1. G.R. No.

141278 March 23, 2004

MICHAEL A. OSMEÑA, petitioner,

vs.
CITIBANK, N.A., ASSOCIATED BANK and FRANK TAN, respondents.

DECISION

CALLEJO, SR., J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court, as amended, of
the Decision1 of the Court of Appeals in CA-G.R. CV No. 49529 which affirmed in toto the
Decision2 of the Regional Trial Court of Makati City, Branch 38, in Civil Case No. 91-538.

As culled from the records, the appeal at bench stemmed from the following factual backdrop:

On February 22, 1991, the petitioner filed with the Regional Trial Court of Makati an action for
damages against the respondents Citibank, N.A. and Associated Bank. 3 The case was docketed
as Civil Case No. 91-538. The complaint materially alleged that, on or about August 25, 1989,
the petitioner purchased from the Citibank Manager’s Check No. 20-015301 (the check for
brevity) in the amount of P1,545,000 payable to respondent Frank Tan; the petitioner later
received information that the aforesaid manager’s check was deposited with the respondent
Associated Bank, Rosario Branch, to the account of a certain Julius Dizon under Savings Account
No. 19877; the clearing and/or payment by the respondents of the check to an improper party
and the absence of any indorsement by the payee thereof, respondent Frank Tan, is a clear
violation of the respondents’ obligations under the Negotiable Instruments Law and standard
banking practice; considering that the petitioner’s intended payee for the check, the
respondent Frank Tan, did not receive the value thereof, the petitioner demanded from the
respondents Citibank and the Associated Bank the payment or reimbursement of the value of
the check; the respondents, however, obstinately refused to heed his repeated demands for
payment and/or reimbursement of the amount of the check; hence, the petitioner was
compelled to file this complaint praying for the restitution of the amount of the check, and for
moral damages and attorney’s fees.

On June 17, 1991, the petitioner, with leave of court, filed an Amended Complaint 4 impleading
Frank Tan as an additional defendant. The petitioner averred therein that the check was
purchased by him as a demand loan to respondent Frank Tan. Since apparently respondent
Frank Tan did not receive the proceeds of the check, the petitioner might have no right to
collect from respondent Frank Tan and is consequently left with no recourse but to seek
payment or reimbursement from either or both respondents Citibank and/or Associated Bank.

In its answer to the amended complaint,5 the respondent Associated Bank alleged that the
petitioner was not the real party-in-interest but respondent Frank Tan who was the payee of
the check. The respondent also maintained that the check was deposited to the account of
respondent Frank Tan, a.k.a. Julius Dizon, through its Ayala Head Office and was credited to the
savings account of Julius Dizon; the Ayala office confirmed with the Rosario Branch that the
account of Julius Dizon is also in reality that of respondent Frank Tan; it never committed any
violation of its duties and responsibilities as the proceeds of the check went and was credited to
respondent Frank Tan, a.k.a. Julius Dizon; the petitioner’s affirmative allegation of non-payment
to the payee is self-serving; as such, the petitioner’s claim for damages is baseless, unfounded
and without legal basis.

On the other hand, the respondent Citibank, in answer to the amended complaint,6 alleged that
the payment of the check was made by it in due course and in the exercise of its regular
banking function. Since a manager’s check is normally purchased in favor of a third party, the
identity of whom in most cases is unknown to the issuing bank, its only responsibility when
paying the check was to examine the genuineness of the check. It had no way of ascertaining
the genuineness of the signature of the payee respondent Frank Tan who was a total stranger
to it. If at all, the petitioner had a cause of action only against the respondent Associated Bank
which, as depository or collecting bank, was obliged to make sure that the check in question
was properly endorsed by the payee. It is not expected of the respondent Citibank to ascertain
the genuineness of the indorsement of the payee or even the lack of indorsement by him, most
especially when the check was presented for payment with the respondent Associated Bank’s
guaranteeing all prior indorsements or lack thereof.

On March 16, 1992, the trial court declared Frank Tan in default for failure to file his
answer.7 On June 10, 1992, the pre-trial conference was concluded without the parties reaching
an amicable settlement.8 Hence, trial on the merits ensued.

After evaluating the evidence adduced by the parties, the trial court resolved that the
preponderance of evidence supports the claim of the petitioner as against respondent Frank
Tan only but not against respondents Banks. Hence, on February 21, 1995, the trial court
rendered judgment in favor of the petitioner and against respondent Frank Tan. The complaints
against the respondents Banks were dismissed. The dispositive portion of the decision reads:

WHEREFORE, judgment is hereby rendered as follows :

1. Ordering defendant Frank Tan to pay plaintiff Michael Osmeña the amount of One
Million Five Hundred Forty-Five Thousand (P1,545,000.00) Pesos, Philippine Currency,
with interest thereon at 12% per annum from January 1990, date of extra-judicial
demand until the full amount is paid;

2. Dismissing the complaint against defendants Citibank and Associated Bank;

3. Dismissing the counter-claims and the cross-claim of Citibank against Associated Bank
for lack of merit.

With costs against defendant Frank Tan.9

The petitioner appealed the decision,10 while respondent Frank Tan did not. On November 26,
1999, the appellate court rendered judgment affirming in toto the decision of the trial court.
Aggrieved, the petitioner assailed the decision in his petition at bar.

The petitioner contends that:

I. RESPONDENT COURT ERRED IN NOT HOLDING CITIBANK AND ASSOCIATED BANK

LIABLE TO PETITIONER FOR THE ENCASHMENT OF CITIBANK MANAGER’S CHECK NO.
20015301 BY JULIUS DIZON.

II. RESPONDENT COURT ERRED IN HOLDING THAT FRANK TAN AND JULIUS DIZON ARE
ONE AND THE SAME PERSON.

III. THE IDENTITY OF FRANK TAN AS JULIUS DIZON WAS KNOWN ONLY TO ASSOCIATED
BANK AND WAS NOT BINDING ON PETITIONER.11

The petition is denied.

The petitioner asserts that the check was payable to the order of respondent Tan. However, the
respondent Associated Bank ordered the check to be deposited to the account of one Julius
Dizon, although the check was not endorsed by respondent Tan. As Julius Dizon was not a
holder of the check in due course, he could not validly negotiate the check. The latter was not
even a transferee in due course because respondent Tan, the payee, did not endorse the said
check. The position of the respondent Bank is akin to that of a bank accepting a check for
deposit wherein the signature of the payee or endorsee has been forged.

The contention of the petitioner does not hold water.

The fact of the matter is that the check was endorsed by "Julius Dizon" and was deposited and
credited to Savings Account No. 19877 with the respondent Associated Bank. But the evidence
on record shows that the said account was in the name of Frank Tan Guan Leng, which is the
Chinese name of the respondent Frank Tan, who also uses the alias "Julius Dizon." As correctly
ruled by the Court of Appeals:

On the other hand, Associated satisfactorily proved that Tan is using and is also known
by his alias of Julius Dizon. He signed the Agreement On Bills Purchased (Exh. "1")
and Continuing Suretyship Agreement (Exh. "2) both acknowledged on January 16, 1989,
where his full name is stated to be "FRANK Tan Guan Leng (aka JULIUS DIZON)." Exh. "1"
also refers to his "Account No. SA#19877," the very same account to which the
P1,545,000.00 from the manager’s check was deposited. Osmeña countered that such
use of an alias is illegal. That is but an irrelevant casuistry that does not detract from the
fact that the payee Tan as Julius Dizon has encashed and deposited the P1,545,000.00.12
The respondent Associated Bank presented preponderant evidence to support its assertion that
respondent Tan, the payee of the check, did receive the proceeds of the check. It adduced
evidence that "Julius Dizon" and "Frank Tan" are one and the same person. Respondent Tan
was a regular and trusted client or depositor of the respondent Associated Bank in its branch at
Rosario, Binondo, Manila. As such, respondent Tan was allowed to maintain two (2) savings
accounts therein.13 The first is Savings Account No. 20161-3 under his name "Frank Tan."14 The
other is Savings Account No. 19877 under his assumed Filipino name "Julius Dizon," 15 to which
account the check was deposited in the instant case. Both witnesses for the respondent
Associated Bank, Oscar Luna (signature verifier) and Luz Lagrimas (new accounts clerk), testified
that respondent Tan was using the alias "Julius Dizon," and that both names referred to one
and the same person, as Frank Tan himself regularly transacted business at the bank under
both names.16 This is also evidenced by the "Agreement on Bills Purchased"17 and the
"Continuing Suretyship Agreement"18 executed between Frank Tan and the respondent
Associated Bank on January 16, 1989. Frank Tan’s name appears in said document as "FRANK
TAN GUAN LENG (a.k.a. JULIUS DIZON).19 The same documentary evidence also made reference
to Savings Account No. 19877,20 the very same account to which the check was deposited and
the entire P1,545,000 was credited. Additionally, Citibank Check No. 07571321 which was
presented by the petitioner to prove one of the loans previously extended to respondent Tan
showed that the endorsement of respondent Tan at the dorsal side thereof22 is strikingly similar
to the signatures of "Frank Tan" appearing in said agreements.

By seeking to recover the loan from respondent Tan, the petitioner admitted that respondent
Tan received the amount of the check. This apprehension was not without any basis at all, for
after the petitioner attempted to communicate with respondent Tan on January or February
1990, demanding payment for the loan, respondent Tan became elusive of the petitioner. 23 As a
matter of fact, respondent Tan did not file his answer to the amended complaint and was never
seen or heard of by the petitioner.24 Besides, if it were really a fact that respondent Tan did not
receive the proceeds of the check, he could himself have initiated the instant complaint against
respondents Banks, or in the remotest possibility, joined the petitioner in pursuing the instant
claim.

The petitioner initially sought to recover from the respondents Banks the amount of P1,545,000
corresponding to the loan obtained by respondent Tan from him, obviously because
respondent Tan had no intent to pay the amount. The petitioner alleges that the respondents
Banks were negligent in paying the amount to a certain Julius Dizon, in relation to the pertinent
provisions of the Negotiable Instruments Law, without the proper indorsement of the payee,
Frank Tan. The petitioner cites the ruling of the Court in Associated Bank v. Court of
Appeals,25 in which we outlined the respective responsibilities and liabilities of a drawee bank,
such as the respondent Citibank, and a collecting bank, such as the defendant Associated Bank,
in the event that payment of a check to a person not designated as the payee, or who is not a
holder in due course, had been made. However, the ruling of the Court therein does not apply
to the present case for, as has been amply demonstrated, the petitioner failed to establish that
the proceeds of the check was indeed wrongfully paid by the respondents Banks to a person
other than the intended payee. In addition, the Negotiable Instruments Law was enacted for
the purpose of facilitating, not hindering or hampering transactions in commercial paper. Thus,
the said statute should not be tampered with haphazardly or lightly. Nor should it be brushed
aside in order to meet the necessities in a single case. 26

Moreover, the chain of events following the purported delivery of the check to respondent Tan
renders even more dubious the petitioner’s claim that respondent Tan had not received the
proceeds of the check. Thus, the petitioner never bothered to find out from the said
respondent whether the latter received the check from his messenger. And if it were to be
supposed that respondent Tan did not receive the check, given that his need for the money was
urgent, it strains credulity that respondent Tan never even made an effort to get in touch with
the petitioner to inform the latter that he did not receive the check as agreed upon, and to
inquire why the check had not been delivered to him. The petitioner and respondent Tan saw
each other during social gatherings but they never took the chance to discuss details on the
loan or the check.27 Their actuations are not those to be usually expected of friends of 15 years
who, as the petitioner would want to impress upon this Court, were transacting business on the
basis of confidence.28 In fact, the first time that the petitioner attempted to communicate with
respondent Tan was on January or February 1990, almost five or six months after the expected
delivery of the check, for the purpose of demanding payment for the loan. And it was only on
that occasion that respondent Tan, as the petitioner insinuates, informed him that he (Frank
Tan) had not received the proceeds of the check and refused to pay his loan. 29 All told, the
petitioner’s allegation that respondent Tan did not receive the proceeds of the check30 is belied
by the evidence on record and attendant circumstances.

Conversely, the records would disclose that even the petitioner himself had misgivings about
the truthfulness of his allegation that respondent Tan did not receive the amount of the check.
This is made implicit by respondent Tan’s being made a party-defendant to the case when the
petitioner filed his amended complaint. In his memorandum in the case below, the petitioner
averred inter alia that:

The amount of P1,545,000.00 is sought to be recovered from:

1. Frank Tan for his failure to pay the loan extended by plaintiff; and

2. Associated Bank and Citibank for having accepted for deposit and/or paid the Citibank
manager’s check despite the absence of any signature/endorsement by the named
payee, Frank Tan.

The claim of the petitioner that respondent Tan’s use of an alias is illegal does not detract a
whit from the fact that respondent Tan had been credited by the respondent Associated Bank
for the amount of the check. Respondent Tan did not appeal the decision of the RTC.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The Decision dated November 26,
1999 of the Court of Appeals in CA-G.R. CV No. 49529 is hereby AFFIRMED. Costs against the
petitioner.
 2. G.R. No. 120639 September 25, 1998

BPI EXPRESS CARD CORPORATION, petitioner,

vs.
COURT OF APPEALS and RICARDO J. MARASIGAN, respondents.

KAPUNAN, J.:

The question before this Court is whether private respondent can recover moral damages
arising from the cancellation of his credit card by petitioner credit card corporation.

The facts of the case are as stated in the decision of the respondent court, 1 to wit:

The case arose from the dishonor of the credit card of the plaintiff Atty. Ricardo
J. Marasigan by Café Adriatico, a business establishment accredited with the
defendant-appellate BPI Express Card Corporation (BECC for brevity), on
December 8, 1989 when the plaintiff entertained some guests thereat.

