Professional Documents
Culture Documents
Negotiable Instruments Cases
Negotiable Instruments Cases
REGALADO , J.:
Private respondents, Mr. and Mrs. Isabelo R. Racho, together with the
spouses Mr. and Mrs Flaviano Lagasca, executed a deed of mortgage, dated
November 13, 1957, in favor of petitioner Government Service Insurance
System (hereinafter referred to as GSIS) and subsequently, another deed of
mortgage, dated April 14, 1958, in connection with two loans granted by the
latter in the sums of P 11,500.00 and P 3,000.00, respectively. 1 A parcel of
land covered by Transfer Certificate of Title No. 38989 of the Register of
Deed of Quezon City, co-owned by said mortgagor spouses, was given as
security under the aforesaid two deeds. 2 They also executed a 'promissory
note" which states in part:
... for value received, we the undersigned ... JOINTLY, SEVERALLY
and SOLIDARILY, promise to pay the GOVERNMENT SERVICE
INSURANCE SYSTEM the sum of . . . (P 11,500.00) Philippine
Currency, with interest at the rate of six (6%) per centum
compounded monthly payable in . . . (120)equal monthly
installments of . . . (P 127.65) each. 3
On July 11, 1961, the Lagasca spouses executed an instrument denominated
"Assumption of Mortgage" under which they obligated themselves to assume
the aforesaid obligation to the GSIS and to secure the release of the
mortgage covering that portion of the land belonging to herein private
respondents and which was mortgaged to the GSIS. 4 This undertaking was
not fulfilled. 5
which held
... although formally they are co-mortgagors, they are so only for
accomodation (sic) in that the GSIS required their consent to the
mortgage of the entire parcel of land which was covered with
only one certificate of title, with full knowledge that the loans
secured thereby were solely for the benefit of the appellant (sic)
spouses who alone applied for the loan.
xxxx
'It is, therefore, clear that as against the GSIS, appellants have a
valid cause for having foreclosed the mortgage without having
given sufficient notice to them as required either as to their
delinquency in the payment of amortization or as to the
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.1wphi1.nt
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
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 findings 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 (Tabayoyong's) 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 involved. 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 Fernander,
respondent's expert witness, found the said signatures similar to each other
after subjecting the same to stereomicroscopic examination and analysis
because the intrinsic and natural characteristics of Federico O. Borromeo's
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 compentecy of the examiner concerned. While the
Court finds merit in the contention of petitioners, that they did not actually
waive 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.1wphi1.nt
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. No. 16454
Amount
3/8 %
Rate
P90,337.50
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; Ibaez de
Aldecoa vs. Hongkong and Shanghai Banking Corporation, 22 Phil., 572, 584;
Manila Railroad Co. vs. Compaia 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.)
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. 97753 August 10, 1992
CALTEX (PHILIPPINES), INC., petitioner,
vs.
COURT OF APPEALS and SECURITY BANK AND TRUST
COMPANY, respondents.
Bito, Lozada, Ortega & Castillo for petitioners.
Nepomuceno, Hofilea & Guingona for private.
REGALADO, J.:
This petition for review on certiorari impugns and seeks the reversal of the
decision promulgated by respondent court on March 8, 1991 in CA-G.R. CV
No. 23615 1 affirming with modifications, the earlier decision of the Regional
Trial Court of Manila, Branch XLII, 2 which dismissed the complaint filed
therein by herein petitioner against respondent bank.
The undisputed background of this case, as found by the court a quo and
adopted by respondent court, appears of record:
1. On various dates, defendant, a commercial banking institution,
through its Sucat Branch issued 280 certificates of time deposit
(CTDs) in favor of one Angel dela Cruz who deposited with herein
defendant the aggregate amount of P1,120,000.00, as follows:
(Joint Partial Stipulation of Facts and Statement of Issues, Original
Records, p. 207; Defendant's Exhibits 1 to 280);
CTD CTD
Dates Serial Nos. Quantity Amount
22 Feb. 82 90101 to 90120 20 P80,000
26 Feb. 82 74602 to 74691 90 360,000
2 Mar. 82 74701 to 74740 40 160,000
20 80,000
4 16,000
22 88,000
4 16,000
20 80,000
28 112,000
10 40,000
22 88,000
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 nonnegotiable 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
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
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.
G.R. No. 76788 January 22, 1990
JUANITA SALAS, petitioner,
vs.
HON. COURT OF APPEALS and FIRST FINANCE & LEASING
CORPORATION, respondents.
Arsenio C. Villalon, Jr. for petitioner.
Labaguis, Loyola, Angara & Associates for private respondent.
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.
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
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
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 pretrial 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:
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 realnovation;
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 personalnovation.
[14]
For novation to take place, the following requisites must concur:
1) There must be a previous valid obligation.
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 any or all of the
debtors.[26] It is up to the former to determine against whom to enforce
collection.[27] Having made himself jointly and severally liable with De Jesus,
petitioner is therefore liable[28] for the entire obligation.[29]
Second Issue:
Accommodation Party
Petitioner avers that he signed the promissory note merely as an
accommodation party; and that, as such, he was released as obligor when
respondent agreed to extend the term of the obligation.
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, Quezon City, 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
originalpromissor 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
the
assailed
with a total amount of P4,896,000.00. In payment of these purchases, FojasArca delivered to plaintiff six (6) special withdrawal slips drawn upon the
defendant. In turn, these were deposited by the plaintiff with its current
account with the Citibank. All of them were honored and paid by the
defendant. This singular circumstance made plaintiff believe [sic] and relied
[sic] on the fact that the succeeding special withdrawal slips drawn upon the
defendant would be equally sufficiently funded. Relying on such confidence
and belief and as a direct consequence thereof, plaintiff extended to FojasArca other purchases on credit of its products.
On the following dates Fojas-Arca purchased Firestone products on credit
(Exh. M, I, J, K) and delivered to plaintiff the corresponding special withdrawal
slips in payment thereof drawn upon the defendant, to wit:
DATE WITHDRAWAL AMOUNT
SLIP NO.
June 15, 1978 42127 P1,198,092.80
July 15, 1978 42128 940,190.00
Aug. 15, 1978 42129 880,000.00
Sep. 15, 1978 42130 981,500.00
These were likewise deposited by plaintiff in its current account with Citibank
and in turn the Citibank forwarded it [sic] to the defendant for payment and
collection, as it had done in respect of the previous special withdrawal
slips. Out of these four (4) withdrawal slips only withdrawal slip No. 42130 in
the amount of P981,500.00 was honored and paid by the defendant in
October 1978. Because of the absence for a long period coupled with the fact
that defendant honored and paid withdrawal slips No. 42128 dated July 15,
1978, in the amount of P981,500.00 plaintiffs belief was all the more
strengthened that the other withdrawal slips were likewise sufficiently
funded, and that it had received full value and payment of Fojas-Arcas credit
purchased then outstanding at the time. On this basis, plaintiff was induced
to continue extending to Fojas-Arca further purchase on credit of its products
as per agreement (Exh. B).
credited the same to petitioners current account, then presented the slips for
payment to respondent bank. It was at this point that the bone of contention
arose.
