G.R. No.

74451 May 25, 1988

EQUITABLE BANKING CORPORATION, petitioner,

vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT and THE EDWARD J. NELL CO.,
respondents.

William R. Veto for petitioner.

Pelaez, Adriano & Gregorio for respondents.

MELENCIO-HERRERA, J.:

In this Petition for Review on certiorari petitioner, Equitable Banking Corporation, prays that
the adverse judgment against it rendered by respondent Appellate Court, 1 dated 4 October
1985, and its majority Resolution, dated 28 April 1986, denying petitioner's Motion for
Reconsideration, 2 be annulled and set aside.

The facts pertinent to this Petition, as summarized by the Trial Court and adopted by reference
by Respondent Appellate Court, emanated from the case entitled "Edward J. Nell Co. vs.
Liberato V. Casals, Casville Enterprises, Inc., and Equitable Banking Corporation" of the Court of
First Instance of Rizal (Civil Case No. 25112), and read:

From the evidence submitted by the parties, the Court finds that sometime in
1975 defendant Liberato Casals went to plaintiff Edward J. Nell Company and
told its senior sales engineer, Amado Claustro that he was interested in buying
one of the plaintiff's garrett skidders. Plaintiff was a dealer of machineries,
equipment and supplies. Defendant Casals represented himself as the majority
stockholder, president and general manager of Casville Enterprises, Inc., a firm
engaged in the large scale production, procurement and processing of logs and
lumber products, which had a plywood plant in Sta. Ana, Metro Manila.

After defendant Casals talked with plaintiff's sales engineer, he was referred to
plaintiffs executive vice-president, Apolonio Javier, for negotiation in connection
with the manner of payment. When Javier asked for cash payment for the
skidders, defendant Casals informed him that his corporation, defendant Casville
Enterprises, Inc., had a credit line with defendant Equitable Banking Corporation.
Apparently, impressed with this assertion, Javier agreed to have the skidders
paid by way of a domestic letter of credit which defendant Casals promised to
open in plaintiffs favor, in lieu of cash payment. Accordingly, on December 22,
1975, defendant Casville, through its president, defendant Casals, ordered from
plaintiff two units of garrett skidders ...
The purchase order for the garrett skidders bearing No. 0051 and dated
December 22, 1975 (Exhibit "A") contained the following terms and conditions:

Two (2) units GARRETT Skidders Model 30A complete as basically described in
the bulletin

PRICE: F.O.B. dock

Manila P485,000.00/unit

For two (2) units P970,000.00

SHIPMENT: We will inform you the date and name of the vessel as soon as
arranged.

TERMS: By irrevocable domestic letter of credit to be issued in favor of THE

EDWARD J. NELL CO. or ORDER payable in thirty six (36) months and will be
opened within ninety (90) days after date of shipment. at first installment will be
due one hundred eighty (180) days after date of shipment. Interest-14% per
annum (Exhibit A)

xxx xxx xxx

... in a letter dated April 21, 1976, defendants Casals and Casville requested from
plaintiff the delivery of one (1) unit of the bidders, complete with tools and
cables, to Cagayan de Oro, on or before Saturday, April 24,1976, on board a
Lorenzo shipping vessel, with the information that an irrevocable Domestic
Letter of Credit would be opened in plaintiff's favor on or before June 30, 1976
under the terms and conditions agreed upon (Exhibit "B")

On May 3, 1976, in compliance with defendant Casvile's recognition request,

plaintiff shipped to Cagayan de Oro City a Garrett skidder. Plaintiff paid the
shipping cost in the amount of P10,640.00 because of the verbal assurance of
defendant Casville that it would be covered by the letter of credit soon to be
opened.

xxx xxx xxx

On July 15, 1976, defendant Casals handed to plaintiff a check in the amount of
P300,000.00 postdated August 4, 1976, which was followed by another check of
same date. Plaintiff considered these checks either as partial payment for the
skidder that was already delivered to Cagayan de Oro or as reimbursement for
the marginal deposit that plaintiff was supposed to pay.
In a letter dated August 3, 1976 (Exhibit "C"), defendants Casville informed the
plaintiff that their application for a letter of credit for the payment of the Garrett
skidders had been approved by the Equitable Banking Corporation. However, the
defendants said that they would need the sum of P300,000.00 to stand as
collateral or marginal deposit in favor of Equitable Banking Corporation and an
additional amount of P100,000.00, also in favor of Equitable Banking
Corporation, to clear the title of the Estrada property belonging to defendant
Casals which had been approved as security for the trust receipts to be issued by
the bank, covering the above-mentioned equipment.

Although the marginal deposit was supposed to be produced by defendant

Casville Enterprises, plaintiff agreed to advance the necessary amount in order to
facilitate the transaction. Accordingly, on August 5,1976, plaintiff issued a check
in the amount of P400,000.00 (Exhibit "2") drawn against the First National City
Bank and made payable to the order of Equitable Banking Corporation and with
the following notation or memorandum:

a/c of Casville Enterprises Inc. for Marginal deposit and payment

of balance on Estrada Property to be used as security for trust
receipt for opening L/C of Garrett Skidders in favor of the Edward
J. Nell Co." Said check together with the cash disbursement
voucher (Exhibit "2-A") containing the explanation:

Payment for marginal deposit and other expenses re opening of

L/C for account of Casville Ent..

A covering letter (Exhibit "3") was also sent and when the three documents were
presented to Severino Santos, executive vice president of defendant bank,
Santos did not accept them because the terms and conditions required by the
bank for the opening of the letter of credit had not yet been agreed on.

On August 9, 1976, defendant Casville wrote the bank applying for two letters of
credit to cover its purchase from plaintiff of two Garrett skidders, under the
following terms and conditions:

a) On sight Letter of Credit for P485,000.00; b) One 36 months Letter of Credit

for P606,000.00; c) P300,000.00 CASH marginal deposit1 d) Real Estate Collateral
to secure the Trust Receipts; e) We shall chattel mortgage the equipments
purchased even after payment of the first L/C as additional security for the
balance of the second L/C and f) Other conditions you deem necessary to protect
the interest of the bank."
In a letter dated August 11, 1976 (Exhibit "D-l"), defendant bank replied stating
that it was ready to open the letters of credit upon defendant's compliance of
the following terms and conditions:

c) 30% cash margin deposit; d) Acceptable Real Estate Collateral to secure the
Trust Receipts; e) Chattel Mortgage on the equipment; and Ashville f) Other
terms and conditions that our bank may impose.

Defendant Casville sent a copy of the foregoing letter to the plaintiff enclosing
three postdated checks. In said letter, plaintiff was informed of the requirements
imposed by the defendant bank pointing out that the "cash marginal required
under paragraph (c) is 30% of Pl,091,000.00 or P327,300.00 plus another
P100,000.00 to clean up the Estrada property or a total of P427,300.00" and that
the check covering said amount should be made payable "to the Order of
EQUITABLE BANKING CORPORATION for the account of Casville Enterprises Inc."
Defendant Casville also stated that the three (3) enclosed postdated checks were
intended as replacement of the checks that were previously issued to plaintiff to
secure the sum of P427,300.00 that plaintiff would advance to defendant bank
for the account of defendant Casville. All the new checks were postdated
November 19, 1976 and drawn in the sum of Pl45,500.00 (Exhibit "F"),
P181,800.00 (Exhibit "G") and P100,000.00 (Exhibit "H").

On the same occasion, defendant Casals delivered to plaintiff TCT No. 11891 of
the Register of Deeds of Quezon City and TCT No. 50851 of the Register of Deeds
of Rizal covering two pieces of real estate properties.

Subsequently, Cesar Umali, plaintiffs credit and collection manager,

accompanied by a representative of defendant Casville, went to see Severino
Santos to find out the status of the credit line being sought by defendant
Casville. Santos assured Umali that the letters of credit would be opened as soon
as the requirements imposed by defendant bank in its letter dated August 11,
1976 had been complied with by defendant Casville.

On August 16, 1976, plaintiff issued a check for P427,300.00, payable to the
"order of EQUITABLE BANKING CORPORATION A/C CASVILLE ENTERPRISES, INC."
and drawn against the first National City Bank (Exhibit "E-l"). The check did not
contain the notation found in the previous check issued by the plaintiff (Exhibit
"2") but the substance of said notation was reproduced in a covering letter dated
August 16,1976 that went with the check (Exhibit "E").<äre||anº•1àw> Both the
check and the covering letter were sent to defendant bank through defendant
Casals. Plaintiff entrusted the delivery of the check and the latter to defendant
Casals because it believed that no one, including defendant Casals, could encash
the same as it was made payable to the defendant bank alone. Besides,
 defendant Casals was known to the bank as the one following up the application
for the letters of credit.

Upon receiving the check for P427,300.00 entrusted to him by plaintiff

defendant Casals immediately deposited it with the defendant bank and the
bank teller accepted the same for deposit in defendant Casville's checking
account. After depositing said check, defendant Casville, acting through
defendant Casals, then withdrew all the amount deposited.

Meanwhile, upon their presentation for encashment, plaintiff discovered that

the three checks (Exhibits "F, "G" and "H") in the total amount of P427,300.00,
that were issued by defendant Casville as collateral were all dishonored for
having been drawn against a closed account.

As defendant Casville failed to pay its obligation to defendant bank, the latter
foreclosed the mortgage executed by defendant Casville on the Estrada property
which was sold in a public auction sale to a third party.

Plaintiff allowed some time before following up the application for the letters of
credit knowing that it took time to process the same. However, when the three
checks issued to it by defendant Casville were dishonored, plaintiff became
apprehensive and sent Umali on November 29, 1976, to inquire about the status
of the application for the letters of credit. When plaintiff was informed that no
letters of credit were opened by the defendant bank in its favor and then
discovered that defendant Casville had in the meanwhile withdrawn the entire
amount of P427,300.00, without paying its obligation to the bank plaintiff filed
the instant action.

While the the instant case was being tried, defendants Casals and Casville
assigned the garrett skidder to plaintiff which credited in favor of defendants the
amount of P450,000.00, as partial satisfaction of plaintiff's claim against them.

Defendants Casals and Casville hardly disputed their liability to plaintiff. Not only
did they show lack of interest in disputing plaintiff's claim by not appearing in
most of the hearings, but they also assigned to plaintiff the garrett skidder which
is an action of clear recognition of their liability.

What is left for the Court to determine, therefore, is only the liability of
defendant bank to plaintiff.

xxx xxx xxx

Resolving that issue, the Trial Court rendered judgment, affirmed by Respondent Court in toto,
the pertinent portion of which reads:
 xxx xxx xxx

Defendants Casals and Casville Enterprises and Equitable Banking Corporation

are ordered to pay plaintiff, jointly and severally, the sum of P427,300.00,
representing the amount of plaintiff's check which defendant bank erroneously
credited to the account of defendant Casville and which defendants Casal and
Casville misappropriated, with 12% interest thereon from April 5, 1977, until the
said sum is fully paid.

Defendant Equitable Banking Corporation is ordered to pay plaintiff attorney's

fees in the sum of P25,000.00 .

Proportionate cost against all the defendants.

SO ORDERED.

The crucial issue to resolve is whether or not petitioner Equitable Banking Corporation (briefly,
the Bank) is liable to private respondent Edward J. Nell Co. (NELL, for short) for the value of the
second check issued by NELL, Exhibit "E-l," which was made payable

to the order of EQUITABLE Ashville BANIUNG CORPORATION A/C OF CASVILLE

ENTERPRISES INC.

and which the Bank teller credited to the account of Casville.

The Trial Court found that the amount of the second check had been erroneously credited to
the Casville account; held the Bank liable for the mistake of its employees; and ordered the
Bank to pay NELL the value of the check in the sum of P427,300.00, with legal interest.
Explained the Trial Court:

The Court finds that the check in question was payable only to the defendant
bank and to no one else. Although the words "A/C OF CASVILLE ENTERPRISES
INC. "appear on the face of the check after or under the name of defendant
bank, the payee was still the latter. The addition of said words did not in any way
make Casville Enterprises, Inc. the Payee of the instrument for the words merely
indicated for whose account or in connection with what account the check was
issued by the plaintiff.

Indeed, the bank teller who received it was fully aware that the check was not
negotiable since he stamped thereon the words "NON-NEGOTIABLE For Payee's
Account Only" and "NON-NEGOTIABLE TELLER NO. 4, August 17,1976 EQUITABLE
BANKING CORPORATION.
 But said teller should have exercised more prudence in the handling of Id check
because it was not made out in the usual manner. The addition of the words A/C
OF CASVILLE ENTERPRISES INC." should have placed the teller on guard and he
should have clarified the matter with his superiors. Instead of doing so, however,
the teller decided to rely on his own judgment and at the risk of making a wrong
decision, credited the entire amount in the name of defendant Casville although
the latter was not the payee named in the check. Such mistake was crucial and
was, without doubt, the proximate cause of plaintiffs defraudation.

xxx xxx xxx

Respondent Appellate Court upheld the above conclusions stating in addition:

1) The appellee made the subject check payable to appellant's order, for the
account of Casville Enterprises, Inc. In the light of the other facts, the directive
was for the appellant bank to apply the value of the check as payment for the
letter of credit which Casville Enterprises, Inc. had previously applied for in favor
of the appellee (Exhibit D-1, p. 5). The issuance of the subject check was
precisely to meet the bank's prior requirement of payment before issuing the
letter of credit previously applied for by Casville Enterprises in favor of the
appellee;

xxx xxx xxx

We disagree.

1) The subject check was equivocal and patently ambiguous. By making the check read:

Pay to the EQUITABLE BANKING CORPORATION Order of A/C OF CASVILLE

ENTERPRISES, INC.

the payee ceased to be indicated with reasonable certainty in contravention of Section 8 of the
Negotiable Instruments Law. 3 As worded, it could be accepted as deposit to the account of the
party named after the symbols "A/C," or payable to the Bank as trustee, or as an agent, for
Casville Enterprises, Inc., with the latter being the ultimate beneficiary. That ambiguity is to be
taken contra proferentem that is, construed against NELL who caused the ambiguity and could
have also avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil Code,
provides:

Art. 1377. The interpretation of obscure words or stipulations in a contract shall

not favor the party who caused the obscurity.

2) Contrary to the finding of respondent Appellate Court, the subject check was, initially, not
non-negotiable. Neither was it a crossed check. The rubber-stamping transversall on the face of
the subject check of the words "Non-negotiable for Payee's Account Only" between two (2)
parallel lines, and "Non-negotiable, Teller- No. 4, August 17, 1976," separately boxed, was made
only by the Bank teller in accordance with customary bank practice, and not by NELL as the
drawer of the check, and simply meant that thereafter the same check could no longer be
negotiated.

3) NELL's own acts and omissions in connection with the drawing, issuance and delivery of the
16 August 1976 check, Exhibit "E-l," and its implicit trust in Casals, were the proximate cause of
its own defraudation: (a) The original check of 5 August 1976, Exhibit "2," was payable to the
order solely of "Equitable Banking Corporation." NELL changed the payee in the subject check,
Exhibit "E", however, to "Equitable Banking Corporation, A/C of Casville Enterprises Inc.," upon
Casals request. NELL also eliminated both the cash disbursement voucher accompanying the
check which read:

Payment for marginal deposit and other expense re opening of L/C for account
of Casville Enterprises.

and the memorandum:

a/c of Casville Enterprises Inc. for Marginal deposit and payment of balance on
Estrada Property to be used as security for trust receipt for opening L/C of
Garrett Skidders in favor of the Edward Ashville J Nell Co.

Evidencing the real nature of the transaction was merely a separate covering letter, dated 16
August 1976, which Casals, sinisterly enough, suppressed from the Bank officials and teller.

(b) NELL entrusted the subject check and its covering letter, Exhibit "E," to Casals who,
obviously, had his own antagonistic interests to promote. Thus it was that Casals did not
purposely present the subject check to the Executive Vice-President of the Bank, who was
aware of the negotiations regarding the Letter of Credit, and who had rejected the previous
check, Exhibit "2," including its three documents because the terms and conditions required by
the Bank for the opening of the Letter of Credit had not yet been agreed on.

(c) NELL was extremely accommodating to Casals. Thus, to facilitate the sales transaction, NELL
even advanced the marginal deposit for the garrett skidder. It is, indeed, abnormal for the seller
of goods, the price of which is to be covered by a letter of credit, to advance the marginal
deposit for the same.

(d) NELL had received three (3) postdated checks all dated 16 November, 1976 from Casvine to
secure the subject check and had accepted the deposit with it of two (2) titles of real properties
as collateral for said postdated checks. Thus, NELL was erroneously confident that its interests
were sufficiently protected. Never had it suspected that those postdated checks would be
dishonored, nor that the subject check would be utilized by Casals for a purpose other than for
opening the letter of credit.
In the last analysis, it was NELL's own acts, which put it into the power of Casals and Casville
Enterprises to perpetuate the fraud against it and, consequently, it must bear the loss
(Blondeau, et al., vs. Nano, et al., 61 Phil. 625 [1935]; Sta. Maria vs. Hongkong and Shanghai
Banking Corporation, 89 Phil. 780 [1951]; Republic of the Philippines vs. Equitable Banking
Corporation, L-15895, January 30,1964, 10 SCRA 8).

... As between two innocent persons, one of whom must suffer the consequence
of a breach of trust, the one who made it possible by his act of confidence must
bear the loss.

WHEREFORE, the Petition is granted and the Decision of respondent Appellate Court, dated 4
October 1985, and its majority Resolution, dated 28 April 1986, denying petitioner's Motion for
Reconsideration, are hereby SET ASIDE. The Decision of the then Court of First Instance of Rizal,
Branch XI. is modified in that petitioner Equitable Banking Corporation is absolved from any and
all liabilities to the private respondent, Edward J. Nell Company, and the Amended Complaint
against petitioner bank is hereby ordered dismissed. No costs.

SO ORDERED.
G.R. No. 76788 January 22, 1990

JUANITA SALAS, petitioner,

vs.
HON. COURT OF APPEALS and FIRST FINANCE & LEASING CORPORATION, respondents.

Arsenio C. Villalon, Jr. for petitioner.

Labaguis, Loyola, Angara & Associates for private respondent.

FERNAN, C.J.:

Assailed in this petition for review on certiorari is the decision of the Court of Appeals in C.A.-
G.R. CV No. 00757 entitled "Filinvest Finance & Leasing Corporation v. Salas", which modified
the decision of the Regional Trial Court of San Fernando, Pampanga in Civil Case No. 5915, a
collection suit between the same parties.

Records disclose that on February 6, 1980, Juanita Salas (hereinafter referred to as petitioner)
bought a motor vehicle from the Violago Motor Sales Corporation (VMS for brevity) for
P58,138.20 as evidenced by a promissory note. This note was subsequently endorsed to
Filinvest Finance & Leasing Corporation (hereinafter referred to as private respondent) which
financed the purchase.
Petitioner defaulted in her installments beginning May 21, 1980 allegedly due to a discrepancy
in the engine and chassis numbers of the vehicle delivered to her and those indicated in the
sales invoice, certificate of registration and deed of chattel mortgage, which fact she discovered
when the vehicle figured in an accident on 9 May 1980.
This failure to pay prompted private respondent to initiate Civil Case No. 5915 for a sum of
money against petitioner before the Regional Trial Court of San Fernando, Pampanga.
In its decision dated September 10, 1982, the trial court held, thus:
WHEREFORE, and in view of all the foregoing, judgment is hereby rendered ordering the
defendant to pay the plaintiff the sum of P28,414.40 with interest thereon at the rate of 14%
from October 2, 1980 until the said sum is fully paid; and the further amount of P1,000.00 as
attorney's fees.
The counterclaim of defendant is dismissed.

With costs against defendant. 1

Both petitioner and private respondent appealed the aforesaid decision to the Court of
Appeals.
Imputing fraud, bad faith and misrepresentation against VMS for having delivered a different
vehicle to petitioner, the latter prayed for a reversal of the trial court's decision so that she may
be absolved from the obligation under the contract.
On October 27, 1986, the Court of Appeals rendered its assailed decision, the pertinent portion
of which is quoted hereunder:
The allegations, statements, or admissions contained in a pleading are conclusive as against the
pleader. A party cannot subsequently take a position contradictory of, or inconsistent with his
pleadings (Cunanan vs. Amparo, 80 Phil. 227). Admissions made by the parties in the pleadings,
or in the course of the trial or other proceedings, do not require proof and cannot be
contradicted unless previously shown to have been made through palpable mistake (Sec. 2,
Rule 129, Revised Rules of Court; Sta. Ana vs. Maliwat, L-23023, Aug. 31, 1968, 24 SCRA 1018).
When an action or defense is founded upon a written instrument, copied in or attached to the
corresponding pleading as provided in the preceding section, the genuineness and due
execution of the instrument shall be deemed admitted unless the adverse party, under oath,
specifically denied them, and sets forth what he claims to be the facts (Sec. 8, Rule 8, Revised
Rules of Court; Hibbered vs. Rohde and McMillian, 32 Phil. 476).
A perusal of the evidence shows that the amount of P58,138.20 stated in the promissory note is
the amount assumed by the plaintiff in financing the purchase of defendant's motor vehicle
from the Violago Motor Sales Corp., the monthly amortization of winch is Pl,614.95 for 36
months. Considering that the defendant was able to pay twice (as admitted by the plaintiff,
defendant's account became delinquent only beginning May, 1980) or in the total sum of
P3,229.90, she is therefore liable to pay the remaining balance of P54,908.30 at l4% per annum
from October 2, 1980 until full payment.
WHEREFORE, considering the foregoing, the appealed decision is hereby modified ordering the
defendant to pay the plaintiff the sum of P54,908.30 at 14% per annum from October 2, 1980
until full payment. The decision is AFFIRMED in all other respects. With costs to defendant. 2
Petitioner's motion for reconsideration was denied; hence, the present recourse.
In the petition before us, petitioner assigns twelve (12) errors which focus on the alleged fraud,
bad faith and misrepresentation of Violago Motor Sales Corporation in the conduct of its
business and which fraud, bad faith and misrepresentation supposedly released petitioner from
any liability to private respondent who should instead proceed against VMS. 3
Petitioner argues that in the light of the provision of the law on sales by description 4 which she
alleges is applicable here, no contract ever existed between her and VMS and therefore none
had been assigned in favor of private respondent.
She contends that it is not necessary, as opined by the appellate court, to implead VMS as a
party to the case before it can be made to answer for damages because VMS was earlier sued
by her for "breach of contract with damages" before the Regional Trial Court of Olongapo City,
Branch LXXII, docketed as Civil Case No. 2916-0. She cites as authority the decision therein
where the court originally ordered petitioner to pay the remaining balance of the motor vehicle
installments in the amount of P31,644.30 representing the difference between the agreed
consideration of P49,000.00 as shown in the sales invoice and petitioner's initial downpayment
of P17,855.70 allegedly evidenced by a receipt. Said decision was however reversed later on,
with the same court ordering defendant VMS instead to return to petitioner the sum of
P17,855.70. Parenthetically, said decision is still pending consideration by the First Civil Case
Division of the Court of Appeals, upon an appeal by VMS, docketed as AC-G.R. No. 02922. 5
Private respondent in its comment, prays for the dismissal of the petition and counters that the
issues raised and the allegations adduced therein are a mere rehash of those presented and
already passed upon in the court below, and that the judgment in the "breach of contract" suit
cannot be invoked as an authority as the same is still pending determination in the appellate
court.
We see no cogent reason to disturb the challenged decision.
The pivotal issue in this case is whether the promissory note in question is a negotiable
instrument which will bar completely all the available defenses of the petitioner against private
respondent.
Petitioner's liability on the promissory note, the due execution and genuineness of which she
never denied under oath is, under the foregoing factual milieu, as inevitable as it is clearly
established.
The records reveal that involved herein is not a simple case of assignment of credit as petitioner
would have it appear, where the assignee merely steps into the shoes of, is open to all defenses
available against and can enforce payment only to the same extent as, the assignor-vendor.
Recently, in the case of Consolidated Plywood Industries Inc. v. IFC Leasing and Acceptance
Corp., 6 this Court had the occasion to clearly distinguish between a negotiable and a non-
negotiable instrument.
Among others, the instrument in order to be considered negotiable must contain the so-called
"words of negotiability — i.e., must be payable to "order" or "bearer"". Under Section 8 of the
Negotiable Instruments Law, there are only two ways by which an instrument may be made
payable to order. There must always be a specified person named in the instrument and the bill
or note is to be paid to the person designated in the instrument or to any person to whom he
has indorsed and delivered the same. Without the words "or order or "to the order of", the
instrument is payable only to the person designated therein and is therefore non-negotiable.
Any subsequent purchaser thereof will not enjoy the advantages of being a holder of a
negotiable instrument, but will merely "step into the shoes" of the person designated in the
instrument and will thus be open to all defenses available against the latter. Such being the
situation in the above-cited case, it was held that therein private respondent is not a holder in
due course but a mere assignee against whom all defenses available to the assignor may be
raised. 7
In the case at bar, however, the situation is different. Indubitably, the basis of private
respondent's claim against petitioner is a promissory note which bears all the earmarks of
negotiability.
The pertinent portion of the note reads:
PROMISSORY NOTE
(MONTHLY)
P58,138.20
San Fernando, Pampanga, Philippines
Feb. 11, 1980
For value received, I/We jointly and severally, promise to pay Violago Motor Sales Corporation
or order, at its office in San Fernando, Pampanga, the sum of FIFTY EIGHT THOUSAND ONE
HUNDRED THIRTY EIGHT & 201/100 ONLY (P58,138.20) Philippine currency, which amount
includes interest at 14% per annum based on the diminishing balance, the said principal sum, to
be payable, without need of notice or demand, in installments of the amounts following and at
the dates hereinafter set forth, to wit: P1,614.95 monthly for "36" months due and payable on
the 21st day of each month starting March 21, 1980 thru and inclusive of February 21, 1983.
P_________ monthly for ______ months due and payable on the ______ day of each month
starting _____198__ thru and inclusive of _____, 198________ provided that interest at 14%
per annum shall be added on each unpaid installment from maturity hereof until fully paid.
xxx xxx xxx
Maker; Co-Maker:
(SIGNED) JUANITA SALAS _________________
Address:

____________________ ____________________
WITNESSES
SIGNED: ILLEGIBLE SIGNED: ILLEGIBLE
TAN # TAN #
PAY TO THE ORDER OF
FILINVEST FINANCE AND LEASING CORPORATION
VIOLAGO MOTOR SALES CORPORATION
BY: (SIGNED) GENEVEVA V. BALTAZAR
Cash Manager 8
A careful study of the questioned promissory note shows that it is a negotiable instrument,
having complied with the requisites under the law as follows: [a] it is in writing and signed by
the maker Juanita Salas; [b] it contains an unconditional promise to pay the amount of
P58,138.20; [c] it is payable at a fixed or determinable future time which is "P1,614.95 monthly
for 36 months due and payable on the 21 st day of each month starting March 21, 1980 thru
and inclusive of Feb. 21, 1983;" [d] it is payable to Violago Motor Sales Corporation, or order
and as such, [e] the drawee is named or indicated with certainty. 9
It was negotiated by indorsement in writing on the instrument itself payable to the Order of
Filinvest Finance and Leasing Corporation 10 and it is an indorsement of the entire instrument.
11
Under the circumstances, there appears to be no question that Filinvest is a holder in due
course, having taken the instrument under the following conditions: [a] it is complete and
regular upon its face; [b] it became the holder thereof before it was overdue, and without
notice that it had previously been dishonored; [c] it took the same in good faith and for value;
and [d] when it was negotiated to Filinvest, the latter had no notice of any infirmity in the
instrument or defect in the title of VMS Corporation. 12
Accordingly, respondent corporation holds the instrument free from any defect of title of prior
parties, and free from defenses available to prior parties among themselves, and may enforce
payment of the instrument for the full amount thereof. 13 This being so, petitioner cannot set
up against respondent the defense of nullity of the contract of sale between her and VMS.
Even assuming for the sake of argument that there is an iota of truth in petitioner's allegation
that there was in fact deception made upon her in that the vehicle she purchased was different
from that actually delivered to her, this matter cannot be passed upon in the case before us,
where the VMS was never impleaded as a party.
Whatever issue is raised or claim presented against VMS must be resolved in the "breach of
contract" case.
Hence, we reach a similar opinion as did respondent court when it held:
We can only extend our sympathies to the defendant (herein petitioner) in this unfortunate
incident. Indeed, there is nothing We can do as far as the Violago Motor Sales Corporation is
concerned since it is not a party in this case. To even discuss the issue as to whether or not the
Violago Motor Sales Corporation is liable in the transaction in question would amount, to denial
of due process, hence, improper and unconstitutional. She should have impleaded Violago
Motor Sales.14
IN VIEW OF THE FOREGOING, the assailed decision is hereby AFFIRMED. With costs against
petitioner.

SO ORDERED.
G.R. No. 88866 February 18, 1991

METROPOLITAN BANK & TRUST COMPANY, petitioner,

vs.
COURT OF APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC., LUCIA CASTILLO, MAGNO
CASTILLO and GLORIA CASTILLO, respondents.

Angara, Abello, Concepcion, Regala & Cruz for petitioner.

Bengzon, Zarraga, Narciso, Cudala, Pecson & Bengson for Magno and Lucia Castillo.
Agapito S. Fajardo and Jaime M. Cabiles for respondent Golden Savings & Loan Association, Inc.

CRUZ, J.:

This case, for all its seeming complexity, turns on a simple question of negligence. The facts,
pruned of all non-essentials, are easily told.
The Metropolitan Bank and Trust Co. is a commercial bank with branches throughout the
Philippines and even abroad. Golden Savings and Loan Association was, at the time these
events happened, operating in Calapan, Mindoro, with the other private respondents as its
principal officers.
In January 1979, a certain Eduardo Gomez opened an account with Golden Savings and
deposited over a period of two months 38 treasury warrants with a total value of
P1,755,228.37. They were all drawn by the Philippine Fish Marketing Authority and purportedly
signed by its General Manager and countersigned by its Auditor. Six of these were directly
payable to Gomez while the others appeared to have been indorsed by their respective payees,
followed by Gomez as second indorser.1
On various dates between June 25 and July 16, 1979, all these warrants were subsequently
indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its Savings Account
No. 2498 in the Metrobank branch in Calapan, Mindoro. They were then sent for clearing by the
branch office to the principal office of Metrobank, which forwarded them to the Bureau of
Treasury for special clearing.2
More than two weeks after the deposits, Gloria Castillo went to the Calapan branch several
times to ask whether the warrants had been cleared. She was told to wait. Accordingly, Gomez
was meanwhile not allowed to withdraw from his account. Later, however, "exasperated" over
Gloria's repeated inquiries and also as an accommodation for a "valued client," the petitioner
says it finally decided to allow Golden Savings to withdraw from the proceeds of the
warrants.3
The first withdrawal was made on July 9, 1979, in the amount of P508,000.00, the second on
July 13, 1979, in the amount of P310,000.00, and the third on July 16, 1979, in the amount of
P150,000.00. The total withdrawal was P968.000.00.4
In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own
account, eventually collecting the total amount of P1,167,500.00 from the proceeds of the
apparently cleared warrants. The last withdrawal was made on July 16, 1979.
On July 21, 1979, Metrobank informed Golden Savings that 32 of the warrants had been
dishonored by the Bureau of Treasury on July 19, 1979, and demanded the refund by Golden
Savings of the amount it had previously withdrawn, to make up the deficit in its account.
The demand was rejected. Metrobank then sued Golden Savings in the Regional Trial Court of
Mindoro.5 After trial, judgment was rendered in favor of Golden Savings, which, however, filed
a motion for reconsideration even as Metrobank filed its notice of appeal. On November 4,
1986, the lower court modified its decision thus:
ACCORDINGLY, judgment is hereby rendered:
1. Dismissing the complaint with costs against the plaintiff;
2. Dissolving and lifting the writ of attachment of the properties of defendant Golden Savings
and Loan Association, Inc. and defendant Spouses Magno Castillo and Lucia Castillo;
3. Directing the plaintiff to reverse its action of debiting Savings Account No. 2498 of the sum of
P1,754,089.00 and to reinstate and credit to such account such amount existing before the
debit was made including the amount of P812,033.37 in favor of defendant Golden Savings and
Loan Association, Inc. and thereafter, to allow defendant Golden Savings and Loan Association,
Inc. to withdraw the amount outstanding thereon before the debit;
4. Ordering the plaintiff to pay the defendant Golden Savings and Loan Association, Inc.
attorney's fees and expenses of litigation in the amount of P200,000.00.
5. Ordering the plaintiff to pay the defendant Spouses Magno Castillo and Lucia Castillo
attorney's fees and expenses of litigation in the amount of P100,000.00.
SO ORDERED.
On appeal to the respondent court,6 the decision was affirmed, prompting Metrobank to file
this petition for review on the following grounds:
1. Respondent Court of Appeals erred in disregarding and failing to apply the clear contractual
terms and conditions on the deposit slips allowing Metrobank to charge back any amount
erroneously credited.
(a) Metrobank's right to charge back is not limited to instances where the checks or treasury
warrants are forged or unauthorized.
(b) Until such time as Metrobank is actually paid, its obligation is that of a mere collecting agent
which cannot be held liable for its failure to collect on the warrants.
2. Under the lower court's decision, affirmed by respondent Court of Appeals, Metrobank is
made to pay for warrants already dishonored, thereby perpetuating the fraud committed by
Eduardo Gomez.
3. Respondent Court of Appeals erred in not finding that as between Metrobank and Golden
Savings, the latter should bear the loss.
4. Respondent Court of Appeals erred in holding that the treasury warrants involved in this case
are not negotiable instruments.
The petition has no merit.
From the above undisputed facts, it would appear to the Court that Metrobank was indeed
negligent in giving Golden Savings the impression that the treasury warrants had been cleared
and that, consequently, it was safe to allow Gomez to withdraw the proceeds thereof from his
account with it. Without such assurance, Golden Savings would not have allowed the
withdrawals; with such assurance, there was no reason not to allow the withdrawal. Indeed,
Golden Savings might even have incurred liability for its refusal to return the money that to all
appearances belonged to the depositor, who could therefore withdraw it any time and for any
reason he saw fit.
It was, in fact, to secure the clearance of the treasury warrants that Golden Savings deposited
them to its account with Metrobank. Golden Savings had no clearing facilities of its own. It
relied on Metrobank to determine the validity of the warrants through its own services. The
proceeds of the warrants were withheld from Gomez until Metrobank allowed Golden Savings
itself to withdraw them from its own deposit.7 It was only when Metrobank gave the go-signal
that Gomez was finally allowed by Golden Savings to withdraw them from his own account.
The argument of Metrobank that Golden Savings should have exercised more care in checking
the personal circumstances of Gomez before accepting his deposit does not hold water. It was
Gomez who was entrusting the warrants, not Golden Savings that was extending him a loan;
and moreover, the treasury warrants were subject to clearing, pending which the depositor
could not withdraw its proceeds. There was no question of Gomez's identity or of the
genuineness of his signature as checked by Golden Savings. In fact, the treasury warrants were
dishonored allegedly because of the forgery of the signatures of the drawers, not of Gomez as
payee or indorser. Under the circumstances, it is clear that Golden Savings acted with due care
and diligence and cannot be faulted for the withdrawals it allowed Gomez to make.
By contrast, Metrobank exhibited extraordinary carelessness. The amount involved was not
trifling — more than one and a half million pesos (and this was 1979). There was no reason why
it should not have waited until the treasury warrants had been cleared; it would not have lost a
single centavo by waiting. Yet, despite the lack of such clearance — and notwithstanding that it
had not received a single centavo from the proceeds of the treasury warrants, as it now
repeatedly stresses — it allowed Golden Savings to withdraw — not once, not twice, but thrice
— from the uncleared treasury warrants in the total amount of P968,000.00
Its reason? It was "exasperated" over the persistent inquiries of Gloria Castillo about the
clearance and it also wanted to "accommodate" a valued client. It "presumed" that the
warrants had been cleared simply because of "the lapse of one week."8 For a bank with its long
experience, this explanation is unbelievably naive.
And now, to gloss over its carelessness, Metrobank would invoke the conditions printed on the
dorsal side of the deposit slips through which the treasury warrants were deposited by Golden
Savings with its Calapan branch. The conditions read as follows:
Kindly note that in receiving items on deposit, the bank obligates itself only as the depositor's
collecting agent, assuming no responsibility beyond care in selecting correspondents, and until
such time as actual payment shall have come into possession of this bank, the right is reserved
to charge back to the depositor's account any amount previously credited, whether or not such
item is returned. This also applies to checks drawn on local banks and bankers and their
branches as well as on this bank, which are unpaid due to insufficiency of funds, forgery,
unauthorized overdraft or any other reason. (Emphasis supplied.)
According to Metrobank, the said conditions clearly show that it was acting only as a collecting
agent for Golden Savings and give it the right to "charge back to the depositor's account any
amount previously credited, whether or not such item is returned. This also applies to checks
". . . which are unpaid due to insufficiency of funds, forgery, unauthorized overdraft of any
other reason." It is claimed that the said conditions are in the nature of contractual stipulations
and became binding on Golden Savings when Gloria Castillo, as its Cashier, signed the deposit
slips.
Doubt may be expressed about the binding force of the conditions, considering that they have
apparently been imposed by the bank unilaterally, without the consent of the depositor.
Indeed, it could be argued that the depositor, in signing the deposit slip, does so only to identify
himself and not to agree to the conditions set forth in the given permit at the back of the
deposit slip. We do not have to rule on this matter at this time. At any rate, the Court feels that
even if the deposit slip were considered a contract, the petitioner could still not validly disclaim
responsibility thereunder in the light of the circumstances of this case.
In stressing that it was acting only as a collecting agent for Golden Savings, Metrobank seems to
be suggesting that as a mere agent it cannot be liable to the principal. This is not exactly true.
On the contrary, Article 1909 of the Civil Code clearly provides that —
Art. 1909. — The agent is responsible not only for fraud, but also for negligence, which shall be
judged 'with more or less rigor by the courts, according to whether the agency was or was not
for a compensation.
The negligence of Metrobank has been sufficiently established. To repeat for emphasis, it was
the clearance given by it that assured Golden Savings it was already safe to allow Gomez to
withdraw the proceeds of the treasury warrants he had deposited Metrobank misled Golden
Savings. There may have been no express clearance, as Metrobank insists (although this is
refuted by Golden Savings) but in any case that clearance could be implied from its allowing
Golden Savings to withdraw from its account not only once or even twice but three times. The
total withdrawal was in excess of its original balance before the treasury warrants were
deposited, which only added to its belief that the treasury warrants had indeed been cleared.
Metrobank's argument that it may recover the disputed amount if the warrants are not paid for
any reason is not acceptable. Any reason does not mean no reason at all. Otherwise, there
would have been no need at all for Golden Savings to deposit the treasury warrants with it for
clearance. There would have been no need for it to wait until the warrants had been cleared
before paying the proceeds thereof to Gomez. Such a condition, if interpreted in the way the
petitioner suggests, is not binding for being arbitrary and unconscionable. And it becomes more
so in the case at bar when it is considered that the supposed dishonor of the warrants was not
communicated to Golden Savings before it made its own payment to Gomez.
The belated notification aggravated the petitioner's earlier negligence in giving express or at
least implied clearance to the treasury warrants and allowing payments therefrom to Golden
Savings. But that is not all. On top of this, the supposed reason for the dishonor, to wit, the
forgery of the signatures of the general manager and the auditor of the drawer corporation, has
not been established.9 This was the finding of the lower courts which we see no reason to
disturb. And as we said in MWSS v. Court of Appeals:10
Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139 SCRA 238). It must be established
by clear, positive and convincing evidence. This was not done in the present case.
A no less important consideration is the circumstance that the treasury warrants in question
are not negotiable instruments. Clearly stamped on their face is the word "non-negotiable."
Moreover, and this is of equal significance, it is indicated that they are payable from a particular
fund, to wit, Fund 501.
The following sections of the Negotiable Instruments Law, especially the underscored parts, are
pertinent:
Sec. 1. — Form of negotiable instruments. — An instrument to be negotiable must conform to
the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated
therein with reasonable certainty.
xxx xxx xx
Sec. 3. When promise is unconditional. — An unqualified order or promise to pay is
unconditional within the meaning of this Act though coupled with —
(a) An indication of a particular fund out of which reimbursement is to be made or a particular
account to be debited with the amount; or
(b) A statement of the transaction which gives rise to the instrument judgment
But an order or promise to pay out of a particular fund is not unconditional.
The indication of Fund 501 as the source of the payment to be made on the treasury warrants
makes the order or promise to pay "not unconditional" and the warrants themselves non-
negotiable. There should be no question that the exception on Section 3 of the Negotiable
Instruments Law is applicable in the case at bar. This conclusion conforms to Abubakar vs.
Auditor General11 where the Court held
The petitioner argues that he is a holder in good faith and for value of a negotiable instrument
and is entitled to the rights and privileges of a holder in due course, free from defenses. But this
treasury warrant is not within the scope of the negotiable instrument law. For one thing, the
document bearing on its face the words "payable from the appropriation for food
administration, is actually an Order for payment out of "a particular fund," and is not
unconditional and does not fulfill one of the essential requirements of a negotiable instrument
(Sec. 3 last sentence and section [1(b)] of the Negotiable Instruments Law).
Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed
that they were "genuine and in all respects what they purport to be," in accordance with
Section 66 of the Negotiable Instruments Law. The simple reason is that this law is not
applicable to the non-negotiable treasury warrants. The indorsement was made by Gloria
Castillo not for the purpose of guaranteeing the genuineness of the warrants but merely to
deposit them with Metrobank for clearing. It was in fact Metrobank that made the guarantee
when it stamped on the back of the warrants: "All prior indorsement and/or lack of
endorsements guaranteed, Metropolitan Bank & Trust Co., Calapan Branch."
The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the Philippine Islands,12 but
we feel this case is inapplicable to the present controversy.1âwphi1 That case involved checks
whereas this case involves treasury warrants. Golden Savings never represented that the
warrants were negotiable but signed them only for the purpose of depositing them for
clearance. Also, the fact of forgery was proved in that case but not in the case before us. Finally,
the Court found the Jai Alai Corporation negligent in accepting the checks without question
from one Antonio Ramirez notwithstanding that the payee was the Inter-Island Gas Services,
Inc. and it did not appear that he was authorized to indorse it. No similar negligence can be
imputed to Golden Savings.
We find the challenged decision to be basically correct. However, we will have to amend it
insofar as it directs the petitioner to credit Golden Savings with the full amount of the treasury
checks deposited to its account.
The total value of the 32 treasury warrants dishonored was P1,754,089.00, from which Gomez
was allowed to withdraw P1,167,500.00 before Golden Savings was notified of the dishonor.
The amount he has withdrawn must be charged not to Golden Savings but to Metrobank, which
must bear the consequences of its own negligence. But the balance of P586,589.00 should be
debited to Golden Savings, as obviously Gomez can no longer be permitted to withdraw this
amount from his deposit because of the dishonor of the warrants. Gomez has in fact
disappeared. To also credit the balance to Golden Savings would unduly enrich it at the expense
of Metrobank, let alone the fact that it has already been informed of the dishonor of the
treasury warrants.
WHEREFORE, the challenged decision is AFFIRMED, with the modification that Paragraph 3 of
the dispositive portion of the judgment of the lower court shall be reworded as follows:
3. Debiting Savings Account No. 2498 in the sum of P586,589.00 only and thereafter allowing
defendant Golden Savings & Loan Association, Inc. to withdraw the amount outstanding
thereon, if any, after the debit.
SO ORDERED.
G.R. No. 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.

x x x           x x x          x x x

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

x x x           x x x          x x x

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

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

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

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

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.)

x x x           x x x          x x x

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

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

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

SO ORDERED.

SECOND DIVISION

[G.R. No. 93397. March 3, 1997.]

TRADERS ROYAL BANK, Petitioner, v. COURT OF APPEALS, FILRITERS GUARANTY ASSURANCE

CORPORATION and CENTRAL BANK of the PHILIPPINES, Respondents.

1. COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS; FREEDOM OF NEGOTIABILITY; NOT

PRESENT IN CERTIFICATE OF INDEBTEDNESS. — The language of negotiability which
characterize a negotiable paper as a credit instrument is its freedom to circulate as a substitute
for money. Hence, freedom of negotiability is the touchstone relating to the protection of
holders in due course, and the freedom of negotiability is the foundation for the protection
which the law throws around a holder in due course (11 Am. Jur. 2d, 32). This freedom in
negotiability is totally absent in a certificate of indebtedness as it merely acknowledges to pay a
sum of money to a specified person or entity for a period of time.

2. ID.; CORPORATIONS; PIERCING THE VEIL OF CORPORATE ENTITY; ELABORATED; NOT PROPER
IN CASE AT BAR. — Petitioner cannot put up the excuse of piercing the veil of corporate entity,
as this is merely an equitable remedy, and may be awarded only in cases when the corporate
fiction is used to defeat public convenience, justify wrong, protect fraud of defend crime or
where a corporation is a mere alter ego or business conduit of a person. Piercing the veil of
corporate entity requires stockholders from liabilities that ordinarily, they could be subject to or
distinguishes one corporation from a seemingly separate one, were it not for the existing
corporate fiction. But to do this, the court must be sure that the corporate fiction was misused,
to such an extent that injustice, fraud, or crime was committed upon another, disregarding,
thus, his, her, or its rights. It is the protection of the interests of innocent third persons dealing
with the corporate entity which the law aims to protect by this doctrine. Though it is true that
when valid reasons exist, the legal fiction that a corporation is an entity with a judicial
personality separate from its stockholders and from other corporations may be disregarded, in
the absence of such grounds, the general rule must be upheld. The fact that Philfinance owns
majority shares in Filriters is not by itself a ground to disregard the independent corporate
status of Filrites. In Liddel & Co., Inc. v. Collector of Internal Revenue, the mere ownership by a
single stockholder or by another corporation of all or nearly all of the capital stock of a
corporation is not of itself a sufficient reason for disregarding the fiction of separate corporate
personalities. In the case at bar, there is sufficient showing that the petitioner was not
defrauded at all when it acquired the subject certificate of indebtedness from Philfinance.

