1

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
2

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
3

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
4

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").<re||an1w> 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
5

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
6

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:
7

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
8

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.
Yap, C.J., Paras and Sarmiento, J.J., concur.
Padilla, J., took no part.
G.R. No. 97753 August 10, 1992
CALTEX (PHILIPPINES), INC., petitioner,
vs.
COURT OF APPEALS and SECURITY BANK AND TRUST
COMPANY, respondents.
Bito, Lozada, Ortega & Castillo for petitioners.
Nepomuceno, Hofilea & Guingona for private.

REGALADO, J.:
This petition for review on certiorari impugns and seeks the reversal
of the decision promulgated by respondent court on March 8, 1991
in CA-G.R. CV No. 23615
1
affirming with modifications, the earlier
decision of the Regional Trial Court of Manila, Branch XLII,
2
which
dismissed the complaint filed therein by herein petitioner against
respondent bank.
The undisputed background of this case, as found by the court a
quo and adopted by respondent court, appears of record:
1. On various dates, defendant, a commercial
banking institution, through its Sucat Branch issued
280 certificates of time deposit (CTDs) in favor of
one Angel dela Cruz who deposited with herein
defendant the aggregate amount of P1,120,000.00,
as follows: (Joint Partial Stipulation of Facts and
Statement of Issues, Original Records, p. 207;
Defendant's Exhibits 1 to 280);
CTD CTD
Dates Serial Nos. Quantity Amount
22 Feb. 82 90101 to 90120 20 P80,000
26 Feb. 82 74602 to 74691 90 360,000
2 Mar. 82 74701 to 74740 40 160,000
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

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

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:
11

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

We disagree with these findings and conclusions, and hereby hold
that the CTDs in question are negotiable instruments. Section 1 Act
No. 2031, otherwise known as the Negotiable Instruments Law,
enumerates the requisites for an instrument to become
negotiable, viz:
(a) It must be in writing and signed by the maker or
drawer;
(b) Must contain an unconditional promise or order
to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or
determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee,
he must be named or otherwise indicated therein
with reasonable certainty.
The CTDs in question undoubtedly meet the requirements of the
law for negotiability. The parties' bone of contention is with regard
to requisite (d) set forth above. It is noted that Mr. Timoteo P.
Tiangco, Security Bank's Branch Manager way back in 1982, testified
in open court that the depositor reffered to in the CTDs is no other
than Mr. Angel de la Cruz.
xxx xxx xxx
Atty. Calida:
q In other words Mr. Witness, you
are saying that per books of the
bank, the depositor referred (sic) in
these certificates states that it was
Angel dela Cruz?
witness:
a Yes, your Honor, and we have the
record to show that Angel dela Cruz
was the one who cause (sic) the
amount.
Atty. Calida:
q And no other person or entity or
company, Mr. Witness?
witness:
12

a None, your Honor.
7

xxx xxx xxx
Atty. Calida:
q Mr. Witness, who is the depositor
identified in all of these certificates
of time deposit insofar as the bank
is concerned?
witness:
a Angel dela Cruz is the depositor. 8
xxx xxx xxx
On this score, the accepted rule is that the negotiability or non-
negotiability of an instrument is determined from the writing, that
is, from the face of the instrument itself.
9
In the construction of a
bill or note, the intention of the parties is to control, if it can be
legally ascertained.
10
While the writing may be read in the light of
surrounding circumstances in order to more perfectly understand
the intent and meaning of the parties, yet as they have constituted
the writing to be the only outward and visible expression of their
meaning, no other words are to be added to it or substituted in its
stead. The duty of the court in such case is to ascertain, not what
the parties may have secretly intended as contradistinguished from
what their words express, but what is the meaning of the words
they have used. What the parties meant must be determined by
what they said.
11

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

The next query is whether petitioner can rightfully recover on the
CTDs. This time, the answer is in the negative. The records reveal
that Angel de la Cruz, whom petitioner chose not to implead in this
suit for reasons of its own, delivered the CTDs amounting to
P1,120,000.00 to petitioner without informing respondent bank
thereof at any time. Unfortunately for petitioner, although the CTDs
are bearer instruments, a valid negotiation thereof for the true
13

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
14

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

15

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
16

impeaching matters. The determination of issues at a pre-trial
conference bars the consideration of other questions on appeal.
32

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

Still, even assuming arguendo that said issue of negligence was
raised in the court below, petitioner still cannot have the odds in its
favor. A close scrutiny of the provisions of the Code of Commerce
laying down the rules to be followed in case of lost instruments
payable to bearer, which it invokes, will reveal that said provisions,
even assuming their applicability to the CTDs in the case at bar, are
merely permissive and not mandatory. The very first article cited by
petitioner speaks for itself.
Art 548. The dispossessed owner, no matter for
what cause it may be, may apply to the judge or
court of competent jurisdiction, asking that the
principal, interest or dividends due or about to
become due, be not paid a third person, as well as
in order to prevent the ownership of the instrument
that a duplicate be issued him. (Emphasis ours.)
xxx xxx xxx
The use of the word "may" in said provision shows that it is not
mandatory but discretionary on the part of the "dispossessed
owner" to apply to the judge or court of competent jurisdiction for
the issuance of a duplicate of the lost instrument. Where the
provision reads "may," this word shows that it is not mandatory but
discretional.
34
The word "may" is usually permissive, not
mandatory.
35
It is an auxiliary verb indicating liberty, opportunity,
permission and possibility.
36

Moreover, as correctly analyzed by private respondent,
37
Articles
548 to 558 of the Code of Commerce, on which petitioner seeks to
anchor respondent bank's supposed negligence, merely established,
on the one hand, a right of recourse in favor of a dispossessed
owner or holder of a bearer instrument so that he may obtain a
duplicate of the same, and, on the other, an option in favor of the
party liable thereon who, for some valid ground, may elect to refuse
to issue a replacement of the instrument. Significantly, none of the
provisions cited by petitioner categorically restricts or prohibits the
issuance a duplicate or replacement instrument sans compliance
with the procedure outlined therein, and none establishes a
mandatory precedent requirement therefor.
WHEREFORE, on the modified premises above set forth, the petition
is DENIED and the appealed decision is hereby AFFIRMED.
SO ORDERED.
Narvasa, C.J., Padilla and Nocon, JJ., concur.
G.R. No. 85419 March 9, 1993
DEVELOPMENT BANK OF RIZAL, plaintiff-petitioner,
vs.
SIMA WEI and/or LEE KIAN HUAT, MARY CHENG UY, SAMSON
17

TUNG, ASIAN INDUSTRIAL PLASTIC CORPORATION and
PRODUCERS BANK OF THE PHILIPPINES, defendants-respondents.
Yngson & Associates for petitioner.
Henry A. Reyes & Associates for Samso Tung & Asian Industrial
Plastic Corporation.
Eduardo G. Castelo for Sima Wei.
Monsod, Tamargo & Associates for Producers Bank.
Rafael S. Santayana for Mary Cheng Uy.

CAMPOS, JR., J.:
On July 6, 1986, the Development Bank of Rizal (petitioner Bank for
brevity) filed a complaint for a sum of money against respondents
Sima Wei and/or Lee Kian Huat, Mary Cheng Uy, Samson Tung,
Asian Industrial Plastic Corporation (Plastic Corporation for short)
and the Producers Bank of the Philippines, on two causes of action:
(1) To enforce payment of the balance of
P1,032,450.02 on a promissory note executed by
respondent Sima Wei on June 9, 1983; and
(2) To enforce payment of two checks executed by
Sima Wei, payable to petitioner, and drawn against
the China Banking Corporation, to pay the balance
due on the promissory note.
Except for Lee Kian Huat, defendants filed their separate Motions to
Dismiss alleging a common ground that the complaint states no
cause of action. The trial court granted the defendants' Motions to
Dismiss. The Court of Appeals affirmed this decision, * to which the
petitioner Bank, represented by its Legal Liquidator, filed this
Petition for Review by Certiorari, assigning the following as the
alleged errors of the Court of Appeals:
1

(1) THE COURT OF APPEALS ERRED IN HOLDING
THAT THE PLAINTIFF-PETITIONER HAS NO CAUSE OF
ACTION AGAINST DEFENDANTS-RESPONDENTS
HEREIN.
(2) THE COURT OF APPEALS ERRED IN HOLDING
THAT SECTION 13, RULE 3 OF THE REVISED RULES
OF COURT ON ALTERNATIVE DEFENDANTS IS NOT
APPLICABLE TO HEREIN DEFENDANTS-
RESPONDENTS.
The antecedent facts of this case are as follows:
In consideration for a loan extended by petitioner Bank to
respondent Sima Wei, the latter executed and delivered to the
former a promissory note, engaging to pay the petitioner Bank or
order the amount of P1,820,000.00 on or before June 24, 1983 with
interest at 32% per annum. Sima Wei made partial payments on the
note, leaving a balance of P1,032,450.02. On November 18, 1983,
Sima Wei issued two crossed checks payable to petitioner Bank
drawn against China Banking Corporation, bearing respectively the
serial numbers 384934, for the amount of P550,000.00 and 384935,
for the amount of P500,000.00. The said checks were allegedly
issued in full settlement of the drawer's account evidenced by the
promissory note. These two checks were not delivered to the
petitioner-payee or to any of its authorized representatives. For
18

reasons not shown, these checks came into the possession of
respondent Lee Kian Huat, who deposited the checks without the
petitioner-payee's indorsement (forged or otherwise) to the
account of respondent Plastic Corporation, at the Balintawak
branch, Caloocan City, of the Producers Bank. Cheng Uy, Branch
Manager of the Balintawak branch of Producers Bank, relying on the
assurance of respondent Samson Tung, President of Plastic
Corporation, that the transaction was legal and regular, instructed
the cashier of Producers Bank to accept the checks for deposit and
to credit them to the account of said Plastic Corporation, inspite of
the fact that the checks were crossed and payable to petitioner
Bank and bore no indorsement of the latter. Hence, petitioner filed
the complaint as aforestated.
The main issue before Us is whether petitioner Bank has a cause of
action against any or all of the defendants, in the alternative or
otherwise.
A cause of action is defined as an act or omission of one party in
violation of the legal right or rights of another. The essential
elements are: (1) legal right of the plaintiff; (2) correlative obligation
of the defendant; and (3) an act or omission of the defendant in
violation of said legal right.
2

The normal parties to a check are the drawer, the payee and the
drawee bank. Courts have long recognized the business custom of
using printed checks where blanks are provided for the date of
issuance, the name of the payee, the amount payable and the
drawer's signature. All the drawer has to do when he wishes to
issue a check is to properly fill up the blanks and sign it. However,
the mere fact that he has done these does not give rise to any
liability on his part, until and unless the check is delivered to the
payee or his representative. A negotiable instrument, of which a
check is, is not only a written evidence of a contract right but is also
a species of property. Just as a deed to a piece of land must be
delivered in order to convey title to the grantee, so must a
negotiable instrument be delivered to the payee in order to
evidence its existence as a binding contract. Section 16 of the
Negotiable Instruments Law, which governs checks, provides in
part:
Every contract on a negotiable instrument is
incomplete and revocable until delivery of the
instrument for the purpose of giving effect thereto.
. . .
Thus, the payee of a negotiable instrument acquires no interest
with respect thereto until its delivery to him.
3
Delivery of an
instrument means transfer of possession, actual or constructive,
from one person to another.
4
Without the initial delivery of the
instrument from the drawer to the payee, there can be no liability
on the instrument. Moreover, such delivery must be intended to
give effect to the instrument.
The allegations of the petitioner in the original complaint show that
the two (2) China Bank checks, numbered 384934 and 384935, were
not delivered to the payee, the petitioner herein. Without the
delivery of said checks to petitioner-payee, the former did not
acquire any right or interest therein and cannot therefore assert any
cause of action, founded on said checks, whether against the drawer
Sima Wei or against the Producers Bank or any of the other
respondents.
In the original complaint, petitioner Bank, as plaintiff, sued
respondent Sima Wei on the promissory note, and the alternative
defendants, including Sima Wei, on the two checks. On appeal from
the orders of dismissal of the Regional Trial Court, petitioner Bank
alleged that its cause of action was not based on collecting the sum
19

of money evidenced by the negotiable instruments stated but
on quasi-delict a claim for damages on the ground of fraudulent
acts and evident bad faith of the alternative respondents. This was
clearly an attempt by the petitioner Bank to change not only the
theory of its case but the basis of his cause of action. It is well-
settled that a party cannot change his theory on appeal, as this
would in effect deprive the other party of his day in court.
5

Notwithstanding the above, it does not necessarily follow that the
drawer Sima Wei is freed from liability to petitioner Bank under the
loan evidenced by the promissory note agreed to by her. Her
allegation that she has paid the balance of her loan with the two
checks payable to petitioner Bank has no merit for, as We have
earlier explained, these checks were never delivered to petitioner
Bank. And even granting, without admitting, that there was delivery
to petitioner Bank, the delivery of checks in payment of an
obligation does not constitute payment unless they are cashed or
their value is impaired through the fault of the creditor.
6
None of
these exceptions were alleged by respondent Sima Wei.
Therefore, unless respondent Sima Wei proves that she has been
relieved from liability on the promissory note by some other cause,
petitioner Bank has a right of action against her for the balance due
thereon.
However, insofar as the other respondents are concerned,
petitioner Bank has no privity with them. Since petitioner Bank
never received the checks on which it based its action against said
respondents, it never owned them (the checks) nor did it acquire
any interest therein. Thus, anything which the respondents may
have done with respect to said checks could not have prejudiced
petitioner Bank. It had no right or interest in the checks which could
have been violated by said respondents. Petitioner Bank has
therefore no cause of action against said respondents, in the
alternative or otherwise. If at all, it is Sima Wei, the drawer, who
would have a cause of action against her
co-respondents, if the allegations in the complaint are found to be
true.
With respect to the second assignment of error raised by petitioner
Bank regarding the applicability of Section 13, Rule 3 of the Rules of
Court, We find it unnecessary to discuss the same in view of Our
finding that the petitioner Bank did not acquire any right or interest
in the checks due to lack of delivery. It therefore has no cause of
action against the respondents, in the alternative or otherwise.
In the light of the foregoing, the judgment of the Court of Appeals
dismissing the petitioner's complaint is AFFIRMED insofar as the
second cause of action is concerned. On the first cause of action,
the case is REMANDED to the trial court for a trial on the merits,
consistent with this decision, in order to determine whether
respondent Sima Wei is liable to the Development Bank of Rizal for
any amount under the promissory note allegedly signed by her.
SO ORDERED.
Narvasa, C.J., Padilla, Regalado and Nocon, JJ., concur.
G.R. No. L-4388 August 13, 1952
PHILIPPINE NATIONAL BANK, petitioner,
vs.
BENITO SEETO, respondent.
Ramon B. de los Reyes for petitioner.
Montano A. Ortiz for respondent.
LABRADOR, J.:
20

On March 13, 1948, respondent Benito Seeto called at the branch of
the Philippine National Bank, petitioner herein, at Surigao, and
presented a check, No. A-21096, in the amount of P5,000 dated at
Cebu on March 10, 1948, payable to cash or bearer, and drawn by
one Gan Yek Kiao against the Cebu branch of the Philippine National
Bank of Communications. After consultation with the employees of
the branch, Seeto made a general and unqualified indorsement of
the check, and petitioner's agency accepted it and paid respondent
the amount of P5,000 therefor. The check was mailed to petitioner's
Cebu branch on March 20, 1948, and was presented to the drawee
bank for payment on April 9, 1948, but the check was dishonored
for "insufficient funds." So the check was returned to petitioner's
Surigao agency, and upon receipt thereof by it on April 14, 1948,
said branch immediately sent a letter to the respondent herein
demanding immediate refund of in the value of the check. A second
communication of the same tenor was sent on April 26, 1948, to
which respondent answered asking that plaintiff's contemplated
suit be deferred while he was making inquiries about the reasons
for the dishonor of the check. Thereafter, respondent refused to
make the refund demanded, claiming that at the time of the
negotiation o the check the drawer had sufficient funds in the
drawee bank, and that the petitioner's Surigao agency not delayed
to forward the check until the drawer's funds were exhausted, the
same would have been paid.
Thereupon petitioner presented a complaint in the Court of First
Instance of Surigao, alleging that respondent Benito Seeto gave
assurance to petitioner's agency in Surigao that the drawer of the
check had sufficient funds with the drawee bank, and that upon
these assurances petitioner's agency delivered the P5,000 to the
respondent after the latter had made a general and unqualified
indorsement thereon. Respondent denied having made the alleged
assurances. Upon this issue petitioner submitted two witnesses at
the time of the trial, who testified that it was not the practice of
petitioner's agency to cash out of town checks, and that the check
was cashed because of the assurances given by the respondent that
the drawer had sufficient funds, and that he (respondent) would
refund the amount paid by petitioner's agency in case the check is
dishonored. Respondent denied having given the assurances. The
trial court found notwithstanding respondent's denial to the
contrary, that the respondent made an undertaking to refund the
amount of the checks in the event of dishonor. In support of this
finding it found that as the drawee bank is not in Cebu, it was
impossible for petitioner's agency to make an independent
verification of the drawer's solvency, and must have taken
precautions to protect itself against loss by requiring the
respondent to give assurances that he would return the amount of
the check in the case of nonpayment. It also found that there was
no unreasonable delay in the presentation of the check, and,
therefore, rendered judgment sentencing respondent to refund the
amount he had received for the check.
On appeal to the Court of Appeals, this court held that petitioner
was guilty of unreasonably retaining and with-holding the check,
and that the delay in the presentment for payment was inexcusable,
so that respondent was thereby discharged from liability. It also
held that parol evidence is incompetent to show that one signing of
a check as indorser is merely a surety or guarantor, rejecting the
evidence adduced at the trial court about the respondent's
assurance and promise to refund. It, therefore, reversed the
judgment of the trial court and dismissed the complaint, with costs.
Against this judgment an appeal by certiorari has been brought to
this Court, petitioner Philippine National Bank contending that the
Court of Appeals erred in applying sections 143 and 144 of the
Negotiable Instruments Law and declaring respondent Benito Seeto
discharged of his liability as indorser of the check, and in not
admitting parol evidence to show that respondent made oral
assurances to refund the value of the check in case of dishonor.
21

In support of petitioner's first assignment of error, it is argued that
inasmuch as a check need not to be presented for acceptance,
unlike a bill of exchange as required by Section 143, Section 144 of
the law is not applicable to the case at bar but Section 84, which
provides:
SEC. 84. Liability of person secondarily liable, when
instrument dishonored. Subject to the provisions of this
Act, when the instrument is dishonored by nonpayment, as
immediate right of recourse to all parties secondarily liable
thereon accrues to the holder.
It is true that Section 143 and 144 of the law are not applicable,
because these are provisions having to do with the presentation of
a bill of exchange for acceptance, and are not applicable to a check,
as to which presentment for acceptance is not required.
It is also true that Section 84 is applicable, but its application is
subject to the condition imposed by Section 186, to the effect that
the check must be presented for payment within a reasonable time
after its issue.
SEC. 186. Within what time a check must be presented.
A check must be presented for payment 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.
Counsel for the petitioner, however, argues that inasmuch as the
above section expressly provides for the discharge of the drawer
from liability to the extent of the loss caused by the delay, and, on
the other hand, it is silent as to the liability of the indorser, the
latter may not be considered discharged from liability by reason of
the delay in the presentment of payment under the general
principle inclusio unius est exclusion alterius. We find no reason nor
merit in the argument. The silence of Section 186 as to the indorser
is due to the fact that his discharge is already expressly covered by
the provision of Section 84, the indorser being a person secondarily
liable on the instrument. The reason for the difference between the
liability of the indorser and that of the drawer in case of dishonor is
that the drawer is not probably or necessarily prejudiced thereby,
while an indorser is, actually or by legal presumption.
Innumerable decisions have already been rendered in the state
courts of the United States to the effect that although the drawer of
a check is discharged only to the extent of loss caused by
unreasonable delay in presentment, an indorser is wholly
discharged thereby irrespective of any question of loss or injury. (
Swift & Co. vs. Miller, 62 Ind. App. 312, 113 N.E. 447, cited in
Brannan's Negotiable Instruments Law, p. 1134, Nuzum vs.
Sheppard, 87 W. Va. 243, 104 S.E. 587, 11 A.L.R. 1024, Ibid.)
The proposition maintained in the reported case (Nuzum vs.
Sheppard., ante. 1024) that the indorser of a check, unlike
the drawer, is relieved of liability thereon by an
unreasonable delay in presenting the same for payment,
whether or not he is injured by the delay, is supported by
the great weight of authority, (Cases cited.)
The Court, in Gough v. Staats (N.Y.) supra, says: "Upon the
question of due diligence to charge an indorser, whether he
has been prejudiced or not by the delay is perfectly
immaterial. It is not inquired into. The law presumes he has
been prejudiced." According to the Court in Caroll v.
Sweet (1891) 128 N.Y. 19, 13 L.R.A. 43, 27 N.E. 763,
"presentment to due time as fixed by the law merchant was
a condition upon performance of which the liability of the
defendant, as indorser, depended, and this delay was not
22

excused, although the drawer of the check had no funds, or
was insolvent, or because presentment would not been
unavailing as a means of procuring payment." Only where
there is affirmative proof that the indorser knew when he
cashed the check that there would be no funds in the bank
to meet it can the rule be avoided. Otherwise, the failure to
present the check in due course of payment will discharge
the indorser even though such presentment would have
been unavailing. Start v. Tupper (Vt.) supra. (11 A.L.R.
Annotation, pp. 1028-1029.)
We have been unable to find any authority sustaining the
proposition that an indorser of a check is not discharged from
liability for an unreasonable delay in presentation for payment. This
is contrary to the essential nature and character of negotiable
instruments their negotiability. They are supposed to be passed
on with promptness in the ordinary course of business transactions;
not to be retained or kept for such time as the holder may want,
otherwise the smooth flow of commercial transactions would be
hindered.
There seems to be an intimation in the decision appealed from that
inasmuch as the check was drawn payable elsewhere than at the
place of business of the drawer, it must be presented for
acceptance or negotiable within a reasonable time, and upon failure
to do so the drawer and all indorsers thereof are discharged
pursuant to Section 144 of the law. Against this insinuation the
petitioner argues that the application of sections 143 and 144 is not
proper, and that it may not be presumed that the check in question
was not drawn and executed in Cebu, the residence or place of
business of the drawer. There is no evidence at all as to the place
where the check was drawn. However, we have already pointed out
above that neither Section 143 nor Section 144 is applicable. But
our ruling that respondent was discharged upon the dishonor of the
check is based on Sections 84 and 186, the latter expressly requiring
that a check must be presented for payment within a reasonable
time after issue.
It is not claimed by the petitioner on this appeal that the conclusion
of the Court of Appeals that there was unreasonable delay in the
presentation of the check for payment at the drawee bank is
erroneous. The petitioner concedes the correctness of this
conclusion, although for purposes of argument merely. We find that
the conclusion is correct. The fact, admitted by the witnesses for
the petitioner, the checks for the drawer issued subsequent to
March 13, 1948, drawn against the same bank and cashed at the
same Surigao agency, were not dishonored positively shows that
the drawer had enough funds when he issued the check in question,
and that had it not been for the unreasonable delay in its
presentation for payment, the petitioner herein would have been
able to receive payment therefor. The check is dated March 10, and
was cashed by the petitioner's agency on March 13, 1948. It was not
mailed until seven days thereafter, i.e., on March 20, 1948, or ten
days after issue. No excuse was given for this delay. Assuming that it
took one week, or say ten days, or until March 30, for the check to
reach Cebu, neither can there be any excuse for not presenting it for
payment at the drawee bank until April 9, 1948, or 10 days after it
reached Cebu. We, therefore, find no reason for disturbing the
conclusion of the Court of Appeals that there was unreasonable
delay in the presentation of the check for payment at the drawee
bank, and that is a consequence thereof, the indorser, respondent
herein, was thereby discharged.
With respect to the second assignment of error, petitioner argues
that the verbal assurances given by the respondent to the
employees of the bank that he was ready to refund the amount if
the check should be dishonored by the drawee bank is a collateral
agreement, separate and distinct from the indorsement, by virtue of
23

which petitioner herein was induced to cash the check, and,
therefore, admissible as an exception that the parol evidence rule.
Petitioners contention in this respect is not entirely unfounded. In
the case of Tan Machan vs. De La Trinidad, et al., 4 Phil., 684, this
court held that parol evidence is admissible to show that parties
signing as principals merely did so as sureties. In the case of Robles
vs. Lizarraga Hermanos, 50 Phil., 387, it was also held by this court
that parol evidence is admissible to prove "an independent
thereof." (Ibid., p. 395.) In Philips vs. Preston, 5 How. (U.S.) 278, 12
L. ed, 152, the Supreme Court of the United States held that any
prior or contemporaneous conversation in connection with a note
or its indorsement, may be proved by parol evidence. And Wigmore
states that "an extrinsic agreement between indorser and indorsee
which cannot be embodied in the instrument without impairing its
credit is provable by parol." (9 Wigmore 148, section 2445 [3].) If,
therefore, the supposed assurances that the drawer had funds and
that the respondent herein would refund the amount of the check if
the drawer had no funds, were the considerations or reasons that
induced the branch agency of the petitioners to go out of its
ordinary practice of not cashing out of town checks and accept the
check and to pay its face value, the same would be provable by
parol, provided, of course, that the assurances or inducements
offered would not vary, alter, or destroy the obligations attached by
law to the indorsement.
We find, however, that the supposed assurances of refund in case
of dishonor of the check are precisely the ordinary obligations of an
indorser, and these obligations are, under the law, considered
discharged by an unreasonable delay in the presentation of the
check for payment.
SEC. 66. Liability of general indorser. . . . .
And, in addition, he engages that on due presentment, it
shall be accepted or paid, or both, as the case may be,
according to its tenor, and that if it be dishonored, and the
necessary proceedings on dishonor be duly taken, he will
pay the amount thereof to the holder, or to any subsequent
indorser who may be compelled to pay it. (Emphasis ours.)
There was no express obligation assumed by the respondent herein
that the drawer would always have funds, or that he (the indorser)
would refund the amount of the check even if there was delay in its
presentation, so that while the Court of Appeals may have
committed an error in disregarding the evidence submitted by
petitioner at the trial of the assurances made by respondent herein
at the time of the negotiation of the check, such error was without
prejudice, because the supposed assurances given were part of his
obligations as an indorser, which were discharged by the
unreasonable delay in the presentation of the check for payment.
The judgment appealed from is, therefore, affirmed, with costs
against the petitioner.
Paras, C.J., Feria, Bengzon, Padilla, Tuason, Montemayor and
Bautista Angelo, JJ., concur.
March 3, 1906
24

