FIRST DIVISION

[G.R. No. L-31831. April 28, 1983.]

JESUS PINEDA, petitioner, vs. JOSE V. DELA RAMA and COURT OF APPEALS,
respondent.
Rosauro Alvarez for petitioner.
Arturo Zialcita for respondents.
SYLLABUS
1.
COMMERCIAL LAW; NEGOTIABLE. INSTRUMENTS LAW; SECTION 24;
CONSIDERATION; PRESUMPTION THAT NEGOTIABLE INSTRUMENT IS ISSUED FOR
VALID CONSIDERATION IS ONLY PRIMA FACIE. The Court of Appeals' reliance on Section
24 of the Negotiable Instruments Law is misplaced. The presumption that a negotiable
instrument is issued for a valuable consideration is only prima facie. It can be rebutted by proof
to the contrary.
2.
CIVIL LAW; CONTRACTS; VOID CONTRACT; PROMISSORY NOTE EXECUTED FOR
AN ILLEGAL CONSIDERATION. The consideration for the promissory note to influence
public officers in the performance of their duties is contrary to law and public policy. The
promissory note is void ab initio and no cause of action for the collection cases can arise from it.
DECISION
GUTIERREZ, JR., J p:
This is a petition to review on certiorari a decision of the Court of Appeals which declared
petitioner Jesus Pineda liable on his promissory note for P9,300.00 and directed him to pay
attorney's fees of P400.00 to private respondent, Jose V. dela Rama.
Dela Rama is a practicing lawyer whose services were retained by Pineda for the purpose of
making representations with the chairman and general manager of the National Rice and Corn
Administration (NARIC) to stop or delay the institution of criminal charges against Pineda who
allegedly misappropriated 11,000 cavans of palay deposited at his ricemill in Concepcion,
Tarlac. The NARIC general manager was allegedly an intimate friend of Dela Rama. prcd
According to Dela Rama, petitioner Pineda has used up all his funds to buy a big hacienda in
Mindoro and, therefore, borrowed the P9,300.00 subject of his complaint for collection. In
addition to filing the suit to collect the loan evidenced by the matured promissory note, Dela
Rama also sued to collect P5,000.00 attorney's fees for legal services rendered as Pineda's
counsel in the case being investigated by NARIC.
The Court of First Instance of Manila decided Civil Case No. 45762 in favor of petitioner Pineda.
The court believed the evidence of Pineda that he signed the promissory note for P9,300.00
only because Dela Rama had told him that this amount had already been advanced to grease

the palms of the Chairman and General Manager of NARIC in order to save Pineda from
criminal prosecution.
The court stated:
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". . . The Court, after hearing the testimonies of the witnesses and examining the exhibits in
question, finds that Exhibit A proves that the defendant himself did not receive the amount
stated therein, because according to said exhibit that amount was advanced by the plaintiff in
connection with the defendant's case, entirely contradicting the testimony of the plaintiff himself,
who stated in open Court that he gave the amount in cash in two installments to the defendant.
The Court is more inclined to believe the contents of Exhibit A, than the testimony of the plaintiff.
On this particular matter, the defendant has established that the plaintiff made him believe that
he was giving money to the authorities of the NARIC to grease their palms to suspend the
prosecution of the defendant, but the defendant, upon inquiry, found out that none of the
authorities has received that amount, and there was no case that was ever contemplated to be
filed against him. It clearly follows, therefore, that the amount involved in this Exhibit A was
imaginary. It was given to the defendant, not to somebody else. The purpose for which the
amount was intended was illegal.
"However, the Court believes that plaintiff was able to get from the defendant the amount of
P3,000.00 on October 7, as shown by the check issued by the defendant, Exhibit 2, and the
letter, Exhibit 7, was antedated October 6, as per plaintiff's wishes to show that defendant was
indebted for P3,000.00 when, as a matter of fact, such amount was produced in order to grease
the palms of the NARIC officials for withholding an imaginary criminal case. Such amount was
never given to such officials nor was there any contemplated case against the defendant. The
purpose for which such amount was intended was indeed illegal."
The trial court rendered judgment as follows:
"WHEREFORE, the Court finds by a preponderance of evidence that the amount of P9,300.00
evidenced by Exhibit A was not received by the defendant, nor given to any party for the
defendant's benefit. Consequently, the plaintiff has no right to recover said amount. The amount
of P3,000.00 was given by the defendant to grease the palms of the NARIC officials. The
purpose was illegal, null and void. Besides, it was not given at all, nor was it true that there was
a contemplated case against the defendant. Such amount should he returned to the defendant.
The services rendered by the plaintiff to the defendant is worth only P400.00, taking into
consideration that the plaintiff received an air-conditioner and six sacks of rice. The court orders
that the plaintiff should return to the defendant the amount of P3,000.00, minus P400.00 plus
costs."
The Court of Appeals reversed the decision of the trial court on a finding that Pineda, being a
person of more than average intelligence, astute in business, and wise in the ways of men
would not "sign any document or paper with his name unless he was fully aware of the contents
and important thereof, knowing as he must have known that the language and practices of

business and of trade and commerce call to account every careless or thoughtless word or
deed."
The appellate court stated:
"No rule is more fundamental and by men of honor and goodwill more dearly cherished, than
that which declares that obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith. Corollary to and in furtherance of
this principle, Section 24 of the Negotiable Instruments Law (Act No. 2031) explicitly provides
that every negotiable instrument is deemed prima facie to have been issued for a valuable
consideration, and every person whose signature appears thereon to have become a party
thereto for value."
We find this petition meritorious.
The Court of Appeals relied on the efficacy of the promissory note for its decision, citing Section
24 of the Negotiable Instruments Law which reads:
SECTION 24. Presumption of consideration. Every negotiable instrument is deemed prima
facie to have been issued for a valuable consideration and every person whose signature
appears thereon to have become a party thereto for value."
The Court of Appeals' reliance on the above provision is misplaced. The presumption that a
negotiable instrument is issued for a valuable consideration is only prima facie. It can be
rebutted by proof to the contrary. (Bank of the Philippine Islands v. Laguna Coconut Oil Co. et
al., 48 Phil. 5)."
According to Dela Rama, he loaned the P9,300.00 to Pineda in two installments on two
occasions five days apart first loan for P5,000.00 and second loan for P4,300.00, both given
in cash. He also alleged that previously he loaned P3,000.00 but Pineda paid this other loan two
days afterward.
These allegations of Dela Rama are belied by the promissory note itself. The second sentence
of the note reads "This represents the cash advances made by him in connection with my
case for which he is my attorney-in-law."
The terms of the note sustain the version of Pineda that he signed the P9,300.00 promissory
note because he believed Dela Rama's story that these amounts had already been advanced
by Dela Rama and given as gifts for NARIC officials.
Dela Rama himself admits that Pineda engaged his services to delay by one month the filing of
the NARIC case against Pineda while the latter was trying to work out an amicable settlement.
There is no question that Dela Rama was indeed a close friend of then NARIC Administrator
Jose Rodriguez having worked with him in the Philippine consulate at Hongkong and that Dela
Rama made what he calls "proper representations" with Rodriguez and with other NARIC
officials in connection with the investigation of the criminal charges against Pineda. Cdpr

We agree with the trial court which believed Pineda. It is indeed unusual for a lawyer to lend
money to his client whom he had known for only three months, with no security for the loan and
on interest. Dela Rama testified that he did not even know what Pineda was going to do with the
money he borrowed from him. The petitioner had just purchased a hacienda in Mindoro for
P210,000.00, owned sugar and rice lands in Tarlac of around 800 hectares, and had
P60,000.00 deposits in three banks when he executed the note. It is more logical to believe that
Pineda would not borrow P5,000.00 and P4,300.00 five days apart from a man whom he calls a
"fixer" and whom he had known for only three months.
There is no dispute that an air-conditioning unit valued at P1,250.00 was purchased by Pineda's
son and given to Dela Rama although the latter claims he paid P1,250.00 for the unit when he
received it. Pineda, however, alleged that he gave the air-conditioning unit because Dela Rama
told him that Dr. Rodriguez was asking for one air-conditioning machine of 1.5 horsepower for
the latter's NARIC office. Pineda further testified that six cavans of first class rice also intended
for the NARIC Chairman and General Manager, together with the air-conditioning unit, never
reached Dr. Rodriguez but were kept by the lawyer.
Considering the foregoing, we agree with the trial court that the promissory note was executed
for an illegal consideration. Articles 1409 and 1412 of the Civil Code in part, provide:
Art. 1409.

The following contracts are inexistent and void from the beginning:

(1)
Those whose cause, object or purpose is contrary to law, morals, good customs, public
order and public policy;
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Art. 1412.
If the act in which the unlawful or forbidden cause consists does not constitute a
criminal offense, the following rules shall be observed:
(1)
When the fault is on the part of both contracting parties, neither may recover what he
has given by virtue of the contract, or demand the performance of the other's undertaking.
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Whether or not the supposed cash advances reached their destination is of no moment. The
consideration for the promissory note to influence public officers in the performance of their
duties is contrary to law and public policy. The promissory note is void ab initio and no cause
of action for the collection cases can arise from it. cdrep
WHEREFORE, the decision of the Court of Appeals is SET ASIDE, The complaint and the
counterclaim in Civil Case No. 45762 are both DISMISSED.
SO ORDERED.
Teehankee (Chairman), Melencio-Herrera, Plana, Vasquez and Relova, JJ., concur.
EN BANC

[G.R. No. L-26767. February 22, 1968.]

ANG TIONG, plaintiff-appellee, vs. LORENZO TING, doing business under the name &
style of PRUNES PRESERVES MFG., & FELIPE ANG, defendants, FELIPE ANG,
defendant-appellant.
Chipeco & Alcaraz, Jr. for plaintiff-appellee.
Ang, Atienza & Tabora for defendant-appellant.
SYLLABUS
1.
NEGOTIABLE INSTRUMENTS LAW; CHECKS; GENERAL INDORSER, DEFINED. A
bank check is indisputably a negotiable instrument and should be governed solely by the
Negotiable Instruments Law (see secs. 1 and 15). Section 63 of the Negotiable Instruments Law
makes "a person placing his signature upon an instrument otherwise than as maker, drawer or
acceptor" a general indorser "unless he clearly indicates by appropriate words his intention to
be bound in some other capacity." Section 66 of the same law ordains that "every indorser who
indorses without qualification, warrants to all subsequent holders in due course" (a) that the
instrument is genuine and in all respects what it purports to be; (b) that he has a good title to it;
(c) that all prior parties have capacity to contract; and (d) that the instrument is at the time of his
indorsement valid and subsisting. In addition "he engages that on due presentment, it shall be
accepted or paid or both, as the case may be, and if it be dishonored, he will pay the amount
thereof to the holder."
2.
ID.; ID.; LIABILITIES OF AN ACCOMMODATION PARTY. Section 29 of the
Negotiable Instruments Law by clear mandate makes the accommodation party "liable on the
instrument to a holder for value, notwithstanding that such holder at the time of taking the
instrument knew him to be only an accommodation party". It is not a valid defense that the
accommodation party did not receive any valuable consideration when he executed the
instrument. It is not correct to say that the holder for value is not a holder in due course merely
because at the time he acquired the instrument, he knew that the indorser was only an
accommodation party.
DECISION
CASTRO, J p:
On August 15, 1960 Lorenzo Ting issued Philippine Bank of Communications check K-81618,
for the sum of P4,000, payable to "cash or bearer". With Felipe Ang's signature (indorsement in
blank) at the back thereof, the instrument was received by the plaintiff Ang Tiong who thereafter
presented it to the drawee bank for payment. The bank dishonored it. The plaintiff then made
written demands on both Lorenzo Ting and Felipe Ang that they make good the amount
represented by the check. These demands went unheeded; so he filed in the municipal court of
Manila an action for collection of the sum of P4,000, plus P500 attorney's fees. On March 6,
1962 the municipal court adjudged for the plaintiff against the two defendants.

Only Felipe Ang appealed to the Court of First Instance of Manila (civil case 50018), which
rendered judgment on July 31, 1962, amended by an order dated August 9, 1962, directing him
to pay to the plaintiff "the sum of P4,000, with interest at the legal rate from the date of the filing
of the complaint, a further sum of P400 as attorney's fees, and costs."
Felipe Ang then elevated the case to the Court of Appeals, which certified it to this Court
because the issues raised are purely of law.
The appellant imputes to the court a quo three errors, namely, (1) that it refused to apply article
2071 of the new Civil Code to the case at bar; (2) that it adjudged him a general indorser under
the Negotiable Instruments Law (Act 2031); and (3) that it held that he "cannot obtain his
release from the contract of suretyship or obtain security to protect himself against any
proceedings on the part of the creditor and against the danger of insolvency of the principal
debtor," because he is "jointly and severally liable on the instrument."
This appeal is absolutely without merit.
1.
The genuineness and due execution of the instrument are not controverted. That the
appellee is a holder thereof for value is admitted.
Having arisen from a bank check which is indisputably a negotiable instrument, the present
case is, therefore, in so far as the indorsee is concerned vis-a-vis the indorser, governed solely
by the Negotiable Instruments Law (see secs. 1 and 185). Article 2071 of the new Civil Code,
invoked by the appellant, the pertinent portion of which states, "The guarantor, even before
having paid, may proceed against the principal debtor: (1) when he is sued for the payment; . . .
the action of the guarantor is to obtain release from the guaranty, to demand a security that shall
protect him from any proceedings by the creditor . . .," is here completely irrelevant and can
have no application whatsoever.
We are in agreement with the trial judge that nothing in the check in question indicates that the
appellant is not a general indorser within the purview of section 63 of the Negotiable
Instruments Law which makes "a person placing his signature upon an instrument otherwise
than as maker, drawer or acceptor" a general indorser, "unless he clearly indicates by
appropriate words his intention to be bound in some other capacity," which he did not do. And
section 66 ordains that "every indorser who indorses without qualifications, warrants to all
subsequent holders in due course" (a) that the instrument is genuine and in all respects what it
purports to be; (b) that he has a good title to it; (c) that all prior parties have capacity to contract;
and (d) that the instrument is at the time of his indorsement valid and subsisting. In addition, "he
engages that on due presentment, it shall be accepted or paid, or both, as the case may be, and
that if it be dishonored, he will pay the amount thereof to the holder." 1
2.
Even on the assumption that the appellant is a mere accommodation party, as he
professes to be, he is nevertheless, by the clear mandate of section 29 of the Negotiable
Instruments Law, yet "liable on the instrument to a holder for value, notwithstanding that such
holder at the time of taking the instrument knew him to be only an accommodation party." To
paraphrase, the accommodation party is liable to a holder for value as if the contract was not for

accommodation. It is not a valid defense that the accommodation party did not receive any
valuable consideration when he executed the instrument. Nor is it correct to say that the holder
for value is not a holder in due course merely because at the time he acquired the instrument he
knew that the indorser was only an accommodation party. 2
3.
That the appellant, again assuming him to be an accommodation indorser, may obtain
security from the maker to protect himself against the danger of insolvency of the latter, cannot
in any manner affect his liability to the appellee, as the said remedy is a matter of concern
exclusively between accommodation indorser and accommodated party. So that the fact that the
appellant stands only as a surety in relation to the maker, granting this to be true for the sake of
argument, is immaterial to the claim of the appellee, and does not a whit diminish nor defeat the
rights of the latter who is a holder for value. The liability of the appellant remains primary and
unconditional. To sanction the appellant's theory is to give unwarranted legal recognition to the
patent absurdity of a situation where an indorser, when sued on an instrument by a holder in
due course and for value, can escape liability on his indorsement by the convenient expedient of
interposing the defense that he is a mere accommodation indorser.
Accordingly, the judgment a quo is affirmed in toto, at appellant's cost.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez, Angeles
and Fernando, JJ., concur.
THIRD DIVISION
[G.R. No. 56169. June 26, 1992.]
TRAVEL-ON, INC., petitioner, vs. COURT OF APPEALS and ARTURO S. MIRANDA,
respondents.
Eladio B. Samson for petitioner.
Benjamin Bernardino & Associates Law Offices for private respondent.
SYLLABUS
1.
COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS LAW; PRESUMPTION OF
CONSIDERATION; RULE. It is important to stress that a check which is regular on its face is
deemed prima facie to have been issued for a valuable consideration and every person whose
signature appears thereon is deemed to have become a party thereto for value. Thus, the mere
introduction of the instrument sued on in evidence prima facie entitles the plaintiff to recovery.
Further, the rule is quite settled that a negotiable instrument is presumed to have been given or
indorsed for a sufficient consideration unless otherwise contradicted and overcome by other
competent evidence.
2.
ID.; ID.; ID.; BURDEN OF PROOF TO REBUT THEREOF; LIES WITH THE DRAWER;
CASE AT BAR. In the case at bar, the Court of Appeals, contrary to these established rules,
placed the burden of proving the existence of valuable consideration upon petitioner. This
cannot be countenanced; it was up to private respondent to show that he had indeed issued the

checks without sufficient consideration. The Court considers that private respondent was unable
to rebut satisfactorily this legal presumption. It must also be noted that those checks were
issued immediately after a letter demanding payment had been sent to private respondent by
petitioner Travel-On.
3.
ID.; ID.; ACCOMMODATION TRANSACTION; NOT ESTABLISHED IN CASE AT BAR;
REASONS THEREFOR. We are unable to accept the Court of Appeals' conclusion that the
checks here involved were issued for "accommodation" and that accordingly private respondent
maker of those checks was not liable thereon to petitioner payee of those checks. In the first
place, while the Negotiable Instruments Law does refer to accommodation transactions, no such
transaction was here shown. In accommodation transactions recognized by the Negotiable
Instruments Law, an accommodating party lends his credit to the accommodated party, by
issuing or indorsing a check which is held by a payee or indorsee as a holder in due course,
who gave full value therefor to the accommodated party. The latter, in other words, receives or
realizes full value which the accommodated party then must repay to the accommodating party,
unless of course the accommodating party intended to make a donation to the accommodated
party. But the accommodating party is bound on the check to the holder in due course who is
necessarily a third party and is not the accommodated party. Having issued or indorsed the
check, the accommodating party has warranted to the holder in due course that he will pay the
same according to its tenor.
4.
ID.; ID.; ID.; LIABILITY OF DRAWER IN THE ABSENCE OF PROOF THEREOF; CASE
AT BAR. In the case at bar, Travel-On was payee of all six (6) checks; it presented these
checks for payment at the drawee bank but the checks bounced. Travel-On obviously was not
an accommodated party; it realized no value on the checks which bounced. Travel-On was
entitled to the benefit of the statutory presumption that it was a holder in due course, that the
checks were supported by valuable consideration. Private respondent maker of the checks did
not successfully rebut these presumptions. The only evidence aliunde that private respondent
offered was his own self-serving uncorroborated testimony. He claimed that he had issued the
checks to Travel-On as payee to "accommodate" its General Manager who allegedly wished to
show those checks to the Board of Directors of Travel-On to "prove" the Travel-On's account
receivable were somehow "still good." It will be seen that this claim was in fact a claim that the
checks were merely simulated, that private respondent did not intend to bind himself thereon.
Only evidence of the clearest and most convincing kind will suffice for that purpose; no such
evidence was submitted by private respondent. The latter's explanation, was denied by TravelOn's General Manager; that explanation in any case, appears merely contrived and quite hollow
to us. Upon the other hand, the accommodation" or assistance extended to Travel-On's
passengers abroad as testified by petitioner's General Manager involved, not the
accommodation transactions recognized by the NIL, but rather the circumvention of them
existing foreign exchange regulations by passengers booked by Travel-On, which incidentally
involved receipt of full consideration by private respondent. Thus, we believe and so hold that
private respondent must be held liable on the six (6) checks here involved. Those checks in
themselves constituted evidence of indebtedness of private respondent, evidence not
successfully overturned or rebutted by private respondent.