The records of this case show that plaintiff, who is a lawyer by profession, was a
complimentary member of BECC from February 1988 to February 1989 and was
issued Credit Card No. 100-012-5534 with a credit limit of P3,000.00 and with a
monthly billing every 27th of the month (Exh. N), subject to the terms and
conditions stipulated in the contract (Exh. 1-b). His membership was renewed for
another year or until February 1990 and the credit limit was increased to
P5,000.00 (Exh. A). The plaintiffs oftentimes exceeded his credit limits (Exhs. I, I-1
to I-12) but this was never taken against him by the defendant and even his
mode of paying his monthly bills in check was tolerated. Their contractual
relations went on smoothly until his statement of account for October 1989
amounting to P8,987.84 was not paid in due time. The plaintiff admitted having
inadvertently failed to pay his account for the said month because he was in
Quezon province attending to some professional and personal commitments. He
was informed by his secretary that defendant was demanding immediate
payment of his outstanding account, was requiring him to issue a check for
P15,000.00 which would include his future bills, and was threatening to suspend
his credit card. Plaintiff issued Far East Bank and Trust Co. Check No. 494675 in
the amount of P15,000.00, postdated December 15, 1989 which was received on
November 23, 1989 by Tess Lorenzo, an employee of the defendant (Exhs. J and
J-1), who in turn gave the said check to Jeng Angeles, a co-employee who
handles the account of the plaintiff. The check remained in the custody of Jeng
Angeles. Mr. Roberto Maniquiz, head of the collection department of defendant
was formally informed of the postdated check about a week later. On November
28, 2989, defendant served plaintiff a letter by ordinary mail informing him of
the temporary suspension of the privileges of his credit card and the inclusion of
his account number in their Caution List. He was also told to refrain from further
use of his credit card to avoid any inconvenience/embarrassment and that unless
he settles his outstanding account with the defendant within 5 days from receipt
of the letter, his membership will be permanently cancelled (Exh. 3). There is no
showing that the plaintiff received this letter before December 8, 1989.
Confidential that he had settled his account with the issuance of the postdated
check, plaintiff invited some guests on December 8, 1989 and entertained them
at Café Adriatico. When he presented his credit card to Café Adriatico for the bill
amounting to P735.32, said card was dishonored. One of his guests, Mary Ellen
Ringler, paid the bill by using her own credit card a Unibankard (Exhs. M, M-1
and M-2).

In a letter addressed to the defendant dated December 12, 1989, plaintiff

requested that he be sent the exact billing due him as of December 15, 1989, to
withhold the deposit of his postdated check and that said check be returned to
him because he had already instructed his bank to stop the payment thereof as
the defendant violated their agreement that the plaintiff issue the check to the
defendant to cover his account amounting to only P8,987.84 on the condition
that the defendant will not suspend the effectivity of the card (Exh. D). A letter
dated December 16, 1989 was sent by the plaintiff to the manager of FEBTC,
Ramada Branch, Manila requesting the bank to stop the payment of the check
(Exhs. E, E-1). No reply was received by plaintiff from the defendant to his letter
dated December 12, 1989. Plaintiff sent defendant another letter dated March
12, 1990 reminding the latter that he had long rescinded and cancelled whatever
arrangement he entered into with defendant and requesting for his correct
billing, less the improper charges and penalties, and for an explanation within
five (5) days from receipt thereof why his card was dishonored on December 8,
1989 despite assurance to the contrary by defendant's personnel-in-charge,
otherwise the necessary court action shall be filed to hold defendant responsible
for the humiliation and embarrassment suffered by him (Exh. F). Plaintiff alleged
further that after a few days, a certain Atty. Albano, representing himself to be
working with the office of Atty. Lopez, called him inquiring as to how the matter
can be threshed out extrajudicially but the latter said that such is a serious
matter cannot be discussed over the phone. The defendant served its final
demand to the plaintiff dated March 21, 1990 requiring him to pay in full his
overdue account, including stipulated fees and charges, within 5 days from
receipt thereof or face court action and also to replace the postdated check with
cash within the same period or face criminal suit for violation of Bouncing Check
Law (Exh. G/Exh. 13). The plaintiff in a reply letter dated April 5, 1990 (Exh. H),
demanded defendant's compliance with his request in his first letter dated
March 12, 1990 within three (3) days from receipt, otherwise the plaintiff will file
a case against them, . . . .2
Thus, on May 7, 1990 private respondent filed a complaint for damages against petitioner
before the Regional Trial Court of Makati, Branch 150, docketed as Civil Case No. 90-1174.

After trial the trial court ruled for private respondent, finding that herein petitioner abused its
right in contravention of Article 19 of the Civil Code. 3 The dispositive portion of the decision
reads:

Wherefore, judgment is hereby rendered ordering the defendant to pay plaintiff

the following:

1. P 100,000.00 as moral damages;

2. P 50,000.00 as exemplary damages; and

3. P 20,000.00 by way of attorney's fees.

On the other hand, plaintiff is ordered to pay defendant its outstanding

obligation in the amount of P14,439.41, amount due as of December 15, 1989. 4

The trial court's ruling was based on its findings and conclusions, to wit:

There is no question that plaintiff had been in default in the payment of his
billings for more than two months, prompting defendant to call him and
reminded him of his obligation. Unable to personally talk with him, this Court is
convinced that somehow one or another employee of defendant called him up
more that once.

However, while it is true that as indicated in the terms and conditions of the
application for BPI credit card upon failure of the cardholder to pay his
outstanding obligation for more that thirty (30) days, the defendant can
automatically suspend or cancel the credit card, that reserved right should not
have been abused as it was in fact abused, in plaintiff's case. What is more
peculiar here is that there have been admitted communications between
plaintiff and defendant prior to the suspension or cancellation of plaintiff's credit
card and his inclusion in the cautions list. However, nowhere in any of these
communications was there ever a hint given to plaintiff that his card had already
been suspended or cancelled. In fact, the Court observed that while defendant
was trying its best to persuade plaintiff to update its account and pay its
obligation, it had already taken steps to suspend/cancel plaintiff's card and
include him in the caution list. While the Court admires defendant's diplomacy in
dealing with its clients, it cannot help but frown upon the backhanded way
defendant deal with plaintiff's case. For despite Tess Lorenzo's denial, there is
reason to believe that plaintiff was indeed assured by defendant of the
continued honoring of his credit card so long as he pays his obligation of
P15,000.00. Worst, upon receipt of the postdated check, defendant kept the
same until a few days before it became due and said check was presented to the
head of the collection department, Mr. Maniquiz, to take steps thereon,
resulting to the embarrassing situations plaintiff found himself in on December
8, 1989. Moreover, Mr. Maniquiz himself admitted that his request for plaintiff
to replace the check with cash was not because it was a postdated check but
merely to tally the payment with the account due.

Likewise, the Court is not persuaded by the sweeping denials made by Tess
Lorenzo and her claim that her only participation was to receive the subject
check. Her immediate superior, Mr. Maniquiz testified that he had instructed
Lorenzo to communicate with plaintiff once or twice to request the latter to
replace the questioned check with cash, thus giving support to the testimony of
plaintiff's witness, Dolores Quizon, that it was one Tess Lorenzo whom she had
talked over the phone regarding plaintiff's account and plaintiff's own statement
that it was this woman who assured him that his card has not yet been and will
not be cancelled/suspended if he would pay defendant the sum of P15,000.00.

Now, on the issue of whether or not upon receipt of the subject check defendant
had agreed that the card shall remain effective the Court takes note of the
following:

1. An employee of defendant corporation unconditionally accepted the subject

check upon its delivery despite its being a postdated one; and the amount did
not tally with plaintiff's obligation;

2. Defendant did not deny nor controvert plaintiff's claim that all of his payments
were made in checks;

3. Defendant's main witness, Mr. Maniquiz, categorically stated that the request
for plaintiff to replace his postdated check with a cash was merely for the
purpose of tallying plaintiff's outstanding obligation with his payment and not to
question the postdated check;

4. That the card was suspended almost a week after receipt of the postdated
check;

5. That despite the many instances that defendant could have informed plaintiff
over the phone of the cancellation or suspension of his credit card, it did not do
so, which could have prevented the incident of December 8, 1989, the notice
allegedly sent thru ordinary mail is not only unreliable but takes a long time.
Such action as suspension of credit card must be immediately relayed to the
person affected so as to avoid embarrassing situations.
 6. And that the postdated check was deposited on December 20, 1989.

In view of the foregoing observations, it is needless to say that there was indeed
an arrangement between plaintiff and the defendant, as can be inferred from
the acts of the defendant's employees, that the subject credit card is still good
and could still be used by the plaintiff as it would be honored by the duly
accredited establishment of defendant.

Not satisfied with the Regional Trial Court's decision, petitioner appealed to the Court of
Appeals, which in a decision promulgated on March 9, 1995 ruled in its dispositive portion.

WHEREFORE, premises considered the decision appealed from is hereby

AFFIRMED with the MODIFICATION that the defendant-appellant shall pay the
plaintiff-appellee the following: P50,000.00 as moral damages: P25,000.00 as
exemplary damages; and P10,000.00 by way of attorney's fees.

SO ORDERED. 6

Hence, the present petition on the following assignment of errors:

THE LOWER COURT ERRED IN DECLARING THAT THERE WAS INDEED AN

AGREEMENT OR ARRANGEMENT ENTERED INTO BETWEEN THE PARTIES
WHEREIN THE DEFENDANT REQUIRED THE PLAINTIFF TO ISSUE A POSTDATED
CHECK IN ITS FAVOR IN THE AMOUNT OF P15,000.00 AS PAYMENT FOR HIS
OVERDUE ACCOUNTS, WITH THE CONDITION THAT THE PLAINTIFF'S CREDIT
CARD WILL NOT BE SUSPENDED OR CANCELLED.

II

THE LOWER COURT ERRED IN HOLDING DEFENDANT LIABLE FOR DAMAGES AND
ATTORNEY'S FEES ARISING OUT FROM THE DISHONOR OF THE PLAINTIFF'S
CREDIT CARD. 7

We find the petition meritorious.

The first issue to be resolved is whether petitioner had the right to suspend the credit card of
the private respondent.

Under the terms and conditions of the credit card, signed by the private respondent, any card
with outstanding balances after thirty (30) days from original billing/statement shall
automatically be suspended, thus:
PAYMENT OF CHARGES — BECC shall furnish the Cardholder a monthly
statement of account made through the use of the CARD and the Cardholder
agrees that all charges made through the use of the CARD shall be paid by the
Cardholder on or before the last day for payment, which is twenty (20) days from
the date of the said statement of account; and such payment due date may be
changed to an earlier date if the Cardholder's account is considered overdue
and/or with balances in excess of the approved credit limit; or to such other date
as may be deemed proper by the CARD issuer with notice to the Cardholder on
the same monthly statement of account. If the last day for payment falls on a
Saturday, Sunday or Holiday, the last day for payment automatically becomes
the last working day prior to the said payment date. However, notwithstanding
the absence or lack of proof of service of the statement of charges to the
Cardholder, the latter shall pay any or all charges made through the use of the
CARD within thirty (30) days from the date or dates thereof. Failure of
Cardholder to pay any and all charges made through the CARD within the
payment period as stated in the statement of charges or with in thirty (30) days
from actual date or dates whichever occur earlier, shall render him in default
without the necessity of demand from BECC, which the Cardholder expressly
waives. These charges or balance thereof remaining unpaid after the payment
due date indicated on the monthly statement of account shall bear interest of
3% per month and an additional penalty fee equivalent to another 3% of the
amount due for every month or a fraction of a month's delay. PROVIDED, that if
there occurs any changes on the prevailing market rates BECC shall have the
option to adjust the rate of interest and/or penalty fee due on the outstanding
obligation with prior notice to the Cardholder.

xxx xxx xxx

Any CARD with outstanding balances unpaid after thirty (30) days from original
billing/statement date shall automatically be suspended and those with accounts
unpaid after sixty (60) days from said original billing/statement date shall
automatically be cancelled without prejudice to BECC's right to suspend or cancel
any CARD any time and for whatever reason. In case of default in his obligation
as provided for in the preceding paragraph, Cardholder shall surrender his CARD
to BECC and shall in addition to the interest and penalty charges
aforementioned, pay the following liquidated damages and/or fees (a) a
collection fee of 25% of the amount due if the account is referred to a collection
agency or attorney; (b) a service fee of P100 for every dishonored check issued
by the Cardholder's in payment of his account, without prejudice; however to
BECC's right of considering Cardholder's obligation unpaid; cable cost for
demanding payment or advising cancellation of membership shall also be for
Cardholder's account; and (c) a final fee equivalent to 25% of the unpaid balance,
exclusive of litigation expenses and judicial costs, if the payment of the account
is enforced through court action. 8
The aforequoted provision of the card cannot be any clearer. By his own admission private
respondent no payment within thirty days for his billing/statement dated 27 September 1989.
Neither did he make payment for his original billing/statement dated 27 October 1989.
Consequently as early as 28 October 1989 thirty days from the non-payment of his billing dated
27 September 1989, petitioner corporation could automatically suspend his credit card.

The next issue is whether prior to the suspension of private respondent's credit card on 28
November 1989 the parties entered into an agreement whereby the card could still be used
and would be duly honored by duly accredited establishments.

We agree with the findings of the respondent court, that there was an arrangement between
the parties, wherein the petitioner required the private respondent to issue a check worth
P15,000.00 as payment for the latter's billings. However we find that the private respondent
was not able to comply with this obligation.

