
3. Other claims and counterclaims are hereby dismissed.[6]
CA Disposition
PNB appealed the decision of the trial court to the CA on the principal ground that the disputed checks should be
considered as payable to bearer and not to order.
In a Decision[7] dated July 22, 2004, the CA reversed and set aside the RTC disposition. The CA concluded that the
checks were obviously meant by the spouses to be really paid to PEMSLA. The court a quo declared:
We are not swayed by the contention of the plaintiffs-appellees (Spouses Rodriguez) that their cause of action arose
from the alleged breach of contract by the defendant-appellant (PNB) when it paid the value of the checks to PEMSLA
despite the checks being payable to order. Rather, we are more convinced by the strong and credible evidence for the
defendant-appellant with regard to the plaintiffs-appellees and PEMSLAs business arrangement that the value of the
rediscounted checks of the plaintiffs-appellees would be deposited in PEMSLAs account for payment of the loans it has
approved in exchange for PEMSLAs checks with the full value of the said loans. This is the only obvious explanation
as to why all the disputed sixty-nine (69) checks were in the possession of PEMSLAs errand boy for presentment to
the defendant-appellant that led to this present controversy. It also appears that the teller who accepted the said checks
was PEMSLAs officer, and that such was a regular practice by the parties until the defendant-appellant discovered the
scam. The logical conclusion, therefore, is that the checks were never meant to be paid to order, but instead, to
PEMSLA. We thus find no breach of contract on the part of the defendant-appellant.

According to plaintiff-appellee Erlando Rodriguez testimony, PEMSLA allegedly issued post-dated checks to its
qualified members who had applied for loans. However, because of PEMSLAs insufficiency of funds, PEMSLA
approached the plaintiffs-appellees for the latter to issue rediscounted checks in favor of said applicant members. Based
on the investigation of the defendant-appellant, meanwhile, this arrangement allowed the plaintiffs-appellees to make
a profit by issuing rediscounted checks, while the officers of PEMSLA and other members would be able to claim their
loans, despite the fact that they were disqualified for one reason or another. They were able to achieve this conspiracy
by using other members who had loaned lesser amounts of money or had not applied at all. x x x.[8] (Emphasis added)
The CA found that the checks were bearer instruments, thus they do not require indorsement for negotiation; and that
spouses Rodriguez and PEMSLA conspired with each other to accomplish this money-making scheme. The payees in
the checks were fictitious payees because they were not the intended payees at all.
The spouses Rodriguez moved for reconsideration. They argued, inter alia, that the checks on their faces were
unquestionably payable to order; and that PNB committed a breach of contract when it paid the value of the checks to
PEMSLA without indorsement from the payees. They also argued that their cause of action is not only against
PEMSLA but also against PNB to recover the value of the checks.
On October 11, 2005, the CA reversed itself via an Amended Decision, the last paragraph and fallo of which read:
In sum, we rule that the defendant-appellant PNB is liable to the plaintiffs-appellees Sps. Rodriguez for the following:
1. Actual damages in the amount of P2,345,804 with interest at 6% per annum from 14 May 1999 until fully paid;
2. Moral damages in the amount of P200,000;
3. Attorneys fees in the amount of P100,000; and
4. Costs of suit.
WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by Us AFFIRMING WITH
MODIFICATION the assailed decision rendered in Civil Case No. 99-10892, as set forth in the immediately next
preceding paragraph hereof, and SETTING ASIDE Our original decision promulgated in this case on 22 July 2004.
SO ORDERED.[9]
The CA ruled that the checks were payable to order. According to the appellate court, PNB failed to present sufficient
proof to defeat the claim of the spouses Rodriguez that they really intended the checks to be received by the specified
payees. Thus, PNB is liable for the value of the checks which it paid to PEMSLA without indorsements from the
named payees. The award for damages was deemed appropriate in view of the failure of PNB to treat the Rodriguez
account with the highest degree of care considering the fiduciary nature of their relationship, which constrained
respondents to seek legal action.
Hence, the present recourse under Rule 45.