3. ID.; BANKS; CENTRAL BANK CIRCULAR NO. 769; REQUIREMENTS; NONE COMPLIANCE
THEREOF, FATAL; CASE AT BAR. — Petitioner, being a commercial bank, cannot feign ignorance
of Central Bank Circular 769, and its requirements. An entity which deals with corporate agents
within circumstances showing that the agents are acting in excess of corporate authority, may
not hold the corporation liable. This is only fair, as everyone must, in the exercise of his rights
and in the performance of his duties, act with justice, give everyone his due, and observe
honesty and good faith. The transfer made by Filriters to Philfinance did not conform to the said
Central Bank Circular, which for all intents, is considered part of the law. As found by the courts
a quo, Alfredo O. Banaria, who had signed the deed of assignment from Filriters to Philfinance,
purportedly for and in favor of Filriters was fictitious, and therefore void and inexistent, as
there was no consideration for the same. This is fatal to the petitioner’s cause, for then,
Philfinance had no title over the subject certificate to convey to Traders Royal Bank. Nemo
potest nisi quod de jure potest — no man can do anything except what he can do lawfully.
Concededly, the subject CBCI (Central Bank Certificate of Indebtedness) was acquired by
Filriters to form part of its legal and capital reserves, which are required by law to be
maintained at a mandated level. It cannot, therefore, be taken out of the said fund, without
violating the requirements of the law. Thus, the unauthorized use or distribution of the same by
a corporate officer of Filriters cannot bind the said corporation, not without the approval of its
Board of Directors, and the maintenance of the required reserve fund. Consequently, the title
of Filriters over the subject certificate of indebtedness must be upheld over the claimed interest
of Traders Royal Bank.

DECISION

TORRES, JR., J.:

Assailed in this Petition for Review on Certiorari is the Decision of the respondent Court of
Appeals dated January 29, 1990, 1 affirming the nullity of the transfer of Central Bank
Certificate of Indebtedness (CBCI) No. D891, 2 with a face value of P500,000, from the
Philippine Underwriters Finance Corporation (Philfinance) to the petitioner Trader’s Royal Bank
(TRB), under a Repurchase Agreement 3 dated February 4, 1981, and a Detached Assignment 4
dated April 27, 1981.
Docketed as Civil Case No. 83-17966 in the Regional Trial Court of Manila, Branch 32, the action
was originally filed as a Petition for Mandamus 5 under Rule 65 of the Rules of Court, to compel
the Central Bank of the Philippines to register the transfer of the subject CBCI to petitioner
Traders Royal Bank (TRB).

In the said petition, TRB stated that:jgc:chanrobles.com.ph

"3. On November 27, 1979, Filriters Guaranty Assurance Corporation (Filriters) executed a
‘Detached Assignment’ . . ., whereby Filriters, as registered owner, sold, transferred, assigned
and delivered unto Philippine Underwriters Finance Corporation (Philfinance) all its rights and
title to Central Bank Certificates of Indebtedness (CBCI) Nos. D890 to D896, inclusive, each in
the denomination of PESOS: FIVE HUNDRED THOUSAND (P500,000) and having an aggregate
value of PESOS: THREE MILLION FIVE HUNDRED THOUSAND (P3,500,000.00);

4. The aforesaid Detached Assignment (Annex "A") contains an express authorization executed
by the transferor intended to complete the assignment through the registration of the transfer
in the name of PhilFinance, which authorization is specifically phrased as follows: ‘(Filriters)
hereby irrevocably authorized the said issuer (Central Bank) to transfer the said
bond/certificates on the books of its fiscal agent;

5. On February 4, 1981, petitioner entered into a Repurchase Agreement with PhilFinance . . .,

whereby, for and in consideration of the sum of PESOS: FIVE HUNDRED THOUSAND
(P500,000.00), PhilFinance sold, transferred and delivered to petitioner CBCI 4-year, 8th series,
Serial No. D891 with a face value of P500,000.00 . . ., which CBCI was among those previously
acquired by PhilFinance from Filriters as averred in paragraph 3 of the Petition;

6. Pursuant to the aforesaid Repurchase Agreement (Annex ‘B’), Philfinance agreed to

repurchase CBCI Serial No. D891 (Annex ‘C’), at the stipulated price of PESOS: FIVE HUNDRED
NINETEEN THOUSAND THREE HUNDRED SIXTY-ONE & 11/100 (P519,361.11) on April 27, 1981;

7. PhilFinance failed to repurchase the CBCI on the agreed date of maturity, April 27, 1981,
when the checks it issued in favor of petitioner were dishonored for insufficient funds;

8. Owing to the default of PhilFinance, it executed a Detached Assignment in favor of the

Petitioner to enable the latter to have its title completed and registered in the books of the
Respondent. And by means of said Detachment Assignment, Philfinance transferred and
assigned all its rights and title in the said CBCI (Annex ‘C’) to petitioner and, furthermore, it did
thereby ‘irrevocably authorize the said issuer (respondent herein) to transfer the said
bond/certificate on the books of its fiscal agent.’ . . .

9. Petitioner presented the CBCI (Annex ‘C’), together with the two (2) aforementioned
Detached Assignments (Annexes ‘B’ and ‘D’), to the Securities Servicing Department of the
respondent, and requested the latter to effect the transfer of the CBCI on its books and to issue
a new certificate in the name of petitioner as absolute owner thereof;
10. Respondent failed and refused to register the transfer as requested, and continues to do so
notwithstanding petitioner’s valid and just title over the same and despite repeated demands in
writing, the latest of which is hereto attached as Annex ‘E’ and made an integral part hereof;

11. The express provisions governing the transfer of the CBCI were substantially complied with
in petitioner’s request for registration, to wit:chanroblesvirtuallawlibrary

‘No transfer thereof shall be valid unless made at said office (where the Certificate has been
registered) by the registered owner hereof, in person or by his attorney duly authorized in
writing, and similarly noted hereon, and upon payment of a nominal transfer fee which may be
required, a new Certificate shall be issued to the transferee of the registered holder thereof.’

and, without a doubt, the Detached Assignments presented to respondent were sufficient
authorizations in writing executed by the registered owner, Filriters, and its transferee,
PhilFinance, as required by the above-quoted provision;

12. Upon such compliance with the aforesaid requirements, the ministerial duties of registering
a transfer of ownership over the CBCI and issuing a new certificate to the transferee devolves
upon the respondent;"

Upon these assertions, TRB prayed for the registration by the Central Bank of the subject CBCI
in its name.

On December 4, 1984, the Regional Trial Court trying the case took cognizance of the defendant
Central Bank of the Philippines’ Motion for Admission of Amended Answer with Counter Claim
for Interpleader, 6 thereby calling to fore the respondent Filriters Guaranty Assurance
Corporation (Filriters), the registered owner of the subject CBCI as Respondent.

For its part, Filriters interjected as Special Defenses the following:jgc:chanrobles.com.ph

"11. Respondent is the registered owner of CBCI No. 891;

12. The CBCI constitutes part of the reserve investment against liabilities required of
respondent as an insurance company under the Insurance Code;

13. Without any consideration or benefit whatsoever to Filriters, in violation of law and the
trust fund doctrine and to the prejudice of policyholders and to all who have present or future
claim against policies issued by Filriters, Alfredo Banaria, then Senior Vice-President-Treasury of
Filriters, without any board resolution, knowledge or consent of the board of directors of
Filriters and without any clearance or authorization from the Insurance Commissioner,
executed a detached assignment purportedly assigning CBCI No. 891 to Philfinance;
x x x

14. Subsequently, Alberto Fabella, Senior Vice-President-Comptroller and Pilar Jacobe, Vice-
President-Treasury of Filriters (both of whom were holding the same positions in Philfinance),
without any consideration or benefit redounding to Filriters and to the grave prejudice of
Filriters, its policy holders and all who have present or future claims against its policies,
executed similar detached assignment forms transferring the CBCI to plaintiff;

x x x

15. The detached assignment is patently void and inoperative because the assignment is
without the knowledge and consent of directors of Filriters, and not duly authorized in writing
by the Board, as required by Article V, Section 3 of CB Circular No. 769;

16. The assignment of the CBCI to Philfinance is a personal act of Alfredo Banaria and not the
corporate act of Filriters and as such null and void;

a) The assignment was executed without consideration and for that reason, the assignment is
void from the beginning (Article 1409, Civil Code);

b) The assignment was executed without any knowledge and consent of the board of directors
of Filriters;

c) The CBCI constitutes reserve investment of Filriters against liabilities, which is a requirement
under the Insurance Code for its existence as an insurance company and the pursuit of its
business operations. The assignment of the CBCI is illegal act, in the sense of malum in se or
malum prohibitum, for anyone to make, either as corporate or personal act;

d) The transfer or diminution of reserve investments of Filriters is expressly prohibited by law, is

immoral and against public policy;

e) The assignment of the CBCI has resulted in the capital impairment and in the solvency
deficiency of Filriters (and has in fact helped in placing Filriters under conservatorship), an
inevitable result known to the officer who executed the detached assignment.

17. Plaintiff had acted in bad faith and with knowledge of the illegality and invalidity of the
assignment;

a) The CBCI No. 891 is not a negotiable instrument and as a certificate of indebtedness is not
payable to bearer but is registered in the name of Filriters;
b) The provision on transfer of the CBCIs, provides that the Central Bank shall treat the
registered owner as the absolute owner and that the value of the registered certificates shall be
payable only to the registered owner; a sufficient notice to plaintiff that the assignments do not
give them the registered owner’s right as absolute owner of the CBCIs;

c) CB Circular 769, Series of 1980 (Rules and Regulations Governing CBCIs) provides that
registered certificates are payable only to the registered owner (Article II, Section 1).

18. Plaintiff knew full well that the assignment by Philfinance of CBCI No. 891 by Filriters is not a
regular transaction made in the usual or ordinary course of business;

a) The CBCI constitutes part of the reserve investments of Filriters against liabilities required by
the Insurance Code and its assignment or transfer is expressly prohibited by law. There was no
attempt to get any clearance or authorization from the Insurance Commissioner;

b) The assignment by Filriters of the CBCI is clearly not a transaction in the usual or regular
course of its business;

c) The CBCI involved substantial amount and its assignment clearly constitutes disposition of ‘all
or substantially all’ of the assets of Filriters, which requires the affirmative action of the
stockholders (Section 40, Corporation [sic] Code). 7

In its Decision 8 dated April 29, 1988, the Regional Trial Court of Manila, Branch XXXII found the
assignment of CBCI No. D891 in favor of Philfinance, and the subsequent assignment of the
same CBCI by Philfinance in favor of Traders Royal Bank null and void and of no force and effect.
The dispositive portion of the decision reads:jgc:chanrobles.com.ph

"ACCORDINGLY, judgment is hereby rendered in favor of the respondent Filriters Guaranty

Assurance Corporation and against the plaintiff Traders Royal Bank:chanrob1es virtual 1aw
library

(a) Declaring the assignment of CBCI No. 891 in favor of PhilFinance, and the subsequent
assignment of CBCI by PhilFinance in favor of the plaintiff Traders Royal Bank as null and void
and of no force and effect;

(b) Ordering the respondent Central Bank of the Philippines to disregard the said assignment
and to pay the value of the proceeds of the CBCI No. D891 to the Filriters Guaranty Assurance
Corporation;

(c) Ordering the plaintiff Traders Royal Bank to pay respondent Filriters Guaranty Assurance
Corp. The sum of P10,000 as attorney’s fees; and
(d) to pay the costs.

SO ORDERED." 9

The petitioner assailed the decision of the trial court in the Court of Appeals 10 , but their
appeal likewise failed. The findings of fact of the said court are hereby
reproduced:jgc:chanrobles.com.ph

"The records reveal that defendant Filriters is the registered owner of CBCI No. D891. Under a
deed of assignment dated November 27, 1971, Filriters transferred CBCI No. D891 to Philippine
Underwriters Finance Corporation (Philfinance). Subsequently, Philfinance transferred CBCI No.
D891, which was still registered in the name of Filriters, to appellant Traders Royal Bank (TRB).
The transfer was made under a repurchase agreement dated February 4, 1981, granting
Philfinance the right to repurchase the instrument on or before April 27, 1981. When
Philfinance failed to buy back the note on maturity date, it executed a deed of assignment,
dated April 27, 1981, conveying to appellant TRB all its rights and title to CBCI No. D891.

Armed with the deed of assignment, TRB then sought the transfer and registration of CBCI No.
D891 in its name before the Security and Servicing Department of the Central Bank (CB).
Central Bank, however, refused to effect the transfer and registration in view of an adverse
claim filed by defendant Filriters.

Left with no other recourse, TRB filed a special civil action for mandamus against the Central
Bank in the Regional Trial Court of Manila. The suit, however, was subsequently treated by the
lower court as a case of interpleader when CB prayed in its amended answer that Filriters be
impleaded as a respondent and the court adjudge which of them is entitled to the ownership of
CBCI No. D891. Failing to get a favorable judgment. TRB now comes to this Court on appeal." 11

In the appellate court, petitioner argued that the subject CBCI was a negotiable instrument, and
having acquired the said certificate from Philfinance as a holder in due course, its possession of
the same is thus free from any defect of title of prior parties and from any defense available to
prior parties among themselves, and it may thus, enforce payment of the instrument for the full
amount thereof against all parties liable thereon. 12

In ignoring said argument, the appellate court said that the CBCI is not a negotiable instrument,
since the instrument clearly stated that it was payable to Filriters, the registered owner, whose
name was inscribed thereon, and that the certificate lacked the words of negotiability which
serve as an expression of consent that the instrument may be transferred by negotiation.

Obviously, the assignment of the certificate from Filriters to Philfinance was fictitious, having
been made without consideration, and did not conform to Central Bank Circular No. 769, series
of 1980, better known as the "Rules and Regulations Governing Central Bank Certificates of
Indebtedness", which provided that any "assignment of registered certificates shall not be valid
unless made . . . by the registered owner thereof in person or by his representative duly
authorized in writing."cralaw virtua1aw library

Petitioner’s claimed interest has no basis, since it was derived from Philfinance, whose interest
was inexistent, having acquired the certificate through simulation. What happened was
Philfinance merely borrowed CBCI No. D891 from Filriters, a sister corporation, to guarantee its
financing operations.

Said the Court:jgc:chanrobles.com.ph

"In the case at bar, Alfredo O. Banaria, who signed the deed of assignment purportedly for and
on behalf of Filriters, did not have the necessary written authorization from the Board of
Directors of Filriters to act for the latter. For lack of such authority, the assignment did not
therefore bind Filriters and violated at the same time Central Bank Circular No. 769 which has
the force and effect of a law, resulting in the nullity of the transfer (People v. Que Po Lay, 94
Phil. 640; 3M Philippines, Inc. v. Commissioner of Internal Revenue, 165 SCRA 778).

In sum, Philfinance acquired no title or rights under CBCI No. D891 which it could assign or
transfer to Traders Royal Bank and which the latter can register with the Central Bank.

WHEREFORE, the judgment appealed from is AFFIRMED, with costs against plaintiff-appellant.

SO ORDERED." 13

Petitioner’s present position rests solely on the argument that Philfinance owns 90% of Filriter’s
equity and the two corporations have identical corporate officers, thus demanding the
application of the doctrine of piercing the veil of corporate fiction, as to give validity to the
transfer of the CBCI from the registered owner to petitioner TRB. 14 This renders the payment
by TRB to Philfinance for CBCI, as actual payment to Filriters. Thus, there is no merit to the
lower courts’ ruling that the transfer of the CBCI from Filriters to Philfinance was null and void
for lack of consideration.chanroblesvirtuallawlibrary:re

Admittedly, the subject CBCI is not a negotiable instrument in the absence of words of
negotiability within the meaning of the negotiable instruments law (Act 2031).

The pertinent portions of the subject CBCI read:chanrob1es virtual 1aw library

x x x

The Central Bank of the Philippines (the Bank) for value received, hereby promises to pay to
bearer, or if this Certificate of indebtedness be registered, to FILRITERS GUARANTY ASSURANCE
CORPORATION, the registered owner hereof, the principal sum of FIVE HUNDRED THOUSAND
PESOS.
x x x

Properly understood, a certificate of indebtedness pertains to certificates for the creation and
maintenance of a permanent improvement revolving fund, is similar to a "bond," (82 Minn.
202). Being equivalent to a bond, it is properly understood as an acknowledgment of an
obligation to pay a fixed sum of money. It is usually used for the purpose of long term loans.

The appellate court ruled that the subject CBCI is not a negotiable instrument, stating
that:jgc:chanrobles.com.ph

"As worded, the instrument provides a promise ‘to pay Filriters Guaranty Assurance
Corporation, the registered owner hereof.’ Very clearly, the instrument is payable only to
Filriters, the registered owner, whose name is inscribed thereon. It lacks the words of
negotiability which should have served as an expression of consent that the instrument may be
transferred by negotiation." 15

A reading of the subject CBCI indicates that the same is payable to FILRITERS GUARANTY
ASSURANCE CORPORATION, and to no one else, thus, discounting the petitioner’s submission
that the same is a negotiable instrument, and that it is a holder in due course of the certificate.

The language of negotiability which characterize a negotiable paper as a credit instrument is its
freedom to circulate as a substitute for money. Hence, freedom of negotiability is the
touchstone relating to the protection of holders in due course, and the freedom of negotiability
is the foundation for the protection which the law throws around a holder in due course (11
Am. Jur. 2d, 32). This freedom in negotiability is totally absent in a certificate of indebtedness as
it merely acknowledges to pay a sum of money to a specified person or entity for a period of
time.

As held in Caltex (Philippines), Inc. v. Court of Appeals 16 :jgc:chanrobles.com.ph

"The accepted rule is that the negotiability or non-negotiability of an instrument is determined

from the writing, that is, from the face of the instrument itself. In the construction of a bill or
note, the intention of the parties is to control, if it can be legally ascertained. While the writing
may be read in the light of surrounding circumstances in order to more perfectly understand
the intent and meaning of the parties, yet as they have constituted the writing to be the only
outward and visible expression of their meaning, no other words are to be added to it or
substituted in its stead. The duty of the court in such case is to ascertain, not what the parties
may have secretly intended as contradistinguished from what their words express, but what is
the meaning of the words they have used. What the parties meant must be determined by
what they said."cralaw virtua1aw library

Thus, the transfer of the instrument from Philfinance to TRB was merely an assignment, and is
not governed by the negotiable instruments law. The pertinent question then is, was the
transfer of the CBCI from Filriters to Philfinance and subsequently from Philfinance to TRB, in
accord with existing law, so as to entitle TRB to have the CBCI registered in its name with the
Central Bank?

The following are the appellate court’s pronouncements on the matter:jgc:chanrobles.com.ph

"Clearly shown in the record is the fact that Philfinance’s title over CBCI No. D891 is defective
since it acquired the instrument from Filriters fictitiously. Although the deed of assignment
stated that the transfer was for ‘value received’, there was really no consideration involved.
What happened was Philfinance merely borrowed CBCI No. D891 from Filriters, a sister
corporation. Thus, for lack of any consideration, the assignment made is a complete nullity.

What is more, We find that the transfer made by Filriters to Philfinance did not conform to
Central Bank Circular No. 769, series of 1980, otherwise known as the ‘Rules and Regulations
Governing Central Bank Certificates of Indebtedness’, under which the note was issued.
Published in the Official Gazette on November 19, 1980, Section 3 thereof provides that ‘any
assignment of registered certificates shall not be valid unless made . . . by the registered owner
thereof in person or by his representative duly authorized in writing.’

In the case at bar, Alfredo O. Banaria, who signed the deed of assignment purportedly for and
on behalf of Filriters, did not have the necessary written authorization from the Board of
Directors of Filriters to act for the latter. For lack of such authority, the assignment did not
therefore bind Filriters and violated at the same time Central Bank Circular No. 769 which has
the force and effect of a law, resulting in the nullity of the transfer (People v. Que Po Lay, 94
Phil. 640; 3M Philippines, Inc. v. Commissioner of Internal Revenue, 165 SCRA 778).

In sum, Philfinance acquired no title or rights under CBCI No. D891 which it could assign or
transfer to Traders Royal Bank and which the latter can register with the Central Bank."cralaw
virtua1aw library

Petitioner now argues that the transfer of the subject CBCI to TRB must be upheld, as the
respondent Filriters and Philfinance, though separate corporate entities on paper, have used
their corporate fiction to defraud TRB into purchasing the subject CBCI, which purchase now is
refused registration by the Central Bank.

Says the petitioner:jgc:chanrobles.com.ph

"Since Philfinance owns about 90% of Filriters and the two companies have the same corporate
officers, if the principle of piercing the veil of corporate entity were to be applied in this case,
then TRB’s payment to Philfinance for the CBCI purchased by it could just as well be considered
a payment to Filriters, the registered owner of the CBCI as to bar the latter from claiming, as it
has, that it never received any payment for that CBCI sold and that said CBCI was sold without
its authority.

x x x
We respectfully submit that, considering that the Court of Appeals has held that the CBCI was
merely borrowed by Philfinance from Filriters, a sister corporation, to guarantee its
(Philfinance’s) financing operations, if it were to be consistent therewith, on the issue raised by
TRB that there was a piercing a veil of corporate entity, the Court of Appeals should have ruled
that such veil of corporate entity was, in fact, pierced, and the payment by TRB to Philfinance
should be construed as payment to Filriters." 17

We disagree with the Petitioner.

Petitioner cannot put up the excuse of piercing the veil of corporate entity, as this is merely an
equitable remedy, and may be awarded only in cases when the corporate fiction is used to
defeat public convenience, justify wrong, protect fraud or defend crime or where a corporation
is a mere alter ego or business conduit of a person. 18

Piercing the veil of corporate entity requires the court to see through the protective shroud
which exempts its stockholders from liabilities that ordinarily, they could be subject to, or
distinguishes one corporation from a seemingly separate one, were it not for the existing
corporate fiction. But to do this, the court must be sure that the corporate fiction was misused,
to such an extent that injustice, fraud, or crime was committed upon another, disregarding,
thus, his, her, or its rights. It is the protection of the interests of innocent third persons dealing
with the corporate entity which the law aims to protect by this doctrine.

The corporate separateness between Filriters and Philfinance remains, despite the petitioners
insistence on the contrary. For one, other than the allegation that Filriters is 90% owned by
Philfinance, and the identity of one shall be maintained as to the other, there is nothing else
which could lead the court under the circumstances to disregard their corporate
personalities.chanroblesvirtuallawlibrary

Though it is true that when valid reasons exist, the legal fiction that a corporation is an entity
with a juridical personality separate from its stockholders and from other corporations may be
disregarded, 19 in the absence of such grounds, the general rule must be upheld. The fact that
Philfinance owns majority shares in Filriters is not by itself a ground to disregard the
independent corporate status of Filriters. In Liddel & Co., Inc. v. Collector of Internal Revenue,
20 the mere ownership by a single stockholder or by another corporation of all or nearly all of
the capital stock of a corporation is not of itself a sufficient reason for disregarding the fiction of
separate corporate personalities.

