PHILIPPINE NATIONAL BANK VS. ERLANDO T.

RODRIGUEZ AND NORMA

RODRIGUEZ
G.R. No. 170325, September 26, 2008
Petitioner: Philippine National Bank
Respondents:Erlando T. Rodriguez and Norma Rodriguez
Ponente: J. R.T. Reyes

FACTS:

The petitioners of the current case, the Philippine National Bank, filed an appeal on SC
Manila, Third Division in an attempt to overturn the decision of the Court of Appeals
alleged the following:

a) 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 DemandDeposit
(Checking/Current Account No. 810480-4 under the account name Erlando T.
Rodriguez);
b) The spouses were engaged in the informal lending business. In line with their
business, they had a discounting arrangement with the Philnabank Employees
Savings and Loan Association (PEMSLA), an association of PNB employees;
c) 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;
d) 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;
e) 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 into their
account. Meanwhile, the Rodriguez checks were deposited directly by PEMSLA
to its savings account without any endorsement 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;
 f) For the period November 1998 to February 1999, the spouses issued sixty-nine
checks, in the total amount of P2,345,804.00. These were payable to forty-seven
individual payees who were all members of PEMSLA;
g) 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;
h) 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;
i) 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, in which the court ordered PNB
to pay the plaintiffs the total amount of P2,345,804.00 or reinstate or restore the
amount of P775,337.00, and also pay damages, which are consequential
damages of P4,000,000, moral damages amounting to P1,000,000, exemplary
damages of P500,000, attorney’s fees of P150,000, and the costs of the suit;
j) PNB appealed the decision on the grounds that the disputed checks should be
considered payable to the bearer and not order, which the CA reversed and set
aside the decision on July 22, 2004;
k) 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 toPEMSLA
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, in which the CA reversed itself on October 11, 2005, and amended the
liability of PNB towards the respondents, which are actual damages in the
amount of P2,345,804 with interest at 6% per annum from 14 May 1999 until fully
paid, moral damages in the amount of P200,000, attorney’s fees amounting to
P100,000, and the costs of the suit.

The petitioners, therefore, challenged the decision of the CA, asserting 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 the trial amply proved that spouses Rodriguez and the officers of PEMSLA
conspired with each other to defraud the bank.

The decision was affirmed by CA.

ISSUE:

Whether or not the subject checks are payable to order or to bearer and who bears the
loss?

RULING:

As a rule, when the payee is fictitious or not intended to be the true recipient of
the proceeds, the check is considered a bearer instrument. A check is "a bill of
exchange drawn on a bank payable on demand.” It is either an order or a bearer
instrument As stated in Sections 8 and 9. 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. 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. 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 illegal activity. 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 is despite the fact that the fictitious payee was
purposely named without any intention that the payee should receive the proceeds of
the check.
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.
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. 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. 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.

The checks were presented to PNB for deposit by a representative of PEMSLA

absent any type of indorsement, forged or otherwise. The facts clearly show that the
bank did not pay the checks in strict accordance with the instructions of the drawers,
respondents-spouses. Instead, it paid the values of the checks not to the named payees
or their order, but to PEMSLA, a third party to the transaction between the drawers and
the payees. Moreover, PNB was negligent in the selection and supervision of its
employees. The trustworthiness of bank employees is indispensable to maintaining the
stability of the banking industry. Thus, banks are enjoined to be extra vigilant in the
management and supervision of their employees. 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.
Hence, 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.
ALVIN PATRIMONIO VS. NAPOLEON GUTIERREZ AND OCTAVIO MARASIGAN III
G.R. No. 187769, June 4, 2014
Petitioner: Alvin Patrimonio
Respondents: Napoleon Gutierrez and Octavio Marasigan III
Ponente: J. Brion

FACTS:

