NEGOTIABLE INSTRUMENTS
1. Philippine Education Co. v. Soriano
G.R. No. L-22405 June 30, 1971
PHILIPPINE EDUCATION CO., INC., plaintiff-appellant,
vs.
MAURICIO A. SORIANO, ET AL., defendant-appellees.
Marcial Esposo for plaintiff-appellant.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General
Antonio G. Ibarra and Attorney Concepcion Torrijos-Agapinan for defendants-
appellees.
DIZON, J.:
An appeal from a decision of the Court of First Instance of Manila dismissing
the complaint filed by the Philippine Education Co., Inc. against Mauricio A.
Soriano, Enrico Palomar and Rafael Contreras.
On April 18, 1958 Enrique Montinola sought to purchase from the Manila Post
Office ten (10) money orders of P200.00 each payable to E.P. Montinola
withaddress at Lucena, Quezon. After the postal teller had made out money
ordersnumbered 124685, 124687-124695, Montinola offered to pay for them
with a private checks were not generally accepted in payment of money orders,
the teller advised him to see the Chief of the Money Order Division, but instead
of doing so, Montinola managed to leave building with his own check and the
ten(10) money orders without the knowledge of the teller.
On the same date, April 18, 1958, upon discovery of the disappearance of the
unpaid money orders, an urgent message was sent to all postmasters, and the
following day notice was likewise served upon all banks, instructing them not
to pay anyone of the money orders aforesaid if presented for payment. The
Bank of America received a copy of said notice three days later.
On April 23, 1958 one of the above-mentioned money orders numbered
124688 was received by appellant as part of its sales receipts. The following
day it deposited the same with the Bank of America, and one day thereafter
the latter cleared it with the Bureau of Posts and received from the latter its
face value of P200.00.
On September 27, 1961, appellee Mauricio A. Soriano, Chief of the Money
Order Division of the Manila Post Office, acting for and in behalf of his co-
appellee, Postmaster Enrico Palomar, notified the Bank of America that money
order No. 124688 attached to his letter had been found to have been irregularly
issued and that, in view thereof, the amount it represented had been deducted
from the bank's clearing account. For its part, on August 2 of the same year,
the Bank of America debited appellant's account with the same amount and
gave it advice thereof by means of a debit memo.
On October 12, 1961 appellant requested the Postmaster General to
reconsider the action taken by his office deducting the sum of P200.00 from
the clearing account of the Bank of America, but his request was denied. So
was appellant's subsequent request that the matter be referred to the
Secretary of Justice for advice. Thereafter, appellant elevated the matter to the
Secretary of Public Works and Communications, but the latter sustained the
actions taken by the postal officers.
In connection with the events set forth above, Montinola was charged with theft
in the Court of First Instance of Manila (Criminal Case No. 43866) but after trial
he was acquitted on the ground of reasonable doubt.
On January 8, 1962 appellant filed an action against appellees in the Municipal
Court of Manila praying for judgment as follows:
WHEREFORE, plaintiff prays that after hearing defendants be ordered:
(a) To countermand the notice given to the Bank of America on
September 27, 1961, deducting from the said Bank's clearing account the sum
of P200.00 represented by postal money order No. 124688, or in the
alternative indemnify the plaintiff in the same amount with interest at 8-% per
annum from September 27, 1961, which is the rate of interest being paid by
plaintiff on its overdraft account;
(b) To pay to the plaintiff out of their own personal funds, jointly and
severally, actual and moral damages in the amount of P1,000.00 or in such
amount as will be proved and/or determined by this Honorable Court:
exemplary damages in the amount of P1,000.00, attorney's fees of P1,000.00,
and the costs of action.
Plaintiff also prays for such other and further relief as may be deemed just and
equitable.
On November 17, 1962, after the parties had submitted the stipulation of facts
reproduced at pages 12 to 15 of the Record on Appeal, the above-named court
rendered judgment as follows:
NEGOTIABLE INSTRUMENTS
WHEREFORE, judgment is hereby rendered, ordering the defendants to
countermand the notice given to the Bank of America on September 27, 1961,
deducting from said Bank's clearing account the sum of P200.00 representing
the amount of postal money order No. 124688, or in the alternative, to
indemnify the plaintiff in the said sum of P200.00 with interest thereon at the
rate of 8-% per annum from September 27, 1961 until fully paid; without any
pronouncement as to cost and attorney's fees.
The case was appealed to the Court of First Instance of Manila where, after
the parties had resubmitted the same stipulation of facts, the appealed
decision dismissing the complaint, with costs, was rendered.
The first, second and fifth assignments of error discussed in appellant's brief
are related to the other and will therefore be discussed jointly. They raise this
main issue: that the postal money order in question is a negotiable instrument;
that its nature as such is not in anyway affected by the letter dated October 26,
1948 signed by the Director of Posts and addressed to all banks with a clearing
account with the Post Office, and that money orders, once issued, create a
contractual relationship of debtor and creditor, respectively, between the
government, on the one hand, and the remitters payees or endorses, on the
other.
It is not disputed that our postal statutes were patterned after statutes in force
in the United States. For this reason, ours are generally construed in
accordance with the construction given in the United States to their own postal
statutes, in the absence of any special reason justifying a departure from this
policy or practice. The weight of authority in the United States is that postal
money orders are not negotiable instruments (Bolognesi vs. U.S. 189 Fed.
395; U.S. vs. Stock Drawers National Bank, 30 Fed. 912), the reason behind
this rule being that, in establishing and operating a postal money order system,
the government is not engaging in commercial transactions but merely
exercises a governmental power for the public benefit.
It is to be noted in this connection that some of the restrictions imposed upon
money orders by postal laws and regulations are inconsistent with the
character of negotiable instruments. For instance, such laws and regulations
usually provide for not more than one endorsement; payment of money orders
may be withheld under a variety of circumstances (49 C.J. 1153).
Of particular application to the postal money order in question are the
conditions laid down in the letter of the Director of Posts of October 26, 1948
(Exhibit 3) to the Bank of America for the redemption of postal money orders
received by it from its depositors. Among others, the condition is imposed that
"in cases of adverse claim, the money order or money orders involved will be
returned to you (the bank) and the, corresponding amount will have to be
refunded to the Postmaster, Manila, who reserves the right to deduct the value
thereof from any amount due you if such step is deemed necessary." The
conditions thus imposed in order to enable the bank to continue enjoying the
facilities theretofore enjoyed by its depositors, were accepted by the Bank of
America. The latter is therefore bound by them. That it is so is clearly referred
from the fact that, upon receiving advice that the amount represented by the
money order in question had been deducted from its clearing account with the
Manila Post Office, it did not file any protest against such action.
Moreover, not being a party to the understanding existing between the postal
officers, on the one hand, and the Bank of America, on the other, appellant
has no right to assail the terms and conditions thereof on the ground that the
letter setting forth the terms and conditions aforesaid is void because it was
not issued by a Department Head in accordance with Sec. 79 (B) of the
Revised Administrative Code. In reality, however, said legal provision does not
apply to the letter in question because it does not provide for a department
regulation but merely sets down certain conditions upon the privilege granted
to the Bank of Amrica to accept and pay postal money orders presented for
payment at the Manila Post Office. Such being the case, it is clear that the
Director of Posts had ample authority to issue it pursuant to Sec. 1190 of the
Revised Administrative Code.
In view of the foregoing, We do not find it necessary to resolve the issues
raised in the third and fourth assignments of error.
WHEREFORE, the appealed decision being in accordance with law, the same
is hereby affirmed with costs.
2. Caltex v. CA
G.R. No. 97753 August 10, 1992
CALTEX (PHILIPPINES), INC., petitioner,
vs.
COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY,
respondents.
Bito, Lozada, Ortega & Castillo for petitioners.
Nepomuceno, Hofilea & Guingona for private.
REGALADO, J.:
NEGOTIABLE INSTRUMENTS

4. On March 18, 1982, Angel dela Cruz executed and delivered to
This petition for review on certiorari impugns and seeks the reversal of the defendant bank the required Affidavit of Loss (Defendant's Exhibit 281). On
decision promulgated by respondent court on March 8, 1991 in CA-G.R. CV the basis of said affidavit of loss, 280 replacement CTDs were issued in favor
No. 23615 1 affirming with modifications, the earlier decision of the Regional of said depositor (Defendant's Exhibits 282-561).
