G.R. No. 125851 July 11, 2006 ALLIED BANKING CORPORATION, petitioner, vs. COURT OF APPEALS, G.G.

SPORTSWEAR MANUFACTURING CORPORATION, NARI GIDWANI, SPOUSES LETICIA AND LEON DE VILLA AND ALCRON INTERNATIONAL LTD., respondents. DECISION QUISUMBING, J.: 1 This petition for review on certiorari assails (a) the July 31, 1996 Decision of the Court of Appeals, ordering respondent G.G. Sportswear Manufacturing Corp. to reimburse petitioner US 2 $20,085; and exonerating the guarantors from liability; and (b) the January 17, 1997 Resolution denying the motion for reconsideration. The facts are undisputed. On January 6, 1981, petitioner Allied Bank, Manila (ALLIED) purchased Export Bill No. BDO-81002 in the amount of US $20,085.00 from respondent G.G. Sportswear Mfg. Corporation (GGS). The bill, drawn under a letter of credit No. BB640549 covered Men's Valvoline Training Suit that was in transit to West Germany (Uniger via Rotterdam) under Cont. #73/S0299. The export bill was issued by Chekiang First Bank Ltd., Hongkong. With the purchase of the bill, ALLIED credited GGS the peso equivalent of the aforementioned bill amounting to P151,474.52 and the receipt of which was acknowledged by the latter in its letter dated June 22, 1981. On the same date, respondents Nari Gidwani and Alcron International Ltd. (Alcron) executed their respective Letters of Guaranty, holding themselves liable on the export bill if it should be dishonored or retired by the drawee for any reason. Subsequently, the spouses Leon and Leticia de Villa and Nari Gidwani also executed a Continuing Guaranty/Comprehensive Surety (surety, for brevity), guaranteeing payment of any and all such credit accommodations which ALLIED may extend to GGS. When ALLIED negotiated the export bill to Chekiang, payment was refused due to some material discrepancies in the documents submitted by GGS relative to the exportation covered by the letter of credit. Consequently, ALLIED demanded payment from all the respondents based on the Letters of Guaranty and Surety executed in favor of ALLIED. However, respondents refused to pay, prompting ALLIED to file an action for a sum of money. In their joint answer, respondents GGS and Nari Gidwani admitted the due execution of the export bill and the Letters of Guaranty in favor of ALLIED, but claimed that they signed blank forms of the Letters of Guaranty and the Surety, and the blanks were only filled up by ALLIED after they had affixed their signatures. They also added that the documents did not cover the transaction involving the subject export bill. On the other hand, the respondents, spouses de Villa, claimed that they were not aware of the existence of the export bill; they signed blank forms of the surety; and averred that the guaranty was not meant to secure the export bill. Respondent Alcron, for its part, alleged that as a foreign corporation doing business in the Philippines, its branch in the Philippines is merely a liaison office confined to the following duties and responsibilities, to wit: acting as a message center between its office in Hongkong and its clients in the Philippines; conducting credit investigations on Filipino clients; and providing its office in Hongkong with shipping arrangements and other details in connection with its office in Hongkong. Respondent Alcron further alleged that neither its liaison office in the Philippines nor its then representative, Hans-Joachim Schloer, had the authority to issue Letters of Guaranty for and in behalf of local entities and persons. It also invoked laches against petitioner ALLIED. GGS and Nari Gidwani filed a Motion for Summary Judgment on the ground that since the plaintiff admitted not having protested the dishonor of the export bill, it thereby discharged

GGS from liability. But the trial court denied the motion. After the presentation of evidence by the petitioner, only the spouses de Villa presented their evidence. The other respondents did not. The trial court dismissed the complaint. On appeal, the Court of Appeals modified the ruling of the trial court holding respondent GGS liable to reimburse petitioner ALLIED the peso equivalent of the export bill, but it exonerated the guarantors from their liabilities under the Letters of Guaranty. The CA decision reads as follows: For the foregoing considerations, appellee GGS is obliged to reimburse appellant Allied Bank the amount of P151,474.52 which was the equivalent of GGS's contracted obligation of US$20,085.00. The lower court however correctly exonerated the guarantors from their liability under their Letters of Guaranty. A guaranty is an accessory contract. What the guarantors guaranteed in the instant case was the bill which had been discharged. Consequently, the guarantors should be correspondingly released. WHEREFORE, judgment is hereby rendered ordering defendant-appellee G.G. Sportswear Mfg. Corporation to pay appellant the sum of P151,474.52 with interest thereon at the legal rate from the filing of the complaint, and the costs. 3 SO ORDERED. The petitioner filed a Motion for Reconsideration, but to no avail. Hence, this appeal, raising a single issue: WHETHER OR NOT RESPONDENTS NARI, DE VILLA AND ALCRON ARE LIABLE UNDER THE LETTERS OF GUARANTY AND THE CONTINUING GUARANTY/ COMPREHENSIVE SURETY NOTWITHSTANDING THE FACT THAT NO PROTEST WAS MADE AFTER THE 4 BILL, A FOREIGN BILL OF EXCHANGE, WAS DISHONORED. The main issue raised before us is: Can respondents, in their capacity as guarantors and surety, be held jointly and severally liable under the Letters of Guaranty and Continuing Guaranty/Comprehensive Surety, in the absence of protest on the bill in accordance with 5 Section 152 of the Negotiable Instruments Law? The petitioner contends that part of the Court of Appeals' decision exonerating respondents Nari Gidwani, Alcron International Ltd., and spouses Leon and Leticia de Villa as guarantors and/or sureties. Respondents rely on Section 152 of the Negotiable Instruments Law to support their contention. Our review of the records shows that what transpired in this case is a discounting arrangement of the subject export bill, between petitioner ALLIED and respondent GGS. Previously, we ruled that in a letter of credit transaction, once the credit is established, the seller ships the goods to the buyer and in the process secures the required shipping documents of title. To get paid, the seller executes a draft and presents it together with the required documents to the issuing bank. The issuing bank redeems the draft and pays cash to the seller if it finds that the documents submitted by the seller conform with what the letter of credit requires. The bank then obtains possession of the documents upon paying the seller. The transaction is completed when the buyer reimburses the issuing bank and acquires the documents entitling him to the 6 goods. However, in most cases, instead of going to the issuing bank to claim payment, the buyer (or the beneficiary of the draft) may approach another bank, termed the negotiating 7 bank, to have the draft discounted. While the negotiating bank owes no contractual duty toward the beneficiary of the draft to discount or purchase it, it may still do so. Nothing can prevent the negotiating bank from requiring additional requirements, like contracts of guaranty and surety, in consideration of the discounting arrangement. In this case, respondent GGS, as the beneficiary of the export bill, instead of going to Chekiang First Bank Ltd. (issuing bank), went to petitioner ALLIED, to have the export bill purchased or

