G.R. No.

132560               January 30, 2002 Petitioner now comes before this Court on a petition for review, alleging that the Court of Appeals erred:
WESTMONT BANK (formerly ASSOCIATED BANKING CORP.), petitioner, vs. EUGENE ONG, respondent.
QUISUMBING, J.: I
... IN AFFIRMING THE TRIAL COURT’S CONCLUSION THAT RESPONDENT HAS A CAUSE OF
This is a petition for review of the decision1 dated January 13, 1998, of the Court of Appeals in CA-G.R. CV No. 28304 ACTION AGAINST THE PETITIONER.
ordering the petitioner to pay respondent ₱1,754,787.50 plus twelve percent (12%) interest per annum computed from II
October 7, 1977, the date of the first extrajudicial demand, plus damages. ... IN AFFIRMING THE TRIAL COURT’S DECISION FINDING PETITIONER LIABLE TO
RESPONDENT AND DECLARING THAT THE LATTER MAY RECOVER DIRECTLY FROM THE
FORMER; AND
The facts of this case are undisputed.
Respondent Eugene Ong maintained a current account with petitioner, formerly the Associated Banking Corporation, but III
... IN NOT ADJUDGING RESPONDENT GUILTY OF LACHES AND IN NOT ABSOLVING
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 manager’s checks,2 both dated PETITIONER FROM LIABILITY.
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 Ong’s signature and deposited these with petitioner, where Tanlimco was also a Essentially the issues in this case are: (1) whether or not respondent Ong has a cause of action against petitioner
depositor. Even though Ong’s specimen signature was on file, petitioner accepted and credited both checks to the account Westmont Bank; and (2) whether or not Ong is barred to recover the money from Westmont Bank due to laches.
of Tanlimco, without verifying the ‘signature indorsements’ appearing at the back thereof. Tanlimco then immediately
withdrew the money and absconded. 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 latter’s representative to demand, accept and receive the same. For this reason,
Instead of going straight to the bank to stop or question the payment, Ong first sought the help of Tanlimco’s family to petitioner argues, respondent cannot sue petitioner because under Section 51 of the Negotiable Instruments Law6 it is only
recover the amount. Later, he reported the incident to the Central Bank, which like the first effort, unfortunately proved when a person becomes a holder of a negotiable instrument can he sue in his own name. Conversely, prior to his
futile. becoming a holder, he had no right or cause of action under such negotiable instrument. Petitioner further argues that
since Section 1917 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
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. 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
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
Petitioner also cites Article 12499 of the Civil Code explaining that a check, even if it is a manager’s check, is not legal
tender. Hence, the creditor cannot be compelled to accept payment thru this means. 10 It is petitioner’s position that for all
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 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 Ong’s cause of action against it
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. 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

On February 8, 1989, after trial on the merits, the Regional Trial Court of Manila, Branch 38, rendered a decision, thus:
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
IN VIEW OF THE FOREGOING, the court hereby renders judgment for the plaintiff and against the defendant, and likewise cites the ruling of the courts a quo which held that according to the general rule, a bank who has obtained
orders the defendant to pay the plaintiff: possession of a check upon an unauthorized or forged indorsement of the payee’s 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
1. The sum of P1,754,787.50 representing the total face value of the two checks in question, exhibits "A" and bank’s possession of such check is wrongful.13
"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 Respondent also cites Associated Bank vs. Court of Appeals 14 which held that the collecting bank or last endorser
full; generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements. The collecting
2. Moral damages in the amount of P250,000.00; bank is also made liable because it is privy to the depositor who negotiated the check. The bank knows him, his address
3. Exemplary or corrective damages in the sum of P100,000.00 by way of example or correction for the public and history because he is a client. Hence, it is in a better position to detect forgery, fraud or irregularity in the
good; indorsement.15
4. Attorney’s fees of P50,000.00 and costs of suit.
Defendant’s counterclaims are dismissed for lack of merit.
Anent Article 1249 of the Civil Code, Ong points out that bank checks are specifically governed by the Negotiable
SO ORDERED.4
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
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

Considering the contentions of the parties and the evidence on record, we find no reversible error in the assailed and with the highest degree of care, considering the fiduciary nature of their relationship. The diligence required of
decisions of the appellate and trial courts, hence there is no justifiable reason to grant the petition. 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:
Petitioner’s 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: xxx (A)t the time the questioned checks were accepted for deposit to Paciano Tanlimco’s account by defendant bank,
(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 bank, admittedly had in its files specimen signatures of plaintiff who maintained a current account with them
defendant in violation of said legal right.18 (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
The complaint filed before the trial court expressly alleged respondent’s right as payee of the manager’s checks to
receive the amount involved, petitioner’s correlative duty as collecting bank to ensure that the amount gets to the rightful thereon. The Court cannot help but note that had defendant conducted even the most cursory comparison with plaintiff’s
specimen signatures in its files (Exhibit "L-1" and "M-1") it would have at once seen that the alleged indorsements were
payee or his order, and a breach  of that duty because of a blatant act of negligence on the part of petitioner which
violated respondent’s rights.19 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
Under Section 23 of the Negotiable Instruments Law: in question.27

When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly These findings are binding and conclusive on the appellate and the reviewing courts.
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
On the second issue, petitioner avers that respondent Ong is barred by laches for failing to assert his right for recovery
such right is precluded from setting up the forgery or want of authority.
from the bank as soon as he discovered the scam. The lapse of five months before he went to seek relief from the bank,
according to petitioner, constitutes laches.
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 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
allowed to recover from the collecting bank.
stone unturned to obtain relief from his predicament.

The collecting bank is liable to the payee and must bear the loss because it is its legal duty to ascertain that the payee’s
On the matter of delay in reporting the loss, respondent calls attention to the fact that the checks were issued on May 4,
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 payee’s signature and who collects the amount 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
of the check from the drawee, is liable for the proceeds thereof to the payee or other owner, notwithstanding that the
amount has been paid to the person from whom the check was obtained.21 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

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 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
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 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
without indorsement at all and the act of the bank amounts to conversion of the check.22
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
Petitioner’s claim that since there was no delivery yet and respondent has never acquired possession of the checks,
respondent’s 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 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
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 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
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 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.
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
Moreover, the claim of petitioner that respondent should be barred by laches is clearly a vain attempt to deflect
responsibility for its negligent act.1âwphi1 As explained by the appellate court, it is petitioner which had the last clear
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. 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
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 client’s account meticulously 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, the knowledge, consent, authority or endorsement of the appellee which totalled P15,805.00, the six
sustaining the judgment of the Regional Trial Court of Manila, is AFFIRMED. (6) checks in dispute which were "crossed checks" or "for payee's account only," the appellee being
the payee.
Costs against petitioner.SO ORDERED.
The three (3) elements of a cause of action are present in the case at bar, namely: (1) a right in favor
G.R. No. 89802 May 7, 1992 of the plaintiff by whatever means and under whatever law it arises or is created; (2) an obligation
on the part of the named defendant to respect or not to violate such right; and (3) an act or omission
on the part of such defendant violative of the right of the plaintiff or constituting a breach thereof.
ASSOCIATED BANK and CONRADO CRUZ, petitioners, vs. HON. COURT OF APPEALS, and MERLE V. (Republic Planters Bank vs. Intermediate Appellate Court, 131 SCRA 631).
REYES, doing business under the name and style "Melissa's RTW," respondents.
And such cause of action has been proved by evidence of great weight. The contents of the said
CRUZ, J.: checks issued by the customers of the appellee had not been questioned. There is no dispute that the
same are crossed checks or for payee's account only, which is Melissa's RTW. The appellee had
The sole issue raised in this case is whether or not the private respondent has a cause of action against the petitioners for clearly shown that she had never authorized anyone to deposit the said checks nor to encash the
their encashment and payment to another person of certain crossed checks issued in her favor. same; that the appellants had allowed all said checks to be deposited, cleared and paid to one Rafael
Sayson in violation of the instructions in the said crossed checks that the same were for payee's
account only; and that the appellee maintained a savings account with the Prudential Bank, Cubao
The private respondent is engaged in the business of ready-to-wear garments under the firm name "Melissa's RTW." She Branch, Quezon City which never cleared the said checks and the appellee had been damaged by
deals with, among other customers, Robinson's Department Store, Payless Department Store, Rempson Department such encashment of the same.
Store, and the Corona Bazaar.
We affirm.
These companies issued in payment of their respective accounts crossed checks payable to Melissa's RTW in the
amounts and on the dates indicated below:
Under accepted banking practice, crossing a check is done by writing two parallel lines diagonally on the left top portion
of the checks. The crossing is special where the name of a bank or a business institution is written between the two
PAYOR BANK AMOUNT DATE parallel lines, which means that the drawee should pay only with the intervention of that company. 3 The crossing is
general where the words written between the two parallel lines are "and Co." or "for payee's account only," as in the case
Payless Solid Bank P3,960.00 January 19, 1982 at bar. This means that the drawee bank should not encash the check but merely accept it for deposit. 4
Robinson's FEBTC 4,140.00 December 18, 1981
Robinson's FEBTC 1,650.00 December 24, 1981 In State Investment House vs. IAC, 5 this Court declared that "the effects of crossing a check are: (1) that the check may
Robinson's FEBTC 1,980.00 January 12, 1982 not be encashed but only deposited in the bank; (2) that the check may be negotiated only once –– to one who has an
Rempson TRB 1,575.00 January 9, 1982 account with a bank; and (3) that the act of crossing the check serves as a warning to the holder that the check has been
Corona RCBC 2,500.00 December 22, 1981 issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose."

When she went to these companies to collect on what she thought were still unpaid accounts, she was informed of the The effects therefore of crossing a check relate to the mode of its presentment for payment. Under Sec. 72 of the
issuance of the above-listed crossed checks. Further inquiry revealed that the said checks had been deposited with the Negotiable Instruments Law, presentment for payment, to be sufficient, must be made by the holder or by some person
Associated Bank (hereinafter, "the Bank") and subsequently paid by it to one Rafael Sayson, one of its "trusted authorized to receive payment on his behalf. Who the holder or authorized person is depends on the instruction stated on
depositors," in the words of its branch manager and co-petitioner, Conrado Cruz, Sayson had not been authorized by the the face of the check.
private respondent to deposit and encash the said checks.
The six checks in the case at bar had been crossed and issued "for payee's account only." This could only signify that the
The private respondent sued the petitioners in the Regional Trial Court of Quezon City for recovery of the total value of drawers had intended the same for deposit only by the person indicated, to wit, Melissa's RTW.
the checks plus damages. After trial, judgment was rendered requiring them to pay the private respondent the total value
of the subject checks in the amount of P15,805.00 plus 12% interest, P50,000.00 actual damages, P25,000.00 exemplary
damages, P5,000.00 attorney's fees, and the costs of the suit. 1 The petitioners argue that the cause of action for violation of the common instruction found on the face of the checks
exclusively belongs to the issuers thereof and not to the payee. Moreover, having acted in good faith as they merely
facilitated the encashment of the checks, they cannot be made liable to the private respondent.
The petitioners appealed to the respondent court, reiterating their argument that the private respondent had no cause of
action against them and should have proceeded instead against the companies that issued the checks. In disposing of this
contention, the Court of Appeals 2 said: The subject checks were accepted for deposit by the Bank for the account of Rafael Sayson although they were crossed
checks and the payee was not Sayson but Melissa's RTW. The Bank stamped thereon its guarantee that "all prior
endorsements and/or lack of endorsements (were) guaranteed." By such deliberate and positive act, the Bank had for all
The cause of action of the appellee in the case at bar arose from the illegal, anomalous and irregular legal intents and purposes treated the said checks as negotiable instruments and, accordingly, assumed the warranty of the
acts of the appellants in violating common banking practices to the damage and prejudice of the endorser.
appellees, in allowing to be deposited and encashed as well as paying to improper parties without
The weight of authority is to the effect that "the possession of check on a forged or unauthorized indorsement is We find that the respondent court committed no reversible error in holding that the private respondent had a valid cause
wrongful, and when the money is collected on the check, the bank can be held 'for moneys had and received." 6 The of action against the petitioners and that the latter are indeed liable to her for their unauthorized encashment of the
proceeds are held for the rightful owner of the payment and may be recovered by him. The position of the bank taking the subject checks. We also agree with the reduction of the award of the exemplary damages for lack of sufficient evidence
check on the forged or unauthorized indorsement is the same as if it had taken the check and collected without to support them.
indorsement at all. The act of the bank amounts to conversion of the check. 7
WHEREFORE, the petition is DENIED, with costs against the petitioner. It is so ordered.
It is not disputed that the proceeds of the subject checks belonged to the private respondent. As she had not at any time
authorized Rafael Sayson to endorse or encash them, there was conversion of the funds by the Bank. Narvasa, C.J., Griño-Aquino, Medialdea and Bellosillo, JJ., concur.

When the Bank paid the checks so endorsed notwithstanding that title had not passed to the endorser, it did so at its peril
and became liable to the payee for the value of the checks. This liability attached whether or not the Bank was aware of
the unauthorized endorsement. 8

The petitioners were negligent when they permitted the encashment of the checks by Sayson. The Bank should have first
verified his right to endorse the crossed checks, of which he was not the payee, and to deposit the proceeds of the checks
to his own account. The Bank was by reason of the nature of the checks put upon notice that they were issued for deposit
only to the private respondent's account. Its failure to inquire into Sayson's authority was a breach of a duty it owed to the
private respondent.

As the Court stressed in Banco de Oro Savings and Mortgage Bank vs. Equitable Banking Corp., 9 "the law imposes a
duty of diligence on the collecting bank to scrutinize checks deposited with it, for the purpose of determining their
genuineness and regularity. The collecting bank, being primarily engaged in banking, holds itself out to the public as the
expert on this field, and the law thus holds it to a high standard of conduct."

The petitioners insist that the private respondent has no cause of action against them because they have no privity of
contract with her. They also argue that it was Eddie Reyes, the private respondent's own husband, who endorsed the
checks.

Assuming that Eddie Reyes did endorse the crossed checks, we hold that the Bank would still be liable to the private
respondent because he was not authorized to make the endorsements. And even if the endorsements were forged, as
alleged, the Bank would still be liable to the private respondent for not verifying the endorser's authority. There is no
substantial difference between an actual forging of a name to a check as an endorsement by a person not authorized to
make the signature and the affixing of a name to a check as an endorsement by a person not authorized to endorse it. 10

The Bank does not deny collecting the money on the endorsement. It was its responsibility to inquire as to the authority
of Rafael Sayson to deposit crossed checks payable to Melissa's RTW upon a prior endorsement by Eddie Reyes. The
failure of the Bank to make this inquiry was a breach of duty that made it liable to the private respondent for the amount
of the checks.

There being no evidence that the crossed checks were actually received by the private respondent, she would have a right
of action against the drawer companies, which in turn could go against their respective drawee banks, which in turn could
sue the herein petitioner as collecting bank. In a similar situation, it was held that, to simplify proceedings, the payee of
the illegally encashed checks should be allowed to recover directly from the bank responsible for such encashment
regardless of whether or not the checks were actually delivered to the payee. 11 We approve such direct action in the case
at bar.

It is worth repeating that before presenting the checks for clearing and for payment, the Bank had stamped on the back
thereof the words: "All prior endorsements and/or lack of endorsements guaranteed," and thus made the assurance that it
had ascertained the genuineness of all prior endorsements.
 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.
G.R. No. 139130             November 27, 2002 Petitioner, however, failed to comply with this request.
RAMON K. ILUSORIO, petitioner, vs. HON. COURT OF APPEALS, and THE MANILA BANKING
CORPORATION, respondents.
QUISUMBING, J.: After evaluating the evidence on both sides, the court a quo rendered judgment on May 12, 1994 with the following
dispositive portion:
This petition for review seeks to reverse the decision1 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. 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.
The facts as summarized by the Court of Appeals are as follows: Defendant’s 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
Petitioner is a prominent businessman who, at the time material to this case, was the Managing Director of Multinational appellate court held that petitioner’s own negligence was the proximate cause of his loss. The appellate court disposed as
Investment Bancorporation and the Chairman and/or President of several other corporations. He was a depositor in good follows:
standing of respondent bank, the Manila Banking Corporation, under current Checking Account No. 06-09037-0. As he WHEREFORE, the judgment appealed from is AFFIRMED. Costs against the appellant.
was then running about 20 corporations, and was going out of the country a number of times, petitioner entrusted to his SO ORDERED.8
secretary, Katherine2 E. Eugenio, his credit cards and his checkbook with blank checks. It was also Eugenio who verified Before us, petitioner ascribes the following errors to the Court of Appeals:
and reconciled the statements of said checking account.3
A. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE RESPONDENT BANK IS ESTOPPED
Between the dates September 5, 1980 and January 23, 1981, Eugenio was able to encash and deposit to her personal FROM RAISING THE DEFENSE THAT THERE WAS NO FORGERY OF THE SIGNATURES OF THE
account about seventeen (17) checks drawn against the account of the petitioner at the respondent bank, with an PETITIONER IN THE CHECK BECAUSE THE RESPONDENT FILED A CRIMINAL COMPLAINT FOR ESTAFA
aggregate amount of P119,634.34. Petitioner did not bother to check his statement of account until a business partner THRU FALSIFICATION OF COMMERCIAL DOCUMENTS AGAINST KATHERINE EUGENIO USING THE
apprised him that he saw Eugenio use his credit cards. Petitioner fired Eugenio immediately, and instituted a criminal AFFIDAVIT OF PETITIONER STATING THAT HIS SIGNATURES WERE FORGED AS PART OF THE
action against her for estafa thru falsification before the Office of the Provincial Fiscal of Rizal. Private respondent, AFFIDAVIT-COMPLAINT.9
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 petitioner’s statement that his signatures in the checks were
forged.4 Mr. Razon’s affidavit states: 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
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. 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
Ilusorio which we have on file at our said office on such dates,

That the aforementioned checks were among those issued by Manilabank in favor of its client MR. RAMON K. 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
ILUSORIO,…
That the same were personally encashed by KATHERINE E. ESTEBAN, an executive secretary of MR. RAMON K. ESTEBAN.12
ILUSORIO in said Investment Corporation;
That I have met and known her as KATHERINE E. ESTEBAN the attending verifier when she personally encashed the Essentially the issues in this case are: (1) whether or not petitioner has a cause of action against private respondent; and
above-mentioned checks at our said office; (2) whether or not private respondent, in filing an estafa case against petitioner’s secretary, is barred from raising the
That MR. RAMON K. ILUSORIO executed an affidavit expressly disowning his signature appearing on the checks defense that the fact of forgery was not established.
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
Petitioner contends that Manila Bank is liable for damages for its negligence in failing to detect the discrepant checks. He
wrongfully encashed but respondent bank refused. Hence, petitioner filed the instant case.6 adds that as a general rule a bank which has obtained possession of a check upon an unauthorized or forged endorsement
of the payee’s signature and which collects the amount of the check from the drawee is liable for the proceeds thereof to
At the trial, petitioner testified on his own behalf, attesting to the truth of the circumstances as narrated above, and how the payee. Petitioner invokes the doctrine of estoppel, saying that having itself instituted a forgery case against Eugenio,
he discovered the alleged forgeries. Several employees of Manila Bank were also called to the witness stand as hostile Manila Bank is now estopped from asserting that the fact of forgery was never proven.
witnesses. They testified that it is the bank’s 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.
For its part, Manila Bank contends that respondent appellate court did not depart from the accepted and usual course of The trouble is, the appellant had put so much trust and confidence in the said secretary, by entrusting not only his credit
judicial proceedings, hence there is no reason for the reversal of its ruling. Manila Bank additionally points out that cards with her but also his checkbook with blank checks. He also entrusted to her the verification and reconciliation of
Section 2313 of the Negotiable Instruments Law is inapplicable, considering that the fact of forgery was never proven. his account. Further adding to his injury was the fact that while the bank was sending him the monthly Statements of
Lastly, the bank negates petitioner’s claim of estoppel.14 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
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 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
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 The abovecited findings are binding upon the reviewing court. We stress the rule that the factual findings of a trial court,
finding regarding forgery. The Court of Appeals found that petitioner, by his own inaction, was precluded from setting up especially when affirmed by the appellate court, are binding upon us 19 and entitled to utmost respect20 and even finality.
forgery. Said the appellate court: We find no palpable error that would warrant a reversal of the appellate court’s assessment of facts anchored upon the
evidence on record.
We cannot fault the court a quo for such declaration, considering that the plaintiff’s 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 Petitioner’s failure to examine his bank statements appears as the proximate cause of his own damage. Proximate cause is
his own testimony, the appellant presented no other evidence to prove the fact of forgery. He did not even submit his own that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury,
specimen signatures, taken on or about the date of the questioned checks, for examination and comparison with those of and without which the result would not have occurred.21 In the instant case, the bank was not shown to be remiss in its
the subject checks. On the other hand, the appellee presented specimen signature cards of the appellant, taken at various duty of sending monthly bank statements to petitioner so that any error or discrepancy in the entries therein could be
years, namely, in 1976, 1979 and 1981 (Exhibits "1", "2", "3" and "7"), showing variances in the appellant’s brought to the bank’s attention at the earliest opportunity. But, petitioner failed to examine these bank statements not
unquestioned signatures. The evidence further shows that the appellee, as soon as it was informed by the appellant about because he was prevented by some cause in not doing so, but because he did not pay sufficient attention to the matter.
his questioned signatures, sought to borrow the questioned checks from the appellant for purposes of analysis and Had he done so, he could have been alerted to any anomaly committed against him. In other words, petitioner had
examination (Exhibit "9"), but the same was denied by the appellant. It was also the former which sought the assistance sufficient opportunity to prevent or detect any misappropriation by his secretary had he only reviewed the status of his
of the NBI for an expert analysis of the signatures on the questioned checks, but the same was unsuccessful for lack of accounts based on the bank statements sent to him regularly. In view of Article 2179 of the New Civil Code, 22 when the
sufficient specimen signatures.15 plaintiff’s own negligence was the immediate and proximate cause of his injury, no recovery could be had for damages.

Moreover, petitioner’s contention that Manila Bank was remiss in the exercise of its duty as drawee lacks factual basis. Petitioner further contends that under Section 23 of the Negotiable Instruments Law a forged check is inoperative, and
Consistently, the CA and the RTC found that Manila Bank employees exercised due diligence in cashing the checks. The that Manila Bank had no authority to pay the forged checks. True, it is a rule that when a signature is forged or made
bank’s employees in the present case did not have a hint as to Eugenio’s modus operandi because she was a regular without the authority of the person whose signature it purports to be, the check is wholly inoperative. No right to retain
customer of the bank, having been designated by petitioner himself to transact in his behalf. According to the appellate the instrument, or to give a discharge therefor, or to enforce payment thereof against any party, can be acquired through
court, the employees of the bank exercised due diligence in the performance of their duties. Thus, it found that: 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
The evidence on both sides indicates that TMBC’s employees exercised due diligence before encashing the checks. Its 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
verifiers first verified the drawer’s 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 statements of account.
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. Petitioner’s reliance on Associated Bank vs. Court of Appeals23 and Philippine Bank of Commerce vs. CA24 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
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 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
believe and so hold that if there were mistakes, the same were not deliberate, since the bank took all the precautions.16
courts below uniformly found that Manila Bank’s personnel diligently performed their duties, having compared the
signature in the checks from the specimen signatures on record and satisfied themselves that it was petitioner’s.
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 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
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 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
Court of Appeals on this matter:
information filed in court is required to be brought in the name of the "People of the Philippines." 26

Moreover, the appellant had introduced his secretary to the bank for purposes of reconciliation of his account, through a
Further, as petitioner himself stated in his petition, respondent bank filed the estafa case against Eugenio on the basis of
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. petitioner’s 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 he would be reimbursed for the amount of the check. 8 Jong proceeded to the police station and consulted with his
with the petitioner as a valuable client, by bolstering the estafa case which he filed against his secretary. lawyers.9 Subsequently, a criminal case for qualified theft was filed against Sempio before the Laguna court.10

All told, we find no reversible error that can be ascribed to the Court of Appeals. In a letter dated 6 May 1992, Samsung Construction, through counsel, demanded that FEBTC credit to it the amount of
Nine Hundred Ninety Nine Thousand Five Hundred Pesos (P999,500.00), with interest.11 In response, FEBTC said that it
WHEREFORE, the instant petition is DENIED for lack of merit. The assailed decision of the Court of Appeals dated was still conducting an investigation on the matter. Unsatisfied, Samsung Construction filed a Complaint on 10 June
1992 for violation of Section 23 of the Negotiable Instruments Law, and prayed for the payment of the amount debited as
January 28, 1999 in CA-G.R. CV No. 47942, is AFFIRMED.
a result of the questioned check plus interest, and attorney’s fees. 12 The case was docketed as Civil Case No. 92-61506
before the Regional Trial Court ("RTC") of Manila, Branch 9.13
Costs against petitioner.SO ORDERED
During the trial, both sides presented their respective expert witnesses to testify on the claim that Jong’s signature was
G.R. No. 129015             August 13, 2004 forged. Samsung Corporation, which had referred the check for investigation to the NBI, presented Senior NBI
SAMSUNG CONSTRUCTION COMPANY PHILIPPINES, INC., petitioner, vs. FAR EAST BANK AND TRUST Document Examiner Roda B. Flores. She testified that based on her examination, she concluded that Jong’s signature had
COMPANY AND COURT OF APPEALS, respondents. been forged on the check. On the other hand, FEBTC, which had sought the assistance of the Philippine National Police
TINGA, J (PNP),14 presented Rosario C. Perez, a document examiner from the PNP Crime Laboratory. She testified that her
Called to fore in the present petition is a classic textbook question – if a bank pays out on a forged check, is it liable to findings showed that Jong’s signature on the check was genuine.15
reimburse the drawer from whose account the funds were paid out? The Court of Appeals, in reversing a trial court
decision adverse to the bank, invoked tenuous reasoning to acquit the bank of liability. We reverse, applying time-
honored principles of law. Confronted with conflicting expert testimony, the RTC chose to believe the findings of the NBI expert. In
a Decision dated 25 April 1994, the RTC held that Jong’s signature on the check was forged and accordingly directed the
bank to pay or credit back to Samsung Construction’s account the amount of Nine Hundred Ninety Nine Thousand Five
The salient facts follow. Hundred Pesos (P999,500.00), together with interest tolled from the time the complaint was filed, and attorney’s fees in
the amount of Fifteen Thousand Pesos (P15,000.00).
Plaintiff Samsung Construction Company Philippines, Inc. ("Samsung Construction"), while based in Biñan, Laguna,
maintained a current account with defendant Far East Bank and Trust Company 1 ("FEBTC") at the latter’s Bel-Air, FEBTC timely appealed to the Court of Appeals. On 28 November 1996, the Special Fourteenth Division of the Court of
Makati branch.2 The sole signatory to Samsung Construction’s account was Jong Kyu Lee ("Jong"), its Project Appeals rendered a Decision,16 reversing the RTC Decision and absolving FEBTC from any liability. The Court of
Manager,3 while the checks remained in the custody of the company’s accountant, Kyu Yong Lee ("Kyu").4 Appeals held that the contradictory findings of the NBI and the PNP created doubt as to whether there was
forgery.17 Moreover, the appellate court also held that assuming there was forgery, it occurred due to the negligence of
On 19 March 1992, a certain Roberto Gonzaga presented for payment FEBTC Check No. 432100 to the bank’s branch in Samsung Construction, imputing blame on the accountant Kyu for lack of care and prudence in keeping the checks,
Bel-Air, Makati. The check, payable to cash and drawn against Samsung Construction’s current account, was in the which if observed would have prevented Sempio from gaining access thereto.18 The Court of Appeals invoked the ruling
amount of Nine Hundred Ninety Nine Thousand Five Hundred Pesos (P999,500.00). The bank teller, Cleofe Justiani, in PNB v. National City Bank of New York19 that, if a loss, which must be borne by one or two innocent persons, can be
first checked the balance of Samsung Construction’s account. After ascertaining there were enough funds to cover the traced to the neglect or fault of either, such loss would be borne by the negligent party, even if innocent of intentional
check,5 she compared the signature appearing on the check with the specimen signature of Jong as contained in the fraud.20
specimen signature card with the bank. After comparing the two signatures, Justiani was satisfied as to the authenticity of
the signature appearing on the check. She then asked Gonzaga to submit proof of his identity, and the latter presented Samsung Construction now argues that the Court of Appeals had seriously misapprehended the facts when it overturned
three (3) identification cards.6 the RTC’s finding of forgery. It also contends that the appellate court erred in finding that it had been negligent in
safekeeping the check, and in applying the equity principle enunciated in PNB v. National City Bank of New York.
At the same time, Justiani forwarded the check to the branch Senior Assistant Cashier Gemma Velez, as it was bank
policy that two bank branch officers approve checks exceeding One Hundred Thousand Pesos, for payment or Since the trial court and the Court of Appeals arrived at contrary findings on questions of fact, the Court is obliged to
encashment. Velez likewise counterchecked the signature on the check as against that on the signature card. He too examine the record to draw out the correct conclusions. Upon examination of the record, and based on the applicable
concluded that the check was indeed signed by Jong. Velez then forwarded the check and signature card to Shirley Syfu, laws and jurisprudence, we reverse the Court of Appeals.
another bank officer, for approval. Syfu then noticed that Jose Sempio III ("Sempio"), the assistant accountant of
Samsung Construction, was also in the bank. Sempio was well-known to Syfu and the other bank officers, he being the
assistant accountant of Samsung Construction. Syfu showed the check to Sempio, who vouched for the genuineness of Section 23 of the Negotiable Instruments Law states:
When a signature is forged or made without the authority of the person whose signature it purports to be, it is
Jong’s signature. Confirming the identity of Gonzaga, Sempio said that the check was for the purchase of equipment for
Samsung Construction. Satisfied with the genuineness of the signature of Jong, Syfu authorized the bank’s encashment of 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
the check to Gonzaga.
party against whom it is sought to enforce such right is precluded from setting up the forgery or want of
authority. (Emphasis supplied)
The following day, the accountant of Samsung Construction, Kyu, examined the balance of the bank account and
discovered that a check in the amount of Nine Hundred Ninety Nine Thousand Five Hundred Pesos (P999,500.00) had
been encashed. Aware that he had not prepared such a check for Jong’s signature, Kyu perused the checkbook and found The general rule is to the effect that a forged signature is "wholly inoperative," and payment made "through or under such
signature" is ineffectual or does not discharge the instrument. 21 If payment is made, the drawee cannot charge it to the
that the last blank check was missing.7 He reported the matter to Jong, who then proceeded to the bank. Jong learned of
the encashment of the check, and realized that his signature had been forged. The Bank Manager reputedly told Jong that drawer’s account. The traditional justification for the result is that the drawee is in a superior position to detect a forgery
because he has the maker’s signature and is expected to know and compare it.22 The rule has a healthy cautionary effect is a harsh rule which compels it to suffer although no one has suffered by its being deceived. 27 The forgery may be so
on banks by encouraging care in the comparison of the signatures against those on the signature cards they have on file. near like the genuine as to defy detection by the depositor himself, and yet the bank is liable to the depositor if it pays the
Moreover, the very opportunity of the drawee to insure and to distribute the cost among its customers who use checks check.28
makes the drawee an ideal party to spread the risk to insurance.23
Thus, the first matter of inquiry is into whether the check was indeed forged. A document formally presented is presumed
Brady, in his treatise The Law of Forged and Altered Checks, elucidates: to be genuine until it is proved to be fraudulent. In a forgery trial, this presumption must be overcome but this can only be
done by convincing testimony and effective illustrations.29
When a person deposits money in a general account in a bank, against which he has the privilege of drawing
checks in the ordinary course of business, the relationship between the bank and the depositor is that of debtor In ruling that forgery was not duly proven, the Court of Appeals held:
and creditor. So far as the legal relationship between the two is concerned, the situation is the same as though
the bank had borrowed money from the depositor, agreeing to repay it on demand, or had bought goods from [There] is ground to doubt the findings of the trial court sustaining the alleged forgery in view of the
the depositor, agreeing to pay for them on demand. The bank owes the depositor money in the same sense that
conflicting conclusions made by handwriting experts from the NBI and the PNP, both agencies of the
any debtor owes money to his creditor. Added to this, in the case of bank and depositor, there is, of course, the government.
bank’s obligation to pay checks drawn by the depositor in proper form and presented in due course. When the
bank receives the deposit, it impliedly agrees to pay only upon the depositor’s order. When the bank pays a
check, on which the depositor’s signature is a forgery, it has failed to comply with its contract in this respect. These contradictory findings create doubt on whether there was indeed a forgery. In the case of Tenio-
Therefore, the bank is held liable. Obsequio v. Court of Appeals, 230 SCRA 550, the Supreme Court held that forgery cannot be presumed; it
must be proved by clear, positive and convincing evidence.
The fact that the forgery is a clever one is immaterial. The forged signature may so closely resemble the
genuine as to defy detection by the depositor himself. And yet, if a bank pays the check, it is paying out its This reasoning is pure sophistry. Any litigator worth his or her salt would never allow an opponent’s expert witness to
own money and not the depositor’s. stand uncontradicted, thus the spectacle of competing expert witnesses is not unusual. The trier of fact will have to decide
which version to believe, and explain why or why not such version is more credible than the other. Reliance therefore
cannot be placed merely on the fact that there are colliding opinions of two experts, both clothed with the presumption of
The forgery may be committed by a trusted employee or confidential agent. The bank still must bear the loss. official duty, in order to draw a conclusion, especially one which is extremely crucial. Doing so is tantamount to a
Even in a case where the forged check was drawn by the depositor’s partner, the loss was placed upon the
jurisprudential cop-out.
bank. The case referred to is Robinson v. Security Bank, Ark., 216 S. W. Rep. 717. In this case, the plaintiff
brought suit against the defendant bank for money which had been deposited to the plaintiff’s credit and which
the bank had paid out on checks bearing forgeries of the plaintiff’s signature. Much is expected from the Court of Appeals as it occupies the penultimate tier in the judicial hierarchy. This Court has
long deferred to the appellate court as to its findings of fact in the understanding that it has the appropriate skill and
competence to plough through the minutiae that scatters the factual field. In failing to thoroughly evaluate the evidence
It was held that the bank was liable. It was further held that the fact that the plaintiff waited eight or nine
before it, and relying instead on presumptions haphazardly drawn, the Court of Appeals was sadly remiss. Of course,
months after discovering the forgery, before notifying the bank, did not, as a matter of law, constitute a courts, like humans, are fallible, and not every error deserves a stern rebuke. Yet, the appellate court’s error in this case
ratification of the payment, so as to preclude the plaintiff from holding the bank liable. xxx
warrants special attention, as it is absurd and even dangerous as a precedent. If this rationale were adopted as a governing
standard by every court in the land, barely any actionable claim would prosper, defeated as it would be by the mere
This rule of liability can be stated briefly in these words: "A bank is bound to know its depositors’ signature." invocation of the existence of a contrary "expert" opinion.
The rule is variously expressed in the many decisions in which the question has been considered. But they all
sum up to the proposition that a bank must know the signatures of those whose general deposits it carries.24 On the other hand, the RTC did adjudge the testimony of the NBI expert as more credible than that of the PNP, and
explained its reason behind the conclusion:
By no means is the principle rendered obsolete with the advent of modern commercial transactions. Contemporary texts
still affirm this well-entrenched standard. Nickles, in his book Negotiable Instruments and Other Related Commercial After subjecting the evidence of both parties to a crucible of analysis, the court arrived at the conclusion that
Paper  wrote, thus:
the testimony of the NBI document examiner is more credible because the testimony of the PNP Crime
Laboratory Services document examiner reveals that there are a lot of differences in the questioned signature
The deposit contract between a payor bank and its customer determines who can draw against the customer’s as compared to the standard specimen signature. Furthermore, as testified to by Ms. Rhoda Flores, NBI expert,
account by specifying whose signature is necessary on checks that are chargeable against the customer’s the manner of execution of the standard signatures used reveals that it is a free rapid continuous execution or
account. Therefore, a check drawn against the account of an individual customer that is signed by someone stroke as shown by the tampering terminal stroke of the signatures whereas the questioned signature is a
other than the customer, and without authority from her, is not properly payable and is not chargeable to the hesitating slow drawn execution stroke. Clearly, the person who executed the questioned signature was
customer’s account, inasmuch as any "unauthorized signature on an instrument is ineffective" as the signature hesitant when the signature was made.30
of the person whose name is signed.25
During the testimony of PNP expert Rosario Perez, the RTC bluntly noted that "apparently, there [are] differences on that
Under Section 23 of the Negotiable Instruments Law, forgery is a real or absolute defense by the party whose signature is questioned signature and the standard signatures."31 This Court, in examining the signatures, makes a similar finding. The
forged.26 On the premise that Jong’s signature was indeed forged, FEBTC is liable for the loss since it authorized the PNP expert excused the noted "differences" by asserting that they were mere "variations," which are normal deviations
discharge of the forged check. Such liability attaches even if the bank exerts due diligence and care in preventing such found in writing.32 Yet the RTC, which had the opportunity to examine the relevant documents and to personally observe
faulty discharge. Forgeries often deceive the eye of the most cautious experts; and when a bank has been so deceived, it the expert witness, clearly disbelieved the PNP expert. The Court similarly finds the testimony of the PNP expert as
unconvincing. During the trial, she was confronted several times with apparent differences between strokes in the FEBTC lays undue emphasis on the fact that the PNP examiner did compare the questioned signature against the bank
questioned signature and the genuine samples. Each time, she would just blandly assert that these differences were just signature cards. The crucial fact in question is whether or not the check was forged, not whether the bank could
"variations,"33 as if the mere conjuration of the word would sufficiently disquiet whatever doubts about the deviations. have detected the forgery. The latter issue becomes relevant only if there is need to weigh the comparative
Such conclusion, standing alone, would be of little or no value unless supported by sufficiently cogent reasons which negligence between the bank and the party whose signature was forged.
might amount almost to a demonstration.34
At the same time, the Court of Appeals failed to assess the effect of Jong’s testimony that the signature on the check was
The most telling difference between the questioned and genuine signatures examined by the PNP is in the final upward not his.47 The assertion may seem self-serving at first blush, yet it cannot be ignored that Jong was in the best position to
stroke in the signature, or "the point to the short stroke of the terminal in the capital letter ‘L,’" as referred to by the PNP know whether or not the signature on the check was his. While his claim should not be taken at face value, any averments
examiner who had marked it in her comparison chart as "point no. 6." To the plain eye, such upward final stroke consists he would have on the matter, if adjudged as truthful, deserve primacy in consideration. Jong’s testimony is supported by
of a vertical line which forms a ninety degree (90º) angle with the previous stroke. Of the twenty one (21) other genuine the findings of the NBI examiner. They are also backed by factual circumstances that support the conclusion that the
samples examined by the PNP, at least nine (9) ended with an upward stroke.35 However, unlike the questioned signature, assailed check was indeed forged. Judicial notice can be taken that is highly unusual in practice for a business
the upward strokes of eight (8) of these signatures are looped, while the upward stroke of the seventh 36 forms a severe establishment to draw a check for close to a million pesos and make it payable to cash or bearer, and not to order. Jong
forty-five degree (45º) with the previous stroke. The difference is glaring, and indeed, the PNP examiner was confronted immediately reported the forgery upon its discovery. He filed the appropriate criminal charges against Sempio, the
with the inconsistency in point no. 6. putative forger.48

Q: Now, in this questioned document point no. 6, the "s" stroke is directly upwards. Now for determination is whether Samsung Construction was precluded from setting up the defense of forgery under
A: Yes, sir. Section 23 of the Negotiable Instruments Law. The Court of Appeals concluded that Samsung Construction was
Q: Now, can you look at all these standard signature (sic) were (sic) point 6 is repeated or the last stroke "s" is negligent, and invoked the doctrines that "where a loss must be borne by one of two innocent person, can be traced to the
pointing directly upwards? neglect or fault of either, it is reasonable that it would be borne by him, even if innocent of any intentional fraud, through
A: There is none in the standard signature, sir.37 whose means it has succeeded49 or who put into the power of the third person to perpetuate the wrong."50 Applying these
rules, the Court of Appeals determined that it was the negligence of Samsung Construction that allowed the encashment
of the forged check.
Again, the PNP examiner downplayed the uniqueness of the final stroke in the questioned signature as a mere
variation,38 the same excuse she proffered for the other marked differences noted by the Court and the counsel for
petitioner.39 In the case at bar, the forgery appears to have been made possible through the acts of one Jose Sempio III, an
assistant accountant employed by the plaintiff Samsung [Construction] Co. Philippines, Inc. who supposedly
There is no reason to doubt why the RTC gave credence to the testimony of the NBI examiner, and not the PNP expert’s. stole the blank check and who presumably is responsible for its encashment through a forged signature of Jong
Kyu Lee. Sempio was assistant to the Korean accountant who was in possession of the blank checks and who
The NBI expert, Rhoda Flores, clearly qualifies as an expert witness. A document examiner for fifteen years, she had
been promoted to the rank of Senior Document Examiner with the NBI, and had held that rank for twelve years prior to through negligence, enabled Sempio to have access to the same. Had the Korean accountant been more careful
and prudent in keeping the blank checks Sempio would not have had the chance to steal a page thereof and to
her testimony. She had placed among the top five examinees in the Competitive Seminar in Question Document
Examination, conducted by the NBI Academy, which qualified her as a document examiner. 40 She had trained with the effect the forgery. Besides, Sempio was an employee who appears to have had dealings with the defendant
Bank in behalf of the plaintiff corporation and on the date the check was encashed, he was there to certify that
Royal Hongkong Police Laboratory and is a member of the International Association for Identification. 41 As of the time
she testified, she had examined more than fifty to fifty-five thousand questioned documents, on an average of fifteen to it was a genuine check issued to purchase equipment for the company.51
twenty documents a day.42 In comparison, PNP document examiner Perez admitted to having examined only around five
hundred documents as of her testimony.43 We recognize that Section 23 of the Negotiable Instruments Law bars a party from setting up the defense of forgery if it
is guilty of negligence.52 Yet, we are unable to conclude that Samsung Construction was guilty of negligence in this case.
The appellate court failed to explain precisely how the Korean accountant was negligent or how more care and prudence
In analyzing the signatures, NBI Examiner Flores utilized the scientific comparative examination method consisting of
analysis, recognition, comparison and evaluation of the writing habits with the use of instruments such as a magnifying on his part would have prevented the forgery. We cannot sustain this "tar and feathering" resorted to without any basis.
lense, a stereoscopic microscope, and varied lighting substances. She also prepared enlarged photographs of the
signatures in order to facilitate the necessary comparisons.44 She compared the questioned signature as against ten (10) The bare fact that the forgery was committed by an employee of the party whose signature was forged cannot necessarily
other sample signatures of Jong. Five of these signatures were executed on checks previously issued by Jong, while the imply that such party’s negligence was the cause for the forgery. Employers do not possess the preternatural gift of
other five contained in business letters Jong had signed.45 The NBI found that there were significant differences in the cognition as to the evil that may lurk within the hearts and minds of their employees. The Court’s pronouncement in PCI
handwriting characteristics existing between the questioned and the sample signatures, as to manner of execution, Bank v. Court of Appeals53 applies in this case, to wit:
link/connecting strokes, proportion characteristics, and other identifying details.46
[T]he mere fact that the forgery was committed by a drawer-payor’s confidential employee or agent, who by
The RTC was sufficiently convinced by the NBI examiner’s testimony, and explained her reasons in its Decisions. While virtue of his position had unusual facilities for perpetrating the fraud and imposing the forged paper upon the
the Court of Appeals disagreed and upheld the findings of the PNP, it failed to convincingly demonstrate why such bank, does not entitle the bank to shift the loss to the drawer-payor, in the absence of some circumstance
findings were more credible than those of the NBI expert. As a throwaway, the assailed Decision noted that the PNP, not raising estoppel against the drawer.54
the NBI, had the opportunity to examine the specimen signature card signed by Jong, which was relied upon by the
employees of FEBTC in authenticating Jong’s signature. The distinction is irrelevant in establishing forgery. Forgery can Admittedly, the record does not clearly establish what measures Samsung Construction employed to safeguard its blank
be established comparing the contested signatures as against those of any sample signature duly established as that of the
checks. Jong did testify that his accountant, Kyu, kept the checks inside a "safety box,"55 and no contrary version was
persons whose signature was forged. presented by FEBTC. However, such testimony cannot prove that the checks were indeed kept in a safety box, as Jong’s
testimony on that point is hearsay, since Kyu, and not Jong, would have the personal knowledge as to how the checks which it has paid on a check bearing a forged indorsement, whereas it has not this right to the same extent with
were kept. reference to a check bearing a forgery of the drawer’s signature.66

Still, in the absence of evidence to the contrary, we can conclude that there was no negligence on Samsung The general rule imputing liability on the drawee who paid out on the forgery holds in this case.
Construction’s part. The presumption remains that every person takes ordinary care of his concerns, 56 and that the
ordinary course of business has been followed.57 Negligence is not presumed, but must be proven by him who alleges Since FEBTC puts into issue the degree of care it exercised before paying out on the forged check, we might as well
it.58 While the complaint was lodged at the instance of Samsung Construction, the matter it had to prove was the claim it
comment on the bank’s performance of its duty. It might be so that the bank complied with its own internal rules prior to
had alleged - whether the check was forged. It cannot be required as well to prove that it was not negligent, because the paying out on the questionable check. Yet, there are several troubling circumstances that lead us to believe that the bank
legal presumption remains that ordinary care was employed.
itself was remiss in its duty.