Trial Court of Manila, Branch XLII, 2 which dismissed the complaint filed
therein by herein petitioner against respondent bank. 5. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan
from defendant bank in the amount of Eight Hundred Seventy Five Thousand
The undisputed background of this case, as found by the court a quo and Pesos (P875,000.00). On the same date, said depositor executed a notarized
adopted by respondent court, appears of record: Deed of Assignment of Time Deposit (Exhibit 562) which stated, among others,
that he (de la Cruz) surrenders to defendant bank "full control of the indicated
1. On various dates, defendant, a commercial banking institution, time deposits from and after date" of the assignment and further authorizes
through its Sucat Branch issued 280 certificates of time deposit (CTDs) in favor said bank to pre-terminate, set-off and "apply the said time deposits to the
of one Angel dela Cruz who deposited with herein defendant the aggregate payment of whatever amount or amounts may be due" on the loan upon its
amount of P1,120,000.00, as follows: (Joint Partial Stipulation of Facts and maturity (TSN, February 9, 1987, pp. 60-62).
Statement of Issues, Original Records, p. 207; Defendant's Exhibits 1 to 280);
6. Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff
CTD CTD Caltex (Phils.) Inc., went to the defendant bank's Sucat branch and presented
Dates Serial Nos. Quantity Amount for verification the CTDs declared lost by Angel dela Cruz alleging that the
same were delivered to herein plaintiff "as security for purchases made with
22 Feb. 82 90101 to 90120 20 P80,000 Caltex Philippines, Inc." by said depositor (TSN, February 9, 1987, pp. 54-68).
26 Feb. 82 74602 to 74691 90 360,000
2 Mar. 82 74701 to 74740 40 160,000 7. On November 26, 1982, defendant received a letter (Defendant's
4 Mar. 82 90127 to 90146 20 80,000 Exhibit 563) from herein plaintiff formally informing it of its possession of the
5 Mar. 82 74797 to 94800 4 16,000 CTDs in question and of its decision to pre-terminate the same.
5 Mar. 82 89965 to 89986 22 88,000
5 Mar. 82 70147 to 90150 4 16,000 8. On December 8, 1982, plaintiff was requested by herein defendant to
8 Mar. 82 90001 to 90020 20 80,000 furnish the former "a copy of the document evidencing the guarantee
9 Mar. 82 90023 to 90050 28 112,000 agreement with Mr. Angel dela Cruz" as well as "the details of Mr. Angel dela
9 Mar. 82 89991 to 90000 10 40,000 Cruz" obligation against which plaintiff proposed to apply the time deposits
9 Mar. 82 90251 to 90272 22 88,000 (Defendant's Exhibit 564).

Total 280 P1,120,000 9. No copy of the requested documents was furnished herein defendant.
===== ========
10. Accordingly, defendant bank rejected the plaintiff's demand and claim
2. Angel dela Cruz delivered the said certificates of time (CTDs) to herein for payment of the value of the CTDs in a letter dated February 7, 1983
plaintiff in connection with his purchased of fuel products from the latter (Defendant's Exhibit 566).
(Original Record, p. 208).
11. In April 1983, the loan of Angel dela Cruz with the defendant bank
3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo matured and fell due and on August 5, 1983, the latter set-off and applied the
Tiangco, the Sucat Branch Manger, that he lost all the certificates of time time deposits in question to the payment of the matured loan (TSN, February
deposit in dispute. Mr. Tiangco advised said depositor to execute and submit 9, 1987, pp. 130-131).
a notarized Affidavit of Loss, as required by defendant bank's procedure, if he
desired replacement of said lost CTDs (TSN, February 9, 1987, pp. 48-50). 12. In view of the foregoing, plaintiff filed the instant complaint, praying
that defendant bank be ordered to pay it the aggregate value of the certificates
NEGOTIABLE INSTRUMENTS
of time deposit of P1,120,000.00 plus accrued interest and compounded
interest therein at 16% per annum, moral and exemplary damages as well as
attorney's fees.
After trial, the court a quo rendered its decision dismissing the instant
complaint. 3
On appeal, as earlier stated, respondent court affirmed the lower court's
dismissal of the complaint, hence this petition wherein petitioner faults
respondent court in ruling (1) that the subject certificates of deposit are non-
negotiable despite being clearly negotiable instruments; (2) that petitioner did
not become a holder in due course of the said certificates of deposit; and (3)
in disregarding the pertinent provisions of the Code of Commerce relating to
lost instruments payable to bearer. 4
The instant petition is bereft of merit.
A sample text of the certificates of time deposit is reproduced below to provide
a better understanding of the issues involved in this recourse.
SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., MakatiNo. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%
Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____
This is to Certify that B E A R E R has deposited in this Bank the sum of
PESOS: FOUR THOUSAND ONLY, SECURITY BANK SUCAT OFFICE
P4,000 & 00 CTS Pesos, Philippine Currency, repayable to said depositor 731
days. after date, upon presentation and surrender of this certificate, with
interest at the rate of 16% per cent per annum.
(Sgd. Illegible) (Sgd. Illegible)
Atty. Calida:
AUTHORIZED SIGNATURES 5
Respondent court ruled that the CTDs in question are non-negotiable
instruments, nationalizing as follows:
. . . While it may be true that the word "bearer" appears rather boldly in the
CTDs issued, it is important to note that after the word "BEARER" stamped on
the space provided supposedly for the name of the depositor, the words "has
deposited" a certain amount follows. The document further provides that the
amount deposited shall be "repayable to said depositor" on the period
indicated. Therefore, the text of the instrument(s) themselves manifest with
clarity that they are payable, not to whoever purports to be the "bearer" but
only to the specified person indicated therein, the depositor. In effect, the
appellee bank acknowledges its depositor Angel dela Cruz as the person who
made the deposit and further engages itself to pay said depositor the amount
indicated thereon at the stipulated date. 6
We disagree with these findings and conclusions, and hereby hold that the
CTDs in question are negotiable instruments. Section 1 Act No. 2031,
otherwise known as the Negotiable Instruments Law, enumerates the
requisites for an instrument to become negotiable, viz:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain
in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or
otherwise indicated therein with reasonable certainty.
The CTDs in question undoubtedly meet the requirements of the law for
negotiability. The parties' bone of contention is with regard to requisite (d) set
forth above. It is noted that Mr. Timoteo P. Tiangco, Security Bank's Branch
Manager way back in 1982, testified in open court that the depositor reffered
to in the CTDs is no other than Mr. Angel de la Cruz.
xxx xxx xxx
q In other words Mr. Witness, you are saying that per books of the bank,
the depositor referred (sic) in these certificates states that it was Angel dela
Cruz?
NEGOTIABLE INSTRUMENTS
witness:
a Yes, your Honor, and we have the record to show that Angel dela Cruz
was the one who cause (sic) the amount.
Atty. Calida:
q And no other person or entity or company, Mr. Witness?
witness:
a None, your Honor. 7
xxx xxx xxx
Atty. Calida:
q Mr. Witness, who is the depositor identified in all of these certificates
of time deposit insofar as the bank is concerned?
witness:
a Angel dela Cruz is the depositor. 8
xxx xxx xxx
On this score, the accepted rule is that the negotiability or non-negotiability of
an instrument is determined from the writing, that is, from the face of the
instrument itself.9 In the construction of a bill or note, the intention of the parties
is to control, if it can be legally ascertained. 10 While the writing may be read
in the light of surrounding circumstances in order to more perfectly understand
the intent and meaning of the parties, yet as they have constituted the writing
to be the only outward and visible expression of their meaning, no other words
are to be added to it or substituted in its stead. The duty of the court in such
case is to ascertain, not what the parties may have secretly intended as
contradistinguished from what their words express, but what is the meaning of
the words they have used. What the parties meant must be determined by
what they said. 11
Contrary to what respondent court held, the CTDs are negotiable instruments.
The documents provide that the amounts deposited shall be repayable to the
depositor. And who, according to the document, is the depositor? It is the
"bearer." The documents do not say that the depositor is Angel de la Cruz and
that the amounts deposited are repayable specifically to him. Rather, the
amounts are to be repayable to the bearer of the documents or, for that matter,
whosoever may be the bearer at the time of presentment.