discounted. Before ALLIED agreed to purchase the subject export bill, it required respondents Nari Gidwani and Alcron to execute Letters of Guaranty, holding them liable on demand,in case 8 the subject export bill was dishonored or retired for any reason. Likewise, respondents Nari Gidwani and spouses Leon and Leticia de Villa executed Continuing Guaranty/Comprehensive Surety, holding themselves jointly and severally liable on any and all credit accommodations, instruments, loans, advances, credits and/or other obligation that may 9 be granted by the petitioner ALLIED to respondent GGS. The surety also contained a clause whereby said sureties waive protest and notice of dishonor of any and all such instruments, 10 loans, advances, credits and/or obligations. These letters of guaranty and surety are now the basis of the petitioner's action. At this juncture, we must stress that obligations arising from contracts have the force of law 11 between the parties and should be complied with in good faith. Nothing can stop the parties from establishing stipulations, clauses, terms and conditions as they may deem convenient, 12 provided they are not contrary to law, morals, good customs, public order, or public policy. Here, Art. 2047 of the New Civil Code is pertinent. Art. 2047 states, Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship. In this case, the Letters of Guaranty and Surety clearly show that respondents undertook and bound themselves as guarantors and surety to pay the full amount of the export bill. 13 Respondents claim that the petitioner did not protest upon dishonor of the export bill by Chekiang First Bank, Ltd. According to respondents, since there was no protest made upon dishonor of the export bill, all of them, as indorsers were discharged under Section 152 of the Negotiable Instruments Law. Section 152 of the Negotiable Instruments Law pertaining to indorsers, relied on by respondents, is not pertinent to this case. There are well-defined distinctions between the contract of an indorser and that of a guarantor/surety of a commercial paper, which is what is involved in this case. The contract of indorsement is primarily that of transfer, while the 14 contract of guaranty is that of personal security. The liability of a guarantor/surety is broader than that of an indorser. Unless the bill is promptly presented for payment at maturity and due notice of dishonor given to the indorser within a reasonable time, he will be discharged from 15 liability thereon. On the other hand, except where required by the provisions of the contract 16 of suretyship, a demand or notice of default is not required to fix the surety's liability. He cannot complain that the creditor has not notified him in the absence of a special agreement to 17 that effect in the contract of suretyship. Therefore, no protest on the export bill is necessary to charge all the respondents jointly and severally liable with G.G. Sportswear since the respondents held themselves liable upon demand in case the instrument was dishonored and on the surety, they even waived notice of dishonor as stipulated in their Letters of Guarantee. As to respondent Alcron, it is bound by the Letter of Guaranty executed by its representative Hans-Joachim Schloer. As to the other respondents, not to be overlooked is the fact that, the "Suretyship Agreement" they executed, expressly contemplated a solidary obligation, providing as it did that " the sureties hereby guarantee jointly and severally the punctual payment of any and all such credit accommodations, instruments, loans, which is/are now or may 18 hereafter become due or owing by the borrower". It is a cardinal rule that if the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal 19 meaning of its stipulation shall control. In the present case, there can be no mistaking about

respondents' intent, as sureties, to be jointly and severally obligated with respondent G.G. Sportswear. Respondents also aver that, (1) they only signed said documents in blank; (2) they were never made aware that said documents will cover the payment of the export bill; and (3) laches have set in. Respondents' stance lacks merit. Under Section 3 (d), Rule 131 of the Rules of Court, it is presumed that a person takes ordinary care of his concerns. Hence, the natural presumption is that one does not sign a document without first informing himself of its contents and consequences. Said presumption acquires greater force in the case at bar where not only one document but several documents were executed at different times and at different places by 20 the herein respondent guarantors and sureties. In this case, having affixed their consenting signatures in several documents executed at different times, it is safe to presume that they had full knowledge of its terms and conditions, hence, they are precluded from asserting ignorance of the legal effects of the undertaking they 21 assumed thereunder. It is also presumed that private transactions have been fair and regular and that he who alleges has the burden of proving his allegation with the requisite quantum of 22 evidence. But here the records of this case do not support their claims. Last, we find the defense of laches unavailing. The question of laches is addressed to the sound discretion of the court and since laches is an equitable doctrine, its application is controlled by 23 equitable considerations. Respondents, however, failed to show that the collection suit against them as sureties was inequitable. Remedies in equity address only situations tainted 24 with inequity, not those expressly governed by statutes. After considering the facts of this case vis--vis the pertinent laws, we are constrained to rule for the petitioner. WHEREFORE, the instant petition is GRANTED.The assailed Decision of the Court of Appeals is hereby MODIFIED, and we hold that respondent Alcron International Ltd. is subsidiarily liable, while respondents Nari Gidwani, and Spouses Leon and Leticia de Villa are jointly and severally liable together with G.G. Sportswear, to pay petitioner Bank the sum of P151,474.52 with interest at the legal rate from the filing of the complaint, and the costs. SO ORDERED. G.R. No. 142641 July 17, 2006 PACIFICO B. ARCEO, JR., petitioner, vs. PEOPLE OF THE PHILIPPINES, respondent. DECISION CORONA, J.: 1 This petition for review on certiorari assails the April 28, 1999 decision and March 27, 2000 2 resolution of the Court of Appeals in CA-G.R. CR No. 19601 affirming the trial courts judgment finding petitioner Pacifico B. Arceo, Jr. liable for violation of Batas Pambansa Blg. (BP) 22, otherwise known as the "Bouncing Checks Law." The facts of the case as found by the trial court and adopted by the Court of Appeals follow. On March 14, 1991, [petitioner], obtained a loan from private complainant Josefino Cenizal [] in the amount of P100,000.00. Several weeks thereafter, [petitioner] obtained an additional loan of P50,000.00 from [Cenizal]. [Petitioner] then issued in favor of Cenizal, Bank of the Philippine Islands [(BPI)] Check No. 163255, postdated August 4, 1991, for P150,000.00, at Cenizals house located at 70 Panay Avenue, Quezon City. When August 4, 1991 came, [Cenizal] did not deposit the check immediately because [petitioner] promised [] that he would replace the check with cash. Such promise was made verbally seven (7) times. When his patience ran out,

[Cenizal] brought the check to the bank for encashment. The head office of the Bank of the Philippine Islands through a letter dated December 5, 1991, informed [Cenizal] that the check bounced because of insufficient funds. Thereafter, [Cenizal] went to the house of [petitioner] to inform him of the dishonor of the check but [Cenizal] found out that [petitioner] had left the place. So, [Cenizal] referred the matter to a lawyer who wrote a letter giving [petitioner] three days from receipt thereof to pay the amount of the check. [Petitioner] still failed to make good the amount of the check. As a consequence, [Cenizal] executed on January 20, 1992 before the office of the City Prosecutor of Quezon City his affidavit and submitted documents in support of his complaint for [e]stafa and [v]iolation of [BP 22] against [petitioner]. After due investigation, this case for [v]iolation of [BP 22] was filed against [petitioner] on March 27, 1992. The check in question and the return slip were however lost by [Cenizal] as a result of a fire that occurred near his residence on September 16, 1992. [Cenizal] executed an Affidavit of Loss regarding the loss of the 3 check in question and the return slip. After trial, petitioner was found guilty as charged. Aggrieved, he appealed to the Court of Appeals. However, on April 28, 1999, the appellate court affirmed the trial courts decision in toto. Petitioner sought reconsideration but it was denied. Hence, this petition. Petitioner claims that the trial and appellate courts erred in convicting him despite the failure of the prosecution to present the dishonored check during the trial. He also contends that he should not be held liable for the dishonor of the check because it was presented beyond the 90day period provided under the law. Petitioner further questions his conviction since the notice requirement was not complied with and he was given only three days to pay, not five banking days as required by law. Finally, petitioner asserts that he had already paid his obligation to Cenizal. Petitioners contentions have no merit. Significance of the 90-day Period For Presentment of the Check Petitioner asserts that there was no violation of BP 22 because the check was presented to the drawee bank only on December 5, 1991 or 120 days from the date thereof (August 4, 1991). He argues that this was beyond the 90-day period provided under the law in connection with the presentment of the check. We disagree. Section 1 of BP 22 provides: SECTION 1. Checks without sufficient funds Any person who makes or draws and issues any check to apply on account or for value, knowing at the time of issue that he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment, which check is subsequently dishonored by the drawee bank for insufficiency of funds or credit or would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment, shall be punished by imprisonment of not less than thirty days but not more than one (1) year or by a fine of not less than but not more than double the amount of the check which fine shall in no case exceed Two Hundred Thousand Pesos, or both such fine and imprisonment at the discretion of the court. The same penalty shall be imposed upon any person who, having sufficient funds in or credit with the drawee bank when he makes or draws and issues a check, shall fail to keep sufficient funds or to maintain a credit to cover the full amount of the check if presented within a period of ninety (90) days from the date appearing thereon, for which reason it is dishonored by the drawee bank.