5.
CIVIL LAW; MORAL DAMAGES; AWARD THEREOF, NOT PROPER IN THE ABSENCE
OF BAD FAITH. The award of moral damages to private respondent must be set aside, for
the reason that petitioner's application for the writ of attachment rested on sufficient basis and
no bad faith was shown on the part of Travel-On. If anyone was in bad faith, it was private
respondent who issued bad checks and then pretended to have "accommodated" petitioner's
General Manager by assisting her in a supposed scheme to deceive petitioner's Board of
Directors and to misrepresent Travel-On's financial condition.
RESOLUTION
FELICIANO, J p:
Petitioner Travel-On, Inc. ("Travel-On") is a travel agency selling airline tickets on commission
basis for and in behalf of different airline companies. Private respondent Arturo S. Miranda had
a revolving credit line with petitioner. He procured tickets from petitioner on behalf of airline
passengers and derived commissions therefrom.
On 14 June 1972, Travel-On filed suit before the Court of First Instance ("CFI") of Manila to
collect on six (6) checks issued by private respondent with a total face amount of P115,000.00.
The complaint, with a prayer for the issuance of a writ of preliminary attachment and attorney's
fees, averred that from 5 August 1969 to 16 January 1970, petitioner sold and delivered various
airline tickets to respondent at a total price of P278,201.57; that to settle said account, private
respondent paid various amounts in cash and in kind, and thereafter issued six (6) postdated
checks amounting to P115,000.00 which were all dishonored by the drawee banks. Travel-On
further alleged that in March 1972, private respondent made another payment of P10,000.00
reducing his indebtedness to P105,000.00. The writ of attachment was granted by the court a
quo. Cdpr
In his answer, private respondent admitted having had transactions with Travel-On during the
period stipulated in the complaint. Private respondent, however, claimed that he had already
fully paid and even overpaid his obligations and that refunds were in fact due to him. He argued
that he had issued the postdated checks for purposes of accommodation, as he had in the past
accorded similar favors to petitioner. During the proceedings, private respondent contested
several tickets alleged to have been erroneously debited to his account. He claimed
reimbursement of his alleged overpayments, plus litigation expenses, and exemplary and moral
damages by reason of the allegedly improper attachment of his properties.
In support of his theory that the checks were issued for accommodation, private respondent
testified that he had issued the checks in the name of Travel-On in order that its General
Manager, Elita Montilla, could show to Travel-On's Board of Directors that the accounts
receivable of the company were still good. He further stated that Elita Montilla tried to encash
the same, but that these were dishonored and were subsequently returned to him after the
accommodation purpose had been attained.
Travel-On's witness, Elita Montilla, on the other hand explained that the "accommodation"
extended to Travel-On by private respondent related to situations where one or more of its

passengers needed money in Hongkong, and upon request of Travel-On respondent would
contact his friends in Hongkong to advance Hongkong money to the passenger. The passenger
then paid Travel-On upon his return to Manila and which payment would be credited by TravelOn to respondent's running account with it.
In its decision dated 31 January 1975, the court a quo ordered Travel-On to pay private
respondent the amount of P8,894.91 representing net overpayments by private respondent,
moral damages of P10,000.00 for the wrongful issuance of the writ of attachment and for the
filing of this case, P5,000.00 for attorney's fees and the costs of the suit.
The trial court ruled that private respondent's indebtedness to petitioner was not satisfactorily
established and that the postdated checks were issued not for the purpose of encashment to
pay his indebtedness but to accommodate the General Manager of Travel-On to enable her to
show to the Board of Directors that Travel-On was financially stable.
Petitioner filed a motion for reconsideration that was, however, denied by the trial court, which in
fact then increased the award of moral damages to P50,000.00. prLL
On appeal, the Court of Appeals affirmed the decision of the trial court, but reduced the award of
moral damages to P20,000.00, with interest at the legal rate from the date of the filing of the
Answer on 28 August 1972.
Petitioner moved for reconsideration of the Court of Appeals' decision, without success.
In the instant Petition for Review, it is urged that the postdated checks are per se evidence of
liability on the part of private respondent. Petitioner further argues that even assuming that the
checks were for accommodation, private respondent is still liable thereunder considering that
petitioner is a holder for value.
Both the trial and appellate courts had rejected the checks as evidence of indebtedness on the
ground that the various statements of account prepared by petitioner did not show that private
respondent had an outstanding balance of P115,000.00 which is the total amount of the checks
he issued. It was pointed out that while the various exhibits of petitioner showed various
accountabilities of private respondent, they did not satisfactorily establish the amount of the
outstanding indebtedness of private respondent. The appellate court made much of the fact that
the figures representing private respondent's unpaid accounts found in the "Schedule of
Outstanding Account" dated 31 January 1970 did not tally with the figures found in the
statement which showed private respondent's transactions with petitioner for the years 1969
and 1970; that there was no satisfactory explanation as to why the total outstanding amount of
P278,432.74 was still used as basis in the accounting of 7 April 1972 considering that according
to the table of transactions for the year 1969 and 1970, the total unpaid account of private
respondent amounted to P239,794.57.
We have, however, examined the record and it shows that the 7 April 1972 Statement of
Account had simply not been updated; that if we use as basis the figure as of 31 January 1970
which is P278,432.74 and from it deduct P38,638.17 which represents some of the payments
subsequently made by private respondent, the figure P239,794.57 will be obtained. LLjur

Also, the fact alone that the various statements of account had variances in figures, simply did
not mean that private respondent had no more financial obligations to petitioner. It must be
stressed that private respondent's account with petitioner was a running or open one, which
explains the varying figures in each of the statements rendered as of a given date.
The appellate court erred in considering only the statements of account in determining whether
private respondent was indebted to petitioner under the checks. By doing so, it failed to give due
importance to the most telling piece of evidence of private respondent's indebtedness the
checks themselves which he had issued.
Contrary to the view held by the Court of Appeals, this Court finds that the checks are the all
important evidence of petitioner's case; that these checks clearly established private
respondent's indebtedness to petitioner; that private respondent was liable thereunder.
It is important to stress that a check which is regular on its face is deemed prima facie to have
been issued for a valuable consideration and every person whose signature appears thereon is
deemed to have become a party thereto for value.
1 Thus, the mere introduction of the
instrument sued on in evidence prima facie entitles the plaintiff to recovery. Further, the rule is
quite settled that a negotiable instrument is presumed to have been given or indorsed for a
sufficient consideration unless otherwise contradicted and overcome by other competent
evidence. 2
In the case at bar, the Court of Appeals, contrary to these established rules, placed the burden
of proving the existence of valuable consideration upon petitioner. This cannot be
countenanced; it was up to private respondent to show that he had indeed issued the checks
without sufficient consideration. The Court considers that private respondent was unable to
rebut satisfactorily this legal presumption. It must also be noted that those checks were issued
immediately after a letter demanding payment had been sent to private respondent by petitioner
Travel-On.
The fact that all the checks issued by private respondent to petitioner were presented for
payment by the latter would lead to no other conclusion than that these checks were intended
for encashment. There is nothing in the checks themselves (or in any other document for that
matter) that states otherwise.
We are unable to accept the Court of Appeals' conclusion that the checks here involved were
issued for "accommodation" and that accordingly private respondent maker of those checks was
not liable thereon to petitioner payee of those checks.
In the first place, while the Negotiable Instruments Law does refer to accommodation
transactions, no such transaction was here shown. Section 29 of the Negotiable Instruments
Law provides as follows:
"Section 29. Liability of accommodation party. An accommodation party is one who has
signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor,
and for the purpose of lending his name to some other person. 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.
In accommodation transactions recognized by the Negotiable Instruments Law, an
accommodating party lends his credit to the accommodated party, by issuing or indorsing a
check which is held by a payee or indorsee as a holder in due course, who gave full value
therefor to the accommodated party. The latter, in other words, receives or realizes full value
which the accommodated party then must repay to the accommodating party, unless of course
the accommodating party intended to make a donation to the accommodated party. But the
accommodating party is bound on the check to the holder in due course who is necessarily a
third party and is not the accommodated party. Having issued or indorsed the check, the
accommodating party has warranted to the holder in due course that he will pay the same
according to its tenor. 3
In the case at bar, Travel-On was payee of all six (6) checks; it presented these checks for
payment at the drawee bank but the checks bounced. Travel-On obviously was not an
accommodated party; it realized no value on the checks which bounced.
Travel-On was entitled to the benefit of the statutory presumption that it was a holder in due
course, 4 that the checks were supported by valuable consideration. 5 Private respondent
maker of the checks did not successfully rebut these presumptions. The only evidence aliunde
that private respondent offered was his own self-serving uncorroborated testimony. He claimed
that he had issued the checks to Travel-On as payee to "accommodate" its General Manager
who allegedly wished to show those checks to the Board of Directors of Travel-On to "prove"
that Travel-On's account receivables were somehow "still good." It will be seen that this claim
was in fact a claim that the checks were merely simulated, that private respondent did not intend
to bind himself thereon. Only evidence of the clearest and most convincing kind will suffice for
that purpose;
6 no such evidence was submitted by private respondent. The latter's
explanation was denied by Travel-On's General Manager; that explanation, in any case,
appears merely contrived and quite hollow to us. Upon the other hand, the "accommodation" or
assistance extended to Travel-On's passengers abroad as testified by petitioner's General
Manager involved, not the accommodation transactions recognized by the NIL, but rather the
circumvention of then existing foreign exchange regulations by passengers booked by TravelOn, which incidentally involved receipt of full consideration by private respondent.
Thus, we believe and so hold that private respondent must be held liable on the six (6) checks
here involved. Those checks in themselves constituted evidence of indebtedness of private
respondent, evidence not successfully overturned or rebutted by private respondent.
Since the checks constitute the best evidence of private respondent's liability to petitioner
Travel-On, the amount of such liability is the face amount of the checks, reduced only by the
P10,000.00 which Travel-On admitted in its complaint to have been paid by private respondent
sometime in March 1992.
The award of moral damages to private respondent must be set aside, for the reason that
petitioner's application for the writ of attachment rested on sufficient basis and no bad faith was

shown on the part of Travel-On. If anyone was in bad faith, it was private respondent who
issued bad checks and then pretended to have "accommodated" petitioner's General Manager
by assisting her in a supposed scheme to deceive petitioner's Board of Directors and to
misrepresent Travel-On's financial condition.
ACCORDINGLY, the Court Resolved to GRANT due course to the Petition for Review on
Certiorari and to REVERSE and SET ASIDE the Decision dated 22 October 1980 and the
Resolution of 23 January 1981 of the Court of Appeals, as well as the Decision dated 31
January 1975 of the trial court, and to enter a new decision requiring private respondent Arturo
S. Miranda to pay to petitioner Travel-On the amount of P105,000.00 With legal interest thereon
from 14 June 1972, plus ten percent (10%) of the total amount due as attorney's fees. Costs
against private respondent.
Gutierrez, Jr., Bidin, Davide, Jr. and Romero, JJ ., concur.
SECOND DIVISION
[G.R. No. 117660. December 18, 2000.]
AGRO CONGLOMERATES, INC. and MARIO SORIANO, petitioners, vs. THE HON. COURT
OF APPEALS and REGENT SAVINGS and LOAN BANK, INC., respondents.
Quiason Makalintal Barot Torres & Ibarra for petitioners.
Atty. Cesar M. Cario for private respondent.
SYNOPSIS
On July 17, 1982, petitioner Agro Conglomerates, Inc. sold two parcels of farmland to
Wonderland Food Industries, Inc. The parties executed a Memorandum of Agreement which
provides that the P5 million as purchase price shall be paid as follows: P1million shall be paid in
cash upon the signing of the agreement, P2 million worth of common shares of stock of
Wonderland Food Industries, Inc., and the remaining P2 million shall be paid in four equal
installments. On July 19, 1982, Agro Conglomerate, Inc. as vendor, Wonderland Food Industries
as vendee, and the herein respondent Regent Savings and Loan Bank (formerly Summa
Savings and Loan Association) executed as Addendum to the previous Memorandum of
Agreement to the effect that the vendee authorized the vendor to obtain a loan from the
respondent bank for the total amount of the initial payments and that the vendee undertook to
assume the settlement of the said loan. Petitioner Mario Soriano signed several promissory
notes and received the proceeds in behalf of Agro Conglomerates, Inc. However, the sale of the
said farmland did not materialize which resulted to a rescission of contract of sale between the
Agro Conglomerates, Inc. and Wonderland Food Industries, Inc. Subsequently, petitioners Agro
Conglomerates, Inc. and Mario Soriano failed to meet their obligations as they fell due. Thus,
after several opportunities given to petitioner to settle their accounts, the respondent bank filed
three separate complaints for Collection of Sums of Money before the Regional Trial Court of
Manila against the petitioners. In their answer, petitioners interposed the defense of novation
and insisted that there was a valid substitution of debtor based on the executed addendum.

After trial, the trial court rendered judgment in favor of the respondent bank. The Court of
Appeals affirmed in toto the said judgment. Hence, this Petition.
This Court ruled that there was no novation by "substitution" of debtor because there was no
prior obligation which was substituted by a new contract. It will be noted that the promissory
notes, which bound the petitioners to pay, were executed after the addendum. The addendum
modified the contract of sale, not the stipulations in the promissory notes which pertain to the
surety contract. At this instance, Wonderland apparently assured the payment of future debts to
be incurred by the petitioners. Consequently, only a contract of surety arose. It was wrong for
petitioners to presume a novation had taken place. The well-settled rule is that novation is never
presumed, it must be clearly and unequivocally shown. As it turned out, the contract of surety
between Wonderland and the petitioners was extinguished by the rescission of the contract of
sale of the farmland. With the rescission, there was confusion or merger in the persons of the
principal obligor and the surety, namely, the petitioners herein. The addendum which was
dependent thereon likewise lost its efficacy.
Moreover, it was admitted that petitioners received the proceeds of the promissory notes
obtained from respondent bank. Petitioners had no legal or just ground to retain the proceeds of
the loan at the expense of private respondent. Neither could petitioners excuse themselves and
hold Wonderland still liable to pay the loan upon the rescission of their sales contract.
Petition was DENIED.
SYLLABUS
1.
CIVIL LAW;
OBLIGATIONS
AND
CONTRACTS;
SALES;
RECIPROCAL
TRANSACTION. A contract of sale is a reciprocal transaction. The obligation or promise of
each party is the cause or consideration for the obligation or promise by the other. The vendee
is obliged to pay the price, while the vendor must deliver actual possession of the land.
AcHaTE
2.
ID.; ID.; ID.; SURETYSHIP; APPLIED IN CASE AT BAR. In the instant case the
original plan was that the initial payments would be paid in cash. Subsequently, the parties (with
the participation of respondent bank) executed an addendum providing instead, that the
petitioners would secure a loan in the name of Agro Conglomerates Inc. for the total amount of
the initial payments, while the settlement of said loan would be assumed by Wonderland.
Thereafter, petitioner Soriano signed several promissory notes and received the proceeds in
behalf of petitioner-company. By this time, we note a subsidiary contract of suretyship had taken
effect since petitioners signed the promissory notes as maker and accommodation party for the
benefit of Wonderland. Petitioners became liable as accommodation party.
3.
ID.; ID.; ID.; ELUCIDATED. Suretyship is defined as the relation which exists where
one person has undertaken an obligation and another person is also under the obligation or
other duty to the obligee, who is entitled to but one performance, and as between the two who
are bound, one rather than the other should perform. The surety's liability to the creditor or
promise of the principal is said to be direct, primary and absolute; in other words, he is directly

and equally bound with the principal. And the creditor may proceed against any one of the
solidary debtors.
4.
ID.; ID.; ID.; EXTINGUISHED BY RESCISSION OF CONTRACT OF SALE; CASE AT
BAR. As it turned out, the contract of surety between Wonderland and the petitioners was
extinguished by the rescission of the contract of sale of the farmland. With the rescission, there
was confusion or merger in the persons of the principal obligor and the surety, namely the
petitioners herein. The addendum which was dependent thereon likewise lost its efficacy.
cEHSIC
5.
ID.; ID.; ACCOMMODATION PARTY; ELUCIDATED. An accommodation party is a
person who has signed the instrument as maker, acceptor, or indorser, without receiving value
therefor, and for the purpose of lending his name to some other person and is liable on the
instrument to a holder for value, notwithstanding such holder at the time of taking the instrument
knew (the signatory) to be an accommodation party. He has the right, after paying the holder, to
obtain reimbursement from the party accommodated, since the relation between them has in
effect become one of principal and surety, the accommodation party being the surety.
6.
ID.; ID.; EXTINGUISHMENT OF OBLIGATIONS; NOVATION; DEFINED. Novation is
the extinguishment of an obligation by the substitution or change of the obligation by a
subsequent one which extinguishes or modifies the first, either by changing the object or
principal conditions, or by substituting another in place of the debtor, or by subrogating a third
person in the rights of the creditor. In order that a novation can take place, the concurrence of
the following requisites are indispensable: 1) There must be a previous valid obligation; 2) There
must be an agreement of the parties concerned to a new contract; 3) There must be the
extinguishment of the old contract; and 4) There must be the validity of the new contract.
7.
ID.; ID.; ID.; ID.; NOT PRESENT IN CASE AT BAR. In the instant case, the first
requisite for a valid novation is lacking. There was no novation by "substitution" of debtor
because there was no prior obligation which was substituted by a new contract. It will be noted
that the promissory notes, which bound the petitioners to pay, were executed after the
addendum. The addendum modified the contract of sale, not the stipulations in the promissory
notes which pertain to the surety contract. At this instance, Wonderland apparently assured the
payment of future debts to be incurred by the petitioners. Consequently, only a contract of
surety arose. It was wrong for petitioners to presume a novation had taken place. The wellsettled rule is that novation is never presumed, it must be clearly and unequivocally shown.
8.
ID.; ID.; INTERPRETATION OF CONTRACTS; TO JUDGE THE INTENTION OF
PARTIES, THEIR CONTEMPORANEOUS AND SUBSEQUENT ACTS SHOULD BE
CONSIDERED. It is true that the basic and fundamental rule in the interpretation of contract
is that, if the terms thereof are clear and leave no doubt as to the intention of the contracting
parties, the literal meaning shall control. However, in order to judge the intention of the parties,
their contemporaneous and subsequent acts should be considered. IDEHCa
9.
ID.; ID.; SALES; RESCISSION; VENDOR HAD NO LEGAL OR JUST GROUND TO
RETAIN THE PROCEEDS OF SALE. The contract of sale between Wonderland and

petitioners did not materialize. But it was admitted that petitioners received the proceeds of the
promissory notes obtained from respondent bank. Sec. 22 of the Civil Code provides: Every
person who through an act of performance by another, or any other means, acquires or comes
into possession of something at the expense of the latter without just or legal ground, shall
return the same to him. Petitioners had no legal or just ground to retain the proceeds of the loan
at the expense of private respondent. Neither could petitioners excuse themselves and hold
Wonderland still liable to pay the loan upon the rescission of their sales contract. If petitioners
sustained damages as a result of the rescission, they should have impleaded Wonderland and
asked damages. The non-inclusion of a necessary party does not prevent the court from
proceeding in the action, and the judgment rendered therein shall be without prejudice to the
rights of such necessary party. But respondent appellate court did not err in holding that
petitioners are duty-bound under the law to pay the claims of respondent bank from whom they
had obtained the loan proceeds.
DECISION
QUISUMBING, J p:
This is a petition for review challenging the decision 1 dated October 17, 1994 of the Court of
Appeals in CA-G.R. No. 32933, which affirmed in toto the judgment of the Manila Regional Trial
Court, Branch 27, in consolidated Cases Nos. 86-37374, 86-37388, 86-37543. SHIcDT
This petition springs from three complaints for sums of money filed by respondent bank against
herein petitioners. In the decision of the Court of Appeals, petitioners were ordered to pay
respondent bank, as follows:
Wherefore, judgment is hereby rendered in favor of plaintiff and against defendants, as follows:
1)
In Civil Case No. 86-37374, defendants [petitioners, herein] are ordered jointly and
severally, to pay to plaintiff the amount of P78,212.29, together with interest and service charge
thereon, at the rates of 14% and 3% per annum, respectively, computed from November 10,
1982, until fully paid, plus stipulated penalty on unpaid principal at the rate of 6% per annum,
computed from November 10, 1982, plus 15% as liquidated damage plus 10% of the total
amount due, as attorney's fees, plus costs; HaTISE
2)
In Civil Case No. 86-37388, defendant is ordered to pay plaintiff the amount of
P632,911.39, together with interest and service charge thereon at the rate of 14% and 3% per
annum, respectively, computed from January 15, 1983, until fully paid, plus stipulated penalty on
unpaid principal at the rate of 6% per annum, computed from January 15, 1983, plus liquidated
damages equivalent to 15% of the total amount due, plus attorney's fees equivalent to 10% of
the total amount due, plus costs; and
3)
In Civil Case No. 86-37543, defendant is ordered to pay plaintiff, on the first cause of
action, the amount of P510,000.00, together with interest and service charge thereon, at the
rates of 14% and 2% per annum, respectively, computed from March 13, 1983, until fully paid,
plus a penalty of 6% per annum, based on the outstanding principal of the loan, computed from
March 13, 1983, until fully paid; and on the second cause of action, the amount of P494,936.71,