As the testimony of private respondent himself bears out, the agreement was for the
immediate payment of the outstanding account:

Q In said statement of account that you are supposed to pay the

P8,974.84 the charge of interest and penalties, did you note that?

A Yes, sir I noted the date.

Q When?

A When I returned from the Quezon province, sir

Q When?

A I think November 22, sir.

Q So that before you used again the credit card you were not able
to pay immediately this P8,987.84 in cash?

A I paid P15,000.00, sir.

Q My question Mr. witness is, did you pay this P8,987.84 in charge
of interest and penalties immediately in cash?

A In cash no, but in check, sir.

Q You said that you noted the word "immediately" in bold letters
in your statement of accounts, why did not pay immediately?
 A Because I received that late, sir.

Q Yes, on November 22 when you received from the secretary of

the defendant telling you to pay the principal amount of
P8,987.84, why did you not pay?

A There was a communication between me and the defendant, I

was required to pay P8,000.00 but I paid in check for P15,000.00,
sir.

Q Do you have any evidence to show that the defendant required

you to pay in check for P15,000.00?

A Yes, sir.

Q Where is it?

A It was telecommunication, sir.

Q So there is no written communication between you and the

defendant?

A There was none, sir.

Q There is no written agreement which says that P8,987.84 should

be paid for P15,000.00 in check, there is none?

A Yes, no written agreement, sir.

Q And you as a lawyer you know that a check is not considered as

cash specially when it is postdated sent to the defendant?

A That is correct, sir.

Clearly the purpose of the arrangement between the parties on November 22, 1989, was for
the immediate payment of the private respondent's outstanding account, in order that his
credit card would not be suspended.

As agreed upon by the parties, on the following day, private respondent did issue a check for
P15,000.00. However, the check was postdated 15 December 1989. Settled is the doctrine that
a check is only a substitute for money and not money, the delivery of such an instrument does
not, by itself operate as payment. 9 This is especially true in the case of a postdated check.
Thus, the issuance by the private respondent of the postdated check was not effective
payment. It did not comply with his obligation under the arrangement with Miss Lorenzo.
Petitioner corporation was therefore justified in suspending his credit card.

Finally, we find no legal and factual basis for private respondent's assertion that in canceling the
credit card of the private respondent, petitioner abused its right under the terms and
conditions of the contract.

To find the existence of an abuse of right Article 19 the following elements must be present (1)
There is a legal right or duty; (2) which is exercised in bad faith; (3) for the sole intent of
prejudicing or injuring another. 10

Time and again this Court has held that good faith is presumed and the burden of proving bad
faith is on the party alleging it. 11 This private respondent failed to do. In fact, the action of the
petitioner belies the existence of bad faith. As early as 28 October 1989, petitioner could have
suspended private respondent's card outright. Instead, petitioner allowed private respondent
to use his card for several weeks. Petitioner had even notified private respondent of the
impending suspension of his credit card and made special accommodations for him for setting
his outstanding account. As such, petitioner cannot be said to have capriciously and arbitrarily
canceled the private respondent's credit card.

We do not dispute the findings of the lower court that private respondent suffered damages as
a result of the cancellation of his credit card. However, there is a material distinction between
damages and injury. Injury is the illegal invasion of a legal right; damage is the loss, hurt or
harm which results from the injury; and damages are the recompense or compensation
awarded for the damage suffered. Thus, there can be damage without injury in those instances
in which the loss or harm was not the results of a violation of a legal duty. In such cases, the
consequences must be borne by the injured person alone, the law affords no remedy for
damages resulting from an act which does not amount to a legal injury or wrong. These
situations are often called damnum absque
injuria. 12

In other words, in order that the plaintiff may maintain an action for the injuries of which he
complaints, he must establish that such injuries resulted from a breach of duty which the
defendant owed to the plaintiff a concurrence of injury to the plaintiff and legal responsibility
by the person causing it. The underlying basis for the award of tort damages is the premise that
an individual was injured in contemplation of law. Thus, there must first be a breach of some
duty and the imposition of liability for that breach before damages may be awarded; 13 and the
breach of such duty should be the proximate cause of the injury.

We therefore disagree with the ruling of the respondent court that the dishonor of the credit
card of the private respondent by Café Adriatico is attributable to petitioner for its willful or
gross neglect to inform the private respondent of the suspension of his credit card, the
unfortunate consequence of which brought social humiliation and embarrassment to the
private respondent. 14

It was petitioner's failure to settle his obligation which caused the suspension of his credit card
and subsequent dishonor at Café Adriatico. He can not now pass the blame to the petitioner for
not notifying him of the suspension of his card. As quoted earlier, the application contained the
stipulation that the petitioner could automatically suspend a card whose billing has not been
paid for more than thirty days. Nowhere is it stated in the terms and conditions of the
application that there is a need of notice before suspension may be affected as private
respondent claims. 15

This notwithstanding on November 28, 1989, the day of the suspension of private respondent's
card, petitioner sent a letter by ordinary mail notifying private respondent that his card had
been temporarily suspended. Under the Rules on Evidence, there is a disputable presumption
that letters duly directed and mailed were received on the regular course of mail. 16 Aside from
the private respondent's bare denial he failed to present evidence to rebut the presumption
that he received said notice. In fact upon cross examination private respondent admitted that
he did receive the letter notifying him of the cancellation:

Q Now you were saying that there was a first letter sent to you by
the defendant?

A Your letter, sir.

Q Was that the first letter that you received?

A Yes, sir.

Q It is that there was a communication first between you and the

defendant?

A There was none, sir. I received a cancellation notice but that was
after November 27. 17

As it was private respondent's own negligence which was the proximate cause of his
embarrassing and humiliating experience, we find the award of damages by the respondent
court clearly unjustified. We take note of the fact that private respondent has not yet paid his
outstanding account with petitioner.

IN VIEW OF THE FOREGOING, the decision of the Court of Appeals ordering petitioner to pay
private respondent P100,000.00 as moral damages P50,000.00 as exemplary damages and
P20,000.00 as attorney's fees, is SET ASIDE. Private respondent is DIRECTED to pay his
outstanding obligation with the petitioner in the amount of P14,439.41.
SO ORDERED.

Narvasa, C.J. and Romero, JJ., concur.

Purisima, J., took no part.

Footnotes

1 CA decision penned by: Justice Salome A. Montoya, concurred by: Justices Fidel P.
Purisima and Godardo A. Jacinto, Rollo, p. 12.

2 Id., at 24-26.

3 Art. 19. Every person must, in the exercise of his rights and in the performance of his
duties, act with justice, give everyone his due, and observe honestly and good faith.

4 See note 1, p. 45.

5 Id., at 42-44.

6 Id., at 35.

7 Id., at 6.

8 Records, p. 104.

9 Roman Catholic Bishop of Malolos, Inc. vs. IAC, 191 SCRA 411 (1990).

10 Albenson Enterprises Corp. vs. CA, 217 SCRA 16, 25 (1993).

11 Barons Marketing Corp. vs. Court of Appeals and Phelps Dodge Phils., Inc., G.R No.
126486, February 9, 1998.

12 Custodio vs. CA, 253 SCRA 483 (1996) citing 22 Am Jur 2d, Damages, Sec. 4, 35-36.

13 Ibid.

14 See note 1, p. 33.

15 During cross-examination of plaintiff-private respondent Ricardo Marasigan by

counsel for the defendant-petitioner the following exchange ensued:

Q Now you know that after using the credit card you have to pay the
monthly charges as they fall due in accordance with the
obligation/application that you signed?
A Yes, sir.

Q And if the payments were not made on time they are supposed to earn
interest?

A Yes, sir.

Q They also earn charges, may we know your answer Mr. Witness?

A Yes, sir.

Q Thank you. In case collection suit is filed you know that there were
litigation charges that will be claimed against you, is it not?

A I don't know, sir.

Q But you as practicing lawyer?

A Yes, as a matter of fact that is the procedure.

Q But you did not read the contests?

A Yes, sir.

Q But how did you come to know that you are supposed to pay the
charges since you have not read the contents?

A By the statement of account, sir.

Q What about the date when you should pay your monthly charges, did
you know when to pay it?

A It is also stated there, sir.

Q In the monthly statement of account?

A Yes, sir.

Q When you received this monthly statement of account did you not
complain to the defendant the credit card since you have not read the
contents of your application?

A No, sir I did not.

 Q You continued using that credit card until it was suspended and
terminated?

A Yes, sir.

Q Now do you also know from the terms and conditions of the contract
between you and the defendant that if the charges for the use of the
credit card are not paid it will be suspended?

A Yes, sir. But there has got to be a prior notice.

Q Thank you. After a suspension is still not paid you credit card has to be
terminated?

A I think is the procedure, sir. (TSN, November 5, 1990, pp. 39-42).

16 Revised Rules of Court, Rule 131 Sec. 3 (m).

17 TSN, November 5, 1990, pp. 51-52.

3. [G.R. No. 72110. November 16, 1990.]

ROMAN CATHOLIC BISHOP OF MALOLOS, INC., Petitioner, v. INTERMEDIATE

APPELLATE COURT, and ROBES-FRANCISCO REALTY AND DEVELOPMENT
CORPORATION, Respondents.

Rodrigo Law Office for Petitioner.

Antonio P. Barredo and Napoleon M. Malinas for Private Respondent.

SYLLABUS

1. CIVIL LAW; CONTRACTS; TENDER OF PAYMENT; CANNOT BE PRESUMED BY MERE INFERENCE

FROM SURROUNDING CIRCUMSTANCES. — We agree with the petitioner that a finding that the
private respondent had sufficient available funds on or before the grace period for the payment
of its obligation does not constitute proof of tender of payment by the latter for its obligation
within the said period. Tender of payment involves a positive and unconditional act by the
obligor of offering legal tender currency as payment to the obligee for the former’s obligation
and demanding that the latter accept the same. Thus, tender of payment cannot be presumed
by a mere inference from surrounding circumstances. At most, sufficiency of available funds is
only affirmative of the capacity or ability of the obligor to fulfill his part of the bargain. But
whether or not the obligor avails himself of such funds to settle his outstanding account
remains to be proven by independent and credible evidence. Tender of payment presupposes
not only that the obligor is able, ready, and willing, but more so, in the act of performing his
obligation. Ab posse ad actu non vale illatio. "A proof that an act could have been done is no
proof that it was actually done." The respondent court was therefore in error to have
concluded from the sheer proof of sufficient available funds on the part of the private
respondent to meet more than the total obligation within the grace period, the alleged truth of
tender of payment. The same is a classic case of non-sequitur.

2. ID.; ID.; ID.; NOT VALIDLY CONSTITUTED BY PAYMENT OF A CERTIFIED PERSONAL CHECK. —
With regard to the third issue, granting arguendo that we would rule affirmatively on the two
preceding issues, the case of the private respondent still can not succeed in view of the fact
that the latter used a certified personal check which is not legal tender nor the currency
stipulated, and therefore, can not constitute valid tender of payment. The first paragraph of
Art. 1249 of the Civil Code provides that "the payment of debts in money shall be made in the
currency stipulated, and if it is not possible to deliver such currency, then in the currency which
is legal tender in the Philippines. The Court en banc in the recent case of Philippine Airlines v.
Court of Appeals, (Promulgated on January 30, 1990) G.R. No. L-49188, stated thus: Since a
negotiable instrument is only a substitute for money and not money, the delivery of such an
instrument does not, by itself, operate as payment (citing Sec. 189, Act 2031 on Negs. Insts.;
Art. 1249, Civil Code; Bryan London Co. v. American Bank, 7 Phil. 255; Tan Sunco v. Santos, 9
Phil. 44; 21 R.C.L. 60, 61). A check, whether a manager’s check or ordinary check, is not legal
tender, and an offer of a check in payment of a debt is not a valid tender of payment and may
be refused receipt by the obligee or creditor. Hence, where the tender of payment by the
private respondent was not valid for failure to comply with the requisite payment in legal
tender or currency stipulated within the grace period and as such, was validly refused receipt
by the petitioner, the subsequent consignation did not operate to discharge the former from its
obligation to the latter.

3. ID.; ID.; OBLIGATIONS ARISING THEREFROM HAVE THE FORCE OF LAW BETWEEN THE
CONTRACTING PARTIES. — Art. 1159 of the Civil Code of the Philippines provides that
"obligations arising from contracts have the force of law between the contracting parties and
should be complied with in good faith." And unless the stipulations in said contract are contrary
to law, morals, good customs, public order, or public policy, the same are binding as between
the parties. (Article 1409, Civil Code, par. 1). What the private respondent should have done if it
was indeed desirous of complying with its obligations would have been to pay the petitioner
within the grace period and obtain a receipt of such payment duly issued by the latter.
Thereafter, or, allowing a reasonable time, the private respondent could have demanded from
the petitioner the execution of the necessary documents. In case the petitioner refused, the
private respondent could have had always resorted to judicial action for the legitimate
enforcement of its right. For the failure of the private respondent to undertake this more
judicious course of action, it alone shall suffer the consequences.
4. REMEDIAL LAW; APPEAL; FACTUAL FINDINGS OF TRIAL COURT AS A RULE, SHOULD BE
ACCORDED FULL CONSIDERATION AND RESPECT. — On the contrary, the respondent court finds
itself remiss in overlooking or taking lightly the more important findings of fact made by the
trial court which we have earlier mentioned and which as a rule, are entitled to great weight on
appeal and should be accorded full consideration and respect and should not be disturbed
unless for strong and cogent reasons. (Natividad del Rosario Vda. de Alberto v. Court of
Appeals, G.R. 29759, May 18, 1989; Matabuena v. Court of Appeals, G.R. 76542, May 5, 1989).