On December 14, 1978, Citibank informed petitioner that special
withdrawal slips Nos. 42127 and 42129 dated June 15, 1978 and August 15,
1978, respectively, were refused payment by respondent bank due to
insufficiency of Fojas-Arcas funds on deposit. That information came about
six months from the time Fojas-Arca purchased tires from petitioner using the
subject withdrawal slips. Citibank then debited the amount of these
withdrawal slips from petitioners account, causing the alleged pecuniary
damage subject of petitioners cause of action.
At the outset, we note that petitioner admits that the withdrawal slips in
question were non-negotiable.[9] Hence, the rules governing the giving of
immediate notice of dishonor of negotiable instruments do not apply in this
case.[10] Petitioner itself concedes this point.[11] Thus, respondent bank was
under no obligation to give immediate notice that it would not make
payment on the subject withdrawal slips. Citibank should have known that
withdrawal slips were not negotiable instruments. It could not expect these
slips to be treated as checks by other entities. Payment or notice of dishonor
from respondent bank could not be expected immediately, in contrast to the
situation involving checks.
In the case at bar, it appears that Citibank, with the knowledge that
respondent Luzon Development Bank, had honored and paid the previous
withdrawal slips, automatically credited petitioners current account with the
amount of the subject withdrawal slips, then merely waited for the same to
be honored and paid by respondent bank. It presumed that the withdrawal
slips were good.
It bears stressing that Citibank could not have missed the non-negotiable
nature of the withdrawal slips. The essence of negotiability which
characterizes a negotiable paper as a credit instrument lies in its freedom to
circulate freely as a substitute for money. [12] The withdrawal slips in question
lacked this character.
A bank is under obligation to treat the accounts of its depositors with
meticulous care, whether such account consists only of a few hundred pesos
or of millions of pesos.[13] The fact that the other withdrawal slips were
honored and paid by respondent bank was no license for Citibank to presume
that subsequent slips would be honored and paid immediately. By doing so, it
failed in its fiduciary duty to treat the accounts of its clients with the highest
degree of care.[14]
In the ordinary and usual course of banking operations, current account
deposits are accepted by the bank on the basis of deposit slips prepared and
signed by the depositor, or the latters agent or representative, who indicates
therein the current account number to which the deposit is to be credited,
the name of the depositor or current account holder, the date of the deposit,
and the amount of the deposit either in cash or in check.[15]
The withdrawal slips deposited with petitioners current account with
Citibank were not checks, as petitioner admits. Citibank was not bound to
accept the withdrawal slips as a valid mode of deposit. But having
erroneously accepted them as such, Citibank and petitioner as accountholder must bear the risks attendant to the acceptance of these
instruments. Petitioner and Citibank could not now shift the risk and hold
private respondent liable for their admitted mistake.
WHEREFORE, the petition is DENIED and the decision of the Court of
Appeals in CA-G.R. CV No. 29546 is AFFIRMED. Costs against petitioner.
SO ORDERED.
SECOND DIVISION
[G.R. NO. 117913. February 1, 2002]
to
No pronouncement as to costs.
The facts of the case are as follows:
On March 2, 1979, Charles Lee, as President of MICO wrote private
respondent Philippine Bank of Communications (PBCom) requesting for a
grant of a discounting loan/credit line in the sum of Three Million Pesos
(P3,000,000.00) for the purpose of carrying out MICOs line of business as
well as to maintain its volume of business.
On the same day, Charles Lee requested for another discounting
loan/credit line of Three Million Pesos (P3,000,000.00) from PBCom for the
purpose of opening letters of credit and trust receipts.
In connection with the requests for discounting loan/credit
lines, PBCom was furnished by MICO the following resolution which was
adopted unanimously by MICOs Board of Directors:
RESOLVED, that the President, Mr. Charles Lee, and the Vice-President and
General Manager, Mr. Mariano A. Sio, singly or jointly, be and they are duly
authorized and empowered for and in behalf of this Corporation to apply for,
negotiate and secure the approval of commercial loans and other banking
facilities and accommodations, such as, but not limited to discount loans,
letters of credit, trust receipts, lines for marginal deposits on foreign and
domestic letters of credit, negotiate out-of-town checks, etc. from the
Philippine Bank of Communications, 216 Juan Luna, Manila in such sums as
they shall deem advantageous, the principal of all of which shall not exceed
the total amount of TEN MILLION PESOS (P10,000,000.00), Philippine
Currency, plus any interests that may be agreed upon with said Bank in such
loans and other credit lines of the same kind and such further terms and
conditions as may, upon granting of said loans and other banking facilities,
be imposed by the Bank; and to make, execute, sign and deliver any
contracts of mortgage, pledge or sale of one, some or all of the properties of
the Company, or any other agreements or documents of whatever nature or
kind, including the signing, indorsing, cashing, negotiation and execution of
promissory notes, checks, money orders or other negotiable instruments,
which may be necessary and proper in connection with said loans and other
banking facilities, or with their amendments, renewals and extensions of
payment of the whole or any part thereof.[4]
On March 26, 1979, MICO availed of the first loan of One Million Pesos
(P1,000,000.00) from PBCom. Upon maturity of the loan, MICO caused the
same to be renewed, the last renewal of which was made on May 21,
1982 under Promissory Note BNA No. 26218.[5]
Another loan of One Million Pesos (P1,000,000.00) was availed of by MICO
from PBCom which was likewise later on renewed, the last renewal of which
was made on May 21, 1982 under Promissory Note BNA No. 26219. [6] To
complete MICOs availment of
Three
Million
Pesos
(P3,000,000.00)
discounting loan/credit line with PBCom, MICO availed of another loan
from PBCom in the sum of One Million Pesos (P1,000,000.00) on May 24,
1979. As in previous loans, this was rolled over or renewed, the last renewal
of which was made on May 25, 1982 under Promissory Note BNA No. 26253.
[7]
As security for the loans, MICO through its Vice-President and General
Manager, Mariano Sio, executed on May 16, 1979 a Deed of Real Estate
Mortgage over its properties situated in Pasig, Metro Manila covered by
Transfer Certificates of Title (TCT) Nos. 11248 and 11250.
On March 26, 1979 Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap
and Richard Velasco, in their personal capacities executed a Surety
Agreement[8] in favor of PBCom whereby the petitioners jointly and severally,
guaranteed the prompt payment on due dates or at maturity of overdrafts,
promissory notes, discounts, drafts, letters of credit, bills of exchange, trust
receipts, and other obligations of every kind and nature, for which MICO may
be held accountable by PBCom. It was provided, however, that the liability of
the sureties shall not at any one time exceed the principal amount of Three
Million Pesos (P3,000,000.00) plus interest, costs, losses, charges and
expenses including attorneys fees incurred byPBCom in connection
therewith.
On July 14, 1980, petitioner Charles Lee, in his capacity as president of
MICO, wrote PBCom and applied for an additional loan in the sum of Four
Million Pesos (P4,000,000.00). The loan was intended for the expansion and
modernization of the companys machineries. Upon approval of the said
application for loan, MICO availed of the additional loan of Four Million Pesos
(P4,000,000.00) as evidenced by Promissory Note TA No. 094.[9]
As per agreement, the proceeds of all the loan availments were credited
to MICOs current checking account with PBCom. To induce the PBComto
increase the credit line of MICO, Charles Lee, Chua Siok Suy, Mariano Sio,
Alfonso Yap, Richard Velasco and Alfonso Co (hereinafter referred to as
petitioners-sureties), executed another surety agreement [10] in favor
of PBCom on July 28, 1980, whereby they jointly and severally guaranteed
the prompt payment on due dates or at maturity of overdrafts, promissory
notes, discounts, drafts, letters of credit, bills of exchange, trust receipts and
all other obligations of any kind and nature for which MICO may be held
accountable by PBCom. It was provided, however, that their liability shall not
at any one time exceed the sum of Seven Million Five Hundred Thousand
Pesos (P7,500,000.00) including interest, costs, charges, expenses and
attorneys fees incurred by MICO in connection therewith.