Issues
The issues may be compressed to whether the subject checks are payable to order or to bearer and who bears the loss?
PNB argues anew that when the spouses Rodriguez issued the disputed checks, they did not intend for the named
payees to receive the proceeds. Thus, they are bearer instruments that could be validly negotiated by mere
delivery. Further, testimonial and documentary evidence presented during trial amply proved that spouses Rodriguez
and the officers of PEMSLA conspired with each other to defraud the bank.
Our Ruling
Prefatorily, amendment of decisions is more acceptable than an erroneous judgment attaining finality to the prejudice
of innocent parties. A court discovering an erroneous judgment before it becomes final may, motu proprio or upon
motion of the parties, correct its judgment with the singular objective of achieving justice for the litigants. [10]
However, a word of caution to lower courts, the CA in Cebu in this particular case, is in order. The Court does not
sanction careless disposition of cases by courts of justice.The highest degree of diligence must go into the study
of every controversy submitted for decision by litigants. Every issue and factual detail must be closely scrutinized and
analyzed, and all the applicable laws judiciously studied, before the promulgation of every judgment by the court. Only
in this manner will errors in judgments be avoided.
Now to the core of the petition.
As a rule, when the payee is fictitious or not intended to be the true recipient of the proceeds, the check is
considered as a bearer instrument. A check is a bill of exchange drawn on a bank payable on demand.[11] It is either
an order or a bearer instrument. Sections 8 and 9 of the NIL states:
SEC. 8. When payable to order. The instrument is payable to order where it is drawn payable to the order
of a specified person or to him or his order. It may be drawn payable to the order of
(a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or
(e) One or some of several payees; or
(f) The holder of an office for the time being.
Where the instrument is payable to order, the payee must be named or otherwise indicated therein with
reasonable certainty.
SEC. 9. When payable to bearer. The instrument is payable to bearer
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein or bearer; or
(c) When it is payable to the order of a fictitious or non-existing person, and such fact is known to the
person making it so payable; or
(d) When the name of the payee does not purport to be the name of any person; or
(e) Where the only or last indorsement is an indorsement in blank.[12] (Underscoring supplied)
The distinction between bearer and order instruments lies in their manner of negotiation. Under Section 30 of the NIL,
an order instrument requires an indorsement from the payee or holder before it may be validly negotiated. A bearer
instrument, on the other hand, does not require an indorsement to be validly negotiated. It is negotiable by mere
delivery. The provision reads:
SEC. 30. What constitutes negotiation. An instrument is negotiated when it is transferred from one person
to another in such 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 of the holder completed by
delivery.
A check that is payable to a specified payee is an order instrument. However, under Section 9(c) of the NIL, a check
payable to a specified payee may nevertheless be considered as a bearer instrument if it is payable to the order of a
fictitious or non-existing person, and such fact is known to the person making it so payable. Thus, checks issued
to Prinsipe Abante or Si Malakas at si Maganda, who are well-known characters in Philippine mythology, are bearer
instruments because the named payees are fictitious and non-existent.
We have yet to discuss a broader meaning of the term fictitious as used in the NIL. It is for this reason that We look
elsewhere for guidance. Court rulings in the United States are a logical starting point since our law on negotiable
instruments was directly lifted from the Uniform Negotiable Instruments Law of the United States.[13]
A review of US jurisprudence yields that an actual, existing, and living payee may also be fictitious if the maker of the
check did not intend for the payee to in fact receive the proceeds of the check. This usually occurs when the maker
places a name of an existing payee on the check for convenience or to cover up an illegal activity. [14] Thus, a check
made expressly payable to a non-fictitious and existing person is not necessarily an order instrument. If the payee is
not the intended recipient of the proceeds of the check, the payee is considered a fictitious payee and the check
is a bearer instrument.