together with interest and service charge thereon at the rates of 14% and 2%, per annum,
respectively, computed from March 30, 1983, until fully paid, plus a penalty charge of 6% per
annum, based on the unpaid principal, computed from March 30, 1983, until fully paid, plus (on
both causes of action) an amount equal to 15% of the total amounts due, as liquidated
damages, plus attorney's fees equal to 10% of the total amounts due, plus costs. 2
Based on the records, the following are the factual antecedents.
On July 17, 1982, petitioner Agro Conglomerates, Inc. as vendor, sold two parcels of land to
Wonderland Food Industries, Inc. In their Memorandum of Agreement, 3 the parties covenanted
that the purchase price of Five Million (P5,000,000.00) Pesos would be settled by the vendee,
under the following terms and conditions: (1) One Million (P1,000,000.00) Pesos shall be paid in
cash upon the signing of the agreement; (2) Two Million (P2,000,000.00) Pesos worth of
common shares of stock of the Wonderland Food Industries, Inc.; and (3) The balance of
P2,000,000.00 shall be paid in four equal installments, the first installment falling due, 180 days
after the signing of the agreement and every six months thereafter, with an interest rate of 18%
per annum, to be advanced by the vendee upon the signing of the agreement.
On July 19, 1982, the vendor, the vendee, and the respondent bank Regent Savings & Loan
Bank (formerly Summa Savings & Loan Association), executed an Addendum 4 to the previous
Memorandum of Agreement. The new arrangement pertained to the revision of settlement of the
initial payments of P1,000,000.00 and prepaid interest of P360,000.00 (18% of P2,000,000.00)
as follows:
Whereas, the parties have agreed to qualify the stipulated terms for the payment of the said
ONE MILLION THREE HUNDRED SIXTY THOUSAND (P1,360,000.00) PESOS.
WHEREFORE, in consideration of the mutual covenant and agreement of the parties, they do
further covenant and agree as follows:
1.
That the VENDEE instead of paying the amount of ONE MILLION THREE HUNDRED
SIXTY THOUSAND (P1,360,000.00) PESOS in cash, hereby authorizes the VENDOR to obtain
a loan from Summa Savings and Loan Association with office address at Valenzuela, Metro
Manila, being represented herein by its President, Mr. Jaime Cario and referred to hereafter as
Financier, in the amount of ONE MILLION THREE HUNDRED SIXTY THOUSAND
(P1,360,000.00) PESOS, plus interest thereon at such rate as the VENDEE and the Financier
may agree, which amount shall cover the ONE MILLION (P1,000,000.00) PESOS cash which
was agreed to be paid upon signing of the Memorandum of Agreement, plus 18% interest on the
balance of two million pesos stipulated upon in Item No. 1(c) of the said agreement; provided
however, that said loan shall be made for and in the name of the VENDOR. IDaEHS
2.
The VENDEE also agrees that the full amount of ONE MILLION THREE HUNDRED
SIXTY THOUSAND (P1,360,000.00) PESOS be paid directly to the VENDOR; however, the
VENDEE hereby undertakes to pay the full amount of the said loan to the Financier on such
terms and conditions agreed upon by the Financier and the VENDOR, it being understood that

while the loan will be secured from and in the name of the VENDOR, the VENDEE will be the
one liable to pay the entire proceeds thereof including interest and other charges. 5
This addendum was not notarized.
Consequently, petitioner Mario Soriano signed as maker several promissory notes, 6 payable to
the respondent bank. Thereafter, the bank released the proceeds of the loan to petitioners.
However, petitioners failed to meet their obligations as they fell due. During that time, the bank
was experiencing financial turmoil and was under the supervision of the Central Bank. Central
Bank examiner and liquidator Cordula de Jesus endorsed the subject promissory notes to the
bank's counsel for collection. The bank gave petitioners opportunity to settle their account by
extending payment due dates. Mario Soriano manifested his intention to re-structure the loan,
yet did not show up nor submit his formal written request.
Respondent bank filed three separate complaints before the Regional Trial Court of Manila for
Collection of Sums of money. The corresponding case histories are illustrated in the table below:
Date of Loan Amount
Date

Payment Due Payment Extension

Dates

Civil Case 86-37374 P78,212.29

Nov. 10, 1982 Feb. 8, 1983

August 12, 1982

May 9, 1983
Aug. 7, 1983

Civil Case 86-37388 P632,911.39 Jan. 15, 1983 May 16, 1983
July 19, 1982

Aug. 14, 1983

Civil Case 86-37543 P510,000.00 March 13, 1983

September 14, 1982

October 1, 1982

June 11, 1983

Sept. 9, 1983

P494,936.71 March 30, 1983

June 28, 1983

Sept. 26, 1983

In their answer, petitioners interposed the defense of novation and insisted there was a valid
substitution of debtor. They alleged that the addendum specifically states that although the

promissory notes were in their names, Wonderland shall be responsible for the payment
thereof.
The trial court held that petitioners are liable, to wit:
The evidences, however, disclose that Wonderland did not comply with its obligation under said
'Addendum' (Exh. 'S') as the agreement to turn over the farmland to it, did not materialize (57
tsn, May 29, 1990), and there was, actually no sale of the land (58 tsn, ibid). Hence,
Wonderland is not answerable. And since the loans obtained under the four promissory notes
(Exhs. 'A', 'C', 'G', and 'E') have not been paid, despite opportunities given by plaintiff to
defendants to make payments, it stands to reason that defendants are liable to pay their
obligations thereunder to plaintiff. In fact, defendants failed to file a third-party complaint against
Wonderland, which shows the weakness of its stand that Wonderland is answerable to make
said payments. 7
Petitioners appealed to the Court of Appeals. The trial court's decision was affirmed by the
appellate court.
Hence, this recourse, wherein petitioners raise the sole issue of:
WHETHER THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE ADDENDUM,
SIGNED BY THE PETITIONERS, RESPONDENT BANK AND WONDERLAND INC.,
CONSTITUTES A NOVATION OF THE CONTRACT BY SUBSTITUTION OF DEBTOR, WHICH
EXEMPTS THE PETITIONERS FROM ANY LIABILITY OVER THE PROMISSORY NOTES.
Revealed by the facts on record, the conflict among the parties started from a contract of sale of
a farmland between petitioners and Wonderland Food Industries, Inc. As found by the trial court,
no such sale materialized.
A contract of sale is a reciprocal transaction. The obligation or promise of each party is the
cause or consideration for the obligation or promise by the other. The vendee is obliged to pay
the price, while the vendor must deliver actual possession of the land. In the instant case the
original plan was that the initial payments would be paid in cash. Subsequently, the parties (with
the participation of respondent bank) executed an addendum providing instead, that the
petitioners would secure a loan in the name of Agro Conglomerates Inc. for the total amount of
the initial payments, while the settlement of said loan would be assumed by Wonderland.
Thereafter, petitioner Soriano signed several promissory notes and received the proceeds in
behalf of petitioner-company. cDAITS
By this time, we note a subsidiary contract of suretyship had taken effect since petitioners
signed the promissory notes as maker and accommodation party for the benefit of Wonderland.
Petitioners became liable as accommodation party. An accommodation party is a person who
has signed the instrument as maker, acceptor, or indorser, without receiving value therefor, and
for the purpose of lending his name to some other person and is liable on the instrument to a
holder for value, notwithstanding such holder at the time of taking the instrument knew (the
signatory) to be an accommodation party. 8 He has the right, after paying the holder, to obtain
reimbursement from the party accommodated, since the relation between them has in effect

become one of principal and surety, the accommodation party being the surety. 9 Suretyship is
defined as the relation which exists where one person has undertaken an obligation and another
person is also under the obligation or other duty to the obligee, who is entitled to but one
performance, and as between the two who are bound, one rather than the other should perform.
10 The surety's liability to the creditor or promisee of the principal is said to be direct, primary
and absolute; in other words, he is directly and equally bound with the principal. 11 And the
creditor may proceed against any one of the solidary debtors. 12
We do not give credence to petitioners' assertion that, as provided by the addendum, their
obligation to pay the promissory notes was novated by "substitution" of a new debtor,
Wonderland. Contrary to petitioners' contention, the attendant facts herein do not make a case
of novation.
Novation is the extinguishment of an obligation by the substitution or change of the obligation by
a subsequent one which extinguishes or modifies the first, either by changing the object or
principal conditions, or by substituting another in place of the debtor, or by subrogating a third
person in the rights of the creditor. 13 In order that a novation can take place, the concurrence
of the following requisites 14 are indispensable:
1)

There must be a previous valid obligation;

2)

There must be an agreement of the parties concerned to a new contract;

3)

There must be the extinguishment of the old contract; and

4)

There must be the validity of the new contract.

In the instant case, the first requisite for a valid novation is lacking. There was no novation by
"substitution" of debtor because there was no prior obligation which was substituted by a new
contract. It will be noted that the promissory notes, which bound the petitioners to pay, were
executed after the addendum. The addendum modified the contract of sale, not the stipulations
in the promissory notes which pertain to the surety contract. At this instance, Wonderland
apparently assured the payment of future debts to be incurred by the petitioners. Consequently,
only a contract of surety arose. It was wrong for petitioners to presume a novation had taken
place. The well-settled rule is that novation is never presumed, 15 must be clearly and
unequivocally shown. 16
As it turned out, the contract of surety between Wonderland and the petitioners was
extinguished by the rescission of the contract of sale of the farmland. With the rescission, there
was confusion or merger in the persons of the principal obligor and the surety, namely the
petitioners herein. The addendum which was dependent thereon likewise lost its efficacy.
It is true that the basic and fundamental rule in the interpretation of contract is that, if the terms
thereof are clear and leave no doubt as to the intention of the contracting parties, the literal
meaning shall control. However, in order to judge the intention of the parties, their
contemporaneous and subsequent acts should be considered. 17

The contract of sale between Wonderland and petitioners did not materialize. But it was
admitted that petitioners received the proceeds of the promissory notes obtained from
respondent bank. CTEaDc
Sec. 22 of the Civil Code provides:
Every person who through an act of performance by another, or any other means, acquires or
comes into possession of something at the expense of the latter without just or legal ground,
shall return the same to him.
Petitioners had no legal or just ground to retain the proceeds of the loan at the expense of
private respondent. Neither could petitioners excuse themselves and hold Wonderland still liable
to pay the loan upon the rescission of their sales contract. If petitioners sustained damages as a
result of the rescission, they should have impleaded Wonderland and asked damages. The noninclusion of a necessary part does not prevent the court from proceeding in the action, and the
judgment rendered therein shall be without prejudice to the rights of such necessary party. 18
But respondent appellate court did not err in holding that petitioners are duty-bound under the
law to pay the claims of respondent bank from whom they had obtained the loan proceeds.
WHEREFORE, the petition is DENIED for lack of merit. The assailed decision of the Court of
Appeals dated October 17, 1994 is AFFIRMED. Costs against petitioners. STaIHc
SO ORDERED.
Bellosillo, Mendoza, Buena and De Leon, Jr., JJ., concur.
SECOND DIVISION
[G.R. No. L-34539. July 14, 1986.]
EULALIO PRUDENCIO and ELISA T. PRUDENCIO, petitioners, vs. THE HONORABLE
COURT OF APPEALS, THE PHILIPPINE NATIONAL BANK, RAMON C. CONCEPCION and
MANUEL M. TAMAYO, partners of the defunct partnership Concepcion & Tamayo
Construction Company, JOSE TORIBIO, Atty.-in-Fact of Concepcion & Tamayo
Construction Company, and THE DISTRICT ENGINEER, Puerto Princesa, Palawan,
respondents.
Fernando R. Mangubat, Jr. for respondent PNB.
DECISION
GUTIERREZ, JR., J p:
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 real estate mortgage and held them jointly and
severally liable with the principal debtors on a promissory note which they signed as
accommodation makers.

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, had a pending contract with the Bureau of Public Works, hereinafter called the
Bureau, for the construction of the municipal building in Puerto Princesa, Palawan, in the
amount of P36,800.00 and, as said Company needed funds for said construction, Jose Toribio,
appellants' relative, and attorney-in-fact of the Company, approached the appellants asking
them to mortgage their property to secure the loan of P10,000.00 which the Company was
negotiating with the PNB.
"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 to the Company. The terms and conditions of the original mortgage for P1,000.00
were made integral part of the new mortgage for P10,000.00 and both documents were
registered with the 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 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. 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 contract for the construction of the Puerto Princesa building in favor
of the PNB.
"This assignment of credit to the contrary notwithstanding, the Bureau, with approval, of the
PNB, 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 P5,000.00 on June 20, 1956, however, was denied by the PNB for the reason that since the
loan was already overdue as of April 28, 1956) the remaining balance of the contract price
should be applied to the loan.
"The Company abandoned the work, as a consequence of which on June 30, 1956, the Bureau
rescinded the construction contract and assumed the work of completing the building. On
November 14. 1958, appellants wrote the PNB contending that since the PNB authorized
payments to the 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 cancellation of their mortgage contract.
"Failing in their bid to have the real estate mortgage cancelled, appellants filed on June 27,
1959 this action against the PNB, the Company, the latter's attorney-in-fact Jose Toribio, and the
District Engineer of Puerto Princesa, Palawan, seeking the cancellation of their real estate

mortgage. The 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, partners of the defunct Company, were impleaded in their private
capacity as defendants."
After hearing, the trial court rendered judgment, denying the prayer in the complaint that the
petitioners be absolved from their obligation under the mortgage contract and that the said
mortgage be released or cancelled. The petitioners were ordered to pay jointly and severally
with their co-makers Ramon C. Concepcion and Manuel M. Tamayo the sum of 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 fully paid and P1,000.00 attorney's fees.
The decision also provided that if the judgment was not satisfied within 90 days from its receipt,
the mortgaged properties together with all the improvements thereon belonging to the
petitioners would be sold at public auction and applied to the judgment debt.
The Court of Appeals affirmed the trial court's decision in toto stating that, as accommodation
makers, the petitioners' liability is that of solidary co-makers and that since "the amounts
released to the construction company were used therein and, therefore, were spent for the
successful accomplishment of the work constructed for, the authorization made by the Philippine
National Bank of partial payments to the construction company which was also one of the
solidary debtors cannot constitute a valid defense on the part of the other solidary debtors.
Moreover, those who rendered services and 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 P11,234.00 in favor of the Company because aside from the
fact that the petitioners were not parties to 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
the real estate mortgage.
In this petition, the petitioners raise the following issues which they present in the form of errors:
I.

First Assignment of Error.

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT HEREIN PETITIONERS

WERE SOLIDARY CO-DEBTORS INSTEAD OF SURETIES:
II.

Second Assignment of Error.

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONERS WERE

NOT RELEASED FROM THEIR OBLIGATION TO THE RESPONDENT PNB, WHEN THE PNB,
WITHOUT THE KNOWLEDGE AND CONSENT OF PETITIONERS, CHANGED THE TENOR
AND CONDITION OF THE ASSIGNMENT OF PAYMENTS MADE BY THE PRINCIPAL
DEBTOR; CONCEPCION & TAMAYO CONSTRUCTION COMPANY; AND RELEASED TO
SUCH PRINCIPAL DEBTOR PAYMENTS FROM THE BUREAU OF PUBLIC WORKS WHICH
WERE MORE THAN ENOUGH TO WIPE OUT THE INDEBTEDNESS TO THE PNB.

The petitioners contend that as accommodation makers, the nature of their liability is only that of
mere sureties instead of 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." They state that when
respondent PNB did not apply the initial and subsequent payments to the petitioners' debt as
provided for in the deed of assignment, they were released from their obligation as sureties and,
therefore, the real estate mortgage executed by them should have been cancelled.
Section 29 of the Negotiable Instrument Law provides:
"Liability of accommodation party. An accommodation party is one who has signed the
instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the
purpose of lending his name to some other person. 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."
In the case of Philippine Bank of Commerce v. Aruego (102 SCRA 530, 539), we held that ". . .
in lending his name to the accommodated party, the accommodation party is in effect a
surety. . . ." However, unlike in a contract of suretyship, the liability of the accommodation party
remains not only primary but also unconditional to a holder for value such that even if the
accommodated party receives an extension of the period for payment without the consent of the
accommodation party, the latter is still liable for the whole obligation and such extension does
not release him because as far as a holder for value is concerned, he is a solidary co-debtor.
Expounding on the nature of the liability of an accommodation party under the aforequoted
section, we ruled in Ang Tiong v. Ting (22 SCRA 713, 716):
"3.
That the appellant, again assuming him to be an accommodation indorser, may obtain
security from the maker to protect himself against the danger of insolvency of the latter, cannot
in any manner affect his liability to the appellee, as the said remedy is a matter of concern
exclusively between accommodation indorser and accommodated party. So that the appellant
stands only as a surety in relation to the maker, granting this to be true for the sake of argument,
is immaterial to the claim of the appellee, and does not a whit diminish nor defeat the rights of
the latter who is a holder for value. The liability of the appellant remains primary and
unconditional. To sanction the appellant's theory is to give unwarranted legal recognition to the
patent absurdity of a situation where an indorser, when sued on an instrument by a holder in
due course and for value, can escape liability on his indorsement by the convenient expedient of
interposing the defense that he is a mere accommodation indorser."
There is, therefore, no question that as accommodation makers, petitioners would be primarily
and unconditionally liable 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, the petitioners
cannot claim to have been released from their obligation simply because the time of payment of
such obligation was temporarily deferred by PNB without their knowledge and consent. There
has to be another basis for their 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 the
petitioners must be necessarily barred from setting up the defense of want of consideration or
some other personal defenses which may be set up against a party who is not a holder in due
course.
A holder for value under Section 29 of the Negotiable Instruments Law is one who must meet all
the requirements of a holder in due course under Section 52 of the same law except notice of
want of consideration. (Agbayani, Commercial Laws of the Philippines, 1964, p. 208). If he does
not qualify as a holder in due course then he holds the instrument subject to the same defenses
as if it were non-negotiable (Section 58, Negotiable Instruments Law).
In the case at bar, can PNB, the payee of the promissory note be considered a holder in due
course?
Petitioners contend that the payee PNB is an immediate party and, therefore, is not a holder in
due course and stands on no better footing than a mere assignee.
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):
"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 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 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 Negotiable Instruments, it was held:
"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 as to them the only superiority of a bill or note over other unsealed
evidence of debt is that it prima facie imports a consideration."
Although as a general rule, a payee may be considered a holder in due course we think that
such a rule cannot apply with respect to the respondent PNB. Not only was PNB an immediate
party or in privy to the promissory note, that is, it had dealt directly with the petitioners knowing
fully well that the latter only signed as accommodation makers but more important, it was the
Deed of Assignment executed by the Construction Company in favor of PNB which principally
moved the petitioners to sign the promissory note also in favor of PNB. Petitioners were made
to believe and on that belief entered into the agreement that no other conditions would alter the
terms thereof and yet, PNB altered the same. The Deed of Assignment specifically provided that
Jose F. Toribio, on behalf of the Company, "have assigned, transferred and conveyed and by
these presents, do assign, transfer and convey unto the said Philippine National Bank, its
successors and assigns all payments to be received from the Bureau of Public Works on

account of contract for the construction of the Puerto Princesa Municipal Building in Palawan,
involving the total amount of P36,000.00" and that "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 the above-mentioned obligation."
Under the terms of the above Deed, it is clear that there are no further conditions which could
possibly alter the agreement without the consent of the petitioners such as the grant of greater
priority to obligations other than the payment of the loan due to the PNB and part of which loan
was guaranteed by the petitioners in the amount of P10,000.00.
This, notwithstanding, PNB approved the Bureau's release of three payments directly to the
Company instead of paying the same to the Bank. This approval was in violation of the Deed of
Assignment and without any notice to the petitioners 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 having acted in good faith which is also one of the requisites of a holder in due
course under Section 52 of the Negotiable Instruments Law. The PNB knew that the promissory
note which it took from the accommodation makers was signed by the latter because of full
reliance on the Deed of Assignment, which, PNB had no intention to comply with strictly. 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.
We, therefore, hold that respondent PNB is not a holder in due course. Thus, the petitioners can
validly set up their 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 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.
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.
The attorney-in-fact tried twice to convince the Prudencios to mortgage their property in order to
secure a loan in favor of 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.
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 extended the period of time of payment
of the promissory note without the petitioners' consent and to the latter's detriment.

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 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 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.
SO ORDERED.
Feria (Chairman), Fernan, Alampay and Paras, JJ., concur.
FIRST DIVISION
[G.R. No. L-30910. February 27, 1987.]
PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. JULIA MANIEGO, accusedappellant.