Thus, it was incumbent upon FEBTC, in defense, to prove the negative fact that Samsung Construction was negligent. The fact that the check was made out in the amount of nearly one million pesos is unusual enough to require a higher
While the payee, as in this case, may not have the personal knowledge as to the standard procedures observed by the
degree of caution on the part of the bank. Indeed, FEBTC confirms this through its own internal procedures. Checks
drawer, it well has the means of disputing the presumption of regularity. Proving a negative fact may be "a difficult below twenty-five thousand pesos require only the approval of the teller; those between twenty-five thousand to one
office,"59 but necessarily so, as it seeks to overcome a presumption in law. FEBTC was unable to dispute the presumption
hundred thousand pesos necessitate the approval of one bank officer; and should the amount exceed one hundred
of ordinary care exercised by Samsung Construction, hence we cannot agree with the Court of Appeals’ finding of thousand pesos, the concurrence of two bank officers is required.67
negligence.

In this case, not only did the amount in the check nearly total one million pesos, it was also payable to cash. That latter
The assailed Decision  replicated the extensive efforts which FEBTC devoted to establish that there was no negligence on circumstance should have aroused the suspicion of the bank, as it is not ordinary business practice for a check for such
the part of the bank in its acceptance and payment of the forged check. However, the degree of diligence exercised by the
large amount to be made payable to cash or to bearer, instead of to the order of a specified person. 68 Moreover, the check
bank would be irrelevant if the drawer is not precluded from setting up the defense of forgery under Section 23 by his was presented for payment by one Roberto Gonzaga, who was not designated as the payee of the check, and who did not
own negligence. The rule of equity enunciated in PNB v. National City Bank of New York, 60 as relied upon by the Court
carry with him any written proof that he was authorized by Samsung Construction to encash the check. Gonzaga, a
of Appeals, deserves careful examination. stranger to FEBTC, was not even an employee of Samsung Construction.69 These circumstances are already suspicious if
taken independently, much more so if they are evaluated in concurrence. Given the shadiness attending Gonzaga’s
The point in issue has sometimes been said to be that of negligence. The drawee who has paid upon the presentment of the check, it was not sufficient for FEBTC to have merely complied with its internal procedures, but
forged signature is held to bear the loss, because he has been negligent in failing to recognize that the mandatory that all earnest efforts be undertaken to ensure the validity of the check, and of the authority of Gonzaga to
handwriting is not that of his customer. But it follows obviously that if the payee, holder, or presenter of the collect payment therefor.
forged paper has himself been in default, if he has himself been guilty of a negligence prior to that of the
banker, or if by any act of his own he has at all contributed to induce the banker's negligence, then he may lose
According to FEBTC Senior Assistant Cashier Gemma Velez, the bank tried, but failed, to contact Jong over the phone
his right to cast the loss upon the banker.61 (Emphasis supplied) to verify the check.70 She added that calling the issuer or drawer of the check to verify the same was not part of the
standard procedure of the bank, but an "extra effort." 71 Even assuming that such personal verification is tantamount to
Quite palpably, the general rule remains that the drawee who has paid upon the forged signature bears the loss. The extraordinary diligence, it cannot be denied that FEBTC still paid out the check despite the absence of any proof of
exception to this rule arises only when negligence can be traced on the part of the drawer whose signature was forged, verification from the drawer. Instead, the bank seems to have relied heavily on the say-so of Sempio, who was present at
and the need arises to weigh the comparative negligence between the drawer and the drawee to determine who should the bank at the time the check was presented.
bear the burden of loss. The Court finds no basis to conclude that Samsung Construction was negligent in the safekeeping
of its checks. For one, the settled rule is that the mere fact that the depositor leaves his check book lying around does not
FEBTC alleges that Sempio was well-known to the bank officers, as he had regularly transacted with the bank in behalf
constitute such negligence as will free the bank from liability to him, where a clerk of the depositor or other persons, of Samsung Construction. It was even claimed that everytime FEBTC would contact Jong about problems with his
taking advantage of the opportunity, abstract some of the check blanks, forges the depositor’s signature and collect on the
account, Jong would hand the phone over to Sempio.72 However, the only proof of such allegations is the testimony of
checks from the bank.62 And for another, in point of fact Samsung Construction was not negligent at all since it reported Gemma Velez, who also testified that she did not know Sempio personally,73 and had met Sempio for the first time only
the forgery almost immediately upon discovery.63
on the day the check was encashed.74 In fact, Velez had to inquire with the other officers of the bank as to whether
Sempio was actually known to the employees of the bank.75 Obviously, Velez had no personal knowledge as to the past
It is also worth noting that the forged signatures in PNB v. National City Bank of New York were not of the drawer, but of relationship between FEBTC and Sempio, and any averments of her to that effect should be deemed hearsay evidence.
indorsers. The same circumstance attends PNB v. Court of Appeals,64 which was also cited by the Court of Appeals. It is Interestingly, FEBTC did not present as a witness any other employee of their Bel-Air branch, including those who
accepted that a forged signature of the drawer differs in treatment than a forged signature of the indorser. supposedly had transacted with Sempio before.

The justification for the distinction between forgery of the signature of the drawer and forgery of an Even assuming that FEBTC had a standing habit of dealing with Sempio, acting in behalf of Samsung Construction, the
indorsement is that the drawee is in a position to verify the drawer’s signature by comparison with one in his irregular circumstances attending the presentment of the forged check should have put the bank on the highest degree of
hands, but has ordinarily no opportunity to verify an indorsement.65 alert. The Court recently emphasized that the highest degree of care and diligence is required of banks.

Thus, a drawee bank is generally liable to its depositor in paying a check which bears either a forgery of the Banks are engaged in a business impressed with public interest, and it is their duty to protect in return their
drawer’s signature or a forged indorsement. But the bank may, as a general rule, recover back the money many clients and depositors who transact business with them. They have the obligation to treat their client’s
 account meticulously and with the highest degree of care, considering the fiduciary nature of their relationship. The said signatories on separate but coeval dates left for and returned from the Unites States of America, Felipe on
The diligence required of banks, therefore, is more than that of a good father of a family.76 March 18, 1995 until June 10, 1995 while Angelita followed him on March 29, 1995 and returned ahead on May 9, 1995.

Given the circumstances, extraordinary diligence dictates that FEBTC should have ascertained from Jong personally that While they were thus out of the country, applications for cashier’s and manager’s [checks] bearing Felipe’s [signature]
the signature in the questionable check was his. were presented to and both approved by the PNB. The first was on March 27, 1995 for ₱9,950,000.00 payable to a
certain Gene B. Sangalang and the other one was on April 24, 1995 for ₱3,260,500.31 payable to one Paul Bautista. The
amounts of these checks were then debited by the PNB against the combo account of [FFCCI].
Still, even if the bank performed with utmost diligence, the drawer whose signature was forged may still recover from the
bank as long as he or she is not precluded from setting up the defense of forgery. After all, Section 23 of the Negotiable
Instruments Law plainly states that no right to enforce the payment of a check can arise out of a forged signature. Since When Angelita returned to the country, she had occasion to examine the PNB statements of account of [FFCCI] for the
the drawer, Samsung Construction, is not precluded by negligence from setting up the forgery, the general rule should months of February to August 1995 and she noticed the deductions of ₱9,950,000.00 and ₱3,260,500.31. Claiming that
apply. Consequently, if a bank pays a forged check, it must be considered as paying out of its funds and cannot charge these were unauthorized and fraudulently made, [FFCCI] requested PNB to credit back and restore to its account the
the amount so paid to the account of the depositor. 77 A bank is liable, irrespective of its good faith, in paying a forged value of the checks. PNB refused, and thus constrained [FFCCI] filed the instant suit for damages against the PNB and its
check.78 own accountant Aurea Caparas (or Caparas).

WHEREFORE,  the Petition  is GRANTED. The Decision of the Court of Appeals dated 28 November 1996 is In its traverse, PNB averred lack of cause of action. It alleged that it exercised due diligence in handling the account of
REVERSED, and the Decision of the Regional Trial Court of Manila, Branch 9, dated 25 April 1994 is REINSTATED. [FFCCI]. The applications for manager’s check have passed through the standard bank procedures and it was only after
Costs against respondent. finding no infirmity that these were given due course. In fact, it was no less than Caparas, the accountant of [FFCCI],
who confirmed the regularity of the transaction. The delay of [FFCCI] in picking up and going over the bank statements
was the proximate cause of its self-proclaimed injury. Had [FFCCI] been conscientious in this regard, the alleged
SO ORDERED.
chicanery would have been detected early on and Caparas effectively prevented from absconding with its millions. It
prayed for the dismissal of the complaint.4
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.
Regional Trial Court’s Ruling
G.R. No. 173259               July 25, 2011
The trial court ruled that F.F. Cruz and Company, Inc. ( FFCCI) was guilty of negligence in clothing Aurea Caparas
PHILIPPINE NATIONAL BANK, Petitioner, (Caparas) with authority to make decisions on and dispositions of its account which paved the way for the fraudulent
vs. transactions perpetrated by Caparas; that, in practice, FFCCI waived the two-signature requirement in transactions
F.F. CRUZ and CO., INC. Respondent. involving the subject combo account so much so that Philippine National Bank (PNB) could not be faulted for honoring
the applications for manager’s check even if only the signature of Felipe Cruz appeared thereon; and that FFCCI was
DECISION negligent in not immediately informing PNB of the fraud.

DEL CASTILLO, J.: On the other hand, the trial court found that PNB was, likewise, negligent in not calling or personally verifying from the
authorized signatories the legitimacy of the subject withdrawals considering that they were in huge amounts. For this
reason, PNB had the last clear chance to prevent the unauthorized debits from FFCCI’s combo account. Thus, PNB
As between a bank and its depositor, where the bank’s negligence is the proximate cause of the loss and the depositor is should bear the whole loss –
guilty of contributory negligence, the greater proportion of the loss shall be borne by the bank.
WHEREFORE, judgment is hereby rendered ordering defendant [PNB] to pay plaintiff [FFCCI] ₱13,210,500.31
This Petition for Review on Certiorari seeks to reverse and set aside the Court of Appeal’s January 31, 2006 Decision 1 in representing the amounts debited against plaintiff’s account, with interest at the legal rate computed from the filing of the
CA-G.R. CV No. 81349, which modified the January 30, 2004 Decision2 of the Regional Trial Court of Manila City, complaint plus costs of suit.
Branch 46 in Civil Case No. 97-84010, and the June 26, 2006 Resolution 3 denying petitioner’s motion for
reconsideration.
IT IS SO ORDERED.5

Factual Antecedents
Court of Appeal’s Ruling

The antecedents are aptly summarized by the appellate court:

On January 31, 2006, the CA rendered the assailed Decision affirming with modification the Decision of the trial
court, viz:
In its complaint, it is alleged that [respondent F.F. Cruz & Co., Inc.] (hereinafter FFCCI) opened savings/current or so-
called combo account No. 0219-830-146 and dollar savings account No. 0219-0502-458-6 with [petitioner Philippine
National Bank] (hereinafter PNB) at its Timog Avenue Branch. Its President Felipe Cruz (or Felipe) and Secretary- WHEREFORE, the appealed Decision is AFFIRMED with the MODIFICATION that [PNB] shall pay [FFCCI] only
Treasurer Angelita A. Cruz (or Angelita) were the named signatories for the said accounts. 60% of the actual damages awarded by the trial court while the remaining 40% shall be borne by [FFCCI].
SO ORDERED.6 verifier. PNB concedes the absence16 of the subject signature but argues that the same was the result of inadvertence. It
posits that the testimonies of Geronimo Gallego (Gallego), then the branch manager of PNB Timog Branch, and Stella
The appellate court ruled that PNB was negligent in not properly verifying the genuineness of the signatures appearing San Diego (San Diego), then branch cashier, suffice to establish that the signature verification process was duly followed.
on the two applications for manager’s check as evidenced by the lack of the signature of the bank verifier thereon. Had
this procedure been followed, the forgery would have been detected. We are not persuaded.

Nonetheless, the appellate court found FFCCI guilty of contributory negligence because it clothed its First, oral testimony is not as reliable as documentary evidence.17 Second, PNB’s own witness, San Diego, testified that
accountant/bookkeeper Caparas with apparent authority to transact business with PNB. In addition, FFCCI failed to in the verification process, the principal duty to determine the genuineness of the signature devolved upon the account
timely examine its monthly statement of account and report the discrepancy to PNB within a reasonable period of time to analyst.18 However, PNB did not present the account analyst to explain his or her failure to sign the box for signature and
prevent or recover the loss. FFCCI’s contributory negligence, thus, mitigated the bank’s liability. Pursuant to the rulings balance verification of the subject applications for manager’s check, thus, casting doubt as to whether he or she did
in Philippine Bank of Commerce v. Court of Appeals 7 and The Consolidated Bank & Trust Corporation v. Court of indeed verify the signatures thereon. Third, we cannot fault the appellate court for not giving weight to the testimonies of
Appeals,8 the appellate court allocated the damages on a 60-40 ratio with the bigger share to be borne by PNB. Gallego and San Diego considering that the latter are naturally interested in exculpating themselves from any liability
arising from the failure to detect the forgeries in the subject transactions. Fourth, Gallego admitted that PNB’s employees
received training on detecting forgeries from the National Bureau of Investigation.19 However, Emmanuel Guzman, then
From this decision, both FFCCI and PNB sought review before this Court.
NBI senior document examiner, testified, as an expert witness, that the forged signatures in the subject applications for
manager’s check contained noticeable and significant differences from the genuine signatures of FFCCI’s authorized
On August 17, 2006, FFCCI filed its petition for review on certiorari which was docketed as G.R. No. 173278.9 On signatories and that the forgeries should have been detected or observed by a trained signature verifier of any bank.20
March 7, 2007, the Court issued a Resolution 10 denying said petition. On June 13, 2007, the Court issued another
Resolution11 denying FFCCI’s motion for reconsideration. In denying the aforesaid petition, the Court ruled that FFCCI
Given the foregoing, we find no reversible error in the findings of the appellate court that PNB was negligent in the
essentially raises questions of fact which are, as a rule, not reviewable under a Rule 45 petition; that FFCCI failed to
show that its case fell within the established exceptions to this rule; and that FFCCI was guilty of contributory handling of FFCCI’s combo account, specifically, with respect to PNB’s failure to detect the forgeries in the subject
applications for manager’s check which could have prevented the loss. As we have often ruled, the banking business is
negligence. Thus, the appellate court correctly mitigated PNB’s liability.
impressed with public trust.21 A higher degree of diligence is imposed on banks relative to the handling of their affairs
than that of an ordinary business enterprise.22 Thus, the degree of responsibility, care and trustworthiness expected of
On July 13, 2006, PNB filed its petition for review on certiorari which is the subject matter of this case. their officials and employees is far greater than those of ordinary officers and employees in other enterprises.23 In the case
at bar, PNB failed to meet the high standard of diligence required by the circumstances to prevent the fraud.
Issue In Philippine Bank of Commerce v. Court of Appeals 24  and The Consolidated Bank & Trust Corporation v. Court of
Appeals,25 where the bank’s negligence is the proximate cause of the loss and the depositor is guilty of contributory
negligence, we allocated the damages between the bank and the depositor on a 60-40 ratio. We apply the same ruling in
Whether the Court of Appeals seriously erred when it found PNB guilty of negligence.12 this case considering that, as shown above, PNB’s negligence is the proximate cause of the loss while the issue as to
FFCCI’s contributory negligence has been settled with finality in G.R. No. 173278. Thus, the appellate court properly
Our Ruling adjudged PNB to bear the greater part of the loss consistent with these rulings.

We affirm the ruling of the CA. WHEREFORE, the petition is DENIED. The January 31, 2006 Decision and June 26, 2006 Resolution of the Court of
Appeals in CA-G.R. CV No. 81349 are AFFIRMED.
PNB is guilty of negligence.
Costs against petitioner.
Preliminarily, in G.R. No. 173278, we resolved with finality  that FFCCI is guilty of contributory negligence, thus,
13

making it partly liable for the loss (i.e., as to 40% thereof) arising from the unauthorized withdrawal of ₱13,210,500.31 SO ORDERED
from its combo account. The case before us is, thus, limited to PNB’s alleged negligence in the subject transactions
which the appellate court found to be the proximate cause of the loss, thus, making it liable for the greater part of the loss
(i.e., as to 60% thereof) pursuant to our rulings in Philippine Bank of Commerce v. Court of Appeals 14 and  The
Consolidated Bank & Trust Corporation v. Court of Appeals.15

PNB contends that it was not negligent in verifying the genuineness of the signatures appearing on the subject
applications for manager’s check. It claims that it followed the standard operating procedure in the verification process
and that four bank officers examined the signatures and found the same to be similar with those found in the signature
cards of FFCCI’s authorized signatories on file with the bank.

PNB raises factual issues which are generally not proper for review under a Rule 45 petition.1avvphi1 While there are
exceptions to this rule, we find none applicable to the present case. As correctly found by the appellate court, PNB failed
to make the proper verification because the applications for the manager’s check do not bear the signature of the bank
 THE RTC DECISION

On September 22, 2000, the RTC issued a decision in favor of PCIB, with the following dispositive portion:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendants as
follows:
1. Ordering defendant Antonio Balmaceda to pay the amount of ₱11,042,150.00 with interest thereon at the
legal rate from [the] date of his misappropriation of the said amount until full restitution shall have been
made[.]
2. Ordering defendant Rolando Ramos to pay the amount of ₱895,000.00 with interest at the legal rate from
the date of misappropriation of the said amount until full restitution shall have been made[.]
3. Ordering the defendants to pay plaintiff moral damages in the sum of ₱500,000.00 and attorney’s fees in the
amount of ten (10%) percent of the total misappropriated amounts sought to be recovered.
4. Plus costs of suit.

SO ORDERED.4

From the evidence presented, the RTC found that Balmaceda, by taking undue advantage of his position and authority as
branch manager of the Sta. Cruz, Manila branch of PCIB, successfully obtained and misappropriated the bank’s funds by
falsifying several commercial documents. He accomplished this by claiming that he had been instructed by one of the
Bank’s corporate clients to purchase Manager’s checks on its behalf, with the value of the checks to be debited from the
client’s corporate bank account. First, he would instruct the Bank staff to prepare the application forms for the purchase
of Manager’s checks, payable to several persons. Then, he would forge the signature of the client’s authorized
representative on these forms and sign the forms as PCIB’s approving officer. Finally, he would have an authorized
G.R. No. 158143               September 21, 2011 officer of PCIB issue the Manager’s checks. Balmaceda would subsequently ask his subordinates to release the
PHILIPPINE COMMERCIAL INTERNATIONAL BANK, Petitioner, vs. ANTONIO B. BALMACEDA and Manager’s checks to him, claiming that the client had requested that he deliver the checks.5 After receiving the
ROLANDO N. RAMOS, Respondents. Manager’s checks, he encashed them by forging the signatures of the payees on the checks.
BRION, J.:
Before us is a petition for review on certiorari,1 filed by the Philippine Commercial International Bank2 (Bank or PCIB), In ruling that Ramos acted in collusion with Balmaceda, the RTC noted that although the Manager’s checks payable to
to reverse and set aside the decision3 dated April 29, 2003 of the Court of Appeals (CA) in CA-G.R. CV No. 69955. The Ramos were crossed checks, Balmaceda was still able to encash the checks. 6 After Balmaceda encashed three of these
CA overturned the September 22, 2000 decision of the Regional Trial Court (RTC) of Makati City, Branch 148, in Civil Manager’s checks, he deposited most of the money into Ramos’ account.7 The RTC concluded that from the
Case No. 93-3181, which held respondent Rolando Ramos liable to PCIB for the amount of ₱895,000.00. ₱11,937,150.00 that Balmaceda misappropriated from PCIB, ₱895,000.00 actually went to Ramos. Since the RTC
disbelieved Ramos’ allegation that the sum of money deposited into his Savings Account (PCIB, Pasig branch) were
FACTUAL ANTECEDENTS proceeds from the sale of fighting cocks, it held Ramos liable to pay PCIB the amount of ₱895,000.00.

On September 10, 1993, PCIB filed an action for recovery of sum of money with damages before the RTC against THE COURT OF APPEALS DECISION
Antonio Balmaceda, the Branch Manager of its Sta. Cruz, Manila branch. In its complaint, PCIB alleged that between
1991 and 1993, Balmaceda, by taking advantage of his position as branch manager, fraudulently obtained and encashed On appeal, the CA dismissed the complaint against Ramos, holding that no sufficient evidence existed to prove that
31 Manager’s checks in the total amount of Ten Million Seven Hundred Eighty Two Thousand One Hundred Fifty Pesos Ramos colluded with Balmaceda in the latter’s fraudulent manipulations.8
(₱10,782,150.00).

According to the CA, the mere fact that Balmaceda made Ramos the payee in some of the Manager’s checks does not
On February 28, 1994, PCIB moved to be allowed to file an amended complaint to implead Rolando Ramos as one of the suffice to prove that Ramos was complicit in Balmaceda’s fraudulent scheme. It observed that other persons were also
recipients of a portion of the proceeds from Balmaceda’s alleged fraud. PCIB also increased the number of fraudulently named as payees in the checks that Balmaceda acquired and encashed, and PCIB only chose to go after Ramos. With
obtained and encashed Manager’s checks to 34, in the total amount of Eleven Million Nine Hundred Thirty Seven PCIB’s failure to prove Ramos’ actual participation in Balmaceda’s fraud, no legal and factual basis exists to hold him
Thousand One Hundred Fifty Pesos (₱11,937,150.00). The RTC granted this motion. liable.

Since Balmaceda did not file an Answer, he was declared in default. On the other hand, Ramos filed an Answer denying The CA also found that PCIB acted illegally in freezing and debiting ₱251,910.96 from Ramos’ bank account. The CA
any knowledge of Balmaceda’s scheme. According to Ramos, he is a reputable businessman engaged in the business of thus decreed:
buying and selling fighting cocks, and Balmaceda was one of his clients. Ramos admitted receiving money from
Balmaceda as payment for the fighting cocks that he sold to Balmaceda, but maintained that he had no knowledge of the
source of Balmaceda’s money. WHEREFORE, the appeal is granted. The Decision of the trial court rendered on September 22, 2000[,] insofar as
appellant Ramos is concerned, is SET ASIDE, and the complaint below against him is DISMISSED.
Appellee is hereby ordered to release the amount of ₱251,910.96 to appellant Ramos plus interest at [the] legal rate PCIB insists that it presented sufficient evidence to establish that Ramos colluded with Balmaceda in the scheme to
computed from September 30, 1993 until appellee shall have fully complied therewith. fraudulently secure Manager’s checks and to misappropriate their proceeds. Since Ramos’ defense – anchored on mere
denial of any participation in Balmaceda’s wrongdoing – is an intrinsically weak defense, it was error for the CA to
exonerate Ramos from any liability.
Appellee is likewise ordered to pay appellant Ramos the following:

a) ₱50,000.00 as moral damages In civil cases, the party carrying the burden of proof must establish his case by a preponderance of evidence, or evidence
which, to the court, is more worthy of belief than the evidence offered in opposition. 13 This Court, in Encinas v. National
b) ₱50,000.00 as exemplary damages, and
c) ₱20,000.00 as attorney’s fees. Bookstore, Inc.,14 defined "preponderance of evidence" in the following manner:

"Preponderance of evidence" is the weight, credit, and value of the aggregate evidence on either side and is usually
No costs.
considered to be synonymous with the term "greater weight of the evidence" or "greater weight of the credible evidence."
Preponderance of evidence is a phrase which, in the last analysis, means probability of the truth. It is evidence which is
SO ORDERED.9 more convincing to the court as worthy of belief than that which is offered in opposition thereto.
THE PETITION
In the present petition, PCIB avers that:
The party, whether the plaintiff or the defendant, who asserts the affirmative of an issue has the onus to prove his
I
THE APPELLATE COURT ERRED IN HOLDING THAT THERE IS NO EVIDENCE TO HOLD THAT assertion in order to obtain a favorable judgment, subject to the overriding rule that the burden to prove his cause of
action never leaves the plaintiff. For the defendant, an affirmative defense is one that is not merely a denial of an
RESPONDENT RAMOS ACTED IN COMPLICITY WITH RESPONDENT BALMACEDA
II essential ingredient in the plaintiff's cause of action, but one which, if established, will constitute an "avoidance" of the
claim.15
THE APPELLATE COURT ERRED IN ORDERING THE PETITIONER TO RELEASE THE AMOUNT OF
₱251,910.96 TO RESPONDENT RAMOS AND TO PAY THE LATTER MORAL AND EXEMPLARY
DAMAGES AND ATTORNEY’S FEES10 Thus, PCIB, as plaintiff, had to prove, by preponderance of evidence, its positive assertion that Ramos conspired with
Balmaceda in perpetrating the latter’s scheme to defraud the Bank. In PCIB’s estimation, it successfully accomplished
PCIB contends that the circumstantial evidence shows that Ramos had knowledge of, and acted in complicity with this through the submission of the following evidence:
Balmaceda in, the perpetuation of the fraud. Ramos’ explanation that he is a businessman and that he received the
Manager’s checks as payment for the fighting cocks he sold to Balmaceda is unconvincing, given the large sum of money [1] Exhibits "A," "D," "PPPP," "QQQQ," and "RRRR" and their submarkings, the application forms for MCs,
involved. While Ramos presented evidence that he is a reputable businessman, this evidence does not explain why the show that [these MCs were applied for in favor of Ramos;]
Manager’s checks were made payable to him in the first place. [2] Exhibits "K," "N," "SSSS," "TTTT," and "UUUU" and their submarkings prove that the MCs were issued
in favor of x x x Ramos[; and]
[3] [T]estimonies of the witness for [PCIB].16
PCIB maintains that it had the right to freeze and debit the amount of ₱251,910.96 from Ramos’ bank account, even
without his consent, since legal compensation had taken place between them by operation of law. PCIB debited Ramos’
bank account, believing in good faith that Ramos was not entitled to the proceeds of the Manager’s checks and was We cannot accept these submitted pieces of evidence as sufficient to satisfy the burden of proof that PCIB carries as
actually privy to the fraud perpetrated by Balmaceda. PCIB cannot thus be held liable for moral and exemplary damages. plaintiff.

OUR RULING On its face, all that PCIB’s evidence proves is that Balmaceda used Ramos’ name as a payee when he filled up the
application forms for the Manager’s checks. But, as the CA correctly observed, the mere fact that Balmaceda made
We partly grant the petition. Ramos the payee on some of the Manager’s checks is not enough basis to conclude that Ramos was complicit in
Balmaceda’s fraud; a number of other people were made payees on the other Manager’s checks yet PCIB never alleged
At the outset, we observe that the petition raises mainly questions of fact whose resolution requires the re-examination of
the evidence on record. As a general rule, petitions for review on certiorari only involve questions of law. 11 By way of them to be liable, nor did the Bank adduce any other evidence pointing to Ramos’ participation that would justify his
separate treatment from the others. Also, while Ramos is Balmaceda’s brother-in-law, their relationship is not sufficient,
exception, however, we can delve into evidence and the factual circumstance of the case when the findings of fact in the
tribunals below (in this case between those of the CA and of the RTC) are conflicting. When the exception applies, we by itself, to render Ramos liable, absent concrete proof of his actual participation in the fraudulent scheme.
are given latitude to review the evidence on record to decide the case with finality.12
Moreover, the evidence on record clearly shows that Balmaceda acted on his own when he applied for the Manager’s
Ramos’ participation in Balmaceda’s scheme not proven checks against the bank account of one of PCIB’s clients, as well as when he encashed the fraudulently acquired
Manager’s checks.

From the testimonial and documentary evidence presented, we find it beyond question that Balmaceda, by taking
advantage of his position as branch manager of PCIB’s Sta. Cruz, Manila branch, was able to apply for and obtain Mrs. Elizabeth Costes, the Area Manager of PCIB at the time of the relevant events, testified that Balmaceda committed
all the acts necessary to obtain the unauthorized Manager’s checks – from filling up the application form by forging the
Manager’s checks drawn against the bank account of one of PCIB’s clients. The unsettled question is whether Ramos,
who received a portion of the money that Balmaceda took from PCIB, should also be held liable for the return of this signature of the client’s representative, to forging the signatures of the payees in order to encash the checks. As Mrs.
Costes stated in her testimony:
money to the Bank.
Q: I am going into [these] particular instances where you said that Mr. Balmaceda [has] been making unauthorized Q: Do you know if this particular person having in fact withdraw of received the proceeds of [these] particular checks,
withdrawals from particular account of a client or a client of yours at Sta. Cruz branch. Would you tell us how he the payee?
effected his unauthorized withdrawals? A: No sir.
A: He prevailed upon the domestic remittance clerk to prepare the application of a Manager’s check which [has] been Q: It was all Mr. Balmaceda dealing with you?
debited to a client’s account. This particular Manager’s check will be payable to a certain individual thru his account as A: Yes sir.
the instruction of the client. Q: In other words it would be possible that Mr. Balmaceda himself gotten the proceeds of the checks by forging the
Q: What was your findings in so far as the particular alleged instruction of a client is concerned? payees signature?
A: We found out that he forged the signature of the client. A: Yes sir.18 (emphases ours)
Q: On that particular application? Mrs. Nilda Laforteza, the Commercial Account Officer of PCIB’s Sta. Cruz, Manila branch at the time the events of this
A: Yes sir. case occurred, confirmed Mrs. Costes’ testimony by stating that it was Balmaceda who forged Ramos’ signature on the
Q: Showing to you several applications for Manager’s Check previously attached as Annexes "A, B, C, D and E["] of the Manager’s checks where Ramos was the payee, so as to encash the amounts indicated on the checks.19 Mrs. Laforteza
complaint. Could you please tell us where is that particular alleged signature of a client applying for the Manager’s check also testified that Ramos never went to the PCIB, Sta. Cruz, Manila branch to encash the checks since Balmaceda was the
which you claimed to have been forged by Mr. Balmaceda? one who deposited the checks into Ramos’ bank account. As revealed during Mrs. Laforteza’s cross-examination:
A: Here sir. Q: Mrs. Laforteza, these checks that were applied for by Mr. Balmaceda, did you ever see my client go to the bank to
xxxx encash these checks?
Q: After the accomplishment of this application form as you stated Mrs. witness, do you know what happened to the A: No it is Balmaceda who is depositing in his behalf.
application form? Q: Did my client ever call up the bank concerning this amount?
A: Before that application form is processed it goes to several stages. Here for example this was signed supposed to be by A: Yes he is not going to call PCIBank Sta. Cruz branch because his account is maintained at Pasig.
the client and his signature representing that, he certified the signature based on their records to be authentic. Q: So Mr. Balmaceda was the one who just remitted or transmitted the amount that you claimed [was sent] to the account
Q: When you said he to whom are you referring to? of my client?
A: Mr. Balmaceda. And at the same time he approved the transaction. A: Yes.20 (emphases ours
xxxx
Q: Do you know if the corresponding checks applied for in the application forms were issued? Even Mrs. Rodelia Nario, presented by PCIB as its rebuttal witness to prove that Ramos encashed a Manager’s check for
A: Yes sir.
₱480,000.00, could only testify that the money was deposited into Ramos’ PCIB bank account. She could not attest that
Q: Could you please show us where these checks are now, the one applied for in Exhibit "A" which is in the amount of Ramos himself presented the Manager’s check for deposit in his bank account. 21 These testimonies clearly dispute
₱150,000.00, where is the corresponding check?
PCIB’s theory that Ramos was instrumental in the encashment of the Manager’s checks.
A: Rolando Ramos dated December 26, 1991 and one of the signatories with higher authority, this is Mr. Balmaceda’s
signature.
Q: In other words he is likewise approving signatory to the Manager’s check? We also find no reason to doubt Ramos’ claim that Balmaceda deposited these large sums of money into his bank
A: Yes sir. This is an authority that the check [has] been encashed. account as payment for the fighting cocks that Balmaceda purchased from him. Ramos presented two witnesses –
Q: In other words this check issued to Rolando Ramos dated December 26, 1991 is a cross check but nonetheless he Vicente Cosculluela and Crispin Gadapan – who testified that Ramos previously engaged in the business of buying and
allowed to encash by granting it. selling fighting cocks, and that Balmaceda was one of Ramos’ biggest clients.
Could you please show us?
ATTY. PACES: Witness pointing to an initial of the defendant Antonio Balmaceda, the notation cross check. Quoting from the RTC decision, PCIB stresses that Ramos’ own witness and business partner, Cosculluela, testified that
A: And this is his signature. the biggest net profit he and Ramos earned from a single transaction with Balmaceda amounted to no more than
xxxx ₱100,000.00, for the sale of approximately 45 fighting cocks.22 In PCIB’s view, this testimony directly contradicts
Q: How about the check corresponding to Exhibit E-2 which is an application for ₱125,000.00 for a certain Rolando Ramos’ assertion that he received approximately ₱400,000.00 from his biggest transaction with Balmaceda. To PCIB, the
Ramos. Do you have the check? testimony also renders questionable Ramos’ assertion that Balmaceda deposited large amounts of money into his bank
A: Yes sir. account as payment for the fighting cocks.
ATTY. PACES: Witness producing a check dated December 19, 1991 the amount of ₱125,000.00 payable to certain
Rolando Ramos.
Q: Can you tell us whether the same modus operandi was ad[o]pted by Mr. Balmaceda in so far as he is concerned? On this point, we find that PCIB misunderstood Cosculluela’s testimony. A review of the testimony shows that
A: Yes sir he is also the right signer and he authorized the cancellation of the cross check.17 (emphasis ours) Cosculluela specifically referred to the net profit that they earned from the sale of the fighting cocks;23 PCIB apparently
xxxx did not take into account the capital, transportation and other expenses that are components of these transactions.
Q: These particular checks [Mrs.] witness in your findings, do you know if Mr. Balmaceda [has] again any participation Obviously, in sales transactions, the buyer has to pay not only for the value of the thing sold, but also for the shipping
in these checks? costs and other incidental costs that accompany the acquisition of the thing sold. Thus, while the biggest net profit that
A: He is also the right signer and approved officer and he was authorized to debit on file. Ramos and Cosculluela earned in a single transaction amounted to no more than ₱100,000.00,24 the inclusion of the
xxxx actual acquisition costs of the fighting cocks, the transportation expenses (i.e., airplane tickets from Bacolod or
Q: And do you know if these particular checks marked as Exhibit G-2 to triple FFF were subsequently encashed? Zamboanga to Manila) and other attendant expenses could account for the ₱400,000.00 that Balmaceda deposited into
A: Yes sir. Ramos’ bank account.
Q: Were you able to find out who encashed?
A: Mr. Balmaceda himself and besides he approved the encashment because of the signature that he allowed the Given that PCIB failed to establish Ramos’ participation in Balmaceda’s scheme, it was not even necessary for Ramos to
encashment of the check. provide an explanation for the money he received from Balmaceda. Even if the evidence adduced by the plaintiff appears
xxxx stronger than that presented by the defendant, a judgment cannot be entered in the plaintiff’s favor if his evidence still
does not suffice to sustain his cause of action; 25 to reiterate, a preponderance of evidence as defined must be established Article 22. Every person who through an act of performance by another, or any other means, acquires or comes into
to achieve this result. possession of something at the expense of the latter without just or legal ground, shall return the same to him.

PCIB itself at fault as employer To have a cause of action based on unjust enrichment, we explained in University of the Philippines v. Philab Industries,
Inc.34 that:
In considering this case, one point that cannot be disregarded is the significant role that PCIB played which contributed
to the perpetration of the fraud. We cannot ignore that Balmaceda managed to carry out his fraudulent scheme primarily Unjust enrichment claims do not lie simply because one party benefits from the efforts or obligations of others, but
because other PCIB employees failed to carry out their assigned tasks – flaws imputable to PCIB itself as the employer. instead it must be shown that a party was unjustly enriched in the sense that the term unjustly could mean illegally or
unlawfully.
Ms. Analiza Vega, an accounting clerk, teller and domestic remittance clerk working at the PCIB, Sta. Cruz, Manila
branch at the time of the incident, testified that Balmaceda broke the Bank’s protocol when he ordered the Bank’s Moreover, to substantiate a claim for unjust enrichment, the claimant must unequivocally prove that another party
employees to fill up the application forms for the Manager’s checks, to be debited from the bank account of one of the knowingly received something of value to which he was not entitled and that the state of affairs are such that it
bank’s clients, without providing the necessary Authority to Debit from the client.26 PCIB also admitted that these would be unjust for the person to keep the benefit. Unjust enrichment is a term used to depict result or effect of failure
Manager’s checks were subsequently released to Balmaceda, and not to the client’s representative, based solely on to make remuneration of or for property or benefits received under circumstances that give rise to legal or equitable
Balmaceda’s word that the client had tasked him to deliver these checks.27 obligation to account for them; to be entitled to remuneration, one must confer benefit by mistake, fraud, coercion, or
request. Unjust enrichment is not itself a theory of reconvey. Rather, it is a prerequisite for the enforcement of the
doctrine of restitution.35 (emphasis ours)
Despite Balmaceda’s gross violations of bank procedures – mainly in the processing of the applications for Manager’s
checks and in the releasing of the Manager’s checks – Balmaceda’s co-employees not only turned a blind eye to his
actions, but actually complied with his instructions. In this way, PCIB’s own employees were unwitting accomplices in Ramos cannot be held liable to PCIB on account of unjust enrichment simply because he received payments out of
Balmaceda’s fraud. money secured by fraud from PCIB. To hold Ramos accountable, it is necessary to prove that he received the money
from Balmaceda, knowing that he (Ramos) was not entitled to it. PCIB must also prove that Ramos, at the time that he
received the money from Balmaceda, knew that the money was acquired through fraud. Knowledge of the fraud is the
Another telling indicator of PCIB’s negligence is the fact that it allowed Balmaceda to encash the Manager’s checks that
were plainly crossed checks. A crossed check is one where two parallel lines are drawn across its face or across its link between Ramos and PCIB that would obligate Ramos to return the money based on the principle of unjust
enrichment.
corner.28 Based on jurisprudence, the crossing of a check has the following effects: (a) the check may not be encashed but
only deposited in the bank; (b) the check may be negotiated only once — to the one who has an account with the 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 However, as the evidence on record indicates, Ramos accepted the deposits that Balmaceda made directly into his bank
purpose and he must inquire if he received the check pursuant to this purpose; otherwise, he is not a holder in due account, believing that these deposits were payments for the fighting cocks that Balmaceda had purchased. Significantly,
course.29 In other words, the crossing of a check is a warning that the check should be deposited only in the account of PCIB has not presented any evidence proving that Ramos participated in, or that he even knew of, the fraudulent sources
the payee. When a check is crossed, it is the duty of the collecting bank to ascertain that the check is only deposited to the of Balmaceda’s funds.
payee’s account.30 In complete disregard of this duty, PCIB’s systems allowed Balmaceda to encash 26 Manager’s checks
which were all crossed checks, or checks payable to the "payee’s account only."
PCIB illegally froze and debited Ramos’ assets

The General Banking Law of 200031 requires of banks the highest standards of integrity and performance. The banking We also find that PCIB acted illegally in freezing and debiting Ramos’ bank account. In BPI Family Bank v.
business is impressed with public interest. Of paramount importance is the trust and confidence of the public in general in
Franco,36 we cautioned against the unilateral freezing of bank accounts by banks, noting that:
the banking industry. Consequently, the diligence required of banks is more than that of a Roman pater familias or a
good father of a family.32 The highest degree of diligence is expected.33
More importantly, [BPI Family Bank] does not have a unilateral right to freeze the accounts of Franco based on its mere
suspicion that the funds therein were proceeds of the multi-million peso scam Franco was allegedly involved in. To grant
While we appreciate that Balmaceda took advantage of his authority and position as the branch manager to commit these [BPI Family Bank], or any bank for that matter, the right to take whatever action it pleases on deposits which it supposes
acts, this circumstance cannot be used to excuse the manner the Bank – through its employees –handled its clients’ bank
are derived from shady transactions, would open the floodgates of public distrust in the banking industry.37
accounts and thereby ignored established bank procedures at the branch manager’s mere order. This lapse is made all the
more glaring by Balmaceda’s repetition of his modus operandi 33 more times in a period of over one year by the Bank’s
own estimation. With this kind of record, blame must be imputed on the Bank itself and its systems, not solely on the We see no legal merit in PCIB’s claim that legal compensation took place between it and Ramos, thereby warranting the
weakness or lapses of individual employees. automatic deduction from Ramos’ bank account. For legal compensation to take place, two persons, in their own right,
must first be creditors and debtors of each other. 38 While PCIB, as the depositary bank, is Ramos’ debtor in the amount of
his deposits, Ramos is not PCIB’s debtor under the evidence the PCIB adduced. PCIB thus had no basis, in fact or in law,
Principle of unjust enrichment not applicable to automatically debit from Ramos’ bank account.