G.R. No. 1904
FRANCISCO GONZALEZ QUIROS, plaintiff-appellee,
vs.
CARLOS PALANCA TAN-GUINLAY, defendant-appellant.
Chicote, Miranda and Sierra for appellant.
Joaquin R. Serra for appellee.
WILLARD, J.:
The plaintiff brought this action to recover the sum of 10,217.75
pesos, the value of goods sold by him to the defendant, and the
sum of 64,984.89 pesos, as damages caused to plaintiff by the
failure of the defendant to pay for the goods at the time agreed
upon. The defendant in his answer denied all the allegations of the
complaint, and further, alleged the pendency of another action for
the same cause; a counterclaim to the amount of 40,000 pesos, for
damages suffered by the defendant by reason of an attachment
wrongfully secured by the plaintiff in 1893; and a further
counterclaim for damages caused by reason of a prosecution
for estafa instituted against him maliciously by the plaintiff. The
court below ordered judgment in favor of the plaintiff for the value
of the goods sold and delivered to the defendant, with interest
thereon. He sustained the first counterclaim of the defendant, and
assessed the damages suffered by the defendant by reason of the
25

attachment referred to in the answer, at 6,347.75 pesos. The other
defenses and counterclaims of the defendant the court held not to
have been proven, and final judgment was entered for the plaintiff
and against the defendant for 10,000 pesos and costs. Both parties
have appealed from the judgment.
(1) It is claimed by the defendant that there is no evidence to show
the value of the goods sold by the plaintiff to the defendant, and
that the documents introduced for the purpose of proving the value
were not properly received. It is not necessary to pass upon the
question as to the admissibility of this evidence, since the plaintiff,
testifying at the trial, stated that the value of the goods so sold by
him to the defendant was the amount which the court named in its
judgment.
(2) The goods referred to in the complaint were sold to the
defendant in two parcels. The value of the first lot was 2,235.95
pesos. For the purpose of paying this sum the defendant delivered
to the plaintiff a bill of exchange for 2,700 pesos, purporting to be
drawn by Juan Vy-Teco to the order of Chua-Sengco on Lucio Icaza.
When this bill of exchange was delivered to the plaintiff by the
defendant, and apparently accepted by Lucio Icaza. By the terms of
the acceptance the bill of exchange was payable on the 26th of
26

December, 1893. The plaintiff took the bill of exchange and paid the
defendant in cash the difference between 2,700 pesos and the
value of the goods sold, 2,235.95 pesos. At the maturity of the
acceptance Icaza refused to pay the bill of exchange, on the ground
that his signature thereto was a forgery, and nothing was ever
realized thereon. The plaintiff neglected to have the bill of exchange
protested for this nonpayment. The defendant claims that the court
committed an error in ordering judgment for the full value of the
goods sold, inasmuch as the plaintiff, by reason of his failure to
protest the bill of exchange, must suffer the loss occasioned by its
nonpayment. This contention, we thin, should be sustained. Article
1170 of the Civil Code is as follows:
Payments of debts of money shall be made in the specie stipulated
and, should it not be possible to deliver the specie, then in legal
silver or gold coin current in Spain.
The delivery of promissory notes to order or drafts of other
commercial paper shall only produce the effects of payment when
collected or when, by the fault of the creditor, their value has been
affected.
27

In the meantime the action arising form the original obligation shall
be suspended.
We have already held, in the case of Compaia General de Tabacos
vs. Molina
[[
1
]]
(No. 2091, 3 Off. Gaz., 678) that this section applies
both to mercantile documents executed by the debtors themselves,
and to those executed by third persons and delivered by the debtor
to the creditor. The bill of exchange in this case comes within the
second class, and by the terms of the second paragraph of article
1170 it must be considered as a payment of the debt, inasmuch as
its value has been affected by the fault of the creditor (the plaintiff)
in failing to have the bill of exchange protested for nonpayment.
There should be deducted, therefore, from the sum allowed the
plaintiff, 2,235.95 pesos.
(3) In order to prove the first special defense set out by the
defendant in his answer, viz, the pendency of another suit for the
same cause of action, he presented in evidence a certified copy of a
complaint presented in 1895 by the plaintiff against the defendant.
No evidence was presented to show that the complaint had ever
been answered. Under the former practice there was no lis
pendens until the defendant had answered the complaint, and
although it appears that various proceedings were taken in this suit
28

relating to the attachment of the goods of the defendant, yet it
nowhere appears that the defendant ever answered the complaint.
This assignment of error can not, therefore, be sustained.
(4) In December, 1893, the plaintiff procured an attachment of the
defendant's goods. This attachment was dissolved in 1897, and
judgment ordered in favor of the defendant and against the plaintiff
for damages suffered by the defendant by reason of the
attachment. No proceedings were ever had to assess the damages
until the defendant presented his counterclaim in the present case.
It appears from the evidence that the goods of the defendant were
seized under the plaintiff's attachment upon the 5th of December,
18933; that upon the 28th of January, 1894, the same goods were
again attached in a suit by Germann & Co. against this defendant.
What became of the goods does not appear, although there are
indications that they were sold upon the attachment secured by
Germann & Co. Under these circumstances the plaintiff can not be
held responsible for the value of the goods. His responsibility would
be limited to the damages suffered by the goods while they were
held under his own attachment from the 5th day of December,
1893, until the 28th day of January, 1894, and for the time elapsing
after the 28th of January he would incur certain responsibility in
connection with Germann & Co., but under the evidence in the case
29

there is no ground for holding that he is responsible for the value of
the goods. There was no evidence to show how much the goods had
been damaged, if at all, while they were in the possession of the
plaintiff, nor was there any evidence to show how much they had
been damaged after the 28th of January, and while they were
subject to both attachments. The only evidence in regard to
damages which the defendant offered was evidence relating to the
value of the goods when they were seized under the plaintiff's
attachment. As we have said, that is not the measure of damages in
this case, and the defendant having failed to prove any other kind of
damages, the decision of the court below allowing him the sum of
6,347 pesos as damages, can not be sustained.
(5) In 1894 the plaintiff presented a criminal complaint against the
defendant for estafa, by reason whereof the defendant was
arrested and kept in confinement for nearly two years and half. He
was released by an order or the United States military authorities
on the 13th of April, 1899, but there does not appear in the record
any order issued by any court authorizing this release. On the 27th
of November, 1900, the plaintiff presented another criminal
complaint forestafa against the defendant, based upon the same
30

facts as was the first one. This complaint was later dismissed by the
court, and the defendant discharged from custody, Article 326 of
the Penal Code provides, as we have held in the case of United
States vs. Agustina Barrera
[[
2
]]
(3 Off. Gaz., 411), that no prosecution
for a false accusation or complaint in a criminal case can be
commenced unless the judge, in dismissing the first complaint,
orders a complaint to be filed against the complaining witness for
false accusation. The judgment dismissing the complaint against this
defendant contained no such provision. We hold that this article
applies not only to a criminal proceeding against the complaining
witness, but also to civil proceedings, and that no action to recover
damages in a civil suit can be maintained by the person arrested
against the person presenting the complaint, unless in the order
acquitting the person arrested the judge certifies that the complaint
was malicious, as required by said article 326. The defendant in this
case, therefore, is not entitle to recover any damages by reason of
the criminal prosecution against him.
This disposes of all the errors assigned by the defendant.
(6) The plaintiff also appealed, and claims that he is entitled to
recover 60,000 pesos as damages which he suffered by reason of
the nonpayment by the defendant of the amount due for goods sold
31

to him by the plaintiff, saying that if the defendant had paid for the
good as he agreed to do, the plaintiff could, by using the money so
paid, have made 60,000 pesos in his business. This claim is based
upon article 1101 of the Civil Code, which is as follows:
Those who in fulfilling their obligations are guilty of fraud,
negligence, or delay, and those who in any manner whatsoever act
in contravention of the stipulations of the same, shall be subject to
indemnify for the losses and damages caused thereby.
Plaintiff says that the defendant in refusing to pay for these goods
acted in a fraudulent manner. We do not think this article is at all
applicable to the case at bar. Damages may be recovered under this
article when the obligation is to do something other than the
payment of money, but when the obligation which the defendant
has failed to perform consists only in the payment of money the
rule of damages is that laid down by article 1108 of the Civil Code,
which is as follows:
Should the obligation consist in the payment of a sum of money,
and the debtor should be in default, the indemnity for losses and
damages, should there not be a stipulation to the contrary, shall
32

consist in the payment of the interest agreed upon, and should
there be no agreement, in that of the legal interest.
Until another rate is fixed by the Government interest at the rate of
six per cent annum shall be considered as legal.
And the only damages which the plaintiff can recover in this case for
the nonpayment of the debt are those declared in this article, viz,
interest at the rate of 6 per cent per annum. This being a mercantile
contract the interest should commence to run from the time the
debt became due. (Art. 341 of the Code of Commerce.)
It is to be observed, moreover, that the plaintiff introduced no
evidence showing the amount of his damages. The two mercantile
experts whom he presented as witnesses testified that, from the
examination they had already made, it would not be possible for
them to state how much the plaintiff's damages were. The plaintiff,
after they had testified, cause them to make a further examination
of his books, and after the evidence in the case had been closed,
made an application to the court to be allowed to present the result
of this examination. The court refused to open the case for this
purpose, to which refusal the plaintiff excepted. The order made by
33

the court in this respect falls within section 141 of the Code of Civil
Procedure, and was not subject to exception.
The result of an examination of the whole case is that from the sum
of 10,217.75 pesos, the value of the goods sold and delivered by the
plaintiff to the defendant, there should be deducted the sum of
2,235.95 pesos, on account of the bill of exchange hereinbefore
referred to. The defendant is not entitled to recover any damages
on account of the attachment of the goods procured by the plaintiff,
for which he was allowed by the court below 6,347.75 pesos. The
plaintiff therefore, is entitled to judgment against the defendant for
the sum of 7,981.80 pesos, with interest at the rate of six per cent
per annum from the 1st day of January, 1894, until the amount is
paid, and the costs of this suit.
The judgment of the court below is reversed and the case
remanded, with instructions to enter judgment for the plaintiff for
7,981.80 pesos, with interest thereon at 6 per cent per annum from
the 1st day of January, 1894, and for costs. No costs will be allowed
to either party in this court. So ordered.
Arellano, C.J., Torres, Johnson, and Carson, JJ., concur.
Mapa, J., concurs.
34

[G.R. No. 132560. January 30, 2002]
WESTMONT BANK (formerly ASSOCIATED BANKING
CORP.), petitioner, vs. EUGENE ONG, respondent.
D E C I S I O N
QUISUMBING, J.:
This is a petition for review of the decision
[1]
dated January 13,
1998, of the Court of Appeals in CA-G.R. CV No. 28304 ordering the
petitioner to pay respondent P1,754,787.50 plus twelve percent
(12%) interest per annum computed from October 7, 1977, the date
of the first extrajudicial demand, plus damages.
The facts of this case are undisputed.
Respondent Eugene Ong maintained a current account with
petitioner, formerly the Associated Banking Corporation, but now
known as Westmont Bank. Sometime in May 1976, he sold certain
shares of stocks through Island Securities Corporation. To pay Ong,
Island Securities purchased two (2) Pacific Banking Corporation
managers checks,
[2]
both dated May 4, 1976, issued in the name of
Eugene Ong as payee. Before Ong could get hold of the checks, his
friend Paciano Tanlimco got hold of them, forged Ongs signature
and deposited these with petitioner, where Tanlimco was also a
depositor. Even though Ongs specimen signature was on file,
petitioner accepted and credited both checks to the account of
Tanlimco, without verifying the signature indorsements appearing
at the back thereof. Tanlimco then immediately withdrew the
money and absconded.
Instead of going straight to the bank to stop or question the
payment, Ong first sought the help of Tanlimcos family to recover
the amount. Later, he reported the incident to the Central Bank,
which like the first effort, unfortunately proved futile.
It was only on October 7, 1977, about five (5) months from
discovery of the fraud, did Ong cry foul and demanded in his
complaint that petitioner pay the value of the two checks from the
bank on whose gross negligence he imputed his loss. In his suit, he
insisted that he did not deliver, negotiate, endorse or transfer to
any person or entity the subject checks issued to him and asserted
that the signatures on the back were spurious.
[3]

The bank did not present evidence to the contrary, but simply
contended that since plaintiff Ong claimed to have never received
the originals of the two (2) checks in question from Island Securities,
much less to have authorized Tanlimco to receive the same, he
never acquired ownership of these checks. Thus, he had no legal
personality to sue as he is not a real party in interest. The bank then
filed a demurrer to evidence which was denied.
On February 8, 1989, after trial on the merits, the Regional Trial
Court of Manila, Branch 38, rendered a decision, thus:
IN VIEW OF THE FOREGOING, the court hereby renders judgment
for the plaintiff and against the defendant, and orders the
defendant to pay the plaintiff:
1. The sum of P1,754,787.50 representing the total face
value of the two checks in question, exhibits A and
B, respectively, with interest thereon at the legal rate
of twelve percent (12%) per annum computed from
October 7, 1977 (the date of the first extrajudicial
demand) up to and until the same shall have been paid
in full;
2. Moral damages in the amount of P250,000.00;
35

3. Exemplary or corrective damages in the sum of
P100,000.00 by way of example or correction for the
public good;
4. Attorneys fees of P50,000.00 and costs of suit.
Defendants counterclaims are dismissed for lack of merit.
SO ORDERED.
[4]

Petitioner elevated the case to the Court of Appeals without
success. In its decision, the appellate court held:
WHEREFORE, in view of the foregoing, the appealed decision is
AFFIRMED in toto.
[5]

Petitioner now comes before this Court on a petition for
review, alleging that the Court of Appeals erred:
I
... IN AFFIRMING THE TRIAL COURTS CONCLUSION THAT
RESPONDENT HAS A CAUSE OF ACTION AGAINST THE PETITIONER.
II
... IN AFFIRMING THE TRIAL COURTS DECISION FINDING
PETITIONER LIABLE TO RESPONDENT AND DECLARING THAT THE
LATTER MAY RECOVER DIRECTLY FROM THE FORMER; AND
III
... IN NOT ADJUDGING RESPONDENT GUILTY OF LACHES AND IN
NOT ABSOLVING PETITIONER FROM LIABILITY.
Essentially the issues in this case are: (1) whether or not
respondent Ong has a cause of action against petitioner Westmont
Bank; and (2) whether or not Ong is barred to recover the money
from Westmont Bank due to laches.
Respondent admitted that he was never in actual or physical
possession of the two (2) checks of the Island Securities nor did he
authorize Tanlimco or any of the latters representative to demand,
accept and receive the same. For this reason, petitioner argues,
respondent cannot sue petitioner because under Section 51 of the
Negotiable Instruments Law
[6]
it is only when a person becomes a
holder of a negotiable instrument can he sue in his own
name. Conversely, prior to his becoming a holder, he had no right
or cause of action under such negotiable instrument. Petitioner
further argues that since Section 191
[7]
of the Negotiable
Instruments Law defines a holder as the payee or indorsee of a
bill or note, who is in possession of it, or the bearer thereof, in
order to be a holder, it is a requirement that he be in possession of
the instrument or the bearer thereof. Simply stated, since Ong
never had possession of the checks nor did he authorize anybody,
he did not become a holder thereof hence he cannot sue in his own
name.
[8]

Petitioner also cites Article 1249
[9]
of the Civil Code explaining
that a check, even if it is a managers check, is not legal
tender. Hence, the creditor cannot be compelled to accept
payment thru this means.
[10]
It is petitioners position that for all
intents and purposes, Island Securities has not yet tendered
payment to respondent Ong, thus, any action by Ong should be
directed towards collecting the amount from Island
Securities. Petitioner claims that Ongs cause of action against it has
not ripened as of yet. It may be that petitioner would be liable to
the drawee bank - - but that is a matter between petitioner and
drawee-bank, Pacific Banking Corporation.
[11]

36

For its part, respondent Ong leans on the ruling of the trial
court and the Court of Appeals which held that the suit of Ong
against the petitioner bank is a desirable shortcut to reach the party
who ought in any event to be ultimately liable.
[12]
It likewise cites
the ruling of the courts a quo which held that according to the
general rule, a bank who has obtained possession of a check upon
an unauthorized or forged indorsement of the payees signature
and who collects the amount of the check from the drawee is liable
for the proceeds thereof to the payee. The theory of said rule is
that the collecting banks possession of such check is wrongful.
[13]

Respondent also cites Associated Bank vs. Court of
Appeals
[14]
which held that the collecting bank or last endorser
generally suffers the loss because it has the duty to ascertain the
genuineness of all prior endorsements. The collecting bank is also
made liable because it is privy to the depositor who negotiated the
check. The bank knows him, his address and history because he is a
client. Hence, it is in a better position to detect forgery, fraud or
irregularity in the indorsement.
[15]

Anent Article 1249 of the Civil Code, Ong points out that bank
checks are specifically governed by the Negotiable Instruments Law
which is a special law and only in the absence of specific provisions
or deficiency in the special law may the Civil Code be invoked.
[16]

Considering the contentions of the parties and the evidence on
record, we find no reversible error in the assailed decisions of the
appellate and trial courts, hence there is no justifiable reason to
grant the petition.
Petitioners claim that respondent has no cause of action
against the bank is clearly misplaced. As defined, a cause of action
is the act or omission by which a party violates a right of
another.
[17]
The essential elements of a cause of action are: (a) a
legal right or rights of the plaintiff, (b) a correlative obligation of the
defendant, and (c) an act or omission of the defendant in violation
of said legal right.
[18]

The complaint filed before the trial court expressly alleged
respondents right as payee of the managers checks to receive the
amount involved, petitioners correlative duty as collecting bank to
ensure that the amount gets to the rightful payee or his order, and
a breach of that duty because of a blatant act of negligence on the
part of petitioner which violated respondents rights.
[19]

Under Section 23 of the Negotiable Instruments Law:
When a signature is forged or made without the authority of the
person whose signature it purports to be, it is wholly inoperative,
and no right to retain the instrument, or to give a discharge
therefor, or to enforce payment thereof against any party thereto,
can be acquired through or under such signature, unless the party
against whom it is sought to enforce such right is precluded from
setting up the forgery or want of authority.
Since the signature of the payee, in the case at bar, was forged
to make it appear that he had made an indorsement in favor of the
forger, such signature should be deemed as inoperative and
ineffectual. Petitioner, as the collecting bank, grossly erred in
making payment by virtue of said forged signature. The payee,
herein respondent, should therefore be allowed to recover from the
collecting bank.
The collecting bank is liable to the payee and must bear the
loss because it is its legal duty to ascertain that the payees
endorsement was genuine before cashing the check.
[20]
As a general
rule, a bank or corporation who has obtained possession of a check
upon an unauthorized or forged indorsement of the payees
signature and who collects the amount of the check from the
drawee, is liable for the proceeds thereof to the payee or other
37

owner, notwithstanding that the amount has been paid to the
person from whom the check was obtained.
[21]

The theory of the rule is that the possession of the check on
the forged or unauthorized indorsement is wrongful, and when the
money had been collected on the check, the bank or other person
or corporation can be held as for moneys had and received, and the
proceeds are held for the rightful owners who may recover
them. The position of the bank taking the check on the forged or
unauthorized indorsement is the same as if it had taken the check
and collected the money without indorsement at all and the act of
the bank amounts to conversion of the check.
[22]

Petitioners claim that since there was no delivery yet and
respondent has never acquired possession of the checks,
respondents remedy is with the drawer and not with petitioner
bank. Petitioner relies on the view to the effect that where there is
no delivery to the payee and no title vests in him, he ought not to
be allowed to recover on the ground that he lost nothing because
he never became the owner of the check and still retained his claim
of debt against the drawer.
[23]
However, another view in certain
cases holds that even if the absence of delivery is considered, such
consideration is not material. The rationale for this view is that in
said cases the plaintiff uses one action to reach, by a desirable short
cut, the person who ought in any event to be ultimately liable as
among the innocent persons involved in the transaction. In other
words, the payee ought to be allowed to recover directly from the
collecting bank, regardless of whether the check was delivered to
the payee or not.
[24]