On July 29, 1980, MICO furnished PBCom with a notarized certification
issued by its corporate secretary, Atty. P.B. Barrera, that Chua Siok Suywas
duly authorized by the Board of Directors to negotiate on behalf of MICO for
loans and other credit availments from PBCom. Indicated in the certification
was the following resolution unanimously approved by the Board
of Directors:
RESOLVED, AS IT IS HEREBY RESOLVED, That Mr. Chua Siok Suy be, as he is
hereby authorized and empowered, on behalf of MICO METALS
CORPORATION from time to time, to borrow money and obtain other credit
facilities, with or without security, from the PHILIPPINE BANK OF
COMMUNICATIONS in such amount(s) and under such terms and conditions
as he may determine, with full power and authority to execute, sign and
deliver such contracts, instruments and papers in connection therewith,
including real estate and chattel mortgages, pledges and assignments over
the properties of the Corporation; and to renew and/or extend and/or rollover and/or reavail of the credit facilities granted thereunder, either for
lesser or for greater amount(s), the intention being that such credit facilities
and all securities of whatever kind given as collaterals therefor shall be a
continuing security.
On May 21, 1982 MICO obtained from PBCom another loan in the sum of
Three Hundred Seventy-Seven Thousand Pesos (P377,000.00) covered by
Promissory Note BA No. 7458.[29]
Upon maturity of all credit availments obtained by MICO from PBCom, the
latter made a demand for payment.[30] For failure of petitioner MICO to pay
the
obligations
incurred
despite
repeated
demands,
private
respondent PBCom extrajudicially foreclosed MICOs real estate mortgage and
sold the said mortgaged properties in a public auction sale held
on November 23, 1982. Private respondent PBCom which emerged as the
highest bidder in the auction sale, applied the proceeds of the purchase price
at public auction of Three Million Pesos (P3,000,000.00) to the expenses of
the foreclosure, interest and charges and part of the principal of the loans,
leaving an unpaid balance of Five Million Four Hundred Forty-One Thousand
Six Hundred Sixty-Three Pesos and Ninety Centavos (P5,441,663.90)
exclusive of penalty and interest charges. Aside from the unpaid balance of
Five Million Four Hundred Forty-One Thousand Six Hundred Sixty-Three Pesos
and Ninety Centavos (P5,441,663.90), MICO likewise had another standing
obligation in the sum of Four Hundred Sixty-One Thousand Six Hundred
Pesos and Six Centavos (P461,600.06) representing its trust receipts
liabilities to private respondent. PBCom then demanded the settlement of
the aforesaid obligations from herein petitioners-sureties who, however,
refused to acknowledge their obligations to PBCom under the surety
agreements. Hence, PBCom filed a complaint with prayer for writ of
preliminary attachment before the Regional Trial Court of Manila, which was
raffled to Branch 55, alleging that MICO was no longer in operation and had
no properties to answer for its obligations. PBCom further alleged that
petitioner Charles Lee has disposed or concealed his properties with intent to
defraud his creditors. Except for MICO and Charles Lee, the sheriff of the RTC
failed to serve the summons on herein petitioners-sureties since they were
all reportedly abroad at the time. An alias summons was later issued but the
sheriff was not able to serve the same to petitioners Alfonso Co and
Chua Siok Suy who was already sickly at the time and reportedly
in Taiwan where he later died.
Petitioners (MICO and herein petitioners-sureties) denied all the
allegations of the complaint filed by respondent PBCom, and alleged that: a)
MICO was not granted the alleged loans and neither did it receive the
proceeds of the aforesaid loans; b) Chua Siok Suy was never granted any
valid Board Resolution to sign for and in behalf of MICO; c) PBCom acted in
bad faith in granting the alleged loans and in releasing the proceeds thereof;
d) petitioners were never advised of the alleged grant of loans and the
subsequent releases therefor, if any; e) since no loan was ever released to or
received by MICO, the corresponding real estate mortgage and the surety
agreements signed concededly by the petitioners-sureties are null and void.
The trial court gave credence to the testimonies of herein petitioners and
dismissed the complaint filed by PBCom. The trial court likewise declared the
real estate mortgage and its foreclosure null and void. In ruling for herein
petitioners, the trial court said that PBCom failed to adequately prove that
the proceeds of the loans were ever delivered to MICO. The trial court
pointed out, among others, that while PBCom claimed that the proceeds of
the Four Million Pesos (P4,000,000.00) loan covered by promissory note TA
094 were deposited to the current account of petitioner MICO, PBCom failed
to produce the ledger account showing such deposit. The trial court added
that while PBCom may have loaned to MICO the other sums of Three
Hundred Forty-Eight Thousand Pesos (P348,000.00) and Two Hundred Ninety
Thousand Pesos (P290,000.00), no proof has been adduced as to the
existence of the goods covered and paid by the said amounts. Hence,
inasmuch as no consideration ever passed fromPBCom to MICO, all the
documents involved therein, such as the promissory notes, real estate
mortgage including the surety agreements were all void or nonexistent for
lack of cause or consideration. The trial court said that the lack of proof as
regards the existence of the merchandise covered by the letters of credit
bolstered the claim of herein petitioners that no purchases of the goods were
really made and that the letters of credit transactions were simply resorted
to by the PBCom and Chua Siok Suy to accommodate the latter in his
financial requirements.
The Court of Appeals reversed the ruling of the trial court, saying that the
latter committed an erroneous application and appreciation of the rules
governing the burden of proof. Citing Section 24 of the Negotiable
Instruments Law which provides that Every negotiable instrument is
deemedprima facie to have been issued for valuable consideration
and every person whose signature appears thereon to have become
a party thereto for value, the Court of Appeals said that while the subject
promissory notes and letters of credit issued by the PBCom made no mention
of delivery of cash, it is presumed that said negotiable instruments were
issued for valuable consideration. The Court of Appeals also cited the case
ofGatmaitan vs. Court of Appeals[31] which holds that "there is a
presumption that an instrument sets out the true agreement of the
parties thereto and that it was executed for valuable consideration.
The appellate court noted and found that a notarized Certification was issued
by MICOscorporate secretary, P.B. Barrera, that Chua Siok Suy, was duly
authorized by the Board of Directors of MICO to borrow money and obtain
credit facilities from PBCom.
Petitioners filed a motion for reconsideration of the challenged decision of
the Court of Appeals but this was denied in a Resolution datedNovember 7,
1994 issued by its Former Second Division. Petitioners-sureties then filed a
petition for review on certiorari with this Court, docketed as G.R. No. 117913,
assailing the decision of the Court of Appeals. MICO likewise filed a separate
petition for review on certiorari, docketed as G.R. No. 117914, with this Court
assailing the same decision rendered by the Court of Appeals. Upon motion
filed by petitioners, the two (2) petitions were consolidated on January 11,
1995.[32]
Petitioners contend that there was no proof that the proceeds of the loans
or the goods under the trust receipts were ever delivered to and received by
MICO. But the record shows otherwise. Petitioners-sureties further contend
that assuming that there was delivery by PBCom of the proceeds of the loans
and the goods, the contracts were executed by an unauthorized person,
more specifically Chua Siok Suy who acted fraudulently and in collusion
with PBCom to defraud MICO.