PCIB maintains that even if Ramos did not collude with Balmaceda, it still has the right to recover the amounts unjustly
On the award of damages
received by Ramos pursuant to the principle of unjust enrichment. This principle is embodied in Article 22 of the Civil
Code which provides:
Although PCIB’s act of freezing and debiting Ramos’ account is unlawful, we cannot hold PCIB liable for moral and
exemplary damages. Since a contractual relationship existed between Ramos and PCIB as the depositor and the
depositary bank, respectively, the award of moral damages depends on the applicability of Article 2220 of the Civil A check with serial number 7-3666-223-3, dated August 7, 1981 in the amount of P97,650.00 was issued by the Ministry
Code, which provides: of Education and Culture (now Department of Education, Culture and Sports [DECS]) payable to F. Abante Marketing.
This check was drawn against Philippine National Bank (herein petitioner).
Article 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find that,
under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant On August 11, 1981, F. Abante Marketing, a client of Capitol City Development Bank (Capitol), deposited the
acted fraudulently or in bad faith. [emphasis ours] questioned check in its savings account with said bank. In turn, Capitol deposited the same in its account with the
Philippine Bank of Communications (PBCom) which, in turn, sent the check to petitioner for clearing.
Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity
and conscious commission of a wrong; it partakes of the nature of fraud.39 Petitioner cleared the check as good and, thereafter, PBCom credited Capitol's account for the amount stated in the
check. However, on October 19, 1981, petitioner returned the check to PBCom and debited PBCom's account for the
As the facts of this case bear out, PCIB did not act out of malice or bad faith when it froze Ramos’ bank account and amount covered by the check, the reason being that there was a "material alteration" of the check number.
subsequently debited the amount of ₱251,910.96 therefrom. While PCIB may have acted hastily and without regard to its
primary duty to treat the accounts of its depositors with meticulous care and utmost fidelity,40 we find that its actions PBCom, as collecting agent of Capitol, then proceeded to debit the latter's account for the same amount, and
were propelled more by the need to protect itself, and not out of malevolence or ill will. One may err, but error alone is subsequently, sent the check back to petitioner. Petitioner, however, returned the check to PBCom.
not a ground for granting moral damages.41
On the other hand, Capitol could not, in turn, debit F. Abante Marketing's account since the latter had already withdrawn
We also disallow the award of exemplary damages. Article 2234 of the Civil Code requires a party to first prove that he the amount of the check as of October 15, 1981. Capitol sought clarification from PBCom and demanded the re-crediting
is entitled to moral, temperate or compensatory damages before he can be awarded exemplary damages.1âwphi1 Since of the amount. PBCom followed suit by requesting an explanation and re-crediting from petitioner.
no reason exists to award moral damages, so too can there be no reason to award exemplary damages.
Since the demands of Capitol were not heeded, it filed a civil suit with the Regional Trial Court of Manila against
We deem it just and equitable, however, to uphold the award of attorney’s fees in Ramos’ favor. Taking into PBCom which, in turn, filed a third-party complaint against petitioner for reimbursement/indemnity with respect to the
consideration the time and efforts involved that went into this case, we increase the award of attorney’s fees from claims of Capitol. Petitioner, on its part, filed a fourth-party complaint against F. Abante Marketing.
₱20,000.00 to ₱75,000.00.
On October 3, 1989; the Regional Trial Court rendered its decision the dispositive portion of which reads:
WHEREFORE, the petition is PARTIALLY GRANTED. We AFFIRM the decision of the Court of Appeals dated
April 29, 2003 in CA-G.R. CV No. 69955 with the MODIFICATION that the award of moral and exemplary damages
WHEREFORE, judgment is hereby rendered as follows:
in favor of Rolando N. Ramos is DELETED, while the award of attorney’s fees is INCREASED to ₱75,000.00. Costs
against the Philippine Commercial International Bank.
1.) On plaintiffs complaint, defendant Philippine Bank of Communications is ordered to re-credit or
reimburse plaintiff Capitol City Development Bank the amount of P97,650.00, plus interest of 12
SO ORDERE percent thereto from October 19, 1981 until the amount is fully paid;

G.R. No. 107508 April 25, 1996

2.) On Philippine Bank of Communications third-party complaint third-party defendant PNB is
ordered to reimburse and indemnify Philippine Bank of Communications for whatever amount
PHILIPPINE NATIONAL BANK, petitioner, PBCom pays to plaintiff;
vs.
COURT OF APPEALS, CAPITOL CITY DEVELOPMENT BANK, PHILIPPINE BANK OF 3.) On Philippine National Bank's fourth-party complaint, F. Abante Marketing is ordered to
COMMUNICATIONS, and F. ABANTE MARKETING, respondents.
reimburse and indemnify PNB for whatever amount PNB pays to PBCom;

  4.) On attorney's fees, Philippine Bank of Communications is ordered to pay Capitol City
Development Bank attorney's fees in the amount of Ten Thousand (P10,000.00) Pesos; but PBCom
KAPUNAN, J.:p is entitled to reimbursement/indemnity from PNB; and Philippine National Bank to be, in turn
reimbursed or indemnified by F. Abante Marketing for the same amount;
This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the decision dated April 29, 1992
of respondent Court of Appeals in CA-G.R. CV No. 24776 and its resolution dated September 16, 1992, denying 5.) The Counterclaims of PBCom and PNB are hereby dismissed;
petitioner Philippine National Bank's motion for reconsideration of said decision.
6.) No pronouncement as to costs.
The facts of the case are as follows.
SO ORDERED.1
An appeal was interposed before the respondent Court of Appeals which rendered its decision on April 29, 1992, the (b) The sum payable, either for principal or interest;
decretal portion of which reads:
(c) The time or place of payment;
WHEREFORE, the judgment appealed from is modified by exempting PBCom from liability to
plaintiff-appellee for attorney's fees and ordering PNB to honor the check for P97,650.00, with
(d) The number or the relations of the parties;
interest as declared by the trial court, and pay plaintiff-appellee attorney's fees of P10,000.00. After
the check shall have been honored by PNB, PBCom shall re-credit plaintiff-appellee's account with
it with the amount. No pronouncement as to costs. (e) The medium or currency in which payment is to be made;

SO ORDERED.2 (f) 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.
A motion for reconsideration of the decision was denied by the respondent Court in its resolution dated September 16,
1992 for lack of merit.3 Petitioner alleges that there is no hard and fast rule in the interpretation of the aforequoted provision of the Negotiable
Instruments Law. It maintains that under Section 125(f), any change that alters the effect of the instrument is a material
alteration.6
Hence, petitioner filed the instant petition which raises the following issues:

We do not agree.
I

An alteration is said to be material if it alters the effect of the

WHETHER OR NOT AN ALTERATION OF THE SERIAL NUMBER OF A CHECK IS A instrument.7 It means an unauthorized change in an instrument that purports to modify in any respect the obligation of a
MATERIAL ALTERATION UNDER THE NEGOTIABLE INSTRUMENTS LAW.
party or an unauthorized addition of words or numbers or other change to an incomplete instrument relating to the
obligation of a party.8 In other words, a material alteration is one which changes the items which are required to be stated
II under Section 1 of the Negotiable Instruments Law.

WHETHER OR NOT A CERTIFICATION HEREIN ISSUED BY THE MINISTRY OF Section 1 of the Negotiable Instruments Law provides:
EDUCATION CAN BE GIVEN WEIGHT IN EVIDENCE.
Sec. 1. — Form of negotiable instruments. An instrument to be negotiable must conform to the
III following requirements:

WHETHER OR NOT A DRAWEE BANK WHO FAILED TO RETURN A. CHECK WITHIN (a) It must be in writing and signed by the maker or drawer;
THE TWENTY FOUR (24) HOUR CLEARING PERIOD MAY RECOVER THE VALUE OF
THE CHECK FROM THE COLLECTING BANK. (b) Must contain an unconditional promise or order to pay a sum certain in money;

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

WHETHER OR NOT IN THE ABSENCE OF MALICE OR ILL WILL PETITIONER PNB MAY (d) Must be payable to order or to bearer; and
BE HELD LIABLE FOR ATTORNEY'S FEES.4

(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein
We find no merit in the petition. with reasonable certainty.

We shall first deal with the effect of the alteration of the serial number on the negotiability of the check in question.
In his book entitled "Pandect of Commercial Law and Jurisprudence," Justice Jose C. Vitug opines that "an innocent
alteration (generally, changes on items other than those required to be stated under Sec. 1, N.I.L.) and spoliation
Petitioner anchors its position on Section 125 of the Negotiable Instruments Law (ACT No. 2031)5 which provides: (alterations done by a stranger) will not avoid the instrument, but the holder may enforce it only according to its original
tenor."9
Sec. 225. What constitutes a material alteration. Any alteration which changes:
Reproduced hereunder are some examples of material and immaterial alterations:
(a) The date;
A. Material Alterations:
(1) Substituting the words "or bearer" for "order." (8) Where there was a blank for the place of payment, filling in the blank with the place desired.

(2) Writing "protest waived" above blank indorsements. (9) Adding to an indorsee's name the abbreviation "Cash" when it had been agreed that the draft
should be discounted by the trust company of which the indorsee was cashier.
(3) A change in the date from which interest is to run.
(10) The indorsement of a note by a stranger after its delivery to the payee at the time the note was
(4) A check was originally drawn as follows: "Iron County Bank, Crystal Falls, Mich. Aug. 5, 1901. negotiated to the plaintiff.
Pay to G.L. or order $9 fifty cents CTR" The insertion of the figure 5 before the figure 9, the
instrument being otherwise unchanged. (11) An extension of time given by the holder of a note to the principal maker, without the consent
of a surety co-maker.11
(5) Adding the words "with interest" with or without a fixed rate.
The case at bench is unique in the sense that what was altered is the serial number of the check in question, an item
(6) An alteration in the maturity of a note, whether the time for payment is thereby curtailed or which, it can readily be observed, is not an essential requisite for negotiability under Section 1 of the Negotiable
Instruments Law. The aforementioned alteration did not change the relations between the parties. The name of the drawer
extended.
and the drawee were not altered. The intended payee was the same. The sum of money due to the payee remained the
same. Despite these findings, however, petitioner insists, that:
(7) An instrument was payable "First Nat'l Bank" the plaintiff added the word "Marion."
xxx xxx xxx
(8) Plaintiff, without consent of the defendant, struck out the name of the defendant as payee and
inserted the name of the maker of the original note.
It is an accepted concept, besides being a negotiable instrument itself, that a TCAA check by its
very nature is the medium of exchange of governments (sic) instrumentalities of agencies. And as
(9) Striking out the name of the payee and substituting that of the person who actually discounted (a) safety measure, every government office o(r) agency (is) assigned TCAA checks bearing
the note. different number series.

(10) Substituting the address of the maker for the name of a co-maker.10 A concrete example is that of the disbursements of the Ministry of Education and Culture. It is
issued by the Bureau of Treasury sizeable bundles of checks in booklet form with serial numbers
B. Immaterial Alterations: different from other government office or agency. Now, for fictitious payee to succeed in its
malicious intentions to defraud the government, all it need do is to get hold of a TCAA Check and
have the serial numbers of portion (sic) thereof changed or altered to make it appear that the same
(1) Changing "I promise to pay" to "We promise to pay", where there are two makers. was issued by the MEG.

(2) Adding the word "annual" after the interest clause. Otherwise, stated, it is through the serial numbers that (a) TCAA Check is determined to have been
issued by a particular office or agency of the government.12
(3) Adding the date of maturity as a marginal notation.
xxx xxx xxx
(4) Filling in the date of actual delivery where the makers of a note gave it with the date in blank,
"July ____." Petitioner's arguments fail to convince. The check's serial number is not the sole indication of its origin.. As succinctly
found by the Court of Appeals, the name of the government agency which issued the subject check was prominently
(5) An alteration of the marginal figures of a note where the sum stated in words in the body printed therein. The check's issuer was therefore sufficiently identified, rendering the referral to the serial number
remained unchanged. redundant and inconsequential. Thus, we quote with favor the findings of the respondent court:

(6) The insertion of the legal rate of interest where the note had a provision for "interest at _______ xxx xxx xxx
per cent."
If the purpose of the serial number is merely to identify the issuing government office or agency, its
(7) A printed form of promissory note had on the margin the printed words, "Extended to alteration in this case had no material effect whatsoever on the integrity of the check. The identity of
________." The holder on or after maturity wrote in the blank space the words "May 1, 1913," as a the issuing government office or agency was not changed thereby and the amount of the check was
reference memorandum of a promise made by him to the principal maker at the time the words were not charged against the account of another government office or agency which had no liability under
written to extend the time of payment. the check. The owner and issuer of the check is boldly and clearly printed on its face, second line
from the top: "MINISTRY OF EDUCATION AND CULTURE," and below the name of the payee
are the rubber-stamped words: "Ministry of Educ. & Culture."  These words are not alleged to have
 been falsely or fraudulently intercalated into the check. The ownership of the check is established With respect to Capitol's claim for damages consisting of alleged loss of opportunity, this Court
without the necessity of recourse to the serial number. Neither there any proof that the amount of finds that Capitol failed to adequately substantiate its claim. What Capitol had presented was a self-
the check was erroneously charged against the account of a government office or agency other than serving, unsubstantiated and speculative computation of what it allegedly could have earned or
the Ministry of Education and Culture. Hence, the alteration in the number of the check did not realized were it not for the debit made by PBCom which was triggered by the return and debit made
affect or change the liability of the Ministry of Education and Culture under the check and, by PNB. However, this Court finds that it would be fair and reasonable to impose interest at
therefore, is immaterial. The genuineness of the amount and the signatures therein of then Deputy 12%  per annum  on the principal amount of the check computed from October 19, 1981 (the date
Minister of Education Hermenegildo C. Dumlao and of the resident Auditor, Penomio C. Alvarez PBCom debited Capitol's account) until the amount is fully paid and reasonable attorney's fees.17
are not challenged. Neither is the authenticity of the different codes appearing therein (Emphasis ours.)
questioned . . .13 (Emphasis ours.)
And contrary to the Court of Appeal's resolution, petitioner unambiguously questioned before it the award of attorney's
Petitioner, thus cannot refuse to accept the check in question on the ground that the serial number was altered, the same fees, assigning the latter as one of the errors committed by the trial court.18
being an immaterial or innocent one.
The foregoing is in conformity with the guiding principles laid down in a long line of cases and reiterated recently
We now go to the second issue. It is petitioner's submission that the certification issued by Minrado C. Batonghinog, in Consolidated Bank & Trust Corporation (Solidbank) v. Court of Appeals:19
Cashier III of the MEC clearly shows that the check was altered. Said certification reads:95
The award of attorney's fees lies within the discretion of the court and depends upon the
TO WHOM IT MAY CONCERN: circumstances of each case. However, the discretion of the court to award attorney's fees under
Article 2208 of the Civil Code of the Philippines demands factual, legal and equitable justification,
without which the award is a conclusion without a premise and improperly left to speculation and
This is to certify that according to the records of this Office, TCAA PNB Check Mo. SN7-3666223-
3 dated August 7, 1981 drawn in favor of F. Abante Marketing in the amount of NINETY (S)EVEN conjecture. It becomes a violation of the proscription against the imposition of a penalty on the right
to litigate (Universal Shipping Lines, Inc. v. Intermediate Appellate Court, 188 SCRA 170 [1990]).
THOUSAND SIX HUNDRED FIFTY PESOS ONLY (P97,650.00) was not issued by this Office
nor released to the payee concerned. The series number of said check was not included among those The reason for the award must be stated in the text of the court's decision. If it is stated only in the
dispositive portion of the decision, the same shall be disallowed. As to the award of attorney's fees
requisition by this Office from the Bureau of Treasury.
being an exception rather than the rule, it is necessary for the court to make findings of fact and law
that would bring the case within the exception and justify the grant of the award (Refractories
(SGD.) MINRADO C. BATONGHINOG Corporation of the Philippines v. Intermediate Appellate Court, 176 SCRA 539 [176 SCRA 539]).

Cashier III14 WHEREFORE, premises considered, except for the deletion of the award of attorney's fees, the decision of the Court of
Appeals is hereby AFFIRMED.
\y s,
SO ORDERED.
Petitioner claims that even if the author of the certification issued by the Ministry of Education and Culture (MEG) was
not presented, still the best evidence of the material alteration would be the disputed check itself and the serial number Padilla, Bellosillo, Vitug and Hermosisima, Jr., JJ., concur.
thereon. Petitioner thus assails the refusal of respondent court to give weight to the certification because the author
thereof was not presented to identify it and to be cross-examined thereon.15

We agree with the respondent court.

The one who signed the certification was not presented before the trial court to prove that the said document was really
the document he prepared and that the signature below the said document is his own signature. Neither did petitioner
present an eyewitness to the execution of the questioned document who could possibly identify it. 16 Absent this proof,
we cannot rule on the authenticity of the contents of the certification. Moreover, as we previously emphasized, there was
no material alteration on the check, the change of its serial number not being substantial to its negotiability.

Anent the third issue — whether or not the drawee bank may still recover the value of the check from the collecting bank
even if it failed to return the check within the twenty-four (24) hour clearing period because the check was tampered —
suffice it to state that since there is no material alteration in the check, petitioner has no right to dishonor it and return it
to PBCom, the same being in all respects negotiable.

However, the amount of P10,000.00 as attorney's fees is hereby deleted. In their respective decisions, the trial court and
the Court of Appeals failed to explicitly state the rationale for the said award. The trial court merely ruled as follows:
 The case originated from an action for collection of sum of money filed on 16 March 1982 by the International Corporate
Bank, Inc.4 ("petitioner") against the Philippine National Bank ("respondent"). The case was raffled to the then Court of
First Instance (CFI) of Manila, Branch 6. The complaint was amended on 19 March 1982. The case was eventually re-
raffled to the Regional Trial Court of Manila, Branch 52 ("trial court").

The Ministry of Education and Culture issued 15 checks5 drawn against respondent which petitioner accepted for deposit
on various dates. The checks are as follows:

Check Number Date Payee Amount

7-3694621-4 7-20-81 Trade Factors, Inc. P 97,500.00
7-3694609-6 7-27-81 Romero D. Palmares 98,500.50
7-3666224-4 8-03-81 Trade Factors, Inc. 99,800.00
7-3528348-4 8-07-81 Trade Factors, Inc. 98,600.00
7-3666225-5 8-10-81 Antonio Lisan 98,900.00
7-3688945-6 8-10-81 Antonio Lisan 97,700.00
7-4535674-1 8-21-81 Golden City Trading 95,300.00
7-4535675-2 8-21-81 Red Arrow Trading 96,400.00
7-4535699-5 8-24-81 Antonio Lisan 94,200.00
7-4535700-6 8-24-81 Antonio Lisan 95,100.00
7-4697902-2 9-18-81 Ace Enterprises, Inc. 96,000.00
7-4697925-6 9-18-81 Golden City Trading 93,030.00
7-4697011-6 10-02-81 Wintrade Marketing 90,960.00
7-4697909-4 10-02-81 ABC Trading, Inc. 99,300.00
7-4697922-3 10-05-81 Golden Enterprises 96,630.00

The checks were deposited on the following dates for the following accounts:

Check Number Date Deposited Account Deposited

7-3694621-4 7-23-81 CA 0060 02360 3
7-3694609-6 7-28-81 CA 0060 02360 3
G.R. No. 129910             September 5, 2006
7-3666224-4 8-4-81 CA 0060 02360 3
7-3528348-4 8-11-81 CA 0060 02360 3
THE INTERNATIONAL CORPORATE BANK, INC., petitioner,
7-3666225-5 8-11-81 SA 0061 32331 7
vs.
COURT OF APPEALS and PHILIPPINE NATIONAL BANK, respondents. 7-3688945-6 8-17-81 CA 0060 30982 5
7-4535674-1 8-26-81 CA 0060 02360 3
7-4535675-2 8-27-81 CA 0060 02360 3
DECISION
7-4535699-5 8-31-81 CA 0060 30982 5
7-4535700-6 8-24-81 SA 0061 32331 7
CARPIO, J.:
7-4697902-2 9-23-81 CA 0060 02360 3
7-4697925-6 9-23-81 CA 0060 30982 5
The Case 7-4697011-6 10-7-81 CA 0060 02360 3
7-4697909-4 10-7-81 CA 0060 30982 56
Before the Court is a petition for review1 assailing the 9 August 1994 Amended Decision 2 and the 16 July 1997
Resolution3 of the Court of Appeals in CA-G.R. CV No. 25209.
After 24 hours from submission of the checks to respondent for clearing, petitioner paid the value of the checks and
allowed the withdrawals of the deposits. However, on 14 October 1981, respondent returned all the checks to petitioner
The Antecedent Facts without clearing them on the ground that they were materially altered. Thus, petitioner instituted an action for collection
of sums of money against respondent to recover the value of the checks.
The Ruling of the Trial Court Although banking practice has it that the presumption of clearance is conclusive when it comes to the
application of the 24-hour clearing period, the same principle may not be applied to the 24-hour period vis-a-
The trial court ruled that respondent is expected to use reasonable business practices in accepting and paying the checks vis material alterations in the sense that the drawee bank which returns materially altered checks within 24
hours after discovery would be conclusively relieved of any liability thereon. This is because there could well
presented to it. Thus, respondent cannot be faulted for the delay in clearing the checks considering the ingenuity in which
the alterations were effected. The trial court observed that there was no attempt from petitioner to verify the status of the be various intervening events or factors that could affect the rights and obligations of the parties in cases such
as the instant one including patent negligence on the part of the drawee bank resulting in an unreasonable
checks before petitioner paid the value of the checks or allowed withdrawal of the deposits. According to the trial court,
petitioner, as collecting bank, could have inquired by telephone from respondent, as drawee bank, about the status of the delay in detecting the alterations. While it is true that the pertinent proviso in C.B. Circular No. 580 allows the
drawee bank to return the altered check within the period "provided by law for filing a legal action", this does
checks before paying their value. Since the immediate cause of petitioner’s loss was the lack of caution of its personnel,
the trial court held that petitioner is not entitled to recover the value of the checks from respondent. not mean that this would entitle or allow the drawee bank to be grossly negligent and, inspite thereof, avail
itself of the maximum period allowed by the above-cited Circular. The discovery must be made within a
reasonable time taking into consideration the facts and circumstances of the case. In other words, the
The dispositive portion of the trial court’s Decision reads: aforementioned C.B. Circular does not provide the drawee bank the license to be grossly negligent on the one
hand nor does it preclude the collecting bank from raising available defenses even if the check is properly
WHEREFORE, judgment is hereby rendered dismissing both the complaint and the counterclaim. Costs shall, returned within the 24-hour period after discovery of the material alteration.10
however be assessed against the plaintiff.
The Court of Appeals rejected the trial court’s opinion that petitioner could have verified the status of the checks by
SO ORDERED.7 telephone call since such imposition is not required under Central Bank rules. The dispositive portion of the 10 October
1991 Decision reads:

Petitioner appealed the trial court’s Decision before the Court of Appeals.
PREMISES CONSIDERED, the decision appealed from is hereby REVERSED and the defendant-appellee
Philippine National Bank is declared liable for the value of the fifteen checks specified and enumerated in the
The Ruling of the Court of Appeals decision of the trial court (page 3) in the amount of P1,447,920.00

In its 10 October 1991 Decision,8 the Court of Appeals reversed the trial court’s Decision. Applying Section 4(c) of SO ORDERED.11
Central Bank Circular No. 580, series of 1977,9 the Court of Appeals held that checks that have been materially altered
shall be returned within 24 hours after discovery of the alteration. However, the Court of Appeals ruled that even if the
drawee bank returns a check with material alterations after discovery of the alteration, the return would not relieve the Respondent filed a motion for reconsideration of the 10 October 1991 Decision. In its 9 August 1994 Amended Decision,
drawee bank from any liability for its failure to return the checks within the 24-hour clearing period. The Court of the Court of Appeals reversed itself and affirmed the Decision of the trial court dismissing the complaint.
Appeals explained:
In reversing itself, the Court of Appeals held that its 10 October 1991 Decision failed to appreciate that the rule on the
Does this mean that, as long as the drawee bank returns a check with material alteration within 24 hour[s] after return of altered checks within 24 hours from the discovery of the alteration had been duly passed by the Central Bank
discovery of such alteration, such return would have the effect of relieving the bank of any liability whatsoever and accepted by the members of the banking system. Until the rule is repealed or amended, the rule has to be applied.
despite its failure to return the check within the 24- hour clearing house rule?
Petitioner moved for the reconsideration of the Amended Decision. In its 16 July 1997 Resolution, the Court of Appeals
We do not think so. denied the motion for lack of merit.

Obviously, such bank cannot be held liable for its failure to return the check in question not later than the next Hence, the recourse to this Court.
regular clearing. However, this Court is of the opinion and so holds that it could still be held liable if it fails to
exercise due diligence in verifying the alterations made. In other words, such bank would still be expected, nay The Issues
required, to make the proper verification before the 24-hour regular clearing period lapses, or in cases where
such lapses may be deemed inevitable, that the required verification should be made within a reasonable time.
Petitioner raises the following issues in its Memorandum:

The implication of the rule that a check shall be returned within the 24-hour clearing period is that if the
1. Whether the checks were materially altered;
collecting bank paid the check before the end of the aforesaid 24-hour clearing period, it would be responsible
therefor such that if the said check is dishonored and returned within the 24-hour clearing period, the drawee
bank cannot be held liable. Would such an implication apply in the case of materially altered checks returned 2. Whether respondent was negligent in failing to recognize within a reasonable period the altered checks and
within 24 hours after discovery? This Court finds nothing in the letter of the above-cited C.B. Circular that in not returning the checks within the period; and
would justify a negative answer. Nonetheless, the drawee bank could still be held liable in certain instances.
Even if the return of the check/s in question is done within 24 hours after discovery, if it can be shown that the
3. Whether the motion for reconsideration filed by respondent was out of time thus making the 10 October
drawee bank had been patently negligent in the performance of its verification function, this Court finds no 1991 Decision final and executory.12
reason why the said bank should be relieved of liability.
The Ruling of This Court An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized change in
an instrument that purports to modify in any respect the obligation of a party or an unauthorized addition of
Filing of the Petition under both Rules 45 and 65 words or numbers or other change to an incomplete instrument relating to the obligation of a party. In other
words, a material alteration is one which changes the items which are required to be stated under Section 1 of
the Negotiable Instrument[s] Law.
Respondent asserts that the petition should be dismissed outright since petitioner availed of a wrong mode of appeal.
Respondent cites Ybañez v. Court of Appeals13 where the Court ruled that "a petition cannot be subsumed simultaneously
Section 1 of the Negotiable Instruments Law provides:
under Rule 45 and Rule 65 of the Rules of Court, and neither may petitioners delegate upon the court the task of
determining under which rule the petition should fall."
Section 1. ― Form of negotiable instruments. An instrument to be negotiable must conform to the following
requirements:
The remedies of appeal and certiorari are mutually exclusive and not alternative or successive.  However, this Court may
14

set aside technicality for justifiable reasons. The petition before the Court is clearly meritorious. Further, the petition was
filed on time both under Rules 45 and 65.15 Hence, in accordance with the liberal spirit which pervades the Rules of (a) It must be in writing and signed by the maker or drawer;
Court and in the interest of justice,16 we will treat the petition as having been filed under Rule 45. (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
Alteration of Serial Number Not Material
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein
with reasonable certainty.
The alterations in the checks were made on their serial numbers.
In his book entitled "Pandect of Commercial Law and Jurisprudence," Justice Jose C. Vitug opines that "an
Sections 124 and 125 of Act No. 2031, otherwise known as the Negotiable Instruments Law, provide: innocent alteration (generally, changes on items other than those required to be stated under Sec. 1, N.I.L.) and
spoliation (alterations done by a stranger) will not avoid the instrument, but the holder may enforce it only
SEC. 124. Alteration of instrument; effect of. ― Where a negotiable instrument is materially altered without according to its original tenor.
the assent of all parties liable thereon, it is avoided, except as against a party who has himself made,
authorized, or assented to the alteration and subsequent indorsers. xxxx

But when an instrument has been materially altered and is in the hands of a holder in due course, not a party to The case at the bench is unique in the sense that what was altered is the serial number of the check in question,
the alteration, he may enforce payment thereof according to its original tenor. an item which, it can readily be observed, is not an essential requisite for negotiability under Section 1 of the
Negotiable Instruments Law. The aforementioned alteration did not change the relations between the parties.
SEC. 125. What constitutes a material alteration. ― Any alteration which changes: The name of the drawer and the drawee were not altered. The intended payee was the same. The sum of money
due to the payee remained the same. x x x

(a) The date;

xxxx

(b) The sum payable, either for principal or interest;

The check’s serial number is not the sole indication of its origin. As succinctly found by the Court of Appeals,
the name of the government agency which issued the subject check was prominently printed therein. The
(c) The time or place of payment; check’s issuer was therefore sufficiently identified, rendering the referral to the serial number redundant and
inconsequential. x x x
(d) The number or the relations of the parties;
xxxx
(e) The medium or currency in which payment is to be made;
Petitioner, thus cannot refuse to accept the check in question on the ground that the serial number was altered,
or which adds a place of payment where no place of payment is specified, or any other change or addition the same being an immaterial or innocent one.17
which alters the effect of the instrument in any respect, is a material alteration.
Likewise, in the present case the alterations of the serial numbers do not constitute material alterations on the checks.
The question on whether an alteration of the serial number of a check is a material alteration under the Negotiable
Instruments Law is already a settled matter. In Philippine National Bank v. Court of Appeals, this Court ruled that the Incidentally, we agree with the petitioner’s observation that the check in the PNB case appears to belong to the same
alteration on the serial number of a check is not a material alteration. Thus: batch of checks as in the present case. The check in the PNB case was also issued by the Ministry of Education and
Culture. It was also drawn against PNB, respondent in this case. The serial number of the check in the PNB case is 7-
3666-223-3 and it was issued on 7 August 1981.
Timeliness of Filing of Respondent’s Motion for Reconsideration Petitioner Metrobank is a banking institution duly organized and existing as such under Philippine laws.2

Respondent filed its motion for reconsideration of the 10 October 1991 Decision on 6 November 1991. Respondent’s Respondent Renato D. Cabilzo (Cabilzo) was one of Metrobank’s clients who maintained a current account with
motion for reconsideration states that it received a copy of the 10 October 1991 Decision on 22 October 1991. 18 Thus, it Metrobank Pasong Tamo Branch.3
appears that the motion for reconsideration was filed on time. However, the Registry Return Receipt shows that counsel
for respondent or his agent received a copy of the 10 October 1991 Decision on 16 October 1991, 19 not on 22 October On 12 November 1994, Cabilzo issued a Metrobank Check No. 985988, payable to "CASH" and postdated on 24
1991 as respondent claimed. Hence, the Court of Appeals is correct when it noted that the motion for reconsideration was
November 1994 in the amount of One Thousand Pesos (P1,000.00). The check was drawn against Cabilzo’s Account
filed late. Despite its late filing, the Court of Appeals resolved to admit the motion for reconsideration "in the interest of with Metrobank Pasong Tamo Branch under Current Account No. 618044873-3 and was paid by Cabilzo to a certain Mr.
substantial justice."20
Marquez, as his sales commission.4

There are instances when rules of procedure are relaxed in the interest of justice. However, in this case, respondent did Subsequently, the check was presented to Westmont Bank for payment. Westmont Bank, in turn, indorsed the check to
not proffer any explanation for the late filing of the motion for reconsideration. Instead, there was a deliberate attempt to
Metrobank for appropriate clearing. After the entries thereon were examined, including the availability of funds and the
deceive the Court of Appeals by claiming that the copy of the 10 October 1991 Decision was received on 22 October authenticity of the signature of the drawer, Metrobank cleared the check for encashment in accordance with the
1991 instead of on 16 October 1991. We find no justification for the posture taken by the Court of Appeals in admitting
Philippine Clearing House Corporation (PCHC) Rules.
the motion for reconsideration. Thus, the late filing of the motion for reconsideration rendered the 10 October 1991
Decision final and executory.
On 16 November 1994, Cabilzo’s 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
The 24-Hour Clearing Time 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
The Court will not rule on the proper application of Central Bank Circular No. 580 in this case. Since there were no Metrobank complied.5
material alterations on the checks, respondent as drawee bank has no right to dishonor them and return them to petitioner,
the collecting bank.21 Thus, respondent is liable to petitioner for the value of the checks, with legal interest from the time
Upon receipt of the check, Cabilzo discovered that Metrobank Check No. 985988 which he issued on 12 November 1994
of filing of the complaint on 16 March 1982 until full payment. 22 Further, considering that respondent’s motion for in the amount of P1,000.00 was altered to P91,000.00 and the date 24 November 1994 was changed to 14 November
reconsideration was filed late, the 10 October 1991 Decision, which held respondent liable for the value of the checks
1994.6
amounting to P1,447,920, had become final and executory.

Hence, Cabilzo demanded that Metrobank re-credit the amount of P91,000.00 to his account. Metrobank, however,
WHEREFORE, we SET ASIDE the 9 August 1994 Amended Decision and the 16 July 1997 Resolution of the Court of
refused reasoning that it has to refer the matter first to its Legal Division for appropriate action. Repeated verbal demands
Appeals. We rule that respondent Philippine National Bank is liable to petitioner International Corporate Bank, Inc. for followed but Metrobank still failed to re-credit the amount of P91,000.00 to Cabilzo’s account.7
the value of the checks amounting to P1,447,920, with legal interest from 16 March 1982 until full payment. Costs
against respondent.
On 30 June 1995, Cabilzo, thru counsel, finally sent a letter-demand8 to Metrobank for the payment of P90,000.00, after
deducting the original value of the check in the amount of P1,000.00. Such written demand notwithstanding, Metrobank
SO ORDERED.
still failed or refused to comply with its obligation.

G.R. No. 154469             December 6, 2006 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
METROPOLITAN BANK AND TRUST COMPANY, petitioners, vs. RENATO D. CABILZO, respondent. 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
DECISION
For its part, Metrobank countered that upon the receipt of the said check through the PCHC on 14 November 1994, it
CHICO-NAZARIO, J.: examined the genuineness and the authenticity of the drawer’s 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,
Before this Court is a Petition for Review on Certiorari, filed by petitioner Metropolitan Bank and Trust Company including the indorsement of the collecting bank located at the dorsal side of the check which stated that, "all prior
(Metrobank) seeking to reverse and set aside the Decision 1 of the Court of Appeals dated 8 March 2002 and its indorsements and lack of indorsement guaranteed," Metrobank cleared the check.10
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:
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
WHEREFORE, the assailed decision dated September 4, 1998 is AFFIRMED with modifications (sic) that the assumed the liability of a general indorser, and thus, among others, warranted that the instrument is genuine and in all
awards for exemplary damages and attorney’s fees are hereby deleted. respect what it purports to be.
In addition, Metrobank, in turn, claimed that Cabilzo was partly responsible in leaving spaces on the check, which, made Similarly ill-fated was Metrobank’s Motion for Reconsideration which was also denied by the appellate court in its
the fraudulent insertion of the amount and figures thereon, possible. On account of his negligence in the preparation and Resolution19 issued on 26 July 2002, for lack of merit.
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.
Metrobank now poses before this Court this sole issue:

Thus, Metrobank demanded from Cabilzo, for payment in the amount of P100,000.00 which represents the cost of THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING METROBANK, AS
litigation and attorney’s fees, for allegedly bringing a frivolous and baseless suit. 11
DRAWEE BANK, LIABLE FOR THE ALTERATIONS ON THE SUBJECT CHECK BEARING THE
AUTHENTIC SIGNATURE OF THE DRAWER THEREOF.
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
We resolve to deny the petition.
materially altered check.

An alteration is said to be material if it changes the effect of the instrument. It means that an unauthorized change in an
Subsequently, a Motion to Dismiss13 the Third-Party Complaint was then filed by Westmont bank because another case
instrument that purports to modify in any respect the obligation of a party or an unauthorized addition of words or
involving the same cause of action was pending before a different court. The said case arose from an action for numbers or other change to an incomplete instrument relating to the obligation of a party.20 In other words, a material
reimbursement filed by Metrobank before the Arbitration Committee of the PCHC against Westmont Bank, and now the
alteration is one which changes the items which are required to be stated under Section 1 of the Negotiable Instruments
subject of a Petition for Review before the RTC of Manila, Branch 19. Law.

In an Order14 dated 4 February 1997, the trial court granted the Motion to Dismiss the Third-Party Complaint on the
Section 1 of the Negotiable Instruments Law provides:
ground of litis pendentia.

Section 1. Form of negotiable instruments. - An instrument to be negotiable must conform to the following
On 4 September 1998, the RTC rendered a Decision 15 in favor of Cabilzo and thereby ordered Metrobank to pay the sum
requirements:
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, attorney’s fees and cost of litigation. The dispositive portion of the (a) It must be in writing and signed by the maker or drawer;
Decision reads: (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
WHEREFORE, judgment is rendered ordering defendant Metropolitan Bank and Trust Company to pay (e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with
plaintiff Renato Cabilzo the sum of P90,000 with legal interest of 6 percent per annum from November 16,
reasonable certainty.
1994 until payment is made plus P20,000 attorney’s fees, exemplary damages of P50,000, and costs of the
suit.16
Also pertinent is the following provision in the Negotiable Instrument Law which states:
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, Section 125. What constitutes material alteration. – Any alteration which changes:
Metrobank maintained that by reason of its unqualified indorsement, Westmont Bank warranted that the check in (a) The date;
question is genuine, valid and subsisting and that upon presentment the check shall be accepted according to its tenor. (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;
Even more, Metrobank argued that in clearing the check, it was not remiss in the performance of its duty as the drawee (e) The medium or currency in which payment is to be made;
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. 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.
In a Decision17 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 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
case between Metrobank and Westmont Bank which was pending before another tribunal. The decretal portion of the changed from 24 November 1994 to 14 November 1994. Apparently, since the entries altered were among those
Decision reads: 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.
WHEREFORE, the assailed decision dated September 4, 1998 is AFFIRMED with the modifications (sic) that
the awards for exemplary damages and attorney’s fees are hereby deleted.18 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 point is that as a business affected with public interest and because of the nature of its functions, the bank is under
the assent of all parties liable thereon, it is avoided, except as against a party who has obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their
himself made, authorized, and assented to the alteration and subsequent indorsers. relationship. The appropriate degree of diligence required of a bank must be a high degree of diligence, if not the utmost
diligence.27
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.) 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:
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 x x x The number "1" in the date is clearly imposed on a white figure in the shape of the number "2". The
a prudent man which could have otherwise prevented the loss. As correctly ruled by the appellate court, Cabilzo was appellant’s employees who examined the said check should have likewise been put on guard as to why at the
never remiss in the preparation and issuance of the check, and there were no indicia of evidence that would prove end of the amount in words, i.e., after the word "ONLY", there are 4 asterisks, while at the beginning of the
otherwise. Indeed, Cabilzo placed asterisks before and after the amount in words and figures in order to forewarn the line or before said phrase, there is none, even as 4 asterisks have been placed before and after the word
subsequent holders that nothing follows before and after the amount indicated other than the one specified between the "CASH" in the space for payee. In addition, the 4 asterisks before the words "ONE THOUSAND PESOS
asterisks. 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
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 said figure. The appellant’s 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
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 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 bigger when compared with the letters of the words "ONE
cleared by the drawee bank, and encashed by the perpetrator of the fraud, to the damage and prejudice of Cabilzo.
THOUSAND PESOS ONLY".28

Verily, Metrobank cannot lightly impute that Cabilzo was negligent and is therefore prevented from asserting his rights
Surprisingly, however, Metrobank failed to detect the above alterations which could not escape the attention of even an
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 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
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 Metrobank’s reliance on this dictum, is misplaced. For one, Metrobank’s representation that it is an drawer’s 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
innocent party is flimsy and evidently, misleading. At the same time, Metrobank cannot asseverate that Cabilzo was
negligent and this negligence was the proximate cause22 of the loss in the absence of even a scintilla proof to buttress was affirmed the appellate court.30
such claim. Negligence is not presumed but must be proven by the one who alleges it.23
Apropos thereto, we need to reiterate that by the very nature of their work the degree of responsibility, care and
Undoubtedly, Cabilzo was an innocent party in this instant controversy. He was just an ordinary businessman who, in 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
order to 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.
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 drawer’s instructions as reflected on the face and by the terms of the check. Payment
We never fail to stress the remarkable significance of a banking institution to commercial transactions, in particular, and
to the country’s economy in general. The banking system is an indispensable institution in the modern world and plays a made under materially altered instrument is not payment done in accordance with the instruction of the drawer.
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 When the drawee bank pays a materially altered check, it violates the terms of the check, as well as its duty to charge its
people, who have come to regard them with respect and even gratitude and, most of all, confidence.24 client’s 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
Thus, even the humble wage-earner does not hesitate to entrust his life's savings to the bank of his choice, knowing that from the drawer, much less, the right to deduct the erroneous payment it made from the drawer’s account which it was
expected to treat with utmost fidelity.
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 Metrobank vigorously asserts that the entries in the check were carefully examined: The date of the instrument, 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 amount in words and figures, as well as the drawer’s signature, which after verification, were found to be proper and
transactions like the issuance or encashment of checks.25 authentic and was thus cleared. We are not persuaded. Metrobank’s 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
In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account consists Code provides:
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 The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature
money the depositor can dispose of as he sees fit, confident that the bank will deliver it as and to whomever he directs.26 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 RAUL H. SESBREÑO filed a complaint for damages against Assistant City Fiscals Bienvenido N. Mabanto, Jr., and
and jurisprudence. If indeed it was not remiss in its obligation, then it would be inconceivable for it not to detect an Dario D. Rama, Jr., before the Regional Trial Court of Cebu City. After trial judgment was rendered ordering the
evident alteration considering its vast knowledge and technical expertise in the intricacies of the banking business. This defendants to pay P11,000.00 to the plaintiff, private respondent herein. The decision having become final and executory,
Court is not completely unaware of banks’ practices of employing devices and techniques in order to detect forgeries, on motion of the latter, the trial court ordered its execution. This order was questioned by the defendants before the Court
insertions, intercalations, superimpositions and alterations in checks and other negotiable instruments so as to safeguard of Appeals. However, on 15 January 1992 a writ of execution was issued.
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. On 4 February 1992 a notice of garnishment was served on petitioner Loreto D. de la Victoria as City Fiscal of Mandaue
City where defendant Mabanto, Jr., was then detailed. The notice directed petitioner not to disburse, transfer, release or
Metrobank argues that Westmont Bank, as the collecting bank and the last indorser, shall bear the loss. Without ruling on convey to any other person except to the deputy sheriff concerned the salary checks or other checks, monies, or cash due
the matter between the drawee bank and the collecting bank, which is already under the jurisdiction of another tribunal, or belonging to Mabanto, Jr., under penalty of law. 1 On 10 March 1992 private respondent filed a motion before the trial
we find that Metrobank cannot rely on such indorsement, in clearing the questioned check. The corollary liability of such court for examination of the garnishees.
indorsement, if any, is separate and independent from the liability of Metrobank to Cabilzo.
On 25 May 1992 the petition pending before the Court of Appeals was dismissed. Thus the trial court, finding no more
The reliance made by Metrobank on Westmont Bank’s indorsement is clearly inconsistent, if not totally offensive to legal obstacle to act on the motion for examination of the garnishees, directed petitioner on 4 November 1992 to submit
the dictum that being impressed with public interest, banks should exercise the highest degree of diligence, if not utmost his report showing the amount of the garnished salaries of Mabanto, Jr., within fifteen (15) days from receipt 2 taking into
diligence in dealing with the accounts of its own clients. It owes the highest degree fidelity to its clients and should not consideration the provisions of Sec. 12, pars. (f) and (i), Rule 39 of the Rules of Court.
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.
On 24 November 1992 private respondent filed a motion to require petitioner to explain why he should not be cited in
contempt of court for failing to comply with the order of 4 November 1992.
Metrobank’s contention that it relied on the strength of collecting bank’s 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
On the other hand, on 19 January 1993 petitioner moved to quash the notice of garnishment claiming that he was not in
practice and could not be allowed by this Court bearing in mind that the confidence of public in general is of paramount possession of any money, funds, credit, property or anything of value belonging to Mabanto, Jr., except his salary and
importance in banking business.
RATA checks, but that said checks were not yet properties of Mabanto, Jr., until delivered to him. He further claimed
that, as such, they were still public funds which could not be subject to garnishment.
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 Cabilzo’s account but permitted a full blown litigation to push through, to
On 9 March 1993 the trial court denied both motions and ordered petitioner to immediately comply with its order of 4
the prejudice of its client. Anyway, Metrobank is not left with no recourse for it can still run after the one who made the November 1992. 3 It opined that the checks of Mabanto, Jr., had already been released through petitioner by the
alteration or with the collecting bank, which it had already done. It bears repeating that the records are bare of evidence
Department of Justice duly signed by the officer concerned. Upon service of the writ of garnishment, petitioner as
to prove that Cabilzo was negligent. We find no justifiable reason therefore why Metrobank did not immediately custodian of the checks was under obligation to hold them for the judgment creditor. Petitioner became a virtual party to,
reimburse his account. Such ineptness comes within the concept of wanton manner contemplated under the Civil Code
or a forced intervenor in, the case and the trial court thereby acquired jurisdiction to bind him to its orders and processes
which warrants the imposition of exemplary damages, "by way of example or correction for the public good," in the with a view to the complete satisfaction of the judgment. Additionally, there was no sufficient reason for petitioner to
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
hold the checks because they were no longer government funds and presumably delivered to the payee, conformably with
of negligence, lest the confidence of the public in the banking system be further eroded. 32 the last sentence of Sec. 16 of the Negotiable Instruments Law.