Considering the circumstances in this case, in our view,
petitioner could not escape liability for its negligent
acts. Admittedly, respondent Eugene Ong at the time the
fraudulent transaction took place was a depositor of petitioner
bank. Banks are engaged in a business impressed with public
interest, and it is their duty to protect in return their many clients
and depositors who transact business with them.
[25]
They have the
obligation to treat their clients account meticulously and with the
highest degree of care, considering the fiduciary nature of their
relationship. The diligence required of banks, therefore, is more
than that of a good father of a family.
[26]
In the present case,
petitioner was held to be grossly negligent in performing its
duties. As found by the trial court:
xxx (A)t the time the questioned checks were accepted for deposit
to Paciano Tanlimcos account by defendant bank, defendant bank,
admittedly had in its files specimen signatures of plaintiff who
maintained a current account with them (Exhibits L-1 and M-1;
testimony of Emmanuel Torio). Given the substantial face value of
the two checks, totalling P1,754,787.50, and the fact that they were
being deposited by a person not the payee, the very least defendant
bank should have done, as any reasonable prudent man would have
done, was to verify the genuineness of the indorsements
thereon. The Court cannot help but note that had defendant
conducted even the most cursory comparison with plaintiffs
specimen signatures in its files (Exhibit L-1 and M-1) it would
have at once seen that the alleged indorsements were falsified and
were not those of the plaintiff-payee. However, defendant
apparently failed to make such a verification or, what is worse did
so but, chose to disregard the obvious dissimilarity of the
signatures. The first omission makes it guilty of gross negligence;
the second of bad faith. In either case, defendant is liable to
plaintiff for the proceeds of the checks in question.
[27]

These findings are binding and conclusive on the appellate and
the reviewing courts.
On the second issue, petitioner avers that respondent Ong is
barred by laches for failing to assert his right for recovery from the
bank as soon as he discovered the scam. The lapse of five months
38

before he went to seek relief from the bank, according to petitioner,
constitutes laches.
In turn, respondent contends that petitioner presented no
evidence to support its claim of laches. On the contrary, the
established facts of the case as found by the trial court and affirmed
by the Court of Appeals are that respondent left no stone unturned
to obtain relief from his predicament.
On the matter of delay in reporting the loss, respondent calls
attention to the fact that the checks were issued on May 4, 1976,
and on the very next day, May 5, 1976, these were already credited
to the account of Paciano Tanlimco and presented for payment to
Pacific Banking Corporation. So even if the theft of the checks were
discovered and reported earlier, respondent argues, it would not
have altered the situation as the encashment of the checks was
consummated within twenty four hours and facilitated by the gross
negligence of the petitioner bank.
[28]

Laches may be defined as the failure or neglect for an
unreasonable and unexplained length of time, to do that which, by
exercising due diligence, could or should have been done earlier. It
is negligence or omission to assert a right within a reasonable time,
warranting a presumption that the party entitled thereto has either
abandoned or declined to assert it.
[29]
It concerns itself with
whether or not by reason of long inaction or inexcusable neglect, a
person claiming a right should be barred from asserting the same,
because to allow him to do so would be unjust to the person against
whom such right is sought to be enforced.
[30]

In the case at bar, it cannot be said that respondent sat on his
rights. He immediately acted after knowing of the forgery by
proceeding to seek help from the Tanlimco family and later the
Central Bank, to remedy the situation and recover his money from
the forger, Paciano Tanlimco. Only after he had exhausted
possibilities of settling the matter amicably with the family of
Tanlimco and through the CB, about five months after the unlawful
transaction took place, did he resort to making the demand upon
the petitioner and eventually before the court for recovery of the
money value of the two checks. These acts cannot be construed as
undue delay in or abandonment of the assertion of his rights.
Moreover, the claim of petitioner that respondent should be
barred by laches is clearly a vain attempt to deflect responsibility for
its negligent act. As explained by the appellate court, it is petitioner
which had the last clear chance to stop the fraudulent encashment
of the subject checks had it exercised due diligence and followed
the proper and regular banking procedures in clearing checks.
[31]
As
we had earlier ruled, the one who had the last clear opportunity to
avoid the impending harm but failed to do so is chargeable with the
consequences thereof.
[32]

WHEREFORE, the instant petition is DENIED for lack of
merit. The assailed decision of the Court of Appeals, sustaining the
judgment of the Regional Trial Court of Manila, is AFFIRMED.
Costs against petitioner.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr.,
JJ., concur.
G.R. No. 139130 November 27, 2002
RAMON K. ILUSORIO, petitioner,
vs.
HON. COURT OF APPEALS, and THE MANILA BANKING
CORPORATION, respondents.
D E C I S I O N
39

QUISUMBING, J.:
This petition for review seeks to reverse the decision
1
promulgated
on January 28, 1999 by the Court of Appeals in CA-G.R. CV No.
47942, affirming the decision of the then Court of First Instance of
Rizal, Branch XV (now the Regional Trial Court of Makati, Branch
138) dismissing Civil Case No. 43907, for damages.
The facts as summarized by the Court of Appeals are as follows:
Petitioner is a prominent businessman who, at the time material to
this case, was the Managing Director of Multinational Investment
Bancorporation and the Chairman and/or President of several other
corporations. He was a depositor in good standing of respondent
bank, the Manila Banking Corporation, under current Checking
Account No. 06-09037-0. As he was then running about 20
corporations, and was going out of the country a number of times,
petitioner entrusted to his secretary, Katherine
2
E. Eugenio, his
credit cards and his checkbook with blank checks. It was also
Eugenio who verified and reconciled the statements of said
checking account.
3

Between the dates September 5, 1980 and January 23, 1981,
Eugenio was able to encash and deposit to her personal account
about seventeen (17) checks drawn against the account of the
petitioner at the respondent bank, with an aggregate amount
of P119,634.34. Petitioner did not bother to check his statement of
account until a business partner apprised him that he saw Eugenio
use his credit cards. Petitioner fired Eugenio immediately, and
instituted a criminal action against her for estafa thru falsification
before the Office of the Provincial Fiscal of Rizal. Private
respondent, through an affidavit executed by its employee, Mr.
Dante Razon, also lodged a complaint for estafa thru falsification of
commercial documents against Eugenio on the basis of petitioners
statement that his signatures in the checks were forged.
4
Mr.
Razons affidavit states:
That I have examined and scrutinized the following checks in
accordance with prescribed verification procedures with utmost
care and diligence by comparing the signatures affixed thereat
against the specimen signatures of Mr. Ramon K. Ilusorio which we
have on file at our said office on such dates,
x x x
That the aforementioned checks were among those issued by
Manilabank in favor of its client MR. RAMON K. ILUSORIO,
That the same were personally encashed by KATHERINE E. ESTEBAN,
an executive secretary of MR. RAMON K. ILUSORIO in said
Investment Corporation;
That I have met and known her as KATHERINE E. ESTEBAN the
attending verifier when she personally encashed the above-
mentioned checks at our said office;
That MR. RAMON K. ILUSORIO executed an affidavit expressly
disowning his signature appearing on the checks further alleged to
have not authorized the issuance and encashment of the same.
5

Petitioner then requested the respondent bank to credit back and
restore to its account the value of the checks which were wrongfully
encashed but respondent bank refused. Hence, petitioner filed the
instant case.
6

At the trial, petitioner testified on his own behalf, attesting to the
truth of the circumstances as narrated above, and how he
discovered the alleged forgeries. Several employees of Manila Bank
40

were also called to the witness stand as hostile witnesses. They
testified that it is the banks standard operating procedure that
whenever a check is presented for encashment or clearing, the
signature on the check is first verified against the specimen
signature cards on file with the bank.
Manila Bank also sought the expertise of the National Bureau of
Investigation (NBI) in determining the genuineness of the signatures
appearing on the checks. However, in a letter dated March 25,
1987, the NBI informed the trial court that they could not conduct
the desired examination for the reason that the standard specimens
submitted were not sufficient for purposes of rendering a definitive
opinion. The NBI then suggested that petitioner be asked to submit
seven (7) or more additional standard signatures executed before or
about, and immediately after the dates of the questioned checks.
Petitioner, however, failed to comply with this request.
After evaluating the evidence on both sides, the court a quo
rendered judgment on May 12, 1994 with the following dispositive
portion:
WHEREFORE, finding no sufficient basis for plaintiff's cause herein
against defendant bank, in the light of the foregoing considerations
and established facts, this case would have to be, as it is hereby
DISMISSED.
Defendants counterclaim is likewise DISMISSED for lack of sufficient
basis.
SO ORDERED.
7

Aggrieved, petitioner elevated the case to the Court of Appeals by
way of a petition for review but without success. The appellate
court held that petitioners own negligence was the proximate
cause of his loss. The appellate court disposed as follows:
WHEREFORE, the judgment appealed from is AFFIRMED. Costs
against the appellant.
SO ORDERED.
8

Before us, petitioner ascribes the following errors to the Court of
Appeals:
A. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE
RESPONDENT BANK IS ESTOPPED FROM RAISING THE DEFENSE
THAT THERE WAS NO FORGERY OF THE SIGNATURES OF THE
PETITIONER IN THE CHECK BECAUSE THE RESPONDENT FILED A
CRIMINAL COMPLAINT FOR ESTAFA THRU FALSIFICATION OF
COMMERCIAL DOCUMENTS AGAINST KATHERINE EUGENIO USING
THE AFFIDAVIT OF PETITIONER STATING THAT HIS SIGNATURES
WERE FORGED AS PART OF THE AFFIDAVIT-COMPLAINT.
9

B. THE COURT OF APPEALS ERRED IN NOT APPLYING SEC. 23,
NEGOTIABLE INSTRUMENTS LAW.
10

C. THE COURT OF APPEALS ERRED IN NOT HOLDING THE BURDEN
OF PROOF IS WITH THE RESPONDENT BANK TO PROVE THE DUE
DILIGENCE TO PREVENT DAMAGE, TO THE PETITIONER, AND THAT IT
WAS NOT NEGLIGENT IN THE SELECTION AND SUPERVISION OF ITS
EMPLOYEES.
11

D. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT
RESPONDENT BANK SHOULD BEAR THE LOSS, AND SHOULD BE
MADE TO PAY PETITIONER, WITH RECOURSE AGAINST KATHERINE
EUGENIO ESTEBAN.
12

41

Essentially the issues in this case are: (1) whether or not petitioner
has a cause of action against private respondent; and (2) whether or
not private respondent, in filing an estafa case against petitioners
secretary, is barred from raising the defense that the fact of forgery
was not established.
Petitioner contends that Manila Bank is liable for damages for its
negligence in failing to detect the discrepant checks. He adds that as
a general rule a bank which has obtained possession of a check
upon an unauthorized or forged endorsement of the payees
signature and which collects the amount of the check from the
drawee is liable for the proceeds thereof to the payee. Petitioner
invokes the doctrine of estoppel, saying that having itself instituted
a forgery case against Eugenio, Manila Bank is now estopped from
asserting that the fact of forgery was never proven.
For its part, Manila Bank contends that respondent appellate court
did not depart from the accepted and usual course of judicial
proceedings, hence there is no reason for the reversal of its ruling.
Manila Bank additionally points out that Section 23
13
of the
Negotiable Instruments Law is inapplicable, considering that the
fact of forgery was never proven. Lastly, the bank negates
petitioners claim of estoppel.
14

On the first issue, we find that petitioner has no cause of action
against Manila Bank. To be entitled to damages, petitioner has the
burden of proving negligence on the part of the bank for failure to
detect the discrepancy in the signatures on the checks. It is
incumbent upon petitioner to establish the fact of forgery, i.e., by
submitting his specimen signatures and comparing them with those
on the questioned checks. Curiously though, petitioner failed to
submit additional specimen signatures as requested by the National
Bureau of Investigation from which to draw a conclusive finding
regarding forgery. The Court of Appeals found that petitioner, by his
own inaction, was precluded from setting up forgery. Said the
appellate court:
We cannot fault the court a quo for such declaration, considering
that the plaintiffs evidence on the alleged forgery is not convincing
enough. The burden to prove forgery was upon the plaintiff, which
burden he failed to discharge. Aside from his own testimony, the
appellant presented no other evidence to prove the fact of forgery.
He did not even submit his own specimen signatures, taken on or
about the date of the questioned checks, for examination and
comparison with those of the subject checks. On the other hand,
the appellee presented specimen signature cards of the appellant,
taken at various years, namely, in 1976, 1979 and 1981 (Exhibits
"1", "2", "3" and "7"), showing variances in the appellants
unquestioned signatures. The evidence further shows that the
appellee, as soon as it was informed by the appellant about his
questioned signatures, sought to borrow the questioned checks
from the appellant for purposes of analysis and examination (Exhibit
"9"), but the same was denied by the appellant. It was also the
former which sought the assistance of the NBI for an expert analysis
of the signatures on the questioned checks, but the same was
unsuccessful for lack of sufficient specimen signatures.
15

Moreover, petitioners contention that Manila Bank was remiss in
the exercise of its duty as drawee lacks factual basis. Consistently,
the CA and the RTC found that Manila Bank employees exercised
due diligence in cashing the checks. The banks employees in the
present case did not have a hint as to Eugenios modus operandi
because she was a regular customer of the bank, having been
designated by petitioner himself to transact in his behalf. According
to the appellate court, the employees of the bank exercised due
diligence in the performance of their duties. Thus, it found that:
42

The evidence on both sides indicates that TMBCs employees
exercised due diligence before encashing the checks. Its verifiers
first verified the drawers signatures thereon as against his
specimen signature cards, and when in doubt, the verifier went
further, such as by referring to a more experienced verifier for
further verification. In some instances the verifier made a
confirmation by calling the depositor by phone. It is only after taking
such precautionary measures that the subject checks were given to
the teller for payment.
Of course it is possible that the verifiers of TMBC might have made a
mistake in failing to detect any forgery -- if indeed there was.
However, a mistake is not equivalent to negligence if they were
honest mistakes. In the instant case, we believe and so hold that if
there were mistakes, the same were not deliberate, since the bank
took all the precautions.
16

As borne by the records, it was petitioner, not the bank, who was
negligent. Negligence is the omission to do something which a
reasonable man, guided by those considerations which ordinarily
regulate the conduct of human affairs, would do, or the doing of
something which a prudent and reasonable man would do.
17
In the
present case, it appears that petitioner accorded his secretary
unusual degree of trust and unrestricted access to his credit cards,
passbooks, check books, bank statements, including custody and
possession of cancelled checks and reconciliation of accounts. Said
the Court of Appeals on this matter:
Moreover, the appellant had introduced his secretary to the bank
for purposes of reconciliation of his account, through a letter dated
July 14, 1980 (Exhibit "8"). Thus, the said secretary became a
familiar figure in the bank. What is worse, whenever the bank
verifiers call the office of the appellant, it is the same secretary who
answers and confirms the checks.
The trouble is, the appellant had put so much trust and confidence
in the said secretary, by entrusting not only his credit cards with her
but also his checkbook with blank checks. He also entrusted to her
the verification and reconciliation of his account. Further adding to
his injury was the fact that while the bank was sending him the
monthly Statements of Accounts, he was not personally checking
the same. His testimony did not indicate that he was out of the
country during the period covered by the checks. Thus, he had all
the opportunities to verify his account as well as the cancelled
checks issued thereunder -- month after month. But he did not,
until his partner asked him whether he had entrusted his credit card
to his secretary because the said partner had seen her use the
same. It was only then that he was minded to verify the records of
his account.
18

The abovecited findings are binding upon the reviewing court. We
stress the rule that the factual findings of a trial court, especially
when affirmed by the appellate court, are binding upon us
19
and
entitled to utmost respect
20
and even finality. We find no palpable
error that would warrant a reversal of the appellate courts
assessment of facts anchored upon the evidence on record.
Petitioners failure to examine his bank statements appears as the
proximate cause of his own damage. Proximate cause is that cause,
which, in natural and continuous sequence, unbroken by any
efficient intervening cause, produces the injury, and without which
the result would not have occurred.
21
In the instant case, the bank
was not shown to be remiss in its duty of sending monthly bank
statements to petitioner so that any error or discrepancy in the
entries therein could be brought to the banks attention at the
earliest opportunity. But, petitioner failed to examine these bank
statements not because he was prevented by some cause in not
doing so, but because he did not pay sufficient attention to the
matter. Had he done so, he could have been alerted to any anomaly
43

committed against him. In other words, petitioner had sufficient
opportunity to prevent or detect any misappropriation by his
secretary had he only reviewed the status of his accounts based on
the bank statements sent to him regularly. In view of Article 2179 of
the New Civil Code,
22
when the plaintiffs own negligence was the
immediate and proximate cause of his injury, no recovery could be
had for damages.
Petitioner further contends that under Section 23 of the Negotiable
Instruments Law a forged check is inoperative, and that Manila Bank
had no authority to pay the forged checks. True, it is a rule that
when a signature is forged or made without the authority of the
person whose signature it purports to be, the check is wholly
inoperative. No right to retain the instrument, or to give a discharge
therefor, or to enforce payment thereof against any party, can be
acquired through or under such signature. However, the rule does
provide for an exception, namely: "unless the party against whom it
is sought to enforce such right is precluded from setting up the
forgery or want of authority." In the instant case, it is the exception
that applies. In our view, petitioner is precluded from setting up the
forgery, assuming there is forgery, due to his own negligence in
entrusting to his secretary his credit cards and checkbook including
the verification of his statements of account.
Petitioners reliance on Associated Bank vs. Court of Appeals
23
and
Philippine Bank of Commerce vs. CA
24
to buttress his contention
that respondent Manila Bank as the collecting or last endorser
generally suffers the loss because it has the duty to ascertain the
genuineness of all prior endorsements is misplaced. In the cited
cases, the fact of forgery was not in issue. In the present case, the
fact of forgery was not established with certainty. In those cited
cases, the collecting banks were held to be negligent for failing to
observe precautionary measures to detect the forgery. In the case
before us, both courts below uniformly found that Manila Banks
personnel diligently performed their duties, having compared the
signature in the checks from the specimen signatures on record and
satisfied themselves that it was petitioners.
On the second issue, the fact that Manila Bank had filed a case for
estafa against Eugenio would not estop it from asserting the fact
that forgery has not been clearly established. Petitioner cannot hold
private respondent in estoppel for the latter is not the actual party
to the criminal action. In a criminal action, the State is the plaintiff,
for the commission of a felony is an offense against the
State.
25
Thus, under Section 2, Rule 110 of the Rules of Court the
complaint or information filed in court is required to be brought in
the name of the "People of the Philippines."
26

Further, as petitioner himself stated in his petition, respondent
bank filed the estafa case against Eugenio on the basis of
petitioners own affidavit,
27
but without admitting that he had any
personal knowledge of the alleged forgery. It is, therefore, easy to
understand that the filing of the estafa case by respondent bank
was a last ditch effort to salvage its ties with the petitioner as a
valuable client, by bolstering the estafa case which he filed against
his secretary.
All told, we find no reversible error that can be ascribed to the Court
of Appeals.
WHEREFORE, the instant petition is DENIED for lack of merit. The
assailed decision of the Court of Appeals dated January 28, 1999 in
CA-G.R. CV No. 47942, is AFFIRMED.
Costs against petitioner.
SO ORDERED.
44

Bellosillo, Acting C.J., (Chairman), Mendoza, Austria-Martinez, and
Callejo, Sr., JJ., concur.
G.R. No. 112392 February 29, 2000
BANK OF THE PHILIPPINE ISLANDS, petitioner,
vs.
COURT OF APPEALS and BENJAMIN C. NAPIZA, respondents.
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the Decision
1
of the
Court of Appeals in CA-G.R. CV No. 37392 affirming in toto that of
the Regional Trial Court of Makati, Branch 139,
2
which dismissed the
complaint filed by petitioner Bank of the Philippine Islands against
private respondent Benjamin C. Napiza for sum of money.
On September 3, 1987, private respondent deposited in Foreign
Currency Deposit Unit (FCDU) Savings Account No. 028-187
3
which
he maintained in petitioner bank's Buendia Avenue Extension
Branch, Continental Bank Manager's Check No. 00014757
4
dated
August 17, 1984, payable to "cash" in the amount of Two Thousand
Five Hundred Dollars ($2,500.00) and duly endorsed by private
respondent on its dorsal side.
5
It appears that the check belonged to
a certain Henry who went to the office of private respondent and
requested him to deposit the check in his dollar account by way of
accommodation and for the purpose of clearing the same. Private
respondent acceded, and agreed to deliver to Chan a signed blank
withdrawal slip, with the understanding that as soon as the check is
cleared, both of them would go to the bank to withdraw the
amount of the check upon private respondent's presentation to the
bank of his passbook.
Using the blank withdrawal slip given by private respondent to
Chan, on October 23, 1984, one Ruben Gayon, Jr. was able to
withdraw the amount of $2,541.67 from FCDU Savings Account No.
028-187. Notably, the withdrawal slip shows that the amount was
payable to Ramon A. de Guzman and Agnes C. de Guzman and was
duly initialed by the branch assistant manager, Teresita Lindo.
6

On November 20, 1984, petitioner received communication from
the Wells Fargo Bank International of New York that the said check
deposited by private respondent was a counterfeit check
7
because it
was "not of the type or style of checks issued by Continental Bank
International."
8
Consequently, Mr. Ariel Reyes, the manager of
petitioner's Buendia Avenue Extension Branch, instructed one of its
employees, Benjamin D. Napiza IV, who is private respondent's son,
to inform his father that the check bounced.
9
Reyes himself sent a
telegram to private respondent regarding the dishonor of the check.
In turn, private respondent's son wrote to Reyes stating that the
check been assigned "for encashment" to Ramon A. de Guzman
and/or Agnes C. de Guzman after it shall have been cleared upon
instruction of Chan. He also said that upon learning of the dishonor
of the check, his father immediately tried to contact Chan but the
latter was out of town.
10

Private respondent's son undertook to return the amount of
$2,500.00 to petitioner bank. On December 18, 1984, Reyes
reminded private respondent of his son's promise and warned that
should he fail to return that amount within seven (7) days, the
matter would be referred to the bank's lawyers for appropriate
action to protect the bank's interest.
11
This was followed by a letter
of the bank's lawyer dated April 8, 1985 demanding the return of
the $2,500.00.
12