The pertinent issues raised in the consolidated cases at bar are: a)
whether or not the proceeds of the loans and letters of credit transactions
were ever delivered to MICO, and b) whether or not the individual petitioners,
as sureties, may be held liable under the two (2) Surety Agreements
executed on March 26, 1979 and July 28, 1980.
In civil cases, the party having the burden of proof must establish his
case by preponderance of evidence. [33] Preponderance of evidence means
evidence which is more convincing to the court as worthy of belief than that
which is offered in opposition thereto. Petitioners contend that the alleged
promissory notes, trust receipts and surety agreements attached to the
complaint filed by PBCom did not ripen into valid and binding contracts
inasmuch as there is no evidence of the delivery of money or loan proceeds
to MICO or to any of the petitioners-sureties. Petitioners claim that under
normal banking practice, borrowers are required to accomplish promissory
notes in blank even before the grant of the loans applied for and such
documents become valid written contracts only when the loans are actually
released to the borrower.
We are not convinced.
During the trial of an action, the party who has the burden of proof upon
an issue may be aided in establishing his claim or defense by the operation
of a presumption, or, expressed differently, by the probative value which the
law attaches to a specific state of facts. A presumption may operate against
his adversary who has not introduced proof to rebut the presumption. The
effect of a legal presumption upon a burden of proof is to create the
necessity of presenting evidence to meet the legal presumption or the prima
facie case created thereby, and which if no proof to the contrary is presented
and offered, will prevail. The burden of proof remains where it is, but by the
presumption the one who has that burden is relieved for the time being from
introducing evidence in support of his averment, because the presumption
stands in the place of evidence unless rebutted.
Under Section 3, Rule 131 of the Rules of Court the following
presumptions, among others, are satisfactory if uncontradicted: a) That there
was a sufficient consideration for a contract and b) That a negotiable
documentary
1) Promissory Note No. BNA 26218 dated May 21, 1982 in the sum
of P1,000,000.00 executed by MICO in favor of PBCom.
2) Promissory Note No. BNA 26219 dated May 21, 1982 in the sum
of P1,000,000.00 executed by MICO in favor of PBCom.
3) Promissory Note No. BNA 26253 dated May 25, 1982 in the sum
of P1,000,000.00 executed by MICO in favor of PBCom.
4) Promissory Note No. BNA 7458 dated May 21, 1982 in the sum
of P377,000.00 executed by MICO in favor of PBCom.
5) Promissory Note No. TA 094 dated July 29, 1980 in the sum
of P4,000.000.00 executed by MICO in favor of PBCom.
6) Irrevocable letter of credit No. L-16060 dated July 2,1981 issued in
favor of Perez Battery Center for account of Mico Metals Corp.
7) Draft dated July 2, 1981 in the sum of P348,000.00 issued by Perez
Battery Center, beneficiary of irrevocable Letter of Credit No. No. L16060 and accepted by MICO Metals corporation.
8) Letter dated July 2, 1981 from Perez Battery Center addressed to
private respondent PBCom showing that proceeds of the
irrevocable letter of creditNo. L- 16060 was received by
Mr. Moises Rosete, representative of Perez Battery Center.
9) Trust receipt dated July 2, 1981 executed by MICO in favor
of PBCom covering the merchandise purchased under Letter of
Credit No. 16060.
10) Irrevocable letter of credit No. L-16334 dated September 22, 1981
issued in favor of Perez Battery Center for account of MICO Metals
Corp.
11) Draft
dated September
22,
1981 in
the
sum
of P290,000.00 issued by Perez Battery Center and accepted by
MICO.
12) Letter dated September 17, 1981 from Perez Battery addressed
to PBCom showing that the proceeds of credit no. L-16344 was
received
by
Mr.Moises Rosete,
a
representative
of Perez Battery Center.
13) Trust Receipt dated September 22, 1981 executed by MICO in
favor of PBCom covering the merchandise under Letter of Credit
No. L-16334.
14) Irrevocable Letter of Credit no. 61873 dated November 10,
1981 for US$11,960.00 issued by PBCom in favor of TA JIH
Enterprises Co. Ltd., through its correspondent bank, Irving Trust
Company of Taipei, Taiwan.
15) Trust Receipt dated December 15, 9181 executed by MICO in
favor of PBCom showing that possession of the merchandise
covered by Irrevocable Letter of Credit no. 61873 was released
by PBCom to MICO.
16) Letters dated March 2, 1979 from MICO signed by its president,
Charles Lee, showing that MICO sought credit line from PBCom in
the form of loans, letters of credit and trust receipt in the sum
of P7,500,000.00.
17) Letter dated July 14, 1980 from MICO signed by its president,
Charles Lee, showing that MICO requested for additional financial
assistance in the sum of P4,000,000.00.
18) Board resolution dated March 6, 1979 of MICO authorizing Charles
Lee and Mariano Sio singly or jointly to act and sign for and in
behalf of MICO relative to the obtention of credit facilities
from PBCom.
19) Duly notarized Deed of Mortgage dated May 16, 1979 executed
by MICO in favor of PBCom over MICO s real properties covered by
TCT Nos. 11248 and 11250 located in Pasig.
20) Duly notarized Surety Agreement dated March 26, 1979 executed
by herein petitioners Charles Lee, Mariano Sio, Alfonso Yap, Richard
Velasco and Chua Siok Suy in favor of PBCom.
21) Duly notarized Surety Agreement dated July 28, 1980 executed
by herein petitioners Charles Lee, Mariano Sio, Alfonso Yap, Richard
Velasco and Chua Siok Suy in favor of PBCom.
22) Duly notarized certification dated July 28, 1980 issued by MICO s
corporate secretary, Mr. P.B. Barrera, attesting to the adoption of a
board resolution authorizing Chua Siok Suy to sign, for and in
behalf of MICO, all the necessary documents including contracts,
loan instruments and mortgages relative to the obtention of
various credit facilities from PBCom.
The above-cited documents presented have not merely created a prima
facie case but have actually proved the solidary obligation of MICO and the
petitioners, as sureties of MICO, in favor of respondent PBCom. While the
presumption found under the Negotiable Instruments Law may not
necessarily be applicable to trust receipts and letters of credit, the
presumption that the drafts drawn in connection with the letters of credit
have sufficient consideration. Under Section 3(r), Rule 131 of the Rules of
Court there is also a presumption that sufficient consideration was given in a
contract. Hence, petitioners should have presented credible evidence to
rebut that presumption as well as the evidence presented by private
respondent PBCom. The letters of credit show that the pertinent
materials/merchandise have been received by MICO. The drafts signed by
the beneficiary/suppliers in connection with the corresponding letters of
credit proved that said suppliers were paid by PBCom for the account of
MICO. On the other hand, aside from their bare denials petitioners did not
present sufficient and competent evidence to rebut the evidence of private
respondent PBCom. Petitioner MICO did not proffer a single piece of
evidence, apart from its bare denials, to support its allegation that the loan
transactions, real estate mortgage, letters of credit and trust receipts were
issued allegedly without any consideration.