WHEREFORE, premises considered, the instant Petition is DENIED. The Decision dated 8 March 2002 and the
With regard to the contempt charge, the trial court was not morally convinced of petitioner's guilt. For, while his
Resolution dated 26 July 2002 of the Court of Appeals are AFFIRMED with modification that exemplary damages in explanation suffered from procedural infirmities nevertheless he took pains in enlightening the court by sending a written
the amount of P50,000.00 be awarded. Costs against the petitioner.
explanation dated 22 July 1992 requesting for the lifting of the notice of garnishment on the ground that the notice should
have been sent to the Finance Officer of the Department of Justice. Petitioner insists that he had no authority to segregate
SO ORDERED. a portion of the salary of Mabanto, Jr. The explanation however was not submitted to the trial court for action since the
stenographic reporter failed to attach it to the record. 4
G.R. No. 111190 June 27, 1995
On 20 April 1993 the motion for reconsideration was denied. The trial court explained that it was not the duty of the
garnishee to inquire or judge for himself whether the issuance of the order of execution, writ of execution and notice of
LORETO D. DE LA VICTORIA, as City Fiscal of Mandaue City and in his personal capacity as
garnishee, petitioner, garnishment was justified. His only duty was to turn over the garnished checks to the trial court which issued the order of
execution. 5
vs.
HON. JOSE P. BURGOS, Presiding Judge, RTC, Br. XVII, Cebu City, and RAUL H. SESBREÑO, respondents.
Petitioner raises the following relevant issues: (1) whether a check still in the hands of the maker or its duly authorized
representative is owned by the payee before physical delivery to the latter: and, (2) whether the salary check of a
government official or employee funded with public funds can be subject to garnishment.

BELLOSILLO, J.:
Petitioner reiterates his position that the salary checks were not owned by Mabanto, Jr., because they were not yet at bench, it was incumbent upon petitioner to inquire into the validity of the notice of garnishment as he had actual
delivered to him, and that petitioner as garnishee has no legal obligation to hold and deliver them to the trial court to be knowledge of the non-entitlement of private respondent to the checks in question. Consequently, we find no difficulty
applied to Mabanto, Jr.'s judgment debt. The thesis of petitioner is that the salary checks still formed part of public funds concluding that the trial court exceeded its jurisdiction in issuing the notice of garnishment concerning the salary checks
and therefore beyond the reach of garnishment proceedings. of Mabanto, Jr., in the possession of petitioner.

Petitioner has well argued his case. WHEREFORE, the petition is GRANTED. The orders of 9 March 1993 and 20 April 1993 of the Regional Trial Court of
Cebu City, Br. 17, subject of the petition are SET ASIDE. The notice of garnishment served on petitioner dated 3
Garnishment is considered as a species of attachment for reaching credits belonging to the judgment debtor owing to him February 1992 is ordered DISCHARGED.
from a stranger to the litigation. 6 Emphasis is laid on the phrase "belonging to the judgment debtor" since it is the focal
point in resolving the issues raised. SO ORDERED.

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

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

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

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

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

In denying petitioner's motion for reconsideration, the trial court expressed the additional ratiocination that it was not the
duty of the garnishee to inquire or judge for himself whether the issuance of the order of execution, the writ of execution,
and the notice of garnishment was justified, citing our ruling in Philippine Commercial Industrial Bank v. Court of
Appeals. 11 Our precise ruling in that case was that "[I]t is not incumbent upon the garnishee to inquire or to judge for
itself whether or not the order for the advance execution of a judgment is valid." But that is invoking only the general
rule. We have also established therein the compelling reasons, as exceptions thereto, which were not taken into account
by the trial court, e.g., a defect on the face of the writ or actual knowledge by the garnishee of lack of entitlement on the
part of the garnisher. It is worth to note that the ruling referred to the validity of advance execution of judgments, but a
careful scrutiny of that case and similar cases reveals that it was applicable to a notice of garnishment as well. In the case
 Respondent Bartolome V. Puzon, Jr., (Puzon) owner of Bartenmyk Enterprises, was a dealer of beer products of
petitioner San Miguel Corporation (SMC) for Parañaque City. Puzon purchased SMC products on credit. To ensure
payment and as a business practice, SMC required him to issue postdated checks equivalent to the value of the products
purchased on credit before the same were released to him. Said checks were returned to Puzon when the transactions
covered by these checks were paid or settled in full.

On December 31, 2000, Puzon purchased products on credit amounting to ₱11,820,327 for which he issued, and gave to
SMC, Bank of the Philippine Islands (BPI) Check Nos. 27904 (for ₱309,500.00) and 27903 (for ₱11,510,827.00) to
cover the said transaction.

On January 23, 2001, Puzon, together with his accountant, visited the SMC Sales Office in Parañaque City to reconcile
his account with SMC. During that visit Puzon allegedly requested to see BPI Check No. 17657. However, when he got
hold of BPI Check No. 27903 which was attached to a bond paper together with BPI Check No. 17657 he allegedly
immediately left the office with his accountant, bringing the checks with them.

SMC sent a letter to Puzon on March 6, 2001 demanding the return of the said checks. Puzon ignored the demand hence
SMC filed a complaint against him for theft with the City Prosecutor’s Office of Parañaque City.

Rulings of the Prosecutor and the Secretary of Department of Justice (DOJ)

The investigating prosecutor, Elizabeth Yu Guray found that the "relationship between [SMC] and [Puzon] appears to be
one of credit or creditor-debtor relationship. The problem lies in the reconciliation of accounts and the non-payment of
beer empties which cannot give rise to a criminal prosecution for theft." 3 Thus, in her July 31, 2001 Resolution, 4 she
recommended the dismissal of

the case for lack of evidence. SMC appealed.

On June 4, 2003, the DOJ issued its resolution 5 affirming the prosecutor’s Resolution dismissing the case. Its motion for
reconsideration having been denied in the April 23, 2004 DOJ Resolution, 6 SMC filed a petition for certiorari with the
CA.

Ruling of the Court of Appeals

The CA found that the postdated checks were issued by Puzon merely as a security for the payment of his purchases and
that these were not intended to be encashed. It thus concluded that SMC did not acquire ownership of the checks as it was
duty bound to return the same checks to Puzon after the transactions covering them were settled. The CA agreed with the
prosecutor that there was no theft, considering that a person cannot be charged with theft for taking personal property that
belongs to himself. It disposed of the appeal as follows:

WHEREFORE, finding no grave abuse of discretion committed by public respondent, the instant petition is
G.R. No. 167567               September 22, 2010
hereby DISMISSED. The assailed Resolutions of public respondent, dated 04 June 2003 and 23 April 2004,
SAN MIGUEL CORPORATION, Petitioner, vs. BARTOLOME PUZON, JR., Respondent.
are AFFIRMED. No costs at this instance.

DEL CASTILLO, J.:
SO ORDERED.7

This petition for review assails the December 21, 2004 Decision1 and March 28, 2005 Resolution2 of the Court of
The motion for reconsideration of SMC was denied. Hence, the present petition.
Appeals (CA) in CA-G.R. SP No. 83905, which dismissed the petition before it and denied reconsideration, respectively.

Issues
Factual Antecedents
Petitioner now raises the following issues: concerns grave abuse of discretion and the existence of probable cause for theft, which at this point is more properly
resolved through another more clear cut route.
I
WHETHER X X X PUZON HAD STOLEN FROM SMC ON JANUARY 23, 2001, AMONG OTHERS BPI CHECK Probable Cause for Theft
NO. 27903 DATED MARCH 30, 2001 IN THE AMOUNT OF PESOS: ELEVEN MILLION FIVE HUNDRED TEN
THOUSAND EIGHT HUNDRED TWENTY SEVEN (Php11,510,827.00) "Probable cause is defined as such facts and circumstances that will engender a well-founded belief that a crime has been
II
committed and that the respondent is probably guilty thereof and should be held for trial." 9 On the fine points of the
WHETHER X X X THE POSTDATED CHECKS ISSUED BY PUZON, PARTICULARLY BPI CHECK NO. 27903 determination of probable cause, Reyes v. Pearlbank Securities, Inc.10 comprehensively elaborated that:
DATED MARCH 30, 2001 IN THE AMOUNT OF PESOS: ELEVEN MILLION FIVE HUNDRED TEN THOUSAND
EIGHT HUNDRED TWENTY SEVEN (Php11,510,827.00), WERE ISSUED IN PAYMENT OF HIS BEER
PURCHASES OR WERE USED MERELY AS SECURITY TO ENSURE PAYMENT OF PUZON’S OBLIGATION. The determination of [the existence or absence of probable cause] lies within the discretion of the prosecuting officers
III after conducting a preliminary investigation upon complaint of an offended party. Thus, the decision whether to dismiss a
WHETHER X X X THE PRACTICE OF SMC IN RETURNING THE POSTDATED CHECKS ISSUED IN complaint or not is dependent upon the sound discretion of the prosecuting fiscal. He may dismiss the complaint
PAYMENT OF BEER PRODUCTS PURCHASED ON CREDIT SHOULD THE TRANSACTIONS COVERED BY forthwith, if he finds the charge insufficient in form or substance or without any ground. Or he may proceed with the
THESE CHECKS [BE] SETTLED ON [THE] MATURITY DATES THEREOF COULD BE LIKENED TO A investigation if the complaint in his view is sufficient and in proper form. To emphasize, the determination of probable
CONTRACT OF PLEDGE. cause for the filing of information in court is an executive function, one that properly pertains at the first instance to the
IV public prosecutor and, ultimately, to the Secretary of Justice, who may direct the filing of the corresponding information
WHETHER X X X SMC HAD ESTABLISHED PROBABLE CAUSE TO JUSTIFY THE INDICTMENT OF PUZON or move for the dismissal of the case. Ultimately, whether or not a complaint will be dismissed is dependent on the sound
FOR THE CRIME OF THEFT PURSUANT TO ART. 308 OF THE REVISED PENAL CODE.8 discretion of the Secretary of Justice. And unless made with grave abuse of discretion, findings of the Secretary of Justice
are not subject to review.
Petitioner's Arguments
For this reason, the Court considers it sound judicial policy to refrain from interfering in the conduct of preliminary
investigations and to leave the Department of Justice ample latitude of discretion in the determination of what constitutes
SMC contends that Puzon was positively identified by its employees to have taken the subject postdated checks. It also
sufficient evidence to establish probable cause for the prosecution of supposed offenders. Consistent with this policy,
contends that ownership of the checks was transferred to it because these were issued, not merely as security but were, in courts do not reverse the Secretary of Justice's findings and conclusions on the matter of probable cause except in clear
payment of Puzon’s purchases. SMC points out that it has established more than sufficient probable cause to justify the
cases of grave abuse of discretion.
indictment of Puzon for the crime of Theft.

In the present case, we are also not sufficiently convinced to deviate from the general rule of non-interference. Indeed the
Respondent’s Arguments
CA did not err in dismissing the petition for certiorari before it, absent grave abuse of discretion on the part of the DOJ
Secretary in not finding probable cause against Puzon for theft.
On the other hand, Puzon contends that SMC raises questions of fact that are beyond the province of an appeal on
certiorari. He also insists that there is no probable cause to charge him with theft because the subject checks were issued
The Revised Penal Code provides:
only as security and he therefore retained ownership of the same.

Art. 308. Who are liable for theft. - Theft is committed by any person who, with intent to gain but without violence
Our Ruling
against, or intimidation of persons nor force upon things, shall take personal property of another without the latter’s
consent.
The petition has no merit.
xxxx
Preliminary Matters
"[T]he essential elements of the crime of theft are the following: (1) that there be a taking of personal property; (2) that
At the outset we find that as pointed out by Puzon, SMC raises questions of fact. The resolution of the first issue raised said property belongs to another; (3) that the taking be done with intent to gain; (4) that the taking be done without the
by SMC of whether respondent stole the subject check, which calls for the Court to determine whether respondent is consent of the owner; and (5) that the taking be accomplished without the use of violence or intimidation against persons
guilty of a felony, first requires that the facts be duly established in the proper forum and in accord with the proper or force upon things."11
procedure. This issue cannot be resolved based on mere allegations of facts and affidavits. The same is true with the
second issue raised by petitioner, to wit: whether the checks issued by Puzon were payments for his purchases or were Considering that the second element is that the thing taken belongs to another, it is relevant to determine whether
intended merely as security to ensure payment. These issues cannot be properly resolved in the present petition for
ownership of the subject check was transferred to petitioner. On this point the Negotiable Instruments Law provides:
review on certiorari which is rooted merely on the resolution of the prosecutor finding no probable cause for the filing of
an information for theft.
Sec. 12. Antedated and postdated – The instrument is not invalid for the reason only that it is antedated or postdated,
provided this is not done for an illegal or fraudulent purpose. The person to whom an instrument so dated
The third issue raised by petitioner, on the other hand, would entail venturing into constitutional matters for a complete is delivered acquires the title thereto as of the date of delivery. (Underscoring supplied.)
resolution. This route is unnecessary in the present case considering that the main matter for resolution here only
Note however that delivery as the term is used in the aforementioned provision means that the party delivering did so for A crossed check with the notation "account payee only" can only be deposited in the named payee’s account. It is gross
the purpose of giving effect thereto.12 Otherwise, it cannot be said that there has been delivery of the negotiable negligence for a bank to ignore this rule solely on the basis of a third party’s oral representations of having a good title
instrument. Once there is delivery, the person to whom the instrument is delivered gets the title to the instrument thereto.
completely and irrevocably.
Before the Court is a Petition for Review on Certiorari of the October 13, 2006 Decision of the Court of Appeals (CA) in
If the subject check was given by Puzon to SMC in payment of the obligation, the purpose of giving effect to the CA-G.R. CV No. 62425. The dispositive portion of the assailed Decision reads:
instrument is evident thus title to or ownership of the check was transferred upon delivery. However, if the check was not
given as payment, there being no intent to give effect to the instrument, then ownership of the check was not transferred WHEREFORE, premises considered, the May 4, 1998 Decision of the Regional Trial Court of Pasig City, Branch 168, in
to SMC.
Civil Case No. 63561, is hereby AFFIRMED.

The evidence of SMC failed to establish that the check was given in payment of the obligation of Puzon. There was no SO ORDERED.
provisional receipt or official receipt issued for the amount of the check. What was issued was a receipt for
the document, a  "POSTDATED CHECK SLIP."13
Factual Antecedents
Respondent Special Steel Products, Inc. (SSPI) is a private domestic corporation selling steel products. Its co-respondent
Furthermore, the petitioner's demand letter sent to respondent states "As per company policies on receivables, all
Augusto L. Pardo (Pardo) is SSPI’s President and majority stockholder.2
issuances are to be covered by post-dated checks. However, you have deviated from this policy by forcibly taking away
the check you have issued to us to cover the December issuance." 14 Notably, the term "payment" was not used instead the
terms "covered" and "cover" were used. International Copra Export Corporation (Interco) is its regular customer.3

Although the petitioner's witness, Gregorio L. Joven III, states in paragraph 6 of his affidavit that the check was given in Jose Isidoro4 Uy, alias Jolly Uy (Uy), is an Interco employee, in charge of the purchasing department, and the son-in-law
payment of the obligation of Puzon, the same is contradicted by his statements in paragraph 4, where he states that "As a of its majority stockholder.5
standard company operating procedure, all beer purchases by dealers on credit shall be covered by postdated checks
equivalent to the value of the beer products purchased"; in paragraph 9 where he states that "the transaction covered by Petitioner Equitable Banking Corporation (Equitable or bank) is a private domestic corporation engaged in banking 6 and
the said check had not yet been paid for," and in paragraph 8 which clearly shows that partial payment is expected to be is the depository bank of Interco and of Uy.
made by the return of beer empties, and not by the deposit or encashment of the check.1avvphi1 Clearly the term "cover"
was not meant to be used interchangeably with "payment."
In 1991, SSPI sold welding electrodes to Interco, as evidenced by the following sales invoices:
Sales Invoice No. 65042 dated February 14, 1991 for ₱325,976.347
When taken in conjunction with the counter-affidavit of Puzon – where he states that "As the [liquid beer] contents are Sales Invoice No. 65842 dated April 11, 1991 for ₱345,412.808
paid for, SMC return[s] to me the corresponding PDCs or request[s] me to replace them with whatever was the unpaid Sales Invoice No. 65843 dated April 11, 1991 for ₱313,845.849
balance."15 – it becomes clear that both parties did not intend for the check to pay for the beer products. The evidence
proves that the check was accepted, not as payment, but in accordance with the long-standing policy of SMC to require
its dealers to issue postdated checks to cover its receivables. The check was only meant to cover the transaction and in The due dates for these invoices were March 16, 1991 (for the first sales invoice) and May 11, 1991 (for the others). The
the meantime Puzon was to pay for the transaction by some other means other than the check. This being so, title to the invoices provided that Interco would pay interest at the rate of 36% per annum in case of delay.
check did not transfer to SMC; it remained with Puzon. The second element of the felony of theft was therefore not
established. Petitioner was not able to show that Puzon took a check that belonged to another. Hence, the prosecutor and In payment for the above welding electrodes, Interco issued three checks payable to the order of SSPI on July 10,
the DOJ were correct in finding no probable cause for theft. 1991,10 July 16, 1991,11 and July 29, 1991.12 Each check was crossed with the notation "account payee only" and was
drawn against Equitable. The records do not identify the signatory for these three checks, or explain how Uy, Interco’s
Consequently, the CA did not err in finding no grave abuse of discretion committed by the DOJ in sustaining the purchasing officer, came into possession of these checks.
dismissal of the case for theft for lack of probable cause.
The records only disclose that Uy presented each crossed check to Equitable on the day of its issuance and claimed that
WHEREFORE, the petition is DENIED. The December 21, 2004 Decision and March 28, 2005 Resolution of the Court he had good title thereto.13 He demanded the deposit of the checks in his personal accounts in Equitable, Account No.
of Appeals in CA-G.R. SP. No. 83905 are AFFIRMED. 18841-2 and Account No. 03474-0.14

SO ORDERED. Equitable acceded to Uy’s demands on the assumption that Uy, as the son-in-law of Interco’s majority stockholder, 15 was
acting pursuant to Interco’s orders. The bank also relied on Uy’s status as a valued client. 16 Thus, Equitable accepted the
checks for deposit in Uy’s personal accounts17 and stamped "ALL PRIOR ENDORSEMENT AND/OR LACK OF
G.R. No. 175350               June 13, 2012 ENDORSEMENT GUARANTEED" on their dorsal portion.18 Uy promptly withdrew the proceeds of the checks.
EQUITABLE BANKING CORPORATION, INC. Petitioner, vs. SPECIAL STEEL PRODUCTS, and AUGUSTO
L. PARDO, Respondents.
DEL CASTILLO, J.: In October 1991, SSPI reminded Interco of the unpaid welding electrodes, amounting to ₱985,234.98. 19 It reiterated its
demand on January 14, 1992.20 SSPI explained its immediate need for payment as it was experiencing some financial
crisis of its own. Interco replied that it had already issued three checks payable to SSPI and drawn against Equitable. account). Since only Uy is responsible for the fraudulent conversion of the checks, he should reimburse Equitable for any
SSPI denied receipt of these checks. amounts that it may be made liable to plaintiffs.35

On August 6, 1992, SSPI requested information from Equitable regarding the three checks. The bank refused to give any The bank counter-claimed that SSPI is liable to it in damages for the wrongful and malicious attachment of Equitable’s
information invoking the confidentiality of deposits.21 personal properties. The bank maintained that SSPI knew that the allegation of fraud against the bank is a falsehood.
Further, the bank is financially capable to meet the plaintiffs’ claim should the latter receive a favorable judgment. SSPI
was aware that the preliminary attachment against the bank was unnecessary, and intended only to humiliate or destroy
The records do not disclose the circumstances surrounding Interco’s and SSPI’s eventual discovery of Uy’s scheme.
Nevertheless, it was determined that Uy, not SSPI, received the proceeds of the three checks that were payable to SSPI. the bank’s reputation.36
Thus, on June 30, 1993 (twenty-three months after the issuance of the three checks), Interco finally paid the value of the
three checks to SSPI, plus a portion of the accrued interests. Interco refused to pay the entire accrued interest of Meanwhile, Uy answered that the checks were negotiated to him; that he is a holder for value of the checks and that he
₱767,345.64 on the ground that it was not responsible for the delay. Thus, SSPI was unable to collect ₱437,040.35 (at the has a good title thereto.37 He did not, however, explain how he obtained the checks, from whom he obtained his title, and
contracted rate of 36% per annum) in interest income.22 the value for which he received them. During trial, Uy did not present any evidence but adopted Equitable’s evidence as
his own.
SSPI and its president, Pardo, filed a complaint for damages with application for a writ of preliminary attachment against
Uy and Equitable Bank. The complaint alleged that the three crossed checks, all payable to the order of SSPI and with the Ruling of the Regional Trial Court 38
notation "account payee only," could be deposited and encashed by SSPI only. However, due to Uy’s fraudulent The RTC clarified that SSPI’s cause of action against Uy and Equitable is for quasi-delict. SSPI is not seeking to enforce
representations, and Equitable’s indispensable connivance or gross negligence, the restrictive nature of the checks was payment on the undelivered checks from the defendants, but to recover the damage that it sustained from the wrongful
ignored and the checks were deposited in Uy’s account. Had the defendants not diverted the three checks in July 1991, non-delivery of the checks.39
the plaintiffs could have used them in their business and earned money from them. Thus, the plaintiffs prayed for an
award of actual damages consisting of the unrealized interest income from the proceeds of the checks for the two-year The crossed checks belonged solely to the payee named therein, SSPI. Since SSPI did not authorize anyone to receive
period that the defendants withheld the proceeds from them (from July 1991 up to June 1993).23
payment in its behalf, Uy clearly had no title to the checks and Equitable had no right to accept the said checks from Uy.
Equitable was negligent in permitting Uy to deposit the checks in his account without verifying Uy’s right to endorse the
In his personal capacity, Pardo claimed an award of ₱3 million as moral damages from the defendants. He allegedly crossed checks. The court reiterated that banks have the duty to scrutinize the checks deposited with it, for a
suffered hypertension, anxiety, and sleepless nights for fear that the government would charge him for tax evasion or determination of their genuineness and regularity. The law holds banks to a high standard because banks hold themselves
money laundering. He maintained that defendants’ actions amounted to money laundering and that it unfairly implicated out to the public as experts in the field. Thus, the trial court found Equitable’s explanation regarding Uy’s close relations
his company in the scheme. As for his fear of tax evasion, Pardo explained that the Bureau of Internal Revenue might with the drawer unacceptable.40
notice a discrepancy between the financial reports of Interco (which might have reported the checks as SSPI’s income in
1991) and those of SSPI (which reported the income only in 1993). Since Uy and Equitable were responsible for Pardo’s
Uy’s conversion of the checks and Equitable’s negligence make them liable to compensate SSPI for the actual damage it
worries, they should compensate him jointly and severally therefor.24 sustained. This damage consists of the income that SSPI failed to realize during the delay.41 The trial court then equated
this unrealized income with the interest income that SSPI failed to collect from Interco. Thus, it ordered Uy and
SSPI and Pardo also prayed for exemplary damages and attorney’s fees.25 Equitable to pay, jointly and severally, the amount of ₱437,040.35 to SSPI as actual damages.42

In support of their application for preliminary attachment, the plaintiffs alleged that the defendants are guilty of fraud in It also ordered the defendants to pay exemplary damages of ₱500,000.00, attorney’s fees amounting to ₱200,000.00, as
incurring the obligation upon which the action was brought and that there is no sufficient security for the claim sought to well as costs of suit.43
be enforced in this action.26
The trial court likewise found merit in Pardo’s claim for moral damages. It found that Pardo suffered anxiety, sleepless
The trial court granted plaintiffs’ application.27 It issued the writ of preliminary attachment on September 20, 1993,28 upon nights, and hypertension in fear that he would face criminal prosecution. The trial court awarded Pardo the amount of ₱3
the filing of plaintiffs’ bond for ₱500,000.00. The sheriff served and implemented the writ against the personal properties million in moral damages.44
of both defendants.29
The dispositive portion of the trial court’s Decision reads:
Upon Equitable’s motion and filing of a counter-bond, however, the trial court eventually discharged the
attachment30 against it.31
WHEREFORE, judgment is hereby rendered in favor of plaintiffs Special Steel Products, Inc., and Augusto L. Pardo and
against defendants Equitable Banking Corporation [and] Jose Isidoro Uy, alias "Jolly Uy," ordering defendants to jointly
Equitable then argued for the dismissal of the complaint for lack of cause of action. It maintained that interest income is and severally pay plaintiffs the following:
due only when it is expressly stipulated in writing. Since Equitable and SSPI did not enter into any contract, Equitable is
not liable for damages, in the form of unobtained interest income, to SSPI. 32 Moreover, SSPI’s acceptance of Interco’s 1. ₱437,040.35 as actual damages;
payment on the sales invoices is a waiver or extinction of SSPI’s cause of action based on the three checks.33
2. ₱3,000,000.00 as moral damages to Augusto L. Pardo;
3. ₱500,000.00 as exemplary damages;
Equitable further argued that it is not liable to SSPI because it accepted the three crossed checks in good faith. 34 Equitable 4. ₱200,000.00 as attorney’s fees; and
averred that, due to Uy’s close relations with the drawer of the checks, the bank had basis to assume that the drawer 5. Costs of suit.
authorized Uy to countermand the original order stated in the check (that it can only be deposited in the named payee’s
Defendant EBC’s counterclaim is hereby DISMISSED for lack of factual and legal basis. The checks that Interco issued in favor of SSPI were all crossed, made payable to SSPI’s order, and contained the
notation "account payee only." This creates a reasonable expectation that the payee alone would receive the proceeds of
Likewise, the crossclaim filed by defendant EBC against defendant Jose Isidoro Uy and the crossclaim filed by defendant the checks and that diversion of the checks would be averted. This expectation arises from the accepted banking practice
that crossed checks are intended for deposit in the named payee’s account only and no other. 56 At the very least, the
Jose Isidoro Uy against defendant EBC are hereby DISMISSED for lack of factual and legal basis.
nature of crossed checks should place a bank on notice that it should exercise more caution or expend more than a
cursory inquiry, to ascertain whether the payee on the check has authorized the holder to deposit the same in a different
SO ORDERED. account. It is well to remember that "[t]he banking system has become an indispensable institution in the modern world
Pasig City, May 4, 1998.45 and plays a vital role in the economic life of every civilized society. Whether as mere passive entities for the safe-keeping
The trial court denied Equitable’s motion for reconsideration in its Order dated November 19, 1998.46 and saving of money or as active instruments of business and commerce, banks have attained an [sic] ubiquitous presence
Only Equitable appealed to the CA,47 reiterating its defenses below. among the people, who have come to regard them with respect and even gratitude and, above all, trust and confidence. In
Appealed Ruling of the Court of Appeals48 this connection, it is important that banks should guard against injury attributable to negligence or bad faith on its part.
The appellate court found no merit in Equitable’s appeal. As repeatedly emphasized, since the banking business is impressed with public interest, the trust and confidence of the
public in it is of paramount importance. Consequently, the highest degree of diligence is expected, and high standards of
It affirmed the trial court’s ruling that SSPI had a cause of action for quasi-delict against Equitable.49 The CA noted that integrity and performance are required of it."57
the three checks presented by Uy to Equitable were crossed checks, and strictly made payable to SSPI only. This means
that the checks could only be deposited in the account of the named payee.50 Thus, the CA found that Equitable had the Equitable did not observe the required degree of diligence expected of a banking institution under the existing factual
responsibility of ensuring that the crossed checks are deposited in SSPI’s account only. Equitable violated this duty when circumstances.
it allowed the deposit of the crossed checks in Uy’s account.51
The fact that a person, other than the named payee of the crossed check, was presenting it for deposit should have put the
The CA found factual and legal basis to affirm the trial court’s award of moral damages in favor of Pardo.52 bank on guard. It should have verified if the payee (SSPI) authorized the holder (Uy) to present the same in its behalf, or
indorsed it to him. Considering however, that the named payee does not have an account with Equitable (hence, the latter
It likewise affirmed the award of exemplary damages and attorney’s fees in favor of SSPI.53 has no specimen signature of SSPI by which to judge the genuineness of its indorsement to Uy), the bank knowingly
assumed the risk of relying solely on Uy’s word that he had a good title to the three checks. Such misplaced reliance on
empty words is tantamount to gross negligence, which is the "absence of or failure to exercise even slight care or
Issues diligence, or the entire absence of care, evincing a thoughtless disregard of consequences without exerting any effort to
1. Whether SSPI has a cause of action against Equitable for quasi-delict; avoid them."58
2. Whether SSPI can recover, as actual damages, the stipulated 36% per annum interest from Equitable;
3. Whether speculative fears and imagined scenarios, which cause sleepless nights, may be the basis for the award of
moral damages; and Equitable contends that its knowledge that Uy is the son-in-law of the majority stockholder of the drawer, Interco, made
4. Whether the attachment of Equitable’s personal properties was wrongful. it safe to assume that the drawer authorized Uy to countermand the order appearing on the check. In other words,
Equitable theorizes that Interco reconsidered its original order and decided to give the proceeds of the checks to
Uy.59 That the bank arrived at this conclusion without anything on the face of the checks to support it is demonstrative of
Our Ruling its lack of caution. It is troubling that Equitable proceeded with the transaction based only on its knowledge that Uy had
close relations with Interco. The bank did not even make inquiries with the drawer, Interco (whom the bank considered a
SSPI’s cause of action "valued client"), to verify Uy’s representation. The banking system is placed in peril when bankers act out of blind faith
and empty promises, without requiring proof of the assertions and without making the appropriate inquiries. Had it only
exercised due diligence, Equitable could have saved both Interco and the named payee, SSPI, from the trouble that the
This case involves a complaint for damages based on quasi-delict. SSPI asserts that it did not receive prompt payment bank’s mislaid trust wrought for them.
from Interco in July 1991 because of Uy’s wilful and illegal conversion of the checks payable to SSPI, and of Equitable’s
gross negligence, which facilitated Uy’s actions. The combined actions of the defendants deprived SSPI of interest
income on the said moneys from July 1991 until June 1993. Thus, SSPI claims damages in the form of interest income Equitable’s pretension that there is nothing under the circumstances that rendered Uy’s title to the checks questionable is
for the said period from the parties who wilfully or negligently withheld its money from it. outrageous. These are crossed checks, whose manner of discharge, in banking practice, is restrictive and specific. Uy’s
name does not appear anywhere on the crossed checks. Equitable, not knowing the named payee on the check, had no
way of verifying for itself the alleged genuineness of the indorsement to Uy. The checks bear nothing on their face that
Equitable argues that SSPI cannot assert a right against the bank based on the undelivered checks. 54 It cites provisions supports the belief that the drawer gave the checks to Uy. Uy’s relationship to Interco’s majority stockholder will not
from the Negotiable Instruments Law and the case of Development Bank of Rizal v. Sima Wei55 to argue that a payee, justify disregarding what is clearly ordered on the checks.
who did not receive the check, cannot require the drawee bank to pay it the sum stated on the checks.

Actual damages
Equitable’s argument is misplaced and beside the point. SSPI’s cause of action is not based on the three checks. SSPI
does not ask Equitable or Uy to deliver to it the proceeds of the checks as the rightful payee. SSPI does not assert a right
based on the undelivered checks or for breach of contract. Instead, it asserts a cause of action based on quasi-delict. A For its role in the conversion of the checks, which deprived SSPI of the use thereof, Equitable is solidarily liable with Uy
quasi-delict is an act or omission, there being fault or negligence, which causes damage to another. Quasi-delicts exist to compensate SSPI for the damages it suffered.
even without a contractual relation between the parties. The courts below correctly ruled that SSPI has a cause of action
for quasi-delict against Equitable.
Among the compensable damages are actual damages, which encompass the value of the loss sustained by the plaintiff, Equitable then insists on the allowance of their cross-claim against Uy. The bank argues that it was Uy who was enriched
and the profits that the plaintiff failed to obtain.60 Interest payments, which SSPI claims, fall under the second category of by the entire scheme and should reimburse Equitable for whatever amounts the Court might order it to pay in damages to
actual damages. SSPI.68

SSPI computed its claim for interest payments based on the interest rate stipulated in its contract with Interco. It Equitable is correct. There is unjust enrichment when (1) a person is unjustly benefited, and (2) such benefit is derived at
explained that the stipulated interest rate is the actual interest income it had failed to obtain from Interco due to the the expense of or with damages to another.69 In the instant case, the fraudulent scheme concocted by Uy allowed him to
defendants’ tortious conduct. improperly receive the proceeds of the three crossed checks and enjoy the profits from these proceeds during the entire
time that it was withheld from SSPI. Equitable, through its gross negligence and mislaid trust on Uy, became an
unwitting instrument in Uy’s scheme. Equitable’s fault renders it solidarily liable with Uy, insofar as respondents are
The Court finds the application of the stipulated interest rate erroneous.
concerned. Nevertheless, as between Equitable and Uy, Equitable should be allowed to recover from Uy whatever
amounts Equitable may be made to pay under the judgment. It is clear that Equitable did not profit in Uy’s scheme.
SSPI did not recover interest payments at the stipulated rate from Interco because it agreed that the delay was not Disallowing Equitable’s cross-claim against Uy is tantamount to allowing Uy to unjustly enrich himself at the expense of
Interco’s fault, but that of the defendants’. If that is the case, then Interco is not in delay (at least not after issuance of the Equitable. For this reason, the Court allows Equitable’s cross-claim against Uy.
checks) and the stipulated interest payments in their contract did not become operational. If Interco is not liable to pay for
the 36% per annum interest rate, then SSPI did not lose that income. SSPI cannot lose something that it was not entitled
to in the first place. Thus, SSPI’s claim that it was entitled to interest income at the rate stipulated in its contract with Preliminary attachment
Interco, as a measure of its actual damage, is fallacious.
Equitable next assails as error the trial court’s dismissal of its counter-claim for wrongful preliminary attachment. It
More importantly, the provisions of a contract generally take effect only among the parties, their assigns and heirs. 61 SSPI maintains that, contrary to SSPI’s allegation in its application for the writ, there is no showing whatsoever that Equitable
was guilty of fraud in allowing Uy to deposit the checks. Thus, the trial court should not have issued the writ of
cannot invoke the contractual stipulation on interest payments against Equitable because it is neither a party to the
contract, nor an assignee or an heir to the contracting parties. preliminary attachment in favor of SSPI. The wrongful attachment compelled Equitable to incur expenses for a counter-
bond, amounting to ₱30,204.26, and caused it to sustain damage, amounting to ₱5 million, to its goodwill and business
credit.70
Nevertheless, it is clear that defendants’ actions deprived SSPI of the present use of its money for a period of two years.
SSPI is therefore entitled to obtain from the tortfeasors the profits that it failed to obtain from July 1991 to June 1993.
SSPI submitted the following affidavit in support of its application for a writ of preliminary attachment:
SSPI should recover interest at the legal rate of 6% per annum, 62 this being an award for damages based on quasi-delict
and not for a loan or forbearance of money.
I, Augusto L. Pardo, of legal age, under oath hereby depose and declare:
Moral damages
Both the trial and appellate courts awarded Pardo ₱3 million in moral damages. Pardo claimed that he was frightened, 1. I am one of the plaintiffs in the above-entitled case; the other plaintiff is our family corporation, Special
anguished, and seriously anxious that the government would prosecute him for money laundering and tax evasion Steel Products, Inc., of which I am the president and majority stockholder; I caused the preparation of the
because of defendants’ actions.63 In other words, he was worried about the repercussions that defendants’ actions would foregoing Complaint, the allegations of which I have read, and which I hereby affirm to be true and correct out
have on him. of my own personal knowledge;

Equitable argues that Pardo’s fears are all imagined and should not be compensated. The bank points out that none of 2. The corporation and I have a sufficient cause of action against defendants Isidoro Uy alias Jolly Uy and
Pardo’s fears panned out.64 Equitable Banking Corporation, who are guilty of fraud in incurring the obligation upon which this action is
brought, as particularly alleged in the Complaint, which allegations I hereby adopt and reproduce herein;
Moral damages are recoverable only when they are the proximate result of the defendant’s wrongful act or
omission.65 Both the trial and appellate courts found that Pardo indeed suffered as a result of the diversion of the three 3. There is no sufficient security for our claim in this action and that the amount due us is as much as the sum
checks. It does not matter that the things he was worried and anxious about did not eventually materialize. It is rare for a for which the order is granted above all legal counterclaims;
person, who is beset with mounting problems, to sift through his emotions and distinguish which fears or anxieties he
should or should not bother with. So long as the injured party’s moral sufferings are the result of the defendants’ actions,
4. We are ready and able to put up a bond executed to the defendants in an amount to be fixed by the Court[,]
he may recover moral damages. conditioned on the payment of all costs[,] which may be adjudged to defendants[,] and all damages[,] which
they may sustain by reason of the attachment of the court, should [the court] finally adjudge that we are not
The Court, however, finds the award of ₱3 million excessive. Moral damages are given not to punish the defendant but entitled thereto.71
only to give the plaintiff the means to assuage his sufferings with diversions and recreation.66 We find that the award of
₱50,000.0067 as moral damages is reasonable under the circumstances.
The complaint (to which the supporting affidavit refers) cites the following factual circumstances to justify
SSPI’s application:
Equitable to recover amounts from Uy
6. x x x Yet, notwithstanding the fact that SPECIAL STEEL did not open an account with EQUITABLE
BANK as already alleged, thru its connivance with defendant UY in his fraudulent scheme to defraud
SPECIAL STEEL, or at least thru its gross negligence EQUITABLE BANK consented to or allowed the
 opening of Account No. 18841-2 at its head office and Account No. 03474-0 at its Ermita Branch in the name Additionally, the Court hereby REVERSES the dismissal of Equitable Banking Corporation’s counterclaim for damages
of SPECIAL STEEL without the latter’s knowledge, let alone authority or consent, but obviously on the bases against Special Steel Products, Inc. This Court ORDERS Special Steel Products, Inc. to PAY Equitable Banking
of spurious or falsified documents submitted by UY or under his authority, which documents EQUITABLE Corporation actual damages in the total amount of ₱30,204.36, for the wrongful preliminary attachment of its properties.
BANK did not bother to verify or check their authenticity with SPECIAL STEEL.72 The rest of the assailed Decision is AFFIRMED.
SO ORDERED.
9. On August 6, 1992, plaintiffs, thru counsel, wrote EQUITABLE BANK about the fraudulent transactions
involving the aforesaid checks, which could not have been perpetrated without its indispensable participation
and cooperation, or gross negligence, and therein solicited its cooperation in securing information as to the G.R. No. 126568             April 30, 2003
anomalous and irregular opening of the false accounts maintained in SPECIAL STEEL’s name, but
EQUITABLE BANK malevolently shirking from its responsibility to prevent the further perpetration of fraud, QUIRINO GONZALES LOGGING CONCESSIONAIRE, QUIRINO GONZALES and EUFEMIA
conveniently, albeit unjustifiably, invoked the confidentiality of the deposits and refused to give any
GONZALES, petitioners,
information, and accordingly denied SPECIAL STEEL’s valid request, thereby knowingly shielding the vs.
identity of the ma[le]factors involved [in] the unlawful and fraudulent transactions.73
THE COURT OF APPEALS (CA) and REPUBLIC PLANTERS BANK, respondents.

The above affidavit and the allegations of the complaint are bereft of specific and definite allegations of fraud against CARPIO MORALES, J.:
Equitable that would justify the attachment of its properties. In fact, SSPI admits its uncertainty whether Equitable’s
participation in the transactions involved fraud or was a result of its negligence. Despite such uncertainty with respect to
Equitable’s participation, SSPI applied for and obtained a preliminary attachment of Equitable’s properties on the ground In the expansion of its logging business, petitioner Quirino Gonzales Logging Concessionaire (QGLC), through its
of fraud. We believe that such preliminary attachment was wrongful. "[A] writ of preliminary attachment is too harsh a proprietor, general manager — co-petitioner Quirino Gonzales, applied on October 15, 1962 for credit
provisional remedy to be issued based on mere abstractions of fraud. Rather, the rules require that for the writ to issue, accommodations1 with respondent Republic Bank (the Bank), later known as Republic Planters Bank.
there must be a recitation of clear and concrete factual circumstances manifesting that the debtor practiced fraud upon the
creditor at the time of the execution of their agreement in that said debtor had a preconceived plan or intention not to pay The Bank approved QGLC's application on December 21, 1962, granting it a credit line of P900,000.00 2 broken into an
the creditor."74 No proof was adduced tending to show that Equitable had a preconceived plan not to pay SSPI or had overdraft line of P500,000.00 which was later reduced to P450,000.00 and a Letter of Credit (LC) line of P400,000.00.3
knowingly participated in Uy’s scheme.