In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer bears the loss. When faced
with a check payable to a fictitious payee, it is treated as a bearer instrument that can be negotiated by delivery. The
underlying theory is that one cannot expect a fictitious payee to negotiate the check by placing his indorsement
thereon. And since the maker knew this limitation, he must have intended for the instrument to be negotiated by mere
delivery. Thus, in case of controversy, the drawer of the check will bear the loss. This rule is justified for otherwise, it
will be most convenient for the maker who desires to escape payment of the check to always deny the validity of the
indorsement. This despite the fact that the fictitious payee was purposely named without any intention that the payee
should receive the proceeds of the check.[15]
The fictitious-payee rule is best illustrated in Mueller & Martin v. Liberty Insurance Bank.[16] In the said case, the
corporation Mueller & Martin was defrauded by George L. Martin, one of its authorized signatories. Martin drew seven
checks payable to the German Savings Fund Company Building Association (GSFCBA) amounting to $2,972.50
against the account of the corporation without authority from the latter. Martin was also an officer of the GSFCBA but
did not have signing authority. At the back of the checks, Martin placed the rubber stamp of the GSFCBA and signed
his own name as indorsement. He then successfully drew the funds from Liberty Insurance Bank for his own personal
profit. When the corporation filed an action against the bank to recover the amount of the checks, the claim was denied.
The US Supreme Court held in Mueller that when the person making the check so payable did not intend for the
specified payee to have any part in the transactions, the payee is considered as a fictitious payee. The check is then
considered as a bearer instrument to be validly negotiated by mere delivery. Thus, the US Supreme Court held that
Liberty Insurance Bank, as drawee, was authorized to make payment to the bearer of the check, regardless of whether
prior indorsements were genuine or not.[17]
The more recent Getty Petroleum Corp. v. American Express Travel Related Services Company, Inc. [18] upheld the
fictitious-payee rule. The rule protects the depositary bank and assigns the loss to the drawer of the check who was in
a better position to prevent the loss in the first place. Due care is not even required from the drawee or depositary bank
in accepting and paying the checks. The effect is that a showing of negligence on the part of the depositary bank will
not defeat the protection that is derived from this rule.
However, there is a commercial bad faith exception to the fictitious-payee rule. A showing of commercial bad
faith on the part of the drawee bank, or any transfereeof the check for that matter, will work to strip it of this
defense. The exception will cause it to bear the loss. Commercial bad faith is present if the transferee of the check acts
dishonestly, and is a party to the fraudulent scheme. Said the US Supreme Court in Getty:
Consequently, a transferees lapse of wary vigilance, disregard of suspicious circumstances which might have well
induced a prudent banker to investigate and other permutations of negligence are not relevant considerations under
Section 3-405 x x x. Rather, there is a commercial bad faith exception to UCC 3-405, applicable when the transferee
acts dishonestly where it has actual knowledge of facts and circumstances that amount to bad faith, thus itself becoming
a participant in a fraudulent scheme. x x x Such a test finds support in the text of the Code, which omits a standard of
care requirement from UCC 3-405 but imposes on all parties an obligation to act with honesty in fact. x x
x[19] (Emphasis added)
Getty also laid the principle that the fictitious-payee rule extends protection even to non-bank transferees of the checks.
In the case under review, the Rodriguez checks were payable to specified payees. It is unrefuted that the 69 checks
were payable to specific persons. Likewise, it is uncontroverted that the payees were actual, existing, and living persons
who were members of PEMSLA that had a rediscounting arrangement with spouses Rodriguez.
What remains to be determined is if the payees, though existing persons, were fictitious in its broader context.
For the fictitious-payee rule to be available as a defense, PNB must show that the makers did not intend for the named
payees to be part of the transaction involving the checks. At most, the banks thesis shows that the payees did not have
knowledge of the existence of the checks. This lack of knowledge on the part of the payees, however, was not
tantamount to a lack of intention on the part of respondents-spouses that the payees would not receive the checks
proceeds. Considering that respondents-spouses were transacting with PEMSLA and not the individual payees, it is
understandable that they relied on the information given by the officers of PEMSLA that the payees would be receiving
the checks.