5. ID.; SUPREME COURT; INSTANCES WHEN THE COURT HAS TO REVIEW THE EVIDENCE. —
While the Court is not a trier of facts, yet, when the findings of fact of the Court of Appeals are
at variance with those of the trial court, (Robleza v. Court of Appeals, G.R. 80364, June 28,
1989) or when the inference of the Court of Appeals from its findings of fact is manifestly
mistaken, (Reynolds Philippine Corporation v. Court of Appeals, G.R. 38187, January 17, 1987)
the Court has to review the evidence in order to arrive at the correct findings based on the
record.

DECISION

SARMIENTO, J.:

This is a petition for review on certiorari which seeks the reversal and setting aside of the
decision 1 of the Court of Appeals, 2 the dispositive portion of which reads:chanrobles law
library : red

WHEREFORE, the decision appealed from is hereby reversed and set aside and another one
entered for the plaintiff ordering the defendant-appellee Roman Catholic Bishop of Malolos,
Inc. to accept the balance of P124,000.00 being paid by plaintiff-appellant and thereafter to
execute in favor of Robes-Francisco Realty Corporation a registerable Deed of Absolute Sale
over 20,655 square meters portion of that parcel of land situated in San Jose del Monte,
Bulacan described in OCT No. 575 (now Transfer Certificates of Title Nos. T-169493,
169494,169495 and 169496) of the Register of Deeds of Bulacan. In case of refusal of the
defendant to execute the Deed of Final Sale, the clerk of court is directed to execute the said
document. Without pronouncement as to damages and attorney’s fees. Costs against the
defendant-appellee. 3

The case at bar arose from a complaint filed by the private respondent, then plaintiff, against
the petitioner, then defendant, in the Court of First Instance (now Regional Trial Court) of
Bulacan, at Sta. Maria, Bulacan, 4 for specific performance with damages, based on a contract 5
executed on July 7, 1971.
The property subject matter of the contract consists of a 20,655 sq.m.-portion, out of the
30,655 sq.m. total area, of a parcel of land covered by Original Certificate of Title No. 575 of the
Province of Bulacan, issued and registered in the name of the petitioner which it sold to the
private respondent for and in consideration of P123,930.00.chanrobles virtual lawlibrary

The crux of the instant controversy lies in the compliance or non-compliance by the private
respondent with the provision for payment to the petitioner of the principal balance of
P100,000.00 and the accrued interest of P24,000.00 within the grace period.

A chronological narration of the antecedent facts is as follows:chanrob1es virtual 1aw library

On July 7, 1971, the subject contract over the land in question was executed between the
petitioner as vendor and the private respondent through its then president, Mr. Carlos F.
Robes, as vendee, stipulating for a downpayment of P23,930.00 and the balance of P100,000.00
plus 12% interest per annum to be paid within four (4) years from execution of the contract,
that is, on or before July 7, 1975. The contract likewise provides for cancellation, forfeiture of
previous payments, and reconveyance of the land in question in case the private respondent
would fail to complete payment within the said period.

On March 12, 1973, the private respondent, through its new president, Atty. Adalia Francisco,
addressed a letter 6 to Father Vasquez, parish priest of San Jose Del Monte, Bulacan, requesting
to be furnished with a copy of the subject contract and the supporting documents.

On July 17, 1975, admittedly after the expiration of the stipulated period for payment, the same
Atty. Francisco wrote the petitioner a formal request 7 that her company be allowed to pay the
principal amount of P100,000.00 in three (3) equal installments of six (6) months each with the
first installment and the accrued interest of P24,000.00 to be paid immediately upon approval
of the said request.

On July 29, 1975, the petitioner, through its counsel, Atty. Carmelo Fernandez, formally denied
the said request of the private respondent, but granted the latter a grace period of five (5) days
from the receipt of the denial 8 to pay the total balance of P124,000.00, otherwise, the
provisions of the contract regarding cancellation, forfeiture, and reconveyance would be
implemented.

On August 4, 1975, the private respondent, through its president, Atty. Francisco, wrote 9 the
counsel of the petitioner requesting an extension of 30 days from said date to fully settle its
account. The counsel for the petitioner, Atty. Fernandez, received the said letter on the same
day. Upon consultation with the petitioner in Malolos, Bulacan, Atty. Fernandez, as instructed,
wrote the private respondent a letter 10 dated August 7, 1975 informing the latter of the denial
of the request for an extension of the grace period.

Consequently, Atty. Francisco, the private respondent’s president, wrote a letter 11 dated
August 22, 1975, directly addressed to the petitioner, protesting the alleged refusal of the latter
to accept tender of payment purportedly made by the former on August 5, 1975, the last day of
the grace period. In the same letter of August 22, 1975, received on the following day by the
petitioner, the private respondent demanded the execution of a deed of absolute sale over the
land in question and after which it would pay its account in full, otherwise, judicial action would
be resorted to.chanrobles.com.ph : virtual law library

On August 27, 1975, the petitioner’s counsel, Atty. Fernandez, wrote a reply 12 to the private
respondent stating the refusal of his client to execute the deed of absolute sale due to its
(private respondent’s) failure to pay its full obligation. Moreover, the petitioner denied that the
private respondent had made any tender of payment whatsoever within the grace period. In
view of this alleged breach of contract, the petitioner cancelled the contract and considered all
previous payments forfeited and the land as ipso facto reconveyed.

From a perusal of the foregoing facts, we find that both the contending parties have conflicting
versions on the main question of tender of payment.

The trial court, in its ratiocination, preferred not to give credence to the evidence presented by
the private Respondent. According to the trial court:chanrob1es virtual 1aw library

. . . What made Atty. Francisco suddenly decide to pay plaintiff’s obligation on August 5, 1975,
go to defendant’s office at Malolos, and there tender her payment, when her request of August
4, 1975 had not yet been acted upon until August 7, 1975? If Atty. Francisco had decided to pay
the obligation and had available funds for the purpose on August 5, 1975, then there would
have been no need for her to write defendant on August 4, 1975 to request an extension of
time. Indeed, Atty. Francisco’s claim that she made a tender of payment on August 5, 1975 —
such alleged act, considered in relation to the circumstances both antecedent and subsequent
thereto, being not in accord with the normal pattern of human conduct — is not worthy of
credence. 13

The trial court likewise noted the inconsistency in the testimony of Atty. Francisco, president of
the private respondent, who earlier testified that a certain Mila Policarpio accompanied her on
August 5, 1975 to the office of the petitioner. Another person, however, named Aurora
Oracion, was presented to testify as the secretary-companion of Atty. Francisco on that same
occasion.

Furthermore, the trial court considered as fatal the failure of Atty. Francisco to present in court
the certified personal check allegedly tendered as payment or, at least, its xerox copy, or even
bank records thereof. Finally, the trial court found that the private respondent had insufficient
funds available to fulfill the entire obligation considering that the latter, through its president,
Atty. Francisco, only had a savings account deposit of P64,840.00, and although the latter had a
money-market placement of P300,000.00, the same was to mature only after the expiration of
the 5-day grace period.

Based on the above considerations, the trial court rendered a decision in favor of the
petitioner, the dispositive portion of which reads:chanrobles virtual lawlibrary

WHEREFORE, finding plaintiff to have failed to make out its case, the court hereby declares the
subject contract cancelled and plaintiff’s downpayment of P23,930.00 forfeited in favor of
defendant, and hereby dismisses the complaint; and on the counterclaim, the Court orders
plaintiff to pay defendant.

(1) Attorney’s fees of P10,000.00;

(2) Litigation expenses of P2,000.00; and

(3) Judicial costs.

SO ORDERED. 14

Not satisfied with the said decision, the private respondent appealed to the respondent
Intermediate Appellate Court (now Court of Appeals) assigning as reversible errors, among
others, the findings of the trial court that the available funds of the private respondent were
insufficient and that the latter did not effect a valid tender of payment and consignation.

The respondent court, in reversing the decision of the trial court, essentially relies on the
following findings:chanrob1es virtual 1aw library

. . . We are convinced from the testimony of Atty. Adalia Francisco and her witnesses that in
behalf of the plaintiff-appellant they have a total available sum of P364,840.00 at her and at the
plaintiff’s disposal on or before August 4, 1975 to answer for the obligation of the plaintiff-
appellant. It was not correct for the trial court to conclude that the plaintiff-appellant had only
about P64,840.00 in savings deposit on or before August 5, 1975, a sum not enough to pay the
outstanding account of P124,000.00. The plaintiff-appellant, through Atty. Francisco proved
and the trial court even acknowledged that Atty. Adalia Francisco had about P300,000.00 in
money market placement. The error of the trial court has in concluding that the money market
placement of P300,000.00 was out of reach of Atty. Francisco. But as testified to by Mr.
Catalino Estrella, a representative of the Insular Bank of Asia and America, Atty. Francisco could
withdraw anytime her money market placement and place it at her disposal, thus proving her
financial capability of meeting more than the whole of P124,000.00 then due per contract. This
situation, We believe, proves the truth that Atty. Francisco apprehensive that her request for a
30-day grace period would be denied, she tendered payment on August 4, 1975 which offer
defendant through its representative and counsel refused to receive. . .15 (Emphasis supplied)

In other words, the respondent court, finding that the private respondent had sufficient
available funds, ipso facto concluded that the latter had tendered payment. Is such conclusion
warranted by the facts proven? The petitioner submits that it is not.cralawnad

Hence, this petition. 16

The petitioner presents the following issues for resolution:chanrob1es virtual 1aw library

x x x

A. Is a finding that private respondent had sufficient available funds on or before the grace
period for the payment of its obligation proof that it (private respondent) did tender of (sic)
payment for its said obligation within said period?

x x x

B. Is it the legal obligation of the petitioner (as vendor) to execute a deed of absolute sale in
favor of the private respondent (as vendee) before the latter has actually paid the complete
consideration of the sale — where the contract between and executed by the parties stipulates
—

"That upon complete payment of the agreed consideration by the herein VENDEE, the VENDOR
shall cause the execution of a Deed of Absolute Sale in favor of the VENDEE."cralaw virtua1aw
library

x x x.

C. Is an offer of a check a valid tender of payment of an obligation under a contract which

stipulates that the consideration of the sale is in Philippine Currency? 17

We find the petition impressed with merit.

With respect to the first issue, we agree with the petitioner that a finding that the private
respondent had sufficient available funds on or before the grace period for the payment of its
obligation does not constitute proof of tender of payment by the latter for its obligation within
the said period. Tender of payment involves a positive and unconditional act by the obligor of
offering legal tender currency as payment to the obligee for the former’s obligation and
demanding that the latter accept the same. Thus, tender of payment cannot be presumed by a
mere inference from surrounding circumstances. At most, sufficiency of available funds is only
affirmative of the capacity or ability of the obligor to fulfill his part of the bargain. But whether
or not the obligor avails himself of such funds to settle his outstanding account remains to be
proven by independent and credible evidence. Tender of payment presupposes not only that
the obligor is able, ready, and willing, but more so, in the act of performing his obligation. Ab
posse ad actu non vale illatio. "A proof that an act could have been done is no proof that it was
actually done."cralaw virtua1aw library

The respondent court was therefore in error to have concluded from the sheer proof of
sufficient available funds on the part of the private respondent to meet more than the total
obligation within the grace period, the alleged truth of tender of payment. The same is a classic
case of non-sequitur.chanrobles virtual lawlibrary

On the contrary, the respondent court finds itself remiss in overlooking or taking lightly the
more important findings of fact made by the trial court which we have earlier mentioned and
which as a rule, are entitled to great weight on appeal and should be accorded full
consideration and respect and should not be disturbed unless for strong and cogent reasons. 18

While the Court is not a trier of facts, yet, when the findings of fact of the Court of Appeals are
at variance with those of the trial court, 19 or when the inference of the Court of Appeals from
its findings of fact is manifestly mistaken, 20 the Court has to review the evidence in order to
arrive at the correct findings based on the record.

Apropos the second issue raised, although admittedly the documents for the deed of absolute
sale had not been prepared, the subject contract clearly provides that the full payment by the
private respondent is an a priori condition for the execution of the said documents by the
petitioner.

That upon complete payment of the agreed consideration by the herein VENDEE, the VENDOR
shall cause the execution of a Deed of Absolute Sale in favor of the VENDEE. 21

The private respondent is therefore in estoppel to claim otherwise as the latter did in the
testimony in cross-examination of its president, Atty. Francisco, which reads:chanrob1es virtual
1aw library

Q Now, you mentioned, Atty. Francisco, that you wanted the defendant to execute the final
deed of sale before you would given (sic) the personal certified check in payment of your
balance, is that correct?

A Yes, sir. 22

x x x

Art. 1159 of the Civil Code of the Philippines provides that "obligations arising from contracts
have the force of law between the contracting parties and should be complied with in good
faith." And unless the stipulations in said contract are contrary to law, morals, good customs,
public order, or public policy, the same are binding as between the parties.23

What the private respondent should have done if it was indeed desirous of complying with its
obligations would have been to pay the petitioner within the grace period and obtain a receipt
of such payment duly issued by the latter. Thereafter, or, allowing a reasonable time, the
private respondent could have demanded from the petitioner the execution of the necessary
documents. In case the petitioner refused, the private respondent could have had always
resorted to judicial action for the legitimate enforcement of its right. For the failure of the
private respondent to undertake this more judicious course of action, it alone shall suffer the
consequences.chanrobles.com:cralaw:red

With regard to the third issue, granting arguendo that we would rule affirmatively on the two
preceding issues, the case of the private respondent still can not succeed in view of the fact
that the latter used a certified personal check which is not legal tender nor the currency
stipulated, and therefore, can not constitute valid tender of payment. The first paragraph of
Art. 1249 of the Civil Code provides that "the payment of debts in money shall be made in the
currency stipulated, and if it is not possible to deliver such currency, then in the currency which
is legal tender in the Philippines.