If it was really the intention of respondent bank to pay the amount to Angel de
la Cruz only, it could have with facility so expressed that fact in clear and
categorical terms in the documents, instead of having the word "BEARER"
stamped on the space provided for the name of the depositor in each CTD. On
the wordings of the documents, therefore, the amounts deposited are
repayable to whoever may be the bearer thereof. Thus, petitioner's aforesaid
witness merely declared that Angel de la Cruz is the depositor "insofar as the
bank is concerned," but obviously other parties not privy to the transaction
between them would not be in a position to know that the depositor is not the
bearer stated in the CTDs. Hence, the situation would require any party dealing
with the CTDs to go behind the plain import of what is written thereon to unravel
the agreement of the parties thereto through facts aliunde. This need for resort
to extrinsic evidence is what is sought to be avoided by the Negotiable
Instruments Law and calls for the application of the elementary rule that the
interpretation of obscure words or stipulations in a contract shall not favor the
party who caused the obscurity. 12
The next query is whether petitioner can rightfully recover on the CTDs. This
time, the answer is in the negative. The records reveal that Angel de la Cruz,
whom petitioner chose not to implead in this suit for reasons of its own,
delivered the CTDs amounting to P1,120,000.00 to petitioner without informing
respondent bank thereof at any time. Unfortunately for petitioner, although the
CTDs are bearer instruments, a valid negotiation thereof for the true purpose
and agreement between it and De la Cruz, as ultimately ascertained, requires
both delivery and indorsement. For, although petitioner seeks to deflect this
fact, the CTDs were in reality delivered to it as a security for De la Cruz'
purchases of its fuel products. Any doubt as to whether the CTDs were
delivered as payment for the fuel products or as a security has been dissipated
and resolved in favor of the latter by petitioner's own authorized and
responsible representative himself.
In a letter dated November 26, 1982 addressed to respondent Security Bank,
J.Q. Aranas, Jr., Caltex Credit Manager, wrote: ". . . These certificates of
deposit were negotiated to us by Mr. Angel dela Cruz to guarantee his
purchases of fuel products" (Emphasis ours.) 13 This admission is conclusive
upon petitioner, its protestations notwithstanding. Under the doctrine of
estoppel, an admission or representation is rendered conclusive upon the
person making it, and cannot be denied or disproved as against the person
relying thereon. 14 A party may not go back on his own acts and
representations to the prejudice of the other party who relied upon them. 15 In
the law of evidence, whenever a party has, by his own declaration, act, or
NEGOTIABLE INSTRUMENTS
omission, intentionally and deliberately led another to believe a particular thing
true, and to act upon such belief, he cannot, in any litigation arising out of such
declaration, act, or omission, be permitted to falsify it. 16
If it were true that the CTDs were delivered as payment and not as security,
petitioner's credit manager could have easily said so, instead of using the
words "to guarantee" in the letter aforequoted. Besides, when respondent
bank, as defendant in the court below, moved for a bill of particularity therein
17 praying, among others, that petitioner, as plaintiff, be required to aver with
sufficient definiteness or particularity (a) the due date or dates of payment of
the alleged indebtedness of Angel de la Cruz to plaintiff and (b) whether or not
it issued a receipt showing that the CTDs were delivered to it by De la Cruz as
payment of the latter's alleged indebtedness to it, plaintiff corporation opposed
the motion. 18 Had it produced the receipt prayed for, it could have proved, if
such truly was the fact, that the CTDs were delivered as payment and not as
security. Having opposed the motion, petitioner now labors under the
presumption that evidence willfully suppressed would be adverse if produced.
19
Under the foregoing circumstances, this disquisition in Intergrated Realty
Corporation, et al. vs. Philippine National Bank, et al. 20 is apropos:
. . . Adverting again to the Court's pronouncements in Lopez, supra, we quote
therefrom:
The character of the transaction between the parties is to be determined by
their intention, regardless of what language was used or what the form of the
transfer was. If it was intended to secure the payment of money, it must be
construed as a pledge; but if there was some other intention, it is not a pledge.
However, even though a transfer, if regarded by itself, appears to have been
absolute, its object and character might still be qualified and explained by
contemporaneous writing declaring it to have been a deposit of the property
as collateral security. It has been said that a transfer of property by the debtor
to a creditor, even if sufficient on its face to make an absolute conveyance,
should be treated as a pledge if the debt continues in inexistence and is not
discharged by the transfer, and that accordingly the use of the terms ordinarily
importing conveyance of absolute ownership will not be given that effect in
such a transaction if they are also commonly used in pledges and mortgages
and therefore do not unqualifiedly indicate a transfer of absolute ownership, in
the absence of clear and unambiguous language or other circumstances
excluding an intent to pledge.
Petitioner's insistence that the CTDs were negotiated to it begs the question.
Under the Negotiable Instruments Law, an instrument is negotiated when it is
transferred from one person to another in such a manner as to constitute the
transferee the holder thereof, 21 and a holder may be the payee or indorsee
of a bill or note, who is in possession of it, or the bearer thereof. 22 In the
present case, however, there was no negotiation in the sense of a transfer of
the legal title to the CTDs in favor of petitioner in which situation, for obvious
reasons, mere delivery of the bearer CTDs would have sufficed. Here, the
delivery thereof only as security for the purchases of Angel de la Cruz (and we
even disregard the fact that the amount involved was not disclosed) could at
the most constitute petitioner only as a holder for value by reason of his lien.
Accordingly, a negotiation for such purpose cannot be effected by mere
delivery of the instrument since, necessarily, the terms thereof and the
subsequent disposition of such security, in the event of non-payment of the
principal obligation, must be contractually provided for.
The pertinent law on this point is that where the holder has a lien on the
instrument arising from contract, he is deemed a holder for value to the extent
of his lien. 23 As such holder of collateral security, he would be a pledgee but
the requirements therefor and the effects thereof, not being provided for by the
Negotiable Instruments Law, shall be governed by the Civil Code provisions
on pledge of incorporeal rights, 24 which inceptively provide:
Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . .
may also be pledged. The instrument proving the right pledged shall be
delivered to the creditor, and if negotiable, must be indorsed.
Art. 2096. A pledge shall not take effect against third persons if a
description of the thing pledged and the date of the pledge do not appear in a
public instrument.
Aside from the fact that the CTDs were only delivered but not indorsed, the
factual findings of respondent court quoted at the start of this opinion show that
petitioner failed to produce any document evidencing any contract of pledge
or guarantee agreement between it and Angel de la Cruz. 25 Consequently,
the mere delivery of the CTDs did not legally vest in petitioner any right
effective against and binding upon respondent bank. The requirement under
Article 2096 aforementioned is not a mere rule of adjective law prescribing the
mode whereby proof may be made of the date of a pledge contract, but a rule
of substantive law prescribing a condition without which the execution of a
pledge contract cannot affect third persons adversely. 26
On the other hand, the assignment of the CTDs made by Angel de la Cruz in
favor of respondent bank was embodied in a public instrument. 27 With regard
to this other mode of transfer, the Civil Code specifically declares:
NEGOTIABLE INSTRUMENTS
Art. 1625. An assignment of credit, right or action shall produce no effect
as against third persons, unless it appears in a public instrument, or the
instrument is recorded in the Registry of Property in case the assignment
involves real property.
Respondent bank duly complied with this statutory requirement. Contrarily,
petitioner, whether as purchaser, assignee or lien holder of the CTDs, neither
proved the amount of its credit or the extent of its lien nor the execution of any
public instrument which could affect or bind private respondent. Necessarily,
therefore, as between petitioner and respondent bank, the latter has definitely
the better right over the CTDs in question.
Finally, petitioner faults respondent court for refusing to delve into the question
of whether or not private respondent observed the requirements of the law in
the case of lost negotiable instruments and the issuance of replacement
certificates therefor, on the ground that petitioner failed to raised that issue in
the lower court. 28
On this matter, we uphold respondent court's finding that the aspect of alleged
negligence of private respondent was not included in the stipulation of the
parties and in the statement of issues submitted by them to the trial court. 29
The issues agreed upon by them for resolution in this case are:
1. Whether or not the CTDs as worded are negotiable instruments.
2. Whether or not defendant could legally apply the amount covered by
the CTDs against the depositor's loan by virtue of the assignment (Annex "C").
3. Whether or not there was legal compensation or set off involving the
amount covered by the CTDs and the depositor's outstanding account with
defendant, if any.
4. Whether or not plaintiff could compel defendant to preterminate the
CTDs before the maturity date provided therein.
5. Whether or not plaintiff is entitled to the proceeds of the CTDs.
6. Whether or not the parties can recover damages, attorney's fees and
litigation expenses from each other.