Pursuant to the grant, the Bank and petitioners QGLC and the spouses Quirino and Eufemia Gonzales executed ten
That the plaintiffs eventually obtained a judgment in their favor does not detract from the wrongfulness of the documents: two denominated "Agreement for Credit in Current Account," 4 four denominated "Application and
preliminary attachment.1âwphi1 While "the evidence warrants [a] judgment in favor of [the] applicant, the proofs may Agreement for Commercial Letter of Credit,"5 and four denominated "Trust Receipt."6
nevertheless also establish that said applicant’s proffered ground for attachment was inexistent or specious, and hence,
the writ should not have issued at all x x x."75
Petitioners' obligations under the credit line were secured by a real estate mortgage on four parcels of land: two in
Pandacan, Manila, one in Makati (then part of Rizal), and another in Diliman, Quezon City.7
For such wrongful preliminary attachment, plaintiffs may be held liable for damages. However, Equitable is entitled only
to such damages as its evidence would allow, 76 for the wrongfulness of an attachment does not automatically warrant the
award of damages. The debtor still has the burden of proving the nature and extent of the injury that it suffered by reason In separate transactions, petitioners, to secure certain advances from the Bank in connection with QGLC's exportation of
of the wrongful attachment.77 logs, executed a promissory note in 1964 in favor of the Bank. They were to execute three more promissory notes in
1967.
The Court has gone over the records and found that Equitable has duly proved its claim for, and is entitled to recover,
actual damages. In order to lift the wrongful attachment of Equitable’s properties, the bank was compelled to pay the In 1965, petitioners having long defaulted in the payment of their obligations under the credit line, the Bank foreclosed
total amount of ₱30,204.26 in premiums for a counter-bond.78 However, Equitable failed to prove that it sustained the mortgage and bought the properties covered thereby, it being the highest bidder in the auction sale held in the same
damage to its "goodwill and business credit" in consequence of the alleged wrongful attachment. There was no proof of year. Ownership over the properties was later consolidated in the Bank on account of which new titles thereto were
Equitable’s contention that respondents’ actions caused it public embarrassment and a bank run. issued to it.8

WHEREFORE, premises considered, the Petition is PARTIALLY GRANTED. The assailed October 13, 2006 Decision On January 27, 1977, alleging non-payment of the balance of QGLC's obligation after the proceeds of the foreclosure
of the Court of Appeals in CA-G.R. CV No. 62425 is MODIFIED by: sale were applied thereto, and non-payment of the promissory notes despite repeated demands, the Bank filed a complaint
for "sum of money" (Civil Case No. 106635) against petitioners before the Regional Trial Court (RTC) of Manila.
1. REDUCING the award of actual damages to respondents to the rate of 6% per annum of the value of the
three checks from July 1991 to June 1993 or a period of twenty-three months; The complaint listed ten causes of action. The first concerns the overdraft line under which the Bank claimed that
2. REDUCING the award of moral damages in favor of Augusto L. Pardo from ₱3,000,000.00 to ₱ 50,000.00; petitioners withdrew amounts (unspecified) at twelve percent per annum which were unpaid at maturity and that after it
and applied the proceeds of the foreclosure sale to the overdraft debt, there remained an unpaid balance of P1,224,301.56.
3. REVERSING the dismissal of Equitable Banking Corporation’s cross-claim against Jose Isidoro Uy, alias
Jolly Uy. Jolly Uy is hereby ORDERED to REIMBURSE Equitable Banking Corporation the amounts that the The Bank's second to fifth causes of action pertain to the LC line under which it averred that on the strength of the LCs it
latter will pay to respondents. issued, the beneficiaries thereof drew and presented sight drafts to it which it all paid after petitioners' acceptance; and
that it delivered the tractors and equipment subject of the LCs to petitioners who have not paid either the full or part of Finding for petitioners, the trial court rendered its Decision of April 22, 1992 the dispositive portion of which reads:
the face value of the drafts.
WHEREFORE, judgment is rendered as follows:
Specifically with respect to its second cause of action, the Bank alleged that it issued LC No. 63-0055D on January 15,
1963 in favor of Monark International Incorporated9 covering the purchase of a tractor10 on which the latter allegedly
1. All the claims of plaintiff particularly those described in the first to the tenth causes of action of its
drew a sight draft with a face value of P71,500.00,11 which amount petitioners have not, however, paid in full. complaint are denied for the reasons earlier mentioned in the body of this decision;

Under its third cause of action, the Bank charged that it issued LC No. 61-1110D on December 27, 1962 also in favor of
2. As regards the claims of defendants pertaining to their counterclaim (Exhibits "1", "2" and "3"), they are
Monark International covering the purchase of another tractor and other equipment; 12 and that Monark International drew hereby given ten (10) years from the date of issuance of the torrens title to plaintiff and before the transfer
a sight draft with a face value of P80,350.00, 13 and while payments for the value thereof had been made by petitioners, a
thereof in good faith to a third party buyer within which to ask for the reconveyance of the real properties
balance of P68,064.97 remained. foreclosed by plaintiff,

Under the fourth cause of action, the Bank maintained that it issued LC No. 63-0182D on February 11, 1963 in favor of
3. The order of attachment which was issued against the preferred shares of stocks of defendants-spouses
J.B.L. Enterprises, Inc.14 covering the purchase of two tractors,15 and J.B.L. Enterprises drew on February 13, 1963 a Quirino Gonzales and Eufemia Gonzales with the Republic Bank now known as Republic Planters Bank dated
sight draft on said LC in the amount of P155,000.00 but petitioners have not paid said amount.
March 21, 1977 is hereby dissolved and/or lifted, and

On its fifth cause of action, the Bank alleged that it issued LC No. 63-0284D on March 14, 1963 in favor of Super Master 4. Plaintiff is likewise ordered to pay the sum of P20,000.00, as and for attorney's fees, with costs against
Auto Supply (SMAS) covering the purchase of "Eight Units GMC (G.I.) Trucks"; that on March 14, 1963, SMAS drew a
plaintiff.
sight draft with a face value of P64,000.0016 on the basis of said LC; and that the payments made by petitioners for the
value of said draft were deficient by P45,504.74.
SO ORDERED.
The Bank thus prayed for the settlement of the above-stated obligations at an interest rate of eleven percent per annum,
and for the award of trust receipt commissions, attorney's fees and other fees and costs of collection. In finding for petitioners, the trial court ratiocinated:25

The sixth to ninth causes of action are anchored on the promissory notes issued by petitioners allegedly to secure certain Art. 1144 of the Civil Code states that an action upon a written contract prescribes in ten (10) years from the
advances from the Bank in connection with the exportation of logs as reflected above. 17 The notes were payable 30 days time the right of action accrues. Art. 1150 states that prescription starts to run from the day the action may be
after date and provided for the solidary liability of petitioners as well as attorney's fees at ten percent of the total amount brought. The obligations allegedly created by the written contracts or documents supporting plaintiff's first to
due18 in the event of their non-payment at maturity. the sixth causes of action were demandable at the latest in 1964. Thus when the complaint was filed on
January 27, 1977 more than ten (10) years from 1964 [when the causes of action accrued] had already
lapsed. The first to the sixth causes of action are thus barred by prescription. . . .
The note dated June 18, 1964, subject of the sixth cause of action, has a face value of P55,000.00 with interest rate of
twelve percent per annum;19 that dated July 7, 1967 subject of the seventh has a face value of P20,000.00; 20 that dated
July 18, 1967 subject of the eighth has a face value of P38,000.00; 21 and that dated August 23, 1967 subject of the ninth As regards the seventh and eight causes of action, the authenticity of which documents were partly in doubt in
has a face value of P11,000.00.22 The interest rate of the last three notes is pegged at thirteen percent per annum.23 the light of the categorical and uncontradicted statements that in 1965, defendant Quirino Gonzales logging
concession was terminated based on the policy of the government to terminate logging concessions covering
less than 20,000 hectares. If this is the case, the Court is in a quandary why there were log exports in 1967?
On its tenth and final cause of action, the Bank claimed that it has accounts receivable from petitioners in the amount of Because of the foregoing, the Court does not find any valid ground to sustain the seventh and eight causes of
P120.48.
action of plaintiff's complaint.

In their Answer24 of March 3, 1977, petitioners admit the following: having applied for credit accommodations totaling As regards the ninth cause of action, the Court is baffled why plaintiff extended to defendants another loan
P900,000.00 to secure which they mortgaged real properties; opening of the LC/Trust Receipt Line; the issuance by the
when defendants according to plaintiff's records were defaulting creditors? The above facts and circumstances
Bank of the various LCs; and the foreclosure of the real estate mortgage and the consolidation of ownership over the has (sic) convinced this Court to give credit to the testimony of defendants' witnesses that the Gonzales
mortgaged properties in favor of the Bank. They deny, however, having availed of the credit accommodations and having
spouses signed the documents in question in blank and that the promised loan was never released to them .
received the value of the promissory notes, as they do deny having physically received the tractors and equipment subject There is therefore a total absence of consent since defendants did not give their consent to loans allegedly
of the LCs.
procured, the proceeds of which were never received by the alleged debtors, defendants herein. . . .

As affirmative defenses, petitioners assert that the complaint states no cause of action, and assuming that it does, the Plaintiff did not present evidence to support its tenth cause of action. For this reason, it must consequently be
same is/are barred by prescription or null and void for want of consideration.
denied for lack of evidence.

By Order of March 10, 1977, Branch 36 of the Manila RTC attached the preferred shares of stocks of the spouses On the matter of [the] counterclaims of defendants, they seek the return of the real and personal properties
Quirino and Eufemia Gonzales with the Bank with a total par value of P414,000.00.
which they have given in good faith to plaintiff. Again, prescription may apply. The real properties of
defendants acquired by plaintiff were foreclosed in 1965 and consequently, defendants had one (1) year to
 redeem the property or ten (10) years from issuance of title on the ground that the obligation foreclosed was LOWER COURT RTC BRANCH 36 THAT THE SAID CAUSES HAVE NO VALID GROUND TO
fictitious. SUSTAIN [THEM] AND FOR LACK OF EVIDENCE.

xxx           xxx           xxx 3. WHETHER OR NOT RESPONDENT COURT [ERRED] IN REVERSING THE FINDINGS OF THE
REGIONAL TRIAL COURT BRANCH 36 OF MANILA THAT PETITIONERS-APPELLANT (SIC.) MAY
On appeal,26 the Court of Appeals (CA) reversed the decision of the trial court by Decision 27 of June 28, 1996 which SEEK THE RETURN OF THE REAL AND PERSONAL PROPERTIES WHICH THEY MAY HAVE
GIVEN IN GOOD FAITH AS THE SAME IS BARRED BY PRESCRIPTION AND THAT PETITIONERS-
disposed as follows:28
APPELLANT (SIC.) HAD ONE (1) YEAR TO REDEEM THE PROPERTY OR TEN (10) YEARS FROM
ISSUANCE OF THE TITLE ON THE GROUND THAT THE OBLIGATION FORECLOSED WAS
WHEREFORE, premises considered, the appealed decision (dated April 22, 1992) of the Regional Trial Court FICTITIOUS.
(Branch 36) in Manila in Civil Case No. 82-4141 is hereby REVERSED — and let the case be remanded back
to the court a quo for the determination of the amount(s) to be awarded to the [the Bank]-appellant relative to
4. WHETHER OR NOT RESPONDENT COURT ERRED IN SO HOLDING THAT PEITIONERS-
its claims against the appellees.
APPELLANTS [SIC] ARE NOT ENTITLED TO AN AWARD OF ATTORNEY'S FEES.

SO ORDERED.
The petition is partly meritorious.

With regard to the first to sixth causes of action, the CA upheld the contention of the Bank that the notices of foreclosure
sale were "tantamount" to demand letters upon the petitioners which interrupted the running of the prescriptive period.29 On the first issue. The Civil Code provides that an action upon written contract, an obligation created by law, and a
judgment must be brought within ten years from the time the right of action accrues.33

As regards the seventh to ninth causes of action, the CA also upheld the contention of the Bank that the written
agreements-promissory notes prevail over the oral testimony of petitioner Quirino Gonzales that the cancellation of their The finding of the trial court that more than ten years had elapsed since the right to bring an action on the Bank's first to
sixth causes had arisen34 is not disputed. The Bank contends, however, that "the notices of foreclosure sale in the
logging concession in 1967 made it unbelievable for them to secure in 1967 the advances reflected in the promissory
notes.30 foreclosure proceedings of 1965 are tantamount to formal demands upon petitioners for the payment of their past due
loan obligations with the Bank, hence, said notices of foreclosure sale interrupted/forestalled the running of the
prescriptive period."35
With respect to petitioners' counterclaim, the CA agreed with the Bank that:31
The Bank's contention does not impress. Prescription of actions is interrupted when they are filed before the court, when
Certainly, failure on the part of the trial court to pass upon and determine the authenticity and genuineness of there is a written extrajudicial demand by the creditors, and when there is any written acknowledgment of the debt by the
[the Bank's] documentary evidence [the trial court having ruled on the basis of prescription of the Bank's first debtor.36
to sixth causes of action] makes it impossible for the trial court' to eventually conclude that the obligation
foreclosed (sic) was fictitious. Needless to say, the trial court's ruling averses (sic) the well-entrenched rule that
'courts must render verdict on their findings of facts." (China Banking Co. vs. CA, 70 SCRA 398) The law specifically requires a written extrajudicial demand by the creditors which is absent in the case at bar. The
contention that the notices of foreclosure are "tantamount" to a written extrajudicial demand cannot be appreciated, the
contents of said notices not having been brought to light.
Furthermore, the defendants-appellees' [herein petitioners'] counterclaim is basically an action for the
reconveyance of their properties, thus, the trial court's earlier ruling that the defendants-appellees' counterclaim
But even assuming arguendo that the notices interrupted the running of the prescriptive period, the argument would still
has prescribed is itself a ruling that the defendants-appellees' separate action for reconveyance has also
prescribed. not lie for the following reasons:

With respect to the first to the fifth causes of action, as gleaned from the complaint, the Bank seeks the recovery of the
The CA struck down the trial court's award of attorney's fees for lack of legal basis.32
deficient amount of the obligation after the foreclosure of the mortgage. Such suit is in the nature of a mortgage action
because its purpose is precisely to enforce the mortgage contract.37 A mortgage action prescribes after ten years from the
Hence, petitioners now press the following issues before this Court by the present petition for review on certiorari: time the right of action accrued.38

1. WHETHER OR NOT RESPONDENT COURT ERRED IN SO HOLDING THAT RESPONDENT- The law gives the mortgagee the right to claim for the deficiency resulting from the price obtained in the sale of the
APPELLEES (SIC.) REPUBLIC PLANTERS BANK['S] FIRST, SECOND, THIRD, FOURTH, FIFTH AND property at public auction and the outstanding obligation at the time of the foreclosure proceedings. 39 In the present case,
SIXTH CAUSES OF ACTION HAVE NOT PRESCRIBED CONTRARY TO THE FINDINGS OF THE the Bank, as mortgagee, had the right to claim payment of the deficiency after it had foreclosed the mortgage in
LOWER COURT, RTC BRANCH 36 THAT THE SAID CAUSES OF ACTION HAVE ALREADY 1965.40 In other words, the prescriptive period started to run against the Bank in 1965. As it filed the complaint only on
PRESCRIBED. January 27, 1977, more than ten years had already elapsed, hence, the action on its first to fifth causes had by then
prescribed. No other conclusion can be reached even if the suit is considered as one upon a written contract or upon an
2. WHETHER OR NOT RESPONDENT COURT ERRED IN SO HOLDING THAT RESPODNENT- obligation to pay the deficiency which is created by law,41 the prescriptive period of both being also ten years.42
APPELLEES (SIC.) REPUBLIC PLANTERS BANK['S] SEVENTH, EIGHT AND NINTH CAUSES OF
ACTION APPEARS (SIC.) TO BE IMPRESSED WITH MERIT CONTRARY TO THE FINDINGS OF THE
As regards the promissory note subject of the sixth cause of action, its period of prescription could not have been SO ORDERED.
interrupted by the notices of foreclosure sale not only because, as earlier discussed, petitioners' contention that the notices
of foreclosure are tantamount to written extra-judicial demand cannot be considered absent any showing of the contents Puno, Panganiban, Sandoval-Gutierrez and Corona, JJ ., concur.
thereof, but also because it does not appear from the records that the said note is covered by the mortgage contract.

Coming now to the second issue, petitioners seek to evade liability under the Bank's seventh to ninth causes of action by
claiming that petitioners Quirino and Eufemia Gonzales signed the promissory notes in blank; that they had not received
the value of said notes, and that the credit line thereon was unnecessary in view of their money deposits, they citing
"Exhibits 2 to 2-B,"43 in, and unremitted proceeds on log exports from, the Bank. In support of their claim, they also urge
this Court to look at Exhibits "B" (the Bank's recommendation for approval of petitioners' application for credit
accommodations), "P" (the "Application and Agreement for Commercial Letter of Credit" dated January 16, 1963) and
"T" (the "Application and Agreement for Commercial Letter of Credit" dated February 14, 1963).

The genuineness and due execution of the notes had, however, been deemed admitted by petitioners, they having failed to
deny the same under oath.44 Their claim that they signed the notes in blank does not thus lie. G.R. No. 138074               August 15, 2003

Petitioners' admission of the genuineness and due execution of the promissory notes notwithstanding, they raise want of CELY YANG, Petitioner,
consideration45 thereof. The promissory notes, however, appear to be negotiable as they meet the requirements of Section vs.
146 of the Negotiable Instruments Law. Such being the case, the notes are prima facie deemed to have been issued for HON. COURT OF APPEALS, PHILIPPINE COMMERCIAL INTERNATIONAL BANK, FAR EAST BANK &
consideration.47 It bears noting that no sufficient evidence was adduced by petitioners to show otherwise. TRUST CO., EQUITABLE BANKING CORPORATION, PREM CHANDIRAMANI and FERNANDO
DAVID, Respondents.
Exhibits "2" to "2-B" to which petitioners advert in support of their claim that the credit line on the notes was
unnecessary because they had deposits in, and remittances due from, the Bank deserve scant consideration. Said exhibits DECISION
are merely claims by petitioners under their then proposals for a possible settlement of the case dated February 3, 1978.
Parenthetically, the proposals were not even signed by petitioners but by certain Attorneys Osmundo R. Victoriano and QUISUMBING, J.:
Rogelio P. Madriaga.
For review on certiorari is the decision1 of the Court of Appeals, dated March 25, 1999, in CA-G.R. CV No. 52398,
In any case, it is no defense that the promissory notes were signed in blank as Section 14 48 of the Negotiable Instruments which affirmed with modification the joint decision of the Regional Trial Court (RTC) of Pasay City, Branch 117, dated
Law concedes the prima facie authority of the person in possession of negotiable instruments, such as the notes herein, to July 4, 1995, in Civil Cases Nos. 54792 and 5492.3 The trial court dismissed the complaint against herein respondents Far
fill in the blanks. 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 cashier’s
As for petitioners' reliance on Exhibits "B", "P" and "T," they have failed to show the relevance thereof to the seventh up checks, including the earnings thereof pendente lite. Petitioner Cely Yang was ordered to pay David moral damages of
to the ninth causes of action of the Bank. ₱100,000.00 and attorney’s fees also in the amount of ₱100,000.00.

On the third issue, petitioners asseverate that with the trial court's dismissal of the Bank's complaint and the denial of its The facts of this case are not disputed, to wit:
first to sixth causes of action, it is but fair and just that the real properties which were mortgaged and foreclosed be
returned to them.49 Such, however, does not lie. It is not disputed that the properties were foreclosed under Act No. 3135 On or before December 22, 1987, petitioner Cely Yang and private respondent Prem Chandiramani entered into an
(An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate Mortgages), as agreement whereby the latter was to give Yang a PCIB manager’s check in the amount of ₱4.2 million in exchange for
amended. Though the Bank's action for deficiency is barred by prescription, nothing irregular attended the foreclosure two (2) of Yang’s manager’s checks, each in the amount of ₱2.087 million, both payable to the order of private
proceedings to warrant the reconveyance of the properties covered thereby. respondent Fernando David. Yang and Chandiramani agreed that the difference of ₱26,000.00 in the exchange would be
their profit to be divided equally between them.
As for petitioners' prayer for moral and exemplary damages, it not having been raised as issue before the courts below, it
can not now be considered. Neither can the award of attorney's fees for lack of legal basis. 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
WHEREFORE, the CA Decision is hereby AFFIRMED with MODIFICATION. dollar draft in the same amount to be issued by Hang Seng Bank Ltd. of Hong Kong.

Republic Bank's Complaint with respect to its first to sixth causes of action is hereby DISMISSED. Its complaint with Accordingly, on December 22, 1987, Yang procured the following:
respect to its seventh to ninth causes of action is REMANDED to the court of origin, the Manila Regional Trial Court,
Branch 36, for it to determine the amounts due the Bank thereunder. a) Equitable Cashier’s Check No. CCPS 14-009467 in the sum of ₱2,087,000.00, dated December 22, 1987,
payable to the order of Fernando David;
 b) FEBTC Cashier’s Check No. 287078, in the amount of ₱2,087,000.00, dated December 22, 1987, likewise Appeals in a special civil action for certiorari docketed as CA-G.R. SP No. 14843, which was dismissed by the appellate
payable to the order of Fernando David; and court.

c) FEBTC Dollar Draft No. 4771, drawn on Chemical Bank, New York, in the amount of US$200,000.00, As Civil Cases Nos. 5479 and 5492 arose from the same set of facts, the two cases were consolidated. The trial court then
dated December 22, 1987, payable to PCIB FCDU Account No. 4195-01165-2. 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.
At about one o’clock in the afternoon of the same day, Yang gave the aforementioned cashier’s checks and dollar drafts
to her business associate, Albert Liong, to be delivered to Chandiramani by Liong’s messenger, Danilo Ranigo. Ranigo After the records were reconstituted, the proceedings resumed and the parties agreed that the money in dispute be
was to meet Chandiramani at Philippine Trust Bank, Ayala Avenue, Makati City, Metro Manila where he would turn invested in Treasury Bills to be awarded in favor of the prevailing side. It was also agreed by the parties to limit the
over Yang’s cashier’s checks and dollar draft to Chandiramani who, in turn, would deliver to Ranigo a PCIB manager’s issues at the trial to the following:
check in the sum of P4.2 million and a Hang Seng Bank dollar draft for US$200,000.00 in exchange.
1. Who, between David and Yang, is legally entitled to the proceeds of Equitable Banking Corporation (EBC)
Chandiramani did not appear at the rendezvous and Ranigo allegedly lost the two cashier’s checks and the dollar draft Cashier’s Check No. CCPS 14-009467 in the sum of ₱2,087,000.00 dated December 22, 1987, and Far East
bought by petitioner. Ranigo reported the alleged loss of the checks and the dollar draft to Liong at half past four in the Bank and Trust Company (FEBTC) Cashier’s Check No. 287078 in the sum of ₱2,087,000.00 dated December
afternoon of December 22, 1987. Liong, in turn, informed Yang, and the loss was then reported to the police. 22, 1987, together with the earnings derived therefrom pendente lite?

It transpired, however, that the checks and the dollar draft were not lost, for Chandiramani was able to get hold of said 2. Are the defendants FEBTC and PCIB solidarily liable to Yang for having allowed the encashment of
instruments, without delivering the exchange consideration consisting of the PCIB manager’s check and the Hang Seng FEBTC Dollar Draft No. 4771, in the sum of US$200,000.00 plus interest thereon despite the stop payment
Bank dollar draft. order of Cely Yang?7

At three o’clock in the afternoon or some two (2) hours after Chandiramani and Ranigo were to meet in Makati City, On July 4, 1995, the trial court handed down its decision in Civil Cases Nos. 5479 and 5492, to wit:
Chandiramani delivered to respondent Fernando David at China Banking Corporation branch in San Fernando City,
Pampanga, the following: (a) FEBTC Cashier’s Check No. 287078, dated December 22, 1987, in the sum of ₱2.087
WHEREFORE, the Court renders judgment in favor of defendant Fernando David against the plaintiff Cely Yang and
million; and (b) Equitable Cashier’s Check No. CCPS 14-009467, dated December 22, 1987, also in the amount of declaring the former entitled to the proceeds of the two (2) cashier’s checks, together with the earnings derived
₱2.087 million. In exchange, Chandiramani got US$360,000.00 from David, which Chandiramani deposited in the
therefrom pendente lite; ordering the plaintiff to pay the defendant Fernando David moral damages in the amount of
savings account of his wife, Pushpa Chandiramani; and his mother, Rani Reynandas, who held FCDU Account No. 124 ₱100,000.00; attorney’s fees in the amount of ₱100,000.00 and to pay the costs. The complaint against Far East Bank and
with the United Coconut Planters Bank branch in Greenhills, San Juan, Metro Manila. Chandiramani also deposited
Trust Company (FEBTC), Philippine Commercial International Bank (PCIB) and Equitable Banking Corporation (EBC)
FEBTC Dollar Draft No. 4771, dated December 22, 1987, drawn upon the Chemical Bank, New York for is dismissed. The decision is without prejudice to whatever action plaintiff Cely Yang will file against defendant Prem
US$200,000.00 in PCIB FCDU Account No. 4195-01165-2 on the same date.
Chandiramani for reimbursement of the amounts received by him from defendant Fernando David.

Meanwhile, Yang requested FEBTC and Equitable to stop payment on the instruments she believed to be lost. Both SO ORDERED.8
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. In finding for David, the trial court ratiocinated:

On December 28, 1987, herein petitioner Yang lodged a Complaint 4 for injunction and damages against Equitable, The evidence shows that defendant David was a holder in due course for the reason that the cashier’s checks were
Chandiramani, and David, with prayer for a temporary restraining order, with the Regional Trial Court of Pasay City. complete on their face when they were negotiated to him. They were not yet overdue when he became the holder thereof
The Complaint was docketed as Civil Case No. 5479. The Complaint was subsequently amended to include a prayer for and he had no notice that said checks were previously dishonored; he took the cashier’s checks in good faith and for
Equitable to return to Yang the amount of P2.087 million, with interest thereon until fully paid.5 value. He parted some $200,000.00 for the two (2) cashier’s checks which were given to defendant Chandiramani; he had
also no notice of any infirmity in the cashier’s 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 cashier’s checks (tsn, February 5,
On January 12, 1988, Yang filed a separate case for injunction and damages, with prayer for a writ of preliminary 1988, p. 21, September 20, 1991, pp. 13-14). Another proof that defendant David is a holder in due course is the fact that
injunction against FEBTC, PCIB, Chandiramani and David, with the RTC of Pasay City, docketed as Civil Case No.
the stop payment order on [the] FEBTC cashier’s check was lifted upon his inquiry at the head office (tsn, September 20,
5492. This complaint was later amended to include a prayer that defendants therein return to Yang the amount of P2.087 1991, pp. 24-25). The apparent reason for lifting the stop payment order was because of the fact that FEBTC realized that
million, the value of FEBTC Dollar Draft No. 4771, with interest at 18% annually until fully paid.6
the checks were not actually lost but indeed reached the payee defendant David.9

On February 9, 1988, upon the filing of a bond by Yang, the trial court issued a writ of preliminary injunction in Civil Yang then moved for reconsideration of the RTC judgment, but the trial court denied her motion in its Order of
Case No. 5479. A writ of preliminary injunction was subsequently issued in Civil Case No. 5492 also.
September 20, 1995.

Meanwhile, herein respondent David moved for dismissal of the cases against him and for reconsideration of the Orders In the belief that the trial court misunderstood the concept of a holder in due course and misapprehended the factual
granting the writ of preliminary injunction, but these motions were denied. David then elevated the matter to the Court of
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: a) Whether the Court of Appeals erred in holding herein respondent Fernando David to be a holder in due
course; and
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 (₱25,000.00). b) Whether the appellate court committed a reversible error in awarding damages and attorney’s fees to David
and PCIB.
SO ORDERED.10
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
In affirming the trial court’s judgment with respect to herein respondent David, the appellate court found that:
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,
In this case, defendant-appellee had taken the necessary precautions to verify, through his bank, China Banking inasmuch as the checks were crossed, then David should have, pursuant to our ruling in Bataan Cigar & Cigarette
Corporation, the genuineness of whether (sic) the cashier’s checks he received from Chandiramani. As no stop payment Factory, Inc. v. Court of Appeals, G.R. No. 93048, March 3, 1994, 230 SCRA 643, been put on guard that the checks
order was made yet (at) the time of the inquiry, defendant-appellee had no notice of what had transpired earlier between were issued for a definite purpose and accordingly, made inquiries to determine if he received the checks pursuant to that
the plaintiff-appellant and Chandiramani. All he knew was that the checks were issued to Chandiramani with whom he purpose. His failure to do so negates the finding in the proceedings below that he was a holder in due course.
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 Yang’s agent.
Finally, the petitioner argues that there is no showing whatsoever that David gave Chandiramani any consideration of
value in exchange for the aforementioned checks.
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, 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
they often take the place of money as a means of payment.
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 cashier’s checks. From the very nature of
The mere fact that David and Chandiramani knew one another for a long time is not sufficient to establish that they cashier’s checks, it is highly unlikely that he would have suspected that something was amiss. David also stresses
connived with each other to defraud Yang. There was no concrete proof presented by Yang to support her theory.11 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.
The appellate court awarded ₱25,000.00 in attorney’s fees to PCIB as it found the action filed by Yang against said bank He points out that the checks were delivered to him as the payee, and he took them as holder and payee thereof. Clearly,
to be "clearly unfounded and baseless." Since PCIB was compelled to litigate to protect itself, then it was entitled under he concludes, he should be deemed to be their holder in due course.
Article 220812 of the Civil Code to attorney’s fees and litigation expenses.
We shall now resolve the first issue.
Hence, the instant recourse wherein petitioner submits the following issues for resolution:
Every holder of a negotiable instrument is deemed prima facie a holder in due course. However, this presumption arises
a - WHETHER THE CHECKS WERE ISSUED TO PREM CHANDIRAMANI BY PETITIONER; only in favor of a person who is a holder as defined in Section 191 of the Negotiable Instruments Law,15 meaning a
"payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof."

b - WHETHER THE ALLEGED TRANSACTION BETWEEN PREM CHANDIRAMANI AND

FERNANDO DAVID IS LEGITIMATE OR A SCHEME BY BOTH PRIVATE RESPONDENTS TO In the present case, it is not disputed that David was the payee of the checks in question. The weight of authority sustains
SWINDLE PETITIONER; 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 5217 of the Negotiable
c - WHETHER FERNANDO DAVID GAVE PREM CHANDIRAMANI US$360,000.00 OR JUST A Instruments Law. All the requisites provided for in Section 52 must concur in David’s case, otherwise he cannot be
FRACTION OF THE AMOUNT REPRESENTING HIS SHARE OF THE LOOT; deemed a holder in due course.

d - WHETHER PRIVATE RESPONDENTS FERNANDO DAVID AND PCIB ARE ENTITLED TO We find that the petitioner’s challenge to David’s status as a holder in due course hinges on two arguments: (1) the lack
DAMAGES AND ATTORNEY’S FEES.13 of proof to show that David tendered any valuable consideration for the disputed checks; and (2) David’s failure to
inquire from Chandiramani as to how the latter acquired possession of the checks, thus resulting in David’s intentional
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 ignorance tantamount to bad faith. In sum, petitioner posits that the last two requisites of Section 52 are missing, thereby
basic that in petitions for review under Rule 45, the jurisdiction of this Court is limited to reviewing questions of law, preventing David from being considered a holder in due course. Unfortunately for the petitioner, her arguments on this
questions of fact are not entertained absent a showing that the factual findings complained of are totally devoid of support score are less than meritorious and far from persuasive.
in the record or are glaringly erroneous.14 Given the facts in the instant case, despite petitioner’s formulation, we find that
the following are the pertinent issues to be resolved: First, with respect to consideration, Section 2418 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
David’s 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 services of counsel to vindicate his rights, and subjected him to social humiliation and besmirched reputation, thus
convincing evidence to overthrow the presumption. Our scrutiny of the records, however, shows that the petitioner failed harming his standing as a person of good repute in the business community of Pampanga. David thus contends that it is
to discharge her burden of proof. The petitioner’s averment that David did not give valuable consideration when he took but proper that moral damages, attorney’s fees, and costs of suit be awarded him.
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 For its part, respondent PCIB stresses that it was established by both the trial court and the appellate court that it was
consideration for the said instruments. Factual findings of the Court of Appeals are conclusive on the parties and not
needlessly dragged into this case. Hence, no error was committed by the appellate court in declaring PCIB entitled to
reviewable by this Court; they carry great weight when the factual findings of the trial court are affirmed by the appellate attorney’s fees as it was compelled to litigate to protect itself.
court.21

We have thoroughly perused the records of this case and find no reason to disagree with the finding of the trial court, as
Second, petitioner fails to point any circumstance which should have put David on inquiry as to the why and wherefore affirmed by the appellate court, that:
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 Chandiramani’s duty to
deliver the checks to David as payee. The evidence shows that Chandiramani performed said task to the letter. Petitioner [D]efendant David is entitled to [the] award of moral damages as he has been needlessly and unceremoniously dragged
admits that David took the step of asking the manager of his bank to verify from FEBTC and Equitable as to the into this case which should have been brought only between the plaintiff and defendant Chandiramani.26
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 A careful reading of the findings of facts made by both the trial court and appellate court clearly shows that the
to ascertain from Chandiramani what the nature of the latter’s title to the checks was, if any, or the nature of his petitioner, in including David as a party in these proceedings, is barking up the wrong tree. It is apparent from the factual
possession. Thus, we cannot hold him guilty of gross neglect amounting to legal absence of good faith, absent any findings that David had no dealings with the petitioner and was not privy to the agreement of the latter with
showing that there was something amiss about Chandiramani’s acquisition or possession of the checks. David did not Chandiramani. Moreover, any loss which the petitioner incurred was apparently due to the acts or omissions of
close his eyes deliberately to the nature or the particulars of a fraud allegedly committed by Chandiramani upon the Chandiramani, and hence, her recourse should have been against him and not against David. By needlessly dragging
petitioner, absent any knowledge on his part that the action in taking the instruments amounted to bad faith.22 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
Belatedly, and we say belatedly since petitioner did not raise this matter in the proceedings below, petitioner now claims its outcome. Recall that under Article 221727 of the Civil Code, moral damages include mental anguish, serious anxiety,
that David should have been put on alert as the instruments in question were crossed checks. Pursuant to Bataan Cigar & besmirched reputation, wounded feelings, social humiliation, and similar injury. Hence, we find the award of moral
Cigarette Factory, Inc. v. Court of Appeals, David should at least have inquired as to whether he was acquiring said damages to be in order.
checks for the purpose for which they were issued, according to petitioner’s submission.
The appellate court likewise found that like David, PCIB was dragged into this case on unfounded and baseless grounds.
Petitioner’s reliance on the Bataan Cigar  case, however, is misplaced. The facts in the present case are not on all fours Both were thus compelled to litigate to protect their interests, which makes an award of attorney’s fees justified under
with Bataan Cigar.  In the latter case, the crossed checks were negotiated and sold at a discount by the payee, while in the Article 2208 (2)28 of the Civil Code. Hence, we rule that the award of attorney’s fees to David and PCIB was proper.
instant case, the payee did not negotiate further the checks in question but promptly deposited them in his bank account.
WHEREFORE, the instant petition is DENIED. The assailed decision of the Court of Appeals, dated March 25, 1999,
The Negotiable Instruments Law is silent with respect to crossed checks, although the Code of Commerce 23 makes in CA-G.R. CV No. 52398 is AFFIRMED. Costs against the petitioner.
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, attorney’s 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 petitioner’s failure to receive her share of the profit promised her by
Chandiramani.1âwphi1 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
.

G.R. No. 96160 June 17, 1992

STELCO MARKETING CORPORATION, petitioner,

vs.
HON. COURT OF APPEALS and STEELWELD CORPORATION OF THE PHILIPPINES, INC., respondent.

NARVASA, c.J.:

Stelco Marketing Corporation is engaged in the distribution and sale to the public of structural steel bars. 1 On seven (7)
different occasions in September and October, 1980, it sold to RYL Construction, Inc. quantities of steels bars of various
sizes and rolls of G.I. wire. These bars and wire were delivered at different places at the indication of RYL Construction,
Inc. The aggregate price for the purchases was P126,859.61.

Although the corresponding invoices issued by STELCO stipulated that RYL pay "COD" (cash on delivery), the latter
made no payments for the construction materials thus ordered and delivered despite insistent demands for payment by the
former.

On April 4, 1981, RYL gave to Armstrong, Industries — described by STELCO as its "sister corporation" and
"manufacturing arm" 2 — a check drawn against Metrobank in the amount of P126,129.86, numbered 765380 and dated
April 4, 1981. That check was a company check of another corporation, Steelweld Corporation of the Philippines, signed
by its President, Peter Rafael Limson, and its Vice-President, Artemio Torres.

The check was issued by Limson at the behest of his friend, Romeo Y. Lim, President of RYL. Romeo Lim had asked
Limson, for financial assistance, and the latter had agreed to give Lim a check only by way of accommodation, "only as
guaranty but not to pay for anything." 3 Why the check was made out in the amount of P126,129.86 is not explained.
Anyway, the check was actually issued in said amount of P126, 129.86, and as already stated, was given by R.Y. Lim to
Armstrong Industries, 4 in payment of an obligation. When the latter deposited the check at its bank, it was dishonored
because "drawn against insufficient funds." 5 When so deposited, the check bore two(2) endorsements, that of "RYL
Construction," followed by that of "Armstrong Industries." 6

On account of the dishonor of Metrobank Check No. 765380, and on complaint of Armstrong Industries (through a Mr.
Young), Rafael Limson and Artemio Torres were charged in the Regional Trial Court of Manila with a violation of Batas
Pambansa Bilang 22. 7 They were acquitted in a decision rendered on June 28, 1984 "on the ground that the check in
question was not issued by the drawer "to apply on account for value," it being merely for accommodation
purposes. 8 The judgment however conditioned the acquittal with the following pronouncement:
 This is not however to release Steelweld Corporation from its liability under Sec. 29 of the From this adverse judgment STEELWELD appealed to the Court of Appeals 17 and there succeeded in reversing the
Negotiable Instruments Law for having issued it for the accommodation of Romeo Lim. judgment. By Decision promulgated on May 29, 1990, 18 the Court of Appeals 19 ordered "the complaint against appellant
(STEELWELD) DISMISSED; (and the appellee, STELCO) to pay appellant the sum of P15,000.00 as attorney's fees and
cost of litigation, the suit . . . (being) a baseless one that dragged appellant in court and caused it to incur attorney's fees
Eleven months or so later — and some four (4) years after issuance of the check in question — in May, 1985, STELCO
filed with the Regional Trial Court at Caloocan City a civil complaint 9 against both RYL and STEELWELD for the and expense of litigation.
recovery of the valued of the steel bars and wire sold to and delivered to RYL (as already narrated) in the amount of
P126,129.86, "plus 18% interest from August 20, 1980 . . . (and) 25% of the total amount sought to be recovered as and STELCO's motion for reconsideration was denied by the Appellate Tribunal's resolution dated November 13,
by way of attorney's fees . . . ." 10 Among the allegations of its complaint was that Metrobank Check No. 765380 above 1990. 20 The Court stressed that —
mentioned had been given to it in payment of RYL's indebtedness, duly indorsed by R.Y. Lim. 11 A preliminary
attachment was issued by the trial court on the basis of the averments of the complaint but was shortly dissolved upon the . . . as far as Steelweld is concerned, there was no commercial transaction between said appellant
filing of a counter-bond by STEELWELD.
and appellee. Moreover, there is no evidence that appellee Stelco Marketing became a holder for
value. Nowhere in the check itself does the name of Stelco Marketing appear as payee, indorsee or
RYL could no longer be located and could not be served with depositor thereof. Finally, appellee's complaint is for the collection of the unpaid accounts for
summons. 12 It never appeared. Only STEELWELD filed an answer, under date of July 16, 1985. 13 In said pleading, it delivery of steels bars and construction materials. It having been established that appellee had no
specifically denied the facts alleged in the complaint, the truth, according to Steelweld, being basically that — commercial transaction with appellant Stelco, appellee had no cause of action against said appellant.

1) STELCO "is a complete stranger to it;" it had "not entered into any transaction or business dealing of any kind" with STELCO appealed to this Court in accordance with Rule 45 of the Rules of Court. In this Court it seeks to make the
STELCO, the transactions described in the complaint having been solely and exclusively between the plaintiff and RYL following points in connection with its plea for the overthrow of the Appellate Tribunal's aforesaid decision, viz.:
Construction;
1) said decision is "not in accord with law and jurisprudence;"
2) the check in question was "only given to a certain R. Lim to be used as collateral for another obligation . . . (but) in
breach of his agreement (Lim) utilized and negotiated the check for another purpose. . . .;
2) "STELCO is a "holder" within the meaning of the Negotiable Instruments Law;"

3) nevertheless, the check "is wholly inoperative since . . . Steelweld 3) "STELCO is a holder in due course of Metrobank Check No. 765380 . . . (and hence) holds the same free from
. . . did not issue it for any valuable consideration either to R. Lim or to the plaintiff not to mention also the fact that the
personal or equitable defense;" and
said plaintiff failed to comply with the requirements of the law to hold the said defendant (STEELWELD) liable
. . ."
4) "Negotiation in breach of faith is a personal defense . . . (and hence) not effective as against a holder in due course."
Trial ensued upon these issues, after which judgment was rendered on June 26, 1986.   The judgment sentenced "the
14

defendant Steelweld Corporation to pay to . . . (Stelco Marketing Corporation) the amount of P126,129.86 with legal rate The points are not well taken.
of interest from May 9, 1985, when this case was instituted until fully paid, plus another sum equivalent to 25% of the
total amount due as and for attorney's fees . . . 15 That disposition was justified in the judgment as follows:16 The crucial question is whether or not STELCO ever became a holder in due course of Check No. 765380, a bearer
instrument, within the contemplation of the Negotiable Instruments Law. It never did.
There is no question, then, that as far as any commercial transaction is concerned between plaintiff
and defendant Steelweld no such transaction ever occurred. Ordinarily, under civil law rules, there STELCO evidently places much reliance on the pronouncement of the Regional Trial Court in Criminal Case No.
having been no transaction between them involving the purchase of certain merchandise there 66571, 21 that the acquittal of the two (2) accused (Limson and Torres) did not operate "to release Steelweld Corporation
would be no privity of contract between them, and plaintiff will have no right to sue the defendant from its liability under Sec. 29 of the Negotiable Instruments Law for having issued . . . (the check) for the
for payment of said merchandise for the simple reason that the defendant did not order them, such accommodation of Romeo Lim." The cited provision reads as follows:
less receive them.

Sec. 29. Liability of accommodation party. — An accommodation party is one who has singed the
But we have here a case where the defendant Steelweld thru its President Peter Rafael Limson instrument as maker, drawer, acceptor, or indorser, without receiving valued therefor, and for the
admitted to have issued a check payable to cash in favor of his friend Romeo Lim who was the purpose of lending his name to some other person. Such a person is liable on the instrument to a
President of RYL Construction by way of accommodation. Under the Negotiable Instruments Law holder for value, notwithstanding such holder, at the time of taking the instrument, knew him to be
an accommodation party is liable. only an accommodation party.

Sec. 29. Liability of an accommodation party. — An accommodation party is It is noteworthy that the Trial Court's pronouncement containing reference to said Section 29 did not specify to
one who has signed the instrument as maker, drawer, acceptor, or indorser, whom  STEELWELD, as accommodation party, is supposed to be liable; and certain it is that neither said pronouncement
without receiving value therefor, and for the purpose of lending his name to nor any other part of the judgment of acquittal declared it liable to STELCO.
some other person. Such a person is liable on the instrument to a holder for
value notwithstanding such holder at the time of taking the instrument knew
him to be only an accommodation party.
 "A holder in due course," says the law, 22 "is a holder who has taken the instrument under the Neither is there any evidence whatever that Armstrong Industries, to whom R.Y. Lim negotiated the check accepted the
following conditions: instrument and attempted to encash it in behalf, and as agent of STELCO. On the contrary, the indications are that
Armstrong was really the intended payee of the check and was the party actually injured by its dishonor; it was after all
its representative (a Mr. Young) who instituted the criminal prosecution of the drawers, Limson and Torres, albeit
(a) That is complete and regular upon its face;
unsuccessfully.

(b) That he became the holder of it before it was overdue, and without notice that it had been
The petitioner has failed to show any sufficient cause for modification or reversal of the challenged judgment of the
previously dishonored, if such was the fact;
Court of Appeals which, on the contrary, appears to be entirely in accord with the facts and the applicable law.