The Court en banc in the recent case of Philippine Airlines v. Court of Appeals, 24 G.R. No. L-
49188, stated thus:chanrob1es virtual 1aw library

Since a negotiable instrument is only a substitute for money and not money, the delivery of
such an instrument does not, by itself, operate as payment (citing Sec. 189, Act 2031 on Negs.
Insts.; Art. 1249, Civil Code; Bryan London Co. v. American Bank, 7 Phil. 255; Tan Sunco v.
Santos, 9 Phil. 44; 21 R.C.L. 60, 61). A check, whether a manager’s check or ordinary check, is
not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment
and may be refused receipt by the obligee or creditor.

Hence, where the tender of payment by the private respondent was not valid for failure to
comply with the requisite payment in legal tender or currency stipulated within the grace
period and as such, was validly refused receipt by the petitioner, the subsequent consignation
did not operate to discharge the former from its obligation to the latter.

In view of the foregoing, the petitioner in the legitimate exercise of its rights pursuant to the
subject contract, did validly order therefore the cancellation of the said contract, the forfeiture
of the previous payment, and the reconveyance ipso facto of the land in question.chanrobles
lawlibrary : rednad

WHEREFORE, the petition for review on certiorari is GRANTED and the DECISION of the
respondent court promulgated on April 25, 1985 is hereby SET ASIDE and ANNULLED and the
DECISION of the trial court dated May 25, 1981 is hereby REINSTATED. Costs against the
private Respondent.
 4. 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, Hofileña & 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
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 (CTDs) to herein plaintiff
in connection with his purchased of fuel products from the latter (Original
Record, p. 208).

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

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

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

6. Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff Caltex

(Phils.) Inc., went to the defendant bank's Sucat branch and presented for
verification the CTDs declared lost by Angel dela Cruz alleging that the same
were delivered to herein plaintiff "as security for purchases made with Caltex
Philippines, Inc." by said depositor (TSN, February 9, 1987, pp. 54-68).

7. On November 26, 1982, defendant received a letter (Defendant's Exhibit 563)

from herein plaintiff formally informing it of its possession of the CTDs in
question and of its decision to pre-terminate the same.

8. On December 8, 1982, plaintiff was requested by herein defendant to furnish

the former "a copy of the document evidencing the guarantee agreement with
Mr. Angel dela Cruz" as well as "the details of Mr. Angel dela Cruz" obligation
against which plaintiff proposed to apply the time deposits (Defendant's Exhibit
564).
 9. No copy of the requested documents was furnished herein defendant.

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

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

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

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

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

The instant petition is bereft of merit.

A sample text of the certificates of time deposit is reproduced below to provide a better
understanding of the issues involved in this recourse.

SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%

Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____

This is to Certify that B E A R E R has deposited in this Bank the

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

(Sgd. Illegible) (Sgd. Illegible)

—————————— ———————————

AUTHORIZED SIGNATURES 5

Respondent court ruled that the CTDs in question are non-negotiable instruments, nationalizing
as follows:

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

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

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

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

money;

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

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

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

otherwise indicated therein with reasonable certainty.

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

xxx xxx xxx

Atty. Calida:

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

witness:

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

Atty. Calida:

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

witness:

a None, your Honor. 7

xxx xxx xxx

Atty. Calida:

q Mr. Witness, who is the depositor identified in all of these

certificates of time deposit insofar as the bank is concerned?

witness:

a Angel dela Cruz is the depositor. 8

xxx xxx xxx

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

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

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

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

In a letter dated November 26, 1982 addressed to respondent Security Bank, J.Q. Aranas, Jr.,
Caltex Credit Manager, wrote: ". . . These certificates of deposit were negotiated to us by Mr.
Angel dela Cruz to guarantee his purchases of fuel products" (Emphasis ours.) 13 This admission
is conclusive upon petitioner, its protestations notwithstanding. Under the doctrine of estoppel,
an admission or representation is rendered conclusive upon the person making it, and cannot
be denied or disproved as against the person relying thereon. 14 A party may not go back on his
own acts and representations to the prejudice of the other party who relied upon them. 15 In
the law of evidence, whenever a party has, by his own declaration, act, or omission,
intentionally and deliberately led another to believe a particular thing true, and to act upon
such belief, he cannot, in any litigation arising out of such declaration, act, or omission, be
permitted to falsify it. 16

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

Under the foregoing circumstances, this disquisition in Intergrated Realty Corporation, et al. vs.
Philippine National Bank, et al. 20 is apropos:

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

therefrom:

The character of the transaction between the parties is to be

determined by their intention, regardless of what language was
used or what the form of the transfer was. If it was intended to
secure the payment of money, it must be construed as a pledge;
but if there was some other intention, it is not a pledge. However,
even though a transfer, if regarded by itself, appears to have been
absolute, its object and character might still be qualified and
explained by contemporaneous writing declaring it to have been a
deposit of the property as collateral security. It has been said that
a transfer of property by the debtor to a creditor, even if
sufficient on its face to make an absolute conveyance, should be
treated as a pledge if the debt continues in inexistence and is not
discharged by the transfer, and that accordingly the use of the
terms ordinarily importing conveyance of absolute ownership will
not be given that effect in such a transaction if they are also
commonly used in pledges and mortgages and therefore do not
unqualifiedly indicate a transfer of absolute ownership, in the
absence of clear and unambiguous language or other
circumstances excluding an intent to pledge.
Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the
Negotiable Instruments Law, an instrument is negotiated when it is transferred from one
person to another in such a manner as to constitute the transferee the holder thereof, 21 and a
holder may be the payee or indorsee of a bill or note, who is in possession of it, or the bearer
thereof. 22 In the present case, however, there was no negotiation in the sense of a transfer of
the legal title to the CTDs in favor of petitioner in which situation, for obvious reasons, mere
delivery of the bearer CTDs would have sufficed. Here, the delivery thereof only as security for
the purchases of Angel de la Cruz (and we even disregard the fact that the amount involved was
not disclosed) could at the most constitute petitioner only as a holder for value by reason of his
lien. Accordingly, a negotiation for such purpose cannot be effected by mere delivery of the
instrument since, necessarily, the terms thereof and the subsequent disposition of such
security, in the event of non-payment of the principal obligation, must be contractually
provided for.

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

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

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

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

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

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

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

against third persons, unless it appears in a public instrument, or the instrument
 is recorded in the Registry of Property in case the assignment involves real
property.

Respondent bank duly complied with this statutory requirement. Contrarily, petitioner,
whether as purchaser, assignee or lien holder of the CTDs, neither proved the amount of its
credit or the extent of its lien nor the execution of any public instrument which could affect or
bind private respondent. Necessarily, therefore, as between petitioner and respondent bank,
the latter has definitely the better right over the CTDs in question.

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

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

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

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

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

4. Whether or not plaintiff could compel defendant to preterminate the CTDs

before the maturity date provided therein.

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

6. Whether or not the parties can recover damages, attorney's fees and litigation
expenses from each other.

As respondent court correctly observed, with appropriate citation of some doctrinal authorities,
the foregoing enumeration does not include the issue of negligence on the part of respondent
bank. An issue raised for the first time on appeal and not raised timely in the proceedings in the
lower court is barred by estoppel. 30 Questions raised on appeal must be within the issues
framed by the parties and, consequently, issues not raised in the trial court cannot be raised for
the first time on appeal. 31
Pre-trial is primarily intended to make certain that all issues necessary to the disposition of a
case are properly raised. Thus, to obviate the element of surprise, parties are expected to
disclose at a pre-trial conference all issues of law and fact which they intend to raise at the trial,
except such as may involve privileged or impeaching matters. The determination of issues at a
pre-trial conference bars the consideration of other questions on appeal. 32

To accept petitioner's suggestion that respondent bank's supposed negligence may be

considered encompassed by the issues on its right to preterminate and receive the proceeds of
the CTDs would be tantamount to saying that petitioner could raise on appeal any issue. We
agree with private respondent that the broad ultimate issue of petitioner's entitlement to the
proceeds of the questioned certificates can be premised on a multitude of other legal reasons
and causes of action, of which respondent bank's supposed negligence is only one. Hence,
petitioner's submission, if accepted, would render a pre-trial delimitation of issues a useless
exercise. 33

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

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

xxx xxx xxx

The use of the word "may" in said provision shows that it is not mandatory but discretionary on
the part of the "dispossessed owner" to apply to the judge or court of competent jurisdiction
for the issuance of a duplicate of the lost instrument. Where the provision reads "may," this
word shows that it is not mandatory but discretional. 34 The word "may" is usually permissive,
not mandatory. 35 It is an auxiliary verb indicating liberty, opportunity, permission and
possibility. 36

Moreover, as correctly analyzed by private respondent, 37 Articles 548 to 558 of the Code of
Commerce, on which petitioner seeks to anchor respondent bank's supposed negligence,
merely established, on the one hand, a right of recourse in favor of a dispossessed owner or
holder of a bearer instrument so that he may obtain a duplicate of the same, and, on the other,
an option in favor of the party liable thereon who, for some valid ground, may elect to refuse to
issue a replacement of the instrument. Significantly, none of the provisions cited by petitioner
categorically restricts or prohibits the issuance a duplicate or replacement
instrument sans compliance with the procedure outlined therein, and none establishes a
mandatory precedent requirement therefor.

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

5. [G.R. No. 154127. December 8, 2003.]

ROMEO C. GARCIA, Petitioner, v. DIONISIO V. LLAMAS, Respondent.

DECISION

PANGANIBAN, J.:

Novation cannot be presumed. It must be clearly shown either by the express assent of the
parties or by the complete incompatibility between the old and the new agreements. Petitioner
herein fails to show either requirement convincingly; hence, the summary judgment holding
him liable as a joint and solidary debtor stands.chanrob1es virtua1 1aw 1ibrary

The Case

Before us is a Petition for Review 1 under Rule 45 of the Rules of Court, seeking to nullify the
November 26, 2001 Decision 2 and the June 26, 2002 Resolution 3 of the Court of Appeals (CA)
in CA-GR CV No. 60521. The appellate court disposed as follows:jgc:chanrobles.com.ph

"UPON THE VIEW WE TAKE OF THIS CASE, THUS, the judgment appealed from, insofar as it
pertains to [Petitioner] Romeo Garcia, must be, as it hereby is, AFFIRMED, subject to the
modification that the award for attorney’s fees and cost of suit is DELETED. The portion of the
judgment that pertains to . . . Eduardo de Jesus is SET ASIDE and VACATED. Accordingly, the
case against . . . Eduardo de Jesus is REMANDED to the court of origin for purposes of receiving
ex parte [Respondent] Dionisio Llamas’ evidence against . . . Eduardo de Jesus." 4

The challenged Resolution, on the other hand, denied petitioner’s Motion for Reconsideration.

The Antecedents

The antecedents of the case are narrated by the CA as follows:jgc:chanrobles.com.ph

"This case started out as a complaint for sum of money and damages by . . . [Respondent]
Dionisio Llamas against . . . [Petitioner] Romeo Garcia and Eduardo de Jesus. Docketed as Civil
Case No. Q97-32-873, the complaint alleged that on 23 December 1996[,] [petitioner and de
Jesus] borrowed P400,000.00 from [respondent]; that, on the same day, [they] executed a
promissory note wherein they bound themselves jointly and severally to pay the loan on or
before 23 January 1997 with a 5% interest per month; that the loan has long been overdue and,
despite repeated demands, [petitioner and de Jesus] have failed and refused to pay it; and that,
by reason of the[ir] unjustified refusal, [respondent] was compelled to engage the services of
counsel to whom he agreed to pay 25% of the sum to be recovered from [petitioner and de
Jesus], plus P2,000.00 for every appearance in court. Annexed to the complaint were the
promissory note above-mentioned and a demand letter, dated 02 May 1997, by [respondent]
addressed to [petitioner and de Jesus].

"Resisting the complaint, [Petitioner Garcia,] in his [Answer,] averred that he assumed no
liability under the promissory note because he signed it merely as an accommodation party for .
. . de Jesus; and, alternatively, that he is relieved from any liability arising from the note
inasmuch as the loan had been paid by . . . de Jesus by means of a check dated 17 April 1997;
and that, in any event, the issuance of the check and [respondent’s] acceptance thereof
novated or superseded the note.

" [Respondent] tendered a reply to [Petitioner] Garcia’s answer, thereunder asserting that the
loan remained unpaid for the reason that the check issued by . . . de Jesus bounced, and that
[Petitioner] Garcia’s answer was not even accompanied by a certificate of non-forum shopping.
Annexed to the reply were the face of the check and the reverse side thereof.