As respondent court correctly observed, with appropriate citation of some
doctrinal authorities, the foregoing enumeration does not include the issue of
negligence on the part of respondent bank. An issue raised for the first time on
appeal and not raised timely in the proceedings in the lower court is barred by
estoppel. 30 Questions raised on appeal must be within the issues framed by
the parties and, consequently, issues not raised in the trial court cannot be
raised for the first time on appeal. 31
Pre-trial is primarily intended to make certain that all issues necessary to the
disposition of a case are properly raised. Thus, to obviate the element of
surprise, parties are expected to disclose at a pre-trial conference all issues of
law and fact which they intend to raise at the trial, except such as may involve
privileged or impeaching matters. The determination of issues at a pre-trial
conference bars the consideration of other questions on appeal. 32
To accept petitioner's suggestion that respondent bank's supposed negligence
may be considered encompassed by the issues on its right to preterminate and
receive the proceeds of the CTDs would be tantamount to saying that
petitioner could raise on appeal any issue. We agree with private respondent
that the broad ultimate issue of petitioner's entitlement to the proceeds of the
questioned certificates can be premised on a multitude of other legal reasons
and causes of action, of which respondent bank's supposed negligence is only
one. Hence, petitioner's submission, if accepted, would render a pre-trial
delimitation of issues a useless exercise. 33
Still, even assuming arguendo that said issue of negligence was raised in the
court below, petitioner still cannot have the odds in its favor. A close scrutiny
of the provisions of the Code of Commerce laying down the rules to be followed
in case of lost instruments payable to bearer, which it invokes, will reveal that
said provisions, even assuming their applicability to the CTDs in the case at
bar, are merely permissive and not mandatory. The very first article cited by
petitioner speaks for itself.
Art 548. The dispossessed owner, no matter for what cause it may be, may
apply to the judge or court of competent jurisdiction, asking that the principal,
interest or dividends due or about to become due, be not paid a third person,
as well as in order to prevent the ownership of the instrument that a duplicate
be issued him. (Emphasis ours.)
xxx xxx xxx
The use of the word "may" in said provision shows that it is not mandatory but
discretionary on the part of the "dispossessed owner" to apply to the judge or
court of competent jurisdiction for the issuance of a duplicate of the lost
instrument. Where the provision reads "may," this word shows that it is not
mandatory but discretional. 34 The word "may" is usually permissive, not
mandatory. 35 It is an auxiliary verb indicating liberty, opportunity, permission
and possibility. 36
NEGOTIABLE INSTRUMENTS
Moreover, as correctly analyzed by private respondent, 37 Articles 548 to 558
of the Code of Commerce, on which petitioner seeks to anchor respondent
bank's supposed negligence, merely established, on the one hand, a right of
recourse in favor of a dispossessed owner or holder of a bearer instrument so
that he may obtain a duplicate of the same, and, on the other, an option in
favor of the party liable thereon who, for some valid ground, may elect to refuse
to issue a replacement of the instrument. Significantly, none of the provisions
cited by petitioner categorically restricts or prohibits the issuance a duplicate
or replacement instrument sans compliance with the procedure outlined
therein, and none establishes a mandatory precedent requirement therefor.
WHEREFORE, on the modified premises above set forth, the petition is
DENIED and the appealed decision is hereby AFFIRMED.
SO ORDERED.
3. Metropolitan Bank v. CA
G.R. No. 88866 February 18, 1991
METROPOLITAN BANK & TRUST COMPANY, petitioner,
vs.
COURT OF APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC.,
LUCIA CASTILLO, MAGNO CASTILLO and GLORIA CASTILLO,
respondents.
Angara, Abello, Concepcion, Regala & Cruz for petitioner.
Bengzon, Zarraga, Narciso, Cudala, Pecson & Bengson for Magno and Lucia
Castillo.
Agapito S. Fajardo and Jaime M. Cabiles for respondent Golden Savings &
Loan Association, Inc.
CRUZ, J.:
This case, for all its seeming complexity, turns on a simple question of
negligence. The facts, pruned of all non-essentials, are easily told.
The Metropolitan Bank and Trust Co. is a commercial bank with branches
throughout the Philippines and even abroad. Golden Savings and Loan
Association was, at the time these events happened, operating in Calapan,
Mindoro, with the other private respondents as its principal officers.
In January 1979, a certain Eduardo Gomez opened an account with Golden
Savings and deposited over a period of two months 38 treasury warrants with
a total value of P1,755,228.37. They were all drawn by the Philippine Fish
Marketing Authority and purportedly signed by its General Manager and
countersigned by its Auditor. Six of these were directly payable to Gomez while
the others appeared to have been indorsed by their respective payees,
followed by Gomez as second indorser.1
On various dates between June 25 and July 16, 1979, all these warrants were
subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and
deposited to its Savings Account No. 2498 in the Metrobank branch in
Calapan, Mindoro. They were then sent for clearing by the branch office to the
principal office of Metrobank, which forwarded them to the Bureau of Treasury
for special clearing.2
More than two weeks after the deposits, Gloria Castillo went to the Calapan
branch several times to ask whether the warrants had been cleared. She was
told to wait. Accordingly, Gomez was meanwhile not allowed to withdraw from
his account. Later, however, "exasperated" over Gloria's repeated inquiries
and also as an accommodation for a "valued client," the petitioner says it finally
decided to allow Golden Savings to withdraw from the proceeds of the
warrants.3
The first withdrawal was made on July 9, 1979, in the amount of P508,000.00,
the second on July 13, 1979, in the amount of P310,000.00, and the third on
July 16, 1979, in the amount of P150,000.00. The total withdrawal was
P968.000.00.4
In turn, Golden Savings subsequently allowed Gomez to make withdrawals
from his own account, eventually collecting the total amount of P1,167,500.00
from the proceeds of the apparently cleared warrants. The last withdrawal was
made on July 16, 1979.
On July 21, 1979, Metrobank informed Golden Savings that 32 of the warrants
had been dishonored by the Bureau of Treasury on July 19, 1979, and
demanded the refund by Golden Savings of the amount it had previously
withdrawn, to make up the deficit in its account.
The demand was rejected. Metrobank then sued Golden Savings in the
Regional Trial Court of Mindoro.5 After trial, judgment was rendered in favor
of Golden Savings, which, however, filed a motion for reconsideration even as
Metrobank filed its notice of appeal. On November 4, 1986, the lower court
modified its decision thus:
NEGOTIABLE INSTRUMENTS
ACCORDINGLY, judgment is hereby rendered:
1. Dismissing the complaint with costs against the plaintiff;
2. Dissolving and lifting the writ of attachment of the properties of
defendant Golden Savings and Loan Association, Inc. and defendant Spouses
Magno Castillo and Lucia Castillo;
3. Directing the plaintiff to reverse its action of debiting Savings Account
No. 2498 of the sum of P1,754,089.00 and to reinstate and credit to such
account such amount existing before the debit was made including the amount
of P812,033.37 in favor of defendant Golden Savings and Loan Association,
Inc. and thereafter, to allow defendant Golden Savings and Loan Association,
Inc. to withdraw the amount outstanding thereon before the debit;
4. Ordering the plaintiff to pay the defendant Golden Savings and Loan
Association, Inc. attorney's fees and expenses of litigation in the amount of
P200,000.00.
5. Ordering the plaintiff to pay the defendant Spouses Magno Castillo
and Lucia Castillo attorney's fees and expenses of litigation in the amount of
P100,000.00.
SO ORDERED.
On appeal to the respondent court,6 the decision was affirmed, prompting
Metrobank to file this petition for review on the following grounds:
1. Respondent Court of Appeals erred in disregarding and failing to apply
the clear contractual terms and conditions on the deposit slips allowing
Metrobank to charge back any amount erroneously credited.
(a) Metrobank's right to charge back is not limited to instances where the
checks or treasury warrants are forged or unauthorized.
(b) Until such time as Metrobank is actually paid, its obligation is that of a
mere collecting agent which cannot be held liable for its failure to collect on the
warrants.
2. Under the lower court's decision, affirmed by respondent Court of
Appeals, Metrobank is made to pay for warrants already dishonored, thereby
perpetuating the fraud committed by Eduardo Gomez.
3. Respondent Court of Appeals erred in not finding that as between
Metrobank and Golden Savings, the latter should bear the loss.
4. Respondent Court of Appeals erred in holding that the treasury
warrants involved in this case are not negotiable instruments.
The petition has no merit.
From the above undisputed facts, it would appear to the Court that Metrobank
was indeed negligent in giving Golden Savings the impression that the treasury
warrants had been cleared and that, consequently, it was safe to allow Gomez
to withdraw the proceeds thereof from his account with it. Without such
assurance, Golden Savings would not have allowed the withdrawals; with such
assurance, there was no reason not to allow the withdrawal. Indeed, Golden
Savings might even have incurred liability for its refusal to return the money
that to all appearances belonged to the depositor, who could therefore
withdraw it any time and for any reason he saw fit.