Where the check is drawn by a corporation, company or entity, the person or persons who actually signed the check in behalf of such drawer shall be liable under this Act. 4 In Wong v. Court of Appeals, the Court ruled that the 90-day period provided in the law is not an element of the offense. Neither does it discharge petitioner from his duty to maintain sufficient funds in the account within a reasonable time from the date indicated in the check. According to current banking practice, the reasonable period within which to present a check to the drawee bank is six months. Thereafter, the check becomes stale and the drawer is discharged from liability thereon to the extent of the loss caused by the delay. Thus, Cenizals presentment of the check to the drawee bank 120 days (four months) after its issue was still within the allowable period. Petitioner was freed neither from the obligation to keep sufficient funds in his account nor from liability resulting from the dishonor of the check. Applicability of the Best Evidence Rule Petitioners insistence on the presentation of the check in evidence as a condition sine qua non for conviction under BP 22 is wrong. Petitioner anchors his argument on Rule 130, Section 3, of the Rules of Court, otherwise known as the best evidence rule. However, the rule applies only where the content of the document is the subject of the inquiry. Where the issue is the execution or existence of the document or the circumstances surrounding its execution, the 5 best evidence rule does not apply and testimonial evidence is admissible. 6 The gravamen of the offense is the act of drawing and issuing a worthless check. Hence, the subject of the inquiry is the fact of issuance or execution of the check, not its content. Here, the due execution and existence of the check were sufficiently established. Cenizal testified that he presented the originals of the check, the return slip and other pertinent documents before the Office of the City Prosecutor of Quezon City when he executed his complaint-affidavit during the preliminary investigation. The City Prosecutor found a prima facie case against petitioner for violation of BP 22 and filed the corresponding information based on the documents. Although the check and the return slip were among the documents lost by Cenizal in a fire that occurred near his residence on September 16, 1992, he was nevertheless able to adequately establish the due execution, existence and loss of the check and the return slip in an affidavit of loss as well as in his testimony during the trial of the case. Moreover, petitioner himself admited that he issued the check. He never denied that the check was presented for payment to the drawee bank and was dishonored for having been drawn against insufficient funds. Presence of the Elements of the Offense 7 Based on the allegations in the information, petitioner was charged for violating the first paragraph of BP 22. The elements of the offense are: 1. the making, drawing and issuance of any check to apply to account or for value; 2. knowledge of the maker, drawer, or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of the check in full upon its presentment; and 3. subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit, or dishonor of the check for the same reason had not the drawer, without any 8 valid cause, ordered the bank to stop payment. All these elements are present in this case. Both the trial and appellate courts found that petitioner issued BPI check no. 163255 postdated August 4, 1991 in the amount of P150,000 in consideration of a loan which he obtained from Cenizal. When the check was deposited, it was dishonored by the drawee bank for having been drawn against insufficient funds. There was sufficient evidence on record that petitioner knew

of the insufficiency of his funds in the drawee bank at the time of the issuance of the check. In fact, this was why, on maturity date, he requested the payee not to encash it with the promise that he would replace it with cash. He made this request and assurance seven times but repeatedly failed to make good on his promises despite the repeated accommodation granted him by the payee, Cenizal. Notice of Dishonor to Petitioner And Payment of the Obligation The trial court found that, contrary to petitioners claim, Cenizals counsel had informed petitioner in writing of the checks dishonor and demanded payment of the value of the check. Despite receipt of the notice of dishonor and demand for payment, petitioner still failed to pay the amount of the check. Petitioner cannot claim that he was deprived of the period of five banking days from receipt of 9 notice of dishonor within which to pay the amount of the check. While petitioner may have been given only three days to pay the value of the check, the trial court found that the amount due thereon remained unpaid even after five banking days from his receipt of the notice of dishonor. This negated his claim that he had already paid Cenizal and should therefore be relieved of any liability. Moreover, petitioners claim of payment was nothing more than a mere allegation. He presented no proof to support it. If indeed there was payment, petitioner should have 10 redeemed or taken the check back in the ordinary course of business. Instead, the check remained in the possession of the payee who demanded the satisfaction of petitioners obligation when the check became due as well as when the check was dishonored by the drawee bank. These findings (due notice to petitioner and nonpayment of the obligation) were confirmed by the appellate court. This Court has no reason to rule otherwise. Well-settled is the rule that the factual findings of the trial court, when affirmed by the appellate court, are not to be 11 disturbed. WHEREFORE, the petition is hereby DENIED. The April 28, 1999 decision and March 27, 2000 resolution of the Court of Appeals in CA-G.R. CR No. 19601 are AFFIRMED. Costs against petitioner. SO ORDERED. G.R. No. 101163 January 11, 1993 STATE INVESTMENT HOUSE, INC., petitioner, vs. COURT OF APPEALS and NORA B. MOULIC, respondents. Escober, Alon & Associates for petitioner. Martin D. Pantaleon for private respondents. BELLOSILLO, J.: The liability to a holder in due course of the drawer of checks issued to another merely as security, and the right of a real estate mortgagee after extrajudicial foreclosure to recover the balance of the obligation, are the issues in this Petition for Review of the Decision of respondent Court of Appeals. Private respondent Nora B. Moulic issued to Corazon Victoriano, as security for pieces of jewelry to be sold on commission, two (2) post-dated Equitable Banking Corporation checks in the amount of Fifty Thousand Pesos (P50,000.00) each, one dated 30 August 1979 and the other, 30 September 1979. Thereafter, the payee negotiated the checks to petitioner State Investment House. Inc. (STATE).

MOULIC failed to sell the pieces of jewelry, so she returned them to the payee before maturity of the checks. The checks, however, could no longer be retrieved as they had already been negotiated. Consequently, before their maturity dates, MOULIC withdrew her funds from the drawee bank. Upon presentment for payment, the checks were dishonored for insufficiency of funds. On 20 December 1979, STATE allegedly notified MOULIC of the dishonor of the checks and requested that it be paid in cash instead, although MOULIC avers that no such notice was given her. On 6 October 1983, STATE sued to recover the value of the checks plus attorney's fees and expenses of litigation. In her Answer, MOULIC contends that she incurred no obligation on the checks because the jewelry was never sold and the checks were negotiated without her knowledge and consent. She also instituted a Third-Party Complaint against Corazon Victoriano, who later assumed full responsibility for the checks. On 26 May 1988, the trial court dismissed the Complaint as well as the Third-Party Complaint, and ordered STATE to pay MOULIC P3,000.00 for attorney's fees. STATE elevated the order of dismissal to the Court of Appeals, but the appellate court affirmed the trial court on the ground that the Notice of Dishonor to MOULIC was made beyond the period prescribed by the Negotiable Instruments Law and that even if STATE did serve such notice on MOULIC within the reglementary period it would be of no consequence as the checks should never have been presented for payment. The sale of the jewelry was never effected; the checks, therefore, ceased to serve their purpose as security for the jewelry. We are not persuaded. The negotiability of the checks is not in dispute. Indubitably, they were negotiable. After all, at the pre-trial, the parties agreed to limit the issue to whether or not STATE was a holder of the 1 checks in due course. In this regard, Sec. 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 was previously dishonored, if such was the fact; (c) That he took it in good faith and for value; (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. Culled from the foregoing, a prima facie presumption exists that the holder of a negotiable 2 instrument is a holder in due course. Consequently, the burden of proving that STATE is not a holder in due course lies in the person who disputes the presumption. In this regard, MOULIC failed. The evidence clearly shows that: (a) on their faces the post-dated checks were complete and regular: (b) petitioner bought these checks from the payee, Corazon Victoriano, before their 3 due dates; (c) petitioner took these checks in good faith and for value, albeit at a discounted price; and, (d) petitioner was never informed nor made aware that these checks were merely issued to payee as security and not for value. Consequently, STATE is indeed a holder in due course. As such, it holds the instruments free from any defect of title of prior parties, and from defenses available to prior parties among 4 themselves; STATE may, therefore, enforce full payment of the checks. MOULIC cannot set up against STATE the defense that there was failure or absence of consideration. MOULIC can only invoke this defense against STATE if it was privy to the purpose for which they were issued and therefore is not a holder in due course.