SYLLABUS
1.
CIVIL LAW; DAMAGES; A PERSON ACQUITTED OF A CRIME MAY STILL BE HELD
CIVILLY LIABLE. Well known is the principle that "any person criminally liable for felony is
also civilly liable". But a person's acquittal of a crime on the ground that his guilt has not been
proven beyond reasonable doubt does not bar a civil action for damages founded on the same
acts involved in the offense. "Extinction of the penal action does not carry with it extinction of the
civil, unless the extinction proceeds from a declaration in a final judgment that the fact from
which the civil might arise did not exist."
2.
ID.; ID.; ID.; CASE AT BAR. Contrary to her submission, Maniego's acquittal on
reasonable doubt of the crime of Malversation imputed to her and her two (2) co-accused did
not operate to absolve her from civil liability for reimbursement of the amount rightfully due to
the Government as owner thereof. Her liability thereof could properly be adjudged, as it was so
adjudged, by the Trial Court on the basis of the evidence before it which adequately established
that she was an indorser of several checks drawn by her sister, which were dishonored after
they had been exchanged with cash belonging to the Government, then in the official custody of
Lt. Ubay.
3.
MERCANTILE LAW; NEGOTIABLE INSTRUMENTS; CHECKS; LAST INDORSEE HAS
THE RIGHT TO ENFORCE FULL PAYMENT OF THE INSTRUMENT AGAINST ALL PARTIES
LIABLE THEREON. Appellant's contention that as a mere indorser, she may not be made
liable on account of the dishonor of the checks indorsed by her, is likewise untenable. Under the
law, the holder or last indorsee of a negotiable instrument has the right to "enforce payment of
the instrument for the full amount thereof against all parties liable thereon." Among the "parties
liable thereon" is an indorser of the instrument i.e., "a person placing his signature upon an
instrument otherwise than as maker, drawer, or acceptor unless he clearly indicates by
appropriate words his intention to be bound in some other capacity." Such an indorser "who
indorses without qualification," inter alia "engages that on due presentment, (the instrument)
shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be
dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount
thereof to the holder, or to any subsequent indorser who may be compelled to pay it."
4.
ID.; ACCOMMODATION PARTY; LIABLE ON THE INSTRUMENT TO A HOLDER FOR
VALUE. Maniego may also be deemed an " ACCOMMODATION party" in the light of the
facts, i.e., a person "who has signed the instrument as maker, drawer, acceptor or indorser,
without receiving value therefor, and for the purpose of lending his name to some other person."
As such, she is under the law "liable on the instrument to a holder for value, notwithstanding
such holder at the time of taking the instrument knew (her) to be only an ACCOMMODATION
party," although she has the right, after paying the holder, to obtain reimbursement from the
party accommodated, "since the relation between them is in effect that of principal and surety,
the ACCOMMODATION party being the surety."
5.
CRIMINAL LAW; ACTION; CIVIL LIABILITY MAY BE ADJUDGED IN THE SAME
CRIMINAL ACTION DISPENSING WITH THE NECESSITY OF A SEPARATE CIVIL ACTION.
The Trial Court acted correctly in adjudging Maniego to be civilly liable in the same criminal

action in which she had been acquitted of the felony of Malversation ascribed to her, dispensing
with the necessity of having a separate civil action subsequently instituted against her for the
purpose.
DECISION
NARVASA, J p:
Application of the established rule in this jurisdiction, that the acquittal of an accused on
reasonable doubt is not generally an impediment to the imposition, in the same criminal action,
of civil liability for damages on said accused, is what is essentially called into question by the
appellant in this case. Cdpr
The information which initiated the instant criminal proceedings in the Court of First Instance of
Rizal indicted three (3) persons Lt. Rizalino M. Ubay, Mrs. Milagros Pamintuan, and Mrs.
Julia T. Maniego for the crime of MALVERSATION committed as follows:
"That on or about the period covering the month of May, 1957 up to and including the month of
August, 1957, in Quezon City, Philippines, the above-named accused, conspiring together,
confederating with and helping one another, with intent of gain and without authority of law, did,
then and there, wilfully, unlawfully and feloniously malverse, misappropriate and misapply public
funds in the amount of P66,434.50 belonging to the Republic of the Philippines, in the following
manner, to wit: the accused, Lt. RIZALINO M. Ubay, a duly appointed officer in the Armed
Forces of the Philippines in active duty, who, during the period specified above, was designated
as Disbursing Officer in the Officer of the Chief of Finance, GHQ, Camp Murphy, Quezon City,
and as such was entrusted with and had under his custody and control public funds, conspiring
and confederating with his co-accused, MILAGROS T. PAMINTUAN and JULIA T. MANIEGO,
did then and there, unlawfully, willfully and feloniously, with intent of gain and without authority of
law, and in pursuance of their conspiracy, take, receive, and accept from his said co-accused
several personal checks drawn against the Philippine National Bank and the Bank of the
Philippine Islands, of which the accused, MILAGROS T. PAMINTUAN is the drawer and the
accused, JULIA T. MANIEGO, is the indorser, in the total amount of P66,434.50, cashing said
checks and using for this purpose the public funds entrusted to and placed under the custody
and control of the said Lt. Rizalino M. Ubay, all the said accused knowing fully well that the said
checks are worthless and are not covered by funds in the aforementioned banks, for which
reason the same were dishonored and rejected by the said banks when presented for
encashment, to the damage and prejudice of the Republic of the Philippines, in the amount of
P66,434.50, Philippine currency." 1
Only Lt. Ubay and Mrs. Maniego were arraigned, Mrs. Pamintuan having apparently fled to the
United States in August, 1962. 2 Both Ubay and Maniego entered a plea of not guilty. 3
After trial judgment was rendered by the Court of First Instance, 4 the dispositive part whereof
reads: prLL
"There being sufficient evidence beyond reasonable doubt against the accused, Rizalino M.
Ubay, the Court hereby convicts him of the crime of malversation and sentences him to suffer

the penalty of reclusion temporal of TWELVE (12) YEARS, ONE (1) DAY to FOURTEEN (14)
YEARS, EIGHT (8) MONTHS, and a fine of P57,434.50 which is the amount malversed, and to
suffer perpetual special disqualification.
"In the absence of evidence against accused Julia T. Maniego, the Court hereby acquits her, but
both she and Rizal T. Ubay are hereby ordered to pay jointly and severally the amount of
P57,434.50 to the government." 5
Maniego sought reconsideration of the judgment, praying that she be absolved from civil liability
or, at the very least, that her liability be reduced to P46,934.50. 6 The Court declined to negate
her civil liability, but did reduce the amount thereof to P46,934.50. 7 She appealed to the Court
of Appeals 8 as Ubay had earlier done. 9
Ubay's appeal was subsequently dismissed by the Appellate Court because of his failure to file
brief. 10 On the other hand, Maniego submitted her brief in due course, and ascribed three (3)
errors to the Court a quo, to wit:
1)
The Lower Court erred in holding her civilly liable to indemnify the Government for the
value of the checks after she had been found not guilty of the crime out of which the civil liability
arises.
2)
Even assuming arguendo that she could properly be held civilly liable after her acquittal,
it was error for the lower Court to adjudge her liable as an indorser to indemnify the government
for the amount of the checks.
3)
The Lower Court erred in declaring her civilly liable jointly and severally with her codefendant Ubay, instead of absolving her altogether. 11
Because, in the Appellate Court's view, Maniego's brief raised only questions of law, her appeal
was later certified to this Court pursuant to Section 17, in relation to Section 31, of the Judiciary
Act, as amended, and Section 3, Rule 50 of the Rules of Court. 12
The verdict must go against the appellant. prLL
Well known is the principle that "any person criminally liable for felony is also civilly liable." 13
But a person adjudged not criminally responsible may still be held to be civilly liable. A person's
acquittal of a crime on the ground that his guilt has not been proven beyond reasonable doubt
14 does not bar a civil action for damages founded on the same acts involved in the offense. 15
"Extinction of the penal action does not carry with it extinction of the civil, unless the extinction
proceeds from a declaration in a final judgment that the fact from which the civil might arise did
not exist." 16
"Rule 111 SEC. 3(b) Extinction of the penal action does not carry with it extinction of the civil,
unless the extinction proceeds from a declaration in a final judgment that the fact from which the
civil might arise did not exist. In other cases, the person entitled to the civil action may institute it
in the jurisdiction and in the manner provided by law against the person who may be liable for

restitution of the thing and reparation of indemnity for the damage suffered." (1985 Rules on
Criminal Procedure).
Hence, contrary to her submission, 17 Maniego's acquittal on reasonable doubt of the crime of
Malversation imputed to her and her two (2) co-accused did not operate to absolve her from civil
liability for reimbursement of the amount rightfully due to the Government as owner thereof. Her
liability therefor could properly be adjudged, as it was so adjudged, by the Trial Court on the
basis of the evidence before it, which adequately establishes that she was an indorser of
several checks drawn by her sister, which were dishonored after they had been exchanged with
cash belonging to the Government, then in the official custody of Lt. Ubay.
Appellant's contention that as mere indorser, she may not be made liable on account of the
dishonor of the checks indorsed by her, is likewise untenable. Under the law, the holder or last
indorsee of a negotiable instrument has the right to "enforce payment of the instrument for the
full amount thereof against all parties liable thereon." 18 Among the "parties liable thereon" is an
indorser of the instrument i.e., "a person placing his signature upon an instrument otherwise
than as maker, drawer, or acceptor . . . unless he clearly indicates by appropriate words his
intention to be bound in some other capacity." 19 Such an indorser "who indorses without
qualification," inter alia "engages that on due presentment, . . . (the instrument) shall be
accepted or paid, or both, as the case may be, according to its tenor, and that if it be
dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount
thereof to the holder, or to any subsequent indorser who may be compelled to pay it." 20
Maniego may also be deemed an "accommodation party" in the light of the facts, i.e., a person
"who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value
therefor, and for the purpose of lending his name to some other person." 21 As such, she is
under the law "liable on the instrument to a holder for value, notwithstanding such holder at the
time of taking the instrument knew . . . (her) to be only an accommodation party," 22 although
she has the right, after paying the holder, to obtain reimbursement from the party
accommodated, "since the relation between them is in effect that of principal and surety, the
accommodation party being the surety." 23
One last word. The Trial Court acted correctly in adjudging Maniego to be civilly liable in the
same criminal action in which she had been acquitted of the felony of Malversation ascribed to
her, dispensing with the necessity of having a separate civil action subsequently instituted
against her for the purpose. 24
WHEREFORE, the judgment of the Trial Court, being entirely in accord with the facts and the
law, is hereby affirmed in toto, with costs against the appellant. Cdpr
SO ORDERED.
Yap, Melencio-Herrera, Cruz, Feliciano, Gancayco and Sarmiento, JJ ., concur.
FIRST DIVISION
[G.R. No. 139006. November 27, 2000.]

REMIGIO S. ONG, petitioner, vs. PEOPLE OF THE PHILIPPINES and COURT OF APPEALS
(EIGHTH DIVISION), respondents.
Raymundo G. Hipolito, II for petitioner.
Melchor Monsod for private respondent.
SYNOPSIS
Marcial de Jesus and Remigio Ong were both businessmen who came to know each other
since 1988. Sometime in 1992, Ong approached de Jesus and requested to be accommodated
a loan of P130,000.00 which de Jesus obliged by issuing a check in the name of Ong's
company, Master Metal Craft. To insure repayment of the loan, de Jesus required Ong to issue a
postdated check with the same amount payable to him in 1993. Ong was able to encash de
Jesus's check and the amount was debited to his account. Unfortunately, the bank returned
Ong's check because of insufficient funds. De Jesus made several verbal demands from Ong.
However, the latter ignored them. De Jesus filed a case against Ong for violation of the
Bouncing Checks Law (B.P. 22). Ong was found guilty by the trial court and was sentenced with
imprisonment, fine of P150,000.00 and to pay civil indemnity. Ong appealed to the Court of
Appeals; however, the CA affirmed the decision of the trial court. Hence, this petition for
certiorari. Petitioner contended that the CA affirmed the judgment of conviction despite lack of
evidence of receipt of the proceeds of the loan obligation. ACTIcS
The Supreme Court affirmed the decision of the Court of Appeals with modification that the
sentence of imprisonment was deleted. According to the Court, what the law punishes is the
issuance of a bouncing check, not the purpose for which it was issued. The mere act of issuing
worthless check is malum prohibitum. However, in the light of the rulings in recent cases, the
Court deemed it best to limit the penalty in case at bar to the payment of fine. The same
philosophy underlying the Indeterminate Sentence Law was observed, that of redeeming
valuable human material and preventing unnecessary deprivation of liberty and economic
usefulness with due regard to the protection of the social order.
SYLLABUS
1.
CRIMINAL LAW; BOUNCING CHECKS LAW (B.P. 22); MERE ACT OF ISSUING
WORTHLESS CHECK AS MALUM PROHIBITUM, PENALIZED; PURPOSE THEREOF. On
petitioner's contention that the check was not drawn on account or for value, the law and
jurisprudence is clear on this matter. In the case of Cruz vs. Court of Appeals, this Court had
occasion to rule that: What the law punishes is the issuance of a bouncing check, 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. The gravamen of the offense punished by
B.P. 22 is the act of making and issuing a worthless check or a check that is dishonored upon its
presentation for payment. It is not the non-payment of an obligation which the law punishes. The
law is not intended or designed to coerce a debtor to pay his debt. The thrust of the law is to
prohibit, under pain of penal sanctions, the making of worthless checks and putting them in
circulation. Petitioner's argument that the subject check was issued without consideration is

inconsequential. The law invariably declares the mere act of issuing a worthless check as
malum prohibitum. We quote with approval the appellate court's findings on this matter: In
actions based upon a negotiable instrument, it is unnecessary to aver or prove consideration,
for consideration is imported and presumed from the fact that it is a negotiable instrument. The
presumption exists whether the words "value received" appear on the instrument or not
(Agbayani, A.F., Commentaries and Jurisprudence on the Commercial Laws of the Philippines,
1989 Ed., Vol. 1, p. 227, italics supplied). Furthermore, such contention is also inconsequential
in Batas Pambansa Blg. 22. . . . In Que vs. People (154 SCRA 161), the Supreme Court stated
that it is the clear intention of the framers of Batas Pambansa Blg. 22 to make the mere act of
issuing a worthless check malum prohibitum. In prosecutions for violation of B.P. Big. 22,
therefore, prejudice or damage is not a prerequisite for conviction. In the more recent case of
People vs. Nitafan (215 SCRA 79), the Supreme Court ruled that the argument surrounding the
issuance of the checks need not be first looked into, since the law clearly provides that the mere
issuance of any kind of check, regardless of the intent of the parties; i.e., whether the check was
intended merely to serve as a guarantee or deposit, but which check was subsequently
dishonored, makes the person who issued the check liable. The intent of the law is to curb the
proliferation of worthless checks and to protect the stability and integrity of checks as a means
of payment of obligation (Lazaro vs. Court of Appeals, 227 SCRA 723, 726-727). ADaECI
2.
ID.; ID.; ID.; PENALTY; LIMITATION THEREOF TO PAYMENT OF FINE; RATIONALE.
In light, however, of the rulings in the recent cases of Vaca v. Court of Appeals and Rosa Lim
v. People, the Court deems it best in the instant case, to limit the penalty for violation of B.P. Big.
22 to payment of a fine in the amount of P150,000.00. Following our rationale in the aforesaid
cases, the Court believes that it would best serve the ends of criminal justice if in fixing the
penalty within the range of discretion allowed by Sec. 1, par. 1, the same philosophy underlying
the Indeterminate Sentence Law is observed, namely, that of redeeming valuable human
material and preventing unnecessary deprivation of personal liberty and economic usefulness
with due regard to the protection of the social order. Consequently, we delete the prison
sentence of six (6) months and one (1) day. The imposition of a fine of P150,000.00 and
payment of civil indemnity in the amount of P130,000.00, as well as the costs of the suit, are
appropriate and sufficient.
3.
REMEDIAL LAW; EVIDENCE; TESTIMONY; CREDIBILITY OF WITNESSES;
APPELLATE COURT GENERALLY DOES NOT DISTURB THE FINDINGS OF THE TRIAL
COURT; APPLICATION IN CASE AT BAR. It is well-settled in criminal jurisprudence that
where the issue is one of credibility of witnesses, the appellate court will generally not disturb
the findings of the trial court, considering it was in a better position to settle such issue. Indeed,
the trial court has the advantage of hearing the witness and observing his conduct during trial,
circumstances which carry a great weight in appreciating his credibility. In the case at bar, the
trial court had seen the original copy of the demand letter and had been satisfied with the
identification thereof by complainant Marcial De Jesus. We are not inclined to disturb said
court's findings. HDIaET
RESOLUTION
KAPUNAN, Jp:

At bar is a petition for certiorari under Rule 45 of the 1997 Rules of Civil Procedure, filed by
petitioner Remigio S. Ong seeking to reverse and set aside the Decision, dated March 19, 1999;
and, Resolution, dated June 3, 1999, of the Honorable Court of Appeals in CA-G.R. No. 18421
entitled "People of the Philippines vs. Remigio S. Ong." IDCHTE
The antecedent facts, as found by the trial court are quoted hereunder, as follows:
That private complainant Marcial de Jesus and accused Remigio Ong are both businessmen
who came to know each other since 1988 as supplier(s) of some companies. Marcial de Jesus
owns the Sevrin Integrated Resources located at 3184 E. Rivera St., Pasay City, and accused
Remigio Ong, the Master Metal Craft with business address at 562 Tomas Mapua St., Sta. Cruz,
Manila. Remigio Ong, in fact at one time retained the services of Marcial de Jesus as adviser on
technical and financial matters and as President of Erocool Industries, a company controlled by
the former.
That on December 17, 1992, Remigio Ong approached Marcial de Jesus in his place of work in
Pasay City and requested to be accommodated a loan of P130,000.00 which he needed to pay
the 13th month pay of his employees at the Master Metal Craft. Complainant De Jesus obliged
by issuing Ong Producers Bank check No. 489427 (Exh. "A") payable to Ong's Master Metal
Craft. In order to insure the repayment, complainant required Mr. Ong to issue a post-dated
check for the same amount to become due on January 16, 1993. Mr. Ong therefore issued
FEBTC Check No. 381937, dated January 16, 1993 (Exh. "B"). Exh. "A-4" show(s) that Remigio
Ong negotiated the Producers Bank Check issued to him by De Jesus on the same day,
December 17, 1992, although this is at variance with Exh "F-6" (FEBTC statement of account of
Remigio Ong) which show(s) that the check was deposited in Ong's account only on May 26,
1993 and debited for the said amount of P130,000.00. At any rate, whatever the date the loan
check was encashed by Remigio Ong, what is certain was that the check was encashed for
value and debited to Ong's account as shown by Exh. "F-6." TIaEDC
In the meanwhile, Ong's FEBTC check (Exh. "B") dated January 16, 1993 was deposited by
Marcial De Jesus in his account at Producers Bank on May 26, 1993 (same date Remigio Ong
deposited De Jesus' check) which was promptly returned the following day by FEBTC for
reason that it was drawn against insufficient funds (DAIF), meaning, the check was dishonored
by FEBTC for lack of sufficient funds (Exh. "B" and "C" check No. 381937 and Return advise,
respectively). That thereafter, De Jesus verbally notified Remigio Ong of his bounced check
several times but unacted (sic) until made a written formal demand (Exh. "D") on September 10,
1993. For failure of Ong to make arrangement for the payment or replacement of the bounced
check, De Jesus filed this case. 1
After trial on the merits, the court a quo rendered a decision, the dispositive portion of which
reads as follows:
WHEREFORE, the Court finds the accused, Remigio Ong y Salinas, guilty beyond reasonable
doubt for Violation of Section 1, Batas Pambansa Blg. 22, otherwise known as the Bouncing
Check Law, and sentences him to suffer a straight penalty of six (6) months and one (1) day of
imprisonment, to pay a fine of P150,000.00 without subsidiary imprisonment in case of

insolvency and to pay the costs. The accused is likewise ordered to pay civil indemnity in the
amount of P130,000.00.
SO ORDERED. 2
On appeal, petitioner alleged that the subject check was not issued "on account or for value";
and, that a mere photocopy of the demand letter is not admissible in evidence. The Court of
Appeals, however, dismissed the appeal for lack of merit and affirmed the trial court's decision,
dated May 5, 1995, in toto. 3
Hence, the instant petition for certiorari wherein petitioner makes the following assignment of
errors:
I
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN AFFIRMING THE
DECISION OF THE LOWER COURT CONVICTING PETITIONER OF THE CHARGE OF
VIOLATION OF BATAS PAMBANSA BLG. 22 WHEN THE QUESTIONED FEBTC CHECK WAS
ONLY A CONTINGENT PAYMENT OF PETITIONER'S COMPANY LOAN WHICH WAS NOT
BEEN (sic) PROVEN TO HAVE BEEN EXTENDED AND ACTUALLY USED, THUS, THE SAID
CHECK WAS NOT ISSUED "TO APPLY ON ACCOUNT OR FOR VALUE" WITHIN THE
CONTEMPLATION OF THE LAW. HTSaEC
II
THE HONORABLE COURT OF APPEALS LIKEWISE SERIOUSLY ERRED IN AFFIRMING
THE LOWER COURT'S DECISION CONVICTING PETITIONER ON THE BASIS OF MERE
XEROX DEMAND LETTER (sic) CONTRARY TO SECTION 4, RULE 130, REVISED RULES
OF COURT AND PROOF OF SUCH DEMAND IS JURISDICTIONAL REQUIREMENT IN
BATAS PAMBANSA BLG. (sic) 22. 4
In gist, petitioner contends that the Court of Appeals affirmed the judgment of conviction of the
lower court despite the lack of evidence of receipt of the proceeds of the loan obligation from
complainant Company. In other words, there was no evidence that the Producers Bank check
issued by private complainant in his favor was ever encashed by him. Therefore, he alleges, the
subject check cannot be considered drawn and issued "to apply on account or for value."
Furthermore, according to petitioner, the Court of Appeals erroneously affirmed the conviction in
complete disregard of the basic and mandatory practice of companies in executing vouchers
and/or invoice as proof of receipt of the loan obligation which is clearly lacking and absent in the
case at bar. Hence, he reiterates, that the bounced check was not drawn and issued to apply on
account or for value. 5 SEHACI
Petitioner further asseverates that the Court of Appeals erred in affirming the trial court's
decision on the basis of a mere photocopy of the demand letter and without proof of loss of the
original as required by law. He contends that proof of demand is jurisdictional. 6
Petitioner's contentions are devoid of merit.