It was, in fact, to secure the clearance of the treasury warrants that Golden
Savings deposited them to its account with Metrobank. Golden Savings had
no clearing facilities of its own. It relied on Metrobank to determine the validity
of the warrants through its own services. The proceeds of the warrants were
withheld from Gomez until Metrobank allowed Golden Savings itself to
withdraw them from its own deposit.7 It was only when Metrobank gave the
go-signal that Gomez was finally allowed by Golden Savings to withdraw them
from his own account.
The argument of Metrobank that Golden Savings should have exercised more
care in checking the personal circumstances of Gomez before accepting his
deposit does not hold water. It was Gomez who was entrusting the warrants,
not Golden Savings that was extending him a loan; and moreover, the treasury
warrants were subject to clearing, pending which the depositor could not
withdraw its proceeds. There was no question of Gomez's identity or of the
genuineness of his signature as checked by Golden Savings. In fact, the
treasury warrants were dishonored allegedly because of the forgery of the
signatures of the drawers, not of Gomez as payee or indorser. Under the
circumstances, it is clear that Golden Savings acted with due care and
diligence and cannot be faulted for the withdrawals it allowed Gomez to make.
By contrast, Metrobank exhibited extraordinary carelessness. The amount
involved was not trifling more than one and a half million pesos (and this
was 1979). There was no reason why it should not have waited until the
treasury warrants had been cleared; it would not have lost a single centavo by
waiting. Yet, despite the lack of such clearance and notwithstanding that it
NEGOTIABLE INSTRUMENTS
had not received a single centavo from the proceeds of the treasury warrants,
as it now repeatedly stresses it allowed Golden Savings to withdraw not
once, not twice, but thrice from the uncleared treasury warrants in the total
amount of P968,000.00
Its reason? It was "exasperated" over the persistent inquiries of Gloria Castillo
about the clearance and it also wanted to "accommodate" a valued client. It
"presumed" that the warrants had been cleared simply because of "the lapse
of one week."8 For a bank with its long experience, this explanation is
unbelievably naive.
And now, to gloss over its carelessness, Metrobank would invoke the
conditions printed on the dorsal side of the deposit slips through which the
treasury warrants were deposited by Golden Savings with its Calapan branch.
The conditions read as follows:
Kindly note that in receiving items on deposit, the bank obligates itself only as
the depositor's collecting agent, assuming no responsibility beyond care in
selecting correspondents, and until such time as actual payment shall have
come into possession of this bank, the right is reserved to charge back to the
depositor's account any amount previously credited, whether or not such item
is returned. This also applies to checks drawn on local banks and bankers and
their branches as well as on this bank, which are unpaid due to insufficiency
of funds, forgery, unauthorized overdraft or any other reason. (Emphasis
supplied.)
According to Metrobank, the said conditions clearly show that it was acting
only as a collecting agent for Golden Savings and give it the right to "charge
back to the depositor's account any amount previously credited, whether or not
such item is returned. This also applies to checks ". . . which are unpaid due
to insufficiency of funds, forgery, unauthorized overdraft of any other reason."
It is claimed that the said conditions are in the nature of contractual stipulations
and became binding on Golden Savings when Gloria Castillo, as its Cashier,
signed the deposit slips.
Doubt may be expressed about the binding force of the conditions, considering
that they have apparently been imposed by the bank unilaterally, without the
consent of the depositor. Indeed, it could be argued that the depositor, in
signing the deposit slip, does so only to identify himself and not to agree to the
conditions set forth in the given permit at the back of the deposit slip. We do
not have to rule on this matter at this time. At any rate, the Court feels that
even if the deposit slip were considered a contract, the petitioner could still not
validly disclaim responsibility thereunder in the light of the circumstances of
this case.
In stressing that it was acting only as a collecting agent for Golden Savings,
Metrobank seems to be suggesting that as a mere agent it cannot be liable to
the principal. This is not exactly true. On the contrary, Article 1909 of the Civil
Code clearly provides that
Art. 1909. The agent is responsible not only for fraud, but also for
negligence, which shall be judged 'with more or less rigor by the courts,
according to whether the agency was or was not for a compensation.
The negligence of Metrobank has been sufficiently established. To repeat for
emphasis, it was the clearance given by it that assured Golden Savings it was
already safe to allow Gomez to withdraw the proceeds of the treasury warrants
he had deposited Metrobank misled Golden Savings. There may have been
no express clearance, as Metrobank insists (although this is refuted by Golden
Savings) but in any case that clearance could be implied from its allowing
Golden Savings to withdraw from its account not only once or even twice but
three times. The total withdrawal was in excess of its original balance before
the treasury warrants were deposited, which only added to its belief that the
treasury warrants had indeed been cleared.
Metrobank's argument that it may recover the disputed amount if the warrants
are not paid for any reason is not acceptable. Any reason does not mean no
reason at all. Otherwise, there would have been no need at all for Golden
Savings to deposit the treasury warrants with it for clearance. There would
have been no need for it to wait until the warrants had been cleared before
paying the proceeds thereof to Gomez. Such a condition, if interpreted in the
way the petitioner suggests, is not binding for being arbitrary and
unconscionable. And it becomes more so in the case at bar when it is
considered that the supposed dishonor of the warrants was not communicated
to Golden Savings before it made its own payment to Gomez.
The belated notification aggravated the petitioner's earlier negligence in giving
express or at least implied clearance to the treasury warrants and allowing
payments therefrom to Golden Savings. But that is not all. On top of this, the
supposed reason for the dishonor, to wit, the forgery of the signatures of the
general manager and the auditor of the drawer corporation, has not been
established.9 This was the finding of the lower courts which we see no reason
to disturb. And as we said in MWSS v. Court of Appeals:10
Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139 SCRA 238). It
must be established by clear, positive and convincing evidence. This was not
done in the present case.
NEGOTIABLE INSTRUMENTS
A no less important consideration is the circumstance that the treasury
warrants in question are not negotiable instruments. Clearly stamped on their
face is the word "non-negotiable." Moreover, and this is of equal significance,
it is indicated that they are payable from a particular fund, to wit, Fund 501.
The following sections of the Negotiable Instruments Law, especially the
underscored parts, are pertinent:
Sec. 1. Form of negotiable instruments. An instrument to be negotiable
must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain
in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or
otherwise indicated therein with reasonable certainty.
xxx xxx xxx
Sec. 3. When promise is unconditional. An unqualified order or promise to
pay is unconditional within the meaning of this Act though coupled with
(a) An indication of a particular fund out of which reimbursement is to be
made or a particular account to be debited with the amount; or
(b) A statement of the transaction which gives rise to the instrument
judgment.
But an order or promise to pay out of a particular fund is not unconditional.
The indication of Fund 501 as the source of the payment to be made on the
treasury warrants makes the order or promise to pay "not unconditional" and
the warrants themselves non-negotiable. There should be no question that the
exception on Section 3 of the Negotiable Instruments Law is applicable in the
case at bar. This conclusion conforms to Abubakar vs. Auditor General11
where the Court held:
The petitioner argues that he is a holder in good faith and for value of a
negotiable instrument and is entitled to the rights and privileges of a holder in
due course, free from defenses. But this treasury warrant is not within the
scope of the negotiable instrument law. For one thing, the document bearing
on its face the words "payable from the appropriation for food administration,
is actually an Order for payment out of "a particular fund," and is not
unconditional and does not fulfill one of the essential requirements of a
negotiable instrument (Sec. 3 last sentence and section [1(b)] of the
Negotiable Instruments Law).
Metrobank cannot contend that by indorsing the warrants in general, Golden
Savings assumed that they were "genuine and in all respects what they purport
to be," in accordance with Section 66 of the Negotiable Instruments Law. The
simple reason is that this law is not applicable to the non-negotiable treasury
warrants. The indorsement was made by Gloria Castillo not for the purpose of
guaranteeing the genuineness of the warrants but merely to deposit them with
Metrobank for clearing. It was in fact Metrobank that made the guarantee when
it stamped on the back of the warrants: "All prior indorsement and/or lack of
endorsements guaranteed, Metropolitan Bank & Trust Co., Calapan Branch."
The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the
Philippine Islands,12 but we feel this case is inapplicable to the present
controversy.1wphi1 That case involved checks whereas this case involves
treasury warrants. Golden Savings never represented that the warrants were
negotiable but signed them only for the purpose of depositing them for
clearance. Also, the fact of forgery was proved in that case but not in the case
before us. Finally, the Court found the Jai Alai Corporation negligent in
accepting the checks without question from one Antonio Ramirez
notwithstanding that the payee was the Inter-Island Gas Services, Inc. and it
did not appear that he was authorized to indorse it. No similar negligence can
be imputed to Golden Savings.