That the post-dated checks were merely issued as security is not a ground for the discharge of the instrument as against a holder in due course. For the only grounds are those outlined in Sec. 119 of the Negotiable Instruments Law: Sec. 119. Instrument; how discharged. A negotiable instrument is discharged: (a) By payment in due course by or on behalf of the principal debtor; (b) By payment in due course by the party accommodated, where the instrument is made or accepted for his accommodation; (c) By the intentional cancellation thereof by the holder; (d) By any other act which will discharge a simple contract for the payment of money; (e) When the principal debtor becomes the holder of the instrument at or after maturity in his own right. Obviously, MOULIC may only invoke paragraphs (c) and (d) as possible grounds for the discharge of the instrument. But, the intentional cancellation contemplated under paragraph 5 (c) is that cancellation effected by destroying the instrument either by tearing it up, burning it, 6 or writing the word "cancelled" on the instrument. The act of destroying the instrument must also be made by the holder of the instrument intentionally. Since MOULIC failed to get back possession of the post-dated checks, the intentional cancellation of the said checks is altogether impossible. On the other hand, the acts which will discharge a simple contract for the payment of money under paragraph (d) are determined by other existing legislations since Sec. 119 does not 7 specify what these acts are, e.g., Art. 1231 of the Civil Code which enumerates the modes of extinguishing obligations. Again, none of the modes outlined therein is applicable in the instant case as Sec. 119 contemplates of a situation where the holder of the instrument is the creditor while its drawer is the debtor. In the present action, the payee, Corazon Victoriano, was no longer MOULIC's creditor at the time the jewelry was returned. Correspondingly, MOULIC may not unilaterally discharge herself from her liability by the mere expediency of withdrawing her funds from the drawee bank. She is thus liable as she has no legal basis to excuse herself from liability on her checks to a holder in due course. Moreover, the fact that STATE failed to give Notice of Dishonor to MOULIC is of no moment. The need for such notice is not absolute; there are exceptions under Sec. 114 of the Negotiable Instruments Law: Sec. 114. When notice need not be given to drawer. Notice of dishonor is not required to be given to the drawer in the following cases: (a) Where the drawer and the drawee are the same person; (b) When the drawee is a fictitious person or a person not having capacity to contract; (c) When the drawer is the person to whom the instrument is presented for payment: (d) Where the drawer has no right to expect or require that the drawee or acceptor will honor the instrument; (e) Where the drawer had countermanded payment. Indeed, MOULIC'S actuations leave much to be desired. She did not retrieve the checks when she returned the jewelry. She simply withdrew her funds from her drawee bank and transferred them to another to protect herself. After withdrawing her funds, she could not have expected her checks to be honored. In other words, she was responsible for the dishonor of her checks, hence, there was no need to serve her Notice of Dishonor, which is simply bringing to the knowledge of the drawer or indorser of the instrument, either verbally or by writing, the fact that a specified instrument, upon proper proceedings taken, has not been accepted or has not 8 been paid, and that the party notified is expected to pay it. In addition, the Negotiable Instruments Law was enacted for the purpose of facilitating, not hindering or hampering transactions in commercial paper. Thus, the said statute should not be

tampered with haphazardly or lightly. Nor should it be brushed aside in order to meet the 9 necessities in a single case. The drawing and negotiation of a check have certain effects aside from the transfer of title or the incurring of liability in regard to the instrument by the transferor. The holder who takes the negotiated paper makes a contract with the parties on the face of the instrument. There is an implied representation that funds or credit are available for the payment of the instrument in 10 the bank upon which it is drawn. Consequently, the withdrawal of the money from the drawee bank to avoid liability on the checks cannot prejudice the rights of holders in due course. In the instant case, such withdrawal renders the drawer, Nora B. Moulic, liable to STATE, a holder in due course of the checks. Under the facts of this case, STATE could not expect payment as MOULIC left no funds with the 11 drawee bank to meet her obligation on the checks, so that Notice of Dishonor would be futile. The Court of Appeals also held that allowing recovery on the checks would constitute unjust enrichment on the part of STATE Investment House, Inc. This is error. The record shows that Mr. Romelito Caoili, an Account Assistant, testified that the obligation of Corazon Victoriano and her husband at the time their property mortgaged to STATE was extrajudicially foreclosed amounted to P1.9 million; the bid price at public auction was only P1 12 million. Thus, the value of the property foreclosed was not even enough to pay the debt in full. Where the proceeds of the sale are insufficient to cover the debt in an extrajudicial foreclosure 13 of mortgage, the mortgagee is entitled to claim the deficiency from the debtor. The step thus taken by the mortgagee-bank in resorting to an extra-judicial foreclosure was merely to find a proceeding for the sale of the property and its action cannot be taken to mean a waiver of its 14 right to demand payment for the whole debt. For, while Act 3135, as amended, does not discuss the mortgagee's right to recover such deficiency, it does not contain any provision either, expressly or impliedly, prohibiting recovery. In this jurisdiction, when the legislature intends to foreclose the right of a creditor to sue for any deficiency resulting from foreclosure of a security given to guarantee an obligation, it so expressly provides. For instance, with 15 respect to pledges, Art. 2115 of the Civil Code does not allow the creditor to recover the deficiency from the sale of the thing pledged. Likewise, in the case of a chattel mortgage, or a thing sold on installment basis, in the event of foreclosure, the vendor "shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the 16 contrary will be void". It is clear then that in the absence of a similar provision in Act No. 3135, as amended, it cannot be concluded that the creditor loses his right recognized by the Rules of Court to take action for the recovery of any unpaid balance on the principal obligation simply because he has chosen to extrajudicially foreclose the real estate mortgage pursuant to a Special Power of Attorney given 17 him by the mortgagor in the contract of mortgage. The filing of the Complaint and the Third-Party Complaint to enforce the checks against MOULIC and the VICTORIANO spouses, respectively, is just another means of recovering the unpaid balance of the debt of the VICTORIANOs. In fine, MOULIC, as drawer, is liable for the value of the checks she issued to the holder in due course, STATE, without prejudice to any action for recompense she may pursue against the VICTORIANOs as Third-Party Defendants who had already been declared as in default. WHEREFORE, the petition is GRANTED. The decision appealed from is REVERSED and a new one entered declaring private respondent NORA B. MOULIC liable to petitioner STATE INVESTMENT HOUSE, INC., for the value of EBC Checks Nos. 30089658 and 30089660 in the total amount of P100,000.00, P3,000.00 as attorney's fees, and the costs of suit, without prejudice to any action for recompense she may pursue against the VICTORIANOs as Third-Party Defendants.