The petitioner Alvin Patrimonio filed a review on certiorari on the decisions rendered by
the Court of Appeals in CA-G.R. CV No. 82301. The petition, which was filed on SC
Manila, Second Division, alleged the following:

a) The petitioner and the respondent Napoleon Gutierrez (Gutierrez) entered into a
business venture under the name of Slam Dunk Corporation (Slum Dunk), a
production outfit that produced mini-concerts and shows related to basketball.
Petitioner was already then a decorated professional basketball player while
Gutierrez was a well-known sports columnist;
b) In the course of their business, the petitioner pre-signed several checks to
answer for the expenses of Slam Dunk. Although signed, these checks had no
payee’s name, date, or amount. The blank checks were entrusted to
Gutierrezwith the specific instruction not to fill them out without previous
notification to and approval by the petitioner;
c) In the middle of 1993, without the petitioner’s knowledge and consent, Gutierrez
went to Marasigan (the petitioner’s former teammate), to secure a loan in the
amount of ₱200,000.00 on the excuse that the petitioner needed the money for
the construction of his house. In addition to the payment of the principal,
Gutierrez assured Marasiganthat he would be paid an interest of 5% per month
from March to May 1994;
d) Marasiganacceded to Gutierrez’s request and gave him ₱200,000.00 sometime
in February 1994. Gutierrez simultaneously delivered to Marasigan one of the
blank checks the petitioner pre-signed with Pilipinas Bank, Greenhills Branch,
Check No. 21001764 with the blank portions filled out with the words "Cash"
"Two Hundred Thousand Pesos Only", and the amount of "₱200,000.00". The
upper right portion of the check corresponding to the date was also filled out with
the words "May 23, 1994" but the petitioner contended that the same was not
written by Gutierrez;
e) On May 24, 1994, Marasigan deposited the check but it was dishonored for the
reason "ACCOUNT CLOSED." It was later revealed that the petitioner’s account
with the bank had been closed since May 28, 1993;
f) Marasigan sought recovery from Gutierrez to no avail. He thereafter sent several
demand letters to the petitioner asking for the payment of ₱200,000.00, but his
 demands likewise went unheeded. Consequently, he filed a criminal case for
violation of B.P. 22 against the petitioner, docketed as Criminal Case No. 42816;
g) The RTC ruled on February 3, 2003 in favor of Marasigan. It found that the
petitioner, in issuing the pre-signed blank checks, had the intention of issuing a
negotiable instrument, albeit with specific instructions to Gutierrez not to
negotiate or issue the check without his approval;
h) On September 24, 2008, the CA affirmed the RTC ruling, although premised on
different factual findings. After careful analysis, the CA agreed with the petitioner
that Marasigan is not a holder in due course as he did not receive the check in
good faith;

The petitioner asserted that the decision of CA is wrong since there was no loan
between him and Marasigan since he never authorized the borrowing of money nor the
check’s negotiation to the latter and under Article 1878 of the Civil Code, a special
power of attorney is necessary for an individual to make a loan or borrow money in
behalf of another. Moreover, the Patrimonio further alleges that the loan transaction was
between Gutierrez and Marasigan, with his check being used only as security, the
check had not been completely and strictly filled out in accordance with his authority
since the condition that the subject check can only be used provided there is prior
approval from him, was not complied with, even if the check was strictly filled up as
instructed by the petitioner, Marasigan is still not entitled to claim the check’s value as
he was not a holder in due course, and by reason of the bad faith in the dealings
between the respondents, he is entitled to claim for damages.

The SC granted the petition for review on certiorari.

ISSUES:

1. Whether or not the contract of loan in the amount of ₱200,000.00 granted by

respondent Marasigan to petitioner, through respondent Gutierrez, may be
nullified for being void?
2. Whether or not there is a basis to hold the petitioner liable for the payment of the
₱200,000.00 loan?
3. Whether or not respondent Gutierrez has completely filled out the subject check
strictly under the authority given by the petitioner?
4. Whether or not Marasigan is a holder in due course?