Verily, the subject checks are presumed order instruments. This is because, as found by both lower courts, PNB failed
to present sufficient evidence to defeat the claim of respondents-spouses that the named payees were the intended
recipients of the checks proceeds. The bank failed to satisfy a requisite condition of a fictitious-payee situation that the
maker of the check intended for the payee to have no interest in the transaction.
Because of a failure to show that the payees were fictitious in its broader sense, the fictitious-payee rule
does not apply. Thus, the checks are to be deemed payable to order. Consequently, the drawee bank bears the loss.[20]
PNB was remiss in its duty as the drawee bank. It does not dispute the fact that its teller or tellers accepted the 69
checks for deposit to the PEMSLA account even without any indorsement from the named payees. It bears stressing
that order instruments can only be negotiated with a valid indorsement.
A bank that regularly processes checks that are neither payable to the customer nor duly indorsed by the payee is
apparently grossly negligent in its operations.[21] This Court has recognized the unique public interest possessed by the
banking industry and the need for the people to have full trust and confidence in their banks. [22] For this reason, banks
are minded to treat their customers accounts with utmost care, confidence, and honesty. [23]
In a checking transaction, the drawee bank has the duty to verify the genuineness of the signature of the drawer and to
pay the check strictly in accordance with the drawers instructions, i.e., to the named payee in the check. It should
charge to the drawers accounts only the payables authorized by the latter. Otherwise, the drawee will be violating the
instructions of the drawer and it shall be liable for the amount charged to the drawers account.[24]
In the case at bar, respondents-spouses were the banks depositors. The checks were drawn against respondents-spouses
accounts. PNB, as the drawee bank, had the responsibility to ascertain the regularity of the indorsements, and the
genuineness of the signatures on the checks before accepting them for deposit. Lastly, PNB was obligated to pay the
checks in strict accordance with the instructions of the drawers. Petitioner miserably failed to discharge this burden.
The checks were presented to PNB for deposit by a representative of PEMSLA absent any type of indorsement, forged
or otherwise. The facts clearly show that the bank did not pay the checks in strict accordance with the instructions of
the drawers, respondents-spouses. Instead, it paid the values of the checks not to the named payees or their order, but
to PEMSLA, a third party to the transaction between the drawers and the payees.
Moreover, PNB was negligent in the selection and supervision of its employees. The trustworthiness of bank
employees is indispensable to maintain the stability of the banking industry. Thus, banks are enjoined to be extra
vigilant in the management and supervision of their employees. In Bank of the Philippine Islands v. Court of
Appeals,[25]this Court cautioned thus:
Banks handle daily transactions involving millions of pesos. By the very nature of their work the degree of
responsibility, care and trustworthiness expected of their employees and officials is far greater
than those of ordinary clerks and employees. For obvious reasons, the banks are expected to exercise the
highest degree of diligence in the selection and supervision of their employees.[26]
PNBs tellers and officers, in violation of banking rules of procedure, permitted the invalid deposits of checks to the
PEMSLA account. Indeed, when it is the gross negligence of the bank employees that caused the loss, the bank should
be held liable.[27]
PNBs argument that there is no loss to compensate since no demand for payment has been made by the payees must
also fail. Damage was caused to respondents-spouses when the PEMSLA checks they deposited were returned for the
reason Account Closed. These PEMSLA checks were the corresponding payments to the Rodriguez checks. Since they
could not encash the PEMSLA checks, respondents-spouses were unable to collect payments for the amounts they had
advanced.
A bank that has been remiss in its duty must suffer the consequences of its negligence. Being issued to named
payees, PNB was duty-bound by law and by banking rules and procedure to require that the checks be properly
indorsed before accepting them for deposit and payment. In fine, PNB should be held liable for the amounts of the
checks.
One Last Note
We note that the RTC failed to thresh out the merits of PNBs cross-claim against its co-defendants PEMSLA and
MPC. The records are bereft of any pleading filed by these two defendants in answer to the complaint of respondents-
spouses and cross-claim of PNB. The Rules expressly provide that failure to file an answer is a ground for a declaration
that defendant is in default.[28] Yet, the RTC failed to sanction the failure of both PEMSLA and MPC to file responsive
pleadings. Verily, the RTC dismissal of PNBs cross-claim has no basis. Thus, this judgment shall be without prejudice
to whatever action the bank might take against its co-defendants in the trial court.