Petitioners-sureties,
for
their
part,
presented
the
By[34]
Laws
of Mico Metals Corporation (MICO) to prove that only the president of
MICO is authorized to borrow money, arrange letters of credit, execute trust
receipts, and promissory notes and consequently, that the loan transactions,
letters of credit, promissory notes and trust receipts, most of which were
executed by Chua Siok Suy in representation of MICO were not allegedly
authorized and hence, are not binding upon MICO. A perusal of the By-Laws
of MICO, however, shows that the power to borrow money for the company
and issue mortgages, bonds, deeds of trust and negotiable instruments or
securities, secured by mortgages or pledges of property belonging to the
company is not confined solely to the president of the corporation. The Board
of Directors of MICO can also borrow money, arrange letters of
credit, execute trust receipts and promissory notes on behalf of the
corporation.[35] Significantly, this power of the Board of Directors according to
the by-laws of MICO, may be delegated to any of its standing committee,
officer or agent.[36] Hence, PBCom had every right to rely on the Certification
issued by MICO's corporate secretary, P.B. Barrera, that Chua Siok Suy was
duly authorized by its Board of Directors to borrow money and obtain credit
facilities in behalf of MICO from PBCom.
Petitioners-sureties also presented a letter of their counsel dated October
9, 1982, addressed to private respondent PBCom purportedly to show
that PBCom knew that Chua Siok Suy allegedly used the credit and good
names of the petitioner-sureties for his benefit, and that petitionersuretieswere made to sign blank documents and were furnished copies of the
same. The letter, however, is in fact merely a reply of petitioners-sureties
counsel to PBComs demand for payment of MICOs obligations, and appears
to be an inconsequential piece of self-serving evidence.
In addition to the foregoing, MICO and petitioners-sureties cited the
decision of the trial court which stated that there was no proof that the
proceeds of the loans were ever delivered to MICO. Although the private
respondents witness, Mr. Gardiola, testified that the proceeds of the loans
were deposited in MICOs current account with PBCom, his testimony was
allegedly not supported by any bank record, note or memorandum. A careful
scrutiny of the record including the transcript of stenographic notes reveals,
however, that although private respondent PBCom was willing to produce the
corresponding account ledger showing that the proceeds of the loans were
credited to MICOs current account with PBCom, MICO in fact vigorously
objected to the presentation of said document. That point is shown in the
testimony of PBComs witness, Gardiola, thus:
Q: Now, all of these promissory note Exhibits I and J which as you
have
said
previously
(sic)
availed
originally
by
defendant Mico Metals Corp. sometime in 1979, my question now
is, do you know what happened to the proceeds of the
original availment?
A: Well, it was credited to the current account of Mico Metals Corp.
Q: Why did it was credited to the proceeds to the account
of Mico Metals Corp? (sic)
A: Well, that is our understanding.
ATTY. DURAN:
Your honor, may we be given a chance to object, the best
evidence is the so-called current account...
COURT:
Can you produce the ledger account?
A: Yes, Your Honor, I will bring.
COURT:
of
transmitted to PBCom to support the latters claim for payment from MICO.
MICO accepted the draft upon presentment and negotiated it to PBCom.
Petitioners further aver that MICO never requested that legal possession
of the merchandise be transferred to PBCom by way of trust receipts.
Petitioners insist that assuming that MICO transferred possession of the
merchandise to PBCom by way of trust receipts, the same would be illegal
since PBCom, being a banking institution, is not authorized by law to engage
in the business of importing and selling goods.
A trust receipt is considered as a security transaction intended to aid in
financing importers and retail dealers who do not have sufficient funds or
resources to finance the importation or purchase of merchandise, and who
may not be able to acquire credit except through utilization, as collateral of
the merchandise imported or purchased.[39] A trust receipt, therefor, is a
document of security pursuant to which a bank acquires a security interest in
the goods under trust receipt. Under a letter of credit-trust receipt
arrangement, a bank extends a loan covered by a letter of credit, with the
trust receipt as a security for the loan. The transaction involves a loan
feature represented by a letter of credit, and a security feature which is in
the covering trust receipt which secures an indebtedness.
Petitioners averments with regard to the second issue are no less
incredulous. Petitioners contend that the letters of credit, surety agreements
and loan transactions did not ripen into valid and binding contracts
since no part of the proceeds of the loan transactions were delivered to MICO
or to any of the petitioners-sureties. Petitioners-sureties allege that
Chua Siok Suy was the beneficiary of the proceeds of the loans and that the
latter made them sign the surety agreements in blank. Thus, they maintain
that they should not be held accountable for any liability that might
arise therefrom.
It has not escaped our notice that it was petitioner-surety Charles Lee, as
president of MICO Metals Corporation, who first requested for a
discounting loan of Three Million Pesos (P3,000,000.00) from PBCom as
evidenced by his letter dated March 2, 1979.[40] On the same day, Charles
Lee, as President of MICO, requested for a Letter of Credit and Trust Receipt
line in the sum of Three Million Pesos (P3,000,000.00).[41] Still, on the same
day, Charles Lee again as President of MICO, wrote another letter to PBCOM
requesting for a financing line in the sum of One Million Five Hundred
Thousand Pesos (P1,500,000.00) to be used exclusively as marginal deposit
for the opening of MICOs foreign and local letters of credit withPBCom.
[42]
More than a year later, it was also Charles Lee, again in his capacity as
president of MICO, who asked for an additional loan in the sum of Four Million
Pesos (P4,000,000.00). The claim therefore of petitioners that it was
Chua Siok Suy, in connivance with the respondent PBCom, who applied for
and obtained the loan transactions and letters of credit strains credulity
considering that even the Deed of the Real Estate Mortgage in favor
presumption acquires greater force in the case at bar where not only one but
several documents were executed at different times and at different places
by the petitioner sureties and Chua Siok Suy as president of MICO.
MICO and herein petitioners-sureties insist that Chua Siok Suy was not
duly authorized to negotiate for loans in behalf of MICO from PBCom.
Petitioners allegation, however, is belied by the July 28, 1980 Certification
issued by the corporate secretary of PBCom, Atty. P.B. Barrera,
thatMICO's Board of Directors gave Chua Siok Suy full authority to negotiate
for loans in behalf of MICO with PBCom. In fact, the Certification even
provided that Chua Siok Suys authority continues until and unless PBCom is
notified in writing of the withdrawal thereof by the said Board. Notably,
petitioners failed to contest the genuineness of the said Certification which is
notarized and to show any written proof of any alleged withdrawal of the said
authority given by the Board of Directors to Chua Siok Suy to negotiate for
loans in behalf of MICO.
There was no need for PBCom to personally inform the petitionerssureties individually about the terms of the loans, letters of credit and other
loan documents. The petitioners-sureties themselves happen to comprise the
Board of Directors of MICO, which gave full authority to Chua Siok Suyto
negotiate for loans in behalf of MICO. Notice to MICOs authorized
representative, Chua Siok Suy, was notice to MICO. The Certification issued
byPBComs corporate secretary, Atty. P.B. Barrera, indicated that
Chua Siok Suy had full authority to negotiate and sign the necessary
documents, inbehalf
of
MICO
for
loans
from PBCom.