We find the challenged decision to be basically correct. However, we will have
to amend it insofar as it directs the petitioner to credit Golden Savings with the
full amount of the treasury checks deposited to its account.
The total value of the 32 treasury warrants dishonored was P1,754,089.00,
from which Gomez was allowed to withdraw P1,167,500.00 before Golden
Savings was notified of the dishonor. The amount he has withdrawn must be
charged not to Golden Savings but to Metrobank, which must bear the
consequences of its own negligence. But the balance of P586,589.00 should
be debited to Golden Savings, as obviously Gomez can no longer be permitted
to withdraw this amount from his deposit because of the dishonor of the
warrants. Gomez has in fact disappeared. To also credit the balance to Golden
NEGOTIABLE INSTRUMENTS
Savings would unduly enrich it at the expense of Metrobank, let alone the fact
that it has already been informed of the dishonor of the treasury warrants.
WHEREFORE, the challenged decision is AFFIRMED, with the modification
that Paragraph 3 of the dispositive portion of the judgment of the lower court
shall be reworded as follows:
3. Debiting Savings Account No. 2498 in the sum of P586,589.00 only
and thereafter allowing defendant Golden Savings & Loan Association, Inc. to
withdraw the amount outstanding thereon, if any, after the debit.
SO ORDERED.
4. Sesbreno v. CA
G.R. No. 89252 May 24, 1993
(c) post-dated checks payable on 13 March 1981 (i.e., the maturity date
of petitioner's investment), with petitioner as payee, Philfinance as drawer, and
Insular Bank of Asia and America as drawee, in the total amount of
P304,533.33.
On 13 March 1981, petitioner sought to encash the postdated checks issued
by Philfinance. However, the checks were dishonored for having been drawn
against insufficient funds.
On 26 March 1981, Philfinance delivered to petitioner the DCR No. 10805
issued by private respondent Pilipinas Bank ("Pilipinas"). It reads as follows:
PILIPINAS BANK
Makati Stock Exchange Bldg.,
Ayala Avenue, Makati,
Metro Manila

RAUL SESBREO, petitioner, February 9, 1981

vs.
HON. COURT OF APPEALS, DELTA MOTORS CORPORATION AND VALUE DATE
PILIPINAS BANK, respondents.
TO Raul Sesbreo
Salva, Villanueva & Associates for Delta Motors Corporation.
April 6, 1981
Reyes, Salazar & Associates for Pilipinas Bank.
MATURITY DATE

FELICIANO, J.: NO. 10805

On 9 February 1981, petitioner Raul Sesbreo made a money market
placement in the amount of P300,000.00 with the Philippine Underwriters
Finance Corporation ("Philfinance"), Cebu Branch; the placement, with a term
of thirty-two (32) days, would mature on 13 March 1981, Philfinance, also on
9 February 1981, issued the following documents to petitioner:
DENOMINATED CUSTODIAN RECEIPT
This confirms that as a duly Custodian Bank, and upon instruction of
PHILIPPINE UNDERWRITES FINANCE CORPORATION, we have in our
custody the following securities to you [sic] the extent herein indicated.

(a) the Certificate of Confirmation of Sale, "without recourse," No. 20496 SERIAL MAT. FACE ISSUED REGISTERED AMOUNT
of one (1) Delta Motors Corporation Promissory Note ("DMC PN") No. 2731 NUMBER DATE VALUE BY HOLDER PAYEE
for a term of 32 days at 17.0% per annum;
2731 4-6-81 2,300,833.34 DMC PHIL. 307,933.33
(b) the Certificate of securities Delivery Receipt No. 16587 indicating the UNDERWRITERS
sale of DMC PN No. 2731 to petitioner, with the notation that the said security FINANCE CORP.
was in custodianship of Pilipinas Bank, as per Denominated Custodian Receipt
("DCR") No. 10805 dated 9 February 1981; and We further certify that these securities may be inspected by you or your duly
authorized representative at any time during regular banking hours.
NEGOTIABLE INSTRUMENTS
Upon your written instructions we shall undertake physical delivery of the
above securities fully assigned to you should this Denominated Custodianship
Receipt remain outstanding in your favor thirty (30) days after its maturity.
PILIPINAS BANK
(By Elizabeth De Villa
Illegible Signature)1
On 2 April 1981, petitioner approached Ms. Elizabeth de Villa of private
respondent Pilipinas, Makati Branch, and handed her a demand letter
informing the bank that his placement with Philfinance in the amount reflected
in the DCR No. 10805 had remained unpaid and outstanding, and that he in
effect was asking for the physical delivery of the underlying promissory note.
Petitioner then examined the original of the DMC PN No. 2731 and found: that
the security had been issued on 10 April 1980; that it would mature on 6 April
1981; that it had a face value of P2,300,833.33, with the Philfinance as "payee"
and private respondent Delta Motors Corporation ("Delta") as "maker;" and
that on face of the promissory note was stamped "NON NEGOTIABLE."
Pilipinas did not deliver the Note, nor any certificate of participation in respect
thereof, to petitioner.
Petitioner later made similar demand letters, dated 3 July 1981 and 3 August
1981,2 again asking private respondent Pilipinas for physical delivery of the
original of DMC PN No. 2731. Pilipinas allegedly referred all of petitioner's
demand letters to Philfinance for written instructions, as has been supposedly
agreed upon in "Securities Custodianship Agreement" between Pilipinas and
Philfinance. Philfinance did not provide the appropriate instructions; Pilipinas
never released DMC PN No. 2731, nor any other instrument in respect thereof,
to petitioner.
Petitioner also made a written demand on 14 July 19813 upon private
respondent Delta for the partial satisfaction of DMC PN No. 2731, explaining
that Philfinance, as payee thereof, had assigned to him said Note to the extent
of P307,933.33. Delta, however, denied any liability to petitioner on the
promissory note, and explained in turn that it had previously agreed with
Philfinance to offset its DMC PN No. 2731 (along with DMC PN No. 2730)
against Philfinance PN No. 143-A issued in favor of Delta.
In the meantime, Philfinance, on 18 June 1981, was placed under the joint
management of the Securities and exchange commission ("SEC") and the
Central Bank. Pilipinas delivered to the SEC DMC PN No. 2731, which to date
apparently remains in the custody of the SEC.4
As petitioner had failed to collect his investment and interest thereon, he filed
on 28 September 1982 an action for damages with the Regional Trial Court
("RTC") of Cebu City, Branch 21, against private respondents Delta and
Pilipinas.5 The trial court, in a decision dated 5 August 1987, dismissed the
complaint and counterclaims for lack of merit and for lack of cause of action,
with costs against petitioner.
Petitioner appealed to respondent Court of Appeals in C.A.-G.R. CV No.
15195. In a Decision dated 21 March 1989, the Court of Appeals denied the
appeal and held:6
Be that as it may, from the evidence on record, if there is anyone that appears
liable for the travails of plaintiff-appellant, it is Philfinance. As correctly
observed by the trial court:
This act of Philfinance in accepting the investment of plaintiff and charging it
against DMC PN No. 2731 when its entire face value was already obligated or
earmarked for set-off or compensation is difficult to comprehend and may have
been motivated with bad faith. Philfinance, therefore, is solely and legally
obligated to return the investment of plaintiff, together with its earnings, and to
answer all the damages plaintiff has suffered incident thereto. Unfortunately
for plaintiff, Philfinance was not impleaded as one of the defendants in this
case at bar; hence, this Court is without jurisdiction to pronounce judgement
against it. (p. 11, Decision)
WHEREFORE, finding no reversible error in the decision appealed from, the
same is hereby affirmed in toto. Cost against plaintiff-appellant.
Petitioner moved for reconsideration of the above Decision, without success.
Hence, this Petition for Review on Certiorari.
After consideration of the allegations contained and issues raised in the
pleadings, the Court resolved to give due course to the petition and required
the parties to file their respective memoranda.7
Petitioner reiterates the assignment of errors he directed at the trial court
decision, and contends that respondent court of Appeals gravely erred: (i) in
concluding that he cannot recover from private respondent Delta his assigned
portion of DMC PN No. 2731; (ii) in failing to hold private respondent Pilipinas
solidarily liable on the DMC PN No. 2731 in view of the provisions stipulated
in DCR No. 10805 issued in favor r of petitioner, and (iii) in refusing to pierce
the veil of corporate entity between Philfinance, and private respondents Delta
NEGOTIABLE INSTRUMENTS
and Pilipinas, considering that the three (3) entities belong to the "Silverio
Group of Companies" under the leadership of Mr. Ricardo Silverio, Sr.8
There are at least two (2) sets of relationships which we need to address:
firstly, the relationship of petitioner vis-a-vis Delta; secondly, the relationship
of petitioner in respect of Pilipinas. Actually, of course, there is a third
relationship that is of critical importance: the relationship of petitioner and
Philfinance. However, since Philfinance has not been impleaded in this case,
neither the trial court nor the Court of Appeals acquired jurisdiction over the
person of Philfinance. It is, consequently, not necessary for present purposes
to deal with this third relationship, except to the extent it necessarily impinges
upon or intersects the first and second relationships.