To PNBs credit, it became involved in the controversial transaction not of its own volition but due to the actions of
some of its employees. Considering that moral damages must be understood to be in concept of grants, not punitive or
corrective in nature, We resolve to reduce the award of moral damages to P50,000.00.[29]
WHEREFORE, the appealed Amended Decision is AFFIRMED with the MODIFICATION that the award for
moral damages is reduced to P50,000.00, and that this is without prejudice to whatever civil, criminal, or administrative
action PNB might take against PEMSLA, MPC, and the employees involved. SO ORDERED.
G.R. No. 76788 January 22, 1990
JUANITA SALAS, petitioner, vs. HON. COURT OF APPEALS and FIRST FINANCE & LEASING
CORPORATION, respondents.
FERNAN, C.J.:
Assailed in this petition for review on certiorari is the decision of the Court of Appeals in C.A.-G.R. CV No. 00757
entitled "Filinvest Finance & Leasing Corporation v. Salas", which modified the decision of the Regional Trial Court
of San Fernando, Pampanga in Civil Case No. 5915, a collection suit between the same parties.
Records disclose that on February 6, 1980, Juanita Salas (hereinafter referred to as petitioner) bought a motor vehicle
from the Violago Motor Sales Corporation (VMS for brevity) for P58,138.20 as evidenced by a promissory note.
This note was subsequently endorsed to Filinvest Finance & Leasing Corporation (hereinafter referred to as private
respondent) which financed the purchase.
Petitioner defaulted in her installments beginning May 21, 1980 allegedly due to a discrepancy in the engine and
chassis numbers of the vehicle delivered to her and those indicated in the sales invoice, certificate of registration and
deed of chattel mortgage, which fact she discovered when the vehicle figured in an accident on 9 May 1980.
This failure to pay prompted private respondent to initiate Civil Case No. 5915 for a sum of money against petitioner
before the Regional Trial Court of San Fernando, Pampanga.
In its decision dated September 10, 1982, the trial court held, thus:
WHEREFORE, and in view of all the foregoing, judgment is hereby rendered ordering the defendant to pay the
plaintiff the sum of P28,414.40 with interest thereon at the rate of 14% from October 2, 1980 until the said sum is
fully paid; and the further amount of P1,000.00 as attorney's fees.
The counterclaim of defendant is dismissed.
With costs against defendant. 1
Both petitioner and private respondent appealed the aforesaid decision to the Court of Appeals.
Imputing fraud, bad faith and misrepresentation against VMS for having delivered a different vehicle to petitioner,
the latter prayed for a reversal of the trial court's decision so that she may be absolved from the obligation under the
contract.
On October 27, 1986, the Court of Appeals rendered its assailed decision, the pertinent portion of which is quoted
hereunder:
The allegations, statements, or admissions contained in a pleading are conclusive as against the pleader. A party
cannot subsequently take a position contradictory of, or inconsistent with his pleadings (Cunanan vs. Amparo, 80
Phil. 227). Admissions made by the parties in the pleadings, or in the course of the trial or other proceedings, do not
require proof and cannot be contradicted unless previously shown to have been made through palpable mistake (Sec.
2, Rule 129, Revised Rules of Court; Sta. Ana vs. Maliwat, L-23023, Aug. 31, 1968, 24 SCRA 1018).
When an action or defense is founded upon a written instrument, copied in or attached to the corresponding pleading
as provided in the preceding section, the genuineness and due execution of the instrument shall be deemed admitted
unless the adverse party, under oath, specifically denied them, and sets forth what he claims to be the facts (Sec. 8,
Rule 8, Revised Rules of Court; Hibbered vs. Rohde and McMillian, 32 Phil. 476).