The trial court as well as the Court of Appeals have found that the prosecution clearly
established the existence of the loan and the subsequent encashment of the Producers Bank
check. It has also been established that petitioner issued the subject FEBTC check, and that
said check was subsequently dishonored for being drawn against insufficient funds. These facts
irretrievably bring petitioner within the purview of Section 1 of B.P. Blg. 22.
On petitioner's contention that the check was not drawn on account or for value, the law and
jurisprudence is clear on this matter. In the case of Cruz vs. Court of Appeals, 7 this Court had
occasion to rule that:
What the law punishes is the issuance of a bouncing check, 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.
The gravamen of the offense punished by B.P. 22 is the act of making and issuing a worthless
check or a check that is dishonored upon its presentation for payment. It is not the non-payment
of an obligation which the law punishes. The law is not intended or designed to coerce a debtor
to pay his debt. The thrust of the law is to prohibit, under pain of penal sanctions, the making of
worthless checks and putting them in circulation. 8
Petitioner's argument that the subject check was issued without consideration is
inconsequential. The law invariably declares the mere act of issuing a worthless check as
malum prohibitum. We quote with approval the appellate court's findings on this matter:
SAHEIc
In actions based upon a negotiable instrument, it is unnecessary to aver or prove consideration,
for consideration is imported and presumed from the fact that it is a negotiable instrument. The
presumption exists whether the words "value received" appear on the instrument or not
(Agbayani, A.F., Commentaries and Jurisprudence on the Commercial Laws of the Philippines,
1989 Ed., Vol. 1, p. 227, italics supplied). Furthermore, such contention is also inconsequential
in Batas Pambansa Blg. 22.
xxx

xxx

xxx

In Que vs. People (154 SCRA 161), the Supreme Court stated that it is the clear intention of the
framers of Batas Pambansa Blg. 22 to make the mere act of issuing a worthless check malum
prohibitum. In prosecutions for violation of B.P. Blg. 22, therefore, prejudice or damage is not a
pre-requisite for conviction. In the more recent case of People vs. Nitafan (215 SCRA 79), the
Supreme Court ruled that the argument surrounding the issuance of the checks need not be first
looked into, since the law clearly provides that the mere issuance of any kind of check,
regardless of the intent of the parties; i.e., whether the check was intended merely to serve as a
guarantee or deposit, but which check was subsequently dishonored, makes the person who
issued the check liable. The intent of the law is to curb the proliferation of worthless checks and
to protect the stability and integrity of checks as a means of payment of obligation (Lazaro vs.
Court of Appeals, 227 SCRA 723, 726-727). 9

Petitioner claims that the Court of Appeals erred in affirming the trial court's decision on the
basis of a photocopy of the demand letter, arguing that the prosecution failed to produce the
original thereof. A perusal of the trial court's decision, however, will reveal that it had
satisfactorily ruled on this issue, thus:
In regards to the alleged inadmissibility of a Xerox copy of the demand letter (Exh. "D") in the
absence of proof of loss of the original, said objection is unavailing in the light of the fact that the
original has already been shown and identified in Court when complainant Marcial De Jesus
testified on it on direct examination (TSN: Febre, p. 17, Aug. 2, 1994) and cross examined on it
by defense counsel Atty. Bihag, thus TIaCHA
Atty. Bihag:
Q:
In other words, George De Ocampo that time you sent this demand letter was a member
of Euro Cool Craft? (TSN: Febre, p. 27, Aug. 2, 1994). 10
It is well-settled in criminal jurisprudence that where the issue is one of credibility of witnesses,
the appellate court will generally not disturb the findings of the trial court, considering it was in a
better position to settle such issue. Indeed, the trial court has the advantage of hearing the
witness and observing his conduct during trial, circumstances which carry a great weight in
appreciating his credibility. 11
In the case at bar, the trial court had seen the original copy of the demand letter and had been
satisfied with the identification thereof by complainant Marcial De Jesus. We are not inclined to
disturb said court's findings.
In light, however, of the rulings in the recent cases of Vaca v. Court of Appeals 12 and Rosa Lim
v. People, 13 the Court deems it best in the instant case, to limit the penalty for violation of B.P.
Blg. 22 to payment of a fine in the amount of P150,000.00. Following our rationale in the
aforesaid cases, the Court believes that it would best serve the ends of criminal justice if in
fixing the penalty within the range of discretion allowed by Sec. 1, par. 1, the same philosophy
underlying the Indeterminate Sentence Law is observed, namely, that of redeeming valuable
human material and preventing unnecessary deprivation of personal liberty and economic
usefulness with due regard to the protection of the social order. 14 DTAHEC
Consequently, we delete the prison sentence of six (6) months and one (1) day. The imposition
of a fine of P150,000.00 and payment of civil indemnity in the amount of P130,000.00, as well
as the costs of the suit, are appropriate and sufficient.
WHEREFORE, in view of the foregoing, we AFFIRM the decision of the Court of Appeals WITH
THE MODIFICATION that the sentence of imprisonment is DELETED. Petitioner is hereby
ordered to pay a fine of P150,000.00. He is likewise ordered to pay civil indemnity in the amount
of P130,000.00, and the costs of the suit. DEcTCa
SO ORDERED.
Davide, Jr., C.J., Puno, Pardo, and Santiago, JJ., concur.

SECOND DIVISION
[G.R. No. 117913. February 1, 2002.]
CHARLES LEE, CHUA SIOK SUY, MARIANO SIO, ALFONSO YAP, RICHARD VELASCO
and ALFONSO CO, petitioners, vs. COURT OF APPEALS and PHILIPPINE BANK OF
COMMUNICATIONS, respondents.
[G.R. No. 117914. February 1, 2002.]
MICO METALS CORPORATION, petitioner, vs. COURT OF APPEALS and PHILIPPINE BANK
OF COMMUNICATIONS, respondents.
Lim Duran & Associates for C. Lee.
Silvestre J. Acejas for Mico Metals Corp.
Laogan Silva Baeza & Llantino Law Office for PBCom.
SYNOPSIS
Mico Metals Corporation, through its Vice-President and General Manager, executed a Deed of
Real Estate Mortgage over its properties in Pasig, Metro Manila to secure the loans obtained
from PBCom. Petitioners sureties, in their personal capacities, executed a surety agreement in
favor of PBCom whereby petitioners, jointly and severally, guaranteed the prompt payment on
due dates of letters of credits and other obligations of every kind and nature, for which Mico may
be held accountable by PBCom. Mico also filed with PBCom applications for domestic and
foreign letters of credit which were approved. IEAacT
The aforementioned real estate mortgage was foreclosed and the said mortgaged properties
were sold in a public auction for Mico's failure to pay the obligations incurred upon maturity. The
proceeds of the purchase price at public auction were applied to the outstanding obligations of
Mico, leaving still an unpaid balance which Mico refused to acknowledge. Hence, PBCom filed a
complaint for a sum of money with prayer for writ of preliminary attachment before the RTC.
Petitioners contended that there was no proof that the proceeds of the loans or the goods under
the trust receipts were even delivered to and received by Mico.
The Supreme Court held that the documents presented by private respondent PBCom to prove
petitioners' credit availments and liabilities have not merely created a prima facie case but have
actually proved the solidary obligation of Mico and the petitioners as sureties of Mico in favor of
respondent PBCom. The letters of credit showed that pertinent materials/merchandise have
been received by Mico. The drafts signed by the beneficiary/suppliers in connection with the
corresponding letters of credit proved that said suppliers were paid by PBCom for the account of
Mico.
SYLLABUS

1.
REMEDIAL LAW; EVIDENCE; PRESUMPTIONS; STAND IN THE PLACE OF
EVIDENCE UNLESS REBUTTED. During the trial of an action, the party who has the burden
of proof upon an issue may be aided in establishing his claim or defense by the operation of a
presumption, or, expressed differently, by the probative value which the law attaches to a
specific state of facts. A presumption may operate against his adversary who has not introduced
proof to rebut the presumption. The effect of a legal presumption upon a burden of proof is to
create the necessity of presenting evidence to meet the legal presumption or the prima facie
case created thereby, and which if no proof to the contrary is presented and offered, will prevail.
The burden of proof remains where it is, but by the presumption the one who has that burden is
relieved for the time being from introducing evidence in support of his averment, because the
presumption stands in the place of evidence unless rebutted.
2.
COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS; REQUISITES. Negotiable
instruments which are meant to be substitutes for money, must conform to the following
requisites to be considered as such a) it must be in writing; b) it must be signed by the maker or
drawer; c) it must contain an unconditional promise or order to pay a sum certain in money; d) it
must be payable on demand or at a fixed or determinable future time; e) it must be payable to
order or bearer; and f) where it is a bill of exchange, the drawee must be named or otherwise
indicated with reasonable certainty. DAHSaT
3.
ID.; LETTER OF CREDIT; PARTIES THERETO. Parties to a commercial letter of
credit include (a) the buyer or the importer, (b) the seller, also referred to as beneficiary, (c) the
opening bank which is usually the buyer's bank which actually issues the letter of credit, (d) the
notifying bank which is the correspondent bank of the opening bank through which it advises the
beneficiary of the letter of credit, (e) negotiating bank which is usually any bank in the city of the
beneficiary. The services of the notifying bank must always be utilized if the letter of credit is to
be advised to the beneficiary through cable, (f) the paying bank which buys or discounts the
drafts contemplated by the letter of credit, if such draft is to be drawn on the opening bank or on
another designated bank not in the city of the beneficiary. As a rule, whenever the facilities of
the opening bank are used, the beneficiary is supposed to present his drafts to the notifying
bank for negotiation and (g) the confirming bank which, upon the request of the beneficiary,
confirms the letter of credit issued by the opening bank.
4.
ID.; ID.; INVOLVES MORE THAN ONE BANK, IT BEING A BANK TO BANK
TRANSACTION; CASE AT BAR. From the foregoing, it is clear that letters of credit, being
usually bank to bank transactions, involve more than just one bank. Consequently; there is
nothing unusual in the fact that the drafts presented in evidence by respondent bank were not
made payable to PBCom. As explained by respondent bank, a draft was drawn on the Bank of
Taiwan by Ta Jih Enterprises Co., Ltd. of Taiwan, supplier of the goods covered by the foreign
letter of credit. Having paid the supplier, the Bank of Taiwan then presented the bank draft for
reimbursement by PBCom's correspondent bank in Taiwan, the Irving Trust Company which
explains the reason why on its face, the draft was made payable to the Bank of Taiwan. Irving
Trust Company accepted and endorsed the draft to PBCom. The draft was later transmitted to
PBCom to support the latter's claim for payment from MICO. MICO accepted the draft upon
presentment and negotiated it to PBCom.

5.
ID.; TRUST RECEIPT; NATURE THEREOF. A trust receipt is considered as a security
transaction intended to aid in financing importers and retail dealers who do not have sufficient
funds or resources to finance the importation or purchase of merchandise, and who may not be
able to acquire credit except through utilization, as collateral of the merchandise imported or
purchased. A trust receipt, therefor, is a document of security pursuant to which a bank acquires
a "security interest" in the goods under trust receipt. Under a letter of credit-trust receipt
arrangement, a bank extends a loan covered by a letter of credit, with the trust receipt as a
security for the loan. The transaction involves a loan feature represented by a letter of credit,
and a security feature which is in the covering trust receipt which secures an indebtedness.
6.
CIVIL LAW; SURETY AGREEMENTS; A GUARANTOR OR SURETY IS BOUND BY
THE SAME CONSIDERATION THAT MAKES THE CONTRACT EFFECTIVE BETWEEN THE
PARTIES THERETO; CASE AT BAR. Anent petitioners-sureties contention that they obtained
no consideration whatsoever on the surety agreements, we need only point out that the
consideration for the sureties is the very consideration for the principal obligor, MICO, in the
contracts of loan. In the case of Willex Plastic Industries Corporation vs. Court of Appeals, we
ruled that the consideration necessary to support a surety obligation need not pass directly to
the surety, a consideration moving to the principal alone being sufficient. For a guarantor or
surety is bound by the same consideration that makes the contract effective between the parties
thereto. It is not necessary that a guarantor or surety should receive any part or benefit, if such
there be, accruing to his principal.
7.
REMEDIAL LAW; EVIDENCE; BURDEN OF PROOF; CONTINUES TO REST ON THE
PLAINTIFF THROUGHOUT THE TRIAL AND DOES NOT SHIFT TO THE DEFENDANT UNTIL
THE PLAINTIFF'S EVIDENCE HAS BEEN PRESENTED AND DULY OFFERED, WHEN
DEFENDANT MERELY DENIES THE ALLEGATIONS OF THE PLAINTIFF'S PLEADINGS.
Petitioners placed too much reliance on the rule in evidence that the burden of proof does not
shift whereas the burden of going forward with the evidence does pass from party to party. It is
true that said rule is not changed by the fact that the party having the burden of proof has
introduced evidence which established prima facie his assertion because such evidence does
not shift the burden of proof; it merely puts the adversary to the necessity of producing evidence
to meet the prima facie case. Where the defendant merely denies, either generally or otherwise,
the allegations of the plaintiff's pleadings, the burden of proof continues to test on the plaintiff
throughout the trial and does not shift to the defendant until the plaintiff's evidence has been
presented and duly offered. The defendant has then no burden except to produce evidence
sufficient to create a state of equipoise between his proof and that of the plaintiff to defeat the
latter, whereas the plaintiff has the burden, as in the beginning, of establishing his case by a
preponderance of evidence. But where the defendant has failed to present and marshall
evidence sufficient to create a state of equipoise between his proof and that of plaintiff, the
prima facie case presented by the plaintiff will prevail. EHASaD
DECISION
DE LEON, JR., J p:

Before us is the joint and consolidated petition for review of the Decision 1 dated June 15, 1994
of the Court of Appeals in CA-G.R. CV No. 27480 entitled, "Philippine Bank of Communications
vs. Mico Metals Corporation, Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap, Richard
Velasco and Alfonso Co," which reversed the decision of the Regional Trial Court (RTC) of
Manila, Branch 55 dismissing the complaint for a sum of money filed by private respondent
Philippine Bank of Communications against herein petitioners, Mico Metals Corporation (MICO,
for brevity), Charles Lee, Chua Siok Suy, 2 Mariano Sio, Alfonso Yap, Richard Velasco and
Alfonso Co. 3 The dispositive portion of the said Decision of the Court of Appeals, reads:
EICDSA
WHEREFORE, the decision of the Regional Trial Court is hereby reversed and in lieu thereof, a
new one is entered:
a)
Ordering the defendants-appellees jointly and severally to pay plaintiff PBCom the sum
of Five million four hundred fifty-one thousand six hundred sixty-three pesos and ninety
centavos (P5,451,663.90) representing defendants-appellees unpaid obligations arising from
ordinary loans granted by the plaintiff plus legal interest until fully paid.
b)
Ordering defendants-appellees jointly and severally to pay PBCom the sum of Four
hundred sixty-one thousand six hundred pesos and sixty-six centavos (P461,600.66)
representing defendants-appellees unpaid obligations arising from their letters of credit and trust
receipt transactions with plaintiff PBCom plus legal interest until fully paid.
c)
Ordering defendants-appellees jointly and severally to pay PBCom the sum of
P50,000.00 as attorney's fees.
No pronouncement as to costs.
The facts of the case are as follows:
On March 2, 1979, Charles Lee, as President of MICO wrote private respondent Philippine Bank
of Communications (PBCom) requesting for a grant of a discounting loan/credit line in the sum
of Three Million Pesos (P3,000,000.00) for the purpose of carrying out MICO's line of business
as well as to maintain its volume of business.
On the same day, Charles Lee requested for another discounting loan/credit line of Three Million
Pesos (P3,000,000.00) from PBCom for the purpose of opening letters of credit and trust
receipts.
In connection with the requests for discounting loan/credit lines, PBCom was furnished by MICO
the following resolution which was adopted unanimously by MICO's Board of Directors:
RESOLVED, that the President, Mr. Charles Lee, and the Vice-President and General Manager,
Mr. Mariano A. Sio, singly or jointly, be and they are duly authorized and empowered for and in
behalf of this Corporation to apply for, negotiate and secure the approval of commercial loans
and other banking facilities and accommodations, such as, but not limited to discount loans,
letters of credit, trust receipts, lines for marginal deposits on foreign and domestic letters of

credit, negotiate out-of-town checks, etc. from the Philippine Bank of Communications, 216
Juan Luna, Manila in such sums as they shall deem advantageous, the principal of all of which
shall not exceed the total amount of TEN MILLION PESOS (P10,000,000.00), Philippine
Currency, plus any interests that may be agreed upon with said Bank in such loans and other
credit lines of the same kind and such further terms and conditions as may, upon granting of
said loans and other banking facilities, be imposed by the Bank; and to make, execute, sign and
deliver any contracts of mortgage, pledge or sale of one, some or all of the properties of the
Company, or any other agreements or documents of whatever nature or kind, including the
signing, indorsing, cashing, negotiation and execution of promissory notes, checks, money
orders or other negotiable instruments, which may be necessary and proper in connection with
said loans and other banking facilities, or with their amendments, renewals and extensions of
payment of the whole or any part thereof. 4
On March 26, 1979, MICO availed of the first loan of One Million Pesos (P1,000,000.00) from
PBCom. Upon maturity of the loan, MICO caused the same to be renewed, the last renewal of
which was made on May 21, 1982 under Promissory Note BNA No. 26218. 5
Another loan of One Million Pesos (P1,000,000.00) was availed of by MICO from PBCom which
was likewise later on renewed, the last renewal of which was made on May 21, 1982 under
Promissory Note BNA No. 26219. 6 To complete MICO's availment of Three Million Pesos
(P3,000,000.00) discounting loan/credit line with PBCom, MICO availed of another loan from
PBCom in the sum of One Million Pesos (P1,000,000.00) on May 24, 1979. As in previous
loans, this was rolled over or renewed, the last renewal of which was made on May 25, 1982
under Promissory Note BNA No. 26253. 7
As security for the loans, MICO through its Vice-President and General Manager, Mariano Sio,
executed on May 16, 1979 a Deed of Real Estate Mortgage over its properties situated in Pasig,
Metro Manila covered by Transfer Certificates of Title (TCT) Nos. 11248 and 11250.
On March 26, 1979 Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap and Richard
Velasco, in their personal capacities executed a Surety Agreements 8 in favor of PBCom
whereby the petitioners jointly and severally, guaranteed the prompt payment on due dates or at
maturity of overdrafts, promissory notes, discounts, drafts, letters of credit, bills of exchange,
trust receipts, and other obligations of every kind and nature, for which MICO may be held
accountable by PBCom. It was provided, however, that the liability of the sureties shall not at
any one time exceed the principal amount of Three Million Pesos (P3,000,000.00) plus interest,
costs, losses, charges and expenses including attorney's fees incurred by PBCom in connection
therewith.
On July 14, 1980, petitioner Charles Lee, in his capacity as president of MICO, wrote PBCom
and applied for an additional loan in the sum of Four Million Pesos (P4,000,000.00). The loan
was intended for the expansion and modernization of the company's machineries. Upon
approval of the said application for loan, MICO availed of the additional loan of Four Million
Pesos (P4,000,000.00) as evidenced by Promissory Note TA No. 094. 9