In the case at bar, there is sufficient showing that the petitioner was not defrauded at all when
it acquired the subject certificate of indebtedness from Philfinance.

On its face, the subject certificates states that it is registered in the name of Filriters. This
should have put the petitioner on notice, and prompted it to inquire from Filriters as to
Philfinance’s title over the same or its authority to assign the certificate. As it is, there is no
showing to the effect that petitioner had any dealings whatsoever with Filriters, nor did it make
inquiries as to the ownership of the certificate.

The terms of the CBCI No. D891 contain a provision on its TRANSFER.
Thus:jgc:chanrobles.com.ph

"TRANSFER: This Certificate shall pass by delivery unless it is registered in the owner’s name at
any office of the Bank or any agency duly authorized by the Bank, and such registration is noted
hereon. After such registration no transfer thereof shall be valid unless made at said office
(where the Certificate has been registered) by the registered owner hereof, in person, or by his
attorney, duly authorized in writing and similarly noted hereon and upon payment of a nominal
transfer fee which may be required, a new Certificate shall be issued to the transferee of the
registered owner thereof. The bank or any agency duly authorized by the Bank may deem and
treat the bearer of this Certificate, or if this Certificate is registered as herein authorized, the
person in whose name the same is registered as the absolute owner of this Certificate, for the
purpose of receiving payment hereof, or on account hereof, and for all other purpose whether
or not this Certificate shall be overdue."cralaw virtua1aw library

This is notice to petitioner to secure from Filriters a written authorization for the transfer or to
require Philfinance to submit such an authorization from Filriters.

Petitioner knew that Philfinance is not the registered owner of CBCI No. D891. The fact that a
non-owner was disposing of the registered CBCI owned by another entity was a good reason for
petitioner to verify or inquire as to the title of Philfinance to dispose of the CBCI.

Moreover, CBCI No. D891 is governed by CB Circular No. 769, series of 1980 21 , known as the
Rules and Regulations Governing Central Bank Certificates of Indebtedness, Section 3, Article V
of which provides that:jgc:chanrobles.com.ph

"SEC. 3. Assignment of Registered Certificates. — Assignment of registered certificates shall not

be valid unless made at the office where the same have been issued and registered or at the
Securities Servicing Department, Central Bank of the Philippines, and by the registered owner
thereof, in person or by his representative, duly authorized in writing. For this purpose, the
transferee may be designated as the representative of the registered owner."cralaw virtua1aw
library

Petitioner, being a commercial bank, cannot feign ignorance of Central Bank Circular 769, and
its requirements. An entity which deals with corporate agents within circumstances showing
that the agents are acting in excess of corporate authority, may not hold the corporation liable.
22 This is only fair, as everyone must, in the exercise of his rights and in the performance of his
duties, act with justice, give everyone his due, and observe honesty and good faith. 23
The transfer made by Filriters to Philfinance did not conform to the said Central Bank Circular,
which for all intents, is considered part of the law. As found by the courts a quo, Alfredo O.
Banaria, who had signed the deed of assignment from Filriters to Philfinance, purportedly for
and in favor of Filriters, did not have the necessary written authorization from the Board of
Directors of Filriters to act for the latter. As it is, the sale from Filriters to Philfinance was
fictitious, and therefore void and inexistent, as there was no consideration for the same. This is
fatal to the petitioner’s cause, for then, Philfinance had no title over the subject certificate to
convey to Traders Royal Bank. Nemo potest nisi quod de jure potest — no man can do anything
except what he can do lawfully.

Concededly, the subject CBCI was acquired by Filriters to form part of its legal and capital
reserves, which are required by law 24 to be maintained at a mandated level. This was pointed
out by Elias Garcia, Manager-in-Charge of respondent Filriters, in his testimony given before the
court on May 30, 1986.

"Q Do you know this Central Bank Certificate of Indebtedness, in short, CBCI No. D891 in the
face value of P500,000.00 subject of this case?

A Yes, sir.

Q Why do you know this?

A Well, this was the CBCI of the company sought to be examined by the Insurance Commission
sometime in early 1981 and this CBCI No. 891 was among the CBCI’s that were found to be
missing.

Q Let me take you back further before 1981. Did you have the knowledge of this CBCI No. 891
before 1981?

A Yes, sir. This CBCI is an investment of Filriters required by the Insurance Commission as legal
reserve of the company.

Q Legal reserve for the purpose of what?

A Well, you see, the Insurance companies are required to put up legal reserves under Section
213 of the Insurance Code equivalent to 40 percent of the premiums receipt and further, the
Insurance Commission requires this reserve to be invested preferably in government securities
or government bonds. This is how this CBCI came to be purchased by the company."cralaw
virtua1aw library

It cannot, therefore, be taken out of the said fund, without violating the requirements of the
law. Thus, the unauthorized use or distribution of the same by a corporate officer of Filriters
cannot bind the said corporation, not without the approval of its Board of Directors, and the
maintenance of the required reserve fund.

Consequently, the title of Filriters over the subject certificate of indebtedness must be upheld
over the claimed interest of Traders Royal Bank.

ACCORDINGLY, the petition is DISMISSED and the decision appealed from dated January 29,
1990 is hereby AFFIRMED.

SO ORDERED.

G.R. No. 170325 September 26, 2008

PHILIPPINE NATIONAL BANK, Petitioner,

vs.
ERLANDO T. RODRIGUEZ and NORMA RODRIGUEZ, Respondents.

DECISION

REYES, R.T., J.:

WHEN the payee of the check is not intended to be the true recipient of its proceeds, is it
payable to order or bearer? What is the fictitious-payee rule and who is liable under it? Is there
any exception?
These questions seek answers in this petition for review on certiorari of the Amended Decision1
of the Court of Appeals (CA) which affirmed with modification that of the Regional Trial Court
(RTC).2
The Facts
The facts as borne by the records are as follows:
Respondents-Spouses Erlando and Norma Rodriguez were clients of petitioner Philippine
National Bank (PNB), Amelia Avenue Branch, Cebu City. They maintained savings and
demand/checking accounts, namely, PNBig Demand Deposits (Checking/Current Account No.
810624-6 under the account name Erlando and/or Norma Rodriguez), and PNBig Demand
Deposit (Checking/Current Account No. 810480-4 under the account name Erlando T.
Rodriguez).
The spouses were engaged in the informal lending business. In line with their business, they
had a discounting3 arrangement with the Philnabank Employees Savings and Loan Association
(PEMSLA), an association of PNB employees. Naturally, PEMSLA was likewise a client of PNB
Amelia Avenue Branch. The association maintained current and savings accounts with
petitioner bank.
PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount the
postdated checks issued to members whenever the association was short of funds. As was
customary, the spouses would replace the postdated checks with their own checks issued in the
name of the members.
It was PEMSLA’s policy not to approve applications for loans of members with outstanding
debts. To subvert this policy, some PEMSLA officers devised a scheme to obtain additional loans
despite their outstanding loan accounts. They took out loans in the names of unknowing
members, without the knowledge or consent of the latter. The PEMSLA checks issued for these
loans were then given to the spouses for rediscounting. The officers carried this out by forging
the indorsement of the named payees in the checks.
In return, the spouses issued their personal checks (Rodriguez checks) in the name of the
members and delivered the checks to an officer of PEMSLA. The PEMSLA checks, on the other
hand, were deposited by the spouses to their account.
Meanwhile, the Rodriguez checks were deposited directly by PEMSLA to its savings account
without any indorsement from the named payees. This was an irregular procedure made
possible through the facilitation of Edmundo Palermo, Jr., treasurer of PEMSLA and bank teller
in the PNB Branch. It appears that this became the usual practice for the parties.
For the period November 1998 to February 1999, the spouses issued sixty nine (69) checks, in
the total amount of P2,345,804.00. These were payable to forty seven (47) individual payees
who were all members of PEMSLA.4
Petitioner PNB eventually found out about these fraudulent acts. To put a stop to this scheme,
PNB closed the current account of PEMSLA. As a result, the PEMSLA checks deposited by the
spouses were returned or dishonored for the reason "Account Closed." The corresponding
Rodriguez checks, however, were deposited as usual to the PEMSLA savings account. The
amounts were duly debited from the Rodriguez account. Thus, because the PEMSLA checks
given as payment were returned, spouses Rodriguez incurred losses from the rediscounting
transactions.
RTC Disposition
Alarmed over the unexpected turn of events, the spouses Rodriguez filed a civil complaint for
damages against PEMSLA, the Multi-Purpose Cooperative of Philnabankers (MCP), and
petitioner PNB. They sought to recover the value of their checks that were deposited to the
PEMSLA savings account amounting to P2,345,804.00. The spouses contended that because
PNB credited the checks to the PEMSLA account even without indorsements, PNB violated its
contractual obligation to them as depositors. PNB paid the wrong payees, hence, it should bear
the loss.
PNB moved to dismiss the complaint on the ground of lack of cause of action. PNB argued that
the claim for damages should come from the payees of the checks, and not from spouses
Rodriguez. Since there was no demand from the said payees, the obligation should be
considered as discharged.
In an Order dated January 12, 2000, the RTC denied PNB’s motion to dismiss.
In its Answer,5 PNB claimed it is not liable for the checks which it paid to the PEMSLA account
without any indorsement from the payees. The bank contended that spouses Rodriguez, the
makers, actually did not intend for the named payees to receive the proceeds of the checks.
Consequently, the payees were considered as "fictitious payees" as defined under the
Negotiable Instruments Law (NIL). Being checks made to fictitious payees which are bearer
instruments, the checks were negotiable by mere delivery. PNB’s Answer included its cross-
claim against its co-defendants PEMSLA and the MCP, praying that in the event that judgment is
rendered against the bank, the cross-defendants should be ordered to reimburse PNB the
amount it shall pay.
After trial, the RTC rendered judgment in favor of spouses Rodriguez (plaintiffs). It ruled that
PNB (defendant) is liable to return the value of the checks. All counterclaims and cross-claims
were dismissed. The dispositive portion of the RTC decision reads:
WHEREFORE, in view of the foregoing, the Court hereby renders judgment, as follows:
1. Defendant is hereby ordered to pay the plaintiffs the total amount of P2,345,804.00 or
reinstate or restore the amount of P775,337.00 in the PNBig Demand Deposit Checking/Current
Account No. 810480-4 of Erlando T. Rodriguez, and the amount of P1,570,467.00 in the PNBig
Demand Deposit, Checking/Current Account No. 810624-6 of Erlando T. Rodriguez and/or
Norma Rodriguez, plus legal rate of interest thereon to be computed from the filing of this
complaint until fully paid;
2. The defendant PNB is hereby ordered to pay the plaintiffs the following reasonable amount
of damages suffered by them taking into consideration the standing of the plaintiffs being
sugarcane planters, realtors, residential subdivision owners, and other businesses:
(a) Consequential damages, unearned income in the amount of P4,000,000.00, as a result of
their having incurred great dificulty (sic) especially in the residential subdivision business, which
was not pushed through and the contractor even threatened to file a case against the plaintiffs;
(b) Moral damages in the amount of P1,000,000.00;
(c) Exemplary damages in the amount of P500,000.00;
(d) Attorney’s fees in the amount of P150,000.00 considering that this case does not involve
very complicated issues; and for the
(e) Costs of suit.
3. Other claims and counterclaims are hereby dismissed.6
CA Disposition
PNB appealed the decision of the trial court to the CA on the principal ground that the disputed
checks should be considered as payable to bearer and not to order.
In a Decision7 dated July 22, 2004, the CA reversed and set aside the RTC disposition. The CA
concluded that the checks were obviously meant by the spouses to be really paid to PEMSLA.
The court a quo declared:

We are not swayed by the contention of the plaintiffs-appellees (Spouses Rodriguez) that their
cause of action arose from the alleged breach of contract by the defendant-appellant (PNB)
when it paid the value of the checks to PEMSLA despite the checks being payable to order.
Rather, we are more convinced by the strong and credible evidence for the defendant-
appellant with regard to the plaintiffs-appellees’ and PEMSLA’s business arrangement – that the
value of the rediscounted checks of the plaintiffs-appellees would be deposited in PEMSLA’s
account for payment of the loans it has approved in exchange for PEMSLA’s checks with the full
value of the said loans. This is the only obvious explanation as to why all the disputed sixty-nine
(69) checks were in the possession of PEMSLA’s errand boy for presentment to the defendant-
appellant that led to this present controversy. It also appears that the teller who accepted the
said checks was PEMSLA’s officer, and that such was a regular practice by the parties until the
defendant-appellant discovered the scam. The logical conclusion, therefore, is that the checks
were never meant to be paid to order, but instead, to PEMSLA. We thus find no breach of
contract on the part of the defendant-appellant.
According to plaintiff-appellee Erlando Rodriguez’ testimony, PEMSLA allegedly issued post-
dated checks to its qualified members who had applied for loans. However, because of
PEMSLA’s insufficiency of funds, PEMSLA approached the plaintiffs-appellees for the latter to
issue rediscounted checks in favor of said applicant members. Based on the investigation of the
defendant-appellant, meanwhile, this arrangement allowed the plaintiffs-appellees to make a
profit by issuing rediscounted checks, while the officers of PEMSLA and other members would
be able to claim their loans, despite the fact that they were disqualified for one reason or
another. They were able to achieve this conspiracy by using other members who had loaned
lesser amounts of money or had not applied at all. x x x.8 (Emphasis added)
The CA found that the checks were bearer instruments, thus they do not require indorsement
for negotiation; and that spouses Rodriguez and PEMSLA conspired with each other to
accomplish this money-making scheme. The payees in the checks were "fictitious payees"
because they were not the intended payees at all.
The spouses Rodriguez moved for reconsideration. They argued, inter alia, that the checks on
their faces were unquestionably payable to order; and that PNB committed a breach of contract
when it paid the value of the checks to PEMSLA without indorsement from the payees. They
also argued that their cause of action is not only against PEMSLA but also against PNB to
recover the value of the checks.
On October 11, 2005, the CA reversed itself via an Amended Decision, the last paragraph and
fallo of which read:
In sum, we rule that the defendant-appellant PNB is liable to the plaintiffs-appellees Sps.
Rodriguez for the following:

1. Actual damages in the amount of P2,345,804 with interest at 6% per annum from 14 May
1999 until fully paid;
2. Moral damages in the amount of P200,000;
3. Attorney’s fees in the amount of P100,000; and
4. Costs of suit.
WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by Us AFFIRMING
WITH MODIFICATION the assailed decision rendered in Civil Case No. 99-10892, as set forth in
the immediately next preceding paragraph hereof, and SETTING ASIDE Our original decision
promulgated in this case on 22 July 2004.
SO ORDERED.9
The CA ruled that the checks were payable to order. According to the appellate court, PNB
failed to present sufficient proof to defeat the claim of the spouses Rodriguez that they really
intended the checks to be received by the specified payees. Thus, PNB is liable for the value of
the checks which it paid to PEMSLA without indorsements from the named payees. The award
for damages was deemed appropriate in view of the failure of PNB to treat the Rodriguez
account with the highest degree of care considering the fiduciary nature of their relationship,
which constrained respondents to seek legal action.
Hence, the present recourse under Rule 45.
Issues
The issues may be compressed to whether the subject checks are payable to order or to bearer
and who bears the loss?
PNB argues anew that when the spouses Rodriguez issued the disputed checks, they did not
intend for the named payees to receive the proceeds. Thus, they are bearer instruments that
could be validly negotiated by mere delivery. Further, testimonial and documentary evidence
presented during trial amply proved that spouses Rodriguez and the officers of PEMSLA
conspired with each other to defraud the bank.
Our Ruling
Prefatorily, amendment of decisions is more acceptable than an erroneous judgment attaining
finality to the prejudice of innocent parties. A court discovering an erroneous judgment before
it becomes final may, motu proprio or upon motion of the parties, correct its judgment with the
singular objective of achieving justice for the litigants.10

However, a word of caution to lower courts, the CA in Cebu in this particular case, is in order.
The Court does not sanction careless disposition of cases by courts of justice. The highest
degree of diligence must go into the study of every controversy submitted for decision by
litigants. Every issue and factual detail must be closely scrutinized and analyzed, and all the
applicable laws judiciously studied, before the promulgation of every judgment by the court.
Only in this manner will errors in judgments be avoided.
Now to the core of the petition.
As a rule, when the payee is fictitious or not intended to be the true recipient of the proceeds,
the check is considered as a bearer instrument. A check is "a bill of exchange drawn on a bank
payable on demand."11 It is either an order or a bearer instrument. Sections 8 and 9 of the NIL
states:
SEC. 8. When payable to order. – The instrument is payable to order where it is drawn payable
to the order of a specified person or to him or his order. It may be drawn payable to the order
of
(a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or
(e) One or some of several payees; or
(f) The holder of an office for the time being.
Where the instrument is payable to order, the payee must be named or otherwise indicated
therein with reasonable certainty.
SEC. 9. When payable to bearer. – The instrument is payable to bearer –
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein or bearer; or
(c) When it is payable to the order of a fictitious or non-existing person, and such fact is known
to the person making it so payable; or
(d) When the name of the payee does not purport to be the name of any person; or
(e) Where the only or last indorsement is an indorsement in blank.12 (Underscoring supplied)
The distinction between bearer and order instruments lies in their manner of negotiation.
Under Section 30 of the NIL, an order instrument requires an indorsement from the payee or
holder before it may be validly negotiated. A bearer instrument, on the other hand, does not
require an indorsement to be validly negotiated. It is negotiable by mere delivery. The provision
reads:

SEC. 30. What constitutes negotiation. – An instrument is negotiated when it is transferred

from one person to another in such manner as to constitute the transferee the holder thereof.
If payable to bearer, it is negotiated by delivery; if payable to order, it is negotiated by the
indorsement of the holder completed by delivery.
A check that is payable to a specified payee is an order instrument. However, under Section 9(c)
of the NIL, a check payable to a specified payee may nevertheless be considered as a bearer
instrument if it is payable to the order of a fictitious or non-existing person, and such fact is
known to the person making it so payable. Thus, checks issued to "Prinsipe Abante" or "Si
Malakas at si Maganda," who are well-known characters in Philippine mythology, are bearer
instruments because the named payees are fictitious and non-existent.
We have yet to discuss a broader meaning of the term "fictitious" as used in the NIL. It is for this
reason that We look elsewhere for guidance. Court rulings in the United States are a logical
starting point since our law on negotiable instruments was directly lifted from the Uniform
Negotiable Instruments Law of the United States.13
A review of US jurisprudence yields that an actual, existing, and living payee may also be
"fictitious" if the maker of the check did not intend for the payee to in fact receive the proceeds
of the check. This usually occurs when the maker places a name of an existing payee on the
check for convenience or to cover up an illegal activity.14 Thus, a check made expressly payable
to a non-fictitious and existing person is not necessarily an order instrument. If the payee is not
the intended recipient of the proceeds of the check, the payee is considered a "fictitious" payee
and the check is a bearer instrument.
In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer bears
the loss. When faced with a check payable to a fictitious payee, it is treated as a bearer
instrument that can be negotiated by delivery. The underlying theory is that one cannot expect
a fictitious payee to negotiate the check by placing his indorsement thereon. And since the
maker knew this limitation, he must have intended for the instrument to be negotiated by mere
delivery. Thus, in case of controversy, the drawer of the check will bear the loss. This rule is
justified for otherwise, it will be most convenient for the maker who desires to escape payment
of the check to always deny the validity of the indorsement. This despite the fact that the
fictitious payee was purposely named without any intention that the payee should receive the
proceeds of the check.15
The fictitious-payee rule is best illustrated in Mueller & Martin v. Liberty Insurance Bank.16 In
the said case, the corporation Mueller & Martin was defrauded by George L. Martin, one of its
authorized signatories. Martin drew seven checks payable to the German Savings Fund
Company Building Association (GSFCBA) amounting to $2,972.50 against the account of the
corporation without authority from the latter. Martin was also an officer of the GSFCBA but did
not have signing authority. At the back of the checks, Martin placed the rubber stamp of the
GSFCBA and signed his own name as indorsement. He then successfully drew the funds from
Liberty Insurance Bank for his own personal profit. When the corporation filed an action against
the bank to recover the amount of the checks, the claim was denied.
The US Supreme Court held in Mueller that when the person making the check so payable did
not intend for the specified payee to have any part in the transactions, the payee is considered
as a fictitious payee. The check is then considered as a bearer instrument to be validly
negotiated by mere delivery. Thus, the US Supreme Court held that Liberty Insurance Bank, as
drawee, was authorized to make payment to the bearer of the check, regardless of whether
prior indorsements were genuine or not.17
The more recent Getty Petroleum Corp. v. American Express Travel Related Services Company,
Inc.18 upheld the fictitious-payee rule. The rule protects the depositary bank and assigns the
loss to the drawer of the check who was in a better position to prevent the loss in the first
place. Due care is not even required from the drawee or depositary bank in accepting and
paying the checks. The effect is that a showing of negligence on the part of the depositary bank
will not defeat the protection that is derived from this rule.
However, there is a commercial bad faith exception to the fictitious-payee rule. A showing of
commercial bad faith on the part of the drawee bank, or any transferee of the check for that
matter, will work to strip it of this defense. The exception will cause it to bear the loss.
Commercial bad faith is present if the transferee of the check acts dishonestly, and is a party to
the fraudulent scheme. Said the US Supreme Court in Getty:
Consequently, a transferee’s lapse of wary vigilance, disregard of suspicious circumstances
which might have well induced a prudent banker to investigate and other permutations of
negligence are not relevant considerations under Section 3-405 x x x. Rather, there is a
"commercial bad faith" exception to UCC 3-405, applicable when the transferee "acts
dishonestly – where it has actual knowledge of facts and circumstances that amount to bad
faith, thus itself becoming a participant in a fraudulent scheme. x x x Such a test finds support in
the text of the Code, which omits a standard of care requirement from UCC 3-405 but imposes
on all parties an obligation to act with "honesty in fact." x x x19 (Emphasis added)
Getty also laid the principle that the fictitious-payee rule extends protection even to non-bank
transferees of the checks.
In the case under review, the Rodriguez checks were payable to specified payees. It is unrefuted
that the 69 checks were payable to specific persons. Likewise, it is uncontroverted that the
payees were actual, existing, and living persons who were members of PEMSLA that had a
rediscounting arrangement with spouses Rodriguez.
What remains to be determined is if the payees, though existing persons, were "fictitious" in its
broader context.