"For his part, . . . 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 [respondent’s] daughter, one
Nits Llamas-Quijencio, received from the Central Police District Command at Bicutan, Taguig,
Metro Manila (where . . . 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] attorney’s fees, plus P1,000.00 for every court
appearance.chanrob1es virtua1 1aw 1ibrary

"During the pre-trial conference, . . . de Jesus and his lawyer did not appear, nor did they file
any pre-trial brief. Neither did [Petitioner] Garcia file a pre-trial brief, and his counsel even
manifested that he would no [longer] present evidence. Given this development, the trial court
gave [respondent] permission to present his evidence ex parte against . . . 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 judgment on the pleadings, withdrawing in the
process his previous motion. Thereunder, he asserted that [petitioner’s 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:jgc:chanrobles.com.ph

"WHEREFORE, premises considered, judgment on the pleadings is hereby rendered in favor of

[respondent] and against [petitioner and De Jesus], who are hereby ordered to pay, jointly and
severally, the [respondent] the following sums, to wit:chanrob1es virtual 1aw library

‘1) P400,000.00 representing the principal amount plus 5% interest thereon per month from
January 23, 1997 until the same shall have been fully paid, less the amount of P120,000.00
representing interests already paid by . . . de Jesus;

‘2) P100,000.00 as attorney’s fees plus appearance fee of P2,000.00 for each day of [c]ourt
appearance, and;

‘3) Cost of this suit.’" 6

Ruling of the Court of Appeals

The CA ruled that the trial court had erred when it rendered a judgment on the pleadings
against De Jesus. According to the appellate court, his Answer raised genuinely contentious
issues. Moreover, he was still required to present his evidence ex parte. Thus, respondent was
not ipso facto entitled to the RTC judgment, even though De Jesus had been declared in default.
The case against the latter was therefore remanded by the CA to the trial court for the ex parte
reception of the former’s evidence.

As to petitioner, the CA treated his case as a summary judgment, because his Answer had failed
to raise even a single genuine issue regarding any material fact.

The appellate court ruled that no novation — express or implied — had taken place when
respondent accepted the check from De Jesus. According to the CA, the check was issued
precisely to pay for the loan that was covered by the promissory note jointly and severally
undertaken by petitioner and De Jesus. Respondent’s acceptance of the check did not serve to
make De Jesus the sole debtor because, first, the obligation incurred by him and petitioner was
joint and several; and, second, the check — which had been intended to extinguish the
obligation — bounced upon its presentment.chanrob1es virtua1 1aw 1ibrary

Hence, this Petition. 7

Issues

Petitioner submits the following issues for our consideration:chanrob1es virtual 1aw library

"I

Whether or not the Honorable Court of Appeals gravely erred in not holding that novation
applies in the instant case as . . . Eduardo de Jesus had expressly assumed sole and exclusive
liability for the loan obligation he obtained from . . . Respondent Dionisio Llamas, as clearly
evidenced by:chanrob1es virtual 1aw library

a) Issuance by . . . de Jesus of a check in payment of the full amount of the loan of P400,000.00
in favor of Respondent Llamas, although the check subsequently bounced[;]

b) Acceptance of the check by the . . . Respondent. . . which resulted in [the] substitution by . . .

de Jesus or [the superseding of] the promissory note;

c) . . . de Jesus having paid interests on the loan in the total amount of P120,000.00;

d) The fact that Respondent Llamas agreed to the proposal of . . . de Jesus that due to financial
difficulties, he be given an extension of time to pay his loan obligation and that his retirement
benefits from the Philippine National Police will answer for said obligation.

"II

Whether or not the Honorable Court of Appeals seriously erred in not holding that the defense
of petitioner that he was merely an accommodation party, despite the fact that the promissory
note provided for a joint and solidary liability, should have been given weight and credence
considering that subsequent events showed that the principal obligor was in truth and in fact . .
. de Jesus, as evidenced by the foregoing circumstances showing his assumption of sole liability
over the loan obligation.

‘’III

Whether or not judgment on the pleadings or summary judgment was properly availed of by
Respondent Llamas, despite the fact that there are genuine issues of fact, which the Honorable
Court of Appeals itself admitted in its Decision, which call for the presentation of evidence in a
full-blown trial." 8

Simply put, the issues are the following: 1) whether there was novation of the obligation; 2)
whether the defense that petitioner was only an accommodation party had any basis; and 3)
whether the judgment against him — be it a judgment on the pleadings or a summary
judgment — was proper.

The Court’s Ruling

The Petition has no merit

First Issue:chanrob1es virtual 1aw library

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.chanrob1es virtua1 1aw 1ibrary

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:jgc:chanrobles.com.ph

"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."cralaw virtua1aw library

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 person’s
assumption of the obligation. As such, it logically requires the consent of the third person and
the creditor. In delegacion, the debtor offers, and the creditor accepts, a third person who
consents to the substitution and assumes the obligation; thus, the consent of these three
persons are necessary. 11 Both modes of substitution by the debtor require the consent of the
creditor. 12

Novation may also be extinctive or modificatory. It is extinctive when an old obligation is

terminated by the creation of a new one that takes the place of the former. It is merely
modificatory when the old obligation subsists to the extent that it remains compatible with the
amendatory agreement. 13 Whether extinctive or modificatory, novation is made either by
changing the object or the principal conditions, referred to as objective or real novation; or by
substituting the person of the debtor or subrogating a third person to the rights of the creditor,
an act known as subjective or personal novation. 14 For novation to take place, the following
requisites must concur:chanrob1es virtual 1aw library

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.chanrob1es virtua1 1aw 1ibrary

Neither could the payment of interests — which, in petitioner’s 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 petitioner’s 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 former’s 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:jgc:chanrobles.com.ph

". . . Plaintiff’s 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 . . ." 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.25cralaw:red

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. Respondent’s 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:chanrob1es virtual 1aw library

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:jgc:chanrobles.com.ph

"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.chanrob1es virtua1 1aw
1ibrary

"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 NIL’s provisions on the liabilities and defenses of an
accommodation party. Besides, a non-negotiable note is merely a simple contract in writing and
is evidence of such intangible rights as may have been created by the assent of the parties. 32
The promissory note is thus covered by the general provisions of the Civil Code, not by the NIL.

Even granting arguendo that the NIL was applicable, still, petitioner would be liable for the
promissory note. Under Article 29 of Act 2031, an accommodation party is liable for the
instrument to a holder for value even if, at the time of its taking, the latter knew the former to
be only an accommodation party. The relation between an accommodation party and the party
accommodated is, in effect, one of principal and surety — the accommodation party being the
surety. 33 It is a settled rule that a surety is bound equally and absolutely with the principal and
is deemed an original promisor and debtor from the beginning. The liability is immediate and
direct. 34

Third Issue:chanrob1es virtual 1aw library

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 party’s pleading. The essential question is whether there are issues
generated by the pleadings. 38 A judgment on the pleadings may be sought only by a claimant,
who is the party seeking to recover upon a claim, counterclaim or cross-claim; or to obtain a
declaratory relief. 39

Apropos thereto, it must be stressed that the trial court’s judgment against petitioner was
correctly treated by the appellate court as a summary judgment, rather than as a judgment on
the pleadings. His Answer 40 apparently raised several issues — that he signed the promissory
note allegedly as a mere accommodation party, and that the obligation was extinguished by
either payment or novation. However, these are not factual issues requiring trial. We quote
with approval the CA’s observations:jgc:chanrobles.com.ph

"Although Garcia’s [A]nswer tendered some issues, by way of affirmative defenses, the
documents submitted by [respondent] nevertheless clearly showed that the issues so tendered
were not valid issues. Firstly, Garcia’s claim that he was merely an accommodation party is
belied by the promissory note that he signed. Nothing in the note indicates that he was only an
accommodation party as he claimed to be. Quite the contrary, the promissory note bears the
statement: ‘It is understood that our liability under this loan is jointly and severally [sic].’
Secondly, his claim that his co-defendant de Jesus already paid the loan by means of a check
collapses in view of the dishonor thereof as shown at the dorsal side of said check." 41

From the records, it also appears that petitioner himself moved to submit the case for
judgment on the basis of the pleadings and documents. In a written Manifestation, 42 he stated
that "judgment on the pleadings may now be rendered without further evidence, considering
the allegations and admissions of the parties." 43

In view of the foregoing, the CA correctly considered as a summary judgment that which the
trial court had issued against petitioner.

WHEREFORE, this Petition is hereby DENIED and the assailed Decision AFFIRMED. Costs against
petitioner.
 6. G.R. No. 111190 June 27, 1995

LORETO D. DE LA VICTORIA, as City Fiscal of Mandaue City and in his personal capacity as
garnishee, petitioner,
vs. HON. JOSE P. BURGOS, Presiding Judge, RTC, Br. XVII, Cebu City, and RAUL H.
SESBREÑO, respondents.

BELLOSILLO, J.:

RAUL H. SESBREÑO filed a complaint for damages against Assistant City Fiscals Bienvenido N.
Mabanto, Jr., and Dario D. Rama, Jr., before the Regional Trial Court of Cebu City. After trial
judgment was rendered ordering the defendants to pay P11,000.00 to the plaintiff, private
respondent herein. The decision having become final and executory, on motion of the latter,
the trial court ordered its execution. This order was questioned by the defendants before the
Court of Appeals. However, on 15 January 1992 a writ of execution was issued.

On 4 February 1992 a notice of garnishment was served on petitioner Loreto D. de la Victoria as

City Fiscal of Mandaue City where defendant Mabanto, Jr., was then detailed. The notice
directed petitioner not to disburse, transfer, release or convey to any other person except to
the deputy sheriff concerned the salary checks or other checks, monies, or cash due or
belonging to Mabanto, Jr., under penalty of law. 1 On 10 March 1992 private respondent filed a
motion before the trial court for examination of the garnishees.

On 25 May 1992 the petition pending before the Court of Appeals was dismissed. Thus the trial
court, finding no more legal obstacle to act on the motion for examination of the garnishees,
directed petitioner on 4 November 1992 to submit his report showing the amount of the
garnished salaries of Mabanto, Jr., within fifteen (15) days from receipt 2 taking into
consideration the provisions of Sec. 12, pars. (f) and (i), Rule 39 of the Rules of Court.

On 24 November 1992 private respondent filed a motion to require petitioner to explain why
he should not be cited in contempt of court for failing to comply with the order of 4 November
1992.

On the other hand, on 19 January 1993 petitioner moved to quash the notice of garnishment
claiming that he was not in possession of any money, funds, credit, property or anything of
value belonging to Mabanto, Jr., except his salary and RATA checks, but that said checks were
not yet properties of Mabanto, Jr., until delivered to him. He further claimed that, as such, they
were still public funds which could not be subject to garnishment.

On 9 March 1993 the trial court denied both motions and ordered petitioner to immediately
comply with its order of 4 November 1992. 3 It opined that the checks of Mabanto, Jr., had
already been released through petitioner by the Department of Justice duly signed by the
officer concerned. Upon service of the writ of garnishment, petitioner as custodian of the
checks was under obligation to hold them for the judgment creditor. Petitioner became a
virtual party to, or a forced intervenor in, the case and the trial court thereby acquired
jurisdiction to bind him to its orders and processes with a view to the complete satisfaction of
the judgment. Additionally, there was no sufficient reason for petitioner to hold the checks
because they were no longer government funds and presumably delivered to the payee,
conformably with the last sentence of Sec. 16 of the Negotiable Instruments Law.

With regard to the contempt charge, the trial court was not morally convinced of petitioner's
guilt. For, while his explanation suffered from procedural infirmities nevertheless he took pains
in enlightening the court by sending a written explanation dated 22 July 1992 requesting for the
lifting of the notice of garnishment on the ground that the notice should have been sent to the
Finance Officer of the Department of Justice. Petitioner insists that he had no authority to
segregate a portion of the salary of Mabanto, Jr. The explanation however was not submitted
to the trial court for action since the stenographic reporter failed to attach it to the record. 4

On 20 April 1993 the motion for reconsideration was denied. The trial court explained that it
was not the duty of the garnishee to inquire or judge for himself whether the issuance of the
order of execution, writ of execution and notice of garnishment was justified. His only duty was
to turn over the garnished checks to the trial court which issued the order of execution. 5

Petitioner raises the following relevant issues: (1) whether a check still in the hands of the
maker or its duly authorized representative is owned by the payee before physical delivery to
the latter: and, (2) whether the salary check of a government official or employee funded with
public funds can be subject to garnishment.

Petitioner reiterates his position that the salary checks were not owned by Mabanto, Jr.,
because they were not yet delivered to him, and that petitioner as garnishee has no legal
obligation to hold and deliver them to the trial court to be applied to Mabanto, Jr.'s judgment
debt. The thesis of petitioner is that the salary checks still formed part of public funds and
therefore beyond the reach of garnishment proceedings.

Petitioner has well argued his case.

Garnishment is considered as a species of attachment for reaching credits belonging to the

judgment debtor owing to him from a stranger to the litigation. 6 Emphasis is laid on the phrase
"belonging to the judgment debtor" since it is the focal point in resolving the issues raised.

As Assistant City Fiscal, the source of the salary of Mabanto, Jr., is public funds. He receives his
compensation in the form of checks from the Department of Justice through petitioner as City
Fiscal of Mandaue City and head of office. Under Sec. 16 of the Negotiable Instruments Law,
every contract on a negotiable instrument is incomplete and revocable until delivery of the
instrument for the purpose of giving effect thereto. As ordinarily understood, delivery means
the transfer of the possession of the instrument by the maker or drawer with intent to transfer
title to the payee and recognize him as the holder thereof.7

According to the trial court, the checks of Mabanto, Jr., were already released by the
Department of Justice duly signed by the officer concerned through petitioner and upon service
of the writ of garnishment by the sheriff petitioner was under obligation to hold them for the
judgment creditor. It recognized the role of petitioner as custodian of the checks. At the same
time however it considered the checks as no longer government funds and presumed delivered
to the payee based on the last sentence of Sec. 16 of the Negotiable Instruments Law which
states: "And where the instrument is no longer in the possession of a party whose signature
appears thereon, a valid and intentional delivery by him is presumed." Yet, the presumption is
not conclusive because the last portion of the provision says "until the contrary is proved."
However this phrase was deleted by the trial court for no apparent reason. Proof to the
contrary is its own finding that the checks were in the custody of petitioner. Inasmuch as said
checks had not yet been delivered to Mabanto, Jr., they did not belong to him and still had the
character of public funds. In Tiro v. Hontanosas 8 we ruled that —

The salary check of a government officer or employee such as a teacher does not
belong to him before it is physically delivered to him. Until that time the check
belongs to the government. Accordingly, before there is actual delivery of the
check, the payee has no power over it; he cannot assign it without the consent of
the Government.