RULING:
1. Article 1868 of the Civil Code defines a contract of agency as a contract whereby
a person "binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the
latter."Agency may be expressed, or implied from the acts of the principal, from
his silence or lack of action, or his failure to repudiate the agency, knowing that
another person is acting on his behalf without authority. As a general rule, a
contract of agency may be oral. However, it must be written when the law
requires a specific form, for example, in a sale of a piece of land or any interest
therein through an agent. A review of the records reveals that Gutierrez did not
have any authority to borrow money on behalf of the petitioner. Records do not
show that the petitioner executed any special power of attorney (SPA) in favor of
Gutierrez. In fact, the petitioner’s testimony confirmed that he never authorized
Gutierrez (or anyone for that matter), whether verbally or in writing, to borrow
money on his behalf, nor was he aware of any such transaction. Marasigan
however submits that the petitioner’s acts of pre-signing the blank checks and
releasing them to Gutierrez suffice to establish that the petitioner had authorized
Gutierrez to fill them out and contract the loan on his behalf. Therefore, in the
absence of any authorization, Gutierrez could not enter into a contract of the loan
on behalf of the petitioner. Moreover, the loan was personal to de Villa. There
was no basis to hold the corporation liable since there was no authority, express,
implied, or apparent, given to de Villa to borrow money from the petitioner.
Neither was there any subsequent ratification of his act. However, the petitioner’s
testimony failed to categorically state, however, whether the loan was made on
behalf of the respondent or of his wife. While the petitioner claims that Lilian was
authorized by the respondent, the statement of account marked as Exhibit "A"
states that the amount was received by Lilian "on behalf of Mrs. Annie Mercado.
It bears noting that Lilian signed in the receipt in her name alone, without
indicating therein that she was acting for and on behalf of the respondent. She
thus bound herself in her personal capacity and not as an agent of the
respondent or anyone for that matter. In the absence of any showing of any
agency relations or special authority to act for and on behalf of the petitioner, the
loan agreement Gutierrez entered into with Marasigan is null and void. Thus, the
petitioner is not bound by the parties' loan agreement, also that the blank pre-
signed checks to Gutierrez are not legally sufficient because the authority to
enter into a loan can never be presumed. The contract of agency and the special
fiduciary relationship inherent in this contract must exist as a matter of fact.
Another significant point that the lower courts failed to consider is that a contract
of loan, like any other contract, is subject to the rules governing the requisites
and validity of contracts in general as elaborated by Article 1318 of the Civil
Code. In this case, the petitioner denied liability on the ground that the contract
lacked the essential element of consent. The court agreed with the petitioner. As
 we explained above, Gutierrez did not have the petitioner’s written/verbal
authority to enter into a contract of loan. While there may be a meeting of the
minds between Gutierrez and Marasigan, such an agreement cannot bind the
petitioner whose consent was not obtained and who was not privy to the loan
agreement. Hence, only Gutierrez is bound by the contract of loan.

2. The answer is supplied by the applicable statutory provision found in Section 14

of the Negotiable Instruments Law. This provision applies to an incomplete but
delivered instrument. Under this rule, if the maker or drawer delivers the apre-
signed blank paper to another person for the purpose of converting it into a
negotiable instrument, that person is deemed to have prima facie authority to fill it
up. It merely requires that the instrument is in the possession of a person other
than the drawer or maker and from such possession, together with the fact that
the instrument is wanting in a material particular, the law presumes agency to fill
up the blanks. In order, however, that one who is not a holder in due course can
enforce the instrument against a party prior to the instrument's completion, two
requisites must exist: (1) that the blank must be filled strictly in accordance with
the authority given; and (2) it must be filled up within a reasonable time. In the
present case, the petitioner contends that there is no legal basis to hold him
liable both under the contract and loan and under the check because: first, the
subject check was not completely filled out strictly under the authority has given
and second, Marasigan was not a holder in due course.

