G.R. No.

16454 September 29, 1921

GEORGE A. KAUFFMAN, Plaintiff-Appellee, vs. THE PHILIPPINE NATIONAL

BANK, Defendant-Appellant.

Roman J. Lacson for appellant.

Ross and Lawrence for appellee.

STREET, J.:

At the time of the transaction which gave rise to this litigation the plaintiff, George
A. Kauffman, was the president of a domestic corporation engaged chiefly in the
exportation of hemp from the Philippine Islands and known as the Philippine Fiber
and Produce Company, of which company the plaintiff apparently held in his own
right nearly the entire issue of capital stock. On February 5, 1918, the board of
directors of said company, declared a dividend of P100,000 from its surplus
earnings for the year 1917, of which the plaintiff was entitled to the sum of
P98,000. This amount was accordingly placed to his credit on the books of the
company, and so remained until in October of the same year when an unsuccessful
effort was made to transmit the whole, or a greater part thereof, to the plaintiff in
New York City.chanroblesvirtualawlibrary chanrobles virtual law library

In this connection it appears that on October 9, 1918, George B. Wicks, treasurer of

the Philippine Fiber and Produce Company, presented himself in the exchange
department of the Philippine National Bank in Manila and requested that a
telegraphic transfer of $45,000 should be made to the plaintiff in New York City,
upon account of the Philippine Fiber and Produce Company. He was informed that
the total cost of said transfer, including exchange and cost of message, would be
P90,355.50. Accordingly, Wicks, as treasurer of the Philippine Fiber and Produce
Company, thereupon drew and delivered a check for that amount on the Philippine
National Bank; and the same was accepted by the officer selling the exchange in
payment of the transfer in question. As evidence of this transaction a document
was made out and delivered to Wicks, which is referred to by the bank's assistant
cashier as its official receipt. This memorandum receipt is in the following language:

October 9th, 1918.

CABLE TRANSFER BOUGHT FROM

PHILIPPINE NATIONAL BANK,
Manila, P.I. Stamp P18

Foreign Amount Rate

$45,000. 3/8 % P90,337.50

Payable through Philippine National Bank, New York. To G. A. Kauffman, New York.
Total P90,355.50. Account of Philippine Fiber and Produce Company. Sold to
Messrs. Philippine Fiber and Produce Company, Manila.
 (Sgd.) Y LERMA,
Manager, Foreign Department.

On the same day the Philippine National Bank dispatched to its New York agency a
cablegram to the following effect:

Pay George A. Kauffman, New York, account Philippine Fiber Produce Co., $45,000.
(Sgd.) PHILIPPINE NATIONAL BANK, Manila.

Upon receiving this telegraphic message, the bank's representative in New York
sent a cable message in reply suggesting the advisability of withholding this money
from Kauffman, in view of his reluctance to accept certain bills of the Philippine
Fiber and Produce Company. The Philippine National Bank acquiesced in this and on
October 11 dispatched to its New York agency another message to withhold the
Kauffman payment as suggested.chanroblesvirtualawlibrary chanrobles virtual law
library

Meanwhile Wicks, the treasurer of the Philippine Fiber and Produce Company,
cabled to Kauffman in New York, advising him that $45,000 had been placed to his
credit in the New York agency of the Philippine National Bank; and in response to
this advice Kauffman presented himself at the office of the Philippine National Bank
in New York City on October 15, 1918, and demanded the money. By this time,
however, the message from the Philippine National Bank of October 11, directing
the withholding of payment had been received in New York, and payment was
therefore refused.chanroblesvirtualawlibrary chanrobles virtual law library

In view of these facts, the plaintiff Kauffman instituted the present action in the
Court of First Instance of the city of Manila to recover said sum, with interest and
costs; and judgment having been there entered favorably to the plaintiff, the
defendant appealed.chanroblesvirtualawlibrary chanrobles virtual law library

Among additional facts pertinent to the case we note the circumstance that at the
time of the transaction above-mentioned, the Philippines Fiber and Produce
Company did not have on deposit in the Philippine National Bank money adequate
to pay the check for P90,355.50, which was delivered in payment of the telegraphic
order; but the company did have credit to that extent, or more, for overdraft in
current account, and the check in question was charged as an overdraft against the
Philippine Fiber and Produce Company and has remained on the books of the bank
as an interest-bearing item in the account of said
company.chanroblesvirtualawlibrary chanrobles virtual law library

It is furthermore noteworthy that no evidence has been introduced tending to show

failure of consideration with respect to the amount paid for said telegraphic order.
It is true that in the defendant's answer it is suggested that the failure of the bank
to pay over the amount of this remittance to the plaintiff in New York City, pursuant
to its agreement, was due to a desire to protect the bank in its relations with the
Philippine Fiber and Produce Company, whose credit was secured at the bank by
warehouse receipts on Philippine products; and it is alleged that after the exchange
in question was sold the bank found that it did not have sufficient to warrant
payment of the remittance. In view, however, of the failure of the bank to
substantiate these allegations, or to offer any other proof showing failure of
consideration, it must be assumed that the obligation of the bank was supported by
adequate consideration.chanroblesvirtualawlibrary chanrobles virtual law library