I.
We consider first the relationship between petitioner and Delta.
The Court of appeals in effect held that petitioner acquired no rights vis-a-vis
Delta in respect of the Delta promissory note (DMC PN No. 2731) which
Philfinance sold "without recourse" to petitioner, to the extent of P304,533.33.
The Court of Appeals said on this point:
Nor could plaintiff-appellant have acquired any right over DMC PN No. 2731
as the same is "non-negotiable" as stamped on its face (Exhibit "6"),
negotiation being defined as the transfer of an instrument from one person to
another so as to constitute the transferee the holder of the instrument (Sec.
30, Negotiable Instruments Law). A person not a holder cannot sue on the
instrument in his own name and cannot demand or receive payment (Section
51, id.)9
Petitioner admits that DMC PN No. 2731 was non-negotiable but contends that
the Note had been validly transferred, in part to him by assignment and that as
a result of such transfer, Delta as debtor-maker of the Note, was obligated to
pay petitioner the portion of that Note assigned to him by the payee
Philfinance.
Delta, however, disputes petitioner's contention and argues:
(1) that DMC PN No. 2731 was not intended to be negotiated or otherwise
transferred by Philfinance as manifested by the word "non-negotiable" stamp
across the face of the Note10 and because maker Delta and payee Philfinance
intended that this Note would be offset against the outstanding obligation of
Philfinance represented by Philfinance PN No. 143-A issued to Delta as payee;
(2) that the assignment of DMC PN No. 2731 by Philfinance was without
Delta's consent, if not against its instructions; and
(3) assuming (arguendo only) that the partial assignment in favor of
petitioner was valid, petitioner took the Note subject to the defenses available
to Delta, in particular, the offsetting of DMC PN No. 2731 against Philfinance
PN No. 143-A.11
We consider Delta's arguments seriatim.
Firstly, it is important to bear in mind that the negotiation of a negotiable
instrument must be distinguished from the assignment or transfer of an
instrument whether that be negotiable or non-negotiable. Only an instrument
qualifying as a negotiable instrument under the relevant statute may be
negotiated either by indorsement thereof coupled with delivery, or by delivery
alone where the negotiable instrument is in bearer form. A negotiable
instrument may, however, instead of being negotiated, also be assigned or
transferred. The legal consequences of negotiation as distinguished from
assignment of a negotiable instrument are, of course, different. A non-
negotiable instrument may, obviously, not be negotiated; but it may be
assigned or transferred, absent an express prohibition against assignment or
transfer written in the face of the instrument:
The words "not negotiable," stamped on the face of the bill of lading, did not
destroy its assignability, but the sole effect was to exempt the bill from the
statutory provisions relative thereto, and a bill, though not negotiable, may be
transferred by assignment; the assignee taking subject to the equities between
the original parties.12 (Emphasis added)
DMC PN No. 2731, while marked "non-negotiable," was not at the same time
stamped "non-transferable" or "non-assignable." It contained no stipulation
which prohibited Philfinance from assigning or transferring, in whole or in part,
that Note.
Delta adduced the "Letter of Agreement" which it had entered into with
Philfinance and which should be quoted in full:
April 10, 1980
Philippine Underwriters Finance Corp.
Benavidez St., Makati,
Metro Manila.
Attention: Mr. Alfredo O. Banaria
NEGOTIABLE INSTRUMENTS
SVP-Treasurer
GENTLEMEN:
This refers to our outstanding placement of P4,601,666.67 as evidenced by
your Promissory Note No. 143-A, dated April 10, 1980, to mature on April 6,
1981.
As agreed upon, we enclose our non-negotiable Promissory Note No. 2730
and 2731 for P2,000,000.00 each, dated April 10, 1980, to be offsetted [sic]
against your PN No. 143-A upon co-terminal maturity.
Please deliver the proceeds of our PNs to our representative, Mr. Eric Castillo.
Very Truly Yours,
(Sgd.)
Florencio B. Biagan
Senior Vice President13
We find nothing in his "Letter of Agreement" which can be reasonably
construed as a prohibition upon Philfinance assigning or transferring all or part
of DMC PN No. 2731, before the maturity thereof. It is scarcely necessary to
add that, even had this "Letter of Agreement" set forth an explicit prohibition of
transfer upon Philfinance, such a prohibition cannot be invoked against an
assignee or transferee of the Note who parted with valuable consideration in
good faith and without notice of such prohibition. It is not disputed that
petitioner was such an assignee or transferee. Our conclusion on this point is
reinforced by the fact that what Philfinance and Delta were doing by their
exchange of their promissory notes was this: Delta invested, by making a
money market placement with Philfinance, approximately P4,600,000.00 on
10 April 1980; but promptly, on the same day, borrowed back the bulk of that
placement, i.e., P4,000,000.00, by issuing its two (2) promissory notes: DMC
PN No. 2730 and DMC PN No. 2731, both also dated 10 April 1980. Thus,
Philfinance was left with not P4,600,000.00 but only P600,000.00 in cash and
the two (2) Delta promissory notes.
Apropos Delta's complaint that the partial assignment by Philfinance of DMC
PN No. 2731 had been effected without the consent of Delta, we note that such
consent was not necessary for the validity and enforceability of the assignment
in favor of petitioner.14 Delta's argument that Philfinance's sale or assignment
of part of its rights to DMC PN No. 2731 constituted conventional subrogation,
which required its (Delta's) consent, is quite mistaken. Conventional
subrogation, which in the first place is never lightly inferred,15 must be clearly
established by the unequivocal terms of the substituting obligation or by the
evident incompatibility of the new and old obligations on every point.16 Nothing
of the sort is present in the instant case.
It is in fact difficult to be impressed with Delta's complaint, since it released its
DMC PN No. 2731 to Philfinance, an entity engaged in the business of buying
and selling debt instruments and other securities, and more generally, in
money market transactions. In Perez v. Court of Appeals,17 the Court,
speaking through Mme. Justice Herrera, made the following important
statement:
There is another aspect to this case. What is involved here is a money market
transaction. As defined by Lawrence Smith "the money market is a market
dealing in standardized short-term credit instruments (involving large amounts)
where lenders and borrowers do not deal directly with each other but through
a middle manor a dealer in the open market." It involves "commercial papers"
which are instruments "evidencing indebtness of any person or entity. . ., which
are issued, endorsed, sold or transferred or in any manner conveyed to
another person or entity, with or without recourse". The fundamental function
of the money market device in its operation is to match and bring together in a
most impersonal manner both the "fund users" and the "fund suppliers." The
money market is an "impersonal market", free from personal considerations.
"The market mechanism is intended to provide quick mobility of money and
securities."
The impersonal character of the money market device overlooks the
individuals or entities concerned. The issuer of a commercial paper in the
money market necessarily knows in advance that it would be expenditiously
transacted and transferred to any investor/lender without need of notice to said
issuer. In practice, no notification is given to the borrower or issuer of
commercial paper of the sale or transfer to the investor.
xxx xxx xxx
There is need to individuate a money market transaction, a relatively novel
institution in the Philippine commercial scene. It has been intended to facilitate
the flow and acquisition of capital on an impersonal basis. And as specifically
required by Presidential Decree No. 678, the investing public must be given
adequate and effective protection in availing of the credit of a borrower in the
commercial paper market.18 (Citations omitted; emphasis supplied)
We turn to Delta's arguments concerning alleged compensation or offsetting
between DMC PN No. 2731 and Philfinance PN No. 143-A. It is important to
note that at the time Philfinance sold part of its rights under DMC PN No. 2731
NEGOTIABLE INSTRUMENTS
to petitioner on 9 February 1981, no compensation had as yet taken place and
indeed none could have taken place. The essential requirements of
compensation are listed in the Civil Code as follows:
Art. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at
the same time a principal creditor of the other;
(2) That both debts consists in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the latter
has been stated;
(3) That the two debts are due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the debtor.