45

In reply, private respondent wrote petitioner's counsel on April 20,
1985
13
stating that he deposited the check "for clearing purposes"
only to accommodate Chan. He added:
Further, please take notice that said check was deposited
on September 3, 1984 and withdrawn on October 23, 1984,
or a total period of fifty (50) days had elapsed at the time of
withdrawal. Also, it may not be amiss to mention here that I
merely signed an authority to withdraw said deposit subject
to its clearing, the reason why the transaction is not
reflected in the passbook of the account. Besides, I did not
receive its proceeds as may be gleaned from the withdrawal
slip under the captioned signature of recipient.1wphi1.nt
If at all, my obligation on the transaction is moral in nature,
which (sic) I have been and is (sic) still exerting utmost and
maximum efforts to collect from Mr. Henry Chan who is
directly liable under the circumstances.
x x x x x x x x x
On August 12, 1986, petitioner filed a complaint against private
respondent, praying for the return of the amount of $2,500.00 or
the prevailing peso equivalent plus legal interest from date of
demand to date of full payment, a sum equivalent to 20% of the
total amount due as attorney's fees, and litigation and/or costs of
suit.
Private respondent filed his answer, admitting that he indeed signed
a "blank" withdrawal slip with the understanding that the amount
deposited would be withdrawn only after the check in question has
been cleared. He likewise alleged that he instructed the party to
whom he issued the signed blank withdrawal slip to return it to him
after the bank draft's clearance so that he could lend that party his
passbook for the purpose of withdrawing the amount of $2,500.00.
However, without his knowledge, said party was able to withdraw
the amount of $2,541.67 from his dollar savings account through
collusion with one of petitioner's employees. Private respondent
added that he had "given the Plaintiff fifty one (51) days with which
to clear the bank draft in question." Petitioner should have
disallowed the withdrawal because his passbook was not presented.
He claimed that petitioner had no one to blame except itself "for
being grossly negligent;" in fact, it had allegedly admitted having
paid the amount in the check "by mistake" . . . "if not altogether due
to collusion and/or bad faith on the part of (its) employees."
Charging petitioner with "apparent ignorance of routine bank
procedures," by way of counterclaim, private respondent prayed for
moral damages of P100,000.00, exemplary damages of P50,000.00
and attorney's fees of 30% of whatever amount that would be
awarded to him plus an honorarium of P500.00 per appearance in
court.
Private respondent also filed a motion for admission of a third party
complaint against Chan. He alleged that "thru strategem and/or
manipulation," Chan was able to withdraw the amount of $2,500.00
even without private respondent's passbook. Thus, private
respondent prayed that third party defendant Chan be made to
refund to him the amount withdrawn and to pay attorney's fees of
P5,000.00 plus P300.00 honorarium per appearance.
Petitioner filed a comment on the motion for leave of court to
admit the third party complaint, whenever it asserted that per
paragraph 2 of the Rules and Regulations governing BPI savings
accounts, private respondent alone was liable "for the value of the
credit given on account of the draft or check deposited." It
contended that private respondent was estopped from disclaiming
liability because he himself authorized the withdrawal of the
amount by signing the withdrawal slip. Petitioner prayed for the
46

denial of the said motion so as not to unduly delay the disposition of
the main case asserting that private respondent's claim could be
ventilated in another case.
Private respondent replied that for the parties to obtain complete
relief and to avoid multiplicity of suits, the motion to admit third
party complaint should be granted. Meanwhile, the trial court
issued orders on August 25, 1987 and October 28, 1987 directing
private respondent to actively participate in locating Chan. After
private respondent failed to comply, the trial court, on May 18,
1988, dismissed the third party complaint without prejudice.
On November 4, 1991, a decision was rendered dismissing the
complaint. The lower court held that petitioner could not hold
private respondent liable based on the check's face value alone. To
so hold him liable "would render inutile the requirement of
"clearance" from the drawee bank before the value of a particular
foreign check or draft can be credited to the account of a depositor
making such deposit." The lower court further held that "it was
incumbent upon the petitioner to credit the value of the check in
question to the account of the private respondent only upon receipt
of the notice of final payment and should not have authorized the
withdrawal from the latter's account of the value or proceeds of the
check." Having admitted that it committed a "mistake" in not
waiting for the clearance of the check before authorizing the
withdrawal of its value or proceeds, petitioner should suffer the
resultant loss.
On appeal, the Court of Appeals affirmed the lower court's decision.
The appellate court held that petitioner committed "clears gross
negligence" in allowing Ruben Gayon, Jr. to withdraw the money
without presenting private respondent's passbook and, before the
check was cleared and in crediting the amount indicated therein in
private respondent's account. It stressed that the mere deposit of a
check in private respondent's account did not mean that the check
was already private respondent's property. The check still had to be
cleared and its proceeds can only be withdrawn upon presentation
of a passbook in accordance with the bank's rules and regulations.
Furthermore, petitioner's contention that private respondent
warranted the check's genuineness by endorsing it is untenable for
it would render useless the clearance requirement. Likewise, the
requirement of presentation of a passbook to ascertain the
propriety of the accounting reflected would be a meaningless
exercise. After all, these requirements are designed to protect the
bank from deception or fraud.
The Court of Appeals cited the case of Roman Catholic Bishop of
Malolos, Inc. v. IAC,
14
where this Court stated that a personal check
is not legal tender or money, and held that the check deposited in
this case must be cleared before its value could be properly
transferred to private respondent's account.
Without filing a motion for the reconsideration of the Court of
Appeals' Decision, petitioner filed this petition for review
on certiorari, raising the following issues:
1. WHETHER OR NOT RESPONDENT NAPIZA IS LIABLE
UNDER HIS WARRANTIES AS A GENERAL INDORSER.
2. WHETHER OR NOT A CONTRACT OF AGENCY WAS
CREATED BETWEEN RESPONDENT NAPIZA AND RUBEN
GAYON.
3. WHETHER OR NOT PETITIONER WAS GROSSLY
NEGLIGENT IN ALLOWING THE WITHDRAWAL.
Petitioner claims that private respondent, having affixed his
signature at the dorsal side of the check, should be liable for the
47

amount stated therein in accordance with the following provision of
the Negotiable Instruments Law (Act No. 2031):
Sec. 66. Liability of general indorser. Every indorser who
indorses without qualification, warrants to all subsequent
holders in due course
(a) The matters and things mentioned in subdivisions (a),
(b), and (c) of the next preceding section; and
(b) That the instrument is at the time of his indorsement,
valid and subsisting.
And, in addition, he engages that on due presentment, it
shall be accepted or paid, or both, as the case may be,
according to its tenor, and that if it be dishonored, and the
necessary proceedings on dishonor be duly taken, he will
pay the amount thereof to the holder, or to any subsequent
indorser who may be compelled to pay it.
Sec. 65, on the other hand, provides for the following warranties of
a person negotiating an instrument by delivery or by qualified
indorsement: (a) that the instrument is genuine and in all respects
what it purports to be; (b) that he has a good title to it, and (c) that
all prior parties had capacity to contract.
15
In People v.
Maniego,
16
this Court described the liabilities of an indorser as
follows:
Appellant's contention that as mere indorser, she may not
be liable on account of the dishonor of the checks indorsed
by her, is likewise untenable. Under the law, the holder or
last indorsee of a negotiable instrument has the right "to
enforce payment of the instrument for the full amount
thereof against all parties liable thereon. Among the
"parties liable thereon." Is an indorser of the
instrument, i.e., "a person placing his signature upon an
instrument otherwise than as a maker, drawer or acceptor *
* unless he clearly indicated by appropriate words his
intention to be bound in some other capacity." Such an
indorser "who indorses without qualification," inter
alia "engages that on due presentment, * * (the instrument)
shall be accepted or paid, or both, as the case may be,
according to its tenor, and that if it be dishonored, and the
necessary proceedings on dishonor be duly taken, he will
pay the amount thereof to the holder, or any subsequent
indorser who may be compelled to pay it." Maniego may
also be deemed an "accommodation party" in the light of
the facts, i.e., a person "who has signed the instrument as
maker, drawer, acceptor, or indorser, without receiving
value thereof, and for the purpose of lending his name to
some other person." As such, she is under the law "liable on
the instrument to a holder for value, notwithstanding such
holder at the time of taking the instrument knew * * (her)
to be only an accommodation party," although she has the
right, after paying the holder, to obtain reimbursement
from the party accommodated, "since the relation between
them is in effect that of principal and surety, the
accommodation party being the surety.
It is thus clear that ordinarily private respondent may be held liable
as an indorser of the check or even as an accommodation
party.
17
However, to hold private respondent liable for the amount
of the check he deposited by the strict application of the law and
without considering the attending circumstances in the case would
result in an injustice and in the erosion of the public trust in the
banking system. The interest of justice thus demands looking into
the events that led to the encashment of the check.
48

Petitioner asserts that by signing the withdrawal slip, private
respondent "presented the opportunity for the withdrawal of the
amount in question." Petitioner relied "on the genuine signature on
the withdrawal slip, the personality of private respondent's son and
the lapse of more than fifty (50) days from date of deposit of the
Continental Bank draft, without the same being returned yet."
18
We
hold, however, that the propriety of the withdrawal should be
gauged by compliance with the rules thereon that both petitioner
bank and its depositors are duty-bound to observe.
In the passbook that petitioner issued to private respondent, the
following rules on withdrawal of deposits appear:
4. Withdrawals must be made by the depositor personally
but in some exceptional circumstances, the Bank may allow
withdrawal by another upon the depositor's written
authority duly authenticated; and neither a deposit nor a
withdrawal will be permitted except upon the presentation
of the depositor's savings passbook, in which the amount
deposited withdrawn shall be entered only by the Bank.
5. Withdrawals may be made by draft, mail or telegraphic
transfer in currency of the account at the request of the
depositor in writing on the withdrawal slip or by
authenticated cable. Such request must indicate the name
of the payee/s, amount and the place where the funds are
to be paid. Any stamp, transmission and other charges
related to such withdrawals shall be for the account of the
depositor and shall be paid by him/her upon demand.
Withdrawals may also be made in the form of travellers
checks and in pesos. Withdrawals in the form of notes/bills
are allowed subject however, to their (availability).
6. Deposits shall not be subject to withdrawal by check, and
may be withdrawal only in the manner above provided,
upon presentation of the depositor's savings passbook and
with the withdrawal form supplied by the Bank at the
counter.
19

Under these rules, to be able to withdraw from the savings account
deposit under the Philippine foreign currency deposit system, two
requisites must be presented to petitioner bank by the person
withdrawing an amount: (a) a duly filled-up withdrawal slip, and (b)
the depositor's passbook. Private respondent admits he signed a
blank withdrawal slip ostensibly in violation of Rule No. 6 requiring
that the request for withdrawal must name the payee, the amount
to be withdrawn and the place where such withdrawal should be
made. That the withdrawal slip was in fact a blank one with only
private respondent's two signatures affixed on the proper spaces is
buttressed by petitioner's allegation in the instant petition that had
private respondent indicated therein the person authorized to
receive the money, then Ruben Gayon, Jr. could not have
withdrawn any amount. Petitioner contends that "(I)n failing to do
so (i.e., naming his authorized agent), he practically authorized any
possessor thereof to write any amount and to collect the same."
20

Such contention would have been valid if not for the fact that the
withdrawal slip itself indicates a special instruction that the amount
is payable to "Ramon A. de Guzman &/or Agnes C. de Guzman."
Such being the case, petitioner's personnel should have been duly
warned that Gayon, who was also employed in petitioner's Buendia
Ave. Extension branch,
21
was not the proper payee of the proceeds
of the check. Otherwise, either Ramon or Agnes de Guzman should
have issued another authority to Gayon for such withdrawal. Of
course, at the dorsal side of the withdrawal slip is an "authority to
withdraw" naming Gayon the person who can withdraw the amount
indicated in the check. Private respondent does not deny having
49

signed such authority. However, considering petitioner's clear
admission that the withdrawal slip was a blank one except for
private respondent's signature, the unavoidable conclusion is that
the typewritten name of "Ruben C. Gayon, Jr." was intercalated and
thereafter it was signed by Gayon or whoever was allowed by
petitioner to withdraw the amount. Under these facts, there could
not have been a principal-agent relationship between private
respondent and Gayon so as to render the former liable for the
amount withdrawn.
Moreover, the withdrawal slip contains a boxed warning that states:
"This receipt must be signed and presented with the corresponding
foreign currency savings passbook by the depositor in person. For
withdrawals thru a representative, depositor should accomplish the
authority at the back." The requirement of presentation of the
passbook when withdrawing an amount cannot be given mere lip
service even though the person making the withdrawal is
authorized by the depositor to do so. This is clear from Rule No. 6
set out by petitioner so that, for the protection of the bank's
interest and as a reminder to the depositor, the withdrawal shall be
entered in the depositor's passbook. The fact that private
respondent's passbook was not presented during the withdrawal is
evidenced by the entries therein showing that the last transaction
that he made with the bank was on September 3, 1984, the date he
deposited the controversial check in the amount of $2,500.00.
22

In allowing the withdrawal, petitioner likewise overlooked another
rule that is printed in the passbook. Thus:
2. All deposits will be received as current funds and will be
repaid in the same manner; provided, however, that
deposits of drafts, checks, money orders, etc. will be
accented as subject to collection only and credited to the
account only upon receipt of the notice of final payment.
Collection charges by the Bank's foreign correspondent in
effecting such collection shall be for the account of the
depositor. If the account has sufficient balance, the
collection shall be debited by the Bank against the account.
If, for any reason, the proceeds of the deposited checks,
drafts, money orders, etc., cannot be collected or if the
Bank is required to return such proceeds, the provisional
entry therefor made by the Bank in the savings passbook
and its records shall be deemed automatically cancelled
regardless of the time that has elapsed, and whether or not
the defective items can be returned to the depositor; and
the Bank is hereby authorized to execute immediately the
necessary corrections, amendments or changes in its
record, as well as on the savings passbook at the first
opportunity to reflect such cancellation. (Emphasis and
underlining supplied.)
As correctly held by the Court of Appeals, in depositing the check in
his name, private respondent did not become the outright owner of
the amount stated therein. Under the above rule, by depositing the
check with petitioner, private respondent was, in a way, merely
designating petitioner as the collecting bank. This is in consonance
with the rule that a negotiable instrument, such as a check, whether
a manager's check or ordinary check, is not legal tender.
23
As such,
after receiving the deposit, under its own rules, petitioner shall
credit the amount in private respondent's account or infuse value
thereon only after the drawee bank shall have paid the amount of
the check or the check has been cleared for deposit. Again, this is in
accordance with ordinary banking practices and with this Court's
pronouncement that "the collecting bank or last endorser generally
suffers the loss because has the duty to ascertain the genuineness
of all prior endorsements considering that the act of presenting the
check for payment to the drawee is an assertion that the party
making the presentment has done its duty to ascertain the
50

genuineness of the endorsements."
24
The rule finds more meaning
in this case where the check involved is drawn on a foreign bank
and therefore collection is more difficult than when the drawee
bank is a local one even though the check in question is a manager's
check.
25

In Banco Atlantico v. Auditor General,
26
Banco Atlantico, a
commercial bank in Madrid, Spain, paid the amounts represented in
three (3) checks to Virginia Boncan, the finance officer of the
Philippine Embassy in Madrid. The bank did so without previously
clearing the checks with the drawee bank, the Philippine National
Bank in New York, on account of the "special treatment" that
Boncan received from the personnel of Banco Atlantico's foreign
department. The Court held that the encashment of the checks
without prior clearance is "contrary to normal or ordinary banking
practice specially so where the drawee bank is a foreign bank and
the amounts involved were large." Accordingly, the Court approved
the Auditor General's denial of Banco Atlantico's claim for payment
of the value of the checks that was withdrawn by Boncan.
Said ruling brings to light the fact that the banking business is
affected with public interest. By the nature of its functions, a bank is
under obligation to treat the accounts of its depositors "with
meticulous care, always having in mind the fiduciary nature of their
relationship."
27
As such, in dealing with its depositors, a bank should
exercise its functions not only with the diligence of a good father of
a family but it should do so with the highest degree of care.
28

In the case at bar, petitioner, in allowing the withdrawal of private
respondent's deposit, failed to exercise the diligence of a good
father of a family. In total disregard of its own rules, petitioner's
personnel negligently handled private respondent's account to
petitioner's detriment. As this Court once said on this matter:
Negligence is the omission to do something which a
reasonable man, guided by those considerations which
ordinarily regulate the conduct of human affairs, would do,
or the doing of something which a prudent and reasonable
man would do. The seventy-eight (78)-year-old, yet still
relevant, case of Picart v. Smith, provides that test by which
to determine the existence of negligence in a particular case
which may be stated as follows: Did the defendant in doing
the alleged negligent act use that reasonable care and
caution which an ordinarily prudent person would have
used in the same situation? If not, then he is guilty of
negligence. The law here in effect adopts the standard
supposed to be supplied by the imaginary conduct of the
discreet pater-familias of the Roman law. The existence of
negligence in a given case is not determined by reference to
the personal judgment of the actor in the situation before
him. The law considers what would be reckless,
blameworthy, or negligent in the man of ordinary
intelligence and prudence and determines liability by that.
29

Petitioner violated its own rules by allowing the withdrawal of an
amount that is definitely over and above the aggregate amount of
private respondent's dollar deposits that had yet to be cleared. The
bank's ledger on private respondent's account shows that before he
deposited $2,500.00, private respondent had a balance of only
$750.00.
30
Upon private respondent's deposit of $2,500.00 on
September 3, 1984, that amount was credited in his ledger as a
deposit resulting in the corresponding total balance of
$3,250.00.
31
On September 10, 1984, the amount of $600.00 and
the additional charges of $10.00 were indicated therein as
withdrawn thereby leaving a balance $2,640.00. On September 30,
1984, an interest of $11.59 was reflected in the ledger and on
October 23, 1984, the amount of $2,541.67 was entered as
withdrawn with a balance of $109.92.
32
On November 19, 1984 the
51

word "hold" was written beside the balance of $109.92.
33
That must
have been the time when Reyes, petitioner's branch manager, was
informed unofficially of the fact that the check deposited was a
counterfeit, but petitioner's Buendia Ave. Extension Branch received
a copy of the communication thereon from Wells Fargo Bank
International in New York the following day, November 20,
1984.
34
According to Reyes, Wells Fargo Bank International handled
the clearing of checks drawn against U.S. banks that were deposited
with petitioner.
35

From these facts on record, it is at once apparent that petitioner's
personnel allowed the withdrawal of an amount bigger than the
original deposit of $750.00 and the value of the check deposited in
the amount of $2,500.00 although they had not yet received notice
from the clearing bank in the United States on whether or not the
check was funded. Reyes' contention that after the lapse of the 35-
day period the amount of a deposited check could be withdrawn
even in the absence of a clearance thereon, otherwise it could take
a long time before a depositor could make a withdrawal,
36
is
untenable. Said practice amounts to a disregard of the clearance
requirement of the banking system.
While it is true that private respondent's having signed a blank
withdrawal slip set in motion the events that resulted in the
withdrawal and encashment of the counterfeit check, the
negligence of petitioner's personnel was the proximate cause of the
loss that petitioner sustained. Proximate cause, which is determined
by a mixed consideration of logic, common sense, policy and
precedent, is "that cause, which, in natural and continuous
sequence, unbroken by any efficient intervening cause, produces
the injury, and without which the result would not have
occurred."
37
The proximate cause of the withdrawal and eventual
loss of the amount of $2,500.00 on petitioner's part was its
personnel's negligence in allowing such withdrawal in disregard of
its own rules and the clearing requirement in the banking system. In
so doing, petitioner assumed the risk of incurring a loss on account
of a forged or counterfeit foreign check and hence, it should suffer
the resulting damage.1wphi1.nt
WHEREFORE, the petition for review on certiorari is DENIED. The
Decision of the Court of Appeals in CA-G.R. CV No. 37392 is
AFFIRMED.
SO ORDERED.
Davide, Jr., C.J., Puno, Kapunan and Pardo, JJ., concur.
G.R. No. 146511 September 5, 2007
TOMAS ANG, petitioner,
vs.
ASSOCIATED BANK AND ANTONIO ANG ENG LIONG, respondents.
D E C I S I O N
AZCUNA, J.:
This petition for certiorari under Rule 45 of the Rules on Civil
Procedure seeks to review the October 9, 2000 Decision
1
and
December 26, 2000 Resolution
2
of the Court of Appeals in CA-G.R.
CV No. 53413 which reversed and set aside the January 5, 1996
Decision
3
of the Regional Trial Court, Branch 16, Davao City, in Civil
Case No. 20,299-90, dismissing the complaint filed by respondents
for collection of a sum of money.
On August 28, 1990, respondent Associated Bank (formerly
Associated Banking Corporation and now known as United Overseas
Bank Philippines) filed a collection suit against Antonio Ang Eng
52

Liong and petitioner Tomas Ang for the two (2) promissory notes
that they executed as principal debtor and co-maker, respectively.
In the Complaint,
4
respondent Bank alleged that on October 3 and
9, 1978, the defendants obtained a loan ofP50,000, evidenced by a
promissory note bearing PN-No. DVO-78-382, and P30,000,
evidenced by a promissory note bearing PN-No. DVO-78-390. As
agreed, the loan would be payable, jointly and severally, on January
31, 1979 and December 8, 1978, respectively. In addition,
subsequent amendments
5
to the promissory notes as well as the
disclosure statements
6
stipulated that the loan would earn 14%
interest rate per annum, 2% service charge per annum, 1% penalty
charge per month from due date until fully paid, and attorney's fees
equivalent to 20% of the outstanding obligation.
Despite repeated demands for payment, the latest of which were
on September 13, 1988 and September 9, 1986, on Antonio Ang Eng
Liong and Tomas Ang, respectively, respondent Bank claimed that
the defendants failed and refused to settle their obligation,
resulting in a total indebtedness of P539,638.96 as of July 31, 1990,
broken down as follows:
PN-No. DVO-78-382 PN-No. DVO-78-390
Outstanding Balance P50,000.00 P30,000.00
Add Past due charges for 4,199 days
(from 01-31-79 to 07-31-90)
Past due charges for 4,253 days
(from 12-8-78 to 07-31-90)
14% Interest P203,538.98 P125,334.41
2% Service Charge P11,663.89 P7,088.34
12% Overdue Charge P69,983.34 P42,530.00
Total P285,186.21 P174,952.75
Less: Charges paid P500.00 None
Amount Due P334,686.21 P204,952.75
In his Answer,
7
Antonio Ang Eng Liong only admitted to have
secured a loan amounting to P80,000. He pleaded though that the
bank "be ordered to submit a more reasonable computation"
considering that there had been "no correct and reasonable
statement of account" sent to him by the bank, which was allegedly
collecting excessive interest, penalty charges, and attorney's fees
despite knowledge that his business was destroyed by fire, hence,
he had no source of income for several years.
For his part, petitioner Tomas Ang filed an Answer with
Counterclaim and Cross-claim.
8
He interposed the affirmative
defenses that: the bank is not the real party in interest as it is not
the holder of the promissory notes, much less a holder for value or
a holder in due course; the bank knew that he did not receive any
valuable consideration for affixing his signatures on the notes but
merely lent his name as an accommodation party; he accepted the
promissory notes in blank, with only the printed provisions and the
signature of Antonio Ang Eng Liong appearing therein; it was the
bank which completed the notes upon the orders, instructions, or
representations of his co-defendant; PN-No. DVO-78-382 was
completed in excess of or contrary to the authority given by him to
his co-defendant who represented that he would only
borrow P30,000 from the bank; his signature in PN-No. DVO-78-390
was procured through fraudulent means when his co-defendant
claimed that his first loan did not push through; the promissory
notes did not indicate in what capacity he was intended to be
bound; the bank granted his co-defendant successive extensions of
time within which to pay, without his (Tomas Ang) knowledge and
consent; the bank imposed new and additional stipulations on
interest, penalties, services charges and attorney's fees more
onerous than the terms of the notes, without his knowledge and
consent, in the absence of legal and factual basis and in violation of
the Usury Law; the bank caused the inclusion in the promissory
notes of stipulations such as waiver of presentment for payment
53

and notice of dishonor which are against public policy; and the
notes had been impaired since they were never presented for
payment and demands were made only several years after they fell
due when his co-defendant could no longer pay them.
Regarding his counterclaim, Tomas Ang argued that by reason of the
bank's acts or omissions, it should be held liable for the amount
of P50,000 for attorney's fees and expenses of litigation.
Furthermore, on his cross-claim against Antonio Ang Eng Liong, he
averred that he should be reimbursed by his co-defendant any and
all sums that he may be adjudged liable to pay,
plus P30,000, P20,000 and P50,000 for moral and exemplary
damages, and attorney's fees, respectively.
In its Reply,
9
respondent Bank countered that it is the real party in
interest and is the holder of the notes since the Associated Banking
Corporation and Associated Citizens Bank are its predecessors-in-
interest. The fact that Tomas Ang never received any moneys in
consideration of the two (2) loans and that such was known to the
bank are immaterial because, as an accommodation maker, he is
considered as a solidary debtor who is primarily liable for the
payment of the promissory notes. Citing Section 29 of the
Negotiable Instruments Law (NIL), the bank posited that absence or
failure of consideration is not a matter of defense; neither is the
fact that the holder knew him to be only an accommodation party.
Respondent Bank likewise retorted that the promissory notes were
completely filled up at the time of their delivery. Assuming that such
was not the case, Sec. 14 of the NIL provides that the bank has
the prima facie authority to complete the blank form. Moreover, it
is presumed that one who has signed as a maker acted with care
and had signed the document with full knowledge of its content.
The bank noted that Tomas Ang is a prominent businessman in
Davao City who has been engaged in the auto parts business for
several years, hence, certainly he is not so nave as to sign the notes
without knowing or bothering to verify the amounts of the loans
covered by them. Further, he is already in estoppel since despite
receipt of several demand letters there was not a single protest
raised by him that he signed for only one note in the amount
of P30,000.
It was denied by the bank that there were extensions of time for
payment accorded to Antonio Ang Eng Liong. Granting that such
were the case, it said that the same would not relieve Tomas Ang
from liability as he would still be liable for the whole obligation less
the share of his co-debtor who received the extended term.
The bank also asserted that there were no additional or new
stipulations imposed other than those agreed upon. The penalty
charge, service charge, and attorney's fees were reflected in the
amendments to the promissory notes and disclosure statements.
Reference to the Usury Law was misplaced as usury is legally non-
existent; at present, interest can be charged depending on the
agreement of the lender and the borrower.
Lastly, the bank contended that the provisions on presentment for
payment and notice of dishonor were expressly waived by Tomas
Ang and that such waiver is not against public policy pursuant to
Sections 82 (c) and 109 of the NIL. In fact, there is even no necessity
therefor since being a solidary debtor he is absolutely required to
pay and primarily liable on both promissory notes.
On October 19, 1990, the trial court issued a preliminary pre-trial
order directing the parties to submit their respective pre-trial
guide.
10
When Antonio Ang Eng Liong failed to submit his brief, the
bank filed an ex-partemotion to declare him in default.
11
Per Order
of November 23, 1990, the court granted the motion and set the ex-
parte hearing for the presentation of the bank's evidence.
12
Despite
54