For the fictitious-payee rule to be available as a defense, PNB must show that the makers did
not intend for the named payees to be part of the transaction involving the checks. At most, the
bank’s thesis shows that the payees did not have knowledge of the existence of the checks. This
lack of knowledge on the part of the payees, however, was not tantamount to a lack of
intention on the part of respondents-spouses that the payees would not receive the checks’
proceeds. Considering that respondents-spouses were transacting with PEMSLA and not the
individual payees, it is understandable that they relied on the information given by the officers
of PEMSLA that the payees would be receiving the checks.
Verily, the subject checks are presumed order instruments. This is because, as found by both
lower courts, PNB failed to present sufficient evidence to defeat the claim of respondents-
spouses that the named payees were the intended recipients of the checks’ proceeds. The bank
failed to satisfy a requisite condition of a fictitious-payee situation – that the maker of the check
intended for the payee to have no interest in the transaction.
Because of a failure to show that the payees were "fictitious" in its broader sense, the fictitious-
payee rule does not apply. Thus, the checks are to be deemed payable to order. Consequently,
the drawee bank bears the loss.20
PNB was remiss in its duty as the drawee bank. It does not dispute the fact that its teller or
tellers accepted the 69 checks for deposit to the PEMSLA account even without any
indorsement from the named payees. It bears stressing that order instruments can only be
negotiated with a valid indorsement.
A bank that regularly processes checks that are neither payable to the customer nor duly
indorsed by the payee is apparently grossly negligent in its operations.21 This Court has
recognized the unique public interest possessed by the banking industry and the need for the
people to have full trust and confidence in their banks.22 For this reason, banks are minded to
treat their customer’s accounts with utmost care, confidence, and honesty.23
In a checking transaction, the drawee bank has the duty to verify the genuineness of the
signature of the drawer and to pay the check strictly in accordance with the drawer’s
instructions, i.e., to the named payee in the check. It should charge to the drawer’s accounts
only the payables authorized by the latter. Otherwise, the drawee will be violating the
instructions of the drawer and it shall be liable for the amount charged to the drawer’s
account.24
In the case at bar, respondents-spouses were the bank’s depositors. The checks were drawn
against respondents-spouses’ accounts. PNB, as the drawee bank, had the responsibility to
ascertain the regularity of the indorsements, and the genuineness of the signatures on the
checks before accepting them for deposit. Lastly, PNB was obligated to pay the checks in strict
accordance with the instructions of the drawers. Petitioner miserably failed to discharge this
burden.
The checks were presented to PNB for deposit by a representative of PEMSLA absent any type
of indorsement, forged or otherwise. The facts clearly show that the bank did not pay the
checks in strict accordance with the instructions of the drawers, respondents-spouses. Instead,
it paid the values of the checks not to the named payees or their order, but to PEMSLA, a third
party to the transaction between the drawers and the payees.alf-ITC
Moreover, PNB was negligent in the selection and supervision of its employees. The
trustworthiness of bank employees is indispensable to maintain the stability of the banking
industry. Thus, banks are enjoined to be extra vigilant in the management and supervision of
their employees. In Bank of the Philippine Islands v. Court of Appeals,25 this Court cautioned
thus:
Banks handle daily transactions involving millions of pesos. By the very nature of their work the
degree of responsibility, care and trustworthiness expected of their employees and officials is
far greater than those of ordinary clerks and employees. For obvious reasons, the banks are
expected to exercise the highest degree of diligence in the selection and supervision of their
employees.26
PNB’s tellers and officers, in violation of banking rules of procedure, permitted the invalid
deposits of checks to the PEMSLA account. Indeed, when it is the gross negligence of the bank
employees that caused the loss, the bank should be held liable.27
PNB’s argument that there is no loss to compensate since no demand for payment has been
made by the payees must also fail. Damage was caused to respondents-spouses when the
PEMSLA checks they deposited were returned for the reason "Account Closed." These PEMSLA
checks were the corresponding payments to the Rodriguez checks. Since they could not encash
the PEMSLA checks, respondents-spouses were unable to collect payments for the amounts
they had advanced.
A bank that has been remiss in its duty must suffer the consequences of its negligence. Being
issued to named payees, PNB was duty-bound by law and by banking rules and procedure to
require that the checks be properly indorsed before accepting them for deposit and payment.
In fine, PNB should be held liable for the amounts of the checks.
One Last Note
We note that the RTC failed to thresh out the merits of PNB’s cross-claim against its co-
defendants PEMSLA and MPC. The records are bereft of any pleading filed by these two
defendants in answer to the complaint of respondents-spouses and cross-claim of PNB. The
Rules expressly provide that failure to file an answer is a ground for a declaration that
defendant is in default.28 Yet, the RTC failed to sanction the failure of both PEMSLA and MPC to
file responsive pleadings. Verily, the RTC dismissal of PNB’s cross-claim has no basis. Thus, this
judgment shall be without prejudice to whatever action the bank might take against its co-
defendants in the trial court.

To PNB’s credit, it became involved in the controversial transaction not of its own volition but
due to the actions of some of its employees. Considering that moral damages must be
understood to be in concept of grants, not punitive or corrective in nature, We resolve to
reduce the award of moral damages to P50,000.00.29
WHEREFORE, the appealed Amended Decision is AFFIRMED with the MODIFICATION that the
award for moral damages is reduced to P50,000.00, and that this is without prejudice to
whatever civil, criminal, or administrative action PNB might take against PEMSLA, MPC, and the
employees involved.
SO ORDERED.
G.R. No. 157943 September 4, 2013

PEOPLE OF THE PHILIPPINES, PLAINTIFF-APPELLEE,

vs.
GILBERT REYES WAGAS, ACCUSED-APPELLANT.

DECISION

BERSAMIN, J.:

The Bill of Rights guarantees the right of an accused to be presumed innocent until the contrary
is proved. In order to overcome the presumption of innocence, the Prosecution is required to
adduce against him nothing less than proof beyond reasonable doubt. Such proof is not only in
relation to the elements of the offense, but also in relation to the identity of the offender. If the
Prosecution fails to discharge its heavy burden, then it is not only the right of the accused to be
freed, it becomes the Court’s constitutional duty to acquit him.
The Case
Gilbert R. Wagas appeals his conviction for estafa under the decision rendered on July 11, 2002
by the Regional Trial Court, Branch 58, in Cebu City (RTC), meting on him the indeterminate
penalty of 12 years of prision mayor, as minimum, to 30 years of reclusion perpetua, as
maximum.
Antecedents
Wagas was charged with estafa under the information that reads:
That on or about the 30th day of April, 1997, and for sometime prior and subsequent thereto,
in the City of Cebu, Philippines, and within the jurisdiction of this Honorable Court, the said
accused, with deliberate intent, with intent to gain and by means of false pretenses or
fraudulent acts executed prior to or simultaneously with the commission of the fraud, to wit:
knowing that he did not have sufficient funds deposited with the Bank of Philippine Islands, and
without informing Alberto Ligaray of that circumstance, with intent to defraud the latter, did
then and there issue Bank of the Philippine Islands Check No. 0011003, dated May 08, 1997 in
the amount of ₱200,000.00, which check was issued in payment of an obligation, but which
check when presented for encashment with the bank, was dishonored for the reason "drawn
against insufficient funds" and inspite of notice and several demands made upon said accused
to make good said check or replace the same with cash, he had failed and refused and up to the
present time still fails and refuses to do so, to the damage and prejudice of Alberto Ligaray in
the amount aforestated.

CONTRARY TO LAW.1
After Wagas entered a plea of not guilty,2 the pre-trial was held, during which the Defense
admitted that the check alleged in the information had been dishonored due to insufficient
funds.3 On its part, the Prosecution made no admission.4
At the trial, the Prosecution presented complainant Alberto Ligaray as its lone witness. Ligaray
testified that on April 30, 1997, Wagas placed an order for 200 bags of rice over the telephone;
that he and his wife would not agree at first to the proposed payment of the order by
postdated check, but because of Wagas’ assurance that he would not disappoint them and that
he had the means to pay them because he had a lending business and money in the bank, they
relented and accepted the order; that he released the goods to Wagas on April 30, 1997 and at
the same time received Bank of the Philippine Islands (BPI) Check No. 0011003 for ₱200,000.00
payable to cash and postdated May 8, 1997; that he later deposited the check with Solid Bank,
his depository bank, but the check was dishonored due to insufficiency of funds;5 that he called
Wagas about the matter, and the latter told him that he would pay upon his return to Cebu;
and that despite repeated demands, Wagas did not pay him.6
On cross-examination, Ligaray admitted that he did not personally meet Wagas because they
transacted through telephone only; that he released the 200 bags of rice directly to Robert
Cañada, the brother-in-law of Wagas, who signed the delivery receipt upon receiving the rice.7
After Ligaray testified, the Prosecution formally offered the following: (a) BPI Check No.
0011003 in the amount of ₱200,000.00 payable to "cash;" (b) the return slip dated May 13,
1997 issued by Solid Bank; (c) Ligaray’s affidavit; and (d) the delivery receipt signed by Cañada.
After the RTC admitted the exhibits, the Prosecution then rested its case.8
In his defense, Wagas himself testified. He admitted having issued BPI Check No. 0011003 to
Cañada, his brother-in-law, not to Ligaray. He denied having any telephone conversation or any
dealings with Ligaray. He explained that the check was intended as payment for a portion of
Cañada’s property that he wanted to buy, but when the sale did not push through, he did not
anymore fund the check.9
On cross-examination, the Prosecution confronted Wagas with a letter dated July 3, 1997
apparently signed by him and addressed to Ligaray’s counsel, wherein he admitted owing
Ligaray ₱200,000.00 for goods received, to wit:
This is to acknowledge receipt of your letter dated June 23, 1997 which is self-explanatory. It is
worthy also to discuss with you the environmental facts of the case for your consideration, to
wit:
It is true that I obtained goods from your client worth ₱200,000.00 and I promised to settle the
same last May 10, 1997, but to no avail. On this point, let me inform you that I sold my real
property to a buyer in Manila, and promised to pay the consideration on the same date as I
promised with your client. Unfortunately, said buyer likewise failed to make good with such
obligation. Hence, I failed to fulfill my promise resultant thereof. (sic)
Again, I made another promise to settle said obligation on or before June 15, 1997, but still to
no avail attributable to the same reason as aforementioned. (sic)
To arrest this problem, we decided to source some funds using the subject property as
collateral. This other means is resorted to for the purpose of settling the herein obligation. And
as to its status, said funds will be rele[a]sed within thirty (30) days from today.
In view of the foregoing, it is my sincere request and promise to settle said obligation on or
before August 15, 1997.
Lastly, I would like to manifest that it is not my intention to shy away from any financial
obligation.
xxxx
Respectfully yours,
(SGD.)
GILBERT R. WAGAS10
Wagas admitted the letter, but insisted that it was Cañada who had transacted with Ligaray,
and that he had signed the letter only because his sister and her husband (Cañada) had begged
him to assume the responsibility.11 On redirect examination, Wagas declared that Cañada, a
seafarer, was then out of the country; that he signed the letter only to accommodate the pleas
of his sister and Cañada, and to avoid jeopardizing Cañada’s application for overseas
employment.12 The Prosecution subsequently offered and the RTC admitted the letter as
rebuttal evidence.13
Decision of the RTC
As stated, the RTC convicted Wagas of estafa on July 11, 2002, viz:
WHEREFORE, premises considered, the Court finds the accused GUILTY beyond reasonable
doubt as charged and he is hereby sentenced as follows:
To suffer an indeterminate penalty of from twelve (12) years of pris[i]on mayor, as minimum, to
thirty (30) years of reclusion perpetua as maximum;
To indemnify the complainant, Albert[o] Ligaray in the sum of ₱200,000.00;
To pay said complainant the sum of ₱30,000.00 by way of attorney’s fees; and the costs of suit.
SO ORDERED.14

The RTC held that the Prosecution had proved beyond reasonable doubt all the elements
constituting the crime of estafa, namely: (a) that Wagas issued the postdated check as payment
for an obligation contracted at the time the check was issued; (b) that he failed to deposit an
amount sufficient to cover the check despite having been informed that the check had been
dishonored; and (c) that Ligaray released the goods upon receipt of the postdated check and
upon Wagas’ assurance that the check would be funded on its date.
Wagas filed a motion for new trial and/or reconsideration,15 arguing that the Prosecution did
not establish that it was he who had transacted with Ligaray and who had negotiated the check
to the latter; that the records showed that Ligaray did not meet him at any time; and that
Ligaray’s testimony on their alleged telephone conversation was not reliable because it was not
shown that Ligaray had been familiar with his voice. Wagas also sought the reopening of the
case based on newly discovered evidence, specifically: (a) the testimony of Cañada who could
not testify during the trial because he was then out of the country, and (b) Ligaray’s testimony
given against Wagas in another criminal case for violation of Batas Pambansa Blg. 22.
On October 21, 2002, the RTC denied the motion for new trial and/or reconsideration, opining
that the evidence Wagas desired to present at a new trial did not qualify as newly discovered,
and that there was no compelling ground to reverse its decision.16
Wagas appealed directly to this Court by notice of appeal.17
Prior to the elevation of the records to the Court, Wagas filed a petition for admission to bail
pending appeal. The RTC granted the petition and fixed Wagas’ bond at ₱40,000.00.18 Wagas
then posted bail for his provisional liberty pending appeal.19
The resolution of this appeal was delayed by incidents bearing on the grant of Wagas’
application for bail. On November 17, 2003, the Court required the RTC Judge to explain why
Wagas was out on bail.20 On January 15, 2004, the RTC Judge submitted to the Court a so-
called manifestation and compliance which the Court referred to the Office of the Court
Administrator (OCA) for evaluation, report, and recommendation.21 On July 5, 2005, the Court,
upon the OCA’s recommendation, directed the filing of an administrative complaint for simple
ignorance of the law against the RTC Judge.22 On September 12, 2006, the Court directed the
OCA to comply with its July 5, 2005 directive, and to cause the filing of the administrative
complaint against the RTC Judge. The Court also directed Wagas to explain why his bail should
not be cancelled for having been erroneously granted.23 Finally, in its memorandum dated
September 27, 2006, the OCA manifested to the Court that it had meanwhile filed the
administrative complaint against the RTC Judge.24
Issues
In this appeal, Wagas insists that he and Ligaray were neither friends nor personally known to
one other; that it was highly incredible that Ligaray, a businessman, would have entered into a
transaction with him involving a huge amount of money only over the telephone; that on the
contrary, the evidence pointed to Cañada as the person with whom Ligaray had transacted,
considering that the delivery receipt, which had been signed by Cañada, indicated that the
goods had been "Ordered by ROBERT CAÑADA," that the goods had been received by Cañada in
good order and condition, and that there was no showing that Cañada had been acting on
behalf of Wagas; that he had issued the check to Cañada upon a different transaction; that
Cañada had negotiated the check to Ligaray; and that the element of deceit had not been
established because it had not been proved with certainty that it was him who had transacted
with Ligaray over the telephone.
The circumstances beg the question: did the Prosecution establish beyond reasonable doubt
the existence of all the elements of the crime of estafa as charged, as well as the identity of the
perpetrator of the crime?
Ruling
The appeal is meritorious.
Article 315, paragraph 2(d) of the Revised Penal Code, as amended, provides:
Article 315. Swindling (estafa). — Any person who shall defraud another by any of the means
mentioned hereinbelow shall be punished by:
xxxx
2. By means of any of the following false pretenses or fraudulent acts executed prior to or
simultaneously with the commission of the fraud:
xxxx
(d) By postdating a check, or issuing a check in payment of an obligation when the offender had
no funds in the bank, or his funds deposited therein were not sufficient to cover the amount of
the check. The failure of the drawer of the check to deposit the amount necessary to cover his
check within three (3) days from receipt of notice from the bank and/or the payee or holder
that said check has been dishonored for lack or insufficiency of funds shall be prima facie
evidence of deceit constituting false pretense or fraudulent act.
In order to constitute estafa under this statutory provision, the act of postdating or issuing a
check in payment of an obligation must be the efficient cause of the defraudation. This means
that the offender must be able to obtain money or property from the offended party by reason
of the issuance of the check, whether dated or postdated. In other words, the Prosecution must
show that the person to whom the check was delivered would not have parted with his money
or property were it not for the issuance of the check by the offender.25

The essential elements of the crime charged are that: (a) a check is postdated or issued in
payment of an obligation contracted at the time the check is issued; (b) lack or insufficiency of
funds to cover the check; and (c) damage to the payee thereof.26 It is the criminal fraud or
deceit in the issuance of a check that is punishable, not the non-payment of a debt.27 Prima
facie evidence of deceit exists by law upon proof that the drawer of the check failed to deposit
the amount necessary to cover his check within three days from receipt of the notice of
dishonor.
The Prosecution established that Ligaray had released the goods to Cañada because of the
postdated check the latter had given to him; and that the check was dishonored when
presented for payment because of the insufficiency of funds.
In every criminal prosecution, however, the identity of the offender, like the crime itself, must
be established by proof beyond reasonable doubt.28 In that regard, the Prosecution did not
establish beyond reasonable doubt that it was Wagas who had defrauded Ligaray by issuing the
check.
Firstly, Ligaray expressly admitted that he did not personally meet the person with whom he
was transacting over the telephone, thus:
Q: On April 30, 1997, do you remember having a transaction with the accused in this case?
A: Yes, sir. He purchased two hundred bags of rice from me.
Q: How did this purchase of rice transaction started? (sic)
A: He talked with me over the phone and told me that he would like to purchase two hundred
bags of rice and he will just issue a check.29
Even after the dishonor of the check, Ligaray did not personally see and meet whoever he had
dealt with and to whom he had made the demand for payment, and that he had talked with
him only over the telephone, to wit:
Q: After the check was (sic) bounced, what did you do next?
A: I made a demand on them.
Q: How did you make a demand?
A: I called him over the phone.
Q: Who is that "him" that you are referring to?
A: Gilbert Wagas.30
Secondly, the check delivered to Ligaray was made payable to cash. Under the Negotiable
Instruments Law, this type of check was payable to the bearer and could be negotiated by mere
delivery without the need of an indorsement.31 This rendered it highly probable that Wagas
had issued the check not to Ligaray, but to somebody else like Cañada, his brother-in-law, who
then negotiated it to Ligaray.1âwphi1 Relevantly, Ligaray confirmed that he did not himself see
or meet Wagas at the time of the transaction and thereafter, and expressly stated that the
person who signed for and received the stocks of rice was Cañada.
It bears stressing that the accused, to be guilty of estafa as charged, must have used the check
in order to defraud the complainant. What the law punishes is the fraud or deceit, not the mere
issuance of the worthless check. Wagas could not be held guilty of estafa simply because he
had issued the check used to defraud Ligaray. The proof of guilt must still clearly show that it
had been Wagas as the drawer who had defrauded Ligaray by means of the check.
Thirdly, Ligaray admitted that it was Cañada who received the rice from him and who delivered
the check to him. Considering that the records are bereft of any showing that Cañada was then
acting on behalf of Wagas, the RTC had no factual and legal bases to conclude and find that
Cañada had been acting for Wagas. This lack of factual and legal bases for the RTC to infer so
obtained despite Wagas being Cañada’s brother-in-law.
Finally, Ligaray’s declaration that it was Wagas who had transacted with him over the
telephone was not reliable because he did not explain how he determined that the person with
whom he had the telephone conversation was really Wagas whom he had not yet met or
known before then. We deem it essential for purposes of reliability and trustworthiness that a
telephone conversation like that one Ligaray supposedly had with the buyer of rice to be first
authenticated before it could be received in evidence. Among others, the person with whom
the witness conversed by telephone should be first satisfactorily identified by voice recognition
or any other means.32 Without the authentication, incriminating another person just by
adverting to the telephone conversation with him would be all too easy. In this respect, an
identification based on familiarity with the voice of the caller, or because of clearly recognizable
peculiarities of the caller would have sufficed.33 The identity of the caller could also be
established by the caller’s self-identification, coupled with additional evidence, like the context
and timing of the telephone call, the contents of the statement challenged, internal patterns,
and other distinctive characteristics, and disclosure of knowledge of facts known peculiarly to
the caller.34
Verily, it is only fair that the caller be reliably identified first before a telephone communication
is accorded probative weight. The identity of the caller may be established by direct or
circumstantial evidence. According to one ruling of the Kansas Supreme Court:
Communications by telephone are admissible in evidence where they are relevant to the fact or
facts in issue, and admissibility is governed by the same rules of evidence concerning face-to-
face conversations except the party against whom the conversations are sought to be used
must ordinarily be identified. It is not necessary that the witness be able, at the time of the
conversation, to identify the person with whom the conversation was had, provided
subsequent identification is proved by direct or circumstantial evidence somewhere in the
development of the case. The mere statement of his identity by the party calling is not in itself
sufficient proof of such identity, in the absence of corroborating circumstances so as to render
the conversation admissible. However, circumstances preceding or following the conversation
may serve to sufficiently identify the caller. The completeness of the identification goes to the
weight of the evidence rather than its admissibility, and the responsibility lies in the first
instance with the district court to determine within its sound discretion whether the threshold
of admissibility has been met.35 (Bold emphasis supplied)
Yet, the Prosecution did not tender any plausible explanation or offer any proof to definitely
establish that it had been Wagas whom Ligaray had conversed with on the telephone. The
Prosecution did not show through Ligaray during the trial as to how he had determined that his
caller was Wagas. All that the Prosecution sought to elicit from him was whether he had known
and why he had known Wagas, and he answered as follows:
Q: Do you know the accused in this case?
A: Yes, sir.
Q: If he is present inside the courtroom […]
A: No, sir. He is not around.
Q: Why do you know him?
A: I know him as a resident of Compostela because he is an ex-mayor of Compostela.36
During cross-examination, Ligaray was allowed another opportunity to show how he had
determined that his caller was Wagas, but he still failed to provide a satisfactory showing, to
wit:
Q: Mr. Witness, you mentioned that you and the accused entered into [a] transaction of rice
selling, particularly with these 200 sacks of rice subject of this case, through telephone
conversation?
A: Yes, sir.
Q: But you cannot really ascertain that it was the accused whom you are talking with?
A: I know it was him because I know him.
Q: Am I right to say [that] that was the first time that you had a transaction with the accused
through telephone conversation, and as a consequence of that alleged conversation with the
accused through telephone he issued a check in your favor?
A: No. Before that call I had a talk[ ] with the accused.
Q: But still through the telephone?
A: Yes, sir.
Q: There was no instant (sic) that the accused went to see you personally regarding the 200
bags rice transaction?

A: No. It was through telephone only.