(c) That he took it in good faith and for value;

WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals in CA-G.R. CV No. 13418 is
AFFIRMED in toto. Costs against petitioner.SO ORDERED
(d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or
defect in the title of the persons negotiating it.
G.R. No. 72764 July 13, 1989

To be sure, as regards an accommodation party  (such as STEELWELD), the fourth condition, i.e., lack of notice of any
infirmity in the instruments or defect in title of the persons negotiating it, has no application. This is because Section 29 STATE INVESTMENT HOUSE, petitioner,
vs.
of the law above quoted preserves the right of recourse of a "holder for value" against the accommodation party
notwithstanding that "such holder, at the time of taking the instrument, knew him to be only an accommodation INTERMEDIATE APPELLATE COURT, ANITA PEÑA CHUA and HARRIS CHUA, respondents.
party." 23
Macalino, Salonga & Associates for petitioner.
Now, STELCO theorizes that it should be deemed a "holder for value" of STEELWELD's Check No. 765380 because the
record shows it to have been in "actual possession" thereof; otherwise, it "could not have presented, marked and Edgardo F. Sundiam for respondents.
introduced (said check) in evidence . . . before the court a quo." "Besides," it adds, the check in question was presented
by STELCO to the drawee bank for payment through Armstrong Industries, the manufacturing arm of STELCO and its
sister company." 24

FERNAN, C.J.:
The trouble is, there is no evidence whatever that STELCO's possession of Check No. 765380 ever dated back to nay
time before the instrument's presentment and dishonor. There is no evidence whatsoever that the check was ever given to
it, or indorsed to it in any manner or form in payment of an obligation or as security for an obligation, or for any other Petitioner State Investment House seeks a review of the decision of respondent Intermediate Appellate Court (now Court
purpose before it was presented for payment. On the contrary, the factual finding of the Court of Appeals, which by of Appeals) in AC-G.R. CV No. 04523 reversing the decision of the Regional Trial Court of Manila, Branch XXXVII
traditional precept is normally conclusive on this Court, is that STELCO never became a holder for value and that dated April 30, 1984 and dismissing the complaint for collection filed by petitioner against private respondents Spouses
"(n)owhere in the check itself does the name of Stelco Marketing appear as payee, indorsee or depositor thereof." 25 Anita Pena Chua and Harris Chua.

What the record shows is that: (1) the STEELWELD company check in question was given by its president to R.Y. Lim; It appears that shortly before September 5, 1980, New Sikatuna Wood Industries, Inc. requested for a loan from private
(2) it was given only by way of accommodation, to be "used as collateral for another obligation;" (3) in breach of the respondent Harris Chua. The latter agreed to grant the same subject to the condition that the former should wait until
agreement, however, R.Y. Lim indorsed the check to Armstrong in payment of obligation; (4) Armstrong deposited the December 1980 when he would have the money. In view of this agreement, private respondent-wife, Anita Pena Chua
check to its account, after indorsing it; (5) the check was dishonored. The record does not show any intervention or issued three (3) crossed checks payable to New Sikatuna Wood Industries, Inc. all postdated December 22, 1980 as
participation by STELCO in any manner of form whatsoever in these transactions, or any communication of any sort follows:
between STEELWELD and STELCO, or between either of them and Armstrong Industries, at any time before the
dishonor of the check.
DRAWEE BANK CHECK NO. DATE AMOUNT
The record does show that after  the check had been deposited and dishonored, STELCO came into possession of it in 1. China Banking Corporation 589053 Dec. 22, 1980 P98,750.00
some way, and was able, several years after the dishonor of the check, to give it in evidence at the trial of the civil case it
had instituted against the drawers of the check (Limson and Torres) and RYL. But, as already pointed out, possession of 2. International Corporate Bank 04045549 Dec. 22, 1980 102,313.00
a negotiable instrument after presentment and dishonor, or payment, is utterly inconsequential; it does not make the
possessor a holder for value within the meaning of the law; it gives rise to no liability on the part of the maker or drawer 3. Metropolitan Bank & Trust Co. 036512 Dec. 22, 1980 98,387.00
and indorsers.

The total value of the three (3) postdated checks amounted to P 299,450.00.
It is clear from the relevant circumstances that STELCO cannot be deemed a holder of the check for value. It does not
meet two of the essential requisites prescribed by the statute. It did not become "the holder of it before it was overdue,
and without notice that it had been previously dishonored," and it did not take the check "in good faith and for value." 26 Subsequently, New Sikatuna Wood Industries, Inc. entered into an agreement with herein petitioner State Investment
House, Inc. whereby for and in consideration of the sum of Pl,047,402.91 under a deed of sale, the former assigned and
discounted with petitioner eleven (11) postdated checks including the aforementioned three (3) postdated checks issued check with two parallel lines in the upper left hand corner means that it could only be deposited and may not be
by herein private respondent-wife Anita Peña Chua to New Sikatuna Wood Industries, Inc. converted into cash. Consequently, such circumstance should put the payee on inquiry and upon him devolves the duty to
ascertain the holder's title to the check or the nature of his possession. Failing in this respect, the payee is declared guilty
of gross negligence amounting to legal absence of good faith and as such the consensus of authority is to the effect that
When the three checks issued by private respondent Anita Pena Chua were allegedly deposited by petitioner, these
checks were dishonored by reason of "insufficient funds", "stop payment" and "account closed", respectively. Petitioner the holder of the check is not a holder in good faith. 5
claims that despite demands on private respondent Anita Peña to make good said checks, the latter failed to pay the same
necessitating the former to file an action for collection against the latter and her husband Harris Chua before the Regional Petitioner submits that at the time of the negotiation and endorsement of the checks in question by New Sikatuna Wood
Trial Court of Manila, Branch XXXVII docketed as Civil Case No. 82-10547. Industries, it had no knowledge of the transaction and/or arrangement made between the latter and private respondents.

Private respondents-defendants filed a third party complaint against New Sikatuna Wood Industries, Inc. for We agree with respondent appellate court.
reimbursement and indemnification in the event that they be held liable to petitioner-plaintiff. For failure of third party
defendant to answer the third party complaint despite due service of summons, the latter was declared in default.
Relying on the ruling in Ocampo v. Gatchalian  (supra), the Intermediate Appellate Court (now Court of Appeals),
correctly elucidated that the effects of crossing a check are: the check may not be encashed but only deposited in the
On April 30, 1984, the lower court 1 rendered judgment against herein private respondents spouses, the dispositive bank; the check may be negotiated only once to one who has an account with a bank; and the act of crossing the check
portion of which reads: 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. Further, the appellate court said:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff or against the defendants
ordering the defendants to pay jointly and severally to the plaintiff the following amounts: It results therefore that when appellee rediscounted the check knowing that it was a crossed check
he was knowingly violating the avowed intention of crossing the check. Furthermore, his failure to
inquire from the holder, party defendant New Sikatuna Wood Industries, Inc., the purpose for which
1. P 229,450.00 with interest at the rate of 12% per annum from February
24,1981 until fully paid; the three checks were cross despite the warning of the crossing, prevents him from being considered
in good faith and thus he is not a holder in due course. Being not a holder in due course, plaintiff is
subject to personal defenses, such as lack of consideration between appellants and New Sikatuna
2. P 29,945.00 as and for attorney's fees; and Wood Industries. Note that under the facts the checks were postdated and issued only as a loan to
New Sikatuna Wood Industries, Inc. if and when deposits were made to back up the checks. Such
3. the costs of suit. deposits were not made, hence no loan was made, hence the three checks are without consideration
(Sec. 28, Negotiable Instruments Law).

On the third party complaint, third party defendant New Sikatuna Wood Industries, Inc. is ordered
to pay third party plaintiffs Anita Pena Chua and Harris Chua all amounts said defendants' third- Likewise New Sikatuna Wood Industries negotiated the three checks in breach of faith in violation
party plaintiffs may pay to the plaintiff on account of this case. 2 of Article (sic) 55, Negotiable Instruments Law, which is a personal defense available to the drawer
of the check.6

On appeal filed by private respondents in AC-G.R. CV No. 04523, the Intermediate Appellate Court 3 (now Court of
Appeals) reversed the lower court's judgment in the now assailed decision, the dispositive portion of which reads: In addition, such instruments are mentioned in Section 541 of the Negotiable Instruments Law as follows:

WHEREFORE, finding this appeal meritorious, We Reverse and Set Aside the appealed judgment, Sec. 541. The maker or any legal holder of a check shall be entitled to indicate therein that it be paid
dated April 30, 1984 and a new judgment is hereby rendered dismissing the complaint, with costs to a certain banker or institution, which he shall do by writing across the face the name of said
against plaintiff-appellee. 4 banker or institution, or only the words "and company."

Hence, this petition. The payment made to a person other than the banker or institution shall not exempt the person on
whom it is drawn, if the payment was not correctly made.

The pivotal issue in this case is whether or not petitioner is a holder in due course as to entitle it to proceed against
private respondents for the amount stated in the dishonored checks. Under usual practice, crossing a check is done by placing two parallel lines diagonally on the left top portion of the
check. The crossing may be special wherein between the two parallel lines is written the name of a bank or a business
institution, in which case the drawee should pay only with the intervention of that bank or company, or crossing may be
Section 52(c) of the Negotiable Instruments Law defines a holder in due course as one who takes the instrument "in good general wherein between two parallel diagonal lines are written the words "and Co." or none at all as in the case at bar, in
faith and for value". On the other hand, Section 52(d) provides that in order that one may be a holder in due course, it is which case the drawee should not encash the same but merely accept the same for deposit.
necessary that "at the time the instrument was negotiated to him he had no notice of any x x x defect in the title of the
person negotiating it." However, under Section 59 every holder is deemed prima facie to be a holder in due course.
The effect therefore of crossing a check relates to the mode of its presentment for payment. Under Section 72 of the
Negotiable Instruments Law, presentment for payment to be sufficient must be made (a) by the holder, or by some person
Admittedly, the Negotiable Instruments Law regulating the issuance of negotiable checks as well as the lights and authorized to receive payment on his behalf ... As to who the holder or authorized person will be depends on the
liabilities arising therefrom, does not mention "crossed checks". But this Court has taken cognizance of the practice that a instructions stated on the face of the check.
The three subject checks in the case at bar had been crossed generally and issued payable to New Sikatuna Wood
Industries, Inc. which could only mean that the drawer had intended the same for deposit only by the rightful person, i.e.,
the payee named therein. Apparently, it was not the payee who presented the same for payment and therefore, there was
no proper presentment, and the liability did not attach to the drawer.

Thus, in the absence of due presentment, the drawer did not become liable. 7 Consequently, no right of recourse is
available to petitioner against the drawer of the subject checks, private respondent wife, considering that petitioner is not
the proper party authorized to make presentment of the checks in question.

Yet it does not follow as a legal proposition that simply because petitioner was not a holder in due course as found by the
appellate court for having taken the instruments in question with notice that the same is for deposit only to the account of
payee named in the subject checks, petitioner could not recover on the checks. The Negotiable Instruments Law does not G.R. No. 157833               October 15, 2007
provide that a holder who is not a holder in due course may not in any case recover on the instrument for in the case at
bar, petitioner may recover from the New Sikatuna Wood Industries, Inc. if the latter has no valid excuse for refusing
payment. The only disadvantage of a holder who is not in due course is that the negotiable instrument is subject to BANK OF THE PHILIPPINE ISLANDS, Petitioner,
defenses as if it were non-negotiable. 8 vs.
GREGORIO C. ROXAS, Respondent.
That the subject checks had been issued subject to the condition that private respondents on due date would make the
back up deposit for said checks but which condition apparently was not made, thus resulting in the non-consummation of DECISION
the loan intended to be granted by private respondents to New Sikatuna Wood Industries, Inc., constitutes a good defense
against petitioner who is not a holder in due course. SANDOVAL-GUTIERREZ, J.:

WHEREFORE, the decision appealed from is hereby AFFIRMED with costs against petitioner. For our resolution is the instant Petition for Review on Certiorari assailing the Decision 1 of the Court of Appeals (Fourth
Division) dated February 13, 2003 in CA-G.R. CV No. 67980.
SO ORDERED.
The facts of the case, as found by the trial court and affirmed by the Court of Appeals, are:

Gregorio C. Roxas, respondent, is a trader. Sometime in March 1993, he delivered stocks of vegetable oil to spouses
Rodrigo and Marissa Cawili. As payment therefor, spouses Cawili issued a personal check in the amount of ₱348,805.50.
However, when respondent tried to encash the check, it was dishonored by the drawee bank. Spouses Cawili then assured
him that they would replace the bounced check with a cashier’s check from the Bank of the Philippine Islands (BPI),
petitioner.

On March 31, 1993, respondent and Rodrigo Cawili went to petitioner’s branch at Shaw Boulevard, Mandaluyong City
where Elma Capistrano, the branch manager, personally attended to them. Upon Elma’s instructions, Lita Sagun, the
bank teller, prepared BPI Cashier’s Check No. 14428 in the amount of ₱348,805.50, drawn against the account of
Marissa Cawili, payable to respondent. Rodrigo then handed the check to respondent in the presence of Elma.

The following day, April 1, 1993, respondent returned to petitioner’s branch at Shaw Boulevard to encash the cashier’s
check but it was dishonored. Elma informed him that Marissa’s account was closed on that date.

Despite respondent’s insistence, the bank officers refused to encash the check and tried to retrieve it from respondent. He
then called his lawyer who advised him to deposit the check in his (respondent’s) account at Citytrust, Ortigas Avenue.
However, the check was dishonored on the ground "Account Closed."

On September 23, 1993, respondent filed with the Regional Trial Court, Branch 263, Pasig City a complaint for sum of
money against petitioner, docketed as Civil Case No. 63663. Respondent prayed that petitioner be ordered to pay the
amount of the check, damages and cost of the suit.
In its answer, petitioner specifically denied the allegations in the complaint, claiming that it issued the check by mistake (c) That he took it in good faith and for value;
in good faith; that its dishonor was due to lack of consideration; and that respondent’s remedy was to sue Rodrigo Cawili
who purchased the check. As a counterclaim, petitioner prayed that respondent be ordered to pay attorney’s fees and (d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title of
expenses of litigation.
person negotiating it.

Petitioner filed a third-party complaint against spouses Cawili. They were later declared in default for their failure to file As a general rule, under the above provision, every holder is presumed prima facie to be a holder in due course. One who
their answer.
claims otherwise has the onus probandi to prove that one or more of the conditions required to constitute a holder in due
course are lacking. In this case, petitioner contends that the element of "value" is not present, therefore, respondent could
After trial, the RTC rendered a Decision, the dispositive portion of which reads: not be a holder in due course.

WHEREFORE, in view of the foregoing premises, this Court hereby renders judgment in favor of herein plaintiff and Petitioner’s contention lacks merit. Section 25 of the same law states:
orders the defendant, Bank of the Philippine Islands, to pay Gerardo C. Roxas:
SEC. 25. Value, what constitutes. – Value is any consideration sufficient to support a simple contract. An antecedent or
1) The sum of ₱348,805.50, the face value of the cashier’s check, with legal interest thereon computed from pre-existing debt constitutes value; and is deemed as such whether the instrument is payable on demand or at a future
April 1, 1993 until the amount is fully paid; time.

2) The sum of ₱50,000.00 for moral damages; In Walker Rubber Corp. v. Nederlandsch Indische & Handelsbank, N.V. and South Sea Surety & Insurance Co .,
Inc.,2 this Court ruled that value "in general terms may be some right, interest, profit or benefit to the party who makes
the contract or some forbearance, detriment, loan, responsibility, etc. on the other side." Here, there is no dispute that
3) The sum of ₱50,000.00 as exemplary damages to serve as an example for the public good;
respondent received Rodrigo Cawili’s cashier’s check as payment for the former’s vegetable oil. The fact that it was
Rodrigo who purchased the cashier’s check from petitioner will not affect respondent’s status as a holder for value since
4) The sum of ₱25,000.00 for and as attorney’s fees; and the the check was delivered to him as payment for the vegetable oil he sold to spouses Cawili. Verily, the Court of Appeals
did not err in concluding that respondent is a holder in due course of the cashier’s check.
5) Costs of suit.
Furthermore, it bears emphasis that the disputed check is a cashier’s check. In International Corporate Bank v. Spouses
As to the third-party complaint, third-party defendants Spouses Rodrigo and Marissa Cawili are hereby ordered to Gueco,3 this Court held that a cashier’s check is really the bank’s own check and may be treated as a promissory note
indemnify defendant Bank of the Philippine Islands such amount(s) adjudged and actually paid by it to herein plaintiff with the bank as the maker. The check becomes the primary obligation of the bank which issues it and constitutes a
Gregorio C. Roxas, including the costs of suit. written promise to pay upon demand. In New Pacific Timber & Supply Co. Inc. v. Señeris,4 this Court took judicial
notice of the "well-known and accepted practice in the business sector that a cashier’s check is deemed as cash." This is
because the mere issuance of a cashier’s check is considered acceptance thereof.
SO ORDERED.
In view of the above pronouncements, petitioner bank became liable to respondent from the moment it issued the
On appeal, the Court of Appeals, in its Decision, affirmed the trial court’s judgment. cashier’s check. Having been accepted by respondent, subject to no condition whatsoever, petitioner should have paid the
same upon presentment by the former.1âwphi1
Hence, this petition.
WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals (Fourth Division) in CA-G.R.
Petitioner ascribes to the Court of Appeals the following errors: (1) in finding that respondent is a holder in due course; CV No. 67980 is AFFIRMED. Costs against petitioner.
and (2) in holding that it (petitioner) is liable to respondent for the amount of the cashier’s check.
SO ORDERED.
Section 52 of the Negotiable Instruments Law provides:
ANGELINA SANDOVAL-GUTIERREZ
SEC. 52. What constitutes a holder in due course. – A holder in due course is a holder who has taken the instrument Associate Justice
under the following conditions:
WE CONCUR:
(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue and without notice that it had been previously dishonored, if
such was the fact;
 G.R. No. 157833               October 15, 2007

BANK OF THE PHILIPPINE ISLANDS, Petitioner,

vs.
GREGORIO C. ROXAS, Respondent.

DECISION

SANDOVAL-GUTIERREZ, J.:

For our resolution is the instant Petition for Review on Certiorari assailing the Decision 1 of the Court of Appeals (Fourth
Division) dated February 13, 2003 in CA-G.R. CV No. 67980.

The facts of the case, as found by the trial court and affirmed by the Court of Appeals, are:

Gregorio C. Roxas, respondent, is a trader. Sometime in March 1993, he delivered stocks of vegetable oil to spouses
Rodrigo and Marissa Cawili. As payment therefor, spouses Cawili issued a personal check in the amount of ₱348,805.50.
However, when respondent tried to encash the check, it was dishonored by the drawee bank. Spouses Cawili then assured
him that they would replace the bounced check with a cashier’s check from the Bank of the Philippine Islands (BPI),
petitioner.

On March 31, 1993, respondent and Rodrigo Cawili went to petitioner’s branch at Shaw Boulevard, Mandaluyong City
where Elma Capistrano, the branch manager, personally attended to them. Upon Elma’s instructions, Lita Sagun, the
bank teller, prepared BPI Cashier’s Check No. 14428 in the amount of ₱348,805.50, drawn against the account of
Marissa Cawili, payable to respondent. Rodrigo then handed the check to respondent in the presence of Elma.

The following day, April 1, 1993, respondent returned to petitioner’s branch at Shaw Boulevard to encash the cashier’s
check but it was dishonored. Elma informed him that Marissa’s account was closed on that date.

Despite respondent’s insistence, the bank officers refused to encash the check and tried to retrieve it from respondent. He
then called his lawyer who advised him to deposit the check in his (respondent’s) account at Citytrust, Ortigas Avenue.
However, the check was dishonored on the ground "Account Closed."

On September 23, 1993, respondent filed with the Regional Trial Court, Branch 263, Pasig City a complaint for sum of
money against petitioner, docketed as Civil Case No. 63663. Respondent prayed that petitioner be ordered to pay the
amount of the check, damages and cost of the suit.
In its answer, petitioner specifically denied the allegations in the complaint, claiming that it issued the check by mistake (c) That he took it in good faith and for value;
in good faith; that its dishonor was due to lack of consideration; and that respondent’s remedy was to sue Rodrigo Cawili
who purchased the check. As a counterclaim, petitioner prayed that respondent be ordered to pay attorney’s fees and (d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title of
expenses of litigation.
person negotiating it.

Petitioner filed a third-party complaint against spouses Cawili. They were later declared in default for their failure to file As a general rule, under the above provision, every holder is presumed prima facie to be a holder in due course. One who
their answer.
claims otherwise has the onus probandi to prove that one or more of the conditions required to constitute a holder in due
course are lacking. In this case, petitioner contends that the element of "value" is not present, therefore, respondent could
After trial, the RTC rendered a Decision, the dispositive portion of which reads: not be a holder in due course.

WHEREFORE, in view of the foregoing premises, this Court hereby renders judgment in favor of herein plaintiff and Petitioner’s contention lacks merit. Section 25 of the same law states:
orders the defendant, Bank of the Philippine Islands, to pay Gerardo C. Roxas:
SEC. 25. Value, what constitutes. – Value is any consideration sufficient to support a simple contract. An antecedent or
1) The sum of ₱348,805.50, the face value of the cashier’s check, with legal interest thereon computed from pre-existing debt constitutes value; and is deemed as such whether the instrument is payable on demand or at a future
April 1, 1993 until the amount is fully paid; time.

2) The sum of ₱50,000.00 for moral damages; In Walker Rubber Corp. v. Nederlandsch Indische & Handelsbank, N.V. and South Sea Surety & Insurance Co .,
Inc.,2 this Court ruled that value "in general terms may be some right, interest, profit or benefit to the party who makes
the contract or some forbearance, detriment, loan, responsibility, etc. on the other side." Here, there is no dispute that
3) The sum of ₱50,000.00 as exemplary damages to serve as an example for the public good;
respondent received Rodrigo Cawili’s cashier’s check as payment for the former’s vegetable oil. The fact that it was
Rodrigo who purchased the cashier’s check from petitioner will not affect respondent’s status as a holder for value since
4) The sum of ₱25,000.00 for and as attorney’s fees; and the the check was delivered to him as payment for the vegetable oil he sold to spouses Cawili. Verily, the Court of Appeals
did not err in concluding that respondent is a holder in due course of the cashier’s check.
5) Costs of suit.
Furthermore, it bears emphasis that the disputed check is a cashier’s check. In International Corporate Bank v. Spouses
As to the third-party complaint, third-party defendants Spouses Rodrigo and Marissa Cawili are hereby ordered to Gueco,3 this Court held that a cashier’s check is really the bank’s own check and may be treated as a promissory note
indemnify defendant Bank of the Philippine Islands such amount(s) adjudged and actually paid by it to herein plaintiff with the bank as the maker. The check becomes the primary obligation of the bank which issues it and constitutes a
Gregorio C. Roxas, including the costs of suit. written promise to pay upon demand. In New Pacific Timber & Supply Co. Inc. v. Señeris,4 this Court took judicial
notice of the "well-known and accepted practice in the business sector that a cashier’s check is deemed as cash." This is
because the mere issuance of a cashier’s check is considered acceptance thereof.
SO ORDERED.
In view of the above pronouncements, petitioner bank became liable to respondent from the moment it issued the
On appeal, the Court of Appeals, in its Decision, affirmed the trial court’s judgment. cashier’s check. Having been accepted by respondent, subject to no condition whatsoever, petitioner should have paid the
same upon presentment by the former.1âwphi1
Hence, this petition.
WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals (Fourth Division) in CA-G.R.
Petitioner ascribes to the Court of Appeals the following errors: (1) in finding that respondent is a holder in due course; CV No. 67980 is AFFIRMED. Costs against petitioner.
and (2) in holding that it (petitioner) is liable to respondent for the amount of the cashier’s check.
SO ORDERED.
Section 52 of the Negotiable Instruments Law provides:

SEC. 52. What constitutes a holder in due course. – A holder in due course is a holder who has taken the instrument
under the following conditions:

(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue and without notice that it had been previously dishonored, if
such was the fact;
 G.R. No. 170912               April 19, 2010

ROBERT DINO, Petitioner,
vs.
MARIA LUISA JUDAL-LOOT, joined by her husband VICENTE LOOT, Respondents.

DECISION

CARPIO, J.:

The Case

This is a petition for review1 of the 16 August 2005 Decision 2 and 30 November 2005 Resolution3 of the Court of
Appeals in CA-G.R. CV No. 57994. The Court of Appeals affirmed the decision of the Regional Trial Court, 7th Judicial
Region, Branch 56, Mandaue City (trial court), with the deletion of the award of interest, moral damages, attorney’s fees
and litigation expenses. The trial court ruled that respondents Maria Luisa Judal-Loot and Vicente Loot are holders in due
course of Metrobank Check No. C-MA 142119406 CA and ordered petitioner Robert Dino as drawer, together with co-
defendant Fe Lobitana as indorser, to solidarily pay respondents the face value of the check, among others.

The Facts

Sometime in December 1992, a syndicate, one of whose members posed as an owner of several parcels of land situated in
Canjulao, Lapu-lapu City, approached petitioner and induced him to lend the group ₱3,000,000.00 to be secured by a real
estate mortgage on the properties. A member of the group, particularly a woman pretending to be a certain Vivencia
Ompok Consing, even offered to execute a Deed of Absolute Sale covering the properties, instead of the usual mortgage
contract.4 Enticed and convinced by the syndicate’s offer, petitioner issued three Metrobank checks totaling
₱3,000,000.00, one of which is Check No. C-MA-142119406-CA postdated 13 February 1993 in the amount of
₱1,000,000.00 payable to Vivencia Ompok Consing and/or Fe Lobitana.5

Upon scrutinizing the documents involving the properties, petitioner discovered that the documents covered rights over
government properties. Realizing he had been deceived, petitioner advised Metrobank to stop payment of his checks.
However, only the payment of Check No. C-MA- 142119406-CA was ordered stopped. The other two checks were
already encashed by the payees.

Meanwhile, Lobitana negotiated and indorsed Check No. C-MA- 142119406-CA to respondents in exchange for cash in
the sum of ₱948,000.00, which respondents borrowed from Metrobank and charged against their credit line. Before
respondents accepted the check, they first inquired from the drawee bank, Metrobank, Cebu-Mabolo Branch which is petitioner acted in good faith in ordering the stoppage of payment of the subject check and thus, he must not be made
also their depositary bank, if the subject check was sufficiently funded, to which Metrobank answered in the positive. liable for those amounts.
However, when respondents deposited the check with Metrobank, Cebu-Mabolo Branch, the same was dishonored by the
drawee bank for reason "PAYMENT STOPPED."
In its 16 August 2005 Decision, the Court of Appeals affirmed the trial court’s decision with modifications, thus:

Respondents filed a collection suit6 against petitioner and Lobitana before the trial court. In their Complaint, respondents WHEREFORE, premises considered, finding no reversible error in the decision of the lower court, WE hereby DISMISS
alleged, among other things, that they are holders in due course and for value of Metrobank Check No. C-MA-
the appeal and AFFIRM the decision of the court a quo with modifications that the award of interest, moral damages,
142119406-CA and that they had no prior information concerning the transaction between defendants. attorney’s fees and litigation expenses be deleted.

In his Answer, petitioner denied respondents’ allegations that "on the face of the subject check, no condition or limitation
No pronouncement as to costs.
was imposed" and that respondents are holders in due course and for value of the check. For her part, Lobitana denied the
allegations in the complaint and basically claimed that the transaction leading to the issuance of the subject check is a
sale of a parcel of land by Vivencia Ompok Consing to petitioner and that she was made a payee of the check only to SO ORDERED.8
facilitate its discounting.
In its 30 November 2005 Resolution, the Court of Appeals denied petitioner’s motion for reconsideration.
The trial court ruled in favor of respondents and declared them due course holders of the subject check, since there was
no privity between respondents and defendants. The dispositive portion of the 14 March 1996 Decision of the trial court In denying the petitioner’s motion for reconsideration, the Court of Appeals noted that petitioner raised the defense that
reads: the check is a crossed check for the first time on appeal (particularly in the motion for reconsideration). The Court of
Appeals rejected such defense considering that to entertain the same would be offensive to the basic rules of fair play,
In summation, this Court rules for the Plaintiff and against the Defendants and hereby orders: justice, and due process.

1.) defendants to pay to Plaintiff, and severally, the amount of ₱1,000,000.00 representing the face value of Hence, this petition.
subject Metrobank check;
The Issues
2.) to pay to Plaintiff herein, jointly and severally, the sum of ₱101,748.00 for accrued and paid interest;
Petitioner raises the following issues:
3.) to pay to Plaintiff, jointly and severally, moral damages in the amount of ₱100,000.00;
I. THE COURT OF APPEALS ERRED IN HOLDING THAT THE RESPONDENTS WERE HOLDERS IN
4.) to pay to Plaintiff, jointly and severally, the sum of ₱200,000.00 for attorney’s fees; and DUE COURSE. THE FACT THAT METROBANK CHECK NO. 142119406 IS A CROSSED CHECK
CONSTITUTES SUFFICIENT WARNING TO THE RESPONDENTS TO EXERCISE EXTRAORDINARY
DILIGENCE TO DETERMINE THE TITLE OF THE INDORSER.
5.) to pay to Plaintiff, jointly and severally, litigation expenses in the sum of ₱10,000.00 and costs of the suit.

II. THE COURT OF APPEALS ERRED IN DENYING PETITIONER’S MOTION FOR

SO ORDERED.7 RECONSIDERATION UPON THE GROUND THAT THE ARGUMENTS RELIED UPON HAVE ONLY
BEEN RAISED FOR THE FIRST TIME. EQUITY DEMANDS THAT THE COURT OF APPEALS
Only petitioner filed an appeal. Lobitana did not appeal the trial court’s judgment. SHOULD HAVE MADE AN EXCEPTION TO PREVENT THE COMMISSION OF MANIFEST WRONG
AND INJUSTICE UPON THE PETITIONER.9
The Ruling of the Court of Appeals
The Ruling of this Court
The Court of Appeals affirmed the trial court’s finding that respondents are holders in due course of Metrobank Check
No. C-MA- 142119406-CA. The Court of Appeals pointed out that petitioner’s own admission that respondents were The petition is meritorious.
never parties to the transaction among petitioner, Lobitana, Concordio Toring, Cecilia Villacarlos, and Consing, proved
respondents’ lack of knowledge of any infirmity in the instrument or defect in the title of the person negotiating it. Respondents point out that petitioner raised the defense that Metrobank Check No. C-MA-142119406-CA is a crossed
Moreover, respondents verified from Metrobank whether the check was sufficiently funded before they accepted it.
check for the first time in his motion for reconsideration before the Court of Appeals. Respondents insist that issues not
Therefore, respondents must be excluded from the ambit of petitioner’s stop payment order. raised during the trial cannot be raised for the first time on appeal as it would be offensive to the elementary rules of fair
play, justice and due process. Respondents further assert that a change of theory on appeal is improper.
The Court of Appeals modified the trial court’s decision by deleting the award of interest, moral damages, attorney’s fees
and litigation expenses. The Court of Appeals opined that petitioner "was only exercising (although incorrectly), what he In his Answer, petitioner specifically denied, among others, (1) Paragraph 4 of the Complaint, concerning the allegation
perceived to be his right to stop the payment of the check which he rediscounted." The Court of Appeals ruled that
that on the face of the subject check, no condition or limitation was imposed, and (2) Paragraph 8 of the Complaint,
regarding the allegation that respondents were holders in due course and for value of the subject check. In his "Special Based on the foregoing, respondents had the duty to ascertain the indorser’s, in this case Lobitana’s, title to the check or
Affirmative Defenses," petitioner claimed that "for want or lack of the prestation," he could validly stop the payment of the nature of her possession. This respondents failed to do. Respondents’ verification from Metrobank on the funding of
his check, and that by rediscounting petitioner’s check, respondents "took the risk of what might happen on the check." the check does not amount to determination of Lobitana’s title to the check. Failing in this respect, respondents are guilty
Essentially, petitioner maintained that respondents are not holders in due course of the subject check, and as such, of gross negligence amounting to legal absence of good faith, 15 contrary to Section 52(c) of the Negotiable Instruments
respondents could not recover any liability on the check from petitioner. Law. Hence, respondents are not deemed holders in due course of the subject check.16

Indeed, petitioner did not expressly state in his Answer or raise during the trial that Metrobank Check No. C-MA- State Investment House v. Intermediate Appellate Court 17 squarely applies to this case. There, New Sikatuna Wood
142119406-CA is a crossed check. It must be stressed, however, that petitioner consistently argues that respondents are Industries, Inc. sold at a discount to State Investment House three post-dated crossed checks, issued by Anita Peña Chua
not holders in due course of the subject check, which is one of the possible effects of crossing a check. The act of naming as payee New Sikatuna Wood Industries, Inc. The Court found State Investment House not a holder in due course
crossing a check serves as a warning to the holder that the check has been issued for a definite purpose so that the holder of the checks. The Court also expounded on the effect of crossing a check, thus:
thereof must inquire if he has received the check pursuant to that purpose; otherwise, he is not a holder in due
course.10 Contrary to respondents’ view, petitioner never changed his theory, that respondents are not holders in due Under usual practice, crossing a check is done by placing two parallel lines diagonally on the left top portion of the
course of the subject check, as would violate fundamental rules of justice, fair play, and due process. Besides, the subject
check. The crossing may be special wherein between the two parallel lines is written the name of a bank or a business
check was presented and admitted as evidence during the trial and respondents did not and in fact cannot deny that it is a institution, in which case the drawee should pay only with the intervention of that bank or company, or crossing may be
crossed check.
general wherein between two parallel diagonal lines are written the words "and Co." or none at all as in the case at bar, in
which case the drawee should not encash the same but merely accept the same for deposit.
In any event, the Court is clothed with ample authority to entertain issues or matters not raised in the lower courts in the
interest of substantial justice.11 In Casa Filipina Realty v. Office of the President,12 the Court held:
The effect therefore of crossing a check relates to the mode of its presentment for payment. Under Section 72 of the
Negotiable Instruments Law, presentment for payment to be sufficient must be made (a) by the holder, or by some person
[T]he trend in modern-day procedure is to accord the courts broad discretionary power such that the appellate court may authorized to receive payment on his behalf x x x As to who the holder or authorized person will be depends on the
consider matters bearing on the issues submitted for resolution which the parties failed to raise or which the lower court instructions stated on the face of the check.
ignored. Since rules of procedure are mere tools designed to facilitate the attainment of justice, their strict and rigid
application which would result in technicalities that tend to frustrate rather than promote substantial justice, must always
The three subject checks in the case at bar had been crossed generally and issued payable to New Sikatuna Wood
be avoided. Technicality should not be allowed to stand in the way of equitably and completely resolving the rights and Industries, Inc. which could only mean that the drawer had intended the same for deposit only by the rightful person, i.e.,
obligations of the parties.13
the payee named therein. Apparently, it was not the payee who presented the same for payment and therefore, there was
no proper presentment, and the liability did not attach to the drawer.
Having disposed of the procedural issue, the Court shall now proceed to the merits of the case. The main issue is whether
respondents are holders in due course of Metrobank Check No. C-MA 142119406 CA as to entitle them to collect the
Thus, in the absence of due presentment, the drawer did not become liable. Consequently, no right of recourse is
face value of the check from its drawer or petitioner herein. available to petitioner against the drawer of the subject checks, private respondent wife, considering that petitioner is not
the proper party authorized to make presentment of the checks in question.
Section 52 of the Negotiable Instruments Law defines a holder in due course, thus:
In this case, there is no question that the payees of the check, Lobitana or Consing, were not the ones who presented the
A holder in due course is a holder who has taken the instrument under the following conditions: check for payment. Lobitana negotiated and indorsed the check to respondents in exchange for ₱948,000.00. It was
respondents who presented the subject check for payment; however, the check was dishonored for reason "PAYMENT
(a) That it is complete and regular upon its face; STOPPED." In other words, it was not the payee who presented the check for payment; and thus, there was no proper
presentment. As a result, liability did not attach to the drawer. Accordingly, no right of recourse is available to
respondents against the drawer of the check, petitioner herein, since respondents are not the proper party authorized to
(b) That he became the holder of it before it was overdue, and without notice that it has been previously make presentment of the subject check.
dishonored, if such was the fact;
However, the fact that respondents are not holders in due course does not automatically mean that they cannot recover on
(c) That he took it in good faith and for value; the check.18 The Negotiable Instruments Law does not provide that a holder who is not a holder in due course may not in
any case recover on the instrument. The only disadvantage of a holder who is not in due course is that the negotiable
(d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in instrument is subject to defenses as if it were non-negotiable. 19 Among such defenses is the absence or failure of
the title of the person negotiating it. consideration,20 which petitioner sufficiently established in this case. Petitioner issued the subject check supposedly for a
loan in favor of Consing’s group, who turned out to be a syndicate defrauding gullible individuals. Since there is in fact
no valid loan to speak of, there is no consideration for the issuance of the check. Consequently, petitioner cannot be
In the case of a crossed check, as in this case, the following principles must additionally be considered: A crossed check obliged to pay the face value of the check.1avvphi1
(a) may not be encashed but only deposited in the bank; (b) may be negotiated only once — to one who has an account
with a bank; and (c) warns the holder that it has been issued for a definite purpose so that the holder thereof must inquire
if he has received the check pursuant to that purpose; otherwise, he is not a holder in due course.14 Respondents can collect from the immediate indorser,21 in this case Lobitana. Significantly, Lobitana did not appeal the
trial court’s decision, finding her solidarily liable to pay, among others, the face value of the subject check. Therefore, the
trial court’s judgment has long become final and executory as to Lobitana.
WHEREFORE, we GRANT the petition. We SET ASIDE the 16 August 2005 Decision and 30 November 2005
Resolution of the Court of Appeals in CA-G.R. CV No. 57994.

SO ORDERED.

ANTONIO T. CARPIO
Associate Justice

WE CONCUR:

G.R. No. L-15126           November 30, 1961

VICENTE R. DE OCAMPO & CO., plaintiff-appellee,

vs.
ANITA GATCHALIAN, ET AL., defendants-appellants.

Vicente Formoso, Jr. for plaintiff-appellee.

Reyes and Pangalañgan for defendants-appellants.

LABRADOR, J.:

Appeal from a judgment of the Court of First Instance of Manila, Hon. Conrado M. Velasquez, presiding, sentencing the
defendants to pay the plaintiff the sum of P600, with legal interest from September 10, 1953 until paid, and to pay the
costs.

The action is for the recovery of the value of a check for P600 payable to the plaintiff and drawn by defendant Anita C.
Gatchalian. The complaint sets forth the check and alleges that plaintiff received it in payment of the indebtedness of one
Matilde Gonzales; that upon receipt of said check, plaintiff gave Matilde Gonzales P158.25, the difference between the
face value of the check and Matilde Gonzales' indebtedness. The defendants admit the execution of the check but they
allege in their answer, as affirmative defense, that it was issued subject to a condition, which was not fulfilled, and that
plaintiff was guilty of gross negligence in not taking steps to protect itself.

At the time of the trial, the parties submitted a stipulation of facts, which reads as follows:

Plaintiff and defendants through their respective undersigned attorney's respectfully submit the following
Agreed Stipulation of Facts;

First. — That on or about 8 September 1953, in the evening, defendant Anita C. Gatchalian who was then
interested in looking for a car for the use of her husband and the family, was shown and offered a car by
Manuel Gonzales who was accompanied by Emil Fajardo, the latter being personally known to defendant
Anita C. Gatchalian;
Second. — That Manuel Gonzales represented to defend Anita C. Gatchalian that he was duly authorized by Twelfth. — That plaintiff filed or caused to be filed with the Office of the City Fiscal of Manila, a complaint
the owner of the car, Ocampo Clinic, to look for a buyer of said car and to negotiate for and accomplish said for estafa against Manuel Gonzales based on and arising from the acts of said Manuel Gonzales in paying his
sale, but which facts were not known to plaintiff; obligations with plaintiff and receiving the cash balance of the check, Exh. "B" and that said complaint was
subsequently dropped;
Third. — That defendant Anita C. Gatchalian, finding the price of the car quoted by Manuel Gonzales to her
satisfaction, requested Manuel Gonzales to bring the car the day following together with the certificate of Thirteenth. — That the exhibits mentioned in this stipulation and the other exhibits submitted previously, be
registration of the car, so that her husband would be able to see same; that on this request of defendant Anita considered as parts of this stipulation, without necessity of formally offering them in evidence;
C. Gatchalian, Manuel Gonzales advised her that the owner of the car will not be willing to give the certificate
of registration unless there is a showing that the party interested in the purchase of said car is ready and willing
WHEREFORE, it is most respectfully prayed that this agreed stipulation of facts be admitted and that the
to make such purchase and that for this purpose Manuel Gonzales requested defendant Anita C. Gatchalian to parties hereto be given fifteen days from today within which to submit simultaneously their memorandum to
give him (Manuel Gonzales) a check which will be shown to the owner as evidence of buyer's good faith in the
discuss the issues of law arising from the facts, reserving to either party the right to submit reply
intention to purchase the said car, the said check to be for safekeeping only of Manuel Gonzales and to be memorandum, if necessary, within ten days from receipt of their main memoranda. (pp. 21-25, Defendant's
returned to defendant Anita C. Gatchalian the following day when Manuel Gonzales brings the car and the
Record on Appeal).
certificate of registration, but which facts were not known to plaintiff;

No other evidence was submitted and upon said stipulation the court rendered the judgment already alluded above.
Fourth. — That relying on these representations of Manuel Gonzales and with his assurance that said check
will be only for safekeeping and which will be returned to said defendant the following day when the car and
its certificate of registration will be brought by Manuel Gonzales to defendants, but which facts were not In their appeal defendants-appellants contend that the check is not a negotiable instrument, under the facts and
known to plaintiff, defendant Anita C. Gatchalian drew and issued a check, Exh. "B"; that Manuel Gonzales circumstances stated in the stipulation of facts, and that plaintiff is not a holder in due course. In support of the first
executed and issued a receipt for said check, Exh. "1"; contention, it is argued that defendant Gatchalian had no intention to transfer her property in the instrument as it was for
safekeeping merely and, therefore, there was no delivery required by law (Section 16, Negotiable Instruments Law); that
assuming for the sake of argument that delivery was not for safekeeping merely, delivery was conditional and the
Fifth. — That on the failure of Manuel Gonzales to appear the day following and on his failure to bring the car condition was not fulfilled.
and its certificate of registration and to return the check, Exh. "B", on the following day as previously agreed
upon, defendant Anita C. Gatchalian issued a "Stop Payment Order" on the check, Exh. "3", with the drawee
bank. Said "Stop Payment Order" was issued without previous notice on plaintiff not being know to defendant, In support of the contention that plaintiff-appellee is not a holder in due course, the appellant argues that plaintiff-
Anita C. Gatchalian and who furthermore had no reason to know check was given to plaintiff; appellee cannot be a holder in due course because there was no negotiation prior to plaintiff-appellee's acquiring the
possession of the check; that a holder in due course presupposes a prior party from whose hands negotiation proceeded,
and in the case at bar, plaintiff-appellee is the payee, the maker and the payee being original parties. It is also claimed
Sixth. — That defendants, both or either of them, did not know personally Manuel Gonzales or any member of
that the plaintiff-appellee is not a holder in due course because it acquired the check with notice of defect in the title of
his family at any time prior to September 1953, but that defendant Hipolito Gatchalian is personally the holder, Manuel Gonzales, and because under the circumstances stated in the stipulation of facts there were
acquainted with V. R. de Ocampo;
circumstances that brought suspicion about Gonzales' possession and negotiation, which circumstances should have
placed the plaintiff-appellee under the duty, to inquire into the title of the holder. The circumstances are as follows:
Seventh. — That defendants, both or either of them, had no arrangements or agreement with the Ocampo
Clinic at any time prior to, on or after 9 September 1953 for the hospitalization of the wife of Manuel
The check is not a personal check of Manuel Gonzales. (Paragraph Ninth, Stipulation of Facts). Plaintiff could
Gonzales and neither or both of said defendants had assumed, expressly or impliedly, with the Ocampo Clinic, have inquired why a person would use the check of another to pay his own debt. Furthermore, plaintiff had the
the obligation of Manuel Gonzales or his wife for the hospitalization of the latter;
"means of knowledge" inasmuch as defendant Hipolito Gatchalian is personally acquainted with V. R. de
Ocampo (Paragraph Sixth, Stipulation of Facts.).
Eight. — That defendants, both or either of them, had no obligation or liability, directly or indirectly with the
Ocampo Clinic before, or on 9 September 1953;
The maker Anita C. Gatchalian is a complete stranger to Manuel Gonzales and Dr. V. R. de Ocampo
(Paragraph Sixth, Stipulation of Facts).
Ninth. — That Manuel Gonzales having received the check Exh. "B" from defendant Anita C. Gatchalian
under the representations and conditions herein above specified, delivered the same to the Ocampo Clinic, in
The maker is not in any manner obligated to Ocampo Clinic nor to Manuel Gonzales. (Par. 7, Stipulation of
payment of the fees and expenses arising from the hospitalization of his wife; Facts.)