Tomas Ang's motion
13
to modify the Order so as to exclude or
cancel the ex-parte hearing based on then Sec. 4, Rule 18 of the old
Rules of Court (now Sec. 3[c.], Rule 9 of the Revised Rules on Civil
Procedure), the hearing nonetheless proceeded.
14

Eventually, a decision
15
was rendered by the trial court on February
21, 1991. For his supposed bad faith and obstinate refusal despite
several demands from the bank, Antonio Ang Eng Liong was ordered
to pay the principal amount of P80,000 plus 14% interest per annum
and 2% service charge per annum. The overdue penalty charge and
attorney's fees were, however, reduced for being excessive, thus:
WHEREFORE, judgment is rendered against defendant
Antonio Ang Eng Liong and in favor of plaintiff, ordering the
former to pay the latter:
On the first cause of action:
1) the amount of P50,000.00 representing the
principal obligation with 14% interest per annum
from June 27, 1983 with 2% service charge and 6%
overdue penalty charges per annum until fully paid;
2) P11,663.89 as accrued service charge; and
3) P34,991.67 as accrued overdue penalty charge.
On the second cause of action:
1) the amount of P50,000.00 (sic) representing the
principal account with 14% interest from June 27,
1983 with 2% service charge and 6% overdue
penalty charges per annum until fully paid;
2) P7,088.34 representing accrued service charge;
3) P21,265.00 as accrued overdue penalty charge;
4) the amount of P10,000.00 as attorney's fees; and
5) the amount of P620.00 as litigation expenses and
to pay the costs.
SO ORDERED.
16

The decision became final and executory as no appeal was taken
therefrom. Upon the bank's ex-parte motion, the court accordingly
issued a writ of execution on April 5, 1991.
17

Thereafter, on June 3, 1991, the court set the pre-trial conference
between the bank and Tomas Ang,
18
who, in turn, filed a Motion to
Dismiss
19
on the ground of lack of jurisdiction over the case in view
of the alleged finality of the February 21, 1991 Decision. He
contended that Sec. 4, Rule 18 of the old Rules sanctions only one
judgment in case of several defendants, one of whom is declared in
default. Moreover, in his Supplemental Motion to Dismiss,
20
Tomas
Ang maintained that he is released from his obligation as a solidary
guarantor and accommodation party because, by the bank's actions,
he is now precluded from asserting his cross-claim against Antonio
Ang Eng Liong, upon whom a final and executory judgment had
already been issued.
The court denied the motion as well as the motion for
reconsideration thereon.
21
Tomas Ang subsequently filed a petition
for certiorari and prohibition before this Court, which, however,
resolved to refer the same to the Court of Appeals.
22
In accordance
with the prayer of Tomas Ang, the appellate court promulgated its
Decision on January 29, 1992 in CA G.R. SP No. 26332, which
55

annulled and set aside the portion of the Order dated November 23,
1990 setting the ex-parte presentation of the bank's evidence
against Antonio Ang Eng Liong, the Decision dated February 21,
1991 rendered against him based on such evidence, and the Writ of
Execution issued on April 5, 1991.
23

Trial then ensued between the bank and Tomas Ang. Upon the
latter's motion during the pre-trial conference, Antonio Ang Eng
Liong was again declared in default for his failure to answer the
cross-claim within the reglementary period.
24

When Tomas Ang was about to present evidence in his behalf, he
filed a Motion for Production of Documents,
25
reasoning:
x x x
2. That corroborative to, and/or preparatory or incident to
his testimony[,] there is [a] need for him to examine original
records in the custody and possession of plaintiff, viz:
a. original Promissory Note (PN for brevity) # DVO-
78-382 dated October 3, 1978[;]
b. original of Disclosure Statement in reference to
PN # DVO-78-382;
c. original of PN # DVO-78-390 dated October 9,
1978;
d. original of Disclosure Statement in reference to
PN # DVO-78-390;
e. Statement or Record of Account with the
Associated Banking Corporation or its successor, of
Antonio Ang in CA No. 470 (cf. Exh. O) including
bank records, withdrawal slips, notices, other
papers and relevant dates relative to the overdraft
of Antonio Eng Liong in CA No. 470;
f. Loan Applications of Antonio Ang Eng Liong or
borrower relative to PN Nos. DVO-78-382 and DVO-
78-390 (supra);
g. Other supporting papers and documents
submitted by Antonio Ang Eng Liong relative to his
loan application vis--vis PN. Nos. DVO-78-382 and
DVO-78-390 such as financial statements, income
tax returns, etc. as required by the Central Bank or
bank rules and regulations.
3. That the above matters are very material to the defenses
of defendant Tomas Ang, viz:
- the bank is not a holder in due course when it
accepted the [PNs] in blank.
- The real borrower is Antonio Ang Eng Liong which
fact is known to the bank.
- That the PAYEE not being a holder in due course
and knowing that defendant Tomas Ang is merely
an accommodation party, the latter may raise
against such payee or holder or successor-in-
interest (of the notes) PERSONAL and EQUITABLE
DEFENSES such as FRAUD in INDUCEMENT,
DISCHARGE ON NOTE, Application of [Articles]
2079, 2080 and 1249 of the Civil Code, NEGLIGENCE
56

in delaying collection despite Eng Liong's
OVERDRAFT in C.A. No. 470, etc.
26

In its Order dated May 16, 1994,
27
the court denied the motion
stating that the promissory notes and the disclosure statements
have already been shown to and inspected by Tomas Ang during the
trial, as in fact he has already copies of the same; the Statements or
Records of Account of Antonio Ang Eng Liong in CA No. 470, relative
to his overdraft, are immaterial since, pursuant to the previous
ruling of the court, he is being sued for the notes and not for the
overdraft which is personal to Antonio Ang Eng Liong; and besides
its non-existence in the bank's records, there would be legal
obstacle for the production and inspection of the income tax return
of Antonio Ang Eng Liong if done without his consent.
When the motion for reconsideration of the aforesaid Order was
denied, Tomas Ang filed a petition for certiorariand prohibition with
application for preliminary injunction and restraining order before
the Court of Appeals docketed as CA G.R. SP No. 34840.
28
On August
17, 1994, however, the Court of Appeals denied the issuance of a
Temporary Restraining Order.
29

Meanwhile, notwithstanding its initial rulings that Tomas Ang was
deemed to have waived his right to present evidence for failure to
appear during the pendency of his petition before the Court of
Appeals, the trial court decided to continue with the hearing of the
case.
30

After the trial, Tomas Ang offered in evidence several documents,
which included a copy of the Trust Agreement between the
Republic of the Philippines and the Asset Privatization Trust, as
certified by the notary public, and news clippings from the Manila
Bulletin dated May 18, 1994 and May 30, 1994.
31
All the
documentary exhibits were admitted for failure of the bank to
submit its comment to the formal offer.
32
Thereafter, Tomas Ang
elected to withdraw his petition in CA G.R. SP No. 34840 before the
Court of Appeals, which was then granted.
33

On January 5, 1996, the trial court rendered judgment against the
bank, dismissing the complaint for lack of cause of action.
34
It held
that:
Exh. "9" and its [sub-markings], the Trust Agreement dated
27 February 1987 for the defense shows that: the
Associated Bank as of June 30, 1986 is one of DBP's or
Development Bank of the [Philippines'] non-performing
accounts for transfer; on February 27, 1987 through Deeds
of Transfer executed by and between the Philippine
National Bank and Development Bank of the Philippines and
the National Government, both financial institutions
assigned, transferred and conveyed their non-performing
assets to the National Government; the National
Government in turn and as TRUSTOR, transferred, conveyed
and assigned by way of trust unto the Asset Privatization
Trust said non-performing assets, [which] took title to and
possession of, [to] conserve, provisionally manage and
dispose[,] of said assets identified for privatization or
disposition; one of the powers and duties of the APT with
respect to trust properties consisting of receivables is to
handle the administration, collection and enforcement of
the receivables; to bring suit to enforce payment of the
obligations or any installment thereof or to settle or
compromise any of such obligations, or any other claim or
demand which the government may have against any
person or persons[.]
The Manila Bulletin news clippings dated May 18, 1994 and
May 30, 1994, Exh. "9-A", "9-B", "9-C", and "9-D", show that
57

the Monetary Board of the Bangko Sentral ng Pilipinas
approved the rehabilitation plan of the Associated Bank.
One main feature of the rehabilitation plan included the
financial assistance for the bank by the Philippine Deposit
Insurance Corporation (PDIC) by way of the purchase of AB
Assets worth P1.3945 billion subject to a buy-back
arrangement over a 10 year period. The PDIC had approved
of the rehab scheme, which included the purchase of AB's
bad loans worth P1.86 at 25% discount. This will then be
paid by AB within a 10-year period plus a yield comparable
to the prevailing market rates x x x.
Based then on the evidence presented by the defendant
Tomas Ang, it would readily appear that at the time this suit
for Sum of Money was filed which was on August [28],
1990, the notes were held by the Asset Privatization Trust
by virtue of the Deeds of Transfer and Trust Agreement,
which was empowered to bring suit to enforce payment of
the obligations. Consequently, defendant Tomas Ang has
sufficiently established that plaintiff at the time this suit was
filed was not the holder of the notes to warrant the
dismissal of the complaint.
35

Respondent Bank then elevated the case to the Court of Appeals. In
the appellant's brief captioned,"ASSOCIATED BANK, Plaintiff-
Appellant versus ANTONIO ANG ENG LIONG and TOMAS ANG,
Defendants, TOMAS ANG, Defendant-Appellee," the following errors
were alleged:
I.
THE LOWER COURT ERRED IN NOT HOLDING DEFENDANT
ANTONIO ANG ENG LIONG AND DEFENDANT-APPELLEE
TOMAS ANG LIABLE TO PLAINTIFF-APPELLANT ON THEIR
UNPAID LOANS DESPITE THE LATTER'S DOCUMENTARY
EXHIBITS PROVING THE SAID OBLIGATIONS.
II.
THE LOWER COURT ERRED IN DISMISSING PLAINTIFF-
APPELLANT'S COMPLAINT ON THE BASIS OF NEWSPAPER
CLIPPINGS WHICH WERE COMPLETELY HEARSAY IN
CHARACTER AND IMPROPER FOR JUDICIAL NOTICE.
36

The bank stressed that it has established the causes of action
outlined in its Complaint by a preponderance of evidence. As
regards the Deed of Transfer and Trust Agreement, it contended
that the same were never authenticated by any witness in the
course of the trial; the Agreement, which was not even legible, did
not mention the promissory notes subject of the Complaint; the
bank is not a party to the Agreement, which showed that it was
between the Government of the Philippines, acting through the
Committee on Privatization represented by the Secretary of Finance
as trustor and the Asset Privatization Trust, which was created by
virtue of Proclamation No. 50; and the Agreement did not reflect
the signatures of the contracting parties. Lastly, the bank averred
that the news items appearing in the Manila Bulletin could not be
the subject of judicial notice since they were completely hearsay in
character.
37

On October 9, 2000, the Court of Appeals reversed and set aside the
trial court's ruling. The dispositive portion of the Decision
38
reads:
WHEREFORE, premises considered, the Decision of the
Regional Trial Court of Davao City, Branch 16, in Civil Case
No. 20,299-90 is hereby REVERSED AND SET ASIDE and
another one entered ordering defendant-appellee Tomas
Ang to pay plaintiff-appellant Associated Bank the following:
58

1. P50,000.00 representing the principal amount of the loan
under PN-No. DVO-78-382 plus 14% interest thereon per
annum computed from January 31, 1979 until the full
amount thereof is paid;
2. P30,000.00 representing the principal amount of the loan
under PN-No. DVO-78-390 plus 14% interest thereon per
annum computed from December 8, 1978 until the full
amount thereof is paid;
All other claims of the plaintiff-appellant are DISMISSED for
lack of legal basis. Defendant-appellee's counterclaim is
likewise DISMISSED for lack of legal and factual bases.
No pronouncement as to costs.
SO ORDERED.
39

The appellate court disregarded the bank's first assigned error for
being "irrelevant in the final determination of the case" and found
its second assigned error as "not meritorious." Instead, it posed for
resolution the issue of whether the trial court erred in dismissing
the complaint for collection of sum of money for lack of cause of
action as the bank was said to be not the "holder" of the notes at
the time the collection case was filed.
In answering the lone issue, the Court of Appeals held that the bank
is a "holder" under Sec. 191 of the NIL. It concluded that despite the
execution of the Deeds of Transfer and Trust Agreement, the Asset
Privatization Trust cannot be declared as the "holder" of the subject
promissory notes for the reason that it is neither the payee or
indorsee of the notes in possession thereof nor is it the bearer of
said notes. The Court of Appeals observed that the bank, as the
payee, did not indorse the notes to the Asset Privatization Trust
despite the execution of the Deeds of Transfer and Trust Agreement
and that the notes continued to remain with the bank until the
institution of the collection suit.
With the bank as the "holder" of the promissory notes, the Court of
Appeals held that Tomas Ang is accountable therefor in his capacity
as an accommodation party. Citing Sec. 29 of the NIL, he is liable to
the bank in spite of the latter's knowledge, at the time of taking the
notes, that he is only an accommodation party. Moreover, as a co-
maker who agreed to be jointly and severally liable on the
promissory notes, Tomas Ang cannot validly set up the defense that
he did not receive any consideration therefor as the fact that the
loan was granted to the principal debtor already constitutes a
sufficient consideration.
Further, the Court of Appeals agreed with the bank that the
experience of Tomas Ang in business rendered it implausible that he
would just sign the promissory notes as a co-maker without even
checking the real amount of the debt to be incurred, or that he
merely acted on the belief that the first loan application was
cancelled. According to the appellate court, it is apparent that he
was negligent in falling for the alibi of Antonio Ang Eng Liong and
such fact would not serve to exonerate him from his responsibility
under the notes.
Nonetheless, the Court of Appeals denied the claims of the bank for
service, penalty and overdue charges as well as attorney's fees on
the ground that the promissory notes made no mention of such
charges/fees.
In his motion for reconsideration,
40
Tomas Ang raised for the first
time the assigned errors as follows:
x x x
59

2) Related to the above jurisdictional issues, defendant-
appellee Tomas Ang has recently discovered that upon the
filing of the complaint on August 28, 1990, under the
jurisdictional rule laid down in BP Blg. 129, appellant bank
fraudulently failed to specify the amount
of compounded interest at 14% per annum, service charges
at 2% per annum and overdue penalty charges at 12% per
annum in the prayer of the complaint as of the time of its
filing, paying a total of only P640.00(!!!) as filing and court
docket fees although the total sum involved as of that time
was P647,566.75 including 20% attorney's fees. In fact, the
stated interest in the body of the complaint alone amount
to P328,373.39 (which is
actually compounded and capitalized) in both causes of
action and the total service and overdue penalties and
charges and attorney's fees further amount to P239,193.36
in both causes of action, as of July 31, 1990, the time of
filing of the complaint. Significantly, appellant fraudulently
misled the Court, describing the 14% imposition as interest,
when in fact the same was capitalized as principal by
appellant bank every month to earn more interest, as stated
in the notes. In view thereof, the trial court never acquired
jurisdiction over the case and the same may not be now
corrected by the filing of deficiency fees because the causes
of action had already prescribed and more importantly, the
jurisdiction of the Municipal Trial Court had been increased
to P100,000.00 in principal claims last March 20, 1999,
pursuant to SC Circular No. 21-99, section 5 of RA No. 7691,
and section 31, Book I of the 1987 Administrative Code. In
other words, as of today, jurisdiction over the subject falls
within the exclusive jurisdiction of the MTC, particularly if
the bank foregoes capitalization of the stipulated interest.
3) BY FAILING TO GIVE NOTICE OF ITS APPEAL AND APPEAL
BRIEF TO APPELLEE ANG ENG LIONG, THE APPEALED
JUDGMENT OF THE TRIAL COURT WHICH LEFT OUT TOMAS
ANG'S CROSS-CLAIM AGAINST ENG LIONG (BECAUSE IT
DISMISSED THE MAIN CLAIM), HAD LONG BECOME FINAL
AND EXECUTORY, AS AGAINST ENG LIONG. Accordingly,
Tomas Ang's right of subrogation against Ang Eng Liong,
expressed in his cross-claim, is now SEVERAL TIMES
foreclosed because of the fault or negligence of appellant
bank since 1979 up to its insistence of an ex-parte trial, and
now when it failed to serve notice of appeal and appellant's
brief upon him. Accordingly, appellee Tomas Ang should be
released from his suretyship obligation pursuant to Art.
2080 of the Civil Code. The above is related to the issues
above-stated.
4) This Court may have erred in ADDING or ASSIGNING its
own bill of error for the benefit of appellant bank which
defrauded the judiciary by the payment of deficient docket
fees.
41

Finding no cogent or compelling reason to disturb the Decision, the
Court of Appeals denied the motion in its Resolution dated
December 26, 2000.
42

Petitioner now submits the following issues for resolution:
1. Is [A]rticle 2080 of the Civil Code applicable to discharge
petitioner Tomas Ang as accommodation maker or surety
because of the failure of [private] respondent bank to serve
its notice of appeal upon the principal debtor, respondent
Eng Liong?
2. Did the trial court have jurisdiction over the case at all?
60

3. Did the Court of Appeals [commit] error in assigning its
own error and raising its own issue?
4. Are petitioner's other real and personal defenses such as
successive extensions coupled with fraudulent collusion to
hide Eng Liong's default, the payee's grant of additional
burdens, coupled with the insolvency of the principal
debtor, and the defense of incomplete but delivered
instrument, meritorious?
43

Petitioner allegedly learned after the promulgation of the Court of
Appeals' decision that, pursuant to the parties' agreement on the
compounding of interest with the principal amount (per month in
case of default), the interest on the promissory notes as of July 31,
1990 should have been only P81,647.22 for PN No. DVO-78-382
(instead ofP203,538.98) and P49,618.33 for PN No. DVO-78-390
(instead of P125,334.41) while the principal debt as of said date
should increase to P647,566.75 (instead of P539,638.96). He
submits that the bank carefully and shrewdly hid the fact by
describing the amounts as interest instead of being part of either
the principal or penalty in order to pay a lesser amount of docket
fees. According to him, the total fees that should have been paid at
the time of the filing of the complaint on August 28, 1990
was P2,216.30 and not P614.00 or a shortage of 71%. Petitioner
contends that the bank may not now pay the deficiency because the
last demand letter sent to him was dated September 9, 1986, or
more than twenty years have elapsed such that prescription had
already set in. Consequently, the bank's claim must be dismissed as
the trial court loses jurisdiction over the case.
Petitioner also argues that the Court of Appeals should not have
assigned its own error and raised it as an issue of the case,
contending that no question should be entertained on appeal unless
it has been advanced in the court below or is within the issues made
by the parties in the pleadings. At any rate, he opines that the
appellate court's decision that the bank is the real party in interest
because it is the payee named in the note or the holder thereof is
too simplistic since: (1) the power and control of Asset Privatization
Trust over the bank are clear from the explicit terms of the duly
certified trust documents and deeds of transfer and are confirmed
by the newspaper clippings; (2) even under P.D. No. 902-A or the
General Banking Act, where a corporation or a bank is under
receivership, conservation or rehabilitation, it is only the
representative (liquidator, receiver, trustee or conservator) who
may properly act for said entity, and, in this case, the bank was held
by Asset Privatization Trust as trustee; and (3) it is not entirely
accurate to say that the payee who has not indorsed the notes in all
cases is the real party in interest because the rights of the payee
may be subject of an assignment of incorporeal rights under Articles
1624 and 1625 of the Civil Code.
Lastly, petitioner maintains that when respondent Bank served its
notice of appeal and appellant's brief only on him, it rendered the
judgment of the trial court final and executory with respect to
Antonio Ang Eng Liong, which, in effect, released him (Antonio Ang
Eng Liong) from any and all liability under the promissory notes and,
thereby, foreclosed petitioner's cross-claims. By such act, the bank,
even if it be the "holder" of the promissory notes, allegedly
discharged a simple contract for the payment of money (Sections
119 [d] and 122, NIL [Act No. 2031]), prevented a surety like
petitioner from being subrogated in the shoes of his principal
(Article 2080, Civil Code), and impaired the notes, producing the
effect of payment (Article 1249, Civil Code).
The petition is unmeritorious.
Procedurally, it is well within the authority of the Court of Appeals
to raise, if it deems proper under the circumstances obtaining,
61

error/s not assigned on an appealed case. In Mendoza v.
Bautista,
44
this Court recognized the broad discretionary power of
an appellate court to waive the lack of proper assignment of errors
and to consider errors not assigned, thus:
As a rule, no issue may be raised on appeal unless it has
been brought before the lower tribunal for its
consideration. Higher courts are precluded from
entertaining matters neither alleged in the pleadings nor
raised during the proceedings below, but ventilated for the
first time only in a motion for reconsideration or on appeal.
However, as with most procedural rules, this maxim is
subject to exceptions. Indeed, our rules recognize the broad
discretionary power of an appellate court to waive the lack
of proper assignment of errors and to consider errors not
assigned. Section 8 of Rule 51 of the Rules of Court
provides:
SEC. 8. Questions that may be decided. No error which
does not affect the jurisdiction over the subject matter or
the validity of the judgment appealed from or the
proceedings therein will be considered, unless stated in the
assignment of errors, or closely related to or dependent on
an assigned error and properly argued in the brief, save as
the court may pass upon plain errors and clerical errors.
Thus, an appellate court is clothed with ample authority to
review rulings even if they are not assigned as errors in the
appeal in these instances: (a) grounds not assigned as errors
but affecting jurisdiction over the subject matter; (b)
matters not assigned as errors on appeal but are evidently
plain or clerical errors within contemplation of law; (c)
matters not assigned as errors on appeal but consideration
of which is necessary in arriving at a just decision and
complete resolution of the case or to serve the interests of
justice or to avoid dispensing piecemeal justice; (d) matters
not specifically assigned as errors on appeal but raised in
the trial court and are matters of record having some
bearing on the issue submitted which the parties failed to
raise or which the lower court ignored; (e) matters not
assigned as errors on appeal but closely related to an error
assigned; and (f) matters not assigned as errors on appeal
but upon which the determination of a question properly
assigned is dependent. (Citations omitted)
45