3. While under the law, Gutierrez had a prima facie authority to complete the check,
such prima facie authority doesn't extend to its use (i.e., subsequent transfer or
negotiation)once the check is completed. In other words, only the authority to
complete the check is presumed. Further, the law used the term "prima facie" to
underscore the fact that the authority which the law accords to a holder is a
presumption juris tantumonly; hence, subject to contrary proof. Thus, evidence
that there was no authority or that the authority granted has been exceeded may
be presented by the maker in order to avoid liability under the instrument. In the
present case, no evidence is on record that Gutierrez ever secured prior approval
from the petitioner to fill up the blank or to use the check. In his testimony, the
petitioner asserted that he never authorized nor approved the filling up of the
blank checks. Notably, Gutierrez was only authorized to use the check for
business expenses; thus, he exceeded his authority when he used the check to
pay the loan he supposedly contracted for the construction of the petitioner's
house. This is a clear violation of the petitioner's instruction to use the checks for
the expenses of Slam Dunk. It cannot, therefore, be validly concluded that the
check was completed strictly in accordance with the authority given by the
petitioner.
 4. The Negotiable Instruments Law (NIL) defines a holder in due course Section
52(c) of the NIL states that a holder in due course is one who takes the
instrument "in good faith and for value." It also provides in Section 52(d) that in
order that one may be a holder in due course, it is necessary that at the time it
was negotiated to him he had no notice of any infirmity in the instrument or defect
in the title of the person negotiating it. In the present case, Marasigan’s
knowledge that the petitioner is not a party or a privy to the contract of loan, and
correspondingly had no obligation or liability to him, renders him dishonest,
hence, in bad faith. Considering that Marasigan is not a holder in due course, the
petitioner can validly set up the personal defense that the blanks were not filled
up in accordance with the authority he gave. Consequently, Marasigan has no
right to enforce payment against the petitioner and the latter cannot be obliged to
pay the face value of the check.

Hence, the SC and CA granted the petitioner, Alvin Patrimonio, a petition for review on
certiorari. Moreover, The appealed decision dated September 24, 2008 and the
Resolution dated April 30, 2009 of the Court of Appeals are consequently annulled and
set aside. Costs against the respondents.
REPUBLIC BANK VS. FIRST NATIONAL CITY BANK AND CA
G.R. No. 42725, April 22, 1991
Petitioner: Republic Bank
Respondents: First National Bank
Ponente: J. Grino-Aquino

FACTS:

The petitioner, Republic Bank filed a petition for review on the case CA-G.R. No. 41691,
in which was filed on SC Manila, First Division. The petitioner alleged the following:

a) On January 25, 1966, San Miguel Corporation (SMC for short), drew a dividend
Check No. 108854 for P240, Philippinecurrency, on its account in the respondent
First National City Bank ("FNCB" for brevity) in favor of J. Roberto C. Delgado, a
stockholder. After the check had been delivered to Delgado, the amount on its
face was fraudulently and without the authority of the drawer, SMC, altered by
increasing it from P240 to P9,240;
b) Republic accepted the check for deposit without ascertaining its genuineness
and regularity. Later, Republic endorsed the check to FNCB by stamping on the
back of the check "all prior and/or lack of indorsement guaranteed" and
presented it to FNCB for payment through the Central Bank Clearing House.
Believing the check was genuine, and relying on the guaranty and endorsement
of Republic appearing on the back of the check, FNCB paid P9,240 to Republic
through the Central Bank Clearing House on March 15, 1966.
c) On April 19, 1966, SMC notified FNCB of the material alteration in the amount of
the check-in question. FNCB lost no time in crediting P9,240 to SMC. On May
19, 1966, FNCB informedRepublic in writing of the alteration and the forgery of
the endorsement of J. Roberto C. Delgado. By then, Delgado had already
withdrawn his account from Republic.
d) On August 15, 1966, FNCB demanded that Republic refund the P9,240 on the
basis of the latter’s endorsement and guarantee. Republic refused, claiming
there was a delay in giving it notice of the alteration; that it was not guilty of
negligence; that it was the drawer’s (SMC’s) fault in drawing the check-in such a
way as to permit the insertion of numerals increasing the amount; that FNCB, as
the drawee, was absolved of any liability to the drawer (SMC), thus, FNCB had
no right of recourse against Republic.
e) On April 8, 1968, the trial court rendered judgment ordering Republic to pay
P9,240 to FNCB with 6% interest per annum from February 27, 1967, until fully
paid, plus P2,000 for attorney's fees and costs of the suit. The Court of Appeals
affirmed that decision but modified the award of attorneys fees by reducing it to
P1,000 without pronouncement as to costs.
The petition has merit.