In this court the defense is mainly, if not exclusively, based upon the proposition
that, inasmuch as the plaintiff Kauffman was not a party to the contract with the
bank for the transmission of this credit, no right of action can be vested in him for
the breach thereof. "In this situation," - we here quote the words of the appellant's
brief, - "if there exists a cause of action against the defendant, it would not be in
favor of the plaintiff who had taken no part at all in the transaction nor had entered
into any contract with the plaintiff, but in favor of the Philippine Fiber and Produce
Company, the party which contracted in its own name with the
defendant." chanrobles virtual law library

The question thus placed before us is one purely of law; and at the very threshold
of the discussion it can be stated that the provisions of the Negotiable Instruments
Law can come into operation there must be a document in existence of the
character described in section 1 of the Law; and no rights properly speaking arise in
respect to said instrument until it is delivered. In the case before us there was an
order, it is true, transmitted by the defendant bank to its New York branch, for the
payment of a specified sum of money to George A. Kauffman. But this order was
not made payable "to order or "to bearer," as required in subsection ( d) of that
Act; and inasmuch as it never left the possession of the bank, or its representative
in New York City, there was no delivery in the sense intended in section 16 of the
same Law. In this connection it is unnecessary to point out that the official receipt
delivered by the bank to the purchaser of the telegraphic order, and already set out
above, cannot itself be viewed in the light of a negotiable instrument, although it
affords complete proof of the obligation actually assumed by the
bank.chanroblesvirtualawlibrary chanrobles virtual law library

Stated in bare simplicity the admitted facts show that the defendant bank for a
valuable consideration paid by the Philippine Fiber and Produce Company agreed on
October 9, 1918, to cause a sum of money to be paid to the plaintiff in New York
City; and the question is whether the plaintiff can maintain an action against the
bank for the nonperformance of said undertaking. In other words, is the lack of
privity with the contract on the part of the plaintiff fatal to the maintenance of an
action by him? chanrobles virtual law library

The only express provision of law that has been cited as bearing directly on this
question is the second paragraph of article 1257 of the Civil Code; and unless the
present action can be maintained under the provision, the plaintiff admittedly has
no case. This provision states an exception to the more general rule expressed in
the first paragraph of the same article to the effect that contracts are productive of
effects only between the parties who execute them; and in harmony with this
general rule are numerous decisions of this court (Wolfson vs. Estate of Martinez,
20 Phil., 340; Ibañez de Aldecoa vs. Hongkong and Shanghai Banking Corporation,
22 Phil., 572, 584; Manila Railroad Co. vs. Compañia Trasatlantica and Atlantic,
Gulf and Pacific Co., 38 Phil., 873, 894.) chanrobles virtual law library

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.chanroblesvirtualawlibrary chanrobles virtual law library

If a third person claims an enforcible interest in the contract, the question must be
settled by determining whether the contracting parties desired to tender him such
an interest. Did they deliberately insert terms in their agreement with the avowed
purpose of conferring a favor upon such third person? In resolving this question, of
course, the ordinary rules of construction and interpretation of writings must be
observed. (Uy Tam and Uy Yet vs. Leonard, supra.)

Further on in the same opinion he adds: "In applying this test to a stipulation pour
autrui, it matters not whether the stipulation is in the nature of a gift or whether
there is an obligation owing from the promise to the third person. That no such
obligation exists may in some degree assist in determining whether the parties
intended to benefit a third person, whether they stipulated for him." (Uy Tam and
Uy Yet vs. Leonard, supra.) chanrobles virtual law library

In the light of the conclusion thus stated, the right of the plaintiff to maintain the
present action is clear enough; for it is undeniable that the bank's promise to cause
a definite sum of money to be paid to the plaintiff in New York City is a stipulation
in his favor within the meaning of the paragraph above quoted; and the
circumstances under which that promise was given disclose an evident intention on
the part of the contracting parties that the plaintiff should have the money upon
demand in New York City. The recognition of this unqualified right in the plaintiff to
receive the money implies in our opinion the right in him to maintain an action to
recover it; and indeed if the provision in question were not applicable to the facts
now before us, it would be difficult to conceive of a case arising under
it.chanroblesvirtualawlibrary chanrobles virtual law library

It will be noted that under the paragraph cited a third person seeking to enforce
compliance with a stipulation in his favor must signify his acceptance before it has
been revoked. In this case the plaintiff clearly signified his acceptance to the bank
by demanding payment; and although the Philippine National Bank had already
directed its New York agency to withhold payment when this demand was made,
the rights of the plaintiff cannot be considered to as there used, must be
understood to imply revocation by the mutual consent of the contracting parties, or
at least by direction of the party purchasing he
exchange.chanroblesvirtualawlibrary chanrobles virtual law library

In the course of the argument attention was directed to the case of

Legniti vs. Mechanics, etc. Bank (130 N.E. Rep., 597), decided by the Court of
Appeals of the State of New York on March 1, 1921, wherein it is held that, by
selling a cable transfer of funds on a foreign country in ordinary course, a bank
incurs a simple contractual obligation, and cannot be considered as holding the
money which was paid for the transfer in the character of a specific trust. Thus, it
was said, "Cable transfers, therefore, mean a method of transmitting money by
cable wherein the seller engages that he has the balance at the point on which the
payment is ordered and that on receipt of the cable directing the transfer his
correspondent at such point will make payment to the beneficiary described in the
cable. All these transaction are matters of purchase and sale create no trust
relationship." chanrobles virtual law library

As we view it there is nothing in the decision referred to decisive of the question

now before us, wish is merely that of the right of the beneficiary to maintain an
action against the bank selling the transfer.chanroblesvirtualawlibrary chanrobles
virtual law library

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.chanroblesvirtualawlibrary chanrobles virtual law library

Johnson, Araullo, Avanceña and Villamor, JJ., concur.