To the Court's mind, even if the Court of Appeals regarded
petitioner's two assigned errors as "irrelevant" and "not
meritorious," the issue of whether the trial court erred in dismissing
the complaint for collection of sum of money for lack of cause of
action (on the ground that the bank was not the "holder" of the
notes at the time of the filing of the action) is in reality closely
related to and determinant of the resolution of whether the lower
court correctly ruled in not holding Antonio Ang Eng Liong and
petitioner Tomas Ang liable to the bank on their unpaid loans
despite documentary exhibits allegedly proving their obligations and
in dismissing the complaint based on newspaper clippings. Hence,
no error could be ascribed to the Court of Appeals on this point.
Now, the more relevant question is: who is the real party in interest
at the time of the institution of the complaint, is it the bank or the
Asset Privatization Trust?
To answer the query, a brief history on the creation of the Asset
Privatization Trust is proper.
Taking into account the imperative need of formally launching a
program for the rationalization of the government corporate sector,
62

then President Corazon C. Aquino issued Proclamation No. 50
46
on
December 8, 1986. As one of the twin cornerstones of the program
was to establish the privatization of a good number of government
corporations, the proclamation created the Asset Privatization
Trust, which would, for the benefit of the National Government,
take title to and possession of, conserve, provisionally manage and
dispose of transferred assets that were identified for privatization
or disposition.
47

In accordance with the provisions of Section 23
48
of the
proclamation, then President Aquino subsequently issued
Administrative Order No. 14 on February 3, 1987, which approved
the identification of and transfer to the National Government of
certain assets (consisting of loans, equity investments, accrued
interest receivables, acquired assets and other assets) and liabilities
(consisting of deposits, borrowings, other liabilities and contingent
guarantees) of the Development Bank of the Philippines (DBP) and
the Philippine National Bank (PNB). The transfer of assets was
implemented through a Deed of Transfer executed on February 27,
1987 between the National Government, on one hand, and the DBP
and PNB, on the other. In turn, the National Government
designated the Asset Privatization Trust to act as its trustee through
a Trust Agreement, whereby the non-performing accounts of DBP
and PNB, including, among others, the DBP's equity with
respondent Bank, were entrusted to the Asset Privatization
Trust.
49
As provided for in the Agreement, among the powers and
duties of the Asset Privatization Trust with respect to the trust
properties consisting of receivables was to handle their
administration and collection by bringing suit to enforce payment of
the obligations or any installment thereof or settling or
compromising any of such obligations or any other claim or demand
which the Government may have against any person or persons,
and to do all acts, institute all proceedings, and to exercise all other
rights, powers, and privileges of ownership that an absolute owner
of the properties would otherwise have the right to do.
50

Incidentally, the existence of the Asset Privatization Trust would
have expired five (5) years from the date of issuance of
Proclamation No. 50.
51
However, its original term was extended
from December 8, 1991 up to August 31, 1992,
52
and again from
December 31, 1993 until June 30, 1995,
53
and then from July 1, 1995
up to December 31, 1999,
54
and further from January 1, 2000 until
December 31, 2000.
55
Thenceforth, the Privatization and
Management Office was established and took over, among others,
the powers, duties and functions of the Asset Privatization Trust
under the proclamation.
56

Based on the above backdrop, respondent Bank does not appear to
be the real party in interest when it instituted the collection suit on
August 28, 1990 against Antonio Ang Eng Liong and petitioner
Tomas Ang. At the time the complaint was filed in the trial court, it
was the Asset Privatization Trust which had the authority to enforce
its claims against both debtors. In fact, during the pre-trial
conference, Atty. Roderick Orallo, counsel for the bank, openly
admitted that it was under the trusteeship of the Asset Privatization
Trust.
57
The Asset Privatization Trust, which should have been
represented by the Office of the Government Corporate Counsel,
had the authority to file and prosecute the case.
The foregoing notwithstanding, this Court can not, at present,
readily subscribe to petitioner's insistence that the case must be
dismissed. Significantly, it stands without refute, both in the
pleadings as well as in the evidence presented during the trial and
up to the time this case reached the Court, that the issue had been
rendered moot with the occurrence of a supervening event the
"buy-back" of the bank by its former owner, Leonardo Ty, sometime
in October 1993. By such re-acquisition from the Asset Privatization
63

Trust when the case was still pending in the lower court, the bank
reclaimed its real and actual interest over the unpaid promissory
notes; hence, it could rightfully qualify as a "holder"
58
thereof under
the NIL.
Notably, Section 29 of the NIL defines an accommodation party as a
person "who has signed the instrument as maker, drawer, acceptor,
or indorser, without receiving value therefor, and for the purpose of
lending his name to some other person." As gleaned from the text,
an accommodation party is one who meets all the three requisites,
viz: (1) he must be a party to the instrument, signing as maker,
drawer, acceptor, or indorser; (2) he must not receive value
therefor; and (3) he must sign for the purpose of lending his name
or credit to some other person.
59
An accommodation party lends his
name to enable the accommodated party to obtain credit or to raise
money; he receives no part of the consideration for the instrument
but assumes liability to the other party/ies thereto.
60
The
accommodation party is liable on the instrument to a holder for
value even though the holder, at the time of taking the instrument,
knew him or her to be merely an accommodation party, as if the
contract was not for accommodation.
61

As petitioner acknowledged it to be, the relation between an
accommodation party and the accommodated party is one of
principal and surety the accommodation party being the
surety.
62
As such, he is deemed an original promisor and debtor
from the beginning;
63
he is considered in law as the same party as
the debtor in relation to whatever is adjudged touching the
obligation of the latter since their liabilities are interwoven as to be
inseparable.
64
Although a contract of suretyship is in essence
accessory or collateral to a valid principal obligation, the surety's
liability to the creditor is immediate, primary and absolute; he
is directly and equally bound with the principal.
65
As an equivalent
of a regular party to the undertaking, a surety becomes liable to the
debt and duty of the principal obligor even without possessing a
direct or personal interest in the obligations nor does he receive any
benefit therefrom.
66

Contrary to petitioner's adamant stand, however, Article 2080
67
of
the Civil Code does not apply in a contract of suretyship.
68
Art. 2047
of the Civil Code states that if a person binds himself solidarily with
the principal debtor, the provisions of Section 4, Chapter 3, Title I,
Book IV of the Civil Code must be observed. Accordingly, Articles
1207 up to 1222 of the Code (on joint and solidary obligations) shall
govern the relationship of petitioner with the bank.
The case of Inciong, Jr. v. CA
69
is illuminating:
Petitioner also argues that the dismissal of the complaint
against Naybe, the principal debtor, and against
Pantanosas, his co-maker, constituted a release of his
obligation, especially because the dismissal of the case
against Pantanosas was upon the motion of private
respondent itself. He cites as basis for his argument, Article
2080 of the Civil Code which provides that:
"The guarantors, even though they be solidary, are released
from their obligation whenever by come act of the creditor,
they cannot be subrogated to the rights, mortgages, and
preferences of the latter."
It is to be noted, however, that petitioner signed the
promissory note as a solidary co-maker and not as a
guarantor. This is patent even from the first sentence of the
promissory note which states as follows:
"Ninety one (91) days after date, for value received, I/we,
JOINTLY and SEVERALLY promise to pay to the PHILIPPINE
64

BANK OF COMMUNICATIONS at its office in the City of
Cagayan de Oro, Philippines the sum of FIFTY THOUSAND
ONLY (P50,000.00) Pesos, Philippine Currency, together
with interest x x x at the rate of SIXTEEN (16) per cent per
annum until fully paid."
A solidary or joint and several obligation is one in which
each debtor is liable for the entire obligation, and each
creditor is entitled to demand the whole obligation. On the
other hand, Article 2047 of the Civil Code states:
"By guaranty a person, called the guarantor, binds himself
to the creditor to fulfill the obligation of the principal
debtor in case the latter should fail to do so.
If a person binds himself solidarily with the principal debtor,
the provisions of Section 4, Chapter 3, Title I of this Book
shall be observed. In such a case the contract is called a
suretyship." (Italics supplied.)
While a guarantor may bind himself solidarily with the
principal debtor, the liability of a guarantor is different from
that of a solidary debtor. Thus, Tolentino explains:
"A guarantor who binds himself in solidum with the
principal debtor under the provisions of the second
paragraph does not become a solidary co-debtor to all
intents and purposes. There is a difference between a
solidary co-debtor, and a fiador in solidum (surety). The
later, outside of the liability he assumes to pay the debt
before the property of the principal debtor has been
exhausted, retains all the other rights, actions and benefits
which pertain to him by reason of rights of the fiansa; while
a solidary co-debtor has no other rights than those
bestowed upon him in Section 4, Chapter 3, title I, Book IV
of the Civil Code."
Section 4, Chapter 3, Title I, Book IV of the Civil Code states
the law on joint and several obligations. Under Art. 1207
thereof, when there are two or more debtors in one and the
same obligation, the presumption is that obligation is joint
so that each of the debtors is liable only for a proportionate
part of the debt. There is a solidarily liability only when the
obligation expressly so states, when the law so provides or
when the nature of the obligation so requires.
Because the promissory note involved in this case expressly
states that the three signatories therein arejointly and
severally liable, any one, some or all of them may be
proceeded against for the entire obligation. The choice is
left to the solidary creditor to determine against whom he
will enforce collection. (Citations omitted)
70

In the instant case, petitioner agreed to be "jointly and
severally" liable under the two promissory notes that he co-signed
with Antonio Ang Eng Liong as the principal debtor. This being so, it
is completely immaterial if the bank would opt to proceed only
against petitioner or Antonio Ang Eng Liong or both of them since
the law confers upon the creditor the prerogative to choose
whether to enforce the entire obligation against any one, some or
all of the debtors. Nonetheless, petitioner, as an accommodation
party, may seek reimbursement from Antonio Ang Eng Liong, being
the party accommodated.
71

It is plainly mistaken for petitioner to say that just because the bank
failed to serve the notice of appeal and appellant's brief to Antonio
Ang Eng Liong, the trial court's judgment, in effect, became final and
executory as against the latter and, thereby, bars his (petitioner's)
65

cross-claims against him: First, although no notice of appeal and
appellant's brief were served to Antonio Ang Eng Liong, he was
nonetheless impleaded in the case since his name appeared in the
caption of both the notice and the brief as one of the defendants-
appellees;
72
Second, despite including in the caption of the
appellee's brief his co-debtor as one of the defendants-appellees,
petitioner did not also serve him a copy thereof;
73
Third, in the
caption of the Court of Appeals' decision, Antonio Ang Eng Liong
was expressly named as one of the defendants-
appellees;
74
and Fourth, it was only in his motion for
reconsideration from the adverse judgment of the Court of Appeals
that petitioner belatedly chose to serve notice to the counsel of his
co-defendant-appellee.
75

Likewise, this Court rejects the contention of Antonio Ang Eng Liong,
in his "special appearance" through counsel, that the Court of
Appeals, much less this Court, already lacked jurisdiction over his
person or over the subject matter relating to him because he was
not a party in CA-G.R. CV No. 53413. Stress must be laid of the fact
that he had twice put himself in default one, in not filing a pre-trial
brief and another, in not filing his answer to petitioner's cross-
claims. As a matter of course, Antonio Ang Eng Liong, being a party
declared in default, already waived his right to take part in the trial
proceedings and had to contend with the judgment rendered by the
court based on the evidence presented by the bank and petitioner.
Moreover, even without considering these default judgments,
Antonio Ang Eng Liong even categorically admitted having secured a
loan totaling P80,000. In his Answer to the complaint, he did not
deny such liability but merely pleaded that the bank "be ordered to
submit a more reasonable computation" instead of collecting
excessive interest, penalty charges, and attorney's fees. For failing
to tender an issue and in not denying the material allegations stated
in the complaint, a judgment on the pleadings
76
would have also
been proper since not a single issue was generated by the Answer
he filed.
As the promissory notes were not discharged or impaired through
any act or omission of the bank, Sections 119 (d)
77
and 122
78
of the
NIL as well as Art. 1249
79
of the Civil Code would necessarily find no
application. Again, neither was petitioner's right of reimbursement
barred nor was the bank's right to proceed against Antonio Ang Eng
Liong expressly renounced by the omission to serve notice of appeal
and appellant's brief to a party already declared in default.
Consequently, in issuing the two promissory notes, petitioner as
accommodating party warranted to the holder in due course that he
would pay the same according to its tenor.
80
It is no defense to state
on his part that he did not receive any value therefor
81
because the
phrase "without receiving value therefor" used in Sec. 29 of the NIL
means "without receiving value by virtue of the instrument" and not
as it is apparently supposed to mean, "without receiving payment
for lending his name."
82
Stated differently, when a third person
advances the face value of the note to the accommodated party at
the time of its creation, the consideration for the note as regards its
maker is the money advanced to the accommodated party. It is
enough that value was given for the note at the time of its
creation.
83
As in the instant case, a sum of money was received by
virtue of the notes, hence, it is immaterial so far as the bank is
concerned whether one of the signers, particularly petitioner, has or
has not received anything in payment of the use of his name.
84

Under the law, upon the maturity of the note, a surety may pay the
debt, demand the collateral security, if there be any, and dispose of
it to his benefit, or, if applicable, subrogate himself in the place of
the creditor with the right to enforce the guaranty against the other
signers of the note for the reimbursement of what he is entitled to
recover from them.
85
Regrettably, none of these were prudently
66

done by petitioner. When he was first notified by the bank
sometime in 1982 regarding his accountabilities under the
promissory notes, he lackadaisically relied on Antonio Ang Eng
Liong, who represented that he would take care of the matter,
instead of directly communicating with the bank for its
settlement.
86
Thus, petitioner cannot now claim that he was
prejudiced by the supposed "extension of time" given by the bank
to his co-debtor.
Furthermore, since the liability of an accommodation party remains
not only primary but also unconditional to a holder for value, even if
the accommodated party receives an extension of the period for
payment without the consent of the accommodation party, the
latter is still liable for the whole obligation and such extension does
not release him because as far as a holder for value is concerned, he
is a solidary co-debtor.
87
In Clark v. Sellner,
88
this Court held:
x x x The mere delay of the creditor in enforcing the
guaranty has not by any means impaired his action against
the defendant. It should not be lost sight of that the
defendant's signature on the note is an assurance to the
creditor that the collateral guaranty will remain good, and
that otherwise, he, the defendant, will be personally
responsible for the payment.
True, that if the creditor had done any act whereby the
guaranty was impaired in its value, or discharged, such an
act would have wholly or partially released the surety; but it
must be born in mind that it is a recognized doctrine in the
matter of suretyship that with respect to the surety, the
creditor is under no obligation to display any diligence in
the enforcement of his rights as a creditor. His mere
inaction indulgence, passiveness, or delay in proceeding
against the principal debtor, or the fact that he did not
enforce the guaranty or apply on the payment of such funds
as were available, constitute no defense at all for the
surety, unless the contract expressly requires diligence and
promptness on the part of the creditor, which is not the
case in the present action. There is in some decisions a
tendency toward holding that the creditor's laches may
discharge the surety, meaning by laches a negligent
forbearance. This theory, however, is not generally
accepted and the courts almost universally consider it
essentially inconsistent with the relation of the parties to
the note. (21 R.C.L., 1032-1034)
89

Neither can petitioner benefit from the alleged "insolvency" of
Antonio Ang Eng Liong for want of clear and convincing evidence
proving the same. Assuming it to be true, he also did not exercise
diligence in demanding security to protect himself from the danger
thereof in the event that he (petitioner) would eventually be sued
by the bank. Further, whether petitioner may or may not obtain
security from Antonio Ang Eng Liong cannot in any manner affect
his liability to the bank; the said remedy is a matter of concern
exclusively between themselves as accommodation party and
accommodated party. The fact that petitioner stands only as a
surety in relation to Antonio Ang Eng Liong is immaterial to the
claim of the bank and does not a whit diminish nor defeat the rights
of the latter as a holder for value. To sanction his theory is to give
unwarranted legal recognition to the patent absurdity of a situation
where a co-maker, when sued on an instrument by a holder in due
course and for value, can escape liability by the convenient
expedient of interposing the defense that he is a merely an
accommodation party.
90

In sum, as regards the other issues and errors alleged in this
petition, the Court notes that these were the very same questions
of fact raised on appeal before the Court of Appeals, although at
67

times couched in different terms and explained more lengthily in
the petition. Suffice it to say that the same, being factual, have been
satisfactorily passed upon and considered both by the trial and
appellate courts. It is doctrinal that only errors of law and not of fact
are reviewable by this Court in petitions for review
on certiorari under Rule 45 of the Rules of Court. Save for the most
cogent and compelling reason, it is not our function under the rule
to examine, evaluate or weigh the probative value of the evidence
presented by the parties all over again.
91

WHEREFORE, the October 9, 2000 Decision and December 26, 2000
Resolution of the Court of Appeals in CA-G.R. CV No. 53413
are AFFIRMED. The petition is DENIED for lack of merit.
No costs.
SO ORDERED.
Puno, C.J., Chairperson, Sandoval-Gutierrez, Corona, Garcia,
JJ., concur.
G.R. No. 138510 October 10, 2002
TRADERS ROYAL BANK, petitioner,
vs.
RADIO PHILIPPINES NETWORK, INC.,
INTERCONTINENTAL BROADCASTING CORPORATION and
BANAHAW BROADCASTING CORPORATION,
through the BOARD OF ADMINISTRATORS,
and SECURITY BANK AND TRUST COMPANY, respondents.
D E C I S I O N
CORONA, J.:
Petitioner seeks the review and prays for the reversal of the
Decision
1
of April 30, 1999 of Court of Appeals in CA-G.R. CV No.
54656, the dispositive portion of which reads:
WHEREFORE, the appealed decision is AFFIRMED with modification
in the sense that appellant SBTC is hereby absolved from any
liability. Appellant TRB is solely liable to the appellees for the
damages and costs of suit specified in the dispositive portion of the
appealed decision. Costs against appellant TRB.
SO ORDERED.
2

As found by the Court of Appeals, the antecedent facts of the case
are as follows:
On April 15, 1985, the Bureau of Internal Revenue (BIR) assessed
plaintiffs Radio Philippines Network (RPN), Intercontinental
Broadcasting Corporation (IBC), and Banahaw Broadcasting
Corporation (BBC) of their tax obligations for the taxable years 1978
to 1983.
On March 25, 1987, Mrs. Lourdes C. Vera, plaintiffs comptroller,
sent a letter to the BIR requesting settlement of plaintiffs tax
obligations.
The BIR granted the request and accordingly, on June 26, 1986,
plaintiffs purchased from defendant Traders Royal Bank (TRB) three
(3) managers checks to be used as payment for their tax liabilities,
to wit:
Check Number Amount
30652 P4,155.835.00
68

30650 3,949,406.12
30796 1,685,475.75
Defendant TRB, through Aida Nuez, TRB Branch Manager at
Broadcast City Branch, turned over the checks to Mrs. Vera who was
supposed to deliver the same to the BIR in payment of plaintiffs
taxes.
Sometime in September, 1988, the BIR again assessed plaintiffs for
their tax liabilities for the years 1979-82. It was then they
discovered that the three (3) managers checks (Nos. 30652, 30650
and 30796) intended as payment for their taxes were never
delivered nor paid to the BIR by Mrs. Vera. Instead, the checks were
presented for payment by unknown persons to defendant Security
Bank and Trust Company (SBTC), Taytay Branch as shown by the
banks routing symbol transit number (BRSTN 01140027) or clearing
code stamped on the reverse sides of the checks.
Meanwhile, for failure of the plaintiffs to settle their obligations, the
BIR issued warrants of levy, distraint and garnishment against them.
Thus, they were constrained to enter into a compromise and paid
BIR P18,962,225.25 in settlement of their unpaid deficiency taxes.
Thereafter, plaintiffs sent letters to both defendants, demanding
that the amounts covered by the checks be reimbursed or credited
to their account. The defendants refused, hence, the instant suit.
3

On February 17, 1985, the trial court rendered its decision, thus:
WHEREFORE, in view of the foregoing considerations, judgment is
hereby rendered in favor of the plaintiffs and against the
defendants by :
a) Condemning the defendant Traders Royal Bank to pay
actual damages in the sum of Nine Million Seven Hundred
Ninety Thousand and Seven Hundred Sixteen Pesos and
Eighty-Seven Centavos (P9,790,716.87) broken down as
follows:
1) To plaintiff RPN-9 - P4,155,835.00
2) To Plaintiff IBC-13 - P3,949,406.12
3) To Plaintiff BBC-2 - P1,685,475.72
plus interest at the legal rate from the filing of this
case in court.
b) Condemning the defendant Security Bank and Trust
Company, being collecting bank, to reimburse the
defendant Traders Royal Bank, all the amounts which the
latter would pay to the aforenamed plaintiffs;
c) Condemning both defendants to pay to each of the
plaintiffs the sum of Three Hundred Thousand
(P300,000.00) Pesos as exemplary damages and attorneys
fees equivalent to twenty-five percent of the total amount
recovered; and
d) Costs of suit.
SO ORDERED.
4

Defendants Traders Royal Bank and Security Bank and Trust
Company, Inc. both appealed the trial courts decision to the Court
of Appeals. However, as quoted in the beginning hereof, the
appellate court absolved defendant SBTC from any liability and held
69