A perusal of the evidence shows that the amount of P58,138.20 stated in the promissory note is the amount assumed
by the plaintiff in financing the purchase of defendant's motor vehicle from the Violago Motor Sales Corp., the
monthly amortization of winch is Pl,614.95 for 36 months. Considering that the defendant was able to pay twice (as
admitted by the plaintiff, defendant's account became delinquent only beginning May, 1980) or in the total sum of
P3,229.90, she is therefore liable to pay the remaining balance of P54,908.30 at l4% per annum from October 2, 1980
until full payment.
WHEREFORE, considering the foregoing, the appealed decision is hereby modified ordering the defendant to pay
the plaintiff the sum of P54,908.30 at 14% per annum from October 2, 1980 until full payment. The decision is
AFFIRMED in all other respects. With costs to defendant. 2
Petitioner's motion for reconsideration was denied; hence, the present recourse.
In the petition before us, petitioner assigns twelve (12) errors which focus on the alleged fraud, bad faith and
misrepresentation of Violago Motor Sales Corporation in the conduct of its business and which fraud, bad faith and
misrepresentation supposedly released petitioner from any liability to private respondent who should instead proceed
against VMS. 3
Petitioner argues that in the light of the provision of the law on sales by description 4 which she alleges is applicable
here, no contract ever existed between her and VMS and therefore none had been assigned in favor of private
respondent.
She contends that it is not necessary, as opined by the appellate court, to implead VMS as a party to the case before it
can be made to answer for damages because VMS was earlier sued by her for "breach of contract with damages"
before the Regional Trial Court of Olongapo City, Branch LXXII, docketed as Civil Case No. 2916-0. She cites as
authority the decision therein where the court originally ordered petitioner to pay the remaining balance of the motor
vehicle installments in the amount of P31,644.30 representing the difference between the agreed consideration of
P49,000.00 as shown in the sales invoice and petitioner's initial downpayment of P17,855.70 allegedly evidenced by
a receipt. Said decision was however reversed later on, with the same court ordering defendant VMS instead to return
to petitioner the sum of P17,855.70. Parenthetically, said decision is still pending consideration by the First Civil
Case Division of the Court of Appeals, upon an appeal by VMS, docketed as AC-G.R. No. 02922. 5
Private respondent in its comment, prays for the dismissal of the petition and counters that the issues raised and the
allegations adduced therein are a mere rehash of those presented and already passed upon in the court below, and that
the judgment in the "breach of contract" suit cannot be invoked as an authority as the same is still pending
determination in the appellate court.
We see no cogent reason to disturb the challenged decision.
The pivotal issue in this case is whether the promissory note in question is a negotiable instrument which will bar
completely all the available defenses of the petitioner against private respondent.
Petitioner's liability on the promissory note, the due execution and genuineness of which she never denied under oath
is, under the foregoing factual milieu, as inevitable as it is clearly established.
The records reveal that involved herein is not a simple case of assignment of credit as petitioner would have it
appear, where the assignee merely steps into the shoes of, is open to all defenses available against and can enforce
payment only to the same extent as, the assignor-vendor.
Recently, in the case of Consolidated Plywood Industries Inc. v. IFC Leasing and Acceptance Corp., 6 this Court had
the occasion to clearly distinguish between a negotiable and a non-negotiable instrument.
Among others, the instrument in order to be considered negotiable must contain the so-called "words of negotiability
— i.e., must be payable to "order" or "bearer"". Under Section 8 of the Negotiable Instruments Law, there are only
two ways by which an instrument may be made payable to order. There must always be a specified person named in
the instrument and the bill or note is to be paid to the person designated in the instrument or to any person to whom
he has indorsed and delivered the same. Without the words "or order or "to the order of", the instrument is payable
only to the person designated therein and is therefore non-negotiable. Any subsequent purchaser thereof will not
enjoy the advantages of being a holder of a negotiable instrument, but will merely "step into the shoes" of the person
designated in the instrument and will thus be open to all defenses available against the latter. Such being the situation
in the above-cited case, it was held that therein private respondent is not a holder in due course but a mere assignee
against whom all defenses available to the assignor may be raised. 7
In the case at bar, however, the situation is different. Indubitably, the basis of private respondent's claim against
petitioner is a promissory note which bears all the earmarks of negotiability.