Respondent PBCom therefore had the right to rely on the said notarized
Certification of MICOs Corporate Secretary.
Anent petitioners-sureties contention that they obtained no consideration
whatsoever on the surety agreements, we need only point out that the
consideration for the sureties is the very consideration for the principal
obligor, MICO, in the contracts of loan. In the case of Willex Plastic Industries
Corporation vs. Court of Appeals,[46] we ruled that the consideration
necessary to support a surety obligation need not pass directly to the surety,
a consideration moving to the principal alone being sufficient. For a
guarantor or surety is bound by the same consideration that makes the
contract effective between the parties thereto. It is not necessary that a
guarantor or surety should receive any part or benefit, if such there be,
accruing to his principal.
Petitioners placed too much reliance on the rule in evidence that the
burden of proof does not shift whereas the burden of going forward with the
evidence does pass from party to party. It is true that said rule is not
changed by the fact that the party having the burden of proof has introduced
evidence which established prima facie his assertion because such evidence
does not shift the burden of proof; it merely puts the adversary to the
necessity of producing evidence to meet the prima facie case. Where the
DIZON, J.:
An appeal from a decision of the Court of First Instance of Manila dismissing
the complaint filed by the Philippine Education Co., Inc. against Mauricio A.
Soriano, Enrico Palomar and Rafael Contreras.
On April 18, 1958 Enrique Montinola sought to purchase from the Manila Post
Office ten (10) money orders of P200.00 each payable to E.P. Montinola
withaddress at Lucena, Quezon. After the postal teller had made out money
ordersnumbered 124685, 124687-124695, Montinola offered to pay for them
with a private checks were not generally accepted in payment of money
orders, the teller advised him to see the Chief of the Money Order Division,
but instead of doing so, Montinola managed to leave building with his own
check and the ten(10) money orders without the knowledge of the teller.
On the same date, April 18, 1958, upon discovery of the disappearance of
the unpaid money orders, an urgent message was sent to all postmasters,
and the following day notice was likewise served upon all banks, instructing
them not to pay anyone of the money orders aforesaid if presented for
payment. The Bank of America received a copy of said notice three days
later.
On April 23, 1958 one of the above-mentioned money orders numbered
124688 was received by appellant as part of its sales receipts. The following
day it deposited the same with the Bank of America, and one day thereafter
the latter cleared it with the Bureau of Posts and received from the latter its
face value of P200.00.
On September 27, 1961, appellee Mauricio A. Soriano, Chief of the Money
Order Division of the Manila Post Office, acting for and in behalf of his coappellee, Postmaster Enrico Palomar, notified the Bank of America that
money order No. 124688 attached to his letter had been found to have been
irregularly issued and that, in view thereof, the amount it represented had
been deducted from the bank's clearing account. For its part, on August 2 of
the same year, the Bank of America debited appellant's account with the
same amount and gave it advice thereof by means of a debit memo.
On October 12, 1961 appellant requested the Postmaster General to
reconsider the action taken by his office deducting the sum of P200.00 from
the clearing account of the Bank of America, but his request was denied. So
was appellant's subsequent request that the matter be referred to the
Secretary of Justice for advice. Thereafter, appellant elevated the matter to
the Secretary of Public Works and Communications, but the latter sustained
the actions taken by the postal officers.
In connection with the events set forth above, Montinola was charged with
theft in the Court of First Instance of Manila (Criminal Case No. 43866) but
after trial he was acquitted on the ground of reasonable doubt.
On January 8, 1962 appellant filed an action against appellees in the
Municipal Court of Manila praying for judgment as follows:
WHEREFORE, plaintiff prays that after hearing defendants be
ordered:
(a) To countermand the notice given to the Bank of America on
September 27, 1961, deducting from the said Bank's clearing
account the sum of P200.00 represented by postal money order
No. 124688, or in the alternative indemnify the plaintiff in the
same amount with interest at 8-% per annum from September
27, 1961, which is the rate of interest being paid by plaintiff on
its overdraft account;
(b) To pay to the plaintiff out of their own personal funds, jointly
and severally, actual and moral damages in the amount of
P1,000.00 or in such amount as will be proved and/or determined
by this Honorable Court: exemplary damages in the amount of
P1,000.00, attorney's fees of P1,000.00, and the costs of action.
Plaintiff also prays for such other and further relief as may be
deemed just and equitable.
On November 17, 1962, after the parties had submitted the stipulation of
facts reproduced at pages 12 to 15 of the Record on Appeal, the abovenamed court rendered judgment as follows:
WHEREFORE, judgment is hereby rendered, ordering the
defendants to countermand the notice given to the Bank of
America on September 27, 1961, deducting from said Bank's
clearing account the sum of P200.00 representing the amount of
postal money order No. 124688, or in the alternative, to
indemnify the plaintiff in the said sum of P200.00 with interest
thereon at the rate of 8-% per annum from September 27,
1961 until fully paid; without any pronouncement as to cost and
attorney's fees.
The case was appealed to the Court of First Instance of Manila where, after
the parties had resubmitted the same stipulation of facts, the appealed
decision dismissing the complaint, with costs, was rendered.
The first, second and fifth assignments of error discussed in appellant's brief
are related to the other and will therefore be discussed jointly. They raise this
main issue: that the postal money order in question is a negotiable
instrument; that its nature as such is not in anyway affected by the letter
dated October 26, 1948 signed by the Director of Posts and addressed to all
banks with a clearing account with the Post Office, and that money orders,
once issued, create a contractual relationship of debtor and creditor,
respectively, between the government, on the one hand, and the remitters
payees or endorses, on the other.
It is not disputed that our postal statutes were patterned after statutes in
force in the United States. For this reason, ours are generally construed in
accordance with the construction given in the United States to their own
postal statutes, in the absence of any special reason justifying a departure
from this policy or practice. The weight of authority in the United States is
that postal money orders are not negotiable instruments (Bolognesi vs. U.S.
189 Fed. 395; U.S. vs. Stock Drawers National Bank, 30 Fed. 912), the reason
behind this rule being that, in establishing and operating a postal money
order system, the government is not engaging in commercial transactions
but merely exercises a governmental power for the public benefit.
It is to be noted in this connection that some of the restrictions imposed
upon money orders by postal laws and regulations are inconsistent with the
character of negotiable instruments. For instance, such laws and regulations
usually provide for not more than one endorsement; payment of money
orders may be withheld under a variety of circumstances (49 C.J. 1153).
Of particular application to the postal money order in question are the
conditions laid down in the letter of the Director of Posts of October 26, 1948
(Exhibit 3) to the Bank of America for the redemption of postal money orders
received by it from its depositors. Among others, the condition is imposed
that "in cases of adverse claim, the money order or money orders involved
will be returned to you (the bank) and the, corresponding amount will have
to be refunded to the Postmaster, Manila, who reserves the right to deduct
the value thereof from any amount due you if such step is deemed
necessary." The conditions thus imposed in order to enable the bank to
was issued in favor of Placido S. Urbanes on December 10, 1941, but is now
in the hands of herein petitioner Benjamin Abubakar.