[G.R. No. 97753. August 10, 1992.]

CALTEX (PHILIPPINES), INC., Petitioner, v. COURT OF APPEALS and

SECURITY BANK AND TRUST COMPANY, Respondents.

Bito, Lozada, Ortega & Castillo, for Petitioners.

Nepomuceno, Hofileña & Guingona for private.

 SYLLABUS

1. COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS LAW; REQUIREMENTS FOR

NEGOTIABILITY; CERTIFICATE OF TIME DEPOSIT AS NEGOTIABLE INSTRUMENT;
CASE AT BAR. — Section 1 of Act No. 2031, otherwise known as the Negotiable
Instruments Law, enumerates the requisites for an instrument to become
negotiable, viz:" (a) It must be in writing and signed by the maker or drawer; (b)
Must contain an unconditional promise or order to pay a sum certain in money; (c)
Must be payable on demand, or at a fixed or determinable future time; (d) Must be
payable to order or to bearer; and (e) Where the instrument is addressed to a
drawee, he must be named or otherwise indicated therein with reasonable
certainty." The CTDs in question undoubtedly meet the requirements of the law for
negotiability. The parties’ bone of contention is with regard to requisite (d) set forth
above. It is noted that Mr. Timoteo P. Tiangco, Security Bank’s Branch Manager
way back in 1982, testified in open court that the depositor referred to in the CTDs
is no other than Mr. Angel de la Cruz. . . . 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.

2. ID.; ID.; DETERMINATION OF NEGOTIABILITY OR NON-NEGOTIABILITY OF

INSTRUMENT; RULES. — On this score, the accepted rule is that the negotiability or
non-negotiability of an instrument is determined from the writing, that is, from the
face of the instrument itself. In the construction of a bill or note, the intention of
the parties is to control, if it can be legally ascertained. While the writing may be
read in the light of surrounding circumstances in order to more perfectly
understand the intent and meaning of the parties, yet as they have constituted the
writing to be the only outward and visible expression of their meaning, no other
words are to be added to it or substituted in its stead. The duty of the court in such
case is to ascertain, not what the parties may have secretly intended as
contradistinguished from what their words express, but what is the meaning of the
words they have used. What the parties meant must be determined by what they
said.

3. ID.; ID.; NEGOTIATION, DEFINED; HOLDER, DEFINED; IN CASE AT BAR,

DELIVERY OF INSTRUMENT CONSTITUTED THE TRANSFEREE A MERE HOLDER FOR
VALUE BY REASON OF HIS LIEN. — Petitioner’s insistence that the CTDs were
negotiated to it begs the question. Under the Negotiable Instruments Law, an
instrument is negotiated when it is transferred from one person to another in such
a manner as to constitute the transferee the holder thereof, and a holder may be
the payee or indorsee of a bill or note, who is in possession of it, or the bearer
thereof, In the present case, however, there was no negotiation in the sense of a
transfer of the legal title to the CTDs in favor of petitioner in which situation, for
obvious reasons, mere delivery of the bearer CTDs would have sufficed. Here, the
delivery thereof only as security for the purchases of Angel de la Cruz (and we even
disregard the fact that the amount involved was not disclosed) could at the most
constitute petitioner only as a holder for value by reason of his lien. Accordingly, a
negotiation for such purpose cannot be effected by mere delivery of the instrument
since, necessarily, the terms thereof and the subsequent disposition of such
security, in the event of non-payment of the principal obligation, must be
contractually provided for. The pertinent law on this point is that where the holder
has a lien on the instrument arising from contract, he is deemed a holder for value
to the extent of his lien.

4. ID.; CODE OF COMMERCE; RULES TO BE FOLLOWED IN CASE OF LOST

INSTRUMENT PAYABLE TO BEARER; MERELY PERMISSIVE AND NOT MANDATORY.
— A close scrutiny of the provisions of the Code of Commerce laying down the rules
to be followed in case of lost instruments payable to bearer, which it invokes, will
reveal that said provisions, even assuming their applicability to the CTDs in the
case at bar, are merely permissive and not mandatory. The very first article cited
by petitioner speaks for itself: "Art. 548. The dispossessed owner, no matter for
what cause it may be, may apply to the judge or court of competent jurisdiction,
asking that the principal, interest or dividends due or about to become due, be not
paid a third person, as well as in order to prevent the ownership of the instrument
that a duplicate be issued him." 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. The word "may" is usually permissive, not
mandatory. It is an auxiliary verb indicating liberty, opportunity, permission and
possibility.

5. CIVIL LAW; OBLIGATIONS AND CONTRACTS; INTERPRETATION OF OBSCURE

WORDS OR STIPULATIONS IN CONTRACT; SHALL NOT FAVOR THE PARTY WHO
CAUSE THE OBSCURITY; CASE AT BAR. — 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.