The pertinent portion of the note reads:
PROMISSORY NOTE
(MONTHLY)
P58,138.20
San Fernando, Pampanga, Philippines
Feb. 11, 1980
For value received, I/We jointly and severally, promise to pay Violago Motor Sales Corporation or order, at its office in San
Fernando, Pampanga, the sum of FIFTY EIGHT THOUSAND ONE HUNDRED THIRTY EIGHT & 201/100 ONLY
(P58,138.20) Philippine currency, which amount includes interest at 14% per annum based on the diminishing balance, the said
principal sum, to be payable, without need of notice or demand, in installments of the amounts following and at the dates hereinafter
set forth, to wit: P1,614.95 monthly for "36" months due and payable on the 21st day of each month starting March 21, 1980 thru and
inclusive of February 21, 1983. P_________ monthly for ______ months due and payable on the ______ day of each month starting
_____198__ thru and inclusive of _____, 198________ provided that interest at 14% per annum shall be added on each unpaid
installment from maturity hereof until fully paid.
xxx xxx xxx
Maker; Co-Maker:
(SIGNED) JUANITA SALAS _________________
Address:
____________________ ____________________
WITNESSES
SIGNED: ILLEGIBLE SIGNED: ILLEGIBLE
TAN # TAN #
PAY TO THE ORDER OF
FILINVEST FINANCE AND LEASING CORPORATION
VIOLAGO MOTOR SALES CORPORATION
BY: (SIGNED) GENEVEVA V. BALTAZAR
Cash Manager 8
A careful study of the questioned promissory note shows that it is a negotiable instrument, having complied with the
requisites under the law as follows: [a] it is in writing and signed by the maker Juanita Salas; [b] it contains an
unconditional promise to pay the amount of P58,138.20; [c] it is payable at a fixed or determinable future time which
is "P1,614.95 monthly for 36 months due and payable on the 21 st day of each month starting March 21, 1980 thru
and inclusive of Feb. 21, 1983;" [d] it is payable to Violago Motor Sales Corporation, or order and as such, [e] the
drawee is named or indicated with certainty. 9
It was negotiated by indorsement in writing on the instrument itself payable to the Order of Filinvest Finance and
Leasing Corporation 10 and it is an indorsement of the entire instrument. 11
Under the circumstances, there appears to be no question that Filinvest is a holder in due course, having taken the
instrument under the following conditions: [a] it is complete and regular upon its face; [b] it became the holder
thereof before it was overdue, and without notice that it had previously been dishonored; [c] it took the same in good
faith and for value; and [d] when it was negotiated to Filinvest, the latter had no notice of any infirmity in the
instrument or defect in the title of VMS Corporation. 12
Accordingly, respondent corporation holds the instrument free from any defect of title of prior parties, and free from
defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount
thereof. 13 This being so, petitioner cannot set up against respondent the defense of nullity of the contract of sale
between her and VMS.
Even assuming for the sake of argument that there is an iota of truth in petitioner's allegation that there was in fact
deception made upon her in that the vehicle she purchased was different from that actually delivered to her, this
matter cannot be passed upon in the case before us, where the VMS was never impleaded as a party.
Whatever issue is raised or claim presented against VMS must be resolved in the "breach of contract" case.
Hence, we reach a similar opinion as did respondent court when it held:
We can only extend our sympathies to the defendant (herein petitioner) in this unfortunate incident. Indeed, there is
nothing We can do as far as the Violago Motor Sales Corporation is concerned since it is not a party in this case. To
even discuss the issue as to whether or not the Violago Motor Sales Corporation is liable in the transaction in
question would amount, to denial of due process, hence, improper and unconstitutional. She should have impleaded
Violago Motor Sales.14
IN VIEW OF THE FOREGOING, the assailed decision is hereby AFFIRMED. With costs against petitioner.
SO ORDERED.