Costs against private respondent. SO ORDERED. G.R. No. 117857 February 2, 2001 LUIS S. WONG, petitioner, vs. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents. QUISUMBING, J.: For review on certiorari is the decision dated October 28, 1994 of the Court of Appeals in C.A. 1 G.R. CR 11856 which affirmed the decision of the Regional Trial Court of Cebu City, Branch 17, convicting petitioner on three (3) counts of Batas Pambansa Blg. 22 (the Bouncing Checks Law) violations, and sentencing him to imprisonment of four (4) months for each count, and to pay private respondent the amounts of P5,500.00, P6,410.00 and P3,375.00, respectively, corresponding to the value of the checks involved, with the legal rate of interest from the time of filing of the criminal charges, as well as to pay the costs.1wphi1.nt The factual antecedents of the case are as follows: Petitioner Wong was an agent of Limtong Press. Inc. (LPI), a manufacturer of calendars. LPI would print sample calendars, then give them to agents to present to customers. The agents would get the purchase orders of customers and forward them to LPI. After printing the calendars, LPI would ship the calendars directly to the customers. Thereafter, the agents would come around to collect the payments. Petitioner, however, had a history of unremitted 2 collections, which he duly acknowledged in a confirmation receipt he co-signed with his wife. Hence, petitioners customers were required to issue postdated checks before LPI would accept their purchase orders. In early December 1985, Wong issued six (6) postdated checks totaling P18,025.00, all dated December 30, 1985 and drawn payable to the order of LPI, as follows: (1) Allied Banking Corporation (ABC) Check No. 660143464-C for P6,410.00 (Exh. "B"); (2) ABC Check No. 660143460-C for P540.00 (Exh. "C"); (3) ABC Check No. PA660143451-C for P5,500.00 (Exh. "D"); (4) ABC Check No. PA660143465-C for P1,100.00 (Exh. "E"); (5) ABC Check No. PA660143463-C for P3,375.00 (Exh. "F"); (6) ABC Check No. PA660143452-C for P1,100.00 (Exh. "G"). These checks were initially intended to guarantee the calendar orders of customers who failed to issue post-dated checks. However, following company policy, LPI refused to accept the checks as guarantees. Instead, the parties agreed to apply the checks to the payment of 3 petitioners unremitted collections for 1984 amounting to P18,077.07. LPI waived the P52.07 difference. Before the maturity of the checks, petitioner prevailed upon LPI not to deposit the checks and promised to replace them within 30 days. However, petitioner reneged on his promise. Hence, on June 5, 1986, LPI deposited the checks with Rizal Commercial Banking Corporation (RCBC). The checks were returned for the reason "account closed." The dishonor of the checks was evidenced by the RCBC return slip. On June 20, 1986, complainant through counsel notified the petitioner of the dishonor. Petitioner failed to make arrangements for payment within five (5) banking days. 4 On November 6, 1987, petitioner was charged with three (3) counts of violation of B.P. Blg. 22 under three separate Informations for the three checks amounting to P5,500.00, P3,375.00, 5 and P6,410.00. 6 The Information in Criminal Case No. CBU-12055 reads as follows: th That on or about the 30 day of December, 1985 and for sometime subsequent thereto, in the City of Cebu, Philippines, and within the jurisdiction of this Honorable

Court, the said accused, knowing at the time of issue of the check she/he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment, with deliberate intent, with intent of gain and of causing damage, did then and there issue, make or draw Allied Banking Corporation Check No. 660143451 dated 12-30-85 in the amount of P5,500.00 payable to Manuel T. Limtong which check was issued in payment of an obligation of said accused, but when the said check was presented with said bank, the same was dishonored for reason ACCOUNT CLOSED and despite notice and demands made to redeem or make good said check, said accused failed and refused, and up to the present time still fails and refuses to do so, to the damage and prejudice of said Manuel T. Limtong in the amount of P5,500.00 Philippine Currency. Contrary to law. Petitioner was similarly charged in Criminal Case No. 12057 for ABC Check No. 660143463 in the amount of P3,375.00, and in Criminal Case No. 12058 for ABC Check No. 660143464 for P6,410.00. Both cases were raffled to the same trial court. Upon arraignment, Wong pleaded not guilty. Trial ensued. Manuel T. Limtong, general manager of LPI, testified on behalf of the company, Limtong averred that he refused to accept the personal checks of petitioner since it was against company policy to accept personal checks from agents. Hence, he and petitioner simply agreed to use the checks to pay petitioners unremitted collections to LPI. According to Limtong, a few days before maturity of the checks, Wong requested him to defer the deposit of said checks for lack of funds. Wong promised to replace them within thirty days, but failed to do so. Hence, upon advice of counsel, he deposited the checks which were subsequently returned on the ground of "account closed." The version of the defense is that petitioner issued the six (6) checks to guarantee the 1985 calendar bookings of his customers. According to petitioner, he issued the checks not as payment for any obligation, but to guarantee the orders of his customers. In fact, the face value of the six (6) postdated checks tallied with the total amount of the calendar orders of the six (6) customers of the accused, namely, Golden Friendship Supermarket, Inc. (P6,410.00), New Society Rice and Corn Mill (P5,500.00), Cuesta Enterprises (P540.00), Pelrico Marketing (P1,100.00), New Asia Restaurant P3,375.00), and New China Restaurant (P1,100.00). Although these customers had already paid their respective orders, petitioner claimed LPI did not return the said checks to him. 7 On August 30, 1990, the trial court issued its decision, disposing as follows: "Wherefore, premises considered, this Court finds the accused Luis S. Wong GUILTY beyond reasonable doubt of the offense of Violations of Section 1 of Batas Pambansa Bilang 22 in THREE (3) Counts and is hereby sentenced to serve an imprisonment of FOUR (4) MONTHS for each count; to pay Private Complainant Manuel T. Limtong the sums of Five Thousand Five Hundred (P5,500.00) Pesos, Six Thousand Four Hundred Ten (P6,410.00) Pesos and Three Thousand Three Hundred Seventy-Five (P3,375.00) Pesos corresponding to the amounts indicated in Allied Banking Checks Nos. 660143451, 66[0]143464 and 660143463 all issued on December 30, 1985 together with the legal rate of interest from the time of the filing of the criminal charges in 8 Court and pay the costs." Petitioner appealed his conviction to the Court of Appeals. On October 28, 1994, it affirmed the 9 trial courts decision in toto. 10 11 Hence, the present petition. Petitioner raises the following questions of law May a complainant successfully prosecute a case under BP 22 --- if there is no more consideration or price or value ever the binding tie that it is in contracts in general

and in negotiable instruments in particular behind the checks? if even before he deposits the checks, he has ceased to be a holder for value because the purchase orders (POs) guaranteed by the checks were already paid? Given the fact that the checks lost their reason for being, as above stated, is it not then the duty of complainant knowing he is no longer a holder for value to return the checks and not to deposit them ever? Upon what legal basis then may such a holder deposit them and get paid twice? Is petitioner, as the drawer of the guarantee checks which lost their reason for being, still bound under BP 22 to maintain his account long after 90 days from maturity of the checks? May the prosecution apply the prima facie presumption of "knowledge of lack of funds" against the drawer if the checks were belatedly deposited by the complainant 157 days after maturity, or will it be then necessary for the prosecution to show actual proof of "lack of funds" during the 90-day term? Petitioner insists that the checks were issued as guarantees for the 1985 purchase orders (POs) of his customers. He contends that private respondent is not a "holder for value" considering that the checks were deposited by private respondent after the customers already paid their orders. Instead of depositing the checks, private respondent should have returned the checks to him. Petitioner further assails the credibility of complainant considering that his answers to cross-examination questions included: "I cannot recall, anymore" and "We have no more record." 12 In his Comment, the Solicitor General concedes that the checks might have been initially intended by petitioner to guarantee payments due from customers, but upon the refusal of LPI to accept said personal checks per company policy, the parties had agreed that the checks would be used to pay off petitioners unremitted collections. Petitioners contention that he did not demand the return of the checks because he trusted LPIs good faith is contrary to human nature and sound business practice, according to the Solicitor General. The issue as to whether the checks were issued merely as guarantee or for payment of petitioners unremitted collections is a factual issue involving as it does the credibility of witnesses. Said factual issue has been settled by the trial court and Court of Appeals. Although initially intended to be used as guarantee for the purchase orders of customers, they found the checks were eventually used to settle the remaining obligations of petitioner with LPI. Although Manuel Limtong was the sole witness for the prosecution, his testimony was found sufficient to 13 prove all the elements of the offense charged. We find no cogent reason to depart from findings of both the trial and appellate courts. In cases elevated from the Court of Appeals, our review is confined to allege errors of law. Its findings of fact are generally conclusive. Absent any showing that the findings by the respondent court are entirely devoid of any substantiation 14 on record, the same must stand. The lack of accounting between the parties is not the issue in 15 this case. As repeatedly held, this Court is not a trier of facts. Moreover, in Llamado v. Court of 16 Appeals, we held that "[t]o determine the reason for which checks are issued, or the terms and conditions for their issuance, will greatly erode the faith the public reposes in the stability and commercial value of checks as currency substitutes, and bring about havoc in trade and in banking communities. So what the law punishes is the issuance of a bouncing check and not the purpose for which it was issued nor the terms and conditions relating to its issuance. The mere act of issuing a worthless check is malum prohibitum." Nothing herein persuades us to hold otherwise. The only issue for our resolution now is whether or not the prosecution was able to establish beyond reasonable doubt all the elements of the offense penalized under B.P. Blg. 22.