As a necessary consequence of being public fund, the checks may not be garnished to satisfy
the judgment. 9 The rationale behind this doctrine is obvious consideration of public policy. The
Court succinctly stated in Commissioner of Public Highways v. San Diego 10 that —

The functions and public services rendered by the State cannot be allowed to be
paralyzed or disrupted by the diversion of public funds from their legitimate and
specific objects, as appropriated by law.

In denying petitioner's motion for reconsideration, the trial court expressed the additional
ratiocination that it was not the duty of the garnishee to inquire or judge for himself whether
the issuance of the order of execution, the writ of execution, and the notice of garnishment was
justified, citing our ruling in Philippine Commercial Industrial Bank v. Court of Appeals. 11 Our
precise ruling in that case was that "[I]t is not incumbent upon the garnishee to inquire or to
judge for itself whether or not the order for the advance execution of a judgment is valid." But
that is invoking only the general rule. We have also established therein the compelling reasons,
as exceptions thereto, which were not taken into account by the trial court, e.g., a defect on the
face of the writ or actual knowledge by the garnishee of lack of entitlement on the part of the
garnisher. It is worth to note that the ruling referred to the validity of advance execution of
judgments, but a careful scrutiny of that case and similar cases reveals that it was applicable to
a notice of garnishment as well. In the case at bench, it was incumbent upon petitioner to
inquire into the validity of the notice of garnishment as he had actual knowledge of the non-
entitlement of private respondent to the checks in question. Consequently, we find no difficulty
concluding that the trial court exceeded its jurisdiction in issuing the notice of garnishment
concerning the salary checks of Mabanto, Jr., in the possession of petitioner.

WHEREFORE, the petition is GRANTED. The orders of 9 March 1993 and 20 April 1993 of the
Regional Trial Court of Cebu City, Br. 17, subject of the petition are SET ASIDE. The notice of
garnishment served on petitioner dated 3 February 1992 is ordered DISCHARGED.

SO ORDERED.

Quiason and Kapunan, JJ., concur.

Separate Opinions

DAVIDE, JR., J., concurring and dissenting:

This Court may take judicial notice of the fact that checks for salaries of employees of various
Departments all over the country are prepared in Manila not at the end of the payroll period,
but days before it to ensure that they reach the employees concerned not later than the end of
the payroll period. As to the employees in the provinces or cities, the checks are sent through
the heads of the corresponding offices of the Departments. Thus, in the case of Prosecutors and
Assistant Prosecutors of the Department of Justice, the checks are sent through the Provincial
Prosecutors or City Prosecutors, as the case may be, who shall then deliver the checks to the
payees.

Involved in the instant case are the salary and RATA checks of then Assistant City Fiscal
Bienvenido Mabanto, Jr., who was detailed in the Office of the City Fiscal (now Prosecutor) of
Mandaue City. Conformably with the aforesaid practice, these checks were sent to Mabanto
thru the petitioner who was then the City Fiscal of Mandaue City.

The ponencia failed to indicate the payroll period covered by the salary check and the month to
which the RATA check corresponds.

I respectfully submit that if these salary and RATA checks corresponded, respectively, to a
payroll period and to a month which had already lapsed at the time the notice of garnishment
was served, the garnishment would be valid, as the checks would then cease to be property of
the Government and would become property of Mabanto. Upon the expiration of such period
and month, the sums indicated therein were deemed automatically segregated from the
budgetary allocations for the Department of Justice under the General Appropriations Act.

It must be recalled that the public policy against execution, attachment, or garnishment is
directed to public funds.

Thus, in the case of Director of the Bureau of Commerce and Industry vs. Concepcion 1 where
the core issue was whether or not the salary due from the Government to a public officer or
employee can, by garnishment, be seized before being paid to him and appropriated to the
payment of his judgment debts, this Court held:

A rule, which has never been seriously questioned, is that money in the hands of
public officers, although it may be due government employees, is not liable to
the creditors of these employees in the process of garnishment. One reason is,
that the State, by virtue of its sovereignty, may not be sued in its own courts
except by express authorization by the Legislature, and to subject its officers to
garnishment would be to permit indirectly what is prohibited directly. Another
reason is that moneys sought to be garnished, as long as they remain in the
hands of the disbursing officer of the Government, belong to the latter, although
the defendant in garnishment may be entitled to a specific portion thereof. And
still another reason which covers both of the foregoing is that every
consideration of public policy forbids it.

The United States Supreme Court, in the leading case of Buchanan vs. Alexander
([1846], 4 How., 19), in speaking of the right of creditors of seamen, by process
of attachment, to divert the public money from its legitimate and appropriate
object, said:

To state such a principle is to refute it. No government can

sanction it. At all times it would be found embarrassing, and
under some circumstances it might be fatal to the public service. .
. . So long as money remains in the hands of a disbursing officer, it
is as much the money of the United States, as if it had not been
drawn from the treasury. Until paid over by the agent of the
government to the person entitled to it, the fund cannot, in any
legal sense, be considered a part of his effects." (See, further, 12
R.C.L., p. 841; Keene vs. Smith [1904], 44 Ore., 525; Wild vs.
Ferguson [1871], 23 La. Ann., 752; Bank of Tennessee vs. Dibrell
[1855], 3 Sneed [Tenn.], 379). (emphasis supplied)

The authorities cited in the ponencia are inapplicable. Garnished or levied on therein were
public funds, to wit: (a) the pump irrigation trust fund deposited with the Philippine National
Bank (PNB) in the account of the Irrigation Service Unit in Republic vs. Palacio; 2 (b) the deposits
of the National Media Production Center in Traders Royal Bank vs. Intermediate Appellate
Court; 3 and (c) the deposits of the Bureau of Public Highways with the PNB under a current
account, which may be expended only for their legitimate object as authorized by the
corresponding legislative appropriation in Commissioner of Public Highways vs. Diego. 4

Neither is Tiro vs. Hontanosas 5 squarely in point. The said case involved the validity of Circular
No. 21, series of 1969, issued by the Director of Public Schools which directed that "henceforth
no cashier or disbursing officer shall pay to attorneys-in-fact or other persons who may be
authorized under a power of attorney or other forms of authority to collect the salary of an
employee, except when the persons so designated and authorized is an immediate member of
the family of the employee concerned, and in all other cases except upon proper authorization
of the Assistant Executive Secretary for Legal and Administrative Matters, with the
recommendation of the Financial Assistant." Private respondent Zafra Financing Enterprise,
which had extended loans to public school teachers in Cebu City and obtained from the
latter promissory notes and special powers of attorney authorizing it to take and collect their
salary checks from the Division Office in Cebu City of the Bureau of Public Schools, sought, inter
alia, to nullify the Circular. It is clear that the teachers had in fact assigned to or waived in favor
of Zafra their future salaries which were still public funds. That assignment or waiver was
contrary to public policy.

I would therefore vote to grant the petition only if the salary and RATA checks garnished
corresponds to an unexpired payroll period and RATA month, respectively.

Padilla, J., concurs.

Separate Opinions

DAVIDE, JR., J., concurring and dissenting:

This Court may take judicial notice of the fact that checks for salaries of employees of various
Departments all over the country are prepared in Manila not at the end of the payroll period,
but days before it to ensure that they reach the employees concerned not later than the end of
the payroll period. As to the employees in the provinces or cities, the checks are sent through
the heads of the corresponding offices of the Departments. Thus, in the case of Prosecutors and
Assistant Prosecutors of the Department of Justice, the checks are sent through the Provincial
Prosecutors or City Prosecutors, as the case may be, who shall then deliver the checks to the
payees.

Involved in the instant case are the salary and RATA checks of then Assistant City Fiscal
Bienvenido Mabanto, Jr., who was detailed in the Office of the City Fiscal (now Prosecutor) of
Mandaue City. Conformably with the aforesaid practice, these checks were sent to Mabanto
thru the petitioner who was then the City Fiscal of Mandaue City.
The ponencia failed to indicate the payroll period covered by the salary check and the month to
which the RATA check corresponds.

I respectfully submit that if these salary and RATA checks corresponded, respectively, to a
payroll period and to a month which had already lapsed at the time the notice of garnishment
was served, the garnishment would be valid, as the checks would then cease to be property of
the Government and would become property of Mabanto. Upon the expiration of such period
and month, the sums indicated therein were deemed automatically segregated from the
budgetary allocations for the Department of Justice under the General Appropriations Act.

It must be recalled that the public policy against execution, attachment, or garnishment is
directed to public funds.

Thus, in the case of Director of the Bureau of Commerce and Industry vs. Concepcion 1 where
the core issue was whether or not the salary due from the Government to a public officer or
employee can, by garnishment, be seized before being paid to him and appropriated to the
payment of his judgment debts, this Court held:

A rule, which has never been seriously questioned, is that money in the hands of
public officers, although it may be due government employees, is not liable to
the creditors of these employees in the process of garnishment. One reason is,
that the State, by virtue of its sovereignty, may not be sued in its own courts
except by express authorization by the Legislature, and to subject its officers to
garnishment would be to permit indirectly what is prohibited directly. Another
reason is that moneys sought to be garnished, as long as they remain in the
hands of the disbursing officer of the Government, belong to the latter, although
the defendant in garnishment may be entitled to a specific portion thereof. And
still another reason which covers both of the foregoing is that every
consideration of public policy forbids it.

The United States Supreme Court, in the leading case of Buchanan vs. Alexander
([1846], 4 How., 19), in speaking of the right of creditors of seamen, by process
of attachment, to divert the public money from its legitimate and appropriate
object, said:

To state such a principle is to refute it. No government can

sanction it. At all times it would be found embarrassing, and
under some circumstances it might be fatal to the public service. .
. . So long as money remains in the hands of a disbursing officer, it
is as much the money of the United States, as if it had not been
drawn from the treasury. Until paid over by the agent of the
government to the person entitled to it, the fund cannot, in any
legal sense, be considered a part of his effects." (See, further, 12
R.C.L., p. 841; Keene vs. Smith [1904], 44 Ore., 525; Wild vs.
 Ferguson [1871], 23 La. Ann., 752; Bank of Tennessee vs. Dibrell
[1855], 3 Sneed [Tenn.], 379). (emphasis supplied)

The authorities cited in the ponencia are inapplicable. Garnished or levied on therein were
public funds, to wit: (a) the pump irrigation trust fund deposited with the Philippine National
Bank (PNB) in the account of the Irrigation Service Unit in Republic vs. Palacio; 2 (b) the deposits
of the National Media Production Center in Traders Royal Bank vs. Intermediate Appellate
Court; 3 and (c) the deposits of the Bureau of Public Highways with the PNB under a current
account, which may be expended only for their legitimate object as authorized by the
corresponding legislative appropriation in Commissioner of Public Highways vs. Diego. 4

Neither is Tiro vs. Hontanosas 5 squarely in point. The said case involved the validity of Circular
No. 21, series of 1969, issued by the Director of Public Schools which directed that "henceforth
no cashier or disbursing officer shall pay to attorneys-in-fact or other persons who may be
authorized under a power of attorney or other forms of authority to collect the salary of an
employee, except when the persons so designated and authorized is an immediate member of
the family of the employee concerned, and in all other cases except upon proper authorization
of the Assistant Executive Secretary for Legal and Administrative Matters, with the
recommendation of the Financial Assistant." Private respondent Zafra Financing Enterprise,
which had extended loans to public school teachers in Cebu City and obtained from the
latter promissory notes and special powers of attorney authorizing it to take and collect their
salary checks from the Division Office in Cebu City of the Bureau of Public Schools, sought, inter
alia, to nullify the Circular. It is clear that the teachers had in fact assigned to or waived in favor
of Zafra their future salaries which were still public funds. That assignment or waiver was
contrary to public policy.

I would therefore vote to grant the petition only if the salary and RATA checks garnished
corresponds to an unexpired payroll period and RATA month, respectively.

7. [G.R. No. 116320. November 29, 1999.]

ADALIA FRANCISCO, Petitioner, v. COURT OF APPEALS, HERBY COMMERCIAL &

CONSTRUCTION CORPORATION AND JAIME C. ONG, Respondents.

DECISION

GONZAGA-REYES, J.:

Assailed in this petition for review on certiorari is the decision 1 of the Court of Appeals
affirming the decision 2 rendered by Branch 168 of the Regional Trial Court of Pasig in Civil Case
No. 35231 in favor of private respondents.chanrobles virtual lawlibrary

The controversy before this Court finds its origins in a Land Development and Construction
Contract which was entered into on June 23, 1977 by A. Francisco Realty & Development
Corporation (AFRDC), of which petitioner Adalia Francisco (Francisco) is the president, and
private respondent Herby Commercial & Construction Corporation (HCCC), represented by its
President and General Manager private respondent Jaime C. Ong (Ong), pursuant to a housing
project of AFRDC at San Jose del Monte, Bulacan, financed by the Government Service
Insurance System (GSIS). Under the contract, HCCC agreed to undertake the construction of 35
housing units and the development of 35 hectares of land. The payment of HCCC for its services
was on a turn-key basis, that is, HCCC was to be paid on the basis of the completed houses and
developed lands delivered to and accepted by AFRDC and the GSIS. To facilitate payment,
AFRDC executed a Deed of Assignment in favor of HCCC to enable the latter to collect payments
directly from the GSIS. Furthermore, the GSIS and AFRDC put up an Executive Committee
Account with the Insular Bank of Asia & America (IBAA) in the amount of P4,000,000.00 from
which checks would be issued and co-signed by petitioner Francisco and the GSIS Vice-
President Armando Diaz (Diaz).