6. ID.; ID.; ESTOPPEL; EFFECTS; CASE AT BAR. — Any doubt as to whether the
CTDs were delivered as payment for the fuel products or as a security has been
dissipated and resolved in favor of the latter by petitioner’s own authorized and
responsible representative himself. In a letter dated November 26, 1982 addressed
to respondent Security Bank, J. Q. Aranas, Jr., Caltex Credit Manager, wrote: ". . .
These certificates of deposit were negotiated to us by Mr. Angel dela Cruz to
guarantee his purchases of fuel products" (Emphasis ours.) This admission is
conclusive upon petitioner, its protestations notwithstanding. Under the doctrine of
estoppel, an admission or representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the person relying thereon.
A party may not go back on his own acts and representations to the prejudice of
the other party who relied upon them.

7. ID.; ID.; CHARACTER OF TRANSACTION DETERMINED BY INTENTION OF THE

PARTIES. — This disquisition in Integrated Realty Corporation, Et. Al. v. Philippine
National Bank, Et. Al. is apropos: ". . . Adverting again to the Court’s
pronouncements in Lopez, supra, we quote therefrom: ‘The character of the
transaction between the parties is to be determined by their intention, regardless of
what language was used or what the form of the transfer was. If it was intended to
secure the payment of money, it must be construed as a pledge; but if there was
some other intention, it is not a pledge. However, even though a transfer, if
regarded by itself, appears to have been absolute, its object and character might
still be qualified and explained by contemporaneous writing declaring it to have
been a deposit of the property as collateral security. It has been said that a transfer
of property by the debtor to a creditor, even if sufficient on its face to make an
absolute conveyance, should be treated as a pledge if the debt continues in
existence and is not discharged by the transfer, and that accordingly the use of the
terms ordinarily importing conveyance of absolute ownership will not be given that
effect in such a transaction if they are also commonly used in pledges and
mortgages and therefore do not unqualifiedly indicate a transfer of absolute
ownership, in the absence of clear and unambiguous language or other
circumstances excluding an intent to pledge.’"

8. ID.; PLEDGE OF INCORPOREAL RIGHTS; REQUISITES; REQUIREMENT FOR

PLEDGE TO TAKE EFFECT AGAINST THIRD PERSONS; NOT OBSERVED IN CASE AT
BAR. — As such holder of collateral security, he would be a pledgee but the
requirements therefor and the effects thereof, not being provided for by the
Negotiable Instruments Law, shall be governed by the Civil Code provisions on
pledge of incorporeal rights, which inceptively provide: "Art. 2095. Incorporeal
rights, evidenced by negotiable instruments, . . . may also be pledged. The
instrument proving the right pledged shall be delivered to the creditor, and if
negotiable, must be indorsed." "Art. 2096. A pledge shall not take effect against
third persons if a description of the thing pledged and the date of the pledge do not
appear in a public instrument." Aside from the fact that the CTDs were only
delivered but not indorsed, the factual findings of respondent court quoted at the
start of this opinion show that petitioner failed to produce any document evidencing
any contract of pledge or guarantee agreement between it and Angel de la Cruz.
Consequently, the mere delivery of the CTDs did not legally vest in petitioner any
right effective against and binding upon respondent bank. The requirement under
Article 2096 aforementioned is not a mere rule of adjective law prescribing the
mode whereby proof may be made of the date of a pledge contract, but a rule of
substantive law prescribing a condition without which the execution of a pledge
contract cannot affect third persons adversely.

9. ID.; ASSIGNMENT OF INCORPOREAL RIGHTS; REQUIREMENT FOR ASSIGNMENT

TO TAKE EFFECT AGAINST THIRD PERSONS; OBSERVED IN CASE AT BAR. — The
assignment of the CTDs made by Angel de la Cruz in favor of respondent bank was
embodied in a public instrument. With regard to this other mode of transfer, the
Civil Code specifically declares: "Art. 1625. An assignment of credit, right or action
shall produce no effect as against third persons, unless it appears in a public
instrument, or the instrument is recorded in the Registry of Property in case the
assignment involves real property." Respondent bank duly complied with this
statutory requirement Contrarily, Petitioner, whether as purchaser, assignee or
lienholder of the CTDs, neither proved the amount of its credit or the extent of its
lien nor the execution of any public instrument which could affect or bind
private Respondent. Necessarily, therefore, as between petitioner and respondent
bank, the latter has definitely the better right over the CTDs in question.

10. REMEDIAL LAW; EVIDENCE; BURDEN OF PROOF AND PRESUMPTIONS;

ESTOPPEL IN PAIS; EFFECT. — In the law of evidence, whenever a party has, by his
own declaration, act, or omission, intentionally and deliberately led another to
believe a particular thing true, and to act upon such belief, he cannot, in any
litigation arising out of such declaration, act, or omission, be permitted to falsify it.

11. ID.; ID.; ID.; EVIDENCE WILLFULLY SUPPRESSED WOULD BE ADVERSE IF

PRODUCED; CASE AT BAR. — When respondent bank, as defendant in the court
below, moved for a bill of particulars therein praying, among others, that petitioner,
as plaintiff, be required to aver with sufficient definiteness or particularity (a) the
due date or dates of payment of the alleged indebtedness of Angel de la Cruz to
plaintiff and (b) whether or not it issued a receipt showing that the CTDs were
delivered to it by De la Cruz as payment of the latter’s alleged indebtedness to it,
plaintiff corporation opposed the motion. Had it produced the receipt prayed for, it
could have proved, if such truly was the fact, that the CTDs were delivered as
payment and not as security. Having opposed the motion, petitioner now labors
under the presumption that evidence willfully suppressed would be adverse if
produced.