ISSUES:

Whether or not the petitioner, as the collecting bank, is protected, by the 24-hour
clearing house rule, found in CB circular No. 9, as amended, from liability to refund the
amount paid by FNCB, as drawee of the SMC dividend check?

RULING:

The 24-hour clearing house rule is embodied in Section 4(c) of Central Bank Circular
No. 9. The 24-hour clearing house rule is a valid rule applicable to commercial banks. It
is true that when an endorsement is forged, the collecting bank or last endorser, as a
general rule, bears the loss, however, the unqualified endorsement of the collecting
bank on the check should be read together with the 24-hour regulation on clearing
house operation. Thus, when the drawee bank fails to return a forged or altered check
to the collecting bank within the 24-hour clearing period, the collecting bank is absolved
from liability. Every bank that issues checks for the use of its customers should know
whether or not the drawer’s signature thereon is genuine, whether there are sufficient
funds in the drawer account to cover checks issued, and it should be able to detect
alterations, erasures, superimpositions or intercalations thereon, for these instruments
are prepared, printed and issued by itself, it has control of the drawer’s account, and it is
supposed to be familiar with the drawer’s signature. It should possess appropriate
detecting devices for uncovering forgeries and/or alterations on these instruments.
Unless an alteration is attributable to the fault or negligence of the drawer himself, such
as when he leaves spaces on the check which would allow the fraudulent insertion of
additional numerals in the amount appearing thereon, the remedy of the drawee bank
that negligently clears a forged and/or altered check for payment is against the party
responsible for the forgery or alteration otherwise, it bears the loss.

Hence, the petition for review is granted and the decision rendered by CA is reversed
and set aside and another is entered absolving the petitioner Republic Bank from
liability to refund to the First National City Bank the sum ofP9,240, which the latter paid
on the check-in question. No costs.

CELY YANG VS. PHILIPPINE COMMERCIAL INTERNATIONAL BANK, FAR EAST

BANK AND TRUST CO., EQUITABLE BANKING CORPORATION, PREM
CHANDIRAMANI, FERNANDO DAVID, AND CA
G.R. No. 138074, August 15, 2003
Petitioner: Cely Yang
Respondents: Philippine Commercial International Bank, Far East Bank and Trust Co.
Equitable Banking Corporation, Prem Chandiramani, and Fernando David
Ponente: J. Quisumbing

FACTS:

The petitioner, Cely Yang filed a petition for review on certiorari on the decision of the
appealed case C.A.-G.R. CV No. 52398, in which it affirmed with modification the joint
decision of RTC Pasay City, Branch 117 in Civil Cases Nos. 5479 and 5492 on July 4,
1995. Filed in SC Manila, Second Division, the case alleged:

a) On or before December 22, 1987, petitioner Cely Yang and private respondent
Prem Chandiramani entered into an agreement whereby the latter was to give
Yang a PCIB manager’s check in the amount of ₱4.2 million in exchange for two
(2) of Yang’s manager’s checks, each in the amount of ₱2.087 million, both
payable to the order of private respondent Fernando David. Yang and
Chandiramani agreed that the difference of ₱26,000 in the exchange would be
their profit to be divided equally between them, which Yang and Chandiramani
also further agreed that the former would secure from FEBTC a dollar draft in the
amount of US$200,000, payable to PCIB FCDU Account No. 4195-01165-2;
b) At about one o’clock in the afternoon of the same day, Yang gave the
aforementioned cashier’s checks and dollar drafts to her business associate,
Albert Liong, to be delivered to Chandiramani by Liong’s messenger, Danilo
Ranigo. Ranigo was to meet Chandiramani at Philippine Trust Bank, Ayala
Avenue, Makati City, Metro Manila where he would turn over Yang’s cashier’s
checks and dollar draft to Chandiramani who, in turn, would deliver to Ranigo a
PCIB manager’s check in the sum of P4.2 million and a Hang Seng Bank dollar
draft for US$200,000 in exchange;
c) Chandiramani did not appear at the rendezvous and Ranigo allegedly lost the
two cashier’s checks and the dollar draft bought by the petitioner. Ranigo
reported the alleged loss of the checks and the dollar draft to Liong at half past
four in the afternoon of December 22, 1987. Liong, in turn, informed Yang, and
the loss was then reported to the police. It transpired, however, that the checks
and the dollar draft were not lost, for Chandiramani was able to get hold of said
instruments, without delivering the exchange consideration consisting of the
PCIB manager’s check and the Hang Seng Bank dollar draft.
d) At three o’clock in the afternoon or some two (2) hours after Chandiramani and
Ranigo were to meet in Makati City, Chandiramani delivered to respondent
Fernando David at the China Banking Corporation branch in San Fernando City,
 Pampanga, the following: (a) FEBTC Cashier’s Check No. 287078, dated
December 22, 1987, in the sum of ₱2.087million; and (b) Equitable Cashier’s
Check No. CCPS 14-009467, dated December 22, 1987, also in the amount
of₱2.087 million. In exchange, Chandiramani got US$360,000.00 from David,
which Chandiramani deposited in the savings account of his wife, Pushpa
Chandiramani; and his mother, Rani Reynandas;
e) Meanwhile, Yang requested FEBTC and Equitable to stop payment on the
instruments she believed to be lost. Both banks complied with her request, but
upon the representation of PCIB, FEBTC subsequently lifted the stop payment
order on FEBTC Dollar Draft No. 4771, thus enabling the holder of PCIB FCDU
Account No. 4195-01165-2 to receive the amount of US$200,000.00;
f) On December 28, 1987, herein petitioner Yang lodged a Complaint about
injunction and damages against Equitable, Chandiramani, and David, with prayer
for a temporary restraining order, with the Regional Trial Court of Pasay City;
g) On January 12, 1988, Yang filed a separate case for injunction and damages,
with prayer for a writ of a preliminary injunction against FEBTC, PCIB,
Chandiramani, and David, with the RTC of Pasay City. This complaint was later
amended to include a prayer that defendants therein return to Yang the amount
ofP2.087 million, the value of FEBTC Dollar Draft No. 4771, with interest at 18%
annually until fully paid;
h) On July 4, 1995, a decision was rendered in favor of the defendant Fernando
David, as the evidence shows that defendant David was a holder in due course
for the reason that the cashier’s checks were complete on their face when they
were negotiated to him. The apparent reason for lifting the stop payment order
was because of the fact that FEBTC realized that the checks were not actually
lost but indeed reached the payee defendant David;
i) On March 25, 1999, the court affirms the decision of the previous case and
ordered the plaintiff-appellant to pay the defendant-appellant PCIB the amount of
₱25,000.00;

The instant petition is denied.