As per agreement, the proceeds of all the loan availments were credited to MICO's current
checking account with PBCom. To induce the PBCom to increase the credit line of MICO,
Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap, Richard Velasco and Alfonso Co
(hereinafter referred to as petitioners-sureties), executed another surety agreement 10 in favor
of PBCom on July 28, 1980, whereby they jointly and severally guaranteed the prompt payment
on due dates or at maturity of overdrafts, promissory notes, discounts, drafts, letters of credit,
bills of exchange, trust receipts and all other obligations of any kind and nature for which MICO
may be held accountable by PBCom. It was provided, however, that their liability shall not at any
one time exceed the sum of Seven Million Five Hundred Thousand Pesos (P7,500,000.00)
including interest, costs, charges, expenses and attorney's fees incurred by MICO in connection
therewith.
On July 29, 1980, MICO furnished PBCom with a notarized certification issued by its corporate
secretary, Atty. P.B. Barrera, that Chua Siok Suy was duly authorized by the Board of Directors
to negotiate on behalf of MICO for loans and other credit availments from PBCom. Indicated in
the certification was the following resolution unanimously approved by the Board of Directors:
RESOLVED, AS IT IS HEREBY RESOLVED, That Mr. Chua Siok Suy be, as he is hereby
authorized and empowered, on behalf of MICO METALS CORPORATION from time to time, to
borrow money and obtain other credit facilities, with or without security, from the PHILIPPINE
BANK OF COMMUNICATIONS in such amount(s) and under such terms and conditions as he
may determine, with full power and authority to execute, sign and deliver such contracts,
instruments and papers in connection therewith, including real estate and chattel mortgages,
pledges and assignments over the properties of the Corporation; and to renew and/or extend
and/or roll-over and/or reavail of the credit facilities granted thereunder, either for lesser or for
greater amount(s), the intention being that such credit facilities and all securities of whatever
kind given as collaterals therefor shall be a continuing security.
RESOLVED FURTHER, That said bank is hereby authorized, empowered and directed to rely
on the authority given hereunder, the same to continue in full force and effect until written notice
of its revocation shall be received by said Bank. 11
On July 2, 1981, MICO filed with PBCom an application for a domestic letter of credit in the sum
of Three Hundred Forty-Eight Thousand Pesos (P348,000.00). 12 The corresponding
irrevocable letter of credit was approved and opened under LC No. L-16060. 13 Thereafter, the
domestic letter of credit was negotiated and accepted by MICO as evidenced by the
corresponding bank draft issued for the purpose. 14 After the supplier of the merchandise was
paid, a trust receipt upon MICO's own initiative, was executed in favor of PBCom. 15
On September 14, 1981, MICO applied for another domestic letter of credit with PBCom in the
sum of Two Hundred Ninety Thousand Pesos (P290,000.00). 16 The corresponding irrevocable
letter of credit was issued on September 22, 1981 under LC No. L-16334. 17 After the
beneficiary of the said letter of credit was paid by PBCom for the price of the merchandise, the
goods were delivered to MICO which executed a corresponding trust receipt 18 in favor of
PBCom.

On November 10, 1981, MICO applied for authority to open a foreign letter of credit in favor of
Ta Jih Enterprises Co., Ltd., 19 and thus, the corresponding letter of credit 20 was then issued
by PBCom with a cable sent to the beneficiary, Ta Jih Enterprises Co., Ltd. advising that said
beneficiary may draw funds from the account of PBCom in its correspondent bank's New York
Office. 21 PBCom also informed its corresponding bank in Taiwan, the Irving Trust Company, of
the approved letter of credit. The correspondent bank acknowledged PBCom's advice through a
confirmation letter 22 and by debiting from PBCom's account with the said correspondent bank
the sum of Eleven Thousand Nine Hundred Sixty US Dollars ($11,960.00). 23 As in past
transactions, MICO executed in favor of PBCom a corresponding trust receipt. 24
On January 4, 1982, MICO applied, for authority to open a foreign letter of credit in the sum of
One Thousand Nine Hundred US Dollars ($1,900.00), with PBCom. 25 Upon approval, the
corresponding letter of credit denominated as LC No. 62293 26 was issued whereupon PBCom
advised its correspondent bank and MICO 27 of the same. Negotiation and proper acceptance
of the letter of credit were then made by MICO. Again, a corresponding trust receipt 28 was
executed by MICO in favor of PBCom.
In all the transactions involving foreign letters of credit, PBCom turned over to MICO the
necessary documents such as the bills of lading and commercial invoices to enable the latter to
withdraw the goods from the port of Manila.
On May 21, 1982 MICO obtained from PBCom another loan in the sum of Three Hundred
Seventy-Seven Thousand Pesos (P377,000.00) covered by Promissory Note BA No. 7458. 29
Upon maturity of all credit availments obtained by MICO from PBCom, the latter made a
demand for payment. 30 For failure of petitioner MICO to pay the obligations incurred despite
repeated demands, private respondent PBCom extrajudicially foreclosed MICO's real estate
mortgage and sold the said mortgaged properties in a public auction sale held on November 23,
1982. Private respondent PBCom which emerged as the highest bidder in the auction sale,
applied the proceeds of the purchase price at public auction of Three Million Pesos
(P3,000,000.00) to the expenses of the foreclosure, interest and charges and part of the
principal of the loans, leaving an unpaid balance of Five Million Four Hundred Forty-One
Thousand Six Hundred Sixty-Three Pesos and Ninety Centavos (P5,441,663.90) exclusive of
penalty and interest charges. Aside from the unpaid balance of Five Million Four Hundred FortyOne Thousand Six Hundred Sixty-Three Pesos and Ninety Centavos (P5,441,663.90), MICO
likewise had another standing obligation in the sum of Four Hundred Sixty-One Thousand Six
Hundred Pesos and Six Centavos (P461,600.06) representing its trust receipts liabilities to
private respondent. PBCom then demanded the settlement of the aforesaid obligations from
herein petitioners-sureties who, however, refused to acknowledge their obligations to PBCom
under the surety agreements. Hence, PBCom filed a complaint with prayer for writ of preliminary
attachment before the Regional Trial Court of Manila, which was raffled to Branch 55, alleging
that MICO was no longer in operation and had no properties to answer for its obligations.
PBCom further alleged that petitioner Charles Lee has disposed or concealed his properties
with intent to defraud his creditors. Except for MICO and Charles Lee, the sheriff of the RTC
failed to serve the summons on herein petitioners-sureties since they were all reportedly abroad
at the time. An alias summons was later issued but the sheriff was not able to serve the same to

petitioners Alfonso Co and Chua Siok Suy who was already sickly at the time and reportedly in
Taiwan where he later died.
Petitioners (MICO and herein petitioners-sureties) denied all the allegations of the complaint
filed by respondent PBCom, and alleged that: a) MICO was not granted the alleged loans and
neither did it receive the proceeds of the aforesaid loans; b) Chua Siok Suy was never granted
any valid Board Resolution to sign for and in behalf of MICO; c) PBCom acted in bad faith in
granting the alleged loans and in releasing the proceeds thereof; d) petitioners were never
advised of the alleged grant of loans and the subsequent releases therefor, if any; e) since no
loan was ever released to or received by MICO, the corresponding real estate mortgage and the
surety agreements signed concededly by the petitioners-sureties are null and void.
The trial court gave credence to the testimonies of herein petitioners and dismissed the
complaint filed by PBCom. The trial court likewise declared the real estate mortgage and its
foreclosure null and void. In ruling for herein petitioners, the trial court said that PBCom failed to
adequately prove that the proceeds of the loans were ever delivered to MICO. The trial court
pointed out, among others, that while PBCom claimed that the proceeds of the Four Million
Pesos (P4,000,000.00) loan covered by promissory note TA 094 were deposited to the current
account of petitioner MICO, PBCom failed to produce the ledger account showing such deposit.
The trial court added that while PBCom may have loaned to MICO the other sums of Three
Hundred Forty-Eight Thousand Pesos (P348,000.00) and Two Hundred Ninety Thousand Pesos
(P290,000.00), no proof has been adduced as to the existence of the goods covered and paid
by the said amounts. Hence, inasmuch as no consideration ever passed from PBCom to MICO,
all the documents involved therein, such as the promissory notes, real estate mortgage
including the surety agreements were all void or nonexistent for lack of cause or consideration.
The trial court said that the lack of proof as regards the existence of the merchandise covered
by the letters of credit bolstered the claim of herein petitioners that no purchases of the goods
were really made and that the letters of credit transactions were simply resorted to by the
PBCom and Chua Siok Suy to accommodate the latter in his financial requirements.
The Court of Appeals reversed the ruling of the trial court, saying that the latter committed an
erroneous application and appreciation of the rules governing the burden of proof. Citing
Section 24 of the Negotiable Instruments Law which provides that "Every negotiable instrument
is deemed prima facie to have been issued for valuable consideration and every person whose
signature appears thereon to have become a party thereto for value", the Court of Appeals said
that while the subject promissory notes and letters of credit issued by the PBCom made no
mention of delivery of cash, it is presumed that said negotiable instruments were issued for
valuable consideration. The Court of Appeals also cited the case of Gatmaitan vs. Court of
Appeals 31 which holds that "there is a presumption that an instrument sets out the true
agreement of the parties thereto and that it was executed for valuable consideration". The
appellate court noted and found that a notarized Certification was issued by MICO's corporate
secretary, P.B. Barrera, that Chua Siok Suy, was duly authorized by the Board of Directors of
MICO to borrow money and obtain credit facilities from PBCom.
Petitioners filed a motion for reconsideration of the challenged decision of the Court of Appeals
but this was denied in a Resolution dated November 7, 1994 issued by its Former Second

Division. Petitioners-sureties then filed a petition for review on certiorari with this Court,
docketed as G.R. No. 117913, assailing the decision of the Court of Appeals. MICO likewise
filed a separate petition for review on certiorari, docketed as G.R. No. 117914, with this Court
assailing the same decision rendered by the Court of Appeals. Upon motion filed by petitioners,
the two (2) petitions were consolidated on January 11, 1995. 32
Petitioners contend that there was no proof that the proceeds of the loans or the goods under
the trust receipts were ever delivered to and received by MICO. But the record shows otherwise.
Petitioners-sureties further contend that assuming that there was delivery by PBCom of the
proceeds of the loans and the goods, the contracts were executed by an unauthorized person,
more specifically Chua Siok Suy who acted fraudulently and in collusion with PBCom to defraud
MICO.
The pertinent issues raised in the consolidated cases at bar are: a) whether or not the proceeds
of the loans and letters of credit transactions were ever delivered to MICO, and b) whether or
not the individual petitioners, as sureties, may be held liable under the two (2) Surety
Agreements executed on March 26, 1979 and July 28, 1980.
In civil cases, the party having the burden of proof must establish his case by preponderance of
evidence. 33 Preponderance of evidence means evidence which is more convincing to the court
as worthy of belief than that which is offered in opposition thereto. Petitioners contend that the
alleged promissory notes, trust receipts and surety agreements attached to the complaint filed
by PBCom did not ripen into valid and binding contracts inasmuch as there is no evidence of the
delivery of money or loan proceeds to MICO or to any of the petitioners-sureties. Petitioners
claim that under normal banking practice, borrowers are required to accomplish promissory
notes in blank even before the grant of the loans applied for and such documents become valid
written contracts only when the loans are actually released to the borrower.
We are not convinced.
During the trial of an action, the party who has the burden of proof upon an issue may be aided
in establishing his claim or defense by the operation of a presumption, or, expressed differently,
by the probative value which the law attaches to a specific state of facts. A presumption may
operate against his adversary who has not introduced proof to rebut the presumption. The effect
of a legal presumption upon a burden of proof is to create the necessity of presenting evidence
to meet the legal presumption or the prima facie case created thereby, and which if no proof to
the contrary is presented and offered, will prevail. The burden of proof remains where it is, but
by the presumption the one who has that burden is relieved for the time being from introducing
evidence in support of his averment, because the presumption stands in the place of evidence
unless rebutted.
Under Section 3, Rule 131 of the Rules of Court the following presumptions, among others, are
satisfactory if uncontradicted: a) That there was a sufficient consideration for a contract and b)
That a negotiable instrument was given or indorsed for sufficient consideration. As observed by
the Court of Appeals, a similar presumption is found in Section 24 of the Negotiable Instruments
Law which provides that every negotiable instrument is deemed prima facie to have been issued

for valuable consideration and every person whose signature appears thereon to have become
a party for value. Negotiable instruments which are meant to be substitutes for money, must
conform to the following requisites to be considered as such a) it must be in writing; b) it must
be signed by the maker or drawer; c) it must contain an unconditional promise or order to pay a
sum certain in money; d) it must be payable on demand or at a fixed or determinable future
time; e) it must be payable to order or bearer; and f) where it is a bill of exchange, the drawee
must be named or otherwise indicated with reasonable certainty. Negotiable instruments include
promissory notes, bills of exchange and checks. Letters of credit and trust receipts are,
however, not negotiable instruments. But drafts issued in connection with letters of credit are
negotiable instruments.
Private respondent PBCom presented the following documentary evidence to prove petitioners'
credit availments and liabilities:
1)
Promissory Note No. BNA-26218 dated May 21, 1982 in the sum of P1,000,000.00
executed by MICO in favor of PBCom.
2)
Promissory Note No. BNA-26219 dated May 21, 1982 in the sum of P1,000,000.00
executed by MICO in favor of PBCom.
3)
Promissory Note No. BNA-26253 dated May 25, 1982 in the sum of P1,000,000.00
executed by MICO in favor of PBCom.
4)
Promissory Note No. BNA-7458 dated May 21, 1982 in the sum of P377,000.00
executed by MICO in favor of PBCom.
5)
Promissory Note No. TA - 094 dated July 29, 1980 in the sum of P4,000.000.00
executed by MICO in favor of PBCom.
6)
Irrevocable letter of credit No. L-16060 dated July 2, 1981 issued in favor of Perez
Battery Center for account of Mico Metals Corp.
7)
Draft dated July 2, 1981 in the sum of P348,000.00 issued by Perez Battery Center,
beneficiary of irrevocable Letter of Credit No. No. L-16060 and accepted by MICO Metals
corporation.
8)
Letter dated July 2, 1981 from Perez Battery Center addressed to private respondent
PBCom showing that proceeds of the irrevocable letter of credit No. L-16060 was received by
Mr. Moises Rosete, representative of Perez Battery Center.
9)
Trust receipt dated July 2, 1981 executed by MICO in favor of PBCom covering the
merchandise purchased under Letter of Credit No. 16060.
10)
Irrevocable letter of credit No. L-16334 dated September 22, 1981 issued in favor of
Perez Battery Center for account of MICO Metals Corp.
11)
Draft dated September 22, 1981 in the sum of P290,000.00 issued by Perez Battery
Center and accepted by MICO.

12)
Letter dated September 17, 1981 from Perez Battery addressed to PBCom showing that
the proceeds of credit no. L-16344 was received by Mr. Moises Rosete, a representative of
Perez Battery Center.
13)
Trust Receipt dated September 22, 1981 executed by MICO in favor of PBCom covering
the merchandise under Letter of Credit No. L-16334.
14)
Irrevocable Letter of Credit no. 61873 dated November 10, 1981 for US$11,960.00
issued by PBCom in favor of TA JIH Enterprises Co. Ltd., through its correspondent bank, Irving
Trust Company of Taipei, Taiwan.
15)
Trust Receipt dated December 15, 1981 executed by MICO in favor of PBCom showing
that possession of the merchandise covered by Irrevocable Letter of Credit no. 61873 was
released by PBCom to MICO.
16)
Letters dated March 2, 1979 from MICO signed by its president, Charles Lee, showing
that MICO sought credit line from PBCom in the form of loans, letters of credit and trust receipt
in the sum of P7,500,000.00.
17)
Letter dated July 14, 1980 from MICO signed by its president, Charles Lee, showing that
MICO requested for additional financial assistance in the sum of P4,000,000.00.
18)
Board resolution dated March 6, 1979 of MICO authorizing Charles Lee and Mariano Sio
singly or jointly to act and sign for and in behalf of MICO relative to the obtention of credit
facilities from PBCom.
19)
Duly notarized Deed of Mortgage dated May 16, 1979 executed by MICO in favor of
PBCom over MICO's real properties covered by TCT Nos. 11248 and 11250 located in Pasig.
20)
Duly notarized Surety Agreement dated March 26, 1979 executed by herein petitioners
Charles Lee, Mariano Sio, Alfonso Yap, Richard Velasco and Chua Siok Suy in favor of PBCom.
21)
Duly notarized Surety Agreement dated July 28, 1980 executed by herein petitioners
Charles Lee, Mariano Sio, Alfonso Yap, Richard Velasco and Chua Siok Suy in favor of PBCom.
22)
Duly notarized certification dated July 28, 1980 issued by MICO's corporate secretary,
Mr. P.B. Barrera, attesting to the adoption of a board resolution authorizing Chua Siok Suy to
sign, for and in behalf of MICO, all the necessary documents including contracts, loan
instruments and mortgages relative to the obtention of various credit facilities from PBCom.
The above-cited documents presented have not merely created a prima facie case but have
actually proved the solidary obligation of MICO and the petitioners, as sureties of MICO, in favor
of respondent PBCom. While the presumption found under the Negotiable Instruments Law may
not necessarily be applicable to trust receipts and letters of credit, the presumption that the
drafts drawn in connection with the letters of credit have sufficient consideration. Under Section
3(r), Rule 131 of the Rules of Court there is also a presumption that sufficient consideration was
given in a contract. Hence, petitioners should have presented credible evidence to rebut that
presumption as well as the evidence presented by private respondent PBCom. The letters of

credit show that the pertinent materials/merchandise have been received by MICO. The drafts
signed by the beneficiary/suppliers in connection with the corresponding letters of credit proved
that said suppliers were paid by PBCom for the account of MICO. On the other hand, aside from
their bare denials petitioners did not present sufficient and competent evidence to rebut the
evidence of private respondent PBCom. Petitioner MICO did not proffer a single piece of
evidence, apart from its bare denials, to support its allegation that the loan transactions, real
estate mortgage, letters of credit and trust receipts were issued allegedly without any
consideration.
Petitioners-sureties, for their part, presented the By-Laws 34 of Mico Metals Corporation (MICO)
to prove that only the president of MICO is authorized to borrow money, arrange letters of credit,
execute trust receipts, and promissory notes and consequently, that the loan transactions,
letters of credit, promissory notes and trust receipts, most of which were executed by Chua Siok
Suy in representation of MICO were not allegedly authorized and hence, are not binding upon
MICO. A perusal of the By-Laws of MICO, however, shows that the power to borrow money for
the company and issue mortgages, lands, deeds of trust and negotiable instruments or
securities, secured by mortgages or pledges of property belonging to the company is not
confined solely to the president of the corporation. The Board of Directors of MICO can also
borrow money, arrange letters of credit, execute trust receipts and promissory notes on behalf of
the corporation. 35 Significantly, this power of the Board of Directors according to the by-laws of
MICO, may be delegated to any of its standing committee, officer or agent. 36 Hence, PBCom
had every right to rely on the Certification issued by MICO's corporate secretary, P.B. Barrera,
that Chua Siok Suy was duly authorized by its Board of Directors to borrow money and obtain
credit facilities in behalf of MICO from PBCom.
Petitioners-sureties also presented a letter of their counsel dated October 9, 1982, addressed to
private respondent PBCom purportedly to show that PBCom knew that Chua Siok Suy allegedly
used the credit and good names of the petitioner-sureties for his benefit, and that petitionersureties were made to sign blank documents and were furnished copies of the same. The letter,
however, is in fact merely a reply of petitioners-sureties' counsel to PBCom's demand for
payment of MICO's obligations, and appears to be an inconsequential piece of self-serving
evidence.
In addition to the foregoing, MICO and petitioners-sureties cited the decision of the trial court
which stated that there was no proof that the proceeds of the loans were ever delivered to
MICO. Although the private respondent's witness, Mr. Gardiola, testified that the proceeds of the
loans were deposited in MICO's current account with PBCom, his testimony was allegedly not
supported by any bank record, note or memorandum. A careful scrutiny of the record including
the transcript of stenographic notes reveals, however, that although private respondent PBCom
was willing to produce the corresponding account ledger showing that the proceeds of the loans
were credited to MICO's current account with PBCom, MICO in fact vigorously objected to the
presentation of said document. That point is shown in the testimony of PBCom's witness,
Gardiola, thus:

Q:
Now, all of these promissory note Exhibits "I" and "J" which as you have said previously
(sic) availed originally by defendant Mico Metals Corp. sometime in 1979, my question now is,
do you know what happened to the proceeds of the original availment?
A:

Well, it was credited to the current account of Mico Metals Corp.