12. ID.; CIVIL PROCEDURE; APPEALS; ISSUES NOT RAISED IN TRIAL COURT
CANNOT BE RAISED FOR THE FIRST TIME ON APPEAL; CASE AT BAR. — Pre-trial is
primarily intended to make certain that all issues necessary to the disposition of a
case are properly raised. Thus, to obviate the element of surprise, parties are
expected to disclose at a pre-trial conference all issues of law and fact which they
intend to raise at the trial, except such as may involve privileged or impeaching
matters. The determination of issues at a pre-trial conference bars the
consideration of other questions on appeal. To accept petitioner’s suggestion that
respondent bank’s supposed negligence may be considered encompassed by the
issues on its right to preterminate and receive the proceeds of the CTDs would be
tantamount to saying that petitioner could raise on appeal any issue. We agree with
private respondent that the broad ultimate issue of petitioner’s entitlement to the
proceeds of the questioned certificates can be premised on a multitude of other
legal reasons and causes of action, of which respondent bank’s supposed
negligence is only one. Hence, petitioner’s submission, if accepted, would render a
pre-trial delimitation of issues a useless exercise.

DECISION

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 private respondent bank.

The undisputed background of this case, as found by the court a quo and adopted
by respondent court, appears of record:jgc:chanrobles.com.ph

"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):chanrob1es virtual
1aw library

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

4 Mar. 82 90127 to 90146 20 80,000

5 Mar. 82 74797 to 94800 4 16,000

5 Mar. 82 89965 to 89986 22 88,000

5 Mar. 82 70147 to 90150 4 16,000

8 Mar. 82 90001 to 90020 20 80,000

9 Mar. 82 90023 to 90050 28 112,000

9 Mar. 82 89991 to 90000 10 40,000

9 Mar. 82 90251 to 90272 22 88,000

—— —————

Total 280 P1,120,000

=== =======

"2. Angel dela Cruz delivered the said certificates of time deposit (CTDs) to herein
plaintiff in connection with his purchase of fuel products from the latter (Original
Record, p. 208).

"3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo Tiangco, the
Sucat Branch Manager, that he lost all the certificates of time deposit in dispute.
Mr. Tiangco advised said depositor to execute and submit a notarized Affidavit of
Loss, as required by defendant bank’s procedure, if he desired replacement of said
lost CTDs (TSN, February 9, 1987. pp. 48-50).cralawnad

"4. On March 18, 1982, Angel dela Cruz executed and delivered to defendant bank
the required Affidavit of Loss (Defendant’s Exhibit 281). On the basis of said
affidavit of loss, 280 replacement CTDs were issued in favor of said depositor
(Defendant’s Exhibits 282-561).

"5. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan from
defendant bank in the amount of Eight Hundred Seventy Five Thousand Pesos
(P875,000.00). On the same date, said depositor executed a notarized Deed of
Assignment of Time Deposit (Exhibit 562) which stated, among others, that he
(dela Cruz) surrenders to defendant bank `full control of the indicated time
deposits from and after date of the assignment and further authorizes said bank to
pre-terminate, set-off and ‘apply the said time deposits to the payment of whatever
amount or amounts may be due’ on the loan upon its maturity (TSN, February 9,
1987, pp. 60-62).

"6. Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff Caltex
(Phils.) Inc. went to the defendant bank’s Sucat branch and presented for
verification the CTDs declared lost by Angel dela Cruz alleging that the same were
delivered to herein plaintiff `as security for purchases made with Caltex Philippines,
Inc.’ by said depositor (TSN, February 9, 1987, pp. 54-68).

"7. On November 26, 1982, defendant received a letter (Defendant’s Exhibit 563)
from herein plaintiff formally informing it of its possession of the CTDs in question
and of its decision to preterminate the same.
"8. On December 8, 1982, plaintiff was requested by herein defendant to furnish
the former ‘a copy of the document evidencing the guarantee agreement with Mr.
Angel dela Cruz’ as well as ‘the details of Mr. Angel dela Cruz’ obligations against
which’ plaintiff proposed to apply the time deposits (Defendant’s Exhibit 564).

"9. No copy of the requested documents was furnished herein defendant.

"10. Accordingly, defendant bank rejected the plaintiff’s demand and claim for
payment of the value of the CTDs in a letter dated February 7, 1983 (Defendant’s
Exhibit 566).

"11. In April 1983, the loan of Angel dela Cruz with the defendant bank matured
and fell due and on August 5, 1983, the latter set-off and applied the time deposits
in question to the payment of the matured loan (TSN, February 9, 1987, pp. 130-
131).

"12. In view of the foregoing, plaintiff filed the instant complaint, praying that
defendant bank be ordered to pay it the aggregate value of the certificates of time
deposit of P1,120,000.00 plus accrued interest and compounded interest therein at
16% per annum, moral and exemplary damages as well as attorney’s fees.