TRB solely liable to respondent networks for damages and costs of
suit.
In the instant petition for review on certiorari of the Court of
Appeals decision, petitioner TRB assigns the following errors: (a)
the Honorable Court of Appeals manifestly overlooked facts which
would justify the conclusion that negligence on the part of RPN, IBC
and BBC bars them from recovering anything from TRB, (b) the
Honorable Court of Appeals plainly erred and misapprehended the
facts in relieving SBTC of its liability to TRB as collecting bank and
indorser by overturning the trial courts factual finding that SBTC did
endorse the three (3) managers checks subject of the instant case,
and (c) the Honorable Court of Appeals plainly misapplied the law in
affirming the award of exemplary damages in favor of RPN, IBC and
BBC.
In reply, respondents RPN, IBC, and BBC assert that TRBs petition
raises questions of fact in violation of Rule 45 of the 1997 Revised
Rules on Civil Procedure which restricts petitions for review on
certiorari of the decisions of the Court of Appeals on pure questions
of law. RPN, IBC and BBC maintain that the issue of whether or not
respondent networks had been negligent were already passed upon
both by the trial and appellate courts, and that the factual findings
of both courts are binding and conclusive upon this Court.
Likewise, respondent SBTC denies liability on the ground that it had
no participation in the negotiation of the checks, emphasizing that
the BRSTN imprints at the back of the checks cannot be considered
as proof that respondent SBTC accepted the disputed checks and
presented them to Philippine Clearing House Corporation for
clearing.
Setting aside the factual ramifications of the instant case, the
threshold issue now is whether or not TRB should be held solely
liable when it paid the amount of the checks in question to a person
other than the payee indicated on the face of the check, the Bureau
of Internal Revenue.
"When a signature is forged or made without the authority of the
person whose signature it purports to be, it is wholly inoperative,
and no right to retain the instrument, or to give a discharge
therefor, or to enforce payment thereof against any party thereto,
can be acquired through or under such signature."
5
Consequently, if
a bank pays a forged check, it must be considered as paying out of
its funds and cannot charge the amount so paid to the account of
the depositor.
In the instant case, the 3 checks were payable to the BIR. It was
established, however, that said checks were never delivered or paid
to the payee BIR but were in fact presented for payment by some
unknown persons who, in order to receive payment therefor, forged
the name of the payee. Despite this fraud, petitioner TRB paid the 3
checks in the total amount of P9,790,716.87.
Petitioner ought to have known that, where a check is drawn
payable to the order of one person and is presented for payment by
another and purports upon its face to have been duly indorsed by
the payee of the check, it is the primary duty of petitioner to know
that the check was duly indorsed by the original payee and, where it
pays the amount of the check to a third person who has forged the
signature of the payee, the loss falls upon petitioner who cashed
the check. Its only remedy is against the person to whom it paid the
money.
6

It should be noted further that one of the subject checks was
crossed. The crossing of one of the subject checks should have put
petitioner on guard; it was duty-bound to ascertain the indorsers
title to the check or the nature of his possession. Petitioner should
70

have known the effects of a crossed check: (a) the check may not be
encashed but only deposited in the bank; (b) the check may be
negotiated only once to one who has an account with a bank and (c)
the act of crossing the check serves as a warning to the holder that
the check has been issued for a definite purpose so that he must
inquire if he has received the check pursuant to that purpose,
otherwise, he is not a holder in due course.
7

By encashing in favor of unknown persons checks which were on
their face payable to the BIR, a government agency which can only
act only through its agents, petitioner did so at its peril and must
suffer the consequences of the unauthorized or wrongful
endorsement.
8
In this light, petitioner TRB cannot exculpate itself
from liability by claiming that respondent networks were
themselves negligent.
A bank is engaged in a business impressed with public interest and it
is its duty to protect its many clients and depositors who transact
business with it. It is under the obligation to treat the accounts of
the depositors and clients with meticulous care, whether such
accounts consist only of a few hundreds or millions of pesos.
9

Petitioner argues that respondent SBTC, as the collecting bank and
indorser, should be held responsible instead for the amount of the
checks.
The Court of Appeals addressed exactly the same issue and made
the following findings and conclusions:
As to the alleged liability of appellant SBTC, a close examination of
the records constrains us to deviate from the lower courts finding
that SBTC, as a collecting bank, should similarly bear the loss.
"A collecting bank where a check is deposited and which indorses
the check upon presentment with the drawee bank, is such an
indorser. So even if the indorsement on the check deposited by the
banks client is forged, the collecting bank is bound by his
warranties as an indorser and cannot set up the defense of forgery
as against the drawee bank."
To hold appellant SBTC liable, it is necessary to determine whether
it is a party to the disputed transactions.
Section 3 of the Negotiable Instruments Law reads:
"SECTION 63. When person deemed indorser. - A person placing his
signature upon an instrument otherwise than as maker, drawer, or
acceptor, is deemed to be an indorser unless he clearly indicates by
appropriate words his intention to be bound in some other
capacity."
Upon the other hand, the Philippine Clearing House Corporation
(PCHC) rules provide:
"Sec. 17.- BANK GUARANTEE. All checks cleared through the PCHC
shall bear the guarantee affixed thereto by the Presenting
Bank/Branch which shall read as follows:
"Cleared thru the Philippine Clearing House Corporation. All prior
endorsements and/or lack of endorsement guaranteed. NAME OF
BANK/BRANCH BRSTN (Date of clearing)."
Here, not one of the disputed checks bears the requisite
endorsement of appellant SBTC. What appears to be a guarantee
stamped at the back of the checks is that of the Philippine National
Bank, Buendia Branch, thereby indicating that it was the latter Bank
which received the same.
71

It was likewise established during the trial that whenever appellant
SBTC receives a check for deposit, its practice is to stamp on its face
the words, "non-negotiable". Lana Echevarrias testimony is
relevant:
"ATTY. ROMANO: Could you tell us briefly the procedure you follow
in receiving checks?
"A: First of all, I verify the check itself, the place, the date, the
amount in words and everything. And then, if all these things are in
order and verified in the data sheet I stamp my non-negotiable
stamp at the face of the check."
Unfortunately, the words "non-negotiable" do not appear on the
face of either of the three (3) disputed checks.
Moreover, the aggregate amount of the checks is not reflected in
the clearing documents of appellant SBTC. Section 19 of the Rules of
the PCHC states:
"Section 19 Regular Item Procedure:
Each clearing participant, through its authorized representatives,
shall deliver to the PCHC fully qualified MICR checks grouped in 200
or less items to a batch and supported by an add-list, a batch
control slip, and a delivery statement.
It bears stressing that through the add-list, the PCHC can
countercheck and determine which checks have been presented on
a particular day by a particular bank for processing and clearing. In
this case, however, the add-list submitted by appellant SBTC
together with the checks it presented for clearing on August 3, 1987
does not show that Check No. 306502 in the sum of P3,949,406.12
was among those that passed for clearing with the PCHC on that
date. The same is true with Check No. 30652 with a face amount of
P4,155,835.00 presented for clearing on August 11, 1987 and Check
No. 30796 with a face amount of P1,685,475.75.
The foregoing circumstances taken altogether create a serious
doubt on whether the disputed checks passed through the hands of
appellant SBTC."
10

We subscribe to the foregoing findings and conclusions of the Court
of Appeals.
A collecting bank which indorses a check bearing a forged
indorsement and presents it to the drawee bank guarantees all prior
indorsements, including the forged indorsement itself, and
ultimately should be held liable therefor. However, it is doubtful if
the subject checks were ever presented to and accepted by SBTC so
as to hold it liable as a collecting bank, as held by the Court of
Appeals.
Since TRB did not pay the rightful holder or other person or entity
entitled to receive payment, it has no right to reimbursement.
Petitioner TRB was remiss in its duty and obligation, and must
therefore suffer the consequences of its own negligence and
disregard of established banking rules and procedures.
We agree with petitioner, however, that it should not be made to
pay exemplary damages to RPN, IBC and BBC because its wrongful
act was not done in bad faith, and it did not act in a wanton,
fraudulent, reckless or malevolent manner.
11

We find the award of attorneys fees, 25% of P10 million, to be
manifestly exorbitant.
12
Considering the nature and extent of the
services rendered by respondent networks counsel, however, the
72

Court deems it appropriate to award the amount of P100,000 as
attorneys fees.
WHEREFORE, the appealed decision is MODIFIED by deleting the
award of exemplary damages. Further, respondent networks are
granted the amount of P100,000 as attorneys fees. In all other
respects, the Court of Appeals decision is hereby AFFIRMED.
SO ORDERED.
Puno, (Chairman), Panganiban, and Morales, JJ., concur.
Sandoval-Gutierrez, J., no part.
[G.R. No. 138074. August 15, 2003]
CELY YANG, petitioner, vs. HON. COURT OF APPEALS, PHILIPPINE
COMMERCIAL INTERNATIONAL BANK, FAR EAST BANK &
TRUST CO.,EQUITABLE BANKING CORPORATION,
PREM CHANDIRAMANI and FERNANDO
DAVID, respondents.
D E C I S I O N
QUISUMBING, J.:
For review on certiorari is the decision
[1]
of the Court of
Appeals, dated March 25, 1999, in CA-G.R. CV No. 52398, which
affirmed with modification the joint decision of the Regional Trial
Court (RTC) of Pasay City, Branch 117, dated July 4, 1995, in Civil
Cases Nos. 5479
[2]
and 5492.
[3]
The trial court dismissed the
complaint against herein respondents Far East Bank & Trust
Company (FEBTC), Equitable Banking Corporation (Equitable), and
Philippine Commercial International Bank (PCIB) and ruled in favor
of respondent Fernando David as to the proceeds of the two
cashiers checks, including the earnings thereof pendente lite.
Petitioner Cely Yang was ordered to pay David moral damages
of P100,000.00 and attorneys fees also in the amount
ofP100,000.00.
The facts of this case are not disputed, to wit:
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 managers check in the
amount of P4.2 million in exchange for two (2) of Yangs managers
checks, each in the amount of P2.087 million, both payable to the
order of private respondent Fernando David. Yang and
Chandiramani agreed that the difference of P26,000.00 in the
exchange would be their profit to be divided equally between them.
Yang and Chandiramani also further agreed that the former
would secure from FEBTC a dollar draft in the amount of
US$200,000.00, payable to PCIB FCDU Account No. 4195-01165-2,
which Chandiramani would exchange for another dollar draft in the
same amount to be issued by Hang Seng Bank Ltd. of Hong Kong.
Accordingly, on December 22, 1987, Yang procured the
following:
a) Equitable Cashiers Check No. CCPS 14-009467 in the
sum of P2,087,000.00, dated December 22, 1987,
payable to the order of Fernando David;
b) FEBTC Cashiers Check No. 287078, in the amount
of P2,087,000.00, dated December 22, 1987,
likewise payable to the order of Fernando David;
and
73

c) FEBTC Dollar Draft No. 4771, drawn on Chemical
Bank, New York, in the amount of US$200,000.00,
dated December 22, 1987, payable to PCIB FCDU
Account No. 4195-01165-2.
At about one oclock in the afternoon of the same day, Yang
gave the aforementioned cashiers checks and dollar drafts to her
business associate, Albert Liong, to be delivered to Chandiramani by
Liongs messenger, Danilo Ranigo. Ranigo was to meet
Chandiramani at Philippine Trust Bank, Ayala Avenue, Makati City,
Metro Manila where he would turn over Yangs cashiers checks and
dollar draft to Chandiramani who, in turn, would deliver to Ranigo a
PCIB managers check in the sum of P4.2 million and a Hang Seng
Bank dollar draft for US$200,000.00 in exchange.
Chandiramani did not appear at the rendezvous and Ranigo
allegedly lost the two cashiers checks and the dollar draft bought
by 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 managers check and the Hang Seng Bank
dollar draft.
At three oclock 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 China
Banking Corporation branch in San Fernando City, Pampanga, the
following: (a) FEBTC Cashiers Check No. 287078, dated December
22, 1987, in the sum of P2.087 million; and (b) Equitable Cashiers
Check No. CCPS 14-009467, dated December 22, 1987, also in the
amount of P2.087 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, who held FCDU Account No. 124 with the United
Coconut Planters Bank branch in Greenhills, San Juan, Metro
Manila. Chandiramani also deposited FEBTC Dollar Draft No. 4771,
dated December 22, 1987, drawn upon the Chemical Bank, New
York for US$200,000.00 in PCIB FCDU Account No. 4195-01165-2 on
the same date.
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.
On December 28, 1987, herein petitioner Yang lodged a
Complaint
[4]
for injunction and damages against Equitable,
Chandiramani, and David, with prayer for a temporary restraining
order, with the Regional Trial Court of Pasay City. The Complaint
was docketed as Civil Case No. 5479. The Complaint was
subsequently amended to include a prayer for Equitable to return to
Yang the amount of P2.087 million, with interest thereon until fully
paid.
[5]

On January 12, 1988, Yang filed a separate case for injunction
and damages, with prayer for a writ of preliminary injunction
against FEBTC, PCIB, Chandiramani and David, with the RTC of Pasay
City, docketed as Civil Case No. 5492. This complaint was later
amended to include a prayer that defendants therein return to Yang
the amount of P2.087 million, the value of FEBTC Dollar Draft No.
4771, with interest at 18% annually until fully paid.
[6]

On February 9, 1988, upon the filing of a bond by Yang, the trial
court issued a writ of preliminary injunction in Civil Case No. 5479. A
74

writ of preliminary injunction was subsequently issued in Civil Case
No. 5492 also.
Meanwhile, herein respondent David moved for dismissal of
the cases against him and for reconsideration of the Orders granting
the writ of preliminary injunction, but these motions were denied.
David then elevated the matter to the Court of Appeals in a special
civil action for certiorari docketed as CA-G.R. SP No. 14843, which
was dismissed by the appellate court.
As Civil Cases Nos. 5479 and 5492 arose from the same set of
facts, the two cases were consolidated. The trial court then
conducted pre-trial and trial of the two cases, but the proceedings
had to be suspended after a fire gutted the Pasay City Hall and
destroyed the records of the courts.
After the records were reconstituted, the proceedings resumed
and the parties agreed that the money in dispute be invested in
Treasury Bills to be awarded in favor of the prevailing side. It was
also agreed by the parties to limit the issues at the trial to the
following:
1. Who, between David and Yang, is legally entitled to the
proceeds of Equitable Banking Corporation (EBC)
Cashiers Check No. CCPS 14-009467 in the sum
of P2,087,000.00 dated December 22, 1987, and Far
East Bank and Trust Company (FEBTC) Cashiers Check
No. 287078 in the sum of P2,087,000.00 dated
December 22, 1987, together with the earnings derived
therefrompendente lite?
2. Are the defendants FEBTC and PCIB solidarily liable to
Yang for having allowed the encashment of FEBTC
Dollar Draft No. 4771, in the sum of US$200,000.00
plus interest thereon despite the stop payment order
of Cely Yang?
[7]

On July 4, 1995, the trial court handed down its decision in Civil
Cases Nos. 5479 and 5492, to wit:
WHEREFORE, the Court renders judgment in favor of defendant
Fernando David against the plaintiff Cely Yang and declaring the
former entitled to the proceeds of the two (2) cashiers checks,
together with the earnings derived therefrom pendente lite;
ordering the plaintiff to pay the defendant Fernando David moral
damages in the amount of P100,000.00; attorneys fees in the
amount of P100,000.00 and to pay the costs. The complaint against
Far East Bank and Trust Company (FEBTC), Philippine Commercial
International Bank (PCIB) and Equitable Banking Corporation (EBC)
is dismissed. The decision is without prejudice to whatever action
plaintiff Cely Yang will file against defendant Prem Chandiramani for
reimbursement of the amounts received by him from defendant
Fernando David.
SO ORDERED.
[8]

In finding for David, the trial court ratiocinated:
The evidence shows that defendant David was a holder in due
course for the reason that the cashiers checks were complete on
their face when they were negotiated to him. They were not yet
overdue when he became the holder thereof and he had no notice
that said checks were previously dishonored; he took the cashiers
checks in good faith and for value. He parted some $200,000.00 for
the two (2) cashiers checks which were given to defendant
Chandiramani; he had also no notice of any infirmity in the cashiers
checks or defect in the title of the drawer. As a matter of fact, he
asked the manager of the China Banking Corporation to inquire as
to the genuineness of the cashiers checks (tsn, February 5, 1988, p.
21, September 20, 1991, pp. 13-14). Another proof that defendant
David is a holder in due course is the fact that the stop payment
75

order on [the] FEBTC cashiers check was lifted upon his inquiry at
the head office (tsn, September 20, 1991, pp. 24-25). 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.
[9]

Yang then moved for reconsideration of the RTC judgment, but
the trial court denied her motion in its Order of September 20,
1995.
In the belief that the trial court misunderstood the concept of a
holder in due course and misapprehended the factual milieu, Yang
seasonably filed an appeal with the Court of Appeals, docketed as
CA-G.R. CV No. 52398.
On March 25, 1999, the appellate court decided CA-G.R. CV No.
52398 in this wise:
WHEREFORE, this court AFFIRMS the judgment of the lower court
with modification and hereby orders the plaintiff-appellant to pay
defendant-appellant PCIB the amount of Twenty-Five Thousand
Pesos (P25,000.00).
SO ORDERED.
[10]

In affirming the trial courts judgment with respect to herein
respondent David, the appellate court found that:
In this case, defendant-appellee had taken the necessary
precautions to verify, through his bank, China Banking Corporation,
the genuineness of whether (sic) the cashiers checks he received
from Chandiramani. As no stop payment order was made yet (at)
the time of the inquiry, defendant-appellee had no notice of what
had transpired earlier between the plaintiff-appellant and
Chandiramani. All he knew was that the checks were issued to
Chandiramani with whom he was he had (sic) a transaction. Further
on, David received the checks in question in due course because
Chandiramani, who at the time the checks were delivered to David,
was acting as Yangs agent.
David had no notice, real or constructive, cogent for him to make
further inquiry as to any infirmity in the instrument(s) and defect of
title of the holder. To mandate that each holder inquire about every
aspect on how the instrument came about will unduly impede
commercial transactions, Although negotiable instruments do not
constitute legal tender, they often take the place of money as a
means of payment.
The mere fact that David and Chandiramani knew one another for a
long time is not sufficient to establish that they connived with each
other to defraud Yang. There was no concrete proof presented by
Yang to support her theory.
[11]

The appellate court awarded P25,000.00 in attorneys fees to
PCIB as it found the action filed by Yang against said bank to be
clearly unfounded and baseless. Since PCIB was compelled to
litigate to protect itself, then it was entitled under Article 2208
[12]
of
the Civil Code to attorneys fees and litigation expenses.
Hence, the instant recourse wherein petitioner submits the
following issues for resolution:
a - WHETHER THE CHECKS WERE ISSUED TO PREM
CHANDIRAMANI BY PETITIONER;
b - WHETHER THE ALLEGED TRANSACTION BETWEEN
PREM CHANDIRAMANI AND FERNANDO DAVID IS
LEGITIMATE OR A SCHEME BY BOTH PRIVATE
RESPONDENTS TO SWINDLE PETITIONER;
76

c - WHETHER FERNANDO DAVID GAVE PREM
CHANDIRAMANI US$360,000.00 OR JUST A
FRACTION OF THE AMOUNT REPRESENTING HIS
SHARE OF THE LOOT;
d - WHETHER PRIVATE RESPONDENTS FERNANDO
DAVID AND PCIB ARE ENTITLED TO DAMAGES AND
ATTORNEYS FEES.
[13]

At the outset, we must stress that this is a petition for review
under Rule 45 of the 1997 Rules of Civil Procedure. It is basic that in
petitions for review under Rule 45, the jurisdiction of this Court is
limited to reviewing questions of law, questions of fact are not
entertained absent a showing that the factual findings complained
of are totally devoid of support in the record or are glaringly
erroneous.
[14]
Given the facts in the instant case, despite petitioners
formulation, we find that the following are the pertinent issues to
be resolved:
a) Whether the Court of Appeals erred in holding herein
respondent Fernando David to be a holder in due
course; and
b) Whether the appellate court committed a reversible
error in awarding damages and attorneys fees to
David and PCIB.
On the first issue, petitioner Yang contends that private
respondent Fernando David is not a holder in due course of the
checks in question. While it is true that he was named the payee
thereof, David failed to inquire from Chandiramani about how the
latter acquired possession of said checks. Given his failure to do so,
it cannot be said that David was unaware of any defect or infirmity
in the title of Chandiramani to the checks at the time of their
negotiation. Moreover, inasmuch as the checks were crossed, then
David should have, pursuant to our ruling in Bataan Cigar &
Cigarette Factory, Inc. v. Court of Appeals, G.R. No. 93048, March 3,
1994, 230 SCRA 643, been put on guard that the checks were issued
for a definite purpose and accordingly, made inquiries to determine
if he received the checks pursuant to that purpose. His failure to do
so negates the finding in the proceedings below that he was a
holder in due course.
Finally, the petitioner argues that there is no showing
whatsoever that David gave Chandiramani any consideration of
value in exchange for the aforementioned checks.
Private respondent Fernando David counters that the evidence
on record shows that when he received the checks, he verified their
genuineness with his bank, and only after said verification did he
deposit them. David stresses that he had no notice of previous
dishonor or any infirmity that would have aroused his suspicions,
the instruments being complete and regular upon their face. David
stresses that the checks in question were cashiers checks. From the
very nature of cashiers checks, it is highly unlikely that he would
have suspected that something was amiss. David also stresses
negotiable instruments are presumed to have been issued for
valuable consideration, and he who alleges otherwise must
controvert the presumption with sufficient evidence. The petitioner
failed to discharge this burden, according to David. He points out
that the checks were delivered to him as the payee, and he took
them as holder and payee thereof. Clearly, he concludes, he should
be deemed to be their holder in due course.
We shall now resolve the first issue.
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
77

Negotiable Instruments Law,
[15]
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.
[16]
Hence, the
presumption that he is a prima facie holder in due course applies in
his favor. However, said presumption may be rebutted. Hence, what
is vital to the resolution of this issue is whether David took
possession of the checks under the conditions provided for in
Section 52
[17]
of the Negotiable Instruments Law. All the requisites
provided for in Section 52 must concur in Davids case, otherwise he
cannot be deemed a holder in due course.
We find that the petitioners challenge to Davids 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) Davids failure to inquire from
Chandiramani as to how the latter acquired possession of the
checks, thus resulting in Davids intentional ignorance tantamount
to bad faith. In sum, petitioner posits that the last two requisites of
Section 52 are missing, thereby preventing David from being
considered a holder in due course. Unfortunately for the petitioner,
her arguments on this score are less than meritorious and far from
persuasive.
First, with respect to consideration, Section 24
[18]
of the
Negotiable Instruments Law creates a presumption that every party
to an instrument acquired the same for a consideration
[19]
or for
value.
[20]
Thus, the law itself creates a presumption in Davids favor
that he gave valuable consideration for 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. The petitioners
averment that David did not give valuable consideration when he
took possession of the checks is unsupported, devoid of any
concrete proof to sustain it. Note that both the trial court and the
appellate court found that David did not receive the checks gratis,
but instead gave Chandiramani US$360,000.00 as consideration for
the said instruments. Factual findings of the Court of Appeals are
conclusive on the parties and not reviewable by this Court; they
carry great weight when the factual findings of the trial court are
affirmed by the appellate court.
[21]