There are two (2) ways of violating B.P. Blg. 22: (1) by making or drawing and issuing a check to apply on account or for value knowing at the time of issue that the check is not sufficiently funded; and (2) by having sufficient funds in or credit with the drawee bank at the time of issue but failing to keep sufficient funds therein or credit with said bank to cover the full amount of 17 the check when presented to the drawee bank within a period of ninety (90) days. 18 The elements of B.P. Blg. 22 under the first situation, pertinent to the present case, are: "(1) The making, drawing and issuance of any check to apply for account or for value; (2) The knowledge of the maker, drawer, or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment; and (3) The subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment." Petitioner contends that the first element does not exist because the checks were not issued to apply for account or for value. He attempts to distinguish his situation from the usual "cut-anddried" B.P. 22 case by claiming that the checks were issued as guarantee and the obligations they were supposed to guarantee were already paid. This flawed argument has no factual basis, the RTC and CA having both ruled that the checks were in payment for unremitted collections, and not as guarantee. Likewise, the argument has no legal basis, for what B.P. Blg. 22 punishes is the issuance of a bouncing check and not the purpose for which it was issued nor the terms 19 and conditions relating to its issuance. As to the second element, B.P. Blg. 22 creates a presumption juris tantum that the second 20 element prima facie exists when the first and third elements of the offense are present. Thus, 21 the makers knowledge is presumed from the dishonor of the check for insufficiency of funds. Petitioner avers that since the complainant deposited the checks on June 5, 1986, or 157 days after the December 30, 1985 maturity date, the presumption of knowledge of lack of funds under Section 2 of B.P. Blg. 22 should not apply to him. He further claims that he should not be expected to keep his bank account active and funded beyond the ninety-day period. Section 2 of B.P. Blg. 22 provides: Evidence of knowledge of insufficient funds. The making, drawing and issuance of a check payment of which is refused by the drawee because of insufficient funds in or credit with such bank, when presented within ninety (90) days from the date of the check, shall be prima facie evidence of knowledge of such insufficiency of funds or credit unless such maker or drawer pays the holder thereof the amount due thereon, or makes arrangements for payment in full by the drawee of such check within five (5) banking days after receiving notice that such check has not been paid by the drawee. An essential element of the offense is "knowledge" on the part of the maker or drawer of the check of the insufficiency of his funds in or credit with the bank to cover the check upon its presentment. Since this involves a state of mind difficult to establish, the statute itself creates a prima facie presumption of such knowledge where payment of the check "is refused by the drawee because of insufficient funds in or credit with such bank when presented within ninety (90) days from the date of the check." To mitigate the harshness of the law in its application, the statute provides that such presumption shall not arise if within five (5) banking days from receipt of the notice of dishonor, the maker or drawer makes arrangements for payment of the 22 check by the bank or pays the holder the amount of the check. Contrary to petitioners assertions, nowhere in said provision does the law require a maker to maintain funds in his bank account for only 90 days. Rather, the clear import of the law is to establish a prima facie presumption of knowledge of such insufficiency of funds under the

following conditions (1) presentment within 90 days from date of the check, and (2) the dishonor of the check and failure of the maker to make arrangements for payment in full within 5 banking days after notice thereof. That the check must be deposited within ninety (90) days is simply one of the conditions for the prima facie presumption of knowledge of lack of funds to arise. It is not an element of the offense. Neither does it discharge petitioner from his duty to maintain sufficient funds in the account within a reasonable time thereof. Under Section 186 of the Negotiable Instruments Law, "a check must be presented for payment within a reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay." By current banking practice, a check becomes stale after more than 23 six (6) months, or 180 days. Private respondent herein deposited the checks 157 days after the date of the check. Hence said checks cannot be considered stale. Only the presumption of knowledge of insufficiency of funds was lost, but such knowledge could still be proven by direct or circumstantial evidence. As found by the trial court, private respondent did not deposit the checks because of the reassurance of petitioner that he would issue new checks. Upon his failure to do so, LPI was constrained to deposit the said checks. After the checks were dishonored, petitioner was duly notified of such fact but failed to make arrangements for full payment within five (5) banking days thereof. There is, on record, sufficient evidence that petitioner had knowledge of the insufficiency of his funds in or credit with the drawee bank at the time of issuance of the checks. And despite petitioners insistent plea of innocence, we find no error in the respondent courts affirmance of his conviction by the trial court for violations of the Bouncing Checks Law. However, pursuant to the policy guidelines in Administrative Circular No. 12-2000, which took effect on November 21, 2000, the penalty imposed on petitioner should now be modified to a fine of not less than but not more than double the amount of the checks that were dishonored. WHEREFORE, the petition is DENIED. Petitioner Luis S. Wong is found liable for violation of Batas Pambansa Blg. 22 but the penalty imposed on him is hereby MODIFIED so that the sentence of imprisonment is deleted. Petitioner is ORDERED to pay a FINE of (1) P6,750.00, equivalent to double the amount of the check involved in Criminal Case No. CBU-12057, (2) P12,820.00, equivalent to double the amount of the check involved in Criminal Case No. CBU12058, and (3) P11,000.00, equivalent to double the amount of the check involved in Criminal 24 Case No. CBU-12055, with subsidiary imprisonment in case of insolvency to pay the aforesaid fines. Finally, as civil indemnity, petitioner is also ordered to pay to LPI the face value of said checks totaling P18,025.00 with legal interest thereon from the time of filing the criminal charges in court, as well as to pay the costs.1wphi1.nt SO ORDERED. [G.R. No. 141968. February 12, 2001] THE INTERNATIONAL CORPORATE BANK (now UNION BANK OF THE PHILIPPINES), petitioner, vs. SPS. FRANCIS S. GUECO and MA. LUZ E. GUECO, respondents. DECISION KAPUNAN, J.: The respondents Gueco Spouses obtained a loan from petitioner International Corporate Bank (now Union Bank of the Philippines) to purchase a car a Nissan Sentra 1600 4DR, 1989 Model. In consideration thereof, the Spouses executed promissory notes which were payable in monthly installments and chattel mortgage over the car to serve as security for the notes. The Spouses defaulted in payment of installments. Consequently, the Bank filed on August 7, 1995 a civil action docketed as Civil Case No. 658-95 for Sum of Money with Prayer for a Writ of Replevini[1] before the Metropolitan Trial Court of Pasay City, Branch 45.ii[2] On August 25, 1995, Dr. Francis Gueco was served summons and was fetched by the sheriff and representative of the bank for a meeting in the bank premises. Desi Tomas, the Banks