Tenth. — That plaintiff for and in consideration of fees and expenses of hospitalization and the release of the
The check could not have been intended to pay the hospital fees which amounted only to P441.75. The check
wife of Manuel Gonzales from its hospital, accepted said check, applying P441.75 (Exhibit "A") thereof to is in the amount of P600.00, which is in excess of the amount due plaintiff. (Par. 10, Stipulation of Facts).
payment of said fees and expenses and delivering to Manuel Gonzales the amount of P158.25 (as per receipt,
Exhibit "D") representing the balance on the amount of the said check, Exh. "B";
It was necessary for plaintiff to give Manuel Gonzales change in the sum P158.25 (Par. 10, Stipulation of
Facts). Since Manuel Gonzales is the party obliged to pay, plaintiff should have been more cautious and wary
Eleventh. — That the acts of acceptance of the check and application of its proceeds in the manner specified
in accepting a piece of paper and disbursing cold cash.
above were made without previous inquiry by plaintiff from defendants:
 The check is payable to bearer. Hence, any person who holds it should have been subjected to inquiries. EVEN (a) That it is complete and regular upon its face;
IN A BANK, CHECKS ARE NOT CASHED WITHOUT INQUIRY FROM THE BEARER. The same
inquiries should have been made by plaintiff. (Defendants-appellants' brief, pp. 52-53) (b) That he became the holder of it before it was overdue, and without notice that it had been previously
dishonored, if such was the fact;
Answering the first contention of appellant, counsel for plaintiff-appellee argues that in accordance with the best
authority on the Negotiable Instruments Law, plaintiff-appellee may be considered as a holder in due course, citing (c) That he took it in good faith and for value;
Brannan's Negotiable Instruments Law, 6th edition, page 252. On this issue Brannan holds that a payee may be a holder
in due course and says that to this effect is the greater weight of authority, thus:
(d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the
title of the person negotiating it.
Whether the payee may be a holder in due course under the N. I. L., as he was at common law, is a question
upon which the courts are in serious conflict. There can be no doubt that a proper interpretation of the act read
as a whole leads to the conclusion that a payee may be a holder in due course under any circumstance in which The stipulation of facts expressly states that plaintiff-appellee was not aware of the circumstances under which the check
he meets the requirements of Sec. 52. was delivered to Manuel Gonzales, but we agree with the defendants-appellants that the circumstances indicated by them
in their briefs, such as the fact that appellants had no obligation or liability to the Ocampo Clinic; that the amount of the
check did not correspond exactly with the obligation of Matilde Gonzales to Dr. V. R. de Ocampo; and that the check had
The argument of Professor Brannan in an earlier edition of this work has never been successfully answered
two parallel lines in the upper left hand corner, which practice means that the check could only be deposited but may not
and is here repeated. be converted into cash — all these circumstances should have put the plaintiff-appellee to inquiry as to the why and
wherefore of the possession of the check by Manuel Gonzales, and why he used it to pay Matilde's account. It was
Section 191 defines "holder" as the payee or indorsee of a bill or note, who is in possession of it, or the bearer payee's duty to ascertain from the holder Manuel Gonzales what the nature of the latter's title to the check was or the
thereof. Sec. 52 defendants defines a holder in due course as "a holder who has taken the instrument under the nature of his possession. Having failed in this respect, we must declare that plaintiff-appellee was guilty of gross neglect
following conditions: 1. That it is complete and regular on its face. 2. That he became the holder of it before it in not finding out the nature of the title and possession of Manuel Gonzales, amounting to legal absence of good faith,
was overdue, and without notice that it had been previously dishonored, if such was the fact. 3. That he took it and it may not be considered as a holder of the check in good faith. To such effect is the consensus of authority.
in good faith and for value. 4. That at the time it was negotiated to him he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it." In order to show that the defendant had "knowledge of such facts that his action in taking the instrument
amounted to bad faith," it is not necessary to prove that the defendant knew the exact fraud that was practiced
Since "holder", as defined in sec. 191, includes a payee who is in possession the word holder in the first clause upon the plaintiff by the defendant's assignor, it being sufficient to show that the defendant had notice that
of sec. 52 and in the second subsection may be replaced by the definition in sec. 191 so as to read "a holder in there was something wrong about his assignor's acquisition of title, although he did not have notice of the
due course is a payee or indorsee who is in possession," etc. (Brannan's on Negotiable Instruments Law, 6th particular wrong that was committed. Paika v. Perry, 225 Mass. 563, 114 N.E. 830.
ed., p. 543).
It is sufficient that the buyer of a note had notice or knowledge that the note was in some way tainted with
The first argument of the defendants-appellants, therefore, depends upon whether or not the plaintiff-appellee is a holder fraud. It is not necessary that he should know the particulars or even the nature of the fraud, since all that is
in due course. If it is such a holder in due course, it is immaterial that it was the payee and an immediate party to the required is knowledge of such facts that his action in taking the note amounted bad faith. Ozark Motor Co. v.
instrument. Horton (Mo. App.), 196 S.W. 395. Accord. Davis v. First Nat. Bank, 26 Ariz. 621, 229 Pac. 391.

The other contention of the plaintiff is that there has been no negotiation of the instrument, because the drawer did not Liberty bonds stolen from the plaintiff were brought by the thief, a boy fifteen years old, less than five feet tall,
deliver the instrument to Manuel Gonzales with the intention of negotiating the same, or for the purpose of giving effect immature in appearance and bearing on his face the stamp a degenerate, to the defendants' clerk for sale. The
thereto, for as the stipulation of facts declares the check was to remain in the possession Manuel Gonzales, and was not to boy stated that they belonged to his mother. The defendants paid the boy for the bonds without any further
be negotiated, but was to serve merely as evidence of good faith of defendants in their desire to purchase the car being inquiry. Held, the plaintiff could recover the value of the bonds. The term 'bad faith' does not necessarily
sold to them. Admitting that such was the intention of the drawer of the check when she delivered it to Manuel Gonzales, involve furtive motives, but means bad faith in a commercial sense. The manner in which the defendants
it was no fault of the plaintiff-appellee drawee if Manuel Gonzales delivered the check or negotiated it. As the check was conducted their Liberty Loan department provided an easy way for thieves to dispose of their plunder. It was a
payable to the plaintiff-appellee, and was entrusted to Manuel Gonzales by Gatchalian, the delivery to Manuel Gonzales case of "no questions asked." Although gross negligence does not of itself constitute bad faith, it is evidence
was a delivery by the drawer to his own agent; in other words, Manuel Gonzales was the agent of the drawer Anita from which bad faith may be inferred. The circumstances thrust the duty upon the defendants to make further
Gatchalian insofar as the possession of the check is concerned. So, when the agent of drawer Manuel Gonzales inquiries and they had no right to shut their eyes deliberately to obvious facts. Morris v. Muir, 111 Misc. Rep.
negotiated the check with the intention of getting its value from plaintiff-appellee, negotiation took place through no fault 739, 181 N.Y. Supp. 913, affd. in memo., 191 App. Div. 947, 181 N.Y. Supp. 945." (pp. 640-642, Brannan's
of the plaintiff-appellee, unless it can be shown that the plaintiff-appellee should be considered as having notice of the Negotiable Instruments Law, 6th ed.).
defect in the possession of the holder Manuel Gonzales. Our resolution of this issue leads us to a consideration of the last
question presented by the appellants, i.e., whether the plaintiff-appellee may be considered as a holder in due course. The above considerations would seem sufficient to justify our ruling that plaintiff-appellee should not be allowed to
recover the value of the check. Let us now examine the express provisions of the Negotiable Instruments Law pertinent
Section 52, Negotiable Instruments Law, defines holder in due course, thus: to the matter to find if our ruling conforms thereto. Section 52 (c) provides that a holder in due course is one who takes
the instrument "in good faith and for value;" Section 59, "that every holder is deemed prima facie to be a holder in due
course;" and Section 52 (d), that in order that one may be a holder in due course it is necessary that "at the time the
A holder in due course is a holder who has taken the instrument under the following conditions:
instrument was negotiated to him "he had no notice of any . . . defect in the title of the person negotiating it;" and lastly we are forced to the conclusion that plaintiff payee has not proved that it acquired the check in good faith and may not be
Section 59, that every holder is deemed  prima facieto be a holder in due course. deemed a holder in due course thereof.

In the case at bar the rule that a possessor of the instrument is prima faciea holder in due course does not apply because For the foregoing considerations, the decision appealed from should be, as it is hereby, reversed, and the defendants are
there was a defect in the title of the holder (Manuel Gonzales), because the instrument is not payable to him or to bearer. absolved from the complaint. With costs against plaintiff-appellee.
On the other hand, the stipulation of facts indicated by the appellants in their brief, like the fact that the drawer had no
account with the payee; that the holder did not show or tell the payee why he had the check in his possession and why he
Padilla, Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon and De Leon, JJ., concur.
was using it for the payment of his own personal account — show that holder's title was defective or suspicious, to say Bengzon, C.J., concurs in the result.
the least. As holder's title was defective or suspicious, it cannot be stated that the payee acquired the check without
knowledge of said defect in holder's title, and for this reason the presumption that it is a holder in due course or that it
acquired the instrument in good faith does not exist. And having presented no evidence that it acquired the check in good
faith, it (payee) cannot be considered as a holder in due course. In other words, under the circumstances of the case,
instead of the presumption that payee was a holder in good faith, the fact is that it acquired possession of the instrument
under circumstances that should have put it to inquiry as to the title of the holder who negotiated the check to it. The
burden was, therefore, placed upon it to show that notwithstanding the suspicious circumstances, it acquired the check in
actual good faith.

The rule applicable to the case at bar is that described in the case of Howard National Bank v. Wilson, et al., 96 Vt. 438,
120 At. 889, 894, where the Supreme Court of Vermont made the following disquisition:
G.R. No. 126670 December 2, 1999
Prior to the Negotiable Instruments Act, two distinct lines of cases had developed in this country. The first had
its origin in Gill v. Cubitt, 3 B. & C. 466, 10 E. L. 215, where the rule was distinctly laid down by the court of ERNESTO T. PACHECO and VIRGINIA O. PACHECO, petitioners,
King's Bench that the purchaser of negotiable paper must exercise reasonable prudence and caution, and that, vs.
if the circumstances were such as ought to have excited the suspicion of a prudent and careful man, and he HON. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.
made no inquiry, he did not stand in the legal position of a bona fide holder. The rule was adopted by the
courts of this country generally and seem to have become a fixed rule in the law of negotiable paper. Later in
Goodman v. Harvey, 4 A. & E. 870, 31 E. C. L. 381, the English court abandoned its former position and  
adopted the rule that nothing short of actual bad faith or fraud in the purchaser would deprive him of the
character of a bona fide purchaser and let in defenses existing between prior parties, that no circumstances of YNARES-SANTIAGO, J.:
suspicion merely, or want of proper caution in the purchaser, would have this effect, and that even gross
negligence would have no effect, except as evidence tending to establish bad faith or fraud. Some of the
Petitioner spouses are engaged in the construction business. Complainant Romualdo Vicencio was a former Judge and his
American courts adhered to the earlier rule, while others followed the change inaugurated in Goodman v.
wife, Luz Vicencio, owns a pawnshop in Samar. On May 17, 1989, due to financial difficulties arising from the repeated
Harvey. The question was before this court in Roth v. Colvin, 32 Vt. 125, and, on full consideration of the
delays in the payment of their receivables for the construction projects from the DPWH, 1 petitioners were constrained to
question, a rule was adopted in harmony with that announced in Gill v. Cubitt, which has been adhered to in
obtain a loan of P10,000.00 from Mrs. Vicencio. The latter acceded. Instead of merely requiring a note of indebtedness,
subsequent cases, including those cited above. Stated briefly, one line of cases including our own had adopted
however, her husband Mr. Vicencio required petitioners to issue an undated check as evidence of the loan which
the test of the reasonably prudent man and the other that of actual good faith. It would seem that it was the
allegedly will not be presented to the bank. Despite being informed by petitioners that their bank account no longer had
intent of the Negotiable Instruments Act to harmonize this disagreement by adopting the latter test. That such
any funds, Mrs. Vicencio insisted that issue the check, which according to her was only a formality. Thus, petitioner
is the view generally accepted by the courts appears from a recent review of the cases concerning what
Virginia Pacheco issued on May 17, 1989 an undated RCBC 2 check with number CT 101756 for P10,000.00. However,
constitutes notice of defect. Brannan on Neg. Ins. Law, 187-201. To effectuate the general purpose of the act
she only received the amount of P9,000.00 as the 10% interest on the loan was already deducted. Mrs. Vicencio also
to make uniform the Negotiable Instruments Law of those states which should enact it, we are constrained to
required Virginia's husband, herein petitioner Ernesto Pacheco, to sign the check on the same understanding that the
hold (contrary to the rule adopted in our former decisions) that negligence on the part of the plaintiff, or
check is not to be encashed but merely intended as an evidence of indebtedness which cannot be negotiated.
suspicious circumstances sufficient to put a prudent man on inquiry, will not of themselves prevent a recovery,
but are to be considered merely as evidence bearing on the question of bad faith. See G. L. 3113, 3172, where
such a course is required in construing other uniform acts. On June 14, 1989, Virginia obtained another loan of P50,000.00 from Mrs. Vicencio. She received only P35,000.00 as
the previous loan of P10,000.00 as well as the 10% interest amounting to P5,000.00 on the new loan were deducted by
the latter. With the payment of the previous debt, Virginia asked for the return of the first check (RCBC check no.
It comes to this then: When the case has taken such shape that the plaintiff is called upon to prove himself a
101756) but Mrs. Vicencio told her that her filing clerk was absent. Despite several demands for the return of the first
holder in due course to be entitled to recover, he is required to establish the conditions entitling him to
check, Mrs. Vicencio told Virginia that they can no longer locate the folder containing that check. For the new loan, she
standing as such, including good faith in taking the instrument. It devolves upon him to disclose the facts and
also required Virginia to issue three (3) more checks in various amounts — two checks for P20,000.00 each and the third
circumstances attending the transfer, from which good or bad faith in the transaction may be inferred.
check for P10,000.00. Petitioners were not amendable to these requirements, but Mrs. Vicencio insisted that they issue
the same assuring them that the checks will not be presented to the banks but will merely serve as guarantee for the loan
In the case at bar as the payee acquired the check under circumstances which should have put it to inquiry, why the since there was no promissory note required of them. Due to her dire financial needs, Virginia issued three undated
holder had the check and used it to pay his own personal account, the duty devolved upon it, plaintiff-appellee, to prove RCBC checks numbered 101783 and 101784 in the sum of P20,000.00 each and 101785 for P10,000.00, and again
that it actually acquired said check in good faith. The stipulation of facts contains no statement of such good faith, hence
informed Mrs. Vicencio that the cheeks cannot be encashed as the same were not funded. Petitioner Ernesto also signed has been dishonored for lack or insufficiency of funds shall be prima facie evidence of deceit
the three checks as required by Mrs. Vicencio on the same conditions as the first check. constituting false pretense or fraudulent act.

On June 20 and July 21, 1989, petitioner Virginia obtained two more loans, one for P10,000.00 and another for The essential elements in order to sustain a conviction under the above paragraph are:
P15,000.00. Again she issued two more RCBC checks (No. 101768 for P10,000.00 and No. 101774 for P15,000.00) as
required by Mrs. Vicencio with the same assurance that the checks shall not be presented for payment but shall stand 1. that the offender postdated or issued a check in payment of an payment
only as evidence of indebtedness in lieu of the usual promissory note.
obligation contracted at the time the check was issued;

All the checks were undated at the time petitioners handed them to Mrs. Vicencio. The six checks represent a total 2. that such postdating or issuing a check was done when the offender had no
obligation of P85,000.00. However, since the loan of P10,000.00 under the first check was already paid when the amount
funds in the bank, or his funds deposited therein were not sufficient to cover
thereof was deducted from the proceeds of the second loan, the remaining account was only P75,000.00. Of this amount, the amount of the check;
petitioners were able to settle and pay in cash P60,000.00 in July 1989. Petitioners never had any transaction nor ever
dealt with Mrs. Vicencio's husband, the complainant herein.
3. deceit or damage to the payee thereof. 6
When the remaining balance of P15,000.00 on the loans became due and demandable, petitioners were not able to pay
despite demands to do so. On August 3, 1992, Mrs. Vicencio together with her husband and their daughter Lucille, went The first and third elements are not present in this case. A check has the character of negotiability and at the same time it
to petitioners' residence to persuade Virginia to place the date "August 15, 1992" on checks nos. 101756 and 101774, constitutes an evidence of indebtedness. By mutual agreement of the parties, the negotiable character of a check may be
although said checks were respectively given undated to Mrs. Vicencio on May 17, 1989 and July 21, 1989. Check no. waived and the instrument may be treated simply as proof of an obligation. There cannot be deceit on the part of the
101756 was required by Mrs. Vicencio to be dated as additional guarantee for the P15,000.00 unpaid balance allegedly obligor, petitioners herein, because they agreed with the obligee at the time of the issuance and postdating of the checks
under check no. 101774. Despite being informed by petitioner Virginia that their account with RCBC had been closed as that the same shall not be encashed or presented to the banks. As per assurance of the lender, the checks are nothing but
early as August 17, 1989, Mrs. Vicencio and her daughter insisted that she place a date on the checks allegedly so that it evidence of the loan or security thereof in lieu of and for the same purpose as a promissory note. By their own covenant,
will become evidence of their indebtedness. The former reluctantly wrote the date on the checks for fear that she might therefore, the checks became mere evidence of indebtedness. It has been ruled that a drawer who issues a check as
not be able to obtain future loans from Mrs. Vicencio. security or evidence of investment is not liable for estafa. 7 Mrs. Vicencio could not have been deceived nor defrauded by
petitioners in order to obtain the loans because she was informed that they no longer have funds in their RCBC accounts.
In 1992, when the Vicencio family asked Virginia to place a date on the check, the latter again informed Mrs. Vicencio
Later, petitioners were surprised to receive on August 29, 1992 a demand letter from Mrs. Vicencio's spouse informing that their account with RCBC was already closed as early as August 1989. With the assurance, however, that the check
them that the checks when presented for payment on August 25, 1992 were dishonored due to "Account Closed".
will only stand as a firm evidence of indebtedness, Virginia placed a date on the check. Under these circumstances, Mrs.
Consequently, upon the complaint of Mrs., Vicencio's husband with whom petitioners never had any transaction, two Vicencio cannot claim that she was deceived or defrauded by petitioners in obtaining the loan. In the absence of the
informations for estafa, defined in Article 315 (2) (d) of the Revised Penal Code, were filed against them. The
essential element of deceit, 8 no estafa was committed by petitioners.
informations which were amended on April 1, 1993 alleged that petitioners "through fraud and false pretenses and in
payment of a diamond ring (gold necklace)" issued checks which when presented for payment were dishonored due to
account closed. 3 After entering a plea of not guilty during arraignment, petitioners were tried and sentenced to suffer Both courts below relied so much on the fact that Mrs. Vicencio's husband is a former Judge who knows the law. He
imprisonment and ordered to indemnify the complainant in the total amount of P25,000.00. 4 On appeal, the Court of should have known, then, that he need not even ask the petitioners to place a date on the check, because as holder of the
Appeals (CA) affirmed the decision of the court a quo. 5 Hence this petition. check, he could have inserted the date pursuant to Section 13 of the Negotiable Instruments Law (NIL). 9 Moreover, as
stated in Section 14 thereof, complainant, as the person in possession of the check, has prima facie authority to complete
it by filling up the blanks therein. Besides, pursuant to Section 12 of the same law, a negotiable instrument is not
Estafa may be committed in several ways. One of these is by postdating a check or issuing a check in payment of an
rendered invalid by reason only that it is antedated or postdated. 10 Thus, the allegation of Mrs. Vicencio that the date to
obligation, as provided in Article 315, paragraph 2(d) of the RPC, viz: be placed by Virginia was necessary so as to make the check evidence of indebtedness is nothing but a ploy. Petitioners
openly disclosed and never hid the fact that they no longer have funds in the bank as their bank account was already
Art. 315. Swindling (estafa). Any person who shall defraud another by any of the means mentioned closed. Knowledge by the complainant that the drawer does not have sufficient funds in the bank at the time it was issued
hereinbelow shall be punished by: to him does not give rise to a case for estafa through bouncing
checks. 11
x x x           x x x          x x x
Moreover, a check must be presented within a reasonable time from
issue. 12 By current banking practice, a check becomes stale after more than six (6) months. In fact a check long overdue
2. By means of any of the following false pretenses or fraudulent acts executed prior to or
simultaneously with the commission of the fraud: for more than two and one-half years is considered stale. 13 In this case, the checks were issued more than three years
prior to their presentment. In his complaint, complainant alleged that petitioners bought jewelry from him and that he
would not have parted with his jewelry had not petitioners issued the checks. The evidence on record, however, does not
x x x           x x x          x x x support the theory of the crime.

(d) By postdating a check, or issuing a check in payment of an obligation when the offender had no There were six checks given by petitioners to Mrs. Vicencio but only two were presented for encashment. If all were
funds in the bank, or his funds deposited therein were not sufficient to cover the amount of the issued in payment of the alleged jewelry, why were not all the checks presented? There was a deliberate choice of these
check. The failure of the drawer of the check to deposit the amount necessary to cover his check two checks as the total amount reflected therein is equivalent to the amount due under the unpaid obligation. The other
within three (3) days from receipt of notice from the bank and/or the payee or holder that said check
checks, on the other hand, could not be used as the amounts therein do not jibe with the amount of the unpaid balance.
Following complainant's theory that he would not have sold the jewelries had not petitioners issued "postdated" checks,
still no estafa can be imputed to petitioners. It is clear that the checks were not intended for encashment with the bank,
but were delivered as mere security for the payment of the loan and under an agreement that the checks would be
redeemed with cash as they fell due. Hence, the checks were not intended by the parties to be modes of payment but only
as promissory notes. Since complainant and his wife were well aware of that fact, they cannot now complain there was
deception on the part of petitioners. Awareness by the complainant of the fictitious nature of the pretense cannot give rise
to estafa by means of deceit. 14 When the payee was informed by the by the drawer that the checks are not covered by
adequate funds it does not give rise to bad faith or estafa. 15

Moreover, complainant's allegations that the two subject checks were issued in 1992 as payment for the jewelry he
allegedly sold to petitioners is belied by the evidence on record. First, complainant is not engaged in the sale of
jewelry. 16 Neither are petitioners. If the pieces of jewelry were important to complainant considering that they were with
him for more than twenty-five years already, 17 he would not have easily parted with them in consideration for unfunded
personal checks in favor of persons whose means of living or source of income were unknown to him. 18 Applicable here
is the legal precept that persons are presumed to have taken care of their business. 19

Second, petitioners' bank account with RCBC was opened on March 26, 1987 and was closed on April 17, 1989, during
the span of which they were issued 10 check booklets with the last booklet issued on April 6, 1984. This last booklet
contains 50 checks consecutively numbered from 101751 to 101800. The two subject checks came from this booklet. All
the checks in this booklet were issued in the year 1989 including the two subject checks, so that the complainants' theory
that the jewelry were sold in 1992 cannot be believed. G.R. No. L-17106            October 19, 1966

The rule that factual findings of the trial court bind this court is not absolute but admits of exceptions such as when the FIRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES, plaintiff-appellee,
conclusion is a finding grounded on speculation, surmise, and conjecture and when the findings of the lower court is vs.
premised on the absence of evidence and is contradicted by the evidence on record. 20 Based on the foregoing INES CHAVES & Co., LTD., ET AL., defendants-appellants.
discussions, this Court is constrained to depart from the general rule. Equally applicable is what Vice-Chancellor Van
Fleet once said: 21
Nariano M. de Joya and Luis R. Lara, Jr. for defendants-appellants.
Herminio B. Alcid for plaintiff-appellee.
Evidence to be believed must not only proceed from the mouth of a credible witness but must be
credible in itself — such as the common experience and observation of mankind can approve as
REGALA, J.:
probable under the circumstances. We have no test of the truth of human testimony, except its
conformity to our knowledge, observation and experience. Whatever is repugnant to these belongs
to the miraculous, and is outside of judicial cognizance. This appeal originated from a suit filed on January 14, 1960 by appellee Firestone Tire and Rubber Co. of the Philippines
against appellant Ines Chaves & Co., Ltd. in the Court of First Instance of Manila, for the collection of P6,241.75, plus
interest and attorney's fees. The principal amount represented the price of automobile tires, tubes and other accessories
Petitioners, however, are not without liability. An accused acquitted of a criminal charge may nevertheless be held civilly
which the appellee sold and delivered to the appellants on different dates. The claim for interest and attorney's fees was
liable in the same case where the facts established by the evidence so warrant. 22 Based on the records, they still have an
based on the following stipulation appearing on each invoice issued by the appellee.
outstanding obligation of P15,000.00 in favor of Mrs. Vicencio. There was mention that the loan shall earn interests.
However, an agreement as to payment of interest must be in writing, otherwise it cannot be valid, 23 although there was
actual payment of interests by virtue of the advance deductions from the loan. Once the judgment becomes final and All accounts shall be paid upon delivery of the merchandise according to the terms of the invoice, at Manila
executory, the amount due is deemed equivalent to a forbearance of credit during the interim period from the finality of Office; and the purchaser shall pay one per centum (1%) per month from the date of default, and in case of suit
judgment until full payment, in which case it shall earn legal interest at the rate of twelve per cent (12%)  per for the collection of account and interest he expressly submits to the jurisdiction of the Courts of Manila, Cebu
annum pursuant to Central Bank (CB) Circular No. 416. 24 and Iloilo, and agrees to pay twenty five per centum (25%) thereof as attorney's fees and liquidated damages.

WHEREFORE, the assailed Decision is REVERSED and SET ASIDE. Petitioners are ACQUITTED of the charge of After trial the court gave judgment for the appellee for the principal amount but denied the claim for interest and
estafa but they are ORDERED to pay Mrs. Vicencio the amount of P15,000.00 without interest. However, from the time attorney's fees as stipulated in the invoices for lack of proof that appellant had agreed to the condition. Instead, the court
this judgment becomes final and executory, the amount due shall earn legal interest of twelve percent (12%)  per ordered the payment of interest at the legal rate and an additional amount equal to 25 per cent of the principal as
annum until full payment. attorney's fees after finding appellants guilty of bad faith in issuing a check which was subsequently dishonored. The
check, dated June 9, 1959, was for P1,437.50 and was intended as part payment of appellants' debt. When presented to
the Security Bank & Trust Co. by the appellee, the check was returned for insufficiency of funds. Despite repeated
SO ORDERED.
demands by the appellee, appellants failed to settle its account.
In the dispositive portion of its decision dated April 12, 1960, the court ordered:

IN VIEW WHEREOF, judgment is rendered condemning defendants Ines Chaves & Co. principally and Ines
Chaves subsidiarily, to pay plaintiff (herein appellee) the sum of P6,241.75 with legal interest from July 3,
1959, which is the end of the period of 30 days from the last receipt until fully paid plus 25% of the principal
as attorney's fees, plus costs.

It is from this judgment that appellants brought this appeal to this Court.

The general rule is that attorney's fees cannot be recovered as part of damages because of the policy that no premium
should be placed on the right to litigate.1 Indeed, before the effectivity of the Civil Code, such fees could not be
recovered in the absence of a stipulation. It was only with the advent of the new Code that the right to collect attorney's
fees in the cases mentioned in Article 2208 was recognized. 2 Such fees are now included in the concept of actual
damages.3

One such case is where the defendant is guilty of "gross and evident bad faith in refusing to satisfy plaintiff's plainly
valid, just and demandable claims.4 This is a corollary of the general principle expressed in Article 19 of the Code that
everyone must, in the performance of his duties, observe honesty and good faith and the rule embodied in Article 1170
that anyone guilty of fraud (bad faith) in the performance of his obligation shall be liable for damages.

What does the obligation of good faith require? Applied to the present case, did the issuance of check which was G.R. No. L-34539 July 14, 1986
subsequently dishonored amount to bad faith on the part of appellants?
EULALIO PRUDENCIO and ELISA T. PRUDENCIO, petitioners,
Appellants' contention in this appeal is that the lower court erred in finding them guilty of bad faith and, in consequence, vs.
ordering them to pay attorney's fees. The claim is made that when the check was issued the appellee knew that there were THE HONORABLE COURT OF APPEALS, THE PHILIPPINE NATIONAL BANK, RAMON C.
no funds to back it up and that appellants expected that such funds would be available when the check became due. "This CONCEPCION and MANUEL M.
fact had been relayed and made known to the plaintiff (appellee) who had agreed to the same,"5 it is asserted.
TAMAYO, partners of the defunct partnership Concepcion & Tamayo Construction Company, JOSE TORIBIO,
Of course, if appellee agreed to accept the check, knowing that it was not covered by adequate funds in the bank, no Atty-in-Fact of Concepcion & Tamayo Construction Company, and THE DISTRICT ENGINEER, Puerto
finding of bad faith can be made against the appellant. We held in a number of cases that where a person issues a post Princesa, Palawan, respondents.
dated check without funds to cover it and informs the payee of this fact, he cannot be held guilty of estafa because there
is no deceit.6 Fernando R. Mangubat, Jr. for respondent PNB.

But here there is nothing in the record to show that appellee knew that there were no funds in the bank when it accepted
the check from the appellants, much less that appellee "agreed" to take the check with knowledge of the lack of funds.
There is nothing to show that appellants even hinted to the appellee at the lack of funds when the check was issued. On
the contrary by issuing the check, appellants in effect represented to the appellee that there were funds in the bank for its GUTIERREZ, JR., J.:
payment.7 We think the lower court correctly found appellants' conduct wanting in good faith. The award of attorney's
fees is warranted. This is a petition for review seeking to annul and set aside the decision of the Court of Appeals, now the Intermediate
Appellate Court, affirming the order of the trial court which dismissed the petitioners' complaint for cancellation of their
WHEREFORE, the decision appealed from is affirmed, with costs against appellants. real estate mortgage and held them jointly and severally liable with the principal debtors on a promissory note which they
signed as accommodation makers.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ., concur.
The factual background of this case is stated in the decision of the appellate court:

Appellants are the registered owners of a parcel of land located in Sampaloc, Manila, and covered
by T.C.T. 35161 of the Register of Deeds of Manila. On October 7, 1954, this property was
mortgaged by the appellants to the Philippine National Bank, hereinafter called PNB, to guarantee a
loan of P1,000.00 extended to one Domingo Prudencio.
 Sometime in 1955, the Concepcion & Tamayo Construction Company, hereinafter called Company, The Court of Appeals affirmed the trial court's decision in toto stating that, as accommodation makers, the petitioners'
had a pending contract with the Bureau of Public Works, hereinafter called the Bureau, for the liability is that of solidary co-makers and that since "the amounts released to the construction company were used therein
construction of the municipal building in Puerto Princess, Palawan, in the amount of P36,800.00 and, therefore, were spent for the successful accomplishment of the work constructed for, the authorization made by the
and, as said Company needed funds for said construction, Jose Toribio, appellants' relative, and Philippine National Bank of partial payments to the construction company which was also one of the solidary debtors
attorney-in-fact of the Company, approached the appellants asking them to mortgage their property cannot constitute a valid defense on the part of the other solidary debtors. Moreover, those who rendered services and
to secure the loan of P10,000.00 which the Company was negotiating with the PNB. furnished materials in the construction are preferred creditors and have a lien on the price of the contract." The appellate
court further held that PNB had no obligation whatsoever to notify the petitioners of its authorizing the three payments in
the total amount of Pll,234.00 in favor of the Company because aside from the fact that the petitioners were not parties to
After some persuasion appellants signed on December 23, 1955 the 'Amendment of Real Estate
Mortgage', mortgaging their said property to the PNB to guaranty the loan of P10,000.00 extended the deed of assignment, there was no stipulation in said deed making it obligatory on the part of the PNB to notify the
petitioners everytime it authorizes payment to the Company. It ruled that the petitioners cannot ask to be released from
to the Company. The terms and conditions of the original mortgage for Pl,000.00 were made
integral part of the new mortgage for P10,000.00 and both documents were registered with the the real estate mortgage.
Register of Deeds of Manila. The promissory note covering the loan of P10,000.00 dated December
29, 1955, maturing on April 27, 1956, was signed by Jose Toribio, as attorney-in-fact of the In this petition, the petitioners raise the following issues which they present in the form of errors:
Company, and by the appellants. Appellants also signed the portion of the promissory note
indicating that they are requesting the PNB to issue the Check covering the loan to the Company.
I. First Assignment of Error.
On the same date (December 23, 1955) that the 'Amendment of Real Estate' was executed, Jose
Toribio, in the same capacity as attorney-in- fact of the Company, executed also the 'Deed of
Assignment' assigning all payments to be made by the Bureau to the Company on account of the THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT HEREIN
contract for the construction of the Puerto Princesa building in favor of the PNB. PETITIONERS WERE SOLIDARY CO-DEBTORS INSTEAD OF SURETIES:

This assignment of credit to the contrary notwithstanding, the Bureau; with approval, of the PNB, II. Second Assignment of Error.
conditioned, however that they should be for labor and materials, made three payments to the
Company on account of the contract price totalling P11,234.40. The Bureau's last request for THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONERS
P5,000.00 on June 20, 1956, however, was denied by the PNB for the reason that since the loan was WERE NOT RELEASED FROM THEIR OBLIGATION TO THE RESPONDENT PNB, WHEN
already overdue as of April 28, 1956, the remaining balance of the contract price should be applied THE PNB, WITHOUT THE KNOWLEDGE AND CONSENT OF PETITIONERS, CHANGED
to the loan. THE TENOR AND CONDITION OF THE ASSIGNMENT OF PAYMENTS MADE BY THE
PRINCIPAL DEBTOR; CONCEPCION & TAMAYO CONSTRUCTION COMPANY; AND
The Company abandoned the work, as a consequence of which on June 30, 1956, the Bureau RELEASED TO SUCH PRINCIPAL DEBTOR PAYMENTS FROM THE BUREAU OF PUBLIC
rescinded the construction contract and assumed the work of completing the building. On November WORKS WHICH WERE MORE THAN ENOUGH TO WIPE OUT THE INDEBTEDNESS TO
14, 1958, appellants wrote the PNB contending that since the PNB authorized payments to the THE PNB.
Company instead of on account of the loan guaranteed by the mortgage there was a change in the
conditions of the contract without the knowledge of appellants, which entitled the latter to a The petitioners contend that as accommodation makers, the nature of their liability is only that of mere sureties instead of
cancellation of their mortgage contract. solidary co-debtors such that "a material alteration in the principal contract, effected by the creditor without the
knowledge and consent of the sureties, completely discharges the sureties from all liability on the contract of suretyship.
Failing in their bid to have the real estate mortgage cancelled, appellants filed on June 27, 1959 this " They state that when respondent PNB did not apply the initial and subsequent payments to the petitioners' debt as
action against the PNB, the Company, the latter's attorney-in-fact Jose Toribio, and the District provided for in the deed of assignment, they were released from their obligation as sureties and, therefore, the real estate
Engineer of Puerto Princesa, Palawan, seeking the cancellation of their real estate mortgage. The mortgage executed by them should have been cancelled.
complaint was amended to exclude the Company as defendant, it having been shown that its life as a
partnership had already expired and, in lieu thereof, Ramon Concepcion and Manuel M. Tamayo, Section 29 of the Negotiable Instrument Law provides:
partners of the defunct Company, were impleaded in their private capacity as defendants.

Liability of accommodation party. —An accommodation party is one who has signed the instrument
After hearing, the trial court rendered judgment, denying the prayer in the complaint that the petitioners be absolved from as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of
their obligation under the mortgage contract and that the said mortgage be released or cancelled. The petitioners were lending his name to some other person. Such a person is liable on the instrument to a holder for
ordered to pay jointly and severally with their co-makers Ramon C. Concepcion and Manuel M. Tamayo the sum of value, notwithstanding such holder at the time of taking the instrument knew him to be only an
P11,900.19 with interest at the rate of 6% per annum from the date of the filing of the complaint on June 27, 1959 until accommodation party.
fully paid and Pl,000.00 attorney's fees.

In the case of Philippine Bank of Commerce v. Aruego (102 SCRA 530, 539), we held that "... in lending his name to the
The decision also provided that if the judgment was not satisfied within 90 days from its receipt, the mortgaged accommodated party, the accommodation party is in effect a surety. ... . " However, unlike in a contract of suretyship, the
properties together with all the improvements thereon belonging to the petitioners would be sold at public auction and liability of the accommodation party remains not only primary but also unconditional to a holder for value such that even
applied to the judgment debt. 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.
Expounding on the nature of the liability of an accommodation petition party under the aforequoted section, we ruled as to them the only superiority of a bill or note over other unsealed evidence of debt is that it prima
in  Ang Tiong v. Ting (22 SCRA 713, 716): facie imports a consideration.

3. That the appellant, again assuming him to be an accommodation indorser, may obtain security Although as a general rule, a payee may be considered a holder in due course we think that such a rule cannot apply with
from the maker to protect himself against the danger of insolvency of the latter, cannot in any respect to the respondent PNB. Not only was PNB an immediate party or in privy to the promissory note, that is, it had
manner affect his liability to the appellee, as the said remedy is a matter of concern exclusively dealt directly with the petitioners knowing fully well that the latter only signed as accommodation makers but more
between accommodation indorser and accommodated party. So that the appellant stands only as a important, it was the Deed of Assignment executed by the Construction Company in favor of PNB which principally
surety in relation to the maker, granting this to be true for the sake of argument, is immaterial to the moved the petitioners to sign the promissory note also in favor of PNB. Petitioners were made to believe and on that
claim of the appellee, and does not a whit diminish nor defeat the rights of the latter who is a holder belief entered into the agreement that no other conditions would alter the terms thereof and yet, PNB altered the same.
for value. The liability of the appellant remains primary and unconditional. To sanction the The Deed of Assignment specifically provided that Jose F. Toribio, on behalf of the Company, "have assigned,
appellant's theory is to give unwarranted legal recognition to the patent absurdity of a situation transferred and conveyed and by these presents, do assign, transfer and convey unto the said Philippine National Bank, its
where an indorser, when sued on an instrument by a holder in due course and for value, can escape successors and assigns all payments to be received from the Bureau of Public Works on account of contract for the
liability on his indorsement by the convenient expedient of interposing the defense that he is a mere construction of the Puerto Princesa Municipal Building in Palawan, involving the total amount of P 36,000.00" and that
accommodation indorser. "This assignment shall be irrevocable and subject to the terms and conditions of the promissory note and or any other
kind of documents which the Philippine National Bank have required or may require the assignor to execute to evidence
There is, therefore, no question that as accommodation makers, petitioners would be primarily and unconditionally liable the above-mentioned obligation."
on the promissory note to a holder for value, regardless of whether they stand as sureties or solidary co-debtors since
such distinction would be entirely immaterial and inconsequential as far as a holder for value is concerned. Consequently, Under the terms of the above Deed, it is clear that there are no further conditions which could possibly alter the
the petitioners cannot claim to have been released from their obligation simply because the time of payment of such agreement without the consent of the petitioners such as the grant of greater priority to obligations other than the payment
obligation was temporarily deferred by PNB without their knowledge and consent. There has to be another basis for their of the loan due to the PNB and part of which loan was guaranteed by the petitioners in the amount of P10,000.00.
claim of having been freed from their obligation. The question which should be resolved in this instant petition, therefore,
is whether or not PNB can be considered a holder for value under Section 29 of the Negotiable Instruments Law such that
This, notwithstanding, PNB approved the Bureau's release of three payments directly to the Company instead of paying
the petitioners must be necessarily barred from setting up the defense of want of consideration or some other personal the same to the Bank. This approval was in violation of the Deed of Assignment and without any notice to the petitioners
defenses which may be set up against a party who is not a holder in due course.
who stood to lose their property once the promissory note falls due without the same having been paid because the PNB,
in effect, waived payments of the first three releases. From the foregoing circumstances, PNB can not be regarded as
A holder for value under Section 29 of the Negotiable Instruments Law is one who must meet all the requirements of a having acted in good faith which is also one of the requisites of a holder in due course under Section 52 of the Negotiable
holder in due course under Section 52 of the same law except notice of want of consideration. (Agbayani, Commercial Instruments Law. The PNB knew that the promissory note which it took from the accommodation makers was signed by
Laws of the Philippines, 1964, p. 208). If he does not qualify as a holder in due course then he holds the instrument the latter because of full reliance on the Deed of Assignment, which, PNB had no intention to comply with strictly.
subject to the same defenses as if it were non-negotiable (Section 58, Negotiable Instruments Law). Worse, the third payment to the Company in the amount of P4,293.60 was approved by PNB although the promissory
note was almost a month overdue, an act which is clearly detrimental to the petitioners.
In the case at bar, can PNB, the payee of the promissory note be considered a holder in due course?
We, therefore, hold that respondent PNB is not a holder in due course. Thus, the petitioners can validly set up their
Petitioners contend that the payee PNB is an immediate party and, therefore, is not a holder in due course and stands on personal defense of release from the real estate mortgage against PNB. The latter, in authorizing the third payment to the
Company after the promissory note became due, in effect, extended the term of the payment of the note without the
no better footing than a mere assignee.
consent of the accommodation makers who stand as sureties to the accommodated party and to all other parties who are
not holders in due course or who do not derive their right from the same, including PNB.
In those cases where a payee was considered a holder in due course, such payee either acquired the note from another
holder or has not directly dealt with the maker thereof. As was held in the case of Bank of Commerce and Savings v.
Randell (186 NorthWestern Reporter 71): It may be argued that the Prudencios could have mortgaged their property even without the promissory note. The records
show, however, that they would not have mortgaged the lot were it not for the sake of the Company whose attorney-in-
fact was their relative. The spouses did not need the money for themselves.
We conclude, therefore, that a payee who receives a negotiable promissory note, in good faith, for
value, before maturity, and without any notice of any infirmity, from a holder, not the maker. to
The attorney-in-fact tried twice to convince the Prudencios to mortgage their property in order to secure a loan in favor of
whom it was negotiated as a completed instrument, is a holder in due course within the purview of a
Negotiable Instruments law, so as to preclude the defense of fraud and failure of consideration the Company but the Prudencios refused. It was only when the deed of assignment was shown to the spouses that they
consented to the mortgage and signed the promissory note in the Bank's favor.
between the maker and the holder to whom the instrument, was delivered.

Similarly, in the case of Stone v. Goldberg & Lewis  (60 Southern Reporter 748) on rehearing and quoting Daniel on Article 2085 of the Civil Code enumerates the requisites of a valid mortgage contract. Petitioners do not dispute the
validity of the mortgage. They only want to have it cancelled because the Bank violated the deed of assignment and
Negotiable Instruments, it was held:
extended the period of time of payment of the promissory note without the petitioners' consent and to the latter's
detriment.
It is a general principle of the law merchant that, as between the immediate parties to a negotiable
instrument-the parties between whom there is a privity-the consideration may be inquired into; and
The mortgage cannot be separated from the promissory note for it is the latter which is the basis of determining whether
the mortgage should be foreclosed or cancelled. Without the promissory note which determines the amount of
indebtedness there would have been no basis for the mortgage.