Second, petitioner fails to point 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 petitioner and Chandiramani. Instead,
Chandiramani and David had a separate dealing in which it was
precisely Chandiramanis duty to deliver the checks to David as
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 from FEBTC 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 latters title to the checks was,
if any, or the nature of his possession. Thus, we cannot hold him
guilty of gross neglect amounting to legal absence of good faith,
absent any showing that there was something amiss about
Chandiramanis acquisition or possession of the checks. David did
not close his eyes deliberately to the nature or the particulars of a
fraud allegedly committed by Chandiramani upon the petitioner,
absent any knowledge on his part that the action in taking the
instruments amounted to bad faith.
[22]

Belatedly, and we say belatedly since petitioner did not raise
this matter in the proceedings below, petitioner now claims that
78

David should have been put on alert as the instruments in question
were crossed checks. Pursuant to Bataan Cigar & Cigarette Factory,
Inc. v. Court of Appeals, David should at least have inquired as to
whether he was acquiring said checks for the purpose for which
they were issued, according to petitioners submission.
Petitioners reliance on the Bataan Cigar case, however, is
misplaced. The facts in the present case are not on all fours
with Bataan Cigar. In the latter case, the crossed checks were
negotiated and sold at a discount by the payee, while in the instant
case, the payee did not negotiate further the checks in question but
promptly deposited them in his bank account.
The Negotiable Instruments Law is silent with respect to
crossed checks, although the Code of Commerce
[23]
makes reference
to such instruments. Nonetheless, this Court has taken judicial
cognizance of the practice that a check with two parallel lines in the
upper left hand corner means that it could only be deposited and
not converted into cash.
[24]
The effects of crossing a check, thus,
relates to the mode of payment, meaning that the drawer had
intended the check for deposit only by the rightful person, i.e., the
payee named therein. In Bataan Cigar, the rediscounting of the
check by the payee knowingly violated the avowed intention of
crossing the check. Thus, in accepting the cross checks and paying
cash for them, despite the warning of the crossing, the subsequent
holder could not be considered in good faith and thus, not a holder
in due course. Our ruling in Bataan Cigar reiterates that in De
Ocampo & Co. v. Gatchalian.
[25]

The factual circumstances in De Ocampo and in Bataan
Cigar are not present in this case. For here, there is no dispute that
the crossed checks were delivered and duly deposited by David, the
payee named therein, in his bank account. In other words, the
purpose behind the crossing of the checks was satisfied by the
payee.
Proceeding to the issue of damages, petitioner merely argues
that respondents David and PCIB are not entitled to damages,
attorneys fees, and costs of suit as both acted in bad faith towards
her, as shown by her version of the facts which gave rise to the
instant case.
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 petitioners
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, attorneys fees, and costs of suit be
awarded 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 PCIB entitled to attorneys fees as it was
compelled to litigate to protect itself.
We have thoroughly perused the records of this case and find
no reason to disagree with the finding of the trial court, as affirmed
by the appellate court, that:
[D]efendant David is entitled to [the] award of moral damages as he
has been needlessly and unceremoniously dragged into this case
which should have been brought only between the plaintiff and
defendant Chandiramani.
[26]

79

A careful reading of the findings of facts made by both the trial
court and appellate court clearly shows 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 with Chandiramani. Moreover, any loss which 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. Recall that under Article
2217
[27]
of the Civil Code, moral damages include mental anguish,
serious anxiety, besmirched reputation, wounded feelings, social
humiliation, and similar injury. Hence, we find the award of moral
damages to be in order.
The appellate court likewise found that like David, PCIB was
dragged into this case on unfounded and baseless grounds. Both
were thus compelled to litigate to protect their interests, which
makes an award of attorneys fees justified under Article 2208
(2)
[28]
of the Civil Code. Hence, we rule that the award of attorneys
fees to David and PCIB was proper.
WHEREFORE, the instant petition is DENIED. 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.
SO ORDERED.
Bellosillo, (Chairman), Austria-Martinez, and Tinga, JJ., concur.
G.R. No. 154469 December 6, 2006
METROPOLITAN BANK AND TRUST COMPANY, petitioners,
vs.
RENATO D. CABILZO, respondent.


D E C I S I O N


CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari, filed by
petitioner Metropolitan Bank and Trust Company (Metrobank)
seeking to reverse and set aside the Decision
1
of the Court of
Appeals dated 8 March 2002 and its Resolution dated 26 July 2002
affirming the Decision of the Regional Trial Court (RTC) of Manila,
Branch 13 dated 4 September 1998. The dispositive portion of the
Court of Appeals Decision reads:
WHEREFORE, the assailed decision dated September 4,
1998 is AFFIRMED with modifications (sic) that the awards
for exemplary damages and attorneys fees are hereby
deleted.
Petitioner Metrobank is a banking institution duly organized and
existing as such under Philippine laws.
2

Respondent Renato D. Cabilzo (Cabilzo) was one of Metrobanks
clients who maintained a current account with Metrobank Pasong
Tamo Branch.
3

80

On 12 November 1994, Cabilzo issued a Metrobank Check No.
985988, payable to "CASH" and postdated on 24 November 1994 in
the amount of One Thousand Pesos (P1,000.00). The check was
drawn against Cabilzos Account with Metrobank Pasong Tamo
Branch under Current Account No. 618044873-3 and was paid by
Cabilzo to a certain Mr. Marquez, as his sales commission.
4

Subsequently, the check was presented to Westmont Bank for
payment. Westmont Bank, in turn, indorsed the check to
Metrobank for appropriate clearing. After the entries thereon were
examined, including the availability of funds and the authenticity of
the signature of the drawer, Metrobank cleared the check for
encashment in accordance with the Philippine Clearing House
Corporation (PCHC) Rules.
On 16 November 1994, Cabilzos representative was at Metrobank
Pasong Tamo Branch to make some transaction when he was asked
by a bank personnel if Cabilzo had issued a check in the amount
of P91,000.00 to which the former replied in the negative. On the
afternoon of the same date, Cabilzo himself called Metrobank to
reiterate that he did not issue a check in the amount of P91,000.00
and requested that the questioned check be returned to him for
verification, to which Metrobank complied.
5

Upon receipt of the check, Cabilzo discovered that Metrobank
Check No. 985988 which he issued on 12 November 1994 in the
amount of P1,000.00 was altered to P91,000.00 and the date 24
November 1994 was changed to 14 November 1994.
6

Hence, Cabilzo demanded that Metrobank re-credit the amount
of P91,000.00 to his account. Metrobank, however, refused
reasoning that it has to refer the matter first to its Legal Division for
appropriate action. Repeated verbal demands followed but
Metrobank still failed to re-credit the amount of P91,000.00 to
Cabilzos account.
7

On 30 June 1995, Cabilzo, thru counsel, finally sent a letter-
demand
8
to Metrobank for the payment ofP90,000.00, after
deducting the original value of the check in the amount
of P1,000.00. Such written demand notwithstanding, Metrobank
still failed or refused to comply with its obligation.
Consequently, Cabilzo instituted a civil action for damages against
Metrobank before the RTC of Manila, Branch 13. In his Complaint
docketed as Civil Case No. 95-75651, Renato D. Cabilzo v.
Metropolitan Bank and Trust Company, Cabilzo prayed that in
addition to his claim for reimbursement, actual and moral damages
plus costs of the suit be awarded in his favor.
9

For its part, Metrobank countered that upon the receipt of the said
check through the PCHC on 14 November 1994, it examined the
genuineness and the authenticity of the drawers signature
appearing thereon and the technical entries on the check including
the amount in figures and in words to determine if there were
alterations, erasures, superimpositions or intercalations thereon,
but none was noted. After verifying the authenticity and propriety
of the aforesaid entries, including the indorsement of the collecting
bank located at the dorsal side of the check which stated that, "all
prior indorsements and lack of indorsement guaranteed,"
Metrobank cleared the check.
10

Anent thereto, Metrobank claimed that as a collecting bank and the
last indorser, Westmont Bank should be held liable for the value of
the check. Westmont Bank indorsed the check as the an unqualified
indorser, by virtue of which it assumed the liability of a general
indorser, and thus, among others, warranted that the instrument is
genuine and in all respect what it purports to be.
81

In addition, Metrobank, in turn, claimed that Cabilzo was partly
responsible in leaving spaces on the check, which, made the
fraudulent insertion of the amount and figures thereon, possible.
On account of his negligence in the preparation and issuance of the
check, which according to Metrobank, was the proximate cause of
the loss, Cabilzo cannot thereafter claim indemnity by virtue of the
doctrine of equitable estoppel.
Thus, Metrobank demanded from Cabilzo, for payment in the
amount of P100,000.00 which represents the cost of litigation and
attorneys fees, for allegedly bringing a frivolous and baseless suit.
11

On 19 April 1996, Metrobank filed a Third-Party Complaint
12
against
Westmont Bank on account of its unqualified indorsement stamped
at the dorsal side of the check which the former relied upon in
clearing what turned out to be a materially altered check.
Subsequently, a Motion to Dismiss
13
the Third-Party Complaint was
then filed by Westmont bank because another case involving the
same cause of action was pending before a different court. The said
case arose from an action for reimbursement filed by Metrobank
before the Arbitration Committee of the PCHC against Westmont
Bank, and now the subject of a Petition for Review before the RTC
of Manila, Branch 19.
In an Order
14
dated 4 February 1997, the trial court granted the
Motion to Dismiss the Third-Party Complaint on the ground of litis
pendentia.
On 4 September 1998, the RTC rendered a Decision
15
in favor of
Cabilzo and thereby ordered Metrobank to pay the sum
of P90,000.00, the amount of the check. In stressing the fiduciary
nature of the relationship between the bank and its clients and the
negligence of the drawee bank in failing to detect an apparent
alteration on the check, the trial court ordered for the payment of
exemplary damages, attorneys fees and cost of litigation. The
dispositive portion of the Decision reads:
WHEREFORE, judgment is rendered ordering defendant
Metropolitan Bank and Trust Company to pay plaintiff
Renato Cabilzo the sum of P90,000 with legal interest of 6
percent per annum from November 16, 1994 until payment
is made plus P20,000 attorneys fees, exemplary damages
of P50,000, and costs of the suit.
16

Aggrieved, Metrobank appealed the adverse decision to the Court
of Appeals reiterating its previous argument that as the last
indorser, Westmont Bank shall bear the loss occasioned by the
fraudulent alteration of the check. Elaborating, Metrobank
maintained that by reason of its unqualified indorsement,
Westmont Bank warranted that the check in question is genuine,
valid and subsisting and that upon presentment the check shall be
accepted according to its tenor.
Even more, Metrobank argued that in clearing the check, it was not
remiss in the performance of its duty as the drawee bank, but
rather, it exercised the highest degree of diligence in accordance
with the generally accepted banking practice. It further insisted that
the entries in the check were regular and authentic and alteration
could not be determined even upon close examination.
In a Decision
17
dated 8 March 2002, the Court of Appeals affirmed
with modification the Decision of the court a quo, similarly finding
Metrobank liable for the amount of the check, without prejudice,
however, to the outcome of the case between Metrobank and
Westmont Bank which was pending before another tribunal. The
decretal portion of the Decision reads:
82

WHEREFORE, the assailed decision dated September 4,
1998 is AFFIRMED with the modifications (sic) that the
awards for exemplary damages and attorneys fees are
hereby deleted.
18

Similarly ill-fated was Metrobanks Motion for Reconsideration
which was also denied by the appellate court in its
Resolution
19
issued on 26 July 2002, for lack of merit.
Metrobank now poses before this Court this sole issue:
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN
HOLDING METROBANK, AS DRAWEE BANK, LIABLE FOR THE
ALTERATIONS ON THE SUBJECT CHECK BEARING THE
AUTHENTIC SIGNATURE OF THE DRAWER THEREOF.
We resolve to deny the petition.
An alteration is said to be material if it changes the effect of the
instrument. It means that an unauthorized change in an instrument
that purports to modify in any respect the obligation of a party or
an unauthorized addition of words or numbers or other change to
an incomplete instrument relating to the obligation of a party.
20
In
other words, a material alteration is one which changes the items
which are required to be stated under Section 1 of the Negotiable
Instruments Law.
Section 1 of the Negotiable Instruments Law provides:
Section 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 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.
Also pertinent is the following provision in the Negotiable
Instrument Law which states:
Section 125. What constitutes material alteration. Any
alteration which changes:
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment;
(d) The number or the relation of the parties;
(e) The medium or currency in which payment is to
be made;
Or which adds a place of payment where no place of
payment is specified, or any other change or addition which
alters the effect of the instrument in any respect is a
material alteration.
83

In the case at bar, the check was altered so that the amount was
increased from P1,000.00 to P91,000.00 and the date was changed
from 24 November 1994 to 14 November 1994. Apparently, since
the entries altered were among those enumerated under Section 1
and 125, namely, the sum of money payable and the date of the
check, the instant controversy therefore squarely falls within the
purview of material alteration.
Now, having laid the premise that the present petition is a case of
material alteration, it is now necessary for us to determine the
effect of a materially altered instrument, as well as the rights and
obligations of the parties thereunder. The following provision of the
Negotiable Instrument Law will shed us some light in threshing out
this issue:
Section 124. Alteration of instrument; effect of. Where a
negotiable instrument is materially altered without the
assent of all parties liable thereon, it is avoided, except as
against a party who has
himself made,authorized, and assented to the
alteration and subsequent indorsers.
But when the instrument has been materially altered and is
in the hands of a holder in due course not a party to the
alteration, he may enforce the payment thereof according
to its original tenor. (Emphasis ours.)
Indubitably, Cabilzo was not the one who made nor authorized the
alteration. Neither did he assent to the alteration by his express or
implied acts. There is no showing that he failed to exercise such
reasonable degree of diligence required of a prudent man which
could have otherwise prevented the loss. As correctly ruled by the
appellate court, Cabilzo was never remiss in the preparation and
issuance of the check, and there were no indicia of evidence that
would prove otherwise. Indeed, Cabilzo placed asterisks before and
after the amount in words and figures in order to forewarn the
subsequent holders that nothing follows before and after the
amount indicated other than the one specified between the
asterisks.
The degree of diligence required of a reasonable man in the
exercise of his tasks and the performance of his duties has been
faithfully complied with by Cabilzo. In fact, he was wary enough that
he filled with asterisks the spaces between and after the amounts,
not only those stated in words, but also those in numerical figures,
in order to prevent any fraudulent insertion, but unfortunately, the
check was still successfully altered, indorsed by the collecting bank,
and cleared by the drawee bank, and encashed by the perpetrator
of the fraud, to the damage and prejudice of Cabilzo.
Verily, Metrobank cannot lightly impute that Cabilzo was negligent
and is therefore prevented from asserting his rights under the
doctrine of equitable estoppel when the facts on record are bare of
evidence to support such conclusion. The doctrine of equitable
estoppel states that when one of the two innocent persons, each
guiltless of any intentional or moral wrong, must suffer a loss, it
must be borne by the one whose erroneous conduct, either by
omission or commission, was the cause of injury.
21
Metrobanks
reliance on this dictum, is misplaced. For one, Metrobanks
representation that it is an innocent party is flimsy and evidently,
misleading. At the same time, Metrobank cannot asseverate that
Cabilzo was negligent and this negligence was the proximate
cause
22
of the loss in the absence of even a scintilla proof to
buttress such claim. Negligence is not presumed but must be
proven by the one who alleges it.
23

Undoubtedly, Cabilzo was an innocent party in this instant
controversy. He was just an ordinary businessman who, in order to
84

facilitate his business transactions, entrusted his money with a
bank, not knowing that the latter would yield a substantial amount
of his deposit to fraud, for which Cabilzo can never be faulted.
We never fail to stress the remarkable significance of a banking
institution to commercial transactions, in particular, and to the
countrys economy in general. The banking system is an
indispensable institution in the modern world and plays a vital role
in the economic life of every civilized nation. Whether as mere
passive entities for the safekeeping and saving of money or as active
instruments of business and commerce, banks have become an
ubiquitous presence among the people, who have come to regard
them with respect and even gratitude and, most of all, confidence.
24

Thus, even the humble wage-earner does not hesitate to entrust his
life's savings to the bank of his choice, knowing that they will be
safe in its custody and will even earn some interest for him. The
ordinary person, with equal faith, usually maintains a modest
checking account for security and convenience in the settling of his
monthly bills and the payment of ordinary expenses. As for a
businessman like the respondent, the bank is a trusted and active
associate that can help in the running of his affairs, not only in the
form of loans when needed but more often in the conduct of their
day-to-day transactions like the issuance or encashment of checks.
25

In every case, the depositor expects the bank to treat his account
with the utmost fidelity, whether such account consists only of a
few hundred pesos or of millions. The bank must record every single
transaction accurately, down to the last centavo, and as promptly as
possible. This has to be done if the account is to reflect at any given
time the amount of money the depositor can dispose of as he sees
fit, confident that the bank will deliver it as and to whomever he
directs.
26

The point is that as a business affected with public interest and
because of the nature of its functions, the bank is under obligation
to treat the accounts of its depositors with meticulous care, always
having in mind the fiduciary nature of their relationship. The
appropriate degree of diligence required of a bank must be a high
degree of diligence, if not the utmost diligence.
27

In the present case, it is obvious that Metrobank was remiss in that
duty and violated that relationship. As observed by the Court of
Appeals, there are material alterations on the check that are visible
to the naked eye. Thus:
x x x The number "1" in the date is clearly imposed on a
white figure in the shape of the number "2". The appellants
employees who examined the said check should have
likewise been put on guard as to why at the end of the
amount in words, i.e., after the word "ONLY", there are 4
asterisks, while at the beginning of the line or before said
phrase, there is none, even as 4 asterisks have been placed
before and after the word "CASH" in the space for payee. In
addition, the 4 asterisks before the words "ONE THOUSAND
PESOS ONLY" have noticeably been erased with typing
correction paper, leaving white marks, over which the word
"NINETY" was superimposed. The same can be said of the
numeral "9" in the amount "91,000", which is superimposed
over a whitish mark, obviously an erasure, in lieu of the
asterisk which was deleted to insert the said figure. The
appellants employees should have again noticed why only
2 asterisks were placed before the amount in figures, while
3 asterisks were placed after such amount. The word
"NINETY" is also typed differently and with a lighter ink,
when compared with the words "ONE THOUSAND PESOS
ONLY." The letters of the word "NINETY" are likewise a little
85

bigger when compared with the letters of the words "ONE
THOUSAND PESOS ONLY".
28

Surprisingly, however, Metrobank failed to detect the above
alterations which could not escape the attention of even an
ordinary person. This negligence was exacerbated by the fact that,
as found by the trial court, the check in question was examined by
the cash custodian whose functions do not include the
examinations of checks indorsed for payment against drawers
accounts.
29
Obviously, the employee allowed by Metrobank to
examine the check was not verse and competent to handle such
duty. These factual findings of the trial court is conclusive upon this
court especially when such findings was affirmed the appellate
court.
30

Apropos thereto, we need to reiterate that by the very nature of
their work the degree of responsibility, care and trustworthiness
expected of their employees and officials is far better than those of
ordinary clerks and employees. Banks are expected to exercise the
highest degree of diligence in the selection and supervision of their
employees.
31

In addition, the bank on which the check is drawn, known as the
drawee bank, is under strict liability to pay to the order of the payee
in accordance with the drawers instructions as reflected on the face
and by the terms of the check. Payment made under materially
altered instrument is not payment done in accordance with the
instruction of the drawer.
When the drawee bank pays a materially altered check, it violates
the terms of the check, as well as its duty to charge its clients
account only for bona fide disbursements he had made. Since the
drawee bank, in the instant case, did not pay according to the
original tenor of the instrument, as directed by the drawer, then it
has no right to claim reimbursement from the drawer, much less,
the right to deduct the erroneous payment it made from the
drawers account which it was expected to treat with utmost
fidelity.
Metrobank vigorously asserts that the entries in the check were
carefully examined: The date of the instrument, the amount in
words and figures, as well as the drawers signature, which after
verification, were found to be proper and authentic and was thus
cleared. We are not persuaded. Metrobanks negligence consisted
in the omission of that degree of diligence required of a bank owing
to the fiduciary nature of its relationship with its client. Article 1173
of the Civil Code provides:
The fault or negligence of the obligor consists in the
omission of that diligence which is required by the nature of
the obligation and corresponds with the circumstances of
the persons, of the time and of the place. x x x.
Beyond question, Metrobank failed to comply with the degree
required by the nature of its business as provided by law and
jurisprudence. If indeed it was not remiss in its obligation, then it
would be inconceivable for it not to detect an evident alteration
considering its vast knowledge and technical expertise in the
intricacies of the banking business. This Court is not completely
unaware of banks practices of employing devices and techniques in
order to detect forgeries, insertions, intercalations,
superimpositions and alterations in checks and other negotiable
instruments so as to safeguard their authenticity and negotiability.
Metrobank cannot now feign ignorance nor claim diligence; neither
can it point its finger at the collecting bank, in order to evade
liability.
86

Metrobank argues that Westmont Bank, as the collecting bank and
the last indorser, shall bear the loss. Without ruling on the matter
between the drawee bank and the collecting bank, which is already
under the jurisdiction of another tribunal, we find that Metrobank
cannot rely on such indorsement, in clearing the questioned check.
The corollary liability of such indorsement, if any, is separate and
independent from the liability of Metrobank to Cabilzo.
The reliance made by Metrobank on Westmont Banks indorsement
is clearly inconsistent, if not totally offensive to the dictum that
being impressed with public interest, banks should exercise the
highest degree of diligence, if not utmost diligence in dealing with
the accounts of its own clients. It owes the highest degree fidelity to
its clients and should not therefore lightly rely on the judgment of
other banks on occasions where its clients money were involve, no
matter how small or substantial the amount at stake.
Metrobanks contention that it relied on the strength of collecting
banks indorsement may be merely a lame excuse to evade liability,
or may be indeed an actual banking practice. In either case, such act
constitutes a deplorable banking practice and could not be allowed
by this Court bearing in mind that the confidence of public in
general is of paramount importance in banking business.
What is even more deplorable is that, having been informed of the
alteration, Metrobank did not immediately re-credit the amount
that was erroneously debited from Cabilzos account but permitted
a full blown litigation to push through, to the prejudice of its client.
Anyway, Metrobank is not left with no recourse for it can still run
after the one who made the alteration or with the collecting bank,
which it had already done. It bears repeating that the records are
bare of evidence to prove that Cabilzo was negligent. We find no
justifiable reason therefore why Metrobank did not immediately
reimburse his account. Such ineptness comes within the concept of
wanton manner contemplated under the Civil Code which warrants
the imposition of exemplary damages, "by way of example or
correction for the public good," in the words of the law. It is
expected that this ruling will serve as a stern warning in order to
deter the repetition of similar acts of negligence, lest the confidence
of the public in the banking system be further eroded.
32

WHEREFORE, premises considered, the instant Petition is DENIED.
The Decision dated 8 March 2002 and the Resolution dated 26 July
2002 of the Court of Appeals are AFFIRMED with modification that
exemplary damages in the amount of P50,000.00 be awarded. Costs
against the petitioner.
SO ORDERED.
Panganiban, C.J. (Chairperson), Ynares-Santiago, Austria-Martinez,
and Callejo, Sr., JJ., concur.