For his refusal the respondent gave two reasons: first, because the money
available for the redemption of treasury warrants issued before January 2,
1942, is appropriated by Republic Act No. 80 (Item F-IV-8) and this warrant
does not come within the purview of said appropriation; and second, because
on of the requirements of his office had not been complied with, namely, that
it must be shown that the holders of warrants covering payment or
replenishment of cash advances for official expenditures (as this warrant is)
received them in payment of definite government obligations.
Finding the first reason to be sufficiently valid we shall not discuss, nor pass
upon the second.
There is no doubt as to the authenticity and date of the treasury warrant.
There is no question that it was regularly indorsed by the payee and is now
in the custody of the herein petitioner who is a private individual. On the
other hand, it is admitted that the warrant was originally made payable to
Placido S. Urbanes in his capacity as disbursing officer of the Food
Administration for "additional cash advance for Food Production Campaign in
La Union" (Annex A). It is thus apparent that this is a treasury warrant issued
in favor of a public officer or employeeand held in possession by a private
individual. Such being the case, the Auditor General can hardly be blamed
for not authorizing its redemption out of an appropriation specifically for
"treasury warrants issued ... in favor of and held in possession
by private individuals." (Republic Act No. 80, Item F-IV-8.) This warrant
was not issued in favor of a private individual. It was issued in favor of
a government employee.
The distinction is not without a difference. Outstanding treasury warrants
issued prior to January 2, 1942, amount to more than four million pesos. The
appropriation herein mentioned is only for P1,750,000. Obviously Congress
wished to provide for redemption of one class of warrants those issued to
private individuals as distinguished from those issued in favor of
government officials. Basis for the discrimination is not lacking. Probably the
Government is not so sure that those warrants to officials have all been
properly used by the latter during the Japanese occupation or maybe it wants
to conduct further inquiries as to the equities of the present holders thereof.
The petitioner argues that he is a holder in good faith and for value of a
negotiable instrument an dis 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 instruments 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. (Section 3 last sentenced and
section 1[b] of the Negotiable Instruments Law.) In the United States,
government warrants for the payment of money are not negotiable
instruments nor commercial proper1
Anyway the question here is not whether the Government should eventually
pay this warrant, or is ultimately responsible for it, but whether the Auditor
General erred in refusing to permit payment out of the particular
appropriation in Item F-IV-8 of Republic Act No. 80. We think that he did not.
Petition dismissed, with costs.
Paras, Actg. C.J., Feria, Pablo, Perfecto, Briones, and Padilla, JJ., concur.
PHILIPPINE NATIONAL BANK, G.R. No. 170325
Petitioner,
Present:
YNARES-SANTIAGO, J.,
Chairperson,
- versus - AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.
ERLANDO T. RODRIGUEZ Promulgated:
and NORMA RODRIGUEZ,
Respondents. September 26, 2008
x--------------------------------------------------x
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. PNB paid the wrong payees, hence, it should bear the loss.
in
the
amount
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 plaintiffsappellees (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
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.
2.
3.
4.
Costs of suit.
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.
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
[25]
employees. In Bank of the Philippine Islands v. Court of Appeals, this Court
cautioned thus:
We note that the RTC failed to thresh out the merits of PNBs crossclaim 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 RTCdismissal 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. L-2516
delivered it to Lee Hua Hong in exchange for money which the latter handed
in act. On November 18, 1946, the next business day, the check was
presented by Lee Hua Hong to the drawee bank for payment, but it was
dishonored for insufficiency of funds, the balance of the deposit of Ang Tek
Lian on both dates being P335 only.
The Court of Appeals believed the version of Lee Huan Hong who testified
that "on November 16, 1946, appellant went to his (complainant's) office, at
1217 Herran, Paco, Manila, and asked him to exchange Exhibit A which he
(appellant) then brought with him with cash alleging that he needed badly
the sum of P4,000 represented by the check, but could not withdraw it from
the bank, it being then already closed; that in view of this request and
relying upon appellant's assurance that he had sufficient funds in the blank
to meet Exhibit A, and because they used to borrow money from each other,
even before the war, and appellant owns a hotel and restaurant known as
the North Bay Hotel, said complainant delivered to him, on the same date,
the sum of P4,000 in cash; that despite repeated efforts to notify him that
the check had been dishonored by the bank, appellant could not be located
any-where, until he was summoned in the City Fiscal's Office in view of the
complaint for estafa filed in connection therewith; and that appellant has not
paid as yet the amount of the check, or any part thereof."
Inasmuch as the findings of fact of the Court of Appeals are final, the only
question of law for decision is whether under the facts found, estafa had
been accomplished.
Article 315, paragraph (d), subsection 2 of the Revised Penal Code, punishes
swindling committed "By post dating a check, or issuing such 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 in the bank were not
sufficient to cover the amount of the check, and without informing the payee
of such circumstances".
We believe that under this provision of law Ang Tek Lian was properly held
liable. In this connection, it must be stated that, as explained in People vs.
Fernandez (59 Phil., 615), estafa is committed by issuing either a postdated
check or an ordinary check to accomplish the deceit.
It is argued, however, that as the check had been made payable to "cash"
and had not been endorsed by Ang Tek Lian, the defendant is not guilty of
the offense charged. Based on the proposition that "by uniform practice of all
where the Bank is satisfied of the identity and /or the economic standing of
the bearer who tenders the check for collection, it will pay the instrument
without further question; and it would incur no liability to the drawer in thus
acting.
A check payable to bearer is authority for payment to holder. Where a
check is in the ordinary form, and is payable to bearer, so that no
indorsement is required, a bank, to which it is presented for payment,
need not have the holder identified, and is not negligent in falling to do
so. . . . (Michie on Banks and Banking, Permanent Edition, Vol. 5, p.
343.)
. . . Consequently, a drawee bank to which a bearer check is presented
for payment need not necessarily have the holder identified and
ordinarily may not be charged with negligence in failing to do so. See
Opinions 6C:2 and 6C:3 If the bank has no reasonable cause for
suspecting any irregularity, it will be protected in paying a bearer
check, "no matter what facts unknown to it may have occurred prior to
the presentment." 1 Morse, Banks and Banking, sec. 393.
Although a bank is entitled to pay the amount of a bearer check
without further inquiry, it is entirely reasonable for the bank to insist
that holder give satisfactory proof of his identity. . . . (Paton's Digest,
Vol. I, p. 1089.)
Anyway, it is significant, and conclusive, that the form of the check Exhibit A
was totally unconnected with its dishonor. The Court of Appeals declared that
it was returned unsatisfied because the drawer had insufficient funds not
because the drawer's indorsement was lacking.
Wherefore, there being no question as to the correctness of the penalty
imposed on the appellant, the writ ofcertiorari is denied and the decision of
the Court of Appeals is hereby affirmed, with costs.
G.R. No. L-18103
June 8, 1922
97.) At least one provision of the substantive law, namely, that the validity
and fulfillment of contracts cannot be left to the will of one of the contracting
parties (Civil Code, art. 1356), constitutes another indication of fundamental
legal purposes.
The attorney for the appellee contends that the Negotiable Instruments Law
(Act No. 2031) expressly recognizes judgment notes, and that they are
enforcible under the regular procedure. The Negotiable Instruments Law, in
section 5, provides that "The negotiable character of an instrument
otherwise negotiable is not affected by a provision which ". . . (b) Authorizes
a confession of judgment if the instrument be not paid at maturity." We do
not believe, however, that this provision of law can be taken to sanction
judgments by confession, because it is a portion of a uniform law which
merely provides that, in jurisdiction where judgment notes are recognized,
such clauses shall not affect the negotiable character of the instrument.