True, if the Bank had not been the assignee, then the petition petitioners would be obliged to pay the Bank as their
creditor on the promissory note, irrespective of whether or not the deed of assignment had been violated. However, the
assignee and the creditor in this case are one and the same—the Bank itself. When the Bank violated the deed of
assignment, it prejudiced itself because its very violation was the reason why it was not paid on time in its capacity as
creditor in the promissory note. It would be unfair to make the petitioners now answer for the debt or to foreclose on their
property.

Neither can PNB justify its acts on the ground that the Bureau of Public Works approved the deed of assignment with the
condition that the wages of laborers and materials needed in the construction work must take precedence over the
payment of the promissory note. In the first place, PNB did not need the approval of the Bureau. But even if it did, it
should have informed the petitioners about the amendment of the deed of assignment. Secondly, the wages and materials
have already been paid. That issue is academic. What is in dispute is who should bear the loss in this case. As between
the petitioners and the Bank, the law and the equities of the case favor the petitioners, And thirdly, the wages and
materials constitute a lien only on the constructed building but do not enjoy preference over the loan unless there is a
liquidation proceeding such as in insolvency or settlement of estate. (See Philippine Savings Bank v. Lantin, 124 SCRA
476). There were remedies available at the time if the laborers and the creditors had not been paid. The fact is, they have
been paid. Hence, when the PNB accepted the condition imposed by the Bureau without the knowledge or consent of the
petitioners, it amended the deed of assignment which, as stated earlier, was the principal reason why the petitioners
consented to become accommodation makers.

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals affirming the decision of the trial court
is hereby REVERSED and SET ASIDE and a new one entered absolving the petitioners from liability on the promissory
G.R. No. L-15380             September 30, 1960
note and under the mortgage contract. The Philippine National Bank is ordered to release the real estate mortgage
constituted on the property of the petitioners and to pay the amount of THREE THOUSAND PESOS (P3,000.00) as
attorney's fees. CHAN WAN, plaintiff-appellant, vs. TAN KIM and CHEN SO, defendants-appellees.

SO ORDERED. BENGZON, J.:

This suit to collect eleven checks totalling P4,290.00 is here for decision because it involves no issue of fact.

Such checks payable to "cash or bearer" and drawn by defendant Tan Kim (the other defendant is her husband) upon the
Equitable Banking Corporation, were all presented for payment by Chan Wan to the drawee bank, but they "were all
dishonored and returned to him unpaid due to insufficient funds and/or causes attributable to the drawer."

At the hearing of the case, in the Manila court of first instance, the plaintiff did not take the witness stand. His attorney,
however, testified only to identify the checks — which are Exhibits A to K — plus the letters of demand upon
defendants.

On the other hand, Tan Kim declared without contradiction that the checks had been issued to two persons named Pinong
and Muy for some shoes the former had promised to make and "were intended as mere receipts".

In view of such circumstances, the court declined to order payment for two principal reasons: (a) plaintiff failed to prove
he was a holder in due course, and (b) the checks being crossed checks should not have been deposited instead with the
bank mentioned in the crossing.

It may be stated in this connection, that defendants asserted a counterclaim, the court dismissed it for failure of proof, and
from such dismissal they did not appeal.
The only issue is, therefore, the plaintiff's right to collect on the eleven commercial documents. disadvantage of holder who is not a holder in due course is that the negotiable instrument is subject to defense as if it
were non- negotiable.9
The Negotiable Instruments Law regulating the issuance of negotiable checks, the rights and the liabilities arising
therefrom, does not mention "crossed checks". Art. 541 of the Code of Commerce refers to such instruments.  1 The bills Now what defense did the defendant Tan Kim prove? The lower court's decision does not mention any; evidently His
of Exchange Act of England of 1882, contains several provisions about them, some of which are quoted in the Honor had in mind the defense pleaded in defendant's answer, but though it unnecessary to specify, because the
margin. 2 In the Philippine National Bank vs. Zulueta, 101 Phil., 1071; 55 Off. Gaz., 222, we applied some provisions of "crossing" and presentation incidents sufficed to bar recovery, in his opinion.1awphîl.nèt
said Bills of Exchange Act because the Negotiable Law, originating from England and codified in the United States,
permits resort thereto in matters not covered by it and local legislation.3 Tan Kim admitted on cross-examination either that the checks had been issued as evidence of debts to Pinong and Muy,
and/or that they had been issued in payment of shoes which Pinong had promised to make for her.
Eight of the checks here in question bear across their face two parallel transverse lines between which these words are
written: non-negotiable — China Banking Corporation. These checks have, therefore, been crossed specially to the China Seeming to imply that Pinong had to make the shoes, she asserted Pinong had "promised to pay the checks for me". Yet
Banking Corporation, and should have been presented for payment by China Banking, and not by Chan Wan. 4 Inasmuch
she did not complete the idea, perhaps because she was just answering cross- questions, her main testimony having
as Chan Wan did present them for payment himself — the Manila court said — there was no proper presentment, and the referred merely to their counter-claim.
liability did not attach to the drawer.

Needless to say, if it were true that the checks had been issued in payment for shoes that were never made and delivered,
We agree to the legal premises and conclusion. It must be remembered, at this point, that the drawer in drawing the check Tan Kim would have a good defense as against a holder who is not a holder in due course. 10
engaged that "on due presentment, the check would be paid, and that if it be dishonored . . . he will pay the amount
thereof to the holder".5 Wherefore, in the absence of due presentment, the drawer did not become liable.
Considering the deficiency of important details on which a fair adjudication of the parties' right depends, we think the
record should be and is hereby returned, in the interest of justice, to the court below for additional evidence, and such
Nevertheless we find, on the backs of the checks, endorsements which apparently show they had been deposited with the
further proceedings as are not inconsistent with this opinion. With the understanding that, as defendants did not appeal,
China Banking Corporation and were, by the latter, presented to the drawee bank for collection. For instance, on the back their counterclaim must be and is hereby definitely dismissed. So ordered.
of the check Exhibit A (same as in Exh. B), this endorsement appears:

Paras, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera, Gutierrez David, Paredes and
For deposit to the account of White House Shoe Supply with the China Banking Corporation. Dizon, JJ., concur.

and then this:

G.R. No. L-19397             February 16, 1923

Cleared through the clearing office of Central Bank of the Philippines. All prior endorsements and/or lack of ASIA BANKING CORPORATION, plaintiff-appellant,
endorsements guaranteed. China Banking Corporation.
vs.

And on the back of Exh. G:

TEN SEN GUAN Y SOBRINOS and YU BIAO SONTUA, defendants-appellees.

For deposit to the credit of our account. Viuda e Hijos de Chua Chiong Pio. People's Shoe Company.

J. A. Wolfson for appellant.

followed by the endorsement of China Banking Corporation as in Exhibits A and B. All the crossed checks have the Crossfield and O'Brien for appellees.
"clearance" endorsement of China Banking Corporation.

STATEMENT
These circumstances would seem to show deposit of the checks with China Banking Corporation and subsequent
presentation by the latter through the clearing office; but as drawee had no funds, they were unpaid and returned, some of
them stamped "account closed". How they reached his hands, plaintiff did not indicate. Most probably, as the trial court Plaintiff alleges that it is a foreign corporation duly licensed to do a banking business in the City of Manila. That the
surmised, — this is not a finding of fact — he got them after they had been thus returned, because he presented them in defendant is a duly registered partnership with its principal office in the City of Manila and is indebted to it in the sum of
court with such "account closed" stamps, without bothering to explain. Naturally and rightly, the lower court held him $10,475.51, with interest and exchange, for and on account of a New York draft for that amount drawn by "Snow's Ltd."
not to be a holder in due course under the circumstances, since he knew, upon taking them up, that the checks had already on Ten Sen Guan payable ninety days after sight. That the draft was duly endorsed, and that the plaintiff is the owner and
been dishonored.6 holder of it in due course of business. That demand therefore had been made and payment refused. Wherefore, plaintiff
prays for judgment against the defendants for the amount of the draft, with interest thereon at the rate of 8 per cent per
annum from May 12, 1920, to the date of payment, plus exchange at the rate of 14 per centum with costs. The complaint
Yet it does not follow as a legal proposition, that simply because he was not a holder in due course Chan Wan could not was filed August 4, 1921.
recover on the checks. The Negotiable Instruments Law does not provide that a holder7 who is not a holder in due course,
may not in any case, recover on the instrument. If B purchases an overdue negotiable promissory note signed by A, he is
not a holder in due course; but he may recover from A,8 if the latter has no valid excuse for refusing payment. The only For answer, the defendants deny all of the material allegations of the complaint, except such as are hereinafter admitted,
and, as a further and separate defense, specifically deny that they are indebted to the plaintiff in the amount alleged or in
any other sum, or that the plaintiff is the holder of the draft in due course of business or for value. It is then alleged that The trial court found and the evidence sustains the finding that the acceptance of the draft by the defendants was
on February 25, 1920, the defendants ordered from "Snow's Ltd." ten cases of mercerized batiste of the value of conditional, and that oral evidence was admissible to explain the terms and conditions of the acceptance. That would
$10,266.98 to be shipped from New York freight prepaid to Manila where they were to be delivered to the defendants. specially be true where the plaintiff held the draft for collection. It also found, in legal effect, that the plaintiff released
That the merchandise in question arrived in Manila about June 28, 1920, at which time a draft for the amount alleged and discharged the defendants from any liability upon the draft, and the evidence sustains that finding. It will be noted
drawn by "Snow's Ltd." against the defendants was presented to them through the plaintiff as agent of "Snow's, Ltd." for that the original draft was dated May 12, 1920, payable ninety days after sight, and that it was accepted by the defendants
acceptance. That the delivery of the bill of lading and other documents relating to the merchandise was refused by the on June 28, 1920, and that the complaint was filed on August 4, 1921, more than fourteen months after it was accepted
plaintiff until the draft was accepted by the defendants, and that delivery was contingent upon the acceptance of the draft. and almost one year after it became due.
That the defendants, being assured by plaintiff, and believing that the merchandise described in the bill of lading was the
"batiste" ordered, accepted the draft and received delivery of the bill of lading and made entry of the goods at the We are not impressed with plaintiff's case on the merits. The record indicates that in truth and in fact the plaintiff held
Customs House in Manila, and paid charges thereon amounting to P638.07; that when the cases supposed to contain the
that draft for collection; that relying upon the statements and representations of the plaintiff, the defendants conditionally
"batiste" were opened they were found to contain "burlap" of little value, which was not in any sense or manner the accepted the draft; that immediately upon discovery of the fraud the defendants promptly notified the bank. Its then
"batiste" ordered and guaranteed to be contained in the cases. That immediately the defendants declined to receive the
officials recognized the fraud and the conditional acceptance of the draft, and accepted the return of the papers and the
goods and left them in the possession of the Customs authorities, and at once notified the plaintiff and returned to it the "burlap," and agreed to release the defendants from all liability. There is no merit in plaintiff's claim that it is affirmed,
bill of lading, and demanded that their acceptance of the draft be cancelled. That plaintiff accepted the return of the bill of
with costs. So ordered.
lading and documents, and agreed to cancel defendants' acceptance of the draft, for the reason that it was without
consideration. Wherefore, defendants pray for judgment, with costs.

The lower court found for the defendants for whom judgment was entered, and the plaintiff appeals, claiming that the
court erred in falling to make any findings of fact, in dismissing the complaint, and in failing to render judgment for the
plaintiff, and in the admission of parol evidence tending to vary the terms of the written acceptance of the bill of
exchange, that the plaintiff had cancelled defendants' acceptance, that defendants were released, and in the admission of
certain exhibits, and the denial of plaintiff's motion for a new trial.

JOHNS, J.:

The draft in question was endorsed by "Snow's Ltd." and, with the invoice, bill of lading and other shipping documents,
delivered to the plaintiff at its place of business in New York City from where and by which it was sent to its Manila
branch and presented to the defendants for acceptance. At first the defendants refused to accept the draft, because the
merchandise had not arrived and it had no opportunity to inspect it. It is then claimed, and, in legal effect, the trial court G.R. No. L-19461             March 28, 1923
found, that upon the representation of the local bank that the draft was drawn for the ten cases of mercerized batiste in CHARLES A. FOSSUM, plaintiff-appellant, vs. FERNANDEZ HERMANOS, a general partnership, and JOSE F.
question and that they would arrive, as ordered, June 28, 1920, the defendants accepted the draft, and the plaintiff now FERNANDEZ Y CASTRO and RAMON FERNANDEZ Y CASTRO, members of the said partnership of
claims that they are legally bound upon the acceptance, and that parol testimony is not admissible to vary or contradict FERNANDEZ HERMANOS, defendants-appellees.
the force and effect of their legal liability as it appears upon the face of the draft. It is undisputed that the defendants STREET, J.:
placed the order with "Snow's Ltd." for ten cases of mercerized batiste, and that the draft was drawn for the Prior to the date of the making of the contract which gave rise to this litigation the plaintiff, Charles A. Fossum, was the
corresponding value of ten cases of mercerized batiste, including incidental expenses. That when the cases evidenced by resident agent in Manila of the American Iron Products Company, Inc., a concern engaged in business in New York City;
the draft arrived and were examined, they were found to contain "burlap" only which had but little, if any, commercial and on February 10, 1920, the said Fossum, acting as agent of that company, procured an order from Fernandez
value, of which the plaintiff was at once notified, and that the defendant refused to receive the goods. Plaintiff alleges Hermanos, a general commercial partnership engaged in business in the Philippine Islands, to deliver to said firm a tail
that it is the holder of the draft for value and in due course of business. The testimony upon that point is not clear or shaft, to be installed on the ship Romulus, then operated by Fernandez Hermanos, as managers of La Compañía
convincing, and is entitled to but little weight. If it be a fact, as the plaintiff claims, that it was in good faith the purchaser Marítima. It was stipulated that said tail shaft would be in accordance with the specifications contained in a blueprint
of the draft, it would have been a very easy matter to establish that fact by competent evidence, showing the nature of the which had been placed in the hands of Fossum on or about December 18, 1919; and it was further understood that the
transaction in its New York office, when and how it acquired the draft and when and to whom it paid the money and how shaft should be shipped from New York upon some steamer sailing in March or April of the year 1920.
much it paid and by whom it was actually paid. In other words, to give an authentic account of the whole transaction.
There is no such evidence in the record. Upon that point the plaintiff was content to call a local employee of the bank Considerable delay seems to have been encountered in the matter of the manufacture and shipment of the shaft; but in the
who testified as to the alleged meaning of certain entries made in the bank records. Standing alone that is not sufficient or autumn of 1920 it was dispatched to Manila, having arrived in January, 1921. Meanwhile the American Iron Products
competent to show that the bank in New York was the purchaser and holder for value. If it be a fact, as the evidence Company, Inc., had drawn a time draft, at sixty days, upon Fernandez Hermanos, for the purchase price of the shaft, the
tends to show, that the plaintiff is not a bona fide holder of the draft, and that it was held for collection only, it follows same being in the amount of $2,250, and payable to the Philippine National Bank. In due course the draft was presented
that the defendants would have a right to make any defense to the draft which they would have a right to make against to Fernandez Hermanos for acceptance, and was accepted by said firm on December 15, 1920, according to its tenor.
"Snow's, Ltd."
Upon inspection after arrival in Manila the shaft was found not to be in conformity with the specifications and was defenses to which it would have been subject if the paper had never passed through the hands of a holder in due course.
incapable of use for the purpose for which it had been intended. Upon discovering this, Fernandez Hermanos refused to (Kost vs. Bender, 25 Mich., 515; Shade vs. Hayes, L. R. A. [1915D], 271; 8 C. J., 470.) The same is true where the
pay the draft, and it remained for a time dishonored in the hands of the Philippine National Bank in Manila. Later the instrument is retransferred to an agent of the payee (Battersbee vs. Calkins, 128 Mich., 569).
bank indorsed the draft in blank, without consideration, and delivered it to the plaintiff, Charles A. Fossum, who
thereupon instituted the present action on the instrument against the acceptor, Fernandez Hermanos, and the two In Dollarhide vs. Hopkins (72 Ill. App., 509), the plaintiff, as agent of a corporation engaged in manufacturing
individuals named as defendants in the complaint, in the character of members of said partnership.
agricultural implements, sold to the defendant a separator for threshing small grain, with a general warranty that the
machine, properly handled, would thresh and clean grain as well as any other separator of like size. The notes in suit
On the foregoing statement it is evident that the consideration for the draft in question and for the acceptance placed were executed by the defendant in payment of the separator, and were assigned to the plaintiff before maturity. They
thereon by Fernandez Hermanos, has completely failed; and no action whatever can be maintained on the instrument by were then indorsed by the plaintiff to a bank which became holder in due course; but afterwards, and before the
the American Iron Products Company, Inc., or by any other person against whom the defense of failure of consideration commencement of the action, the notes were retransferred by the bank to the plaintiff. In an action upon the notes the
is available. In recognition of this fact, and considering that the plaintiff Fossum, in whose name the action is brought, defendant alleged and proved breach of warranty and showed that the plaintiff knew of the defect in the separator at the
was the individual who had acted for the American Iron Products Company, Inc., in the making of the contract, the trial time he purchased the notes. It was held that the plaintiff could not recover, notwithstanding the fact that the notes had
court held that the action could not be maintained and absolved the defendants from the complaint. From this judgment passed through a bank, in whose hands they would not have been subject to the defense which had been interposed (54 L.
the plaintiff appealed. R. A., 678).

We are of the opinion that the trial judge has committed no error. To begin with, the plaintiff himself is far from being a We find nothing in the Negotiable Instrument Law that would interfere with the application of the doctrine applied in the
holder of this draft in due course. In the fact place, he was himself a party to the contract which supplied the cases above cited, for the rule that identifies the agent with the principal, so far as the legal consequences of certain acts
consideration for the draft, albeit he there acted in a representative capacity. In the second place, he procured the are concerned, is a rule of general jurisprudence that must operate in conjunction with that Law. We consider the
instrument to be indorsed by the bank and delivered to himself without the payment of value, after it was overdue, and situation to be the same in practical effect as if the action had been brought in the name of the American Iron Products
with full notice that, as between the original parties, the consideration had completely failed. Under these circumstance Company, Inc., itself; and the use of the name of Fossum strikes us as a mere attempt at an evasion of the rule of law that
recovery on this draft by the plaintiff by virtue of any merit in his own position is out of the question. His attorney, would have been fatal to the success of an action instituted by that company.
however, calls attention to the familiar rule that a person who is not himself a holder in due course may yet recover
against the person primarily liable where it appears that such holder derives his title through a holder in due course. It appears from statements of Mr. Fossum on the witness stand that the draft in question was indorsed and delivered to
him by the bank in order that suit might be brought thereon in his name for the use and benefit of the bank, which is said
The difficulty of the plaintiff's position from this point of view is that there is not a line of proof in the record tending to to be the real party in interest. In addition to this it appears that during the pendency of the cause in this court on appeal a
show as a fact that the bank itself was ever a holder of this draft in due course. In this connection it was incumbent on the formal transfer, or assignment, to the bank was made by Fossum of all his interest in the draft and in the cause of action.
plaintiff to show, as an independent claims, i.e., the bank, was a holder in due course; and upon this point the plaintiff can
have no assistance from the presumption, expressed in section 59 of the Negotiable Instrument Law, to the effect that Assuming that the suggestion thus made is true, and that the bank is the real party in interest, the result of the lawsuit in
every holder is deemed prima facie to be a holder in due course. The presumption expressed in that section arise only in
this court is not thereby affected, since it has not been affirmatively shown that the bank is an innocent purchaser for
favor of a person who is a holder in the sense defined in section 191 of the same Law, that is, a payee or indorsee who is value. It is therefore unnecessary to discuss the bearing of this circumstance on the second feature to the case discussed in
in possession of the draft, or the bearer thereof. Under this definition, in order to be a holder, one must be in possession
this opinion. For the reasons stated the judgment appealed from must be affirmed, and it is so ordered, with costs against
of the note or the bearer thereof. (Night & Day Bank vs. Rosenbaum, 191 Mo. App., 559, 574.) If this action had been the appellant.
instituted by the bank itself, the presumption that the bank was a holder in due course would have arisen from the tenor of
the draft and the fact that it was in the bank's possession; but when the instrument passed out of the possession of the
bank and into the possession of the present plaintiff, no presumption arises as to the character in which the bank held the
paper. The bank's relation to the instrument became past history when it delivered the document to the plaintiff; and it
was incumbent upon the plaintiff in this action to show that the bank had in fact acquired the instrument for value and G.R. No. 136202             January 25, 2007
under such conditions as would constitute it a holder in due course. In the entire absence of proof on this point, the action
must fail.
BANK OF THE PHILIPPINE ISLANDS, Petitioner,
vs.
There is another circumstance which exerted a decisive influence on the mind of the trial judge in deciding the case for COURT OF APPEALS, ANNABELLE A. SALAZAR, and JULIO R. TEMPLONUEVO, Respondents
the defendants. This is found in the fact that the plaintiff personally made the contract which constituted the consideration
for this draft. He was therefore a party in fact, if not in law, to the transaction giving origin to the instrument; and it is
difficult to see how the plaintiff could strip himself of the character to agent with respect to the origin of the contract and DECISION
maintain this action in his own name where his principal could not. Certainly an agent who actually makes a contract,
and who has notice of all equities emanating therefrom, can stand on no better footing than his principal with respect to AZCUNA, J.:
commercial paper growing out of the transaction. To place him on any higher plane would be incompatible with the
fundamental conception underlying the relation of principal and agent. We note that in the present case there is no proof
that the plaintiff Fossum has ceased to be the agent of the American Iron Products Company, Inc.; and in the absence of This is a petition for review under Rule 45 of the Rules of Court seeking the reversal of the Decision 1 dated April 3,
proof the presumption must be that he still occupies the relation of agent to that company. 1998, and the Resolution2 dated November 9, 1998, of the Court of Appeals in CA-G.R. CV No. 42241.

it is a well-known rule of law that if the original payee of a note unenforceable for lack of consideration repurchase the The facts3 are as follows:
instrument after transferring it to a holder in due course, the paper again becomes subject in the payee's hands to the same
A.A. Salazar Construction and Engineering Services filed an action for a sum of money with damages against herein The counterclaim is hereby ordered DISMISSED for lack of factual basis.
petitioner Bank of the Philippine Islands (BPI) on December 5, 1991 before Branch 156 of the Regional Trial Court
(RTC) of Pasig City. The complaint was later amended by substituting the name of Annabelle A. Salazar as the real party The third-party complaint [filed by petitioner] is hereby likewise ordered DISMISSED for lack of merit.
in interest in place of A.A. Salazar Construction and Engineering Services. Private respondent Salazar prayed for the
recovery of the amount of Two Hundred Sixty-Seven Thousand, Seven Hundred Seven Pesos and Seventy Centavos
(P267,707.70) debited by petitioner BPI from her account. She likewise prayed for damages and attorney’s fees. Third-party defendant’s [i.e., private respondent Templonuevo’s] counterclaim is hereby likewise DISMISSED for lack
of factual basis.
Petitioner BPI, in its answer, alleged that on August 31, 1991, Julio R. Templonuevo, third-party defendant and herein
also a private respondent, demanded from the former payment of the amount of Two Hundred Sixty-Seven Thousand, SO ORDERED.4
Six Hundred Ninety-Two Pesos and Fifty Centavos (P267,692.50) representing the aggregate value of three (3) checks,
which were allegedly payable to him, but which were deposited with the petitioner bank to private respondent Salazar’s On appeal, the Court of Appeals (CA) affirmed the decision of the RTC and held that respondent Salazar was entitled to
account (Account No. 0203-1187-67) without his knowledge and corresponding endorsement. the proceeds of the three (3) checks notwithstanding the lack of endorsement thereon by the payee. The CA concluded
that Salazar and Templonuevo had previously agreed that the checks payable to JRT Construction and Trading 5 actually
Accepting that Templonuevo’s claim was a valid one, petitioner BPI froze Account No. 0201-0588-48 of A.A. Salazar belonged to Salazar and would be deposited to her account, with petitioner acquiescing to the arrangement.6
and Construction and Engineering Services, instead of Account No. 0203-1187-67 where the checks were deposited,
since this account was already closed by private respondent Salazar or had an insufficient balance. Petitioner therefore filed this petition on these grounds:

Private respondent Salazar was advised to settle the matter with Templonuevo but they did not arrive at any settlement. I.
As it appeared that private respondent Salazar was not entitled to the funds represented by the checks which were
deposited and accepted for deposit, petitioner BPI decided to debit the amount of P267,707.70 from her Account No.
0201-0588-48 and the sum of P267,692.50 was paid to Templonuevo by means of a cashier’s check. The difference The Court of Appeals committed reversible error in misinterpreting Section 49 of the Negotiable Instruments Law and
between the value of the checks (P267,692.50) and the amount actually debited from her account (P267,707.70) Section 3 (r and s) of Rule 131 of the New Rules on Evidence.
represented bank charges in connection with the issuance of a cashier’s check to Templonuevo.
II.
In the answer to the third-party complaint, private respondent Templonuevo admitted the payment to him of P267,692.50
and argued that said payment was to correct the malicious deposit made by private respondent Salazar to her private The Court of Appeals committed reversible error in NOT applying the provisions of Articles 22, 1278 and 1290 of the
account, and that petitioner bank’s negligence and tolerance regarding the matter was violative of the primary and Civil Code in favor of BPI.
ordinary rules of banking. He likewise contended that the debiting or taking of the reimbursed amount from the account
of private respondent Salazar by petitioner BPI was a matter exclusively between said parties and may be pursuant to
banking rules and regulations, but did not in any way affect him. The debiting from another account of private respondent III.
Salazar, considering that her other account was effectively closed, was not his concern.
The Court of Appeals committed a reversible error in holding, based on a misapprehension of facts, that the account from
After trial, the RTC rendered a decision, the dispositive portion of which reads thus: which BPI debited the amount of P267,707.70 belonged to a corporation with a separate and distinct personality.

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff [private respondent Salazar] IV.
and against the defendant [petitioner BPI] and ordering the latter to pay as follows:
The Court of Appeals committed a reversible error in holding, based entirely on speculations, surmises or conjectures,
1. The amount of P267,707.70 with 12% interest thereon from September 16, 1991 until the said amount is that there was an agreement between SALAZAR and TEMPLONUEVO that checks payable to TEMPLONUEVO may
fully paid; be deposited by SALAZAR to her personal account and that BPI was privy to this agreement.

2. The amount of P30,000.00 as and for actual damages; V.

3. The amount of P50,000.00 as and for moral damages; The Court of Appeals committed reversible error in holding, based entirely on speculation, surmises or conjectures, that
SALAZAR suffered great damage and prejudice and that her business standing was eroded.

4. The amount of P50,000.00 as and for exemplary damages;

VI.

5. The amount of P30,000.00 as and for attorney’s fees; and

The Court of Appeals erred in affirming instead of reversing the decision of the lower court against BPI and dismissing
SALAZAR’s complaint.
6. Costs of suit.
VII. (2) Solid Bank Check No. CB898978 dated July 31, 1990 in the amount of P55,180.00; and,

The Honorable Court erred in affirming the decision of the lower court dismissing the third-party complaint of BPI.7 (3) Equitable Banking Corporation Check No. 32380638 dated August 28, 1990 for the amount
of P154,800.00;
The issues center on the propriety of the deductions made by petitioner from private respondent Salazar’s account. Stated
otherwise, does a collecting bank, over the objections of its depositor, have the authority to withdraw unilaterally from (b) That these checks which had an aggregate amount of P267,692.50 were payable to the order of JRT
such depositor’s account the amount it had previously paid upon certain unendorsed order instruments deposited by the Construction and Trading, the name and style under which Templonuevo does business;
depositor to another account that she later closed?
(c) That despite the lack of endorsement of the designated payee upon such checks, Salazar was able to deposit
Petitioner argues thus: the checks in her personal savings account with petitioner and encash the same;

1. There is no presumption in law that a check payable to order, when found in the possession of a person who (d) That petitioner accepted and paid the checks on three (3) separate occasions over a span of eight months in
is neither a payee nor the indorsee thereof, has been lawfully transferred for value. Hence, the CA should not 1990; and
have presumed that Salazar was a transferee for value within the contemplation of Section 49 of the
Negotiable Instruments Law,8 as the latter applies only to a holder defined under Section 191of the same.9 (e) That Templonuevo only protested the purportedly unauthorized encashment of the checks after the lapse of
one year from the date of the last check.10
2. Salazar failed to adduce sufficient evidence to prove that her possession of the three checks was lawful
despite her allegations that these checks were deposited pursuant to a prior internal arrangement with Petitioner concedes that when it credited the value of the checks to the account of private respondent Salazar, it made a
Templonuevo and that petitioner was privy to the arrangement.
mistake because it failed to notice the lack of endorsement thereon by the designated payee. The CA, however, did not
lend credence to this claim and concluded that petitioner’s actions were deliberate, in view of its admission that the
3. The CA should have applied the Civil Code provisions on legal compensation because in deducting the "mistake" was committed three times on three separate occasions, indicating acquiescence to the internal arrangement
subject amount from Salazar’s account, petitioner was merely rectifying the undue payment it made upon the between Salazar and Templonuevo. The CA explained thus:
checks and exercising its prerogative to alter or modify an erroneous credit entry in the regular course of its
business.
It was quite apparent that the three checks which appellee Salazar deposited were not indorsed. Three times she deposited
them to her account and three times the amounts borne by these checks were credited to the same. And in those separate
4. The debit of the amount from the account of A.A. Salazar Construction and Engineering Services was occasions, the bank did not return the checks to her so that she could have them indorsed. Neither did the bank question
proper even though the value of the checks had been originally credited to the personal account of Salazar her as to why she was depositing the checks to her account considering that she was not the payee thereof, thus allowing
because A.A. Salazar Construction and Engineering Services, an unincorporated single proprietorship, had no us to come to the conclusion that defendant-appellant BPI was fully aware that the proceeds of the three checks belong to
separate and distinct personality from Salazar. appellee.

5. Assuming the deduction from Salazar’s account was improper, the CA should not have dismissed For if the bank was not privy to the agreement between Salazar and Templonuevo, it is most unlikely that appellant BPI
petitioner’s third-party complaint against Templonuevo because the latter would have the legal duty to return (or any bank for that matter) would have accepted the checks for deposit on three separate times nary any question.
to petitioner the proceeds of the checks which he previously received from it. Banks are most finicky over accepting checks for deposit without the corresponding indorsement by their payee. In fact,
they hesitate to accept indorsed checks for deposit if the depositor is not one they know very well.11
6. There was no factual basis for the award of damages to Salazar.
The CA likewise sustained Salazar’s position that she received the checks from Templonuevo pursuant to an internal
arrangement between them, ratiocinating as follows:
The petition is partly meritorious.

First, the issue raised by petitioner requires an inquiry into the factual findings made by the CA. The CA’s conclusion If there was indeed no arrangement between Templonuevo and the plaintiff over the three questioned checks, it baffles us
why it was only on August 31, 1991 or more than a year after the third and last check was deposited that he demanded for
that the deductions from the bank account of A.A. Salazar Construction and Engineering Services were improper
stemmed from its finding that there was no ineffective payment to Salazar which would call for the exercise of the refund of the total amount of P267,692.50.
petitioner’s right to set off against the former’s bank deposits. This finding, in turn, was drawn from the pleadings of the
parties, the evidence adduced during trial and upon the admissions and stipulations of fact made during the pre-trial, most A prudent man knowing that payment is due him would have demanded payment by his debtor from the moment the
significantly the following: same became due and demandable. More so if the sum involved runs in hundreds of thousand of pesos. By and large,
every person, at the very moment he learns that he was deprived of a thing which rightfully belongs to him, would have
(a) That Salazar previously had in her possession the following checks: created a big fuss. He would not have waited for a year within which to do so. It is most inconceivable that Templonuevo
did not do this.12

(1) Solid Bank Check No. CB766556 dated January 30, 1990 in the amount of P57,712.50;
Generally, only questions of law may be raised in an appeal by certiorari under Rule 45 of the Rules of Court. 13 Factual
findings of the CA are entitled to great weight and respect, especially when the CA affirms the factual findings of the
trial court.14 Such questions on whether certain items of evidence should be accorded probative value or weight, or In State Investment House v. IAC,20 the Court enumerated the effects of crossing a check, thus: (1) that the check may not
rejected as feeble or spurious, or whether or not the proofs on one side or the other are clear and convincing and adequate be encashed but only deposited in the bank; (2) that the check may be negotiated only once - to one who has an account
to establish a proposition in issue, are questions of fact. The same holds true for questions on whether or not the body of with a bank; and (3) that the act of crossing the check serves as a warning to the holder that the check has been issued for
proofs presented by a party, weighed and analyzed in relation to contrary evidence submitted by the adverse party may be a definite purpose so that such holder must inquire if the check has been received pursuant to that purpose.
said to be strong, clear and convincing, or whether or not inconsistencies in the body of proofs of a party are of such
gravity as to justify refusing to give said proofs weight – all these are issues of fact which are not reviewable by the
Thus, even if the delay in the demand for reimbursement is taken in conjunction with Salazar’s possession of the checks,
Court.15 it cannot be said that the presumption of ownership in Templonuevo’s favor as the designated payee therein was
sufficiently overcome. This is consistent with the principle that if instruments payable to named payees or to their order
This rule, however, is not absolute and admits of certain exceptions, namely: a) when the conclusion is a finding have not been indorsed in blank, only such payees or their indorsees can be holders and entitled to receive payment in
grounded entirely on speculations, surmises, or conjectures; b) when the inference made is manifestly mistaken, absurd, their own right.21
or impossible; c) when there is a grave abuse of discretion; d) when the judgment is based on a misapprehension of facts;
e) when the findings of fact are conflicting; f) when the CA, in making its findings, went beyond the issues of the case The presumption under Section 131(s) of the Rules of Court stating that a negotiable instrument was given for a
and the same are contrary to the admissions of both appellant and appellee; g) when the findings of the CA are contrary
sufficient consideration will not inure to the benefit of Salazar because the term "given" does not pertain merely to a
to those of the trial court; h) when the findings of fact are conclusions without citation of specific evidence on which they transfer of physical possession of the instrument. The phrase "given or indorsed" in the context of a negotiable instrument
are based; i) when the finding of fact of the CA is premised on the supposed absence of evidence but is contradicted by
refers to the manner in which such instrument may be negotiated. Negotiable instruments are negotiated by "transfer to
the evidence on record; and j) when the CA manifestly overlooked certain relevant facts not disputed by the parties and one person or another in such a manner as to constitute the transferee the holder thereof. If payable to bearer it is
which, if properly considered, would justify a different conclusion.16
negotiated by delivery. If payable to order it is negotiated by the indorsement completed by delivery." 22 The present case
involves checks payable to order. Not being a payee or indorsee of the checks, private respondent Salazar could not be
In the present case, the records do not support the finding made by the CA and the trial court that a prior arrangement a holder thereof.
existed between Salazar and Templonuevo regarding the transfer of ownership of the checks. This fact is crucial as
Salazar’s entitlement to the value of the instruments is based on the assumption that she is a transferee within the It is an exception to the general rule for a payee of an order instrument to transfer the instrument without indorsement.
contemplation of Section 49 of the Negotiable Instruments Law.
Precisely because the situation is abnormal, it is but fair to the maker and to prior holders to require possessors to prove
without the aid of an initial presumption in their favor, that they came into possession by virtue of a legitimate transaction
Section 49 of the Negotiable Instruments Law contemplates a situation whereby the payee or indorsee delivers a with the last holder.23 Salazar failed to discharge this burden, and the return of the check proceeds to Templonuevo was
negotiable instrument for value without indorsing it, thus: therefore warranted under the circumstances despite the fact that Templonuevo may not have clearly demonstrated that
he never authorized Salazar to deposit the checks or to encash the same. Noteworthy also is the fact that petitioner
stamped on the back of the checks the words: "All prior endorsements and/or lack of endorsements guaranteed," thereby
Transfer without indorsement; effect of- Where the holder of an instrument payable to his order transfers it for value
without indorsing it, the transfer vests in the transferee such title as the transferor had therein, and the transferee acquires making the assurance that it had ascertained the genuineness of all prior endorsements. Having assumed the liability of a
general indorser, petitioner’s liability to the designated payee cannot be denied.
in addition, the right to have the indorsement of the transferor. But for the purpose of determining whether the transferee
is a holder in due course, the negotiation takes effect as of the time when the indorsement is actually made. 17
Consequently, petitioner, as the collecting bank, had the right to debit Salazar’s account for the value of the checks it
previously credited in her favor. It is of no moment that the account debited by petitioner was different from the original
It bears stressing that the above transaction is an equitable assignment and the transferee acquires the instrument subject
to defenses and equities available among prior parties. Thus, if the transferor had legal title, the transferee acquires such account to which the proceeds of the check were credited because both admittedly belonged to Salazar, the former being
the account of the sole proprietorship which had no separate and distinct personality from her, and the latter being her
title and, in addition, the right to have the indorsement of the transferor and also the right, as holder of the legal title, to
maintain legal action against the maker or acceptor or other party liable to the transferor. The underlying premise of this personal account.
provision, however, is that a valid transfer of ownership of the negotiable instrument in question has taken place.
The right of set-off was explained in Associated Bank v. Tan:24
Transferees in this situation do not enjoy the presumption of ownership in favor of holders since they are neither payees
nor indorsees of such instruments. The weight of authority is that the mere possession of a negotiable instrument does not A bank generally has a right of set-off over the deposits therein for the payment of any withdrawals on the part of a
in itself conclusively establish either the right of the possessor to receive payment, or of the right of one who has made depositor. The right of a collecting bank to debit a client's account for the value of a dishonored check that has previously
payment to be discharged from liability. Thus, something more than mere possession by persons who are not payees or been credited has fairly been established by jurisprudence. To begin with, Article 1980 of the Civil Code provides that
indorsers of the instrument is necessary to authorize payment to them in the absence of any other facts from which the "[f]ixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions
authority to receive payment may be inferred.18 concerning simple loan."

The CA and the trial court surmised that the subject checks belonged to private respondent Salazar based on the pre-trial Hence, the relationship between banks and depositors has been held to be that of creditor and debtor. Thus, legal
stipulation that Templonuevo incurred a one-year delay in demanding reimbursement for the proceeds of the same. To compensation under Article 1278 of the Civil Code may take place "when all the requisites mentioned in Article 1279 are
the Court’s mind, however, such period of delay is not of such unreasonable length as to estop Templonuevo from present," as follows:
asserting ownership over the checks especially considering that it was readily apparent on the face of the
instruments19 that these were crossed checks.
(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of
the other;
 (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, These checks, it must be emphasized, were subsequently dishonored, thereby causing private respondent Salazar undue
and also of the same quality if the latter has been stated; embarrassment and inflicting damage to her standing in the business community. Under the circumstances, she was
clearly not given the opportunity to protect her interest when petitioner unilaterally withdrew the above amount from her
account without informing her that it had already done so.
(3) That the two debts be due;

(4) That they be liquidated and demandable; For the above reasons, the Court finds no reason to disturb the award of damages granted by the CA against petitioner.
This whole incident would have been avoided had petitioner adhered to the standard of diligence expected of one
engaged in the banking business. A depositor has the right to recover reasonable moral damages even if the bank’s
(5) That over neither of them there be any retention or controversy, commenced by third persons and negligence may not have been attended with malice and bad faith, if the former suffered mental anguish, serious anxiety,
communicated in due time to the debtor. embarrassment and humiliation.31 Moral damages are not meant to enrich a complainant at the expense of defendant. It is
only intended to alleviate the moral suffering she has undergone. The award of exemplary damages is justified, on the
While, however, it is conceded that petitioner had the right of set-off over the amount it paid to Templonuevo against the other hand, when the acts of the bank are attended by malice, bad faith or gross negligence. The award of reasonable
deposit of Salazar, the issue of whether it acted judiciously is an entirely different matter.25 As businesses affected with attorney’s fees is proper where exemplary damages are awarded. It is proper where depositors are compelled to litigate to
public interest, and because of the nature of their functions, banks are under obligation to treat the accounts of their protect their interest.32
depositors with meticulous care, always having in mind the fiduciary nature of their relationship. 26 In this regard,
petitioner was clearly remiss in its duty to private respondent Salazar as its depositor. WHEREFORE, the petition is partially GRANTED. The assailed Decision dated April 3, 1998 and Resolution dated
April 3, 1998 rendered by the Court of Appeals in CA-G.R. CV No. 42241 are MODIFIED insofar as it ordered
To begin with, the irregularity appeared plainly on the face of the checks. Despite the obvious lack of indorsement petitioner Bank of the Philippine Islands to return the amount of Two Hundred Sixty-seven Thousand Seven Hundred
thereon, petitioner permitted the encashment of these checks three times on three separate occasions. This negates and Seven and 70/100 Pesos (P267,707.70) to respondent Annabelle A. Salazar, which portion is REVERSED and SET
petitioner’s claim that it merely made a mistake in crediting the value of the checks to Salazar’s account and instead ASIDE. In all other respects, the same are AFFIRMED.
bolsters the conclusion of the CA that petitioner recognized Salazar’s claim of ownership of checks and acted
deliberately in paying the same, contrary to ordinary banking policy and practice. It must be emphasized that the law No costs.
imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it, for the purpose of determining
their genuineness and regularity. The collecting bank, being primarily engaged in banking, holds itself out to the public
SO ORDERED.
as the expert on this field, and the law thus holds it to a high standard of conduct. 27 The taking and collection of a check
without the proper indorsement amount to a conversion of the check by the bank.28

More importantly, however, solely upon the prompting of Templonuevo, and with full knowledge of the brewing dispute
between Salazar and Templonuevo, petitioner debited the account held in the name of the sole proprietorship of Salazar
without even serving due notice upon her. This ran contrary to petitioner’s assurances to private respondent Salazar that
the account would remain untouched, pending the resolution of the controversy between her and Templonuevo. 29 In this
connection, the CA cited the letter dated September 5, 1991 of Mr. Manuel Ablan, Senior Manager of petitioner bank’s
Pasig/Ortigas branch, to private respondent Salazar informing her that her account had been frozen, thus:

From the tenor of the letter of Manuel Ablan, it is safe to conclude that Account No. 0201-0588-48 will remain frozen or
untouched until herein [Salazar] has settled matters with Templonuevo. But, in an unexpected move, in less than two
weeks (eleven days to be precise) from the time that letter was written, [petitioner] bank issued a cashier’s check in the
name of Julio R. Templonuevo of the J.R.T. Construction and Trading for the sum of P267,692.50 (Exhibit "8") and
debited said amount from Ms. Arcilla’s account No. 0201-0588-48 which was supposed to be frozen or controlled. Such
a move by BPI is, to Our minds, a clear case of negligence, if not a fraudulent, wanton and reckless disregard of the right
of its depositor.

The records further bear out the fact that respondent Salazar had issued several checks drawn against the account of A.A.
Salazar Construction and Engineering Services prior to any notice of deduction being served. The CA sustained private
respondent Salazar’s claim of damages in this regard:

The act of the bank in freezing and later debiting the amount of P267,692.50 from the account of A.A. Salazar
Construction and Engineering Services caused plaintiff-appellee great damage and prejudice particularly when she had
already issued checks drawn against the said account. As can be expected, the said checks bounced. To prove this,
plaintiff-appellee presented as exhibits photocopies of checks dated September 8, 1991, October 28, 1991, and November
14, 1991 (Exhibits "D", "E" and "F" respectively)30