"After trial, the court a quo rendered its decision dismissing the instant complaint."
3

On appeal, as earlier stated, respondent court affirmed the lower court’s dismissal
of the complaint, hence this petition wherein petitioner faults respondent court in
ruling (1) that the subject certificates of deposit are non-negotiable despite being
clearly negotiable instruments; (2) that petitioner did not become a holder in due
course of the said certificates of deposit; and (3) in disregarding the pertinent
provisions of the Code of Commerce relating to lost instruments payable to bearer.
4

The instant petition is bereft of merit.chanrobles virtual lawlibrary

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 No. 90101

6778 Ayala Ave., Makati

Metro Manila, Philippines

SUCAT OFFICE P 4.000.00

CERTIFICATE OF DEPOSIT

Rate 16%

Date of Maturity FEB 23, 1984 FEB 22 1982, 19___

This is to Certify that BEARER has deposited in this Bank the sum of PESOS: FOUR
SECURITY BANK THOUSAND ONLY. SUCAT OFFICE P4,000 & 00 CTS Pesos,
Philippine Currency, repayable to said depositor 731 days after date, upon
presentation and surrender of this certificate, with interest at the rate of 16% per
cent per annum.

(Sgd. Illegible (Sgd. Illegible)

_______________________ ______________________

AUTHORIZED SIGNATURES" 5

______________

Respondent court ruled that the CTDs in question are non-negotiable instruments,
rationalizing as follows:jgc:chanrobles.com.ph

". . . While it may be true that the word `bearer’ appears rather boldly in the CTDs
issued, it is important to note that after the word `BEARER’ stamped on the space
provided supposedly for the name of the depositor, the words `has deposited’ a
certain amount follows. The document further provides that the amount deposited
shall be `repayable to said depositor’ on the period indicated. Therefore, the text of
the instrument(s) themselves manifest with clarity that they are payable, not to
whoever purports to be the `bearer’ but only to the specified person indicated
therein, the depositor. In effect, the appellee bank acknowledges its depositor
Angel dela Cruz as the person who made the deposit and further engages itself to
pay said depositor the amount indicated thereon at the stipulated date." 6

We disagree with these findings and conclusions, and hereby hold that the CTDs in
question are negotiable instruments. Section 1 of Act No. 2031, otherwise known as
the Negotiable Instruments Law, enumerates the requisites for an instrument to
become negotiable, viz:jgc:chanrobles.com.ph

"(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money;

(c) Must be payable on demand, or at a fixed or determinable future time;

(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be named or

otherwise indicated therein with reasonable certainty."cralaw virtua1aw library

The CTDs in question undoubtedly meet the requirements of the law for
negotiability. The parties’ bone of contention is with regard to requisite (d) set forth
above. It is noted that Mr. Timoteo P. Tiangco, Security Bank’s Branch Manager
way back in 1982, testified in open court that the depositor referred to in the CTDs
is no other than Mr. Angel de la Cruz.chanrobles virtual lawlibrary

x x x

"Atty. Calida:chanrob1es virtual 1aw library

q In other words Mr. Witness, you are saying that per books of the bank, the
depositor referred (sic) in these certificates states that it was Angel dela Cruz?
witness:chanrob1es virtual 1aw library

a Yes, your Honor, and we have the record to show that Angel dela Cruz was the
one who cause (sic) the amount.

Atty. Calida:chanrob1es virtual 1aw library

q And no other person or entity or company, Mr. Witness?

witness:chanrob1es virtual 1aw library

a None, your Honor." 7

x x x

"Atty. Calida:chanrob1es virtual 1aw library

q Mr. Witness, who is the depositor identified in all of these certificates of time
deposit insofar as the bank is concerned?

witness:chanrob1es virtual 1aw library

a Angel dela Cruz is the depositor." 8

x x x

On this score, the accepted rule is that the negotiability or non-negotiability of an

instrument is determined from the writing, that is, from the face of the instrument
itself. 9 In the construction of a bill or note, the intention of the parties is to
control, if it can be legally ascertained. 10 While the writing may be read in the
light of surrounding circumstances in order to more perfectly understand the intent
and meaning of the parties, yet as they have constituted the writing to be the only
outward and visible expression of their meaning, no other words are to be added to
it or substituted in its stead. The duty of the court in such case is to ascertain, not
what the parties may have secretly intended as contradistinguished from what their
words express, but what is the meaning of the words they have used. What the
parties meant must be determined by what they said. 11

Contrary to what respondent court held, the CTDs are negotiable instruments. The
documents provide that the amounts deposited shall be repayable to the depositor.
And who, according to the document, is the depositor? It is the "bearer." The
documents do not say that the depositor is Angel de la Cruz and that the amounts
deposited are repayable specifically to him. Rather, the amounts are to be
repayable to the bearer of the documents or, for that matter, whosoever may be
the bearer at the time of presentment.