Q:

Why did it was credited to the proceeds to the account of Mico Metals Corp? (sic)

A:

Well, that is our understanding.

ATTY. DURAN:
Your honor, may we be given a chance to object, the best evidence is the so-called current
account . . .
COURT:
Can you produce the ledger account?
A:

Yes, Your Honor, I will bring.

COURT:
The ledger or record of the current account of Mico Metals Corp.
A:

Yes, Your Honor.

ATTY. ACEJAS:
Your Honor, these are a confidential record, and they might not be disclosed without the consent
of the person concerned. (sic)
ATTY. SANTOS:
Well, you are the one who is asking that.
ATTY. DURAN:
Your Honor, I'm precisely want to show for the . . . (sic)
COURT:
But the amount covered by the current account of defendant Mico Metals Corp. is the subject
matter of this case.
xxx

xxx

xxx

Q:

Are those availments were release? (sic)

A:

Yes, Your Honor, to the defendant corporation.

Q:

By what means?

A:

By the credit to their current account.

ATTY. ACEJAS:
We object to that, your Honor, because the disclose is the secrecy of the bank deposit. (sic)
xxx

xxx

xxx

Q:
Before the recess Mr. Gardiola, you stated that the proceeds of the three (3) promissory
notes were credited to the accounts of Mico Metals Corporation, now do you know what kind of
current account was that which you are referring to?
ATTY. ACEJAS:
Objection your Honor, that is the disclose of the deposit of defendant Mico Metals Corporation
and it cannot disclosed without the authority of the depositor. (sic) 37
That proceeds of the loans which were originally availed of in 1979 were delivered to MICO is
bolstered by the fact that more than a year later, specifically on July 14, 1980, MICO through its
president, petitioner-surety Charles Lee, requested for an additional loan of Four Million Pesos
(P4,000,000.00) from PBCom. The fact that MICO was requesting for an additional loan implied
that it has already availed of earlier loans from PBCom.
Petitioners allege that PBCom presented no evidence that it remitted payments to cover the
domestic and foreign letters of credit. Petitioners placed much reliance on the erroneous
decision of the trial court which stated that private respondent PBCom allegedly failed to prove
that it actually made payments under the letters of credit since the bank drafts presented as
evidence show that they were made in favor of the Bank of Taiwan and First Commercial Bank.
Petitioners' allegations are untenable.
Modern letters of credit are usually not made between natural persons. They involve bank to
bank transactions. Historically, the letter of credit was developed to facilitate the sale of goods
between, distant and unfamiliar buyers and sellers. It was an arrangement under which a bank,
whose credit was acceptable to the seller, would at the instance of the buyer agree to pay drafts
drawn on it by the seller, provided that certain documents are presented such as bills of lading
accompanied the corresponding drafts. Expansion in the use of letters of credit was a natural
development in commercial banking. 38 Parties to a commercial letter of credit include (a) the
buyer or the importer, (b) the seller, also referred to as beneficiary, (c) the opening bank which is
usually the buyer's bank which actually issues the letter of credit, (d) the notifying bank which is
the correspondent bank of the opening bank through which it advises the beneficiary of the
letter of credit, (e) negotiating bank which is usually any bank in the city of the beneficiary. The
services of the notifying bank must always be utilized if the letter of credit is to be advised to the
beneficiary through cable, (f) the paying bank which buys or discounts the drafts contemplated
by the letter of credit, if such draft is to be drawn on the opening bank or on another designated
bank not in the city of the beneficiary. As a rule, whenever the facilities of the opening bank are

used, the beneficiary is supposed to present his drafts to the notifying bank for negotiation and
(g) the confirming bank which, upon the request of the beneficiary, confirms the letter of credit
issued by the opening bank.
From the foregoing, it is clear that letters of credit, being usually bank to bank transactions,
involve more than just one bank. Consequently, there is nothing unusual in the fact that the
drafts presented in evidence by respondent bank were not made payable to PBCom. As
explained by respondent bank, a draft was drawn on the Bank of Taiwan by Ta Jih Enterprises
Co., Ltd. of Taiwan, supplier of the goods covered by the foreign letter of credit. Having paid the
supplier, the Bank of Taiwan then presented the bank draft for reimbursement by PBCom's
correspondent bank in Taiwan, the Irving Trust Company which explains the reason why on
its face, the draft was made payable to the Bank of Taiwan. Irving Trust Company accepted and
endorsed the draft to PBCom. The draft was later transmitted to PBCom to support the latter's
claim for payment from MICO. MICO accepted the draft upon presentment and negotiated it to
PBCom.
Petitioners further aver that MICO never requested that legal possession of the merchandise be
transferred to PBCom by way of trust receipts. Petitioners insist that assuming that MICO
transferred possession of the merchandise to PBCom by way of trust receipts, the same would
be illegal since PBCom, being a banking institution, is not authorized by law to engage in the
business of importing and selling goods.
A trust receipt is considered as a security transaction intended to aid in financing importers and
retail dealers who do not have sufficient funds or resources to finance the importation or
purchase of merchandise, and who may not be able to acquire credit except through utilization,
as collateral of the merchandise imported or purchased. 39 A trust receipt, therefor, is a
document of security pursuant to which a bank acquires a "security interest" in the goods under
trust receipt. Under a letter of credit-trust receipt arrangement, a bank extends a loan covered
by a letter of credit, with the trust receipt as a security for the loan. The transaction involves a
loan feature represented by a letter of credit, and a security feature which is in the covering trust
receipt which secures an indebtedness.
Petitioners' averments with regard to the second issue are no less incredulous. Petitioners'
contend that the letters of credit, surety agreements and loan transactions did not ripen into
valid and binding contracts since no part of the proceeds of the loan transactions were delivered
to MICO or to any of the petitioners-sureties. Petitioners-sureties allege that Chua Siok Suy was
the beneficiary of the proceeds of the loans and that the latter made them sign the surety
agreements in blank. Thus, they maintain that they should not be held accountable for any
liability that might arise therefrom.
It has not escaped our notice that it was petitioner-surety Charles Lee, as president of MICO
Metals Corporation, who first requested for a discounting loan of Three Million Pesos
(P3,000,000.00) from PBCom as evidenced by his letter dated March 2, 1979. 40 On the same
day, Charles Lee, as President of MICO, requested for a Letter of Credit and Trust Receipt line
in the sum of Three Million Pesos (P3,000,000.00). 41 Still, on the same day, Charles Lee again
as President of MICO, wrote another letter to PBCOM requesting for a financing line in the sum

of One Million Five Hundred Thousand Pesos (P1,500,000.00) to be used exclusively as

marginal deposit for the opening of MICO's foreign and local letters of credit with PBCom. 42
More than a year later, it was also Charles Lee, again in his capacity as president of MICO, who
asked for an additional loan in the sum of Four Million Pesos (P4,000,000.00). The claim
therefore of petitioners that it was Chua Siok Suy, in connivance with the respondent PBCom,
who applied for and obtained the loan transactions and letters of credit strains credulity
considering that even the Deed of the Real Estate Mortgage in favor of PBCom was executed
by petitioner-surety Mariano Sio in his capacity as general manager of MICO 43 to secure the
loan accommodations obtained by MICO from PBCom.
Petitioners-sureties allege that they were made to sign the surety agreements in blank by Chua
Siok Suy. Petitioner Alfonso Yap, the corporate treasurer, for his part testified that he signed
booklets of checks, surety agreements and promissory notes in blank; that he signed the
documents in blank despite his misgivings since Chua Siok Suy assured him that the
transaction can easily be taken cared of since Chua Siok Suy personally knew the Chairman of
the Board of PBCom; that he was not receiving salary as treasurer of Mico Metals and since
Chua Siok Suy had a direct hand in the management of Malayan Sales Corporation, of which
Yap is an employee, he (Yap) signed the documents in blank as consideration for his continued
employment in Malayan Sales Corporation. Petitioner Antonio Co testified that he worked as
office manager for MICO from 1978-1982. As office manager, he was the one in charge of
transacting business like purchasing, selling and paying the salary of the employees. He was
also in charge of the handling of documents pertaining to surety agreements, trust receipts and
promissory notes; 44 that when he first joined MICO Metals Corporation, he was able to read
the by-laws of the corporation and he came to know that only the chairman and the president
can borrow money in behalf of the corporation; that Chua Siok Suy once called him up and told
him to secure an invoice so that a credit line can be opened in the bank with a local letter of
credit; that when the invoice was secured, he (Co) brought it together with the application for a
credit line to Chua Siok Suy, and that he questioned the authority of Chua Siok Suy pointing out
that he (Co) is not empowered to sign the document inasmuch as only the latter, as president,
was authorized to do so. However, Chua Siok Suy allegedly just said that he had already talked
with the Chairman of the Board of PBCom; and that Chua Siok Suy reportedly said that he
needed the money to finance a project that he had with the Taipei government. Co also testified
that he knew of the application for domestic letter of credit in the sum of Three Hundred FortyEight Thousand Pesos (P348,000.00); and that a certain Moises Rosete was authorized to
claim the check covering the Three Hundred Forty-Eight Thousand Pesos (P348,000.00) from
PBCom; and that after claiming the check Rosete brought it to Perez Battery Center for
indorsement after which the same was deposited to the personal account of Chua Siok Suy. 45
We consider as incredible and unacceptable the claim of petitioners-sureties that the Board of
Directors of MICO was so careless about the business affairs of MICO as well as about their
own personal reputation and money that they simply relied on the say so of Chua Siok Suy on
matters involving millions of pesos. 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

but several documents were executed at different times and at different places by the petitioner
sureties and Chua Siok Suy as president of MICO.
MICO and herein petitioners-sureties insist that Chua Siok Suy was not duly authorized to
negotiate for loans in behalf of MICO from PBCom. Petitioners' allegation, however, is belied by
the July 28, 1980 Certification issued by the corporate secretary of PBCom, Atty. P.B. Barrera,
that MICO's Board of Directors gave Chua Siok Suy full authority to negotiate for loans in behalf
of MICO with PBCom. In fact, the Certification even provided that Chua Siok Suy's authority
continues until and unless PBCom is notified in writing of the withdrawal thereof by the said
Board. Notably, petitioners failed to contest the genuineness of the said Certification which is
notarized and to show any written proof of any alleged withdrawal of the said authority given by
the Board of Directors to Chua Siok Suy to negotiate for loans in behalf of MICO.
There was no need for PBCom to personally inform the petitioners-sureties individually about
the terms of the loans, letters of credit and other loan documents. The petitioners-sureties
themselves happen to comprise the Board of Directors of MICO, which gave full authority to
Chua Siok Suy to negotiate for loans in behalf of MICO. Notice to MICO's authorized
representative, Chua Siok Suy, was notice to MICO. The Certification issued by PBCom's
corporate secretary, Atty. P.B. Barrera, indicated that Chua Siok Suy had full authority to
negotiate and sign the necessary documents, in behalf of MICO for loans from PBCom.
Respondent PBCom therefore had the right to rely on the said notarized Certification of MICO's
Corporate Secretary.
Anent petitioners-sureties contention that they obtained no consideration whatsoever on the
surety agreements, we need only point out that the consideration for the sureties is the very
consideration for the principal obligor, MICO, in the contracts of loan. In the case of Willex
Plastic Industries Corporation vs. Court of Appeals, 46 we ruled that the consideration
necessary to support a surety obligation need not pass directly to the surety, a consideration
moving to the principal alone being sufficient. For a guarantor or surety is bound by the same
consideration that makes the contract effective between the parties thereto. It is not necessary
that a guarantor or surety should receive any part or benefit, if such there be, accruing to his
principal.
Petitioners placed too much reliance on the rule in evidence that the burden of proof does not
shift whereas the burden of going forward with the evidence does pass from party to party. It is
true that said rule is not changed by the fact that the party having the burden of proof has
introduced evidence which established prima facie his assertion because such evidence does
not shift the burden of proof; it merely puts the adversary to the necessity of producing evidence
to meet the prima facie case. Where the defendant merely denies, either generally or otherwise,
the allegations of the plaintiff's pleadings, the burden of proof continues to rest on the plaintiff
throughout the trial and does not shift to the defendant until the plaintiff's evidence has been
presented and duly offered. The defendant has then no burden except to produce evidence
sufficient to create a state of equipoise between his proof and that of the plaintiff to defeat the
latter, whereas the plaintiff has the burden, as in the beginning, of establishing his case by a
preponderance of evidence. 47 But where the defendant has failed to present and marshall

evidence sufficient to create a state of equipoise between his proof and that of the plaintiff, the
prima facie case presented by the plaintiff will prevail.
In the case at bar, respondent PBCom, as plaintiff in the trial court, has in fact presented
sufficient documentary and testimonial evidence that proved by preponderance of evidence its
subject collection case against the defendants who are the petitioners herein. In view of all the
foregoing, the Court of Appeals committed no reversible error in its appealed Decision.
WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R. CV No. 27480 entitled,
"Philippine Bank of Communications vs. Mico Metals Corporation, Charles Lee, Chua Siok Suy,
Mariano Sio, Alfonso Yap, Richard Velasco and Alfonso Co," is AFFIRMED in toto. DTIcSH
Costs against the petitioners.
SO ORDERED.
Bellosillo, Mendoza, Quisumbing and Buena, JJ., concur.
THIRD DIVISION
[G.R. No. 126568. April 30, 2003.]
QUIRINO GONZALES LOGGING CONCESSIONAIRE, QUIRINO GONZALES and EUFEMIA
GONZALES, petitioners, vs. THE COURT OF APPEALS (CA) and REPUBLIC PLANTERS
BANK, respondents.
Mariano R. Riva for petitioners.
The Chief Legal Counsel for PNB Republic Bank.
SYNOPSIS
Petitioners obtained a credit line from respondent bank secured by a real estate mortgage on
four parcels of land. The bank foreclosed the mortgage and bought the properties covered
thereby for failure of petitioners to pay their obligation. Thereafter, respondent bank filed a
complaint for sum of money against petitioners alleging the non-payment of the balance after
proceeds of the foreclosure sale were applied to the obligation. The trial court ruled in favor of
petitioners. The Court of Appeals reversed the decision of the trial court. ITEcAD
The Supreme Court ruled that the action to recover the deficient amount of the obligation after
the foreclosure of the mortgage had already prescribed. A mortgage action prescribes after ten
years from the time the right of action accrued. In the present case, the bank, as mortgagee,
had the right to claim payment of the deficiency after it had foreclosed the mortgage in 1965.
The prescriptive period started to run against the bank in 1965. As it filed the complaint only on
January 27, 1977, more than ten years had already elapsed, hence, the action had by then
prescribed.

The Court further ruled that the properties foreclosed cannot be reconveyed to petitioners.
Though the bank's action for deficiency is barred by prescription, nothing irregular attended the
foreclosure proceedings to warrant the reconveyance of the properties covered thereby.
SYLLABUS
1.
CIVIL LAW; PRESCRIPTION OF ACTIONS; ACTIONS THAT MUST BE BROUGHT
WITHIN TEN YEARS FROM THE TIME THE RIGHT OF ACTION ACCRUES. The Civil Code
provides that an action upon a written contract, an obligation created by law, and a judgment
must be brought within ten years from the time the right of action accrues. TcSCEa
2.
ID.; ID.; WHEN INTERRUPTED. Prescription of actions is interrupted when they are
filed before the court, when there is a written extrajudicial demand by the creditors, and when
there is any written acknowledgment of the debt by the debtor. 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.
3.
ID.; ID.; A MORTGAGE ACTION PRESCRIBES AFTER TEN YEARS FROM THE TIME
THE RIGHT OF ACTION ACCRUES; CASE AT BAR. [T]he Bank seeks the recovery of the
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.
A mortgage action prescribes after ten years from the time the right of action accrued. The law
gives the mortgagee the right to claim for the deficiency resulting from the price obtained in the
sale of the property at public auction and the outstanding obligation at the time of the
foreclosure proceedings. In the present case, the Bank, as mortgagee, had the right to claim
payment of the deficiency after it had foreclosed the mortgage in 1965. In other words, the
prescriptive period started to run against the Bank in 1965. As it filed the complaint only on
January 27, 1977, more than ten years had already elapsed, hence, the action on its first to fifth
causes had by then prescribed.
4.
COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS LAW; PROMISSORY NOTES;
DEEMED TO HAVE BEEN ISSUED FOR CONSIDERATION WHEN REQUISITES OF
NEGOTIABILITY ARE COMPLIED WITH. Petitioners' admission of the genuineness and due
execution of the promissory notes notwithstanding, they raise want of consideration thereof. The
promissory notes, however, appear to be negotiable as they meet the requirements of Section 1
of the Negotiable Instruments Law. Such being the case, the notes are prima facie deemed to
have been issued for consideration. It bears noting that no sufficient evidence was adduced by
petitioners to show otherwise:
5.
ID.; ID.; PERSONS IN POSSESSION OF NEGOTIABLE INSTRUMENTS HAVE PRIMA
FACIE AUTHORITY TO FILL IN THE BLANKS; CASE AT BAR. [I]t is no defense that the
promissory notes were signed in blank as Section 14 of the Negotiable Instruments Law
concedes the prima facie authority of the person in possession of negotiable instruments, such
as the notes herein, to fill in the blanks. TcAECH

DECISION
CARPIO-MORALES, J p:
In the expansion of its logging business, petitioner Quirino Gonzales Logging Concessionaire
(QGLC), through its proprietor, general manager co-petitioner Quirino Gonzales, applied on
October 15, 1962 for credit accommodations 1 with respondent Republic Bank (the Bank), later
known as Republic Planters Bank. DTAESI
The Bank approved QGLC's application on December 21, 1962, granting it a credit line of
P900,000.00 2 broken into an 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
Pursuant to the grant, the Bank and petitioners QGLC and the spouses Quirino and Eufemia
Gonzales executed ten documents: two denominated "Agreement for Credit in Current
Account," 4 four denominated "Application and Agreement for Commercial Letter of Credit," 5
and four denominated "Trust Receipt." 6
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
In separate transactions, petitioners, to secure certain advances from the Bank in connection
with QGLC's exportation of logs, executed a promissory note in 1964 in favor of the Bank. They
were to execute three more promissory notes in 1967.
In 1965, petitioners having long defaulted in the payment of their obligations under the credit
line, the Bank foreclosed the mortgage and bought the properties covered thereby, it being the
highest bidder in the auction sale held in the same year. Ownership over the properties was
later consolidated in the Bank on account of which new titles thereto were issued to it. 8
On January 27, 1977, alleging non-payment of the balance of QGLC's obligation after the
proceeds of the foreclosure 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. HCSEIT
The complaint listed ten causes of action. The first concerns the overdraft line under which the
Bank claimed that petitioners withdrew amounts (unspecified) at twelve percent per annum
which were unpaid at maturity and that after it applied the proceeds of the foreclosure sale to
the overdraft debt, there remained an unpaid balance of P1,224,301.56.
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 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 the face value of the
drafts.