Moreover, the same section of the Negotiable Instruments. Law concludes
with these words: "But nothing in this section shall validate any provision or
stipulation otherwise illegal."
The court is thus put in the position of having to determine the validity in the
absence of statute of a provision in a note authorizing an attorney to appear
and confess judgment against the maker. This situation, in reality, has its
advantages for it permits us to reach that solution which is best grounded in
the solid principles of the law, and which will best advance the public
interest.
The practice of entering judgments in debt on warrants of attorney is of
ancient origin. In the course of time a warrant of attorney to confess
judgement became a familiar common law security. At common law, there
were two kinds of judgments by confession; the one a judgment by cognovit
actionem, and the other by confessionrelicta verificatione. A number of
jurisdictions in the United States have accepted the common law view of
judgments by confession, while still other jurisdictions have refused to
sanction them. In some States, statutes have been passed which have either
expressly authorized confession of judgment on warrant of attorney, without
antecedent process, or have forbidden judgments of this character. In the
absence of statute, there is a conflict of authority as to the validity of a
warrant of attorney for the confession of judgement. The weight of opinion is
that, unless authorized by statute, warrants of attorney to confess judgment
are void, as against public policy.
Possibly the leading case on the subject is First National Bank of Kansas City
vs. White ([1909], 220 Mo., 717; 16 Ann. Cas., 889; 120 S. W., 36; 132 Am.
St. Rep., 612). The record in this case discloses that on October 4, 1990, the
defendant executed and delivered to the plaintiff an obligation in which the
defendant authorized any attorney-at-law to appear for him in an action on
the note at any time after the note became due in any court of record in the
State of Missouri, or elsewhere, to waive the issuing and service of process,
and to confess judgement in favor of the First National Bank of Kansas City
for the amount that might then be due thereon, with interest at the rate
therein mentioned and the costs of suit, together with an attorney's fee of 10
per cent and also to waive and release all errors in said proceedings and
judgment, and all proceedings, appeals, or writs of error thereon. Plaintiff
filed a petition in the Circuit Court to which was attached the abovementioned instrument. An attorney named Denham appeared pursuant to
the authority given by the note sued on, entered the appearance of the
defendant, and consented that judgement be rendered in favor of the
plaintiff as prayed in the petition. After the Circuit Court had entered a
judgement, the defendants, through counsel, appeared specially and filed a
motion to set it aside. The Supreme Court of Missouri, speaking through Mr.
Justice Graves, in part said:
But going beyond the mere technical question in our preceding
paragraph discussed, we come to a question urged which goes to the
very root of this case, and whilst new and novel in this state, we do not
feel that the case should be disposed of without discussing and passing
upon that question.
xxx
xxx
xxx
xxx
xxx
xxx
xxx
From what has been said, it follows that the Circuit Court never had
jurisdiction of the defendant, and the judgement is reversed.
The case of Farquhar and Co. vs. Dehaven ([1912], 70 W. Va., 738; 40 L.R.A.
[N. S.], 956; 75 S.E., 65; Ann. Cas. [1914-A], 640), is another well-considered
authority. The notes referred to in the record contained waiver of
presentment and protest, homestead and exemption rights real and
personal, and other rights, and also the following material provision: "And we
do hereby empower and authorize the said A. B. Farquhar Co. Limited, or
agent, or any prothonotary or attorney of any Court of Record to appear for
us and in our name to confess judgement against us and in favor of said A. B.
Farquhar Co., Limited, for the above named sum with costs of suit and
release of all errors and without stay of execution after the maturity of this
note." The Supreme Court of West Virginia, on consideration of the validity of
the judgment note above described, speaking through Mr. Justice Miller, in
part said:
As both sides agree the question presented is one of first impression in
this State. We have no statutes, as has Pennsylvania and many other
states, regulating the subject. In the decision we are called upon to
render, we must have recourse to the rules and principles of the
common law, in force here, and to our statute law, applicable, and to
such judicial decisions and practices in Virginia, in force at the time of
the separation, as are properly binding on us. It is pertinent to remark
in this connection, that after nearly fifty years of judicial history this
question, strong evidence, we think, that such notes, if at all, have
never been in very general use in this commonwealth. And in most
states where they are current the use of them has grown up under
statutes authorizing them, and regulating the practice of employing
them in commercial transactions.
xxx
xxx
xxx
It is contended, however, that the old legal maxim, qui facit per alium,
facit per se, is as applicable here as in other cases. We do not think so.
Strong reasons exist, as we have shown, for denying its application,
when holders of contracts of this character seek the aid of the courts
and of their execution process to enforce them, defendant having had
no day in court or opportunity to be heard. We need not say in this
case that a debtor may not, by proper power of attorney duly
executed, authorize another to appear in court, and by proper
endorsement upon the writ waive service of process, and confess
judgement. But we do not wish to be understood as approving or
intending to countenance the practice employing in this state
commercial paper of the character here involved. Such paper has
heretofore had little if any currency here. If the practice is adopted into
this state it ought to be, we think, by act of the Legislature, with all
proper safeguards thrown around it, to prevent fraud and imposition.
The policy of our law is, that no man shall suffer judgment at the hands
of our courts without proper process and a day to be heard. To give
currency to such paper by judicial pronouncement would be to open
the door to fraud and imposition, and to subject the people to wrongs
and injuries not heretofore contemplated. This we are unwilling to do.
A case typical of those authorities which lend support to judgment notes is
First National Bank of Las Cruces vs. Baker ([1919], 180 Pac., 291). The
Supreme Court of New Mexico, in a per curiam decision, in part, said:
In some of the states the judgments upon warrants of attorney are
condemned as being against public policy. (Farquhar and Co. vs.
Dahaven, 70 W. Va., 738; 75 S.E., 65; 40 L.R.A. [N. S.], 956; Ann. Cas.
[1914 A]. 640, and First National Bank of Kansas City vs. White, 220
Mo., 717; 120 S. W., 36; 132 Am. St. Rep., 612; 16 Ann. Cas., 889, are
examples of such holding.) By just what course of reasoning it can be
said by the courts that such judgments are against public policy we are
unable to understand. It was a practice from time immemorial at
common law, and the common law comes down to us sanctioned as
justified by the reason and experience of English-speaking peoples. If
conditions have arisen in this country which make the application of
the common law undesirable, it is for the Legislature to so announce,
and to prohibit the taking of judgments can be declared as against the
public policy of the state. We are aware that the argument against
them is that they enable the unconscionable creditor to take
advantage of the necessities of the poor debtor and cut him off from
his ordinary day in court. On the other hand, it may be said in their
favor that it frequently enables a debtor to obtain money which he
oppression, and make the courts involuntary parties thereto. If the bank has
a meritorious case, the judgement is ultimately certain in the courts.
We are of the opinion that warrants of attorney to confess judgment are not
authorized nor contemplated by our law. We are further of the opinion that
provisions in notes authorizing attorneys to appear and confess judgments
against makers should not be recognized in this jurisdiction by implication
and should only be considered as valid when given express legislative
sanction.
The judgment appealed from is set aside, and the case is remanded to the
lower court for further proceedings in accordance with this decision. Without
special finding as to costs in this instance, it is so ordered.