On February 10, 1978, HCCC filed a complaint 3 with the Regional Trial Court of Quezon City
against Francisco, AFRDC and the GSIS for the collection of the unpaid balance under the Land
Development and Construction Contract in the amount of P515,493.89 for completed and
delivered housing units and land development. However, the parties eventually arrived at an
amicable settlement of their differences, which was embodied in a Memorandum Agreement
executed by HCCC and AFRDC on July 21, 1978. Under the agreement, the parties stipulated
that HCCC had turned over 83 housing units which have been accepted and paid for by the
GSIS. The GSIS acknowledged that it still owed HCCC P520,177.50 representing incomplete
construction of housing units, incomplete land development and 5% retention, which amount
will be discharged when the defects and deficiencies are finally completed by HCCC. It was also
provided that HCCC was indebted to AFRDC in the amount of P180,234.91 which the former
agreed would be paid out of the proceeds from the 40 housing units still to be turned over by
HCCC or from any amount due to HCCC from the GSIS. Consequently, the trial court dismissed
the case upon the filing by the parties of a joint motion to dismiss.

Sometime in 1979, after an examination of the records of the GSIS, Ong discovered that Diaz
and Francisco had executed and signed seven checks 4 , of various dates and amounts, drawn
against the IBAA and payable to HCCC for completed and delivered work under the contract.
Ong, however, claims that these checks were never delivered to HCCC. Upon inquiry with Diaz,
Ong learned that the GSIS gave Francisco custody of the checks since she promised that she
would deliver the same to HCCC. Instead, Francisco forged the signature of Ong, without his
knowledge or consent, at the dorsal portion of the said checks to make it appear that HCCC had
indorsed the checks; Francisco then indorsed the checks for a second time by signing her name
at the back of the checks and deposited the checks in her IBAA savings account. IBAA credited
Francisco’s account with the amount of the checks and the latter withdrew the amount so
credited.
On June 7, 1979, Ong filed complaints with the office of the city fiscal of Quezon City, charging
Francisco with estafa thru falsification of commercial documents. Francisco denied having
forged Ong’s signature on the checks, claiming that Ong himself indorsed the seven checks in
behalf of HCCC and delivered the same to Francisco in payment of the loans extended by
Francisco to HCCC. According to Francisco, she agreed to grant HCCC the loans in the total
amount of P585,000.00 and covered by eighteen promissory notes in order to obviate the risk
of the non-completion of the project. As a means of repayment, Ong allegedly issued a
Certification authorizing Francisco to collect HCCC’s receivables from the GSIS. Assistant City
Fiscal Ramon M. Gerona gave credence to Francisco’s claims and accordingly, dismissed the
complaints, which dismissal was affirmed by the Minister of Justice in a resolution issued on
June 5, 1981.

The present case was brought by private respondents on November 19, 1979 against Francisco
and IBAA for the recovery of P370,475.00, representing the total value of the seven checks, and
for damages, attorney’s fees, expenses of litigation and costs. After trial on the merits, the trial
court rendered its decision in favor of private respondents, the dispositive portion of which
provides —chanrobles law library : red

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff’s and
against the defendants INSULAR BANK OF ASIA & AMERICA and ATTY. ADALIA FRANCISCO, to
jointly and severally pay the plaintiffs the amount of P370,475.00 plus interest thereon at the
rate of 12% per annum from the date of the filing of the complaint until the full amount is paid;
moral damages to plaintiff Jaime Ong in the sum of P50,000.00; exemplary damages of
P50,000.00; litigation expenses of P5,000.00; and attorney’s fees of P50,000.00.

With respect to the cross-claim of the defendant IBAA against its co-defendant Atty. Adalia
Francisco, the latter is ordered to reimburse the former for the sums that the Bank shall pay to
the plaintiff on the forged checks including the interests paid thereon.

Further, the defendants are ordered to pay the costs.

Based upon the findings of handwriting experts from the National Bureau of Investigation (NBI),
the trial court held that Francisco had indeed forged the signature of Ong to make it appear
that he had indorsed the checks. Also, the court ruled that there were no loans extended,
reasoning that it was unbelievable that HCCC was experiencing financial difficulties so as to
compel it to obtain the loans from AFRDC in view of the fact that the GSIS had issued checks in
favor of HCCC at about the same time that the alleged advances were made. The trial court
stated that it was plausible that Francisco concealed the fact of issuance of the checks from
private respondents in order to make it appear as if she were accommodating private
respondents, when in truth she was lending HCCC its own money.

With regards to the Memorandum Agreement entered into between AFRDC and HCCC in Civil
Case No. Q-24628, the trial court held that the same did not make any mention of the forged
checks since private respondents were as of yet unaware of their existence, that fact having
been effectively concealed by Francisco, until private respondents acquired knowledge of
Francisco’s misdeeds in 1979.

IBAA was held liable to private respondents for having honored the checks despite such obvious
irregularities as the lack of initials to validate the alterations made on the check, the absence of
the signature of a co-signatory in the corporate checks of HCCC and the deposit of the checks
on a second indorsement in the savings account of Francisco. However, the trial court allowed
IBAA recourse against Francisco, who was ordered to reimburse the IBAA for any sums it shall
have to pay to private respondents. 5

Both Francisco and IBAA appealed the trial court’s decision, but the Court of Appeals dismissed
IBAA’s appeal for its failure to file its brief within the 45-day extension granted by the appellate
court. IBAA’s motion for reconsideration and petition for review on certiorari filed with this
Court were also similarly denied. On November 21, 1989, IBAA and HCCC entered into a
Compromise Agreement which was approved by the trial court wherein HCCC acknowledged
receipt of the amount of P370,475.00 in full satisfaction of its claims against IBAA, without
prejudice to the right of the latter to pursue its claims against Francisco.

On June 29, 1992, the Court of Appeals affirmed the trial court’s ruling, hence this petition for
review on certiorari filed by petitioner, assigning the following errors to the appealed decision
—

1. The respondent Court of Appeals erred in concluding that private respondents did not owe
Petitioner the sum covered by the Promissory Notes Exh. 2-2-A-2-P (FRANCISCO). Such
conclusion was based mainly on conjectures, surmises and speculation contrary to the
unrebutted pleadings and evidence presented by petitioner.

2. The respondent Court of Appeals erred in holding that Petitioner falsified the signature of
private respondent ONG on the checks in question without any authority therefor which is
patently contradictory to the unrebutted pleading and evidence that petitioner was expressly
authorized by respondent HERBY thru ONG to collect all receivables of HERBY from GSIS to pay
the loans extended to them. (Exhibit 3).

3. That respondent Court of Appeals erred in holding that the seven checks in question were
not taken up in the liquidation and reconciliation of all outstanding account between AFRDC
and HERBY as acknowledged by the parties in Memorandum Agreement (Exh. 5) is a pure
conjecture, surmise and speculation contrary to the unrebutted evidence presented by
petitioners. It is an inference made which is manifestly mistaken.

4. The respondent Court of Appeals erred in affirming the decision of the lower court and
dismissing the appeal. 6

The pivotal issue in this case is whether or not Francisco forged the signature of Ong on the
seven checks. In this connection, we uphold the lower courts’ finding that the subject matter of
the present case, specifically the seven checks, drawn by GSIS and AFRDC, dated between
October to November 1977, in the total amount of P370,475.00 and payable to HCCC, was not
included in the Memorandum Agreement executed by HCCC and AFRDC in Civil Case No. Q-
24628. As observed by the trial court, aside from there being absolutely no mention of the
checks in the said agreement, the amounts represented by said checks could not have been
included in the Memorandum Agreement executed in 1978 because private respondents only
discovered Francisco’s acts of forgery in 1979. The lower courts found that Francisco was able
to easily conceal from private respondents even the fact of the issuance of the checks since she
was a co-signatory thereof. 7 We also note that Francisco had custody of the checks, as proven
by the check vouchers bearing, her uncontested signature, 8 by which she, in effect,
acknowledged having received the checks intended for HCCC. This contradicts Francisco’s
claims that the checks were issued to Ong who delivered them to Francisco already indorsed. 9

As regards the forgery, we concur with the lower courts’ finding that Francisco forged the
signature of Ong on the checks to make it appear as if Ong had indorsed said checks and that,
after indorsing the checks for a second time by signing her name at the back of the checks,
Francisco deposited said checks in her savings account with IBAA. The forgery was satisfactorily
established in the trial court upon the strength of the findings of the NBI handwriting expert. 10
Other than petitioner’s self-serving denials, there is nothing in the records to rebut the NBI’s
findings. Well-entrenched is the rule that findings of trial courts which are factual in nature,
especially when affirmed by the Court of Appeals, deserve to be respected and affirmed by the
Supreme Court, provided it is supported by substantial evidence on record, 11 as it is in the
case at bench.

Petitioner claims that she was, in any event, authorized to sign Ong’s name on the checks by
virtue of the Certification executed by Ong in her favor giving her the authority to collect all the
receivables of HCCC from the GSIS, including the questioned checks. 12 Petitioner’s alternative
defense must similarly fail. The Negotiable Instruments Law provides that where any person is
under obligation to indorse in a representative capacity, he may indorse in such terms as to
negative personal liability. 13 An agent, when so signing, should indicate that he is merely
signing in behalf of the principal and must disclose the name of his principal; otherwise he shall
be held personally liable. 14 Even assuming that Francisco was authorized by HCCC to sign
Ong’s name, still, Francisco did not indorse the instrument in accordance with law. Instead of
signing Ong’s name, Francisco should have signed her own name and expressly indicated that
she was signing as an agent of HCCC. Thus, the Certification cannot be used by Francisco to
validate her act of forgery.chanroblesvirtual|awlibrary

Every person who, contrary to law, wilfully or negligently causes damage to another, shall
indemnify the latter for the same. 15 Due to her forgery of Ong’s signature which enabled her
to deposit the checks in her own account, Francisco deprived HCCC of the money due it from
the GSIS pursuant to the Land Development and Construction Contract. Thus, we affirm
respondent court’s award of compensatory damages in the amount of P370,475.00, but with a
modification as to the interest rate which shall be six percent (6%) per annum, to be computed
from the date of the filing of the complaint since the amount of damages was alleged in the
complaint; 16 however, the rate of interest shall be twelve percent (12%) per annum from the
time the judgment in this case becomes final and executory until its satisfaction and the basis
for the computation of this twelve percent (12%) rate of interest shall be the amount of
P370,475.00. This is in accordance with the doctrine enunciated in Eastern Shipping Lines, Inc.
v. Court of Appeals, Et Al., 17 which was reiterated in Philippine National Bank v. Court of
Appeals, 18 Philippine Airlines, Inc. v. Court of Appeals 19 and in Keng Hua Paper Products Co.,
Inc. v. Court of Appeals, 20 which provides that —

1. When an obligation is breached, and it consists in the payment of a sum of money, i.e., a loan
or forbearance of money, the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest

on the amount of damages awarded may be imposed at the discretion of the court at the rate
of six percent (6%) per annum. No interest, however, shall be adjudged on unliquidated claims
or damages except when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code)
but when such certainty cannot be so reasonably established at the time the demand is made,
the interest shall begin to run only from the date the judgment of the court is made (at which
time the quantification of damages may be deemed to have been reasonably ascertained). The
actual base for the computation of legal interest shall, in any case, be on the amount finally
adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the
rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be
twelve percent (12%) per annum from such finality until its satisfaction, this interim period
being deemed to be by then an equivalent to a forbearance of credit.

We also sustain the award of exemplary damages in the amount of P50,000.00. Under Article
2229 of the Civil Code, exemplary damages are imposed by way of example or correction for
the public good, in addition to the moral, temperate, liquidated or compensatory damages.
Considering petitioner’s fraudulent act, we hold that an award of P50,000.00 would be
adequate, fair and reasonable. The grant of exemplary damages justifies the award of
attorney’s fees in the amount of P50,000.00, and the award of P5,000.00 for litigation
expenses. 21

The appellate court’s award of P50,000.00 in moral damages is warranted. Under Article 2217
of the Civil Code, moral damages may be granted upon proof of physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation and similar injury. 22 Ong testified that he suffered sleepless nights,
embarrassment, humiliation and anxiety upon discovering that the checks due his company
were forged by petitioner and that petitioner had filed baseless criminal complaints against him
before the fiscal’s office of Quezon City which disrupted HCCC’s business operations. 23

WHEREFORE, we AFFIRM the respondent court’s decision promulgated on June 29, 1992,
upholding the February 16, 1988 decision of the trial court in favor of private respondents, with
the modification that the interest upon the actual damages awarded shall be at six percent (6%)
per annum, which interest rate shall be computed from the time of the filing of the complaint
on November 19, 1979. However, the interest rate shall be twelve percent (12%) per annum
from the time the judgment in this case becomes final and executory and until such amount is
fully paid. The basis for computation of the six percent and twelve percent rates of interest
shall be the amount of P370,475.00. No pronouncement as to costs.