Assistant Vice President demanded payment of the amount of P184,000.00 which represents the unpaid balance for the car loan. After some negotiations and computation, the amount was lowered to P154,000.00, However, as a result of the non-payment of the reduced amount on that date, the car was detained inside the banks compound. On August 28, 1995, Dr. Gueco went to the bank and talked with its Administrative Support, Auto Loans/Credit Card Collection Head, Jefferson Rivera. The negotiations resulted in the further reduction of the outstanding loan to P150,000.00. On August 29, 1995, Dr. Gueco delivered a managers check in the amount of P150,000.00 but the car was not released because of his refusal to sign the Joint Motion to Dismiss. It is the contention of the Gueco spouses and their counsel that Dr. Gueco need not sign the motion for joint dismissal considering that they had not yet filed their Answer. Petitioner, however, insisted that the joint motion to dismiss is standard operating procedure in their bank to effect a compromise and to preclude future filing of claims, counterclaims or suits for damages. After several demand letters and meetings with bank representatives, the respondents Gueco spouses initiated a civil action for damages before the Metropolitan Trial Court of Quezon City, Branch 33. The Metropolitan Trial Court dismissed the complaint for lack of merit.iii[3] On appeal to the Regional Trial Court, Branch 227 of Quezon City, the decision of the Metropolitan Trial Court was reversed. In its decision, the RTC held that there was a meeting of the minds between the parties as to the reduction of the amount of indebtedness and the release of the car but said agreement did not include the signing of the joint motion to dismiss as a condition sine qua non for the effectivity of the compromise. The court further ordered the bank: 1. to return immediately the subject car to the appellants in good working condition; Appellee may deposit the Managers check the proceeds of which have long been under the control of the issuing bank in favor of the appellee since its issuance, whereas the funds have long been paid by appellants to secure said Managers Check, over which appellants have no control; 2. to pay the appellants the sum of P50,000.00 as moral damages; P25,000.00 as exemplary damages, and P25,000.00 as attorneys fees, and 3. to pay the cost of suit. In other respect, the decision of the Metropolitan Trial Court Branch 33 is hereby AFFIRMED.iv[4] The case was elevated to the Court of Appeals, which on February 17, 2000, issued the assailed decision, the decretal portion of which reads: WHEREFORE, premises considered, the petition for review on certiorari is hereby DENIED and the Decision of the Regional Trial Court of Quezon City, Branch 227, in Civil Case No. Q-9731176, for lack of any reversible error, is AFFIRMED in toto. Costs against petitioner. SO ORDERED.v[5] The Court of Appeals essentially relied on the respect accorded to the finality of the findings of facts by the lower court and on the latter's finding of the existence of fraud which constitutes the basis for the award of damages. The petitioner comes to this Court by way of petition for review on certiorari under Rule 45 of the Rules of Court, raising the following assigned errors: I THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO AGREEMENT WITH RESPECT TO THE EXECUTION OF THE JOINT MOTION TO DISMISS AS A CONDITION FOR THE COMPROMISE AGREEMENT. II THE COURT OF APPEALS ERRED IN GRANTING MORAL AND EXEMPLARY DAMAGES AND ATTORNEYS FEES IN FAVOR OF THE RESPONDENTS.

III THE COURT OF APPEALS ERRED IN HOLDING THAT THE PETITIONER RETURN THE SUBJECT CAR TO THE RESPONDENTS, WITHOUT MAKING ANY PROVISION FOR THE ISSUANCE OF THE NEW MANAGERS/CASHIERS CHECK BY THE RESPONDENTS IN FAVOR OF THE PETITIONER IN LIEU OF THE ORIGINAL CASHIERS CHECK THAT ALREADY BECAME STALE.vi[6] As to the first issue, we find for the respondents. The issue as to what constitutes the terms of the oral compromise or any subsequent novation is a question of fact that was resolved by the Regional Trial Court and the Court of Appeals in favor of respondents. It is well settled that the findings of fact of the lower court, especially when affirmed by the Court of Appeals, are binding upon this Court.vii[7] While there are exceptions to this rule,viii[8] the present case does not fall under any one of them, the petitioners claim to the contrary, notwithstanding. Being an affirmative allegation, petitioner has the burden of evidence to prove his claim that the oral compromise entered into by the parties on August 28, 1995 included the stipulation that the parties would jointly file a motion to dismiss. This petitioner failed to do. Notably, even the Metropolitan Trial Court, while ruling in favor of the petitioner and thereby dismissing the complaint, did not make a factual finding that the compromise agreement included the condition of the signing of a joint motion to dismiss. The Court of Appeals made the factual findings in this wise: In support of its claim, petitioner presented the testimony of Mr. Jefferson Rivera who related that respondent Dr. Gueco was aware that the signing of the draft of the Joint Motion to Dismiss was one of the conditions set by the bank for the acceptance of the reduced amount of indebtedness and the release of the car. (TSN, October 23, 1996, pp. 17-21, Rollo, pp. 18, 5). Respondents, however, maintained that no such condition was ever discussed during their meeting of August 28, 1995 (Rollo, p. 32). The trial court, whose factual findings are entitled to respect since it has the o pportunity to directly observe the witnesses and to determine by their demeanor on the stand the probative value of their testimonies (People vs. Yadao, et al. 216 SCRA 1, 7 *1992+), failed to make a categorical finding on the issue. In dismissing the claim of damages of the respondents, it merely observed that respondents are not entitled to indemnity since it was their unjustified reluctance to sign of the Joint Motion to Dismiss that delayed the release of the car. The trial court opined, thus: As regards the third issue, plaintiffs claim for damages is unavailing. First, the plaintiffs could have avoided the renting of another car and could have avoided this litigation had he signed the Joint Motion to Dismiss. While it is true that herein defendant can unilaterally dismiss the case for collection of sum of money with replevin, it is equally true that there is nothing wrong for the plaintiff to affix his signature in the Joint Motion to Dismiss, for after all, the dismissal of the case against him is for his own good and benefit. In fact, the signing of the Joint Motion to Dismiss gives the plaintiff three (3) advantages. First, he will recover his car. Second, he will pay his obligation to the bank on its reduced amount of P150,000.00 instead of its original claim of P184,985.09. And third, the case against him will be dismissed. Plaintiffs, likewise, are not entitled to the award of moral damages and exemplary damages as there is no showing that the defendant bank acted fraudulently or in bad faith. (Rollo, p. 15) The Court has noted, however, that the trial court, in its findings of facts, clearly indicated that the agreement of the parties on August 28, 1995 was merely for the lowering of the price, hence xxx On August 28, 1995, bank representative Jefferson Rivera and plaintiff entered into an oral compromise agreement, whereby the original claim of the bank of P184,985.09 was reduced to P150,000.00 and that upon payment of which,