ISSUES:

1. Whether or not the Court of Appeals erred in holding herein respondent

Fernando David to be a holder in due course?
2. Whether or not the appellate court committed a reversible error in awarding
damages and attorney’s fees to David and PCIB?
RULING:

1. Every holder of a negotiable instrument is deemed prima facie a holder in due

course. However, this presumption arises only in favor of a person who is a
holder as defined in Section 191 of the Negotiable Instruments Law, meaning a
"payee or indorsee of a bill or note, who is in possession of it, or the bearer
thereof.". In the present case, it is not disputed that David was the payee of the
checks in question. The weight of authority sustains the view that a payee may
be a holder in due course. Hence, the presumption that he is a prima facie holder
in due course applies in his favor. We find that the petitioner’s challenge to
David’s status as a holder in due course hinges on two arguments: (1) the lack of
proof to show that David tendered any valuable consideration for the disputed
checks; and (2) David’s failure to inquire from Chandiramani as to how the latter
acquired possession of the checks, thus resulting in David’sintentional ignorance
tantamount to bad faith. In sum, the petitioner posits that the last two requisites of
Section 52 are missing, thereby preventing David from being considered a holder
in due course. First, with respect to consideration, Section 24 of the Negotiable
Instruments Law creates a presumption that every party to an instrument
acquired the same for consideration or for value. Thus, the law itself creates a
presumption in David’s favor that he gave valuable consideration to the checks in
question. In alleging otherwise, the petitioner has the onus to prove that David
got hold of the checks absent said consideration. In other words, the petitioner
must present convincing evidence to overthrow the presumption. Our scrutiny of
the records, however, shows that the petitioner failed to discharge her burden of
proof. Second, the petitioner fails to point out any circumstance which should
have put David on inquiry as to the why and wherefore of the possession of the
checks by Chandiramani. David was not privy to the transaction between the
petitioner and Chandiramani. Instead, Chandiramani and David had a separate
dealing in which it was preciselyChandiramani’s duty to deliver the checks to
David as the payee. The evidence shows that Chandiramani performed said task
to the letter. Petitioner admits that David took the step of asking the manager of
his bank to verify fromFEBTC and Equitable as to the genuineness of the checks
and only accepted the same after being assured that there was nothing wrong
with said checks. At that time, David was not aware of any "stop payment" order.
Under these circumstances, David thus had no obligation to ascertain from
Chandiramani what the nature of the latter title to the checks was, if any, or the
nature of his possession. Thus, we cannot hold him guilty of gross negligence
amounting to the legal absence of good faith, absent any showing that there was
something amiss aboutChandiramani’s acquisition or possession of the checks.
 2. Respondent David counters that he was maliciously and unceremoniously
dragged into this suit for reasons which have nothing to do with him at all, but
which arose from the petitioner’s failure to receive her share of the profit
promised her by Chandiramani. Moreover, in filing this suit which has lasted for
over a decade now, the petitioner deprived David of the rightful enjoyment of the
two checks, to which he is entitled, under the law, compelled him to hire the
services of counsel to vindicate his rights, and subjected him to social humiliation
and besmirched reputation, thus harming his standing as a person of good
repute in the business community of Pampanga. David thus contends that it is
but proper that moral damages, attorney’s fees, and costs of suit be awarded to
him. For its part, respondent PCIB stresses that it was established by both the
trial court and the appellate court that it was needlessly dragged into this case.
Hence, no error was committed by the appellate court in declaring PCIBentitled
to attorney’s fees as it was compelled to litigate to protect itself. It was shown that
the petitioner, in including David as a party in these proceedings, is barking up
the wrong tree. It is apparent from the factual findings that David had no dealings
with the petitioner and was not privy to the agreement of the latter
withChandiramani. Moreover, any loss that the petitioner incurred was apparently
due to the acts or omissions of Chandiramani, and hence, her recourse should
have been against him and not against David. By needlessly dragging David into
this case all because he and Chandiramani knew each other, the petitioner not
only unduly delayed David from obtaining the value of the checks but also
caused him anxiety and injured his business reputation while waiting for its
outcome.

Hence, the SC and CA denied the instant petition. The assailed decision of the Court of
Appeals, dated March 25, 1999, in CA-G.R. CV No. 52398 is affirmed. Costs against
the petitioner.