Specifically with respect to its second cause of action, the Bank alleged that it issued LC No. 630055D on January 15, 1963 in favor of Monark International Incorporated 9 covering the
purchase of a tractor 10 on which the latter allegedly drew a sight draft with a face value of
P71,500.00, 11 which amount petitioners have not, however, paid in full. HCSEIT
Under its third cause of action, the Bank charged that it issued LC No. 61-1110D on December
27, 1962 also in favor of Monark International covering the purchase of another tractor and
other equipment; 12 and that Monark International drew 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
balance of P68,064.97 remained.
Under the fourth cause of action, the Bank maintained that it issued LC No. 63-0182D on
February 11, 1963 in favor of J.B.L. Enterprises, Inc. 14 covering the purchase of two tractors,
15 and J.B.L. Enterprises drew on February 13, 1963 a sight draft on said LC in the amount of
P155,000.00 but petitioners have not paid said amount.
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 Auto Supply (SMAS) covering the purchase of "Eight Units GMC (G.I.)
Trucks"; that on March 14, 1963, SMAS drew a sight draft with a face value of P64,000.00 16 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.
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.
The sixth to ninth causes of action are anchored on the promissory notes issued by petitioners
allegedly to secure certain advances from the Bank in connection with the exportation of logs as
reflected above. 17 The notes were payable 30 days after date and provided for the solidary
liability of petitioners as well as attorney's fees at ten percent of the total amount due 18 in the
event of their non-payment at maturity.
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 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
On its tenth and final cause of action, the Bank claimed that it has accounts receivable from
petitioners in the amount of P120.48.
In their Answer 24 of March 3, 1977, petitioners admit the following: having applied for credit
accommodations totaling P900,000.00 to secure which they mortgaged real properties; opening
of the LC/Trust Receipt Line; the issuance by the Bank of the various LCs; and the foreclosure
of the real estate mortgage and the consolidation of ownership over the mortgaged properties in
favor of the Bank. They deny, however, having availed of the credit accommodations and having

received the value of the promissory notes, as they do deny having physically received the
tractors and equipment subject of the LCs. HEISca
As affirmative defenses, petitioners assert that the complaint states no cause of action, and
assuming that it does, the same is/are barred by prescription or null and void for want of
consideration.
By Order of March 10, 1977, Branch 36 of the Manila RTC attached the preferred shares of
stocks of the spouses Quirino and Eufemia Gonzales with the Bank with a total par value of
P414,000.00.
Finding for petitioners, the trial court rendered its Decision of April 22, 1992 the dispositive
portion of which reads:
WHEREFORE, judgment is rendered as follows:
1.
All the claims of plaintiff particularly those described in the first to the tenth causes of
action of its complaint are denied for the reasons earlier mentioned in the body of this decision;
2.
As regards the claims of defendants pertaining to their counterclaim (Exhibits "1", "2"
and "3"), they are hereby given ten (10) years from the date of issuance of the torrens title to
plaintiff and before the transfer thereof in good faith to a third party buyer within which to ask for
the reconveyance of the real properties foreclosed by plaintiff,
3.
The order of attachment which was issued against the preferred shares of stocks of
defendants-spouses Quirino Gonzales and Eufemia Gonzales with the Republic Bank now
known as Republic Planters Bank dated March 21, 1977 is hereby dissolved and/or lifted, and
4.
Plaintiff is likewise ordered to pay the sum of P20,000.00, as and for attorney's fees, with
costs against plaintiff.
SO ORDERED. TCASIH
In finding for petitioners, the trial court ratiocinated: 25
Art. 1144 of the Civil Code states that an action upon a written contract prescribes in ten (10)
years from the time the right of action accrues. Art. 1150 states that prescription starts to run
from the day the action may be brought. The obligations allegedly created by the written
contracts or documents supporting plaintiff's first to 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. . . .
As regards the seventh and eight causes of action, the authenticity of which documents were
partly in doubt in 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? Because of the foregoing,

the Court does not find any valid ground to sustain the seventh and eight causes of action of
plaintiff's complaint.
As regards the ninth cause of action, the Court is baffled why plaintiff extended to defendants
another loan when defendants according to plaintiff's records were defaulting creditors? The
above facts and circumstances has (sic) convinced this Court to give credit to the testimony of
defendants' witnesses that the Gonzales spouses signed the documents in question in blank
and that the promised loan was never released to them. There is therefore a total absence of
consent since defendants did not give their consent to loans allegedly procured, the proceeds of
which were never received by the alleged debtors, defendants herein. . . .
Plaintiff did not present evidence to support its tenth cause of action. For this reason, it must
consequently be denied for lack of evidence. HCSEIT
On the matter of [the] counterclaims of defendants, they seek the return of the real and personal
properties 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 fictitious.
xxx

xxx

xxx

On appeal, 26 the Court of Appeals (CA) reversed the decision of the trial court by Decision 27
of June 28, 1996 which disposed as follows: 28
WHEREFORE, premises considered, the appealed decision (dated April 22, 1992) of the
Regional Trial Court (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 its claims against the appellees.
SO ORDERED.
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
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 logging concession in 1967 made it unbelievable
for them to secure in 1967 the advances reflected in the promissory notes. 30
With respect to petitioners' counterclaim, the CA agreed with the Bank that: 31
Certainly, failure on the part of the trial court to pass upon and determine the authenticity and
genuineness of [the Bank's] documentary evidence [the trial court having ruled on the basis of
prescription of the Bank's first 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)
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 defendantsappellees' counterclaim has prescribed is itself a ruling that the defendants-appellees' separate
action for reconveyance has also prescribed.
The CA struck down the trial court's award of attorney's fees for lack of legal basis. 32
Hence, petitioners now press the following issues before this Court by the present petition for
review on certiorari:
1.
WHETHER OR NOT RESPONDENT COURT ERRED IN SO HOLDING THAT
RESPONDENT-APPELLEES (SIC) REPUBLIC PLANTERS BANK['S] FIRST, SECOND,
THIRD, FOURTH, FIFTH AND SIXTH CAUSES OF ACTION HAVE NOT PRESCRIBED
CONTRARY TO THE FINDINGS OF THE LOWER COURT, RTC BRANCH 36 THAT THE SAID
CAUSES OF ACTION HAVE ALREADY PRESCRIBED. TCASIH
2.
WHETHER OR NOT RESPONDENT COURT ERRED IN SO HOLDING THAT
RESPODNENT-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 LOWER COURT RTC BRANCH 36 THAT THE SAID CAUSES
HAVE NO VALID GROUND TO SUSTAIN [THEM] AND FOR LACK OF EVIDENCE.
3.
WHETHER OR NOT RESPONDENT COURT [ERRED] IN REVERSING THE
FINDINGS OF THE REGIONAL TRIAL COURT BRANCH 36 OF MANILA THAT PETITIONERSAPPELLANT (SIC.) MAY 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-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 FICTITIOUS.
4.
WHETHER OR NOT RESPONDENT COURT ERRED IN SO HOLDING THAT
PETITIONERS-APPELLANTS [SIC] ARE NOT ENTITLED TO AN AWARD OF ATTORNEY'S
FEES.
The petition is partly meritorious.
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
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 arisen 34 is not disputed. The Bank contends,
however, that "the notices of foreclosure sale in the 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
The Bank's contention does not impress. Prescription of actions is interrupted when they are
filed before the court, when there is a written extrajudicial demand by the creditors, and when
there is any written acknowledgment of the debt by the debtor. 36

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.
But even assuming arguendo that the notices interrupted the running of the prescriptive period,
the argument would still 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 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 time
the right of action accrued. 38
The law gives the mortgagee the right to claim for the deficiency resulting from the price
obtained in the sale of the property at public auction and the outstanding obligation at the time
of the foreclosure proceedings. 39 In the present case, the Bank, as mortgagee, had the right to
claim payment of the deficiency after it had foreclosed the mortgage in 1965. 40 In other words,
the prescriptive period started to run against the Bank in 1965. As it filed the complaint only on
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 obligation to pay the deficiency which is
created by law, 41 the prescriptive period of both being also ten years. 42
As regards the promissory note subject of the sixth cause of action, its period of prescription
could not have been interrupted by the notices of foreclosure sale not only because, as earlier
discussed, petitioners' contention that the notices of foreclosure are tantamount to written extrajudicial demand cannot be considered absent any showing of the contents 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). TCASIH
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.
Petitioners' admission of the genuineness and due execution of the promissory notes
notwithstanding, they raise want of consideration 45 thereof. The promissory notes, however,
appear to be negotiable as they meet the requirements of Section 1 46 of the Negotiable
Instruments Law. Such being the case, the notes are prima facie deemed to have been issued
for consideration. 47 It bears noting that no sufficient evidence was adduced by petitioners to
show otherwise.
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 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 Rogelio P. Madriaga.
In any case, it is no defense that the promissory notes were signed in blank as Section 14 48 of
the Negotiable Instruments Law concedes the prima facie authority of the person in possession
of negotiable instruments, such as the notes herein, to fill in the blanks.
As for petitioners' reliance on Exhibits "B", "P" and "T", they have failed to show the relevance
thereof to the seventh up to the ninth causes of action of the Bank.
On the third issue, petitioners asseverate that with the trial court's dismissal of the Bank's
complaint and the denial of its 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 (An Act to
Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate
Mortgages), as amended. Though the Bank's action for deficiency is barred by prescription,
nothing irregular attended the foreclosure proceedings to warrant the reconveyance of the
properties covered thereby.
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.
WHEREFORE, the CA Decision is hereby AFFIRMED with MODIFICATION.
Republic Bank's Complaint with respect to its first to sixth causes of action is hereby
DISMISSED. Its complaint with 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. SECAHa

SO ORDERED.
Puno, Panganiban, Sandoval-Gutierrez and Corona, JJ., concur.
FIRST DIVISION
[G.R. No. 172954. October 5, 2011.]
ENGR. JOSE E. CAYANAN, petitioner, vs. NORTH STAR INTERNATIONAL TRAVEL, INC.,
respondent.
DECISION
VILLARAMA, JR., J p:
Petitioner Engr. Jose E. Cayanan appeals the May 31, 2006 Decision 1 of the Court of Appeals
(CA) in CA-G.R. SP No. 65538 finding him civilly liable for the value of the five checks which are
the subject of Criminal Case Nos. 166549-53. DSATCI
The antecedent facts are as follows:
North Star International Travel Incorporated (North Star) is a corporation engaged in the travel
agency business while petitioner is the owner/general manager of JEAC International
Management and Contractor Services, a recruitment agency.
On March 17, 2 1994, Virginia Balagtas, the General Manager of North Star, in accommodation
and upon the instruction of its client, petitioner herein, sent the amount of US$60,000 3 to View
Sea Ventures Ltd., in Nigeria from her personal account in Citibank Makati. On March 29, 1994,
Virginia again sent US$40,000 to View Sea Ventures by telegraphic transfer, 4 with US$15,000
coming from petitioner. Likewise, on various dates, North Star extended credit to petitioner for
the airplane tickets of his clients, with the total amount of such indebtedness under the credit
extensions eventually reaching P510,035.47. 5
To cover payment of the foregoing obligations, petitioner issued the following five checks to
North Star:
Check No.

246822

Drawn Against :

Republic Planters Bank

Amount

P695,000.00

Dated/Postdated

Payable to

North Star International Travel, Inc.

Check No.

246823

Drawn Against :

May 15, 1994

cHDEaC

Republic Planters Bank

Amount

P278,000.00

Dated/Postdated

May 15, 1994

Payable to

North Star International Travel, Inc.

Check No.

246824

Drawn Against :

Republic Planters Bank

Amount

P22,703.00

Dated/Postdated

May 15, 1994

Payable to

North Star International Travel, Inc.

Check No.

687803

Drawn Against :

PCIB

Amount

P1,500,000.00

Dated/Postdated

April 14, 1994

Payable to

North Star International Travel, Inc.

Check No.

687804

Drawn Against :

PCIB

Amount

P35,000.00

Dated/Postdated

Payable to

North Star International Travel, Inc. 6

April 14, 1994

When presented for payment, the checks in the amount of P1,500,000 and P35,000 were
dishonored for insufficiency of funds while the other three checks were dishonored because of a
stop payment order from petitioner. 7 North Star, through its counsel, wrote petitioner on
September 14, 1994 8 informing him that the checks he issued had been dishonored. North Star
demanded payment, but petitioner failed to settle his obligations. Hence, North Star instituted
Criminal Case Nos. 166549-53 charging petitioner with violation of Batas Pambansa Blg. 22, or
the Bouncing Checks Law, before the Metropolitan Trial Court (MeTC) of Makati City. cIEHAC
The Informations, 9 which were similarly worded except as to the check numbers, the dates and
amounts of the checks, alleged:
That on or about and during the month of March 1994 in the Municipality of Makati, Metro
Manila, Philippines, a place within the jurisdiction of this Honorable Court, the above-named
accused, being the authorized signatory of [JEAC] Int'l. Mgt. & Cont. Serv. did then and there

willfully, unlawfully and feloniously make out[,] draw and issue to North Star Int'l. Travel, Inc.
herein rep. by Virginia D. Balagtas to apply on account or for value the checks described below:
xxx

xxx

xxx

said accused well knowing that at the time of issue thereof, did not have sufficient funds in or
credit with the drawee bank for the payment in full of the face amount of such check upon its
presentment, which check when presented for payment within ninety (90) days from the date
thereof was subsequently dishonored by the drawee bank for the reason PAYMENT
STOPPED/DAIF and despite receipt of notice of such dishonor the accused failed to pay the
payee the face amount of said check or to make arrangement for full payment thereof within five
(5) banking days after receiving notice.
Contrary to law.

TaCSAD

Upon arraignment, petitioner pleaded not guilty to the charges.

After trial, the MeTC found petitioner guilty beyond reasonable doubt of violation of B.P. 22.
Thus:
WHEREFORE, finding the accused, ENGR. JOSE E. CAYANAN GUILTY beyond reasonable
doubt of Violation of Batas Pambansa Blg. 22 he is hereby sentenced to suffer imprisonment of
one (1) year for each of the offense committed.
Accused is likewise ordered to indemnify the complainant North Star International Travel, Inc.
represented in this case by Virginia Balagtas, the sum of TWO MILLION FIVE HUNDRED
THIRTY THOUSAND AND SEVEN HUNDRED THREE PESOS (P2,530,703.00) representing
the total value of the checks in [question] plus FOUR HUNDRED EIGHTY[-]FOUR THOUSAND
SEVENTY(-)EIGHT PESOS AND FORTY[-]TWO CENTAVOS (P484,078.42) as interest of the
value of` the checks subject matter of the instant case, deducting therefrom the amount of TWO
HUNDRED TWENTY THOUSAND PESOS (P220,000.00) paid by the accused as interest on
the value of the checks duly receipted by the complainant and marked as Exhibit "FF" of the
record.
xxx

xxx

xxx

SO ORDERED. 10 DCIAST
On appeal, the Regional Trial Court (RTC) acquitted petitioner of the criminal charges. The RTC
also held that there is no basis for the imposition of the civil liability on petitioner. The RTC
ratiocinated that:
In the instant cases, the checks issued by the accused were presented beyond the period of
NINETY (90) DAYS and therefore, there is no violation of the provision of Batas Pambansa Blg.
22 and the accused is not considered to have committed the offense. There being no offense
committed, accused is not criminally liable and there would be no basis for the imposition of the
civil liability arising from the offense. 11

Aggrieved, North Star elevated the case to the CA. On May 31, 2006, the CA reversed the
decision of the RTC insofar as the civil aspect is concerned and held petitioner civilly liable for
the value of the subject checks. The fallo of the CA decision reads:
WHEREFORE, the petition is GRANTED. The assailed Decision of the RTC insofar as
Cayanan's civil liability is concerned, is NULLIFIED and SET ASIDE. The indemnity awarded by
the MeTC in its September 1, 1999 Decision is REINSTATED.
SO ORDERED. 12
The CA ruled that although Cayanan was acquitted of the criminal charges, he may still be held
civilly liable for the checks he issued since he never denied having issued the five postdated
checks which were dishonored. ECTSDa
Petitioner now assails the CA decision raising the lone issue of whether the CA erred in holding
him civilly liable to North Star for the value of the checks. 13
Petitioner argues that the CA erred in holding him civilly liable to North Star for the value of the
checks since North Star did not give any valuable consideration for the checks. He insists that
the US$85,000 sent to View Sea Ventures was not sent for the account of North Star but for the
account of Virginia as her investment. He points out that said amount was taken from Virginia's
personal dollar account in Citibank and not from North Star's corporate account.
Respondent North Star, for its part, counters that petitioner is liable for the value of the five
subject checks as they were issued for value. Respondent insists that petitioner owes North
Star P2,530,703 plus interest of P264,078.45, and that the P220,000 petitioner paid to North
Star is conclusive proof that the checks were issued for value.
The petition is bereft of merit.
We have held that upon issuance of a check, in the absence of evidence to the contrary, it is
presumed that the same was issued for valuable consideration which may consist either in
some right, interest, profit or benefit accruing to the party who makes the contract, or some
forbearance, detriment, loss or some responsibility, to act, or labor, or service given, suffered or
undertaken by the other side. 14 Under the Negotiable Instruments Law, it is presumed that
every party to an instrument acquires the same for a consideration or for value. 15 As petitioner
alleged that there was no consideration for the issuance of the subject checks, it devolved upon
him to present convincing evidence to overthrow the presumption and prove that the checks
were in fact issued without valuable consideration. 16 Sadly, however, petitioner has not
presented any credible evidence to rebut the presumption, as well as North Star's assertion,
that the checks were issued as payment for the US$85,000 petitioner owed. SaHIEA
Notably, petitioner anchors his defense of lack of consideration on the fact that he did not
personally receive the US$85,000 from Virginia. However, we note that in his pleadings, he
never denied having instructed Virginia to remit the US$85,000 to View Sea Ventures. Evidently,
Virginia sent the money upon the agreement that petitioner will give to North Star the peso
equivalent of the amount remitted plus interest. As testified to by Virginia, Check No. 246822

dated May 15, 1994 in the amount of P695,000.00 is equivalent to US$25,000; Check No.
246823 dated May 15, 1994 in the amount of P278,000 is equivalent to US$10,000; Check No.
246824 in the amount of P22,703 represents the one month interest for P695,000 and P278,000
at the rate of twenty-eight (28%) percent per annum; 17 Check No. 687803 dated April 14, 1994
in the amount of P1,500,000 is equivalent to US$50,000 and Check No. 687804 dated 14 April
1994 in the amount of P35,000 represents the one month interest for P1,500,000 at the rate of
twenty-eight (28%) percent per annum. 18 Petitioner has not substantially refuted these
averments.
Concomitantly, petitioner's assertion that the dollars sent to Nigeria was for the account of
Virginia Balagtas and as her own investment with View Sea Ventures deserves no credence.
Virginia has not been shown to have any business transactions with View Sea Ventures and
from all indications, she only remitted the money upon the request and in accordance with
petitioner's instructions. The evidence shows that it was petitioner who had a contract with View
Sea Ventures as he was sending contract workers to Nigeria; Virginia Balagtas's participation
was merely to send the money through telegraphic transfer in exchange for the checks issued
by petitioner to North Star. Indeed, the transaction between petitioner and North Star is actually
in the nature of a loan and the checks were issued as payment of the principal and the interest.
CScTED
As aptly found by the trial court:
It is to be noted that the checks subject matter of the instant case were issued in the name of
North Star International, Inc., represented by private complainant Virginia Balagtas in
replacement of the amount of dollars remitted by the latter to Vie[w] Sea Ventures in Nigeria. . . .
But Virginia Balagtas has no business transaction with Vie[w] Sea Ventures where accused has
been sending his contract workers and the North Star provided the trip tickets for said workers
sent by the accused. North Star International has no participation at all in the transaction
between accused and the Vie[w] Sea Ventures except in providing plane ticket used by the
contract workers of the accused upon its understanding with the latter. The contention of the
accused that the dollars were sent by Virginia Balagtas to Nigeria as business investment has
not been shown by any proof to set aside the foregoing negative presumptions, thus negates
accused contentions regarding the absence of consideration for the issuance of checks. . . . 19
Petitioner claims that North Star did not give any valuable consideration for the checks since the
US$85,000 was taken from the personal dollar account of Virginia and not the corporate funds
of North Star. The contention, however, deserves scant consideration. The subject checks,
bearing petitioner's signature, speak for themselves. The fact that petitioner himself specifically
named North Star as the payee of the checks is an admission of his liability to North Star and
not to Virginia Balagtas, who as manager merely facilitated the transfer of funds. Indeed, it is
highly inconceivable that an experienced businessman like petitioner would issue various
checks in sizeable amounts to a payee if these are without consideration. Moreover, we note
that Virginia Balagtas averred in her Affidavit 20 that North Star caused the payment of the
US$60,000 and US$25,000 to View Sea Ventures to accommodate petitioner, which statement
petitioner failed to refute. In addition, petitioner did not question the Statement of Account No.
8639 21 dated August 31, 1994 issued by North Star which contained itemized amounts

including the US$60,000 and US$25,000 sent through telegraphic transfer to View Sea
Ventures per his instruction. Thus, the inevitable conclusion is that when petitioner issued the
subject checks to North Star as payee, he did so to settle his obligation with North Star for the
US$85,000. And since the only payment petitioner made to North Star was in the amount of
P220,000.00, which was applied to interest due, his liability is not extinguished. Having failed to
fully settle his obligation under the checks, the appellate court was correct in holding petitioner
liable to pay the value of the five checks he issued in favor of North Star. CDaSAE
WHEREFORE, the present appeal by way of a petition for review on certiorari is DENIED for
lack of merit. The Decision dated May 31, 2006 of the Court of Appeals in CA-G.R. SP No.
65538 is AFFIRMED.
With costs against petitioner.
SO ORDERED.
Corona, C.J., Leonardo-de Castro, Bersamin and Del Castillo, JJ., concur.