Q: In fact[,] you did not cause the delivery of these 200 bags of rice through the accused
himself?
A: Yes. It was through Robert.
Q: So, after that phone call[,] you deliver[ed] th[ose] 200 sacks of rice through somebody other
than the accused?
A: Yes, sir.37
Ligaray’s statement that he could tell that it was Wagas who had ordered the rice because he
"know[s]" him was still vague and unreliable for not assuring the certainty of the identification,
and should not support a finding of Ligaray’s familiarity with Wagas as the caller by his voice. It
was evident from Ligaray’s answers that Wagas was not even an acquaintance of Ligaray’s prior
to the transaction. Thus, the RTC’s conclusion that Ligaray had transacted with Wagas had no
factual basis. Without that factual basis, the RTC was speculating on a matter as decisive as the
identification of the buyer to be Wagas.
The letter of Wagas did not competently establish that he was the person who had conversed
with Ligaray by telephone to place the order for the rice. The letter was admitted exclusively as
the State’s rebuttal evidence to controvert or impeach the denial of Wagas of entering into any
transaction with Ligaray on the rice; hence, it could be considered and appreciated only for that
purpose. Under the law of evidence, the court shall consider evidence solely for the purpose for
which it is offered,38 not for any other purpose.39 Fairness to the adverse party demands such
exclusivity. Moreover, the high plausibility of the explanation of Wagas that he had signed the
letter only because his sister and her husband had pleaded with him to do so could not be
taken for granted.
It is a fundamental rule in criminal procedure that the State carries the onus probandi in
establishing the guilt of the accused beyond a reasonable doubt, as a consequence of the tenet
ei incumbit probation, qui dicit, non qui negat, which means that he who asserts, not he who
denies, must prove,40 and as a means of respecting the presumption of innocence in favor of
the man or woman on the dock for a crime. Accordingly, the State has the burden of proof to
show: (1) the correct identification of the author of a crime, and (2) the actuality of the
commission of the offense with the participation of the accused. All these facts must be proved
by the State beyond reasonable doubt on the strength of its evidence and without solace from
the weakness of the defense. That the defense the accused puts up may be weak is
inconsequential if, in the first place, the State has failed to discharge the onus of his identity
and culpability. The presumption of innocence dictates that it is for the Prosecution to
demonstrate the guilt and not for the accused to establish innocence.41 Indeed, the accused,
being presumed innocent, carries no burden of proof on his or her shoulders. For this reason,
the first duty of the Prosecution is not to prove the crime but to prove the identity of the
criminal. For even if the commission of the crime can be established, without competent proof
of the identity of the accused beyond reasonable doubt, there can be no conviction.42
There is no question that an identification that does not preclude a reasonable possibility of
mistake cannot be accorded any evidentiary force.43 Thus, considering that the circumstances
of the identification of Wagas as the person who transacted on the rice did not preclude a
reasonable possibility of mistake, the proof of guilt did not measure up to the standard of proof
beyond reasonable doubt demanded in criminal cases. Perforce, the accused’s constitutional
right of presumption of innocence until the contrary is proved is not overcome, and he is
entitled to an acquittal,44 even though his innocence may be doubted.45
Nevertheless, an accused, though acquitted of estafa, may still be held civilly liable where the
preponderance of the established facts so warrants.46 Wagas as the admitted drawer of the
check was legally liable to pay the amount of it to Ligaray, a holder in due course.47
Consequently, we pronounce and hold him fully liable to pay the amount of the dishonored
check, plus legal interest of 6% per annum from the finality of this decision.
WHEREFORE, the Court REVERSES and SETS ASIDE the decision rendered on July 11, 2002 by the
Regional Trial Court, Branch 58, in Cebu City; and ACQUITS Gilbert R. Wagas of the crime of
estafa on the ground of reasonable doubt, but ORDERS him to pay Alberto Ligaray the amount
of ₱200,000.00 as actual damages, plus interest of 6% per annum from the finality of this
decision.
No pronouncement on costs of suit.
SO ORDERED.

G.R. No. L-22405 June 30, 1971

PHILIPPINE EDUCATION CO., INC., plaintiff-appellant,

vs.
MAURICIO A. SORIANO, ET AL., defendant-appellees.

Marcial Esposo for plaintiff-appellant.

Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Antonio G. Ibarra
and Attorney Concepcion Torrijos-Agapinan for defendants-appellees.

DIZON, J.:
An appeal from a decision of the Court of First Instance of Manila dismissing the complaint filed
by the Philippine Education Co., Inc. against Mauricio A. Soriano, Enrico Palomar and Rafael
Contreras.
On April 18, 1958 Enrique Montinola sought to purchase from the Manila Post Office ten (10)
money orders of P200.00 each payable to E.P. Montinola withaddress at Lucena, Quezon. After
the postal teller had made out money ordersnumbered 124685, 124687-124695, Montinola
offered to pay for them with a private checks were not generally accepted in payment of
money orders, the teller advised him to see the Chief of the Money Order Division, but instead
of doing so, Montinola managed to leave building with his own check and the ten(10) money
orders without the knowledge of the teller.
On the same date, April 18, 1958, upon discovery of the disappearance of the unpaid money
orders, an urgent message was sent to all postmasters, and the following day notice was
likewise served upon all banks, instructing them not to pay anyone of the money orders
aforesaid if presented for payment. The Bank of America received a copy of said notice three
days later.
On April 23, 1958 one of the above-mentioned money orders numbered 124688 was received
by appellant as part of its sales receipts. The following day it deposited the same with the Bank
of America, and one day thereafter the latter cleared it with the Bureau of Posts and received
from the latter its face value of P200.00.
On September 27, 1961, appellee Mauricio A. Soriano, Chief of the Money Order Division of the
Manila Post Office, acting for and in behalf of his co-appellee, Postmaster Enrico Palomar,
notified the Bank of America that money order No. 124688 attached to his letter had been
found to have been irregularly issued and that, in view thereof, the amount it represented had
been deducted from the bank's clearing account. For its part, on August 2 of the same year, the
Bank of America debited appellant's account with the same amount and gave it advice thereof
by means of a debit memo.
On October 12, 1961 appellant requested the Postmaster General to reconsider the action
taken by his office deducting the sum of P200.00 from the clearing account of the Bank of
America, but his request was denied. So was appellant's subsequent request that the matter be
referred to the Secretary of Justice for advice. Thereafter, appellant elevated the matter to the
Secretary of Public Works and Communications, but the latter sustained the actions taken by
the postal officers.
In connection with the events set forth above, Montinola was charged with theft in the Court of
First Instance of Manila (Criminal Case No. 43866) but after trial he was acquitted on the
ground of reasonable doubt.
On January 8, 1962 appellant filed an action against appellees in the Municipal Court of Manila
praying for judgment as follows:
WHEREFORE, plaintiff prays that after hearing defendants be ordered:
(a) To countermand the notice given to the Bank of America on September 27, 1961, deducting
from the said Bank's clearing account the sum of P200.00 represented by postal money order
No. 124688, or in the alternative indemnify the plaintiff in the same amount with interest at 8-
½% per annum from September 27, 1961, which is the rate of interest being paid by plaintiff on
its overdraft account;
(b) To pay to the plaintiff out of their own personal funds, jointly and severally, actual and
moral damages in the amount of P1,000.00 or in such amount as will be proved and/or
determined by this Honorable Court: exemplary damages in the amount of P1,000.00,
attorney's fees of P1,000.00, and the costs of action.
Plaintiff also prays for such other and further relief as may be deemed just and equitable.
On November 17, 1962, after the parties had submitted the stipulation of facts reproduced at
pages 12 to 15 of the Record on Appeal, the above-named court rendered judgment as follows:
WHEREFORE, judgment is hereby rendered, ordering the defendants to countermand the
notice given to the Bank of America on September 27, 1961, deducting from said Bank's
clearing account the sum of P200.00 representing the amount of postal money order No.
124688, or in the alternative, to indemnify the plaintiff in the said sum of P200.00 with interest
thereon at the rate of 8-½% per annum from September 27, 1961 until fully paid; without any
pronouncement as to cost and attorney's fees.
The case was appealed to the Court of First Instance of Manila where, after the parties had
resubmitted the same stipulation of facts, the appealed decision dismissing the complaint, with
costs, was rendered.
The first, second and fifth assignments of error discussed in appellant's brief are related to the
other and will therefore be discussed jointly. They raise this main issue: that the postal money
order in question is a negotiable instrument; that its nature as such is not in anyway affected by
the letter dated October 26, 1948 signed by the Director of Posts and addressed to all banks
with a clearing account with the Post Office, and that money orders, once issued, create a
contractual relationship of debtor and creditor, respectively, between the government, on the
one hand, and the remitters payees or endorses, on the other.
It is not disputed that our postal statutes were patterned after statutes in force in the United
States. For this reason, ours are generally construed in accordance with the construction given
in the United States to their own postal statutes, in the absence of any special reason justifying
a departure from this policy or practice. The weight of authority in the United States is that
postal money orders are not negotiable instruments (Bolognesi vs. U.S. 189 Fed. 395; U.S. vs.
Stock Drawers National Bank, 30 Fed. 912), the reason behind this rule being that, in
establishing and operating a postal money order system, the government is not engaging in
commercial transactions but merely exercises a governmental power for the public benefit.
It is to be noted in this connection that some of the restrictions imposed upon money orders by
postal laws and regulations are inconsistent with the character of negotiable instruments. For
instance, such laws and regulations usually provide for not more than one endorsement;
payment of money orders may be withheld under a variety of circumstances (49 C.J. 1153).
Of particular application to the postal money order in question are the conditions laid down in
the letter of the Director of Posts of October 26, 1948 (Exhibit 3) to the Bank of America for the
redemption of postal money orders received by it from its depositors. Among others, the
condition is imposed that "in cases of adverse claim, the money order or money orders involved
will be returned to you (the bank) and the, corresponding amount will have to be refunded to
the Postmaster, Manila, who reserves the right to deduct the value thereof from any amount
due you if such step is deemed necessary." The conditions thus imposed in order to enable the
bank to continue enjoying the facilities theretofore enjoyed by its depositors, were accepted by
the Bank of America. The latter is therefore bound by them. That it is so is clearly referred from
the fact that, upon receiving advice that the amount represented by the money order in
question had been deducted from its clearing account with the Manila Post Office, it did not file
any protest against such action.
Moreover, not being a party to the understanding existing between the postal officers, on the
one hand, and the Bank of America, on the other, appellant has no right to assail the terms and
conditions thereof on the ground that the letter setting forth the terms and conditions
aforesaid is void because it was not issued by a Department Head in accordance with Sec. 79 (B)
of the Revised Administrative Code. In reality, however, said legal provision does not apply to
the letter in question because it does not provide for a department regulation but merely sets
down certain conditions upon the privilege granted to the Bank of Amrica to accept and pay
postal money orders presented for payment at the Manila Post Office. Such being the case, it is
clear that the Director of Posts had ample authority to issue it pursuant to Sec. 1190 of the
Revised Administrative Code.

In view of the foregoing, We do not find it necessary to resolve the issues raised in the third and
fourth assignments of error.
WHEREFORE, the appealed decision being in accordance with law, the same is hereby affirmed
with costs.
G.R. No. 113236 March 5, 2001

FIRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES, petitioner,

vs.
COURT OF APPEALS and LUZON DEVELOPMENT BANK, respondents.

QUISUMBING, J.:

This petition assails the decision 1 dated December 29, 1993 of the Court of Appeals in CA-G.R.
CV No. 29546, which affirmed the judgment 2 of the Regional Trial Court of Pasay City, Branch
113 in Civil Case No. PQ-7854-P, dismissing Firestone's complaint for damages.
The facts of this case, adopted by the CA and based on findings by the trial court, are as follows:
. . . [D]efendant is a banking corporation. It operates under a certificate of authority issued by
the Central Bank of the Philippines, and among its activities, accepts savings and time deposits.
Said defendant had as one of its client-depositors the Fojas-Arca Enterprises Company ("Fojas-
Arca" for brevity). Fojas-Arca maintaining a special savings account with the defendant, the
latter authorized and allowed withdrawals of funds therefrom through the medium of special
withdrawal slips. These are supplied by the defendant to Fojas-Arca.
In January 1978, plaintiff and Fojas-Arca entered into a "Franchised Dealership Agreement"
(Exh. B) whereby Fojas-Arca has the privilege to purchase on credit and sell plaintiff's products.
On January 14, 1978 up to May 15, 1978. Pursuant to the aforesaid Agreement, Fojas-Arca
purchased on credit Firestone products from plaintiff with a total amount of P4,896,000.00. In
payment of these purchases, Fojas-Arca delivered to plaintiff six (6) special withdrawal slips
drawn upon the defendant. In turn, these were deposited by the plaintiff with its current
account with the Citibank. All of them were honored and paid by the defendant. This singular
circumstance made plaintiff believe [sic] and relied [sic] on the fact that the succeeding special
withdrawal slips drawn upon the defendant would be equally sufficiently funded. Relying on
such confidence and belief and as a direct consequence thereof, plaintiff extended to Fojas-
Arca other purchases on credit of its products.
On the following dates Fojas-Arca purchased Firestone products on credit (Exh. M, I, J, K) and
delivered to plaintiff the corresponding special withdrawal slips in payment thereof drawn upon
the defendant, to wit:
DATE
WITHDRAWAL SLIP NO.
AMOUNT
June 15, 1978
42127
P1,198,092.80
July 15, 1978
42128
940,190.00
Aug. 15, 1978
42129
880,000.00
Sep. 15, 1978
42130
981,500.00
These were likewise deposited by plaintiff in its current account with Citibank and in turn the
Citibank forwarded it [sic] to the defendant for payment and collection, as it had done in
respect of the previous special withdrawal slips. Out of these four (4) withdrawal slips only
withdrawal slip No. 42130 in the amount of P981,500.00 was honored and paid by the
defendant in October 1978. Because of the absence for a long period coupled with the fact that
defendant honored and paid withdrawal slips No. 42128 dated July 15, 1978, in the amount of
P981,500.00 plaintiff's belief was all the more strengthened that the other withdrawal slips
were likewise sufficiently funded, and that it had received full value and payment of Fojas-
Arca's credit purchased then outstanding at the time. On this basis, plaintiff was induced to
continue extending to Fojas-Arca further purchase on credit of its products as per agreement
(Exh. "B").
However, on December 14, 1978, plaintiff was informed by Citibank that special withdrawal
slips No. 42127 dated June 15, 1978 for P1,198,092.80 and No. 42129 dated August 15, 1978
for P880,000.00 were dishonored and not paid for the reason 'NO ARRANGEMENT.' As a
consequence, the Citibank debited plaintiff's account for the total sum of P2,078,092.80
representing the aggregate amount of the above-two special withdrawal slips. Under such
situation, plaintiff averred that the pecuniary losses it suffered is caused by and directly
attributable to defendant's gross negligence.
On September 25, 1979, counsel of plaintiff served a written demand upon the defendant for
the satisfaction of the damages suffered by it. And due to defendant's refusal to pay plaintiff's
claim, plaintiff has been constrained to file this complaint, thereby compelling plaintiff to incur
litigation expenses and attorney's fees which amount are recoverable from the defendant.
Controverting the foregoing asseverations of plaintiff, defendant asserted, inter alia that the
transactions mentioned by plaintiff are that of plaintiff and Fojas-Arca only, [in] which
defendant is not involved; Vehemently, it was denied by defendant that the special withdrawal
slips were honored and treated as if it were checks, the truth being that when the special
withdrawal slips were received by defendant, it only verified whether or not the signatures
therein were authentic, and whether or not the deposit level in the passbook concurred with
the savings ledger, and whether or not the deposit is sufficient to cover the withdrawal; if
plaintiff treated the special withdrawal slips paid by Fojas-Arca as checks then plaintiff has to
blame itself for being grossly negligent in treating the withdrawal slips as check when it is
clearly stated therein that the withdrawal slips are non-negotiable; that defendant is not a privy
to any of the transactions between Fojas-Arca and plaintiff for which reason defendant is not
duty bound to notify nor give notice of anything to plaintiff. If at first defendant had given
notice to plaintiff it is merely an extension of usual bank courtesy to a prospective client; that
defendant is only dealing with its depositor Fojas-Arca and not the plaintiff. In summation,
defendant categorically stated that plaintiff has no cause of action against it (pp. 1-3, Dec.; pp.
368-370, id).3
Petitioner's complaint4 for a sum of money and damages with the Regional Trial Court of Pasay
City, Branch 113, docketed as Civil Case No. 29546, was dismissed together with the
counterclaim of defendant.
Petitioner appealed the decision to the Court of Appeals. It averred that respondent Luzon
Development Bank was liable for damages under Article 21765 in relation to Articles 196 and
207 of the Civil Code. As noted by the CA, petitioner alleged the following tortious acts on the
part of private respondent: 1) the acceptance and payment of the special withdrawal slips
without the presentation of the depositor's passbook thereby giving the impression that the
withdrawal slips are instruments payable upon presentment; 2) giving the special withdrawal
slips the general appearance of checks; and 3) the failure of respondent bank to seasonably
warn petitioner that it would not honor two of the four special withdrawal slips.
On December 29, 1993, the Court of Appeals promulgated its assailed decision. It denied the
appeal and affirmed the judgment of the trial court. According to the appellate court,
respondent bank notified the depositor to present the passbook whenever it received a
collection note from another bank, belying petitioner's claim that respondent bank was
negligent in not requiring a passbook under the subject transaction. The appellate court also
found that the special withdrawal slips in question were not purposely given the appearance of
checks, contrary to petitioner's assertions, and thus should not have been mistaken for checks.
Lastly, the appellate court ruled that the respondent bank was under no obligation to inform
petitioner of the dishonor of the special withdrawal slips, for to do so would have been a
violation of the law on the secrecy of bank deposits.
Hence, the instant petition, alleging the following assignment of error:

25. The CA grievously erred in holding that the [Luzon Development] Bank was free from any
fault or negligence regarding the dishonor, or in failing to give fair and timely advice of the
dishonor, of the two intermediate LDB Slips and in failing to award damages to Firestone
pursuant to Article 2176 of the New Civil Code.8
The issue for our consideration is whether or not respondent bank should be held liable for
damages suffered by petitioner, due to its allegedly belated notice of non-payment of the
subject withdrawal slips.
The initial transaction in this case was between petitioner and Fojas-Arca, whereby the latter
purchased tires from the former with special withdrawal slips drawn upon Fojas-Arca's special
savings account with respondent bank. Petitioner in turn deposited these withdrawal slips with
Citibank. The latter credited the same to petitioner's current account, then presented the slips
for payment to respondent bank. It was at this point that the bone of contention arose.
On December 14, 1978, Citibank informed petitioner that special withdrawal slips Nos. 42127
and 42129 dated June 15, 1978 and August 15, 1978, respectively, were refused payment by
respondent bank due to insufficiency of Fojas-Arca's funds on deposit. That information came
about six months from the time Fojas-Arca purchased tires from petitioner using the subject
withdrawal slips. Citibank then debited the amount of these withdrawal slips from petitioner's
account, causing the alleged pecuniary damage subject of petitioner's cause of action.
At the outset, we note that petitioner admits that the withdrawal slips in question were non-
negotiable.9 Hence, the rules governing the giving of immediate notice of dishonor of
negotiable instruments do not apply in this case.10 Petitioner itself concedes this point.11 Thus,
respondent bank was under no obligation to give immediate notice that it would not make
payment on the subject withdrawal slips. Citibank should have known that withdrawal slips
were not negotiable instruments. It could not expect these slips to be treated as checks by
other entities. Payment or notice of dishonor from respondent bank could not be expected
immediately, in contrast to the situation involving checks.
In the case at bar, it appears that Citibank, with the knowledge that respondent Luzon
Development Bank, had honored and paid the previous withdrawal slips, automatically credited
petitioner's current account with the amount of the subject withdrawal slips, then merely
waited for the same to be honored and paid by respondent bank. It presumed that the
withdrawal slips were "good."
It bears stressing that Citibank could not have missed the non-negotiable nature of the
withdrawal slips. The essence of negotiability which characterizes a negotiable paper as a credit
instrument lies in its freedom to circulate freely as a substitute for money.12 The withdrawal
slips in question lacked this character.

A bank is under obligation to treat the accounts of its depositors with meticulous care, whether
such account consists only of a few hundred pesos or of millions of pesos.13 The fact that the
other withdrawal slips were honored and paid by respondent bank was no license for Citibank
to presume that subsequent slips would be honored and paid immediately. By doing so, it failed
in its fiduciary duty to treat the accounts of its clients with the highest degree of care.14
In the ordinary and usual course of banking operations, current account deposits are accepted
by the bank on the basis of deposit slips prepared and signed by the depositor, or the latter's
agent or representative, who indicates therein the current account number to which the
deposit is to be credited, the name of the depositor or current account holder, the date of the
deposit, and the amount of the deposit either in cash or in check.15
The withdrawal slips deposited with petitioner's current account with Citibank were not checks,
as petitioner admits. Citibank was not bound to accept the withdrawal slips as a valid mode of
deposit. But having erroneously accepted them as such, Citibank — and petitioner as account-
holder — must bear the risks attendant to the acceptance of these instruments. Petitioner and
Citibank could not now shift the risk and hold private respondent liable for their admitted
mistake.
WHEREFORE, the petition is DENIED and the decision of the Court of Appeals in CA-G.R. CV No.
29546 is AFFIRMED. Costs against petitioner.
SO ORDERED.