plaintiff was informed that the subject motor vehicle would be released to him. (Rollo, p. 12) The lower court, on the other hand, expressly made a finding that petitioner failed to include the aforesaid signing of the Joint Motion to Dismiss as part of the agreement. In dismissing petitioners claim, the lower court declared, thus: If it is true, as the appellees allege, that the signing of the joint motion was a condition sine qua non for the reduction of the appellants obligation, it is only reasonable and logical to assume that the joint motion should have been shown to Dr. Gueco in the August 28, 1995 meeting. Why Dr. Gueco was not given a copy of the joint motion that day of August 28, 1995, for his family or legal counsel to see to be brought signed, together with the P150,000.00 in managers check form to be submitted on the following day on August 29, 1995? (sic) [I]s a question whereby the answer up to now eludes this Courts comprehension. The appellees would like this Court to believe that Dr. Gueco was informed by Mr. Rivera of the bank requirement of signing the joint motion on August 28, 1995 but he did not bother to show a copy thereof to his family or legal counsel that day August 28, 1995. This part of the theory of appellee is too complicated for any simple oral agreement. The idea of a Joint Motion to Dismiss being signed as a condition to the pushing through a deal surfaced only on August 29, 1995. This Court is not convinced by the appellees posturing. Such claim rests on too slender a frame, being inconsistent with human experience. Considering the effect of the signing of the Joint Motion to Dismiss on the appellants substantive right, it is more in accord with human experience to expect Dr. Gueco, upon being shown the Joint Motion to Dismiss, to refuse to pay the Managers Check and for the bank to refuse to accept the manager's check. The only logical explanation for this inaction is that Dr. Gueco was not shown the Joint Motion to Dismiss in the meeting of August 28, 1995, bolstering his claim that its signing was never put into consideration in reaching a compromise. xxx.ix[9] We see no reason to reverse. Anent the issue of award of damages, we find the claim of petitioner meritorious. In finding the petitioner liable for damages, both the Regional Trial Court and the Court of Appeals ruled that there was fraud on the part of the petitioner. The CA thus declared: The lower court's finding of fraud which became the basis of the award of damages was likewise sufficiently proven. Fraud under Article 1170 of the Civil Code of the Philippines, as amended is the deliberate and intentional evasion of the normal fulfillment of obligation When petitioner refused to release the car despite respondent's tender of payment in the form of a manager's check, the former intentionally evaded its obligation and thereby became liable for moral and exemplary damages, as well as attorneys fees.x[10] We disagree. Fraud has been defined as the deliberate intention to cause damage or prejudice. It is the voluntary execution of a wrongful act, or a willful omission, knowing and intending the effects which naturally and necessarily arise from such act or omission; the fraud referred to in Article 1170 of the Civil Code is the deliberate and intentional evasion of the normal fulfillment of obligation.xi[11] We fail to see how the act of the petitioner bank in requiring the respondent to sign the joint motion to dismiss could constitute as fraud. True, petitioner may have been remiss in informing Dr. Gueco that the signing of a joint motion to dismiss is a standard operating procedure of petitioner bank. However, this can not in anyway have prejudiced Dr. Gueco. The motion to dismiss was in fact also for the benefit of Dr. Gueco, as the case filed by petitioner against it before the lower court would be dismissed with prejudice. The whole point of the parties entering into the compromise agreement was in order that Dr. Gueco would pay his outstanding account and in return petitioner would return the car and drop the case for money and replevin before the Metropolitan Trial Court. The joint motion to dismiss was but a

natural consequence of the compromise agreement and simply stated that Dr. Gueco had fully settled his obligation, hence, the dismissal of the case. Petitioner's act of requiring Dr. Gueco to sign the joint motion to dismiss can not be said to be a deliberate attempt on the part of petitioner to renege on the compromise agreement of the parties. It should, likewise, be noted that in cases of breach of contract, moral damages may only be awarded when the breach was attended by fraud or bad faith.xii[12] The law presumes good faith. Dr. Gueco failed to present an iota of evidence to overcome this presumption. In fact, the act of petitioner bank in lowering the debt of Dr. Gueco from P184,000.00 to P150,000.00 is indicative of its good faith and sincere desire to settle the case. If respondent did suffer any damage, as a result of the withholding of his car by petitioner, he has only himself to blame. Necessarily, the claim for exemplary damages must fail. In no way, may the conduct of petitioner be characterized as wanton, fraudulent, reckless, oppressive or malevolent.xiii[13] We, likewise, find for the petitioner with respect to the third assigned error. In the meeting of August 29, 1995, respondent Dr. Gueco delivered a managers check representing the reduced amount of P150,000.00. Said check was given to Mr. Rivera, a representative of respondent bank. However, since Dr. Gueco refused to sign the joint motion to dismiss, he was made to execute a statement to the effect that he was withholding the payment of the check.xiv[14]Subsequently, in a letter addressed to Ms. Desi Tomas, vice president of the bank, dated September 4, 1995, Dr. Gueco instructed the bank to disregard the hold order letter and demanded the immediate release of his car,xv[15] to which the former replied that the condition of signing the joint motion to dismiss must be satisfied and that they had kept the check which could be claimed by Dr. Gueco anytime.xvi[16] While there is controversy as to whether the document evidencing the order to hold payment of the check was formally offered as evidence by petitioners,xvii[17] it appears from the pleadings that said check has not been encashed. The decision of the Regional Trial Court, which was affirmed in toto by the Court of Appeals, orders the petitioner: 1. to return immediately the subject car to the appellants in good working condition. Appellee may deposit the Managers Check the proceeds of which have long been under the control of the issuing bank in favor of the appellee since its issuance, whereas the funds have long been paid by appellants to secure said Managers Check over which appellants have no control.xviii[18] Respondents would make us hold that petitioner should return the car or its value and that the latter, because of its own negligence, should suffer the loss occasioned by the fact that the check had become stale.xix*19+ It is their position that delivery of the managers check produced the effect of paymentxx[20] and, thus, petitioner was negligent in opting not to deposit or use said check. Rudimentary sense of justice and fair play would not countenance respondents position. A stale check is one which has not been presented for payment within a reasonable time after its issue. It is valueless and, therefore, should not be paid. Under the negotiable instruments law, an instrument not payable on demand must be presented for payment on the day it falls due. When the instrument is payable on demand, presentment must be made within a reasonable time after its issue. In the case of a bill of exchange, presentment is sufficient if made within a reasonable time after the last negotiation thereof.xxi[21] A check must be presented for payment within a reasonable time after its issue,xxii[22] and in determining what is a reasonable time, regard is to be had to the nature of the instrument, the usage of trade or business with respect to such instruments, and the facts of the particular case.xxiii[23] The test is whether the payee employed such diligence as a prudent man exercises in his own affairs.xxiv[24] This is because the nature and theory behind the use of a

check points to its immediate use and payability. In a case, a check payable on demand which was long overdue by about two and a half (2-1/2) years was considered a stale check.xxv[25] Failure of a payee to encash a check for more than ten (10) years undoubtedly resulted in the check becoming stale.xxvi[26] Thus, even a delay of one (1) weekxxvii[27] or two (2) days,xxviii[28] under the specific circumstances of the cited cases constituted unreasonable time as a matter of law. In the case at bar, however, the check involved is not an ordinary bill of exchange but a managers check. A managers check is one drawn by the banks manager upon the bank itself. It is similar to a cashiers check both as to effect and use. A cashiers check is a check of the banks cashier on his own or another check. In effect, it is a bill of exchange drawn by the cashier of a bank upon the bank itself, and accepted in advance by the act of its issuance.xxix*29+ It is really the banks own check and may be treated as a promissory note with the bank as a maker.xxx[30] The check becomes the primary obligation of the bank which issues it and constitutes its written promise to pay upon demand. The mere issuance of it is considered an acceptance thereof. If treated as promissory note, the drawer would be the maker and in which case the holder need not prove presentment for payment or present the bill to the drawee for acceptance.xxxi[31] Even assuming that presentment is needed, failure to present for payment within a reasonable time will result to the discharge of the drawer only to the extent of the loss caused by the delay.xxxii[32] Failure to present on time, thus, does not totally wipe out all liability. In fact, the legal situation amounts to an acknowledgment of liability in the sum stated in the check. In this case, the Gueco spouses have not alleged, much less shown that they or the bank which issued the managers check has suffered damage or loss caused by the delay or non-presentment. Definitely, the original obligation to pay certainly has not been erased. It has been held that, if the check had become stale, it becomes imperative that the circumstances that caused its non-presentment be determined.xxxiii[33] In the case at bar, there is no doubt that the petitioner bank held on the check and refused to encash the same because of the controversy surrounding the signing of the joint motion to dismiss. We see no bad faith or negligence in this position taken by the Bank. WHEREFORE, premises considered, the petition for review is given due course. The decision of the Court of Appeals affirming the decision of the Regional Trial Court is SET ASIDE. Respondents are further ordered to pay the original obligation amounting to P150,000.00 to the petitioner upon surrender or cancellation of the managers check in the latters possession, afterwhich, petitioner is to return the subject motor vehicle in good working condition. SO ORDERED.