If it was really the intention of respondent bank to pay the amount to Angel de la
Cruz only, it could have with facility so expressed that fact in clear and categorical
terms in the documents, instead of having the word "BEARER" stamped on the
space provided for the name of the depositor in each CTD. On the wordings of the
documents, therefore, the amounts deposited are repayable to whoever may be the
bearer thereof. Thus, petitioner’s aforesaid witness merely declared that Angel de la
Cruz is the depositor "insofar as the bank is concerned," but obviously other parties
not privy to the transaction between them would not be in a position to know that
the depositor is not the bearer stated in the CTDs. Hence, the situation would
require any party dealing with the CTDs to go behind the plain import of what is
written thereon to unravel the agreement of the parties thereto through facts
aliunde. This need for resort to extrinsic evidence is what is sought to be avoided
by the Negotiable Instruments Law and calls for the application of the elementary
rule that the interpretation of obscure words or stipulations in a contract shall not
favor the party who caused the obscurity. 12

The next query is whether petitioner can rightfully recover on the CTDs. This time,
the answer is in the negative. The records reveal that Angel de la Cruz, whom
petitioner chose not to implead in this suit for reasons of its own, delivered the
CTDs amounting to P1,120,000.00 to petitioner without informing respondent bank
thereof at any time. Unfortunately for petitioner, although the CTDs are bearer
instruments, a valid negotiation thereof for the true purpose and agreement
between it and De la Cruz, as ultimately ascertained, requires both delivery and
indorsement. For, although petitioner seeks to deflect this fact, the CTDs were in
reality delivered to it as a security for De la Cruz’ purchases of its fuel products.
Any doubt as to whether the CTDs were delivered as payment for the fuel products
or as a security has been dissipated and resolved in favor of the latter by
petitioner’s own authorized and responsible representative himself.cralawnad

In a letter dated November 26, 1982 addressed to respondent Security Bank, J. Q.

Aranas, Jr., Caltex Credit Manager, wrote: ". . . These certificates of deposit were
negotiated to us by Mr. Angel dela Cruz to guarantee his purchases of fuel
products" (Underscoring ours.) 13 This admission is conclusive upon petitioner, its
protestations notwithstanding. Under the doctrine of estoppel, an admission or
representation is rendered conclusive upon the person making it, and cannot be
denied or disproved as against the person relying thereon. 14 A party may not go
back on his own acts and representations to the prejudice of the other party who
relied upon them. 15 In the law of evidence, whenever a party has, by his own
declaration, act, or omission, intentionally and deliberately led another to believe a
particular thing true, and to act upon such belief, he cannot, in any litigation arising
out of such declaration, act, or omission, be permitted to falsify it. 16

If it were true that the CTDs were delivered as payment and not as security,
petitioner’s credit manager could have easily said so, instead of using the words "to
guarantee" in the letter aforequoted. Besides, when respondent bank, as defendant
in the court below, moved for a bill of particulars therein 17 praying, among others,
that petitioner, as plaintiff, be required to aver with sufficient definiteness or
particularity (a) the due date or dates of payment of the alleged indebtedness of
Angel de la Cruz to plaintiff and (b) whether or not it issued a receipt showing that
the CTDs were delivered to it by De la Cruz as payment of the latter’s alleged
indebtedness to it, plaintiff corporation opposed the motion. 18 Had it produced the
receipt prayed for, it could have proved, if such truly was the fact, that the CTDs
were delivered as payment and not as security. Having opposed the motion,
petitioner now labors under the presumption that evidence willfully suppressed
would be adverse if produced. 19

Under the foregoing circumstances, this disquisition in Integrated Realty

Corporation, Et. Al. v. Philippine National Bank, Et. Al. 20 is
apropos:jgc:chanrobles.com.ph

". . . Adverting again to the Court’s pronouncements in Lopez, supra, we quote

therefrom:chanrob1es virtual 1aw library

‘The character of the transaction between the parties is to be determined by their

intention, regardless of what language was used or what the form of the transfer
was. If it was intended to secure the payment of money, it must be construed as a
pledge; but if there was some other intention, it is not a pledge. However, even
though a transfer, if regarded by itself, appears to have been absolute, its object
and character might still be qualified and explained by contemporaneous writing
declaring it to have been a deposit of the property as collateral security. It has been
said that a transfer of property by the debtor to a creditor, even if sufficient on its
face to make an absolute conveyance, should be treated as a pledge if the debt
continues in existence and is not discharged by the transfer, and that accordingly
the use of the terms ordinarily importing conveyance of absolute ownership will not
be given that effect in such a transaction if they are also commonly used in pledges
and mortgages and therefore do not unqualifiedly indicate a transfer of absolute
ownership, in the absence of clear and unambiguous language or other
circumstances excluding an intent to pledge.’"

Petitioner’s insistence that the CTDs were negotiated to it begs the question. Under
the Negotiable Instruments Law, an instrument is negotiated when it is transferred
from one person to another in such a manner as to constitute the transferee the
holder thereof, 21 and a holder may be the payee or indorsee of a bill or note, who
is in possession of it, or the bearer thereof, 22 In the present case, however, there
was no negotiation in the sense of a transfer of the legal title to the CTDs in favor
of petitioner in which situation, for obvious reasons, mere delivery of the bearer
CTDs would have sufficed. Here, the delivery thereof only as security for the
purchases of Angel de la Cruz (and we even disregard the fact that the amount
involved was not disclosed) could at the most constitute petitioner only as a holder
for value by reason of his lien. Accordingly, a negotiation for such purpose cannot
be effected by mere delivery of the instrument since, necessarily, the terms thereof
and the subsequent disposition of such security, in the event of non-payment of the
principal obligation, must be contractually provided for.