G.R. No. 180390 July 27, 2011

PRUDENTIAL BANK, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

DEL CASTILLO, J.:

A certificate of deposit need not be in a specific form; thus, a passbook of an interest-earning
deposit account issued by a bank is a certificate of deposit drawing interest.1
This Petition for Review on Certiorari2 under Rule 45 of the Rules of Court assails the Decision3
dated March 30, 2007 and the Resolution4 dated October 30, 2007 of the Court of Tax Appeals
(CTA) in CTA EB No. 185.
Factual Antecedents
Petitioner Prudential Bank5 is a banking corporation organized and existing under Philippine
law.6 On July 23, 1999, petitioner received from the respondent Commissioner of Internal
Revenue (CIR) a Final Assessment Notice No. ST-DST-95-0042-99 and a Demand Letter for
deficiency Documentary Stamp Tax (DST) for the taxable year 1995 on its Repurchase
Agreement with the Bangko Sentral ng Pilipinas [BSP], Purchase of Treasury Bills from the BSP,
and on its Savings Account Plus [SAP] product, in the amount of ₱18,982,734.38, broken down
as follows:
a. Repurchase Agreement — BSP Seller
Basic 1,656,000,000.00200 x .30 ₱2,484,000.00
Add: 25% Surcharge 621,000.00
Compromise Penalty 25,000.00 ₱3,130,000.00
b. Purchase of [Treasury] Bills from BSP
Basic 5,038,610,000.00200 x .30 ₱7,557,915.00
Add: 25% Surcharge 1,889,478.75
Compromise Penalty 25,000.00 ₱9,472,393.75
c. Savings Account Plus (page 1307 of the docket)
Basic 3,389,515,000.00200 x .30 ₱5,084,272.50

Add: 25% Surcharge 1,271,068.13

Compromise Penalty 25,000.00 ₱6,380,340.63
GRAND TOTAL ₱18,982,734.387
Petitioner protested the assessment on the ground that the documents subject matter of the
assessment are not subject to DST.8 However, respondent denied9 the protest on December
28, 2001.
Thus, petitioner filed a Petition for Review before the CTA which was raffled to its First Division
and docketed as CTA Case No. 6396.10
Ruling of the First Division of the Court of Tax Appeals
On February 10, 2006, the First Division of the CTA affirmed the assessment for deficiency DST
insofar as the SAP is concerned, but cancelled and set aside the assessment on petitioner’s
repurchase agreement and purchase of treasury bills11 with the BSP. Thus, it disposed of the
case as follows:
WHEREFORE, the instant petition is hereby PARTIALLY GRANTED. The subject Decision of the
Commissioner of Internal Revenue dated December 28, 2001 assessing petitioner of deficiency
documentary stamp taxes is hereby AFFIRMED insofar as the Savings Account Plus is concerned.
The deficiency assessment on petitioner's repurchase agreements and treasury bills are hereby
CANCELLED and SET ASIDE.
Accordingly, petitioner is hereby ORDERED TO PAY respondent the reduced amount of
₱6,355,340.63 plus 20% delinquency interest from August 23, 1999 up to the time such amount
is fully paid pursuant to Section 249 (c) of the [old] NIRC, as amended, covered by Assessment
Notice No. ST-DST-95-0042-99 as deficiency documentary stamp tax for the taxable year 1995,
recomputed as follows:
Savings Account Plus ₱5,084,272.50
Add: 25% Surcharge 1,271,068.13
TOTAL ₱6,355,340.63
SO ORDERED.12
Petitioner moved for partial reconsideration but the same was denied by the First Division of
the CTA in its Resolution dated May 22, 2006.13
Thus, petitioner appealed to the CTA En Banc.
Ruling of the Court of Tax Appeals En Banc

On March 30, 2007, the CTA En Banc denied the appeal for lack of merit. It affirmed the ruling
of its First Division that petitioner’s SAP is a certificate of deposit bearing interest subject to DST
under Section 180 of the old National Internal Revenue Code (NIRC), as amended by Republic
Act (RA) No. 7660.14
Petitioner sought reconsideration but later moved to withdraw the same in view of its
availment of the Improved Voluntary Assessment Program (IVAP) pursuant to Revenue
Regulation (RR) No. 18-200615 in relation to RR No. 15-200616 and Revenue Memorandum
Order (RMO) No. 23-2006.17
On October 30, 2007, the CTA En Banc rendered a Resolution18 denying petitioner’s motion to
withdraw for non-compliance with the requirements for abatement. It found that the amount
paid for purposes of the abatement program was not in accordance with Revenue
Memorandum Circular (RMC) No. 66-2006,19 which provides that the amount to be paid
should be based on the original assessment or the court’s decision, whichever is higher.20 It
also noted that petitioner failed to comply with RMO No. 23-2006, specifically with the
requirement to submit the letter of termination and authority to cancel assessment signed by
the respondent.21 In the same Resolution, the CTA En Banc denied petitioner’s motion for
reconsideration for lack of merit.22
Issues
Hence, the present recourse by petitioner raising the following issues:
I.
WHETHER X X X PETITIONER’S [SAP] WITH A HIGHER INTEREST IS SUBJECT TO DOCUMENTARY
STAMP TAX.
II.
WHETHER X X X THE CTA EN BANC ERRED IN NOT ALLOWING THE WITHDRAWAL OF THE
PETITION AND/OR CANCELLATION OF THE DST ASSESSMENT ON PETITIONER’S [SAP] ON THE
GROUND THAT PETITIONER HAD ALREADY PAID AND SUBSTANTIALLY COMPLIED WITH RR NO.
15-2006 AND RMO NO. 23-2006.23
Petitioner’s Arguments
Petitioner contends that its SAP is not subject to DST because it is not included in the list of
documents under Section 180 of the old NIRC, as amended.24 Petitioner insists that unlike a
time deposit, its SAP is evidenced by a passbook and not by a deposit certificate.25 In addition,
its SAP is payable on demand and not on a fixed determinable future.26 To support its position,
petitioner relies on the legislative intent of the law prior to Republic Act (RA) No. 924327 and
the historical background of the taxability of certificates of deposit.28

Petitioner further contends that even assuming that its SAP is subject to DST, the CTA En Banc
nonetheless erred in denying petitioner’s withdrawal of its petition considering that it has paid
under the IVAP the amount of ₱5,084,272.50, which it claims is 100% of the basic tax of the
original assessment of the Bureau of Internal Revenue (BIR).29 Petitioner insists that the
payment it made should be deemed substantial compliance considering the refusal of the
respondent to issue the letter of termination and authority to cancel assessment.30
Respondent’s Arguments
Respondent maintains that petitioner’s SAP is subject to DST conformably with the ruling in
International Exchange Bank v. Commissioner of Internal Revenue.31 It also contends that the
CTA En Banc correctly denied the motion to withdraw since petitioner failed to comply with the
requirements of the IVAP.32 Mere payment of the deficiency DST cannot be deemed
substantial compliance as tax amnesty, like tax exemption, must be construed strictly against
the taxpayer.33
Our Ruling
The petition lacks merit.
Petitioner’s Savings Account Plus is subject to Documentary Stamp Tax.
DST is imposed on certificates of deposit bearing interest pursuant to Section 180 of the old
NIRC, as amended, to wit:
Sec. 180. Stamp tax on all loan agreements, promissory notes, bills of exchange, drafts,
instruments and securities issued by the government or any of its instrumentalities, certificates
of deposit bearing interest and others not payable on sight or demand. – On all loan
agreements signed abroad wherein the object of the contract is located or used in the
Philippines; bills of exchange (between points within the Philippines), drafts, instruments and
securities issued by the Government or any of its instrumentalities or certificates of deposits
drawing interest, or orders for the payment of any sum of money otherwise than at the sight or
on demand, or on all promissory notes, whether negotiable or non-negotiable, except bank
notes issued for circulation, and on each renewal of any such note, there shall be collected a
documentary stamp tax of Thirty centavos (₱0.30) on each Two hundred pesos, or fractional
part thereof, of the face value of any such agreement, bill of exchange, draft, certificate of
deposit, or note: Provided, That only one documentary stamp tax shall be imposed on either
loan agreement, or promissory note issued to secure such loan, whichever will yield a higher
tax: provided, however, that loan agreements or promissory notes the aggregate of which does
not exceed Two hundred fifty thousand pesos (₱250,000.00) executed by an individual for his
purchase on installment for his personal use or that of his family and not for business, resale,
barter or hire of a house, lot, motor vehicle, appliance or furniture shall be exempt from the
payment of the documentary stamp tax provided under this section. (Emphasis supplied.)

A certificate of deposit is defined as "a written acknowledgment by a bank or banker of the

receipt of a sum of money on deposit which the bank or banker promises to pay to the
depositor, to the order of the depositor, or to some other person or his order, whereby the
relation of debtor and creditor between the bank and the depositor is created."34
In this case, petitioner claims that its SAP is not a certificate of deposit bearing interest because
unlike a time deposit, its SAP is payable on demand and is evidenced by a passbook and not by
a certificate of deposit.
We do not agree.
In China Banking Corporation v. Commissioner of Internal Revenue,35 we held that the Savings
Plus Deposit Account, which has the following features:
1. Amount deposited is withdrawable anytime;
2. The same is evidenced by a passbook;
3. The rate of interest offered is the prevailing market rate, provided the depositor would
maintain his minimum balance in thirty (30) days at the minimum, and should he withdraw
before the period, his deposit would earn the regular savings deposit rate; is subject to DST as it
is essentially the same as the Special/Super Savings Deposit Account in Philippine Banking
Corporation v. Commissioner of Internal Revenue,36 and the Savings Account-Fixed Savings
Deposit in International Exchange Bank v. Commissioner of Internal Revenue,37 which are
considered certificates of deposit drawing interests.38
Similarly, in this case, although the money deposited in a SAP is payable anytime, the
withdrawal of the money before the expiration of 30 days results in the reduction of the
interest rate.39 In the same way, a time deposit withdrawn before its maturity results to a
lower interest rate and payment of bank charges or penalties.40
The fact that the SAP is evidenced by a passbook likewise cannot remove its coverage from
Section 180 of the old NIRC, as amended. A document to be considered a certificate of deposit
need not be in a specific form.41 Thus, a passbook issued by a bank qualifies as a certificate of
deposit drawing interest because it is considered a written acknowledgement by a bank that it
has accepted a deposit of a sum of money from a depositor.421avvphi1
In view of the foregoing, we find that the CTA En Banc correctly affirmed the ruling of its First
Division that petitioner’s SAP is a certificate of deposit bearing interest and that the same is
subject to DST.
The CTA En Banc’s denial of petitioner’s motion to withdraw is proper.
The CTA En Banc denied petitioner’s motion to withdraw because it failed

To show that it was able to comply with the requirements of IVAP.

To avail of the IVAP, a taxpayer must pay the 100% basic tax of the original assessment of the
BIR or the CTA Decision, whichever is higher43 and submit the letter of termination and
authority to cancel assessment signed by the respondent.44 In this case, petitioner failed to
submit the letter of termination and authority to cancel assessment as respondent found the
payment of ₱5,084,272.50 not in accordance with RMC No. 66-2006. Hence, we find no error
on the part of the CTA En Banc in denying petitioner’s motion to withdraw.
Petitioner’s payment of ₱5,084,272.50, without the supporting documents, cannot be deemed
substantial compliance as tax amnesty must be construed strictly against the taxpayer and
liberally in favor of the taxing authority.45 Nevertheless, the amount of ₱5,084,272.50 paid by
petitioner to the BIR must be considered as partial payment of petitioner’s tax liability.
WHEREFORE, the petition is hereby DENIED. The assailed Decision dated March 30, 2007 and
the Resolution dated October 30, 2007 of the Court of Tax Appeals in CTA EB No. 185 are
hereby AFFIRMED with MODIFICATION that petitioner Prudential Bank’s payment be
considered as partial payment of its tax liability.
SO ORDERED.

G.R. No. 198660 October 23, 2013

TING TING PUA, Petitioner,

vs.
SPOUSES BENITO LO BUN TIONG and CAROLINE SIOK CHING TENG, Respondents.

RESOLUTION

VELASCO, JR., J.:

Under consideration is the Motion for Reconsideration interposed by petitioner Ting Ting Pua
Pua) of our Resolution dated April 18, 2012 effectively affirming the Decision1 and Resolution2
dated March 31, 2011 and September 26, 2011, respectively, of the Court of Appeals CA) In CA-
G.R. CV No. 93755, which, in turn, reversed the Decision of the Regional Trial Court RTC) of the
City of Manila, Branch 29 in Civil Case No. 97-83027.
As culled from the adverted R TC Decision, as adopted for the most part by the CA, the
antecedent facts may be summarized as follows:
The controversy arose from a Complaint for a Sum of Money3 filed by petitioner Pua against
respondent-spouses Benito Lo Bun Tiong Benito) and Caroline Siok Ching Teng Caroline). In the
complaint, Pua prayed that, among other things, respondents, or then defendants, pay Pua the
amount eight million five hundred thousand pesos (PhP 8,500,000), covered by a check. (Exhibit
"A," for plaintiff)
During trial, petitioner Pua clarified that the PhP 8,500,000 check was given by respondents to
pay the loans they obtained from her under a compounded interest agreement on various
dates in 1988.4 As Pua narrated, her sister, Lilian Balboa (Lilian), vouched for respondents’
ability to pay so that when respondents approached her, she immediately acceded and lent
money to respondents without requiring any collateral except post-dated checks bearing the
borrowed amounts.5 In all, respondents issued 176 checks for a total amount of one million
nine hundred seventy-five thousand pesos (PhP 1,975,000). These checks were dishonored
upon presentment to the drawee bank.7
As a result of the dishonor, petitioner demanded payment. Respondents, however, pleaded for
more time because of their financial difficulties.8 Petitioner Pua obliged and simply reminded
the respondents of their indebtedness from time to time.9
Sometime in September 1996, when their financial situation turned better, respondents
allegedly called and asked petitioner Pua for the computation of their loan obligations.10
Hence, petitioner handed them a computation dated October 2, 199611 which showed that, at
the agreed 2% compounded interest rate per month, the amount of the loan payable to
petitioner rose to thirteen million two hundred eighteen thousand five hundred forty-four
pesos and 20/100 (PhP 13,218,544.20).12 On receiving the computation, the respondents
asked petitioner to reduce their indebtedness to PhP 8,500,000.13 Wanting to get paid the
soonest possible time, petitioner Pua agreed to the lowered amount.14
Respondents then delivered to petitioner Asiatrust Check No. BND057750 bearing the reduced
amount of PhP 8,500,000 dated March 30, 1997 with the assurance that the check was good.15
In turn, respondents demanded the return of the 17 previously dishonored checks. Petitioner,
however, refused to return the bad checks and advised respondents that she will do so only
after the encashment of Asiatrust Check No. BND057750.16
Like the 17 checks, however, Check No. BND057750 was also dishonored when it was
presented by petitioner to the drawee bank. Hence, as claimed by petitioner, she decided to file
a complaint to collect the money owed her by respondents.
For the defense, both respondents Caroline and Benito testified along with Rosa Dela Cruz
Tuazon (Tuazon), who was the OIC-Manager of Asiatrust-Binondo Branch in 1997. Respondents
categorically denied obtaining a loan from petitioner.17 Respondent Caroline, in particular,
narrated that, in August 1995, she and petitioner’s sister, Lilian, forged a partnership that
operated a mahjong business. Their agreement was for Lilian to serve as the capitalist while
respondent Caroline was to act as the cashier. Caroline also agreed to use her personal checks
to pay for the operational expenses including the payment of the winners of the games.18 As
the partners anticipated that Caroline will not always be in town to prepare these checks, she
left with Lilian five (5) pre-signed and consecutively numbered checks19 on the condition that
these checks will only be used to cover the costs of the business operations and in no
circumstance will the amount of the checks exceed PhP 5,000.20
In March 1996, however, respondent Caroline and Lilian had a serious disagreement that
resulted in the dissolution of their partnership and the cessation of their business. In the haste
of the dissolution and as a result of their bitter separation, respondent Caroline alleged that she
forgot about the five (5) pre-signed checks she left with Lilian.21 It was only when Lilian’s
husband, Vicente Balboa (Vicente), filed a complaint for sum of money in February 1997 against
respondents to recover five million one hundred seventy-five thousand two hundred fifty pesos
(PhP 5,175,250), covering three of the five post-dated and pre-signed checks.22
Respondent Caroline categorically denied having completed Check No. BND057750 by using a
check writer or typewriter as she had no check writer and she had always completed checks in
her own handwriting.23 She insisted that petitioner and her sister completed the check after its
delivery.24 Furthermore, she could not have gone to see petitioner Pua with her husband as
they had been separated in fact for nearly 10 years.25 As for the 17 checks issued by her in
1988, Caroline alleged that they were not intended for Pua but were issued for the benefit of
other persons.26 Caroline postulated that the complaint is designed to allow Pua’s sister, Lilian,
to recover her losses in the foreign exchange business she had with Caroline in the 1980s.
Respondent Benito corroborated Caroline’s testimony respecting their almost a decade
separation.27 As such, he could not have had accompanied his wife to see petitioner to
persuade the latter to lower down any alleged indebtedness.28 In fact, Benito declared, before
the filing of the Complaint, he had never met petitioner Pua, let alone approached her with his
wife to borrow money.29 He claimed that he was impleaded in the case to attach his property
and force him to enter into an amicable settlement with petitioner.30 Benito pointed out that
Check No. BND057750 was issued under Asiatrust Account No. 5513-0054-9, which is solely
under the name of his wife.31
The witness for the respondents, Ms. Tuazon, testified that respondent Caroline opened
Asiatrust Account No. 5513-0054-9 in September 1994.32 She claimed that the average
maintaining balance of respondent Caroline was PhP 2,000 and the highest amount issued by
Caroline from her account was PhP 435,000.33 She maintained that respondent Caroline had
always completed her checks with her own handwriting and not with a check writer. On
October 15, 1996, Caroline’s checking account was closed at the instance of the bank due to 69
instances of check issuance against insufficient balance.34
After trial, the RTC issued its Decision dated January 31, 2006 in favor of petitioner. In holding
thus, the RTC stated that the possession by petitioner of the checks signed by Caroline, under
the Negotiable Instruments Law, raises the presumption that they were issued and delivered
for a valuable consideration. On the other hand, the court a quo discounted the testimony for
the defense completely denying respondents’ loan obligation to Pua.35
The trial court, however, refused to order respondents to pay petitioner the amount of PhP
8,500,000 considering that the agreement to pay interest on the loan was not expressly
stipulated in writing by the parties. The RTC, instead, ordered respondents to pay the principal
amount of the loan as represented by the 17 checks plus legal interest from the date of
demand. As rectified,36 the dispositive portion of RTC’s Decision reads:
Defendant-spouses Benito Lo Bun Tiong and Caroline Siok Ching Teng, are hereby ordered
jointly and solidarily:
1. To pay plaintiff ₱1,975,000.00 plus 12% interest per annum from September 30, 1998, until
fully paid;
2. To pay plaintiff attorney’s fees of ₱200,000.00; and
3. To pay the costs of the suit.
Aggrieved, respondents went to the CA arguing that the court a quo erred in finding that they
obtained and are liable for a loan from petitioner. To respondents, petitioner has not
sufficiently proved the existence of the loan that they supposedly acquired from her way back
in the late 1980s by any written agreement or memorandum.

By Decision of March 31, 2011, as reiterated in a Resolution dated September 26, 2011, the
appellate court set aside the RTC Decision holding that Asiatrust Bank Check No. BND057550
was an incomplete delivered instrument and that petitioner has failed to prove the existence of
respondents’ indebtedness to her. Hence, the CA added, petitioner does not have a cause of
action against respondents.37
Hence, petitioner came to this Court via a Petition for Review on Certiorari38 alleging grievous
reversible error on the part of the CA in reversing the findings of the court a quo.
As adverted to at the outset, the Court, in a Minute Resolution dated April 18, 2012, resolved to
deny the petition.39
In this Motion for Reconsideration,40 petitioner pleads that this Court take a second hard look
on the facts and issues of the present case and affirm the RTC’s case disposition. Petitioner
argues, in the main, that the finding of the appellate court that petitioner has not established
respondents’ indebtedness to her is not supported by the evidence on record and is based
solely on respondents’ general denial of liability.
Respondents, on the other hand, argued in their Comment on the Motion for Reconsideration
dated October 6, 2012 that the CA correctly ruled that Asiatrust Check No. BND057550 is an
incomplete instrument which found its way into petitioner’s hands and that the petitioner
failed to prove respondents’ indebtedness to her. Petitioner, so respondents contend, failed to
show to whom the 17 1988 checks were delivered, for what consideration or purpose, and
under whose account said checks were deposited or negotiated.
Clearly, the issue in the present case is factual in nature as it involves an inquiry into the very
existence of the debt supposedly owed by respondents to petitioner.
The general rule is that this Court in petitions for review on certiorari only concerns itself with
questions of law, not of fact,41 the resolution of factual issues being the primary function of
lower courts.42 However, several exceptions have been laid down by jurisprudence to allow the
scrutiny of the factual arguments advanced by the contending parties, viz: (1) the conclusion is
grounded on speculations, surmises or conjectures; (2) the inference is manifestly mistaken,
absurd or impossible ; (3) there is grave abuse of discretion; (4) the judgment is based on a
misapprehension of facts; (5) the findings of fact are conflicting ; (6) there is no citation of
specific evidence on which the factual findings are based; (7) the findings of absence of fact are
contradicted by the presence of evidence on record ; (8) the findings of the CA are contrary to
those of the trial court ; (9) the CA manifestly overlooked certain relevant and undisputed facts
that, if properly considered, would justify a different conclusion ; (10) the findings of the CA are
beyond the issues of the case; and (11) such findings are contrary to the admissions of both
parties.43 At the very least, therefore, the inconsonance of the findings of the RTC and the CA
regarding the existence of the loan sanctions the recalibration of the evidence presented by the
parties before the trial court.

In the main, petitioner asserts that respondents owed her a sum of money way back in 1988 for
which the latter gave her several checks. These checks, however, had all been dishonored and
petitioner has not been paid the amount of the loan plus the agreed interest. In 1996,
respondents approached her to get the computation of their liability including the 2%
compounded interest. After bargaining to lower the amount of their liability, respondents
supposedly gave her a postdated check bearing the discounted amount of the money they
owed to petitioner. Like the 1988 checks, the drawee bank likewise dishonored this check. To
prove her allegations, petitioner submitted the original copies of the 17 checks issued by
respondent Caroline in 1988 and the check issued in 1996, Asiatrust Check No. BND057750. In
ruling in her favor, the RTC sustained the version of the facts presented by petitioner.
Respondents, on the other hand, completely deny the existence of the debt asserting that they
had never approached petitioner to borrow money in 1988 or in 1996. They hypothesize,
instead, that petitioner Pua is simply acting at the instance of her sister, Lilian, to file a false
charge against them using a check left to fund a gambling business previously operated by Lilian
and respondent Caroline. While not saying so in express terms, the appellate court considered
respondents’ denial as worthy of belief.
After another circumspect review of the records of the present case, however, this Court is
inclined to depart from the findings of the CA.
Certainly, in a suit for a recovery of sum of money, as here, the plaintiff-creditor has the burden
of proof to show that defendant had not paid her the amount of the contracted loan. However,
it has also been long established that where the plaintiff-creditor possesses and submits in
evidence an instrument showing the indebtedness, a presumption that the credit has not been
satisfied arises in her favor. Thus, the defendant is, in appropriate instances, required to
overcome the said presumption and present evidence to prove the fact of payment so that no
judgment will be entered against him.44
In overruling the trial court, however, the CA opined that petitioner "failed to establish [the]
alleged indebtedness in writing."45 Consequently, so the CA held, respondents were under no
obligation to prove their defense. Clearly, the CA had discounted the value of the only hard
pieces of evidence extant in the present case—the checks issued by respondent Caroline in
1988 and 1996 that were in the possession of, and presented in court by, petitioner.
In Pacheco v. Court of Appeals,46 this Court has expressly recognized that a check "constitutes
an evidence of indebtedness"47 and is a veritable "proof of an obligation."48 Hence, it can be
used "in lieu of and for the same purpose as a promissory note."49 In fact, in the seminal case
of Lozano v. Martinez,50 We pointed out that a check functions more than a promissory note
since it not only contains an undertaking to pay an amount of money but is an "order addressed
to a bank and partakes of a representation that the drawer has funds on deposit against which
the check is drawn, sufficient to ensure payment upon its presentation to the bank."51 This
Court reiterated this rule in the relatively recent Lim v. Mindanao Wines and Liquour Galleria
stating that "a check, the entries of which are in writing, could prove a loan transaction."52 This
very same principle underpins Section 24 of the Negotiable Instruments Law (NIL):
Section 24. Presumption of consideration. – Every negotiable instrument is deemed prima facie
to have been issued for a valuable consideration; and every person whose signature appears
thereon to have become a party for value.
Consequently, the 17 original checks, completed and delivered to petitioner, are sufficient by
themselves to prove the existence of the loan obligation of the respondents to petitioner. Note
that respondent Caroline had not denied the genuineness of these checks.53 Instead,
respondents argue that they were given to various other persons and petitioner had simply
collected all these 17 checks from them in order to damage respondents’ reputation.54 This
account is not only incredible; it runs counter to human experience, as enshrined in Sec. 16 of
the NIL which provides that when an instrument is no longer in the possession of the person
who signed it and it is complete in its terms "a valid and intentional delivery by him is presumed
until the contrary is proved."
The appellate court’s justification in giving credit to respondents’ contention that the
respondents had delivered the 17 checks to persons other than petitioner lies on the supposed
failure of petitioner "to establish for whose accounts [the checks] were deposited and
subsequently dishonored."55 This is clearly contrary to the evidence on record. It seems that
the appellate court overlooked the original copies of the bank return slips offered by petitioner
in evidence. These return slips show that the 1988 checks issued by respondent Caroline were
dishonored by the drawee banks because they were "drawn against insufficient funds."56
Further, a close scrutiny of these return slips will reveal that the checks were deposited either
in petitioner’s account57 or in the account of her brother, Ricardo Yulo—a fact she had
previously testified to explaining that petitioner indorsed some checks to her brother to pay for
a part of the capital she used in her financing business.58
As for the Asiatrust check issued by respondent Caroline in 1996 to substitute the compounded
value of the 1988 checks, the appellate court likewise sympathized with respondents’ version of
the story holding that it is buttressed by respondents’ allegations describing the same defense
made in the two related cases filed against them by petitioner’s brother-in-law, Vicente
Balboa.1âwphi1 These related cases consisted of a criminal case for violation of BP 2259 and a
civil case for collection of sum of money60 involving three (3) of the five (5) consecutively
numbered checks she allegedly left with Lilian.61 It should be noted, however, that while
respondents were exculpated from their criminal liability,62 in Sps. Benito Lo Bun Tiong and
Caroline Siok Ching Teng v. Vicente Balboa,63 this Court sustained the factual findings of the
appellate court in the civil case finding respondents civilly liable to pay the amount of the
checks.

It bears to note that the Decision of the appellate court categorically debunked the same
defense advanced by respondents in the present case primarily because of Caroline’s admission
to the contrary. The Decision of the appellate court found without any reversible error by this
Court reads, thus:
The claim of Caroline Siok Ching Teng that the three (3) checks were part of the blank checks
she issued and delivered to Lilian Balboa, wife of plaintiff-appellee, and intended solely for the
operational expenses of their mahjong business is belied by her admission that she issued three
(3) checks (Exhs. "A", "B" "C") because Vicente showed the listing of their account totaling
₱5,175,250.00 (TSN, November 17, 1997, p. 10).64 x x x
Clearly, respondents’ defense that Caroline left blank checks with petitioner’s sister who, it is
said, is now determined to recoup her past losses and bring financial ruin to respondents by
falsifying the same blank checks, had already been thoroughly passed upon and rejected by this
Court. It cannot, therefore, be used to support respondents’ denial of their liability.
Respondents’ other defenses are equally unconvincing. They assert that petitioner could not
have accepted a check worth PhP 8.5 million considering that she should have known that
respondent Caroline had issued several checks for PhP 25,000 each in favor of Lilian and all of
them had bounced.65 Needless to state, an act done contrary to law cannot be sustained to
defeat a legal obligation; repeated failure to honor obligations covered by several negotiable
instruments cannot serve to defeat yet another obligation covered by another instrument.
Indeed, it seems that respondent Caroline had displayed a cavalier attitude towards the value,
and the obligation concomitant with the issuance, of a check. As attested to by respondents’
very own witness, respondent Caroline has a documented history of issuing insufficiently
funded checks for 69 times, at the very least.66 This fact alone bolsters petitioner’s allegation
that the checks delivered to her by respondent Caroline were similarly not funded.
In Magdiwang Realty Corp. v. Manila Banking Corp., We stressed that the quantum of evidence
required in civil cases—preponderance of evidence—"is a phrase which, in the last analysis,
means probability to truth. It is evidence which is more convincing to the court as worthier of
belief than that which is offered in opposition thereto."67 Based on the evidence submitted by
the parties and the legal presumptions arising therefrom, petitioner’s evidence outweighs that
of respondents. This preponderance of evidence in favor of Pua requires that a judgment
ordering respondents to pay their obligation be entered.
As aptly held by the court a quo, however, respondents cannot be obliged to pay the interest of
the loan on the ground that the supposed agreement to pay such interest was not reduced to
writing. Article 1956 of the Civil Code, which refers to monetary interest, specifically mandates
that no interest shall be due unless it has been expressly stipulated in writing.68 Thus, the
collection of interest in loans or forbearance of money is allowed only when these two
conditions concur: (1) there was an express stipulation for the payment of interest; (2) the
agreement for the payment of the interest was reduced in writing.69 Absent any of these two
conditions, the money debtor cannot be made liable for interest. Thus, petitioner is entitled
only to the principal amount of the loan plus the allowable legal interest from the time of the
demand,70 at the rate of 6% per annum.71
Respondent Benito cannot escape the joint and solidary liability to pay the loan on the ground
that the obligation arose from checks solely issued by his wife. Without any evidence to the
contrary, it is presumed that the proceeds of the loan redounded to the benefit of their family.
Hence, the conjugal partnership is liable therefor.72 The unsupported allegation that
respondents were separated in fact, standing alone, does not persuade this Court to solely bind
respondent Caroline and exempt Benito. As the head of the family, there is more reason that
respondent Benito should answer for the liability incurred by his wife presumably in support of
their family.
WHEREFORE, the Motion for Reconsideration is GRANTED. The Resolution of this Court dated
April 18, 2012 is set aside and a new one entered REVERSING and SETTING ASIDE the Decision
dated March 31, 2011 and the Resolution dated September 26, 2011 of the Court of Appeals in
CA-G.R. CV No. 93755. The Decision in Civil Case No. 97-83027 of the Regional Trial Court (RTC)
of the City of Manila, Branch 29 is REINSTATED with MODIFICATION.
Accordingly, respondents Benito Lo Bun Tiong and Caroline Siok Ching Teng are ordered jointly
and solidarily to pay petitioner PhP 1,975,000 plus 6% interest per annum from April 18, 1997,
until fully paid, and ₱200,000.00 as attorney’s fees.
SO ORDERED.

G.R. No. 211564

BENJAMIN EVANGELISTA, Petitioner
vs.
SCREENEX,1 INC., represented by ALEXANDER G, YU, Respondent

DECISION

SERENO, CJ.:

This is a Petition2 for Review on Certiorari seeking to set aside the Decision3 and Resolution4
rendered by the Court of Appeals (CA) Manila, Fifth Division, in CA-G.R. SP No. 110680.
ANTECEDENT FACTS
The facts as summarized by the CA are as follows:
Sometime in 1991, [Evangelista] obtained a loan from respondent Screenex, Inc. which issued
two (2) checks to [Evangelista]. The first check was UCPB Check No. 275345 for ₱l,000,000 and
the other one is China Banking Corporation Check No. BDO 8159110 for ₱500,000. There were
also vouchers of Screenex that were signed by the accused evidencing that he received the 2
checks in acceptance of the loan granted to him.
As security for the payment of the loan, [Evangelista] gave two (2) open-dated checks: UCPB
Check Nos. 616656 and 616657, both pay to the order of Screenex, Inc. From the time the
checks were issued by [Evangelista], they were held in safe keeping together with the other
documents and papers of the company by Philip Gotuaco, Sr., father-in-law of respondent
Alexander Yu, until the former's death on 19 November 2004.
Before the checks were deposited, there was a personal demand from the family for
[Evangelista] to settle the loan and likewise a demand letter sent by the family lawyer.5
On 25 August 2005, petitioner was charged with violation of Batas Pambansa (BP) Blg. 22 in
Criminal Case Nos. 343615-16 filed with the Metropolitan Trial Court (MeTC) of Makati City,
Branch 61.6 The Information reads:
That sometime in 1991, in the City of Makati, Metro Manila, Philippines, a place within the
jurisdiction of this Honorable Court, the above-named accused, did then and there, willfully,
unlawfully and feloniously make out, draw, and issue to SCREENEX INC., herein represented by
ALEXANDER G. YU, to apply on account or for value the checks described below:
Check No. Date Amount
United Coconut AGR 616656 12-22-04 ₱l ,000,000.00
Planters Bank AGR 616657 12-22-04 500,000.00
 said accused well knowing that at the time of issue thereof, said accused did not have
sufficient funds in or credit with the drawee bank for the payment in full of the face amount of
such check upon its presentment which check when presented for payment within ninety (90)
days from the date thereof, was subsequently dishonored by the drawee bank for the reason
"ACCOUNT CLOSED" and despite receipt of notice of such dishonor, the said accused failed to
pay said payee the face amount of said checks or to make arrangement for full payment thereof
within five (5) banking days after receiving notice.
CONTRARY TO LAW.7
Petitioner pleaded not guilty when arraigned, and trial proceeded.8
THE RULING OF THE METC
The MeTC found that the prosecution had indeed proved the first two elements of cases
involving violation of BP 22: i.e. the accused makes, draws or issues any check to apply to
account or for value, and the check is subsequently dishonored by the drawee bank for
insufficiency of funds or credit; or the check would have been dishonored for the same reason
had not the drawer, without any valid reason, ordered the bank to stop payment. The trial
court pointed out, though, that the prosecution failed to prove the third element; i.e. at the
time of the issuance of the check to the payee, the latter did not have sufficient funds in, or
credit with, the drawee bank for payment of the check in full upon its presentment.9 In the
instant case, the court held that while prosecution witness Alexander G. Yu declared that the
lawyer had sent a demand letter to Evangelista, Yu failed to prove that the letter had actually
been received by addressee. Because there was no way to determine when the five-day period
should start to toll, there was a failure to establish prima facie evidence of knowledge of the
insufficiency of funds on the part of Evangelista.10 Hence, the court acquitted him of the
criminal charges.
Ruling on the civil aspect of the cases, the court held that while Evangelista admitted to having
issued and delivered the checks to Gotuaco and to having fully paid the amounts indicated
therein, no evidence of payment was presented.11 It further held that the creditor's possession
of the instrument of credit was sufficient evidence that the debt claimed had not yet been
paid.12 In the end, Evangelista was declared liable for the corresponding civil obligation.13
The dispositive portion of the Decision14 reads:
WHEREFORE, judgment is rendered acquitting the accused BENJAMIN EVANGELISTA for
failure of the prosecution to establish all the elements constituting the offense of Violation of
B.P. 22 for two (2) counts. However, accused is hereby ordered to pay his civil obligation to the
private complainant in the total amount of ONE MILLION FIVE HUNDRED THOUSAND PESOS
(₱l,500,000) plus twelve (12%) percent interest per annum from the date of the filing of the two
sets of Information until fully paid and to pay the costs of suit.
SO ORDERED.15
THE RULING OF THE RTC
Evangelista filed a timely Notice of Appeal16 and raised two errors of the MeTC before the
Regional Trial Court (RTC) of Makati City, Branch 147. Docketed therein as Criminal Case Nos.
08-1723 and 08-1724, the appeal posed the following issues: (1) the lower court erred in not
appreciating the fact that the prosecution failed to prove the civil liability of Evangelista to
private complainant; and (2) any civil liability attributable to Evangelista had been extinguished
and/or was barred by prescription.17
After the parties submitted their respective Memoranda,18 the R TC ruled that the checks
should be taken as evidence of Evangelista's indebtedness to Gotuaco, such that even if the
criminal aspect of the charge had not been established, the obligation subsisted.19 Also, the
alleged payment by Evangelista was an affirmative defense that he had the burden of proving,
but that he failed to discharge.20 With respect to the defense of prescription, the RTC ruled in
this wise:
As to the defense of prescription, the same cannot be successfully invoked in this appeal. The
10-year prescriptive period of the action under Art. 1144 of the New Civil Code is computed
from the time the right of action accrues. The terms and conditions of the loan obligation have
not been shown, as only the checks evidence the same. It has not been shown when the loan
obligation was to mature such that there is no basis to show or from which to infer, when the
cause of action (non-payment of the loan) which would give the obligee the right to seek
redress for the non-payment of the obligation, accrued. In other words, the reckoning point of
prescription has not been established.
Prosecution witness Alexander G. Yu was not competent to state that the loan was
contracted in 1991 as in fact, Yu admitted that it was a few months before his father-in-law
(Philip Gotuaco) died when the latter told him about accused's failure to pay his obligation. That
was a few months before November 19, 2004, date of death of his father-in-law.
At any rate, the right of action in this case is not upon a written contract, for which reason,
Art. 1144, New Civil Code, on prescription does not apply.21
In a Decision22 dated 18 December 2008, the R TC dismissed the appeal and affirmed the MeTC
decision in toto.23 The Motion for Reconsideration24 was likewise denied in an Order25 dated
19 August 2009.
THE RULING OF THE CA
Evangelista filed a petition for review26 before the CA insisting that the lower court erred in
finding him liable to pay the sum with interest at 12% per annum from the date of filing until
full payment. He further alleged that witness Yu was not competent to testify on the loan
transaction; that the insertion of the date on the checks without the knowledge of the accused
was an alteration that avoided the checks; and that the obligation had been extinguished by
prescription.27
Screenex, Inc., represented by Yu, filed its Comment.28 Yu claimed that he had testified on the
basis of his personal dealings with his father-in-law, whom Evangelista dealt with in obtaining
the loan. He further claimed that during the trial, petitioner never raised the competence of the
witness as an issue.29 Moreover, Yu argued that prescription set in from the accrual of the
obligation; hence, while the loan was transacted in 1991, the demand was made in February
2005, which was within the 10-year prescriptive period.30 Yu also argued that while Evangelista
claimed under oath that the loan had been paid in 1992, he was not able to present any proof
of payment.31 Meanwhile, Yu insisted that the material alteration invoked by Evangelista was
unavailing, since the checks were undated; hence, nothing had been altered.32 Finally, Yu
argued that Evangelista should not be allowed to invoke prescription, which he was raising for
the first time on appeal, and for which no evidence was adduced in the court of origin.33
The CA denied the petition.34 It held that (1) the reckoning time for the prescriptive period
began when the instrument was issued and the corresponding check returned by the bank to its
depositor;35 (2) the issue of prescription was raised for the first time on appeal with the RTC;36
(3) the writing of the date on the check cannot be considered as an alteration, as the checks
were undated, so there was nothing to change to begin with;37 (4) the loan obligation was
never denied by petitioner, who claimed that it was settled in 1992, but failed to show any
proof of payment.38 Quoting the MeTC Decision, the CA declared:
[t]he mere possession of a document evidencing an obligation by the person in whose favor it
was executed, merely raises a presumption of nonpayment which may be overcome by proof of
payment, or by satisfactory explanation of the fact that the instrument is found in the hands of
the original creditor not inconsistent with the fact of payment.39
The dispositive portion reads:
WHEREFORE, premises considered, the petition is DENIED. The assailed August 19, 2009
Order of the Regional Trial Court, Branch 147, Makati City, denying petitioner's Motion for
Reconsideration of the Court's December 18, 2008 Decision in Crim. Case Nos. 08-1723 and 08-
1724 are AFFIRMED.
SO ORDERED.40
Petitioner filed a Motion for Reconsideration,41 which was similarly denied in a Resolution42
dated 27 February 2014.
Hence, this Petition,43 in which petitioner contends that the lower court erred in ordering the
accused to pay his alleged civil obligation to private complainant. In particular, he argues that
the court did not consider the prosecution's failure to prove his civil liability to respondent, and
that any civil liability there might have been was already extinguished and/or barred by
prescription.44
Meanwhile, respondent filed its Comment,45 arguing that the date of prescription was
reckoned from the date of the check, 22 December 2004. So when the complaint was filed on
25 August 2005, it was supposedly well within the prescriptive period of ten (10) years under
Article 1144 of the New Civil Code.46
OUR RULING
With petitioner's acquittal of the criminal charges for violation of BP 22, the only issue to be
resolved in this petition is whether the CA committed a reversible error in holding that
petitioner is still liable for the total amount of ₱l.5 million indicated in the two checks.
We rule in favor of petitioner.
A check is discharged by any other
act which will discharge a simple
contract for the payment of money.
In BP 22 cases, the action for the corresponding civil obligation is deemed instituted with the
criminal action.47 The criminal action for violation of BP 22 necessarily includes the
corresponding civil action, and no reservation to file such civil action separately shall be allowed
or recognized.48
The rationale for this rule has been elucidated in this wise: Generally, no filing fees are
required for criminal cases, but because of the inclusion of the civil action in complaints for
violation of B.P. 22, the Rules require the payment of docket fees upon the filing of the
complaint. This rule was enacted to help declog court dockets which are filled with B.P. 22 cases
as creditors actually use the courts as collectors. Because ordinarily no filing fee is charged in
criminal cases for actual damages, the payee uses the intimidating effect of a criminal charge to
collect his credit gratis and sometimes. upon being paid, the trial court is not even informed
thereof. The inclusion of the civil action in the criminal case is expected to significantly lower
the number of cases filed before the courts for collection based on dishonored checks. It is also
expected to expedite the disposition of these cases. Instead of instituting two separate cases,
one for criminal and another for civil, only a single suit shall be filed and tried. It should be
stressed that the policy laid down by the Rules is to discourage the separate filing of the civil
action. The Rules even prohibit the reservation of a separate civil action, which means that one
can no longer file a separate civil case after the criminal complaint is filed in court. The only
instance when separate proceedings are allowed is when the civil action is filed ahead of the
criminal case. Even then, the Rules encourage the consolidation of the civil and criminal cases.
We have previously observed that a separate civil action for the purpose of recovering the
amount of the dishonored checks would only prove to be costly, burdensome and time-
consuming for both parties and would further delay the final disposition of the case. This
multiplicity of suits must be avoided.49 (Citations omitted)
This notwithstanding, the civil action deemed instituted with the criminal action is treated as an
"independent civil liability based on contract."50
By definition, a check is a bill of exchange drawn on a bank 'payable on demand.51 It is a
negotiable instrument - written and signed by a drawer containing an unconditional order to
pay on demand a sum certain in money.52 It is an undertaking that the drawer will pay the
amount indicated thereon. Section 119 of the NIL, however, states that a negotiable instrument
like a check may be discharged by any other act which will discharge a simple contract for the
payment of money, to wit:
Sec. 119. Instrument; how discharged. - A negotiable instrument is discharged:
(a) By payment in due course by or on behalf of the principal debtor;
(b) By payment in due course by the party accommodated, where the instrument is made or
accepted for his accommodation;
(c) By the intentional cancellation thereof by the holder;
(d) By any other act which will discharge a simple contract for the payment of money;
(e) When the principal debtor becomes the holder of the instrument at or after maturity in
his own right. (Emphasis supplied)
A check therefore is subject to prescription of actions upon a written contract. Article 1144 of
the Civil Code provides:
Article 1144. The following actions must be brought within ten years from the time the right
of action accrues:
1) Upon a written contract;
2) Upon an obligation created by law;
3) Upon a judgment. (Emphasis supplied)
Barring any extrajudicial or judicial demand that may toll the 10-year prescription period and
any evidence which may indicate any other time when the obligation to pay is due, the cause of
action based on a check is reckoned from the date indicated on the check.
If the check is undated, however, as in the present petition, the cause of action is reckoned
from the date of the issuance of the check. This is so because regardless of the omission of the
date indicated on the check, Section 1753 of the Negotiable Instruments Law instructs that an
undated check is presumed dated as of the time of its issuance.
While the space for the date on a check may also be filled, it must, however, be filled up strictly
in accordance with the authority given and within a reasonable time.54 Assuming that Yu had
authority to insert the dates in the checks, the fact that he did so after a lapse of more than 10
years from their issuance certainly cannot qualify as changes made within a reasonable time.
Given the foregoing, the cause of action on the checks has become stale, hence, time-barred.
No written extrajudicial or judicial demand was shown to have been made within 10 years
which could have tolled the period. Prescription has indeed set in.
Prescription allows the court to
dismiss the case motu proprio
We therefore have no other recourse but to grant the instant petition on the ground of
prescription. Even if that defense was belatedly raised before the RTC for the first time on
appeal from the ruling of the Me TC, we nonetheless dismiss the complaint, seeking to enforce
the civil liability of Evangelista based on the undated checks, by applying Section 1 of Rule 9 of
the Rules of Court, to wit:
Section 1. Defenses and objections not pleaded. - Defenses and objections not pleaded either
in a motion to dismiss or in the answer are deemed waived. However, when it appears from the
pleadings or the evidence on record that the court has no jurisdiction over the subject matter,
that there is another action pending between the same parties for the same cause, or that the
action is barred by a prior judgment or by statute of limitations, the court shall dismiss the
claim.
While it was on appeal before the RTC that petitioner invoked the defense of prescription, we
find that the pleadings and the evidence on record indubitably establish that the action to hold
petitioner liable for the two checks has already prescribed.
The delivery of the check produces
the effect of payment when through
the fault of the creditor they have
been impaired
It is a settled rule that the creditor's possession of the evidence of debt is proof that the debt
has not been discharged by payment.55 It is likewise an established tenet that a negotiable
instrument is only a substitute for money and not money, and the delivery of such an
instrument does not, by itself, operate as payment.56 Thus, in BPI v. Spouses Royeca,57 we
ruled that despite the lapse of three years from the time the checks were issued, the obligation
still subsisted and was merely suspended until the payment by commercial document could
actually be realized.58
However, payment is deemed effected and the obligation for which the check was given as
conditional payment is treated discharged, if a period of 10 years or more has elapsed from the
date indicated on the check until the date of encashment or presentment for payment. The
failure to encash the checks within a reasonable time after issue, or more than 10 years in this
instance, not only results in the checks becoming stale but also in the obligation to pay being
deemed fulfilled by operation of law.
Art. 1249 of the Civil Code specifically provides that checks should be presented for payment
within a reasonable period after their issuance, to wit:
Art. 1249. 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 delivery of promissory notes payable to order, or bills of exchange or other mercantile
documents shall produce the effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation shall be held in the
abeyance. (Emphasis supplied)
This rule is similarly stated in the Negotiable Instruments Law as follows:
Sec. 186. Within what time a check must be presented. - A check must be presented for
p:iyment within a reasonable time after its issue or the drawer will be discharged from liability
thereon to the extent of the loss caused by the delay. (Emphasis supplied)
These provisions were the very same ones we cited when we discharged a check by reason of
the creditor's unreasonable or unexplained delay in encashing it. In Papa v. Valencia,59 the
respondents supposedly paid the petitioner the purchase price of the lots in cash and in check.
The latter disputed this claim and argued that he had never encashed the checks, and that he
could no longer recall the transaction that happened 10 years earlier. This Court ruled:
Granting that petitioner had never encashed the check, his failure to do so for more than ten
(10) years undoubtedly resulted in the impairment of the check through his unreasonable and
unexplained delay.
While it is true that the delivery of a check produces the effect of payment only when it is
cashed, pursuant to Art. 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced
by the creditor's unreasonable delay in presentment. The acceptance of a check implies an
undertaking of due diligence in presenting it for payment, and if he from whom it is received
sustains loss by want of such diligence, it will be held to operate as actual payment of the debt
or obligation for which it was given. It has, likewise, been held that if no presentment is made
at all, the drawer cannot be held liable irrespective of loss or injury unless presentment is
otherwise excused. This is in harmony with Article 1249 of the Civil Code under which payment
by way of check or other negotiable instrument is conditioned on its being cashed, except when
through the fault of the creditor, the instrument is impaired. The payee of a check would be a
creditor under this provision and if its no-payment is caused by his negligence, payment will be
deemed effected and the obligation for which the check was given as conditional payment will
be discharged.60 (Citations omitted and emphasis supplied)
Similarly in this case, we find that the delivery of the checks, despite the subsequent failure to
encash them within a period of 10 years or more, had the effect of payment. Petitioner is
considered discharged from his obligation to pay and can no longer be pronounced civilly liable
for the amounts indicated thereon.
WHEREFORE, the instant Petition is GRANTED. The Decision dated 1 October 2013 and
Resolution dated 27 February 2014 in CA-G.R. SP No. 110680 are SET ASIDE. The Complaint
against petitioner is hereby DISMISSED.
SO ORDERED.