The pertinent law on this point is that where the holder has a lien on the instrument
arising from contract, he is deemed a holder for value to the extent of his lien. 23
As such holder of collateral security, he would be a pledgee but the requirements
therefor and the effects thereof, not being provided for by the Negotiable
Instruments Law, shall be governed by the Civil Code provisions on pledge of
incorporeal rights, 24 which inceptively provide:jgc:chanrobles.com.ph

"Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may also

be pledged. The instrument proving the right pledged shall be delivered to the
creditor, and if negotiable, must be indorsed."cralaw virtua1aw library

"Art. 2096. A pledge shall not take effect against third persons if a description of
the thing pledged and the date of the pledge do not appear in a public
instrument."cralaw virtua1aw library

Aside from the fact that the CTDs were only delivered but not indorsed, the factual
findings of respondent court quoted at the start of this opinion show that petitioner
failed to produce any document evidencing any contract of pledge or guarantee
agreement between it and Angel de la Cruz. 25 Consequently, the mere delivery of
the CTDs did not legally vest in petitioner any right effective against and binding
upon respondent bank. The requirement under Article 2096 aforementioned is not a
mere rule of adjective law prescribing the mode whereby proof may be made of the
date of a pledge contract, but a rule of substantive law prescribing a condition
without which the execution of a pledge contract cannot affect third persons
adversely. 26

On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor
of respondent bank was embodied in a public instrument. 27 With regard to this
other mode of transfer, the Civil Code specifically declares:jgc:chanrobles.com.ph

"Art. 1625. An assignment of credit, right or action shall produce no effect as

against third persons, unless it appears in a public instrument, or the instrument is
recorded in the Registry of Property in case the assignment involves real
property."cralaw virtua1aw library
Respondent bank duly complied with this statutory requirement
Contrarily, Petitioner, whether as purchaser, assignee or lienholder of the CTDs,
neither proved the amount of its credit or the extent of its lien nor the execution of
any public instrument which could affect or bind private Respondent. Necessarily,
therefore, as between petitioner and respondent bank, the latter has definitely the
better right over the CTDs in question.chanrobles.com:cralaw:red

Finally, petitioner faults respondent court for refusing to delve into the question of
whether or not private respondent observed the requirements of the law in the case
of lost negotiable instruments and the issuance of replacement certificates therefor,
on the ground that petitioner failed to raise that issue in the lower court. 28

On this matter, we uphold respondent court’s finding that the aspect of alleged
negligence of private respondent was not included in the stipulation of the parties
and in the statement of issues submitted by them to the trial court. 29 The issues
agreed upon by them for resolution in this case are:jgc:chanrobles.com.ph

"1. Whether or not the CTDs as worded are negotiable instruments.

2. Whether or not defendant could legally apply the amount covered by the CTDs
against the depositor’s loan by virtue of the assignment (Annex ‘C’).

3. Whether or not there was legal compensation or set off involving the amount
covered by the CTDs and the depositor’s outstanding account with defendant, if
any.

4. Whether or not plaintiff could compel defendant to preterminate the CTDs before
the maturity date provided therein.

5. Whether or not plaintiff is entitled to the proceeds of the CTDs.

6. Whether or not the parties can recover damages, attorney’s fees and litigation
expenses from each other."cralaw virtua1aw library

As respondent court correctly observed, with appropriate citation of some doctrinal

authorities, the foregoing enumeration does not include the issue of negligence on
the part of respondent bank. An issue raised for the first time on appeal and not
raised timely in the proceedings in the lower court is barred by estoppel. 30
Questions raised on appeal must be within the issues framed by the parties and,
consequently, issues not raised in the trial court cannot be raised for the first time
on appeal. 31

Pre-trial is primarily intended to make certain that all issues necessary to the
disposition of a case are properly raised. Thus, to obviate the element of surprise,
parties are expected to disclose at a pre-trial conference all issues of law and fact
which they intend to raise at the trial, except such as may involve privileged or
impeaching matters. The determination of issues at a pre-trial conference bars the
consideration of other questions on appeal. 32
To accept petitioner’s suggestion that respondent bank’s supposed negligence may
be considered encompassed by the issues on its right to preterminate and receive
the proceeds of the CTDs would be tantamount to saying that petitioner could raise
on appeal any issue. We agree with private respondent that the broad ultimate
issue of petitioner’s entitlement to the proceeds of the questioned certificates can
be premised on a multitude of other legal reasons and causes of action, of which
respondent bank’s supposed negligence is only one. Hence, petitioner’s submission,
if accepted, would render a pre-trial delimitation of issues a useless exercise. 33

Still, even assuming arguendo that said issue of negligence was raised in the court
below, petitioner still cannot have the odds in its favor. A close scrutiny of the
provisions of the Code of Commerce laying down the rules to be followed in case of
lost instruments payable to bearer, which it invokes, will reveal that said provisions,
even assuming their applicability to the CTDs in the case at bar, are merely
permissive and not mandatory. The very first article cited by petitioner speaks for
itself:jgc:chanrobles.com.ph

"Art. 548. The dispossessed owner, no matter for what cause it may be, may apply
to the judge or court of competent jurisdiction, asking that the principal, interest or
dividends due or about to become due, be not paid a third person, as well as in
order to prevent the ownership of the instrument that a duplicate be issued him."
(Emphases ours.)

x x x

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.chanrobles
virtualawlibrary chanrobles.com:chanrobles.com.ph

WHEREFORE, on the modified premises above set forth, the petition is DENIED and
the appealed decision is hereby AFFIRMED.
SO ORDERED.