(Emphasis supplied)
On 9 February 1981, neither DMC PN No. 2731 nor Philfinance PN No. 143-
A was due. This was explicitly recognized by Delta in its 10 April 1980 "Letter
of Agreement" with Philfinance, where Delta acknowledged that the relevant
promissory notes were "to be offsetted (sic) against [Philfinance] PN No. 143-
A upon co-terminal maturity."
As noted, the assignment to petitioner was made on 9 February 1981 or from
forty-nine (49) days before the "co-terminal maturity" date, that is to say, before
any compensation had taken place. Further, the assignment to petitioner
would have prevented compensation had taken place between Philfinance and
Delta, to the extent of P304,533.33, because upon execution of the
assignment in favor of petitioner, Philfinance and Delta would have ceased to
be creditors and debtors of each other in their own right to the extent of the
amount assigned by Philfinance to petitioner. Thus, we conclude that the
assignment effected by Philfinance in favor of petitioner was a valid one and
that petitioner accordingly became owner of DMC PN No. 2731 to the extent
of the portion thereof assigned to him.
The record shows, however, that petitioner notified Delta of the fact of the
assignment to him only on 14 July 1981, 19 that is, after the maturity not only
of the money market placement made by petitioner but also of both DMC PN
No. 2731 and Philfinance PN No. 143-A. In other words, petitioner notified
Delta of his rights as assignee after compensation had taken place by
operation of law because the offsetting instruments had both reached maturity.
It is a firmly settled doctrine that the rights of an assignee are not any greater
that the rights of the assignor, since the assignee is merely substituted in the
place of the assignor 20 and that the assignee acquires his rights subject to
the equities i.e., the defenses which the debtor could have set up against
the original assignor before notice of the assignment was given to the debtor.
Article 1285 of the Civil Code provides that:
Art. 1285. The debtor who has consented to the assignment of rights
made by a creditor in favor of a third person, cannot set up against the
assignee the compensation which would pertain to him against the assignor,
unless the assignor was notified by the debtor at the time he gave his consent,
that he reserved his right to the compensation.
If the creditor communicated the cession to him but the debtor did not consent
thereto, the latter may set up the compensation of debts previous to the
cession, but not of subsequent ones.
If the assignment is made without the knowledge of the debtor, he may set up
the compensation of all credits prior to the same and also later ones until he
had knowledge of the assignment. (Emphasis supplied)
Article 1626 of the same code states that: "the debtor who, before having
knowledge of the assignment, pays his creditor shall be released from the
obligation." In Sison v. Yap-Tico,21 the Court explained that:
[n]o man is bound to remain a debtor; he may pay to him with whom he
contacted to pay; and if he pay before notice that his debt has been assigned,
the law holds him exonerated, for the reason that it is the duty of the person
who has acquired a title by transfer to demand payment of the debt, to give his
debt or notice.22
At the time that Delta was first put to notice of the assignment in petitioner's
favor on 14 July 1981, DMC PN No. 2731 had already been discharged by
compensation. Since the assignor Philfinance could not have then compelled
payment anew by Delta of DMC PN No. 2731, petitioner, as assignee of
Philfinance, is similarly disabled from collecting from Delta the portion of the
Note assigned to him.
It bears some emphasis that petitioner could have notified Delta of the
assignment or sale was effected on 9 February 1981. He could have notified
Delta as soon as his money market placement matured on 13 March 1981
without payment thereof being made by Philfinance; at that time,
compensation had yet to set in and discharge DMC PN No. 2731. Again
NEGOTIABLE INSTRUMENTS
petitioner could have notified Delta on 26 March 1981 when petitioner received
from Philfinance the Denominated Custodianship Receipt ("DCR") No. 10805
issued by private respondent Pilipinas in favor of petitioner. Petitioner could,
in fine, have notified Delta at any time before the maturity date of DMC PN No.
2731. Because petitioner failed to do so, and because the record is bare of
any indication that Philfinance had itself notified Delta of the assignment to
petitioner, the Court is compelled to uphold the defense of compensation
raised by private respondent Delta. Of course, Philfinance remains liable to
petitioner under the terms of the assignment made by Philfinance to petitioner.
II.
We turn now to the relationship between petitioner and private respondent
Pilipinas. Petitioner contends that Pilipinas became solidarily liable with
Philfinance and Delta when Pilipinas issued DCR No. 10805 with the following
words:
Upon your written instruction, we [Pilipinas] shall undertake physical delivery
of the above securities fully assigned to you .23
The Court is not persuaded. We find nothing in the DCR that establishes an
obligation on the part of Pilipinas to pay petitioner the amount of P307,933.33
nor any assumption of liability in solidum with Philfinance and Delta under
DMC PN No. 2731. We read the DCR as a confirmation on the part of Pilipinas
that:
(1) it has in its custody, as duly constituted custodian bank, DMC PN No.
2731 of a certain face value, to mature on 6 April 1981 and payable to the
order of Philfinance;
(2) Pilipinas was, from and after said date of the assignment by
Philfinance to petitioner (9 February 1981), holding that Note on behalf and for
the benefit of petitioner, at least to the extent it had been assigned to petitioner
by payee Philfinance;24
(3) petitioner may inspect the Note either "personally or by authorized
representative", at any time during regular bank hours; and
(4) upon written instructions of petitioner, Pilipinas would physically
deliver the DMC PN No. 2731 (or a participation therein to the extent of
P307,933.33) "should this Denominated Custodianship receipt remain
outstanding in [petitioner's] favor thirty (30) days after its maturity."
Thus, we find nothing written in printers ink on the DCR which could reasonably
be read as converting Pilipinas into an obligor under the terms of DMC PN No.
2731 assigned to petitioner, either upon maturity thereof or any other time. We
note that both in his complaint and in his testimony before the trial court,
petitioner referred merely to the obligation of private respondent Pilipinas to
effect the physical delivery to him of DMC PN No. 2731.25 Accordingly,
petitioner's theory that Pilipinas had assumed a solidary obligation to pay the
amount represented by a portion of the Note assigned to him by Philfinance,
appears to be a new theory constructed only after the trial court had ruled
against him. The solidary liability that petitioner seeks to impute Pilipinas
cannot, however, be lightly inferred. Under article 1207 of the Civil Code, "there
is a solidary liability only when the law or the nature of the obligation requires
solidarity," The record here exhibits no express assumption of solidary liability
vis-a-vis petitioner, on the part of Pilipinas. Petitioner has not pointed to us to
any law which imposed such liability upon Pilipinas nor has petitioner argued
that the very nature of the custodianship assumed by private respondent
Pilipinas necessarily implies solidary liability under the securities, custody of
which was taken by Pilipinas. Accordingly, we are unable to hold Pilipinas
solidarily liable with Philfinance and private respondent Delta under DMC PN
No. 2731.
We do not, however, mean to suggest that Pilipinas has no responsibility and
liability in respect of petitioner under the terms of the DCR. To the contrary, we
find, after prolonged analysis and deliberation, that private respondent
Pilipinas had breached its undertaking under the DCR to petitioner Sesbreo.
We believe and so hold that a contract of deposit was constituted by the act of
Philfinance in designating Pilipinas as custodian or depositary bank. The
depositor was initially Philfinance; the obligation of the depository was owed,
however, to petitioner Sesbreo as beneficiary of the custodianship or
depository agreement. We do not consider that this is a simple case of a
stipulation pour autri. The custodianship or depositary agreement was
established as an integral part of the money market transaction entered into
by petitioner with Philfinance. Petitioner bought a portion of DMC PN No. 2731;
Philfinance as assignor-vendor deposited that Note with Pilipinas in order that
the thing sold would be placed outside the control of the vendor. Indeed, the
constituting of the depositary or custodianship agreement was equivalent to
constructive delivery of the Note (to the extent it had been sold or assigned to
petitioner) to petitioner. It will be seen that custodianship agreements are
designed to facilitate transactions in the money market by providing a basis for
confidence on the part of the investors or placers that the instruments bought
by them are effectively taken out of the pocket, as it were, of the vendors and
placed safely beyond their reach, that those instruments will be there available
to the placers of funds should they have need of them. The depositary in a
NEGOTIABLE INSTRUMENTS
contract of deposit is obliged to return the security or the thing deposited upon
demand of the depositor (or, in the presented case, of the beneficiary) of the
contract, even though a term for such return may have been established in the
said contract.26 Accordingly, any stipulation in the contract of deposit or
custodianship that runs counter to the fundamental purpose of that agreement
or which was not brought to the notice of and accepted by the placer-
beneficiary, cannot be enforced as against such beneficiary-placer.
We believe that the position taken above is supported by considerations of
public policy. If there is any party that needs the equalizing protection of the
law in money market transactions, it is the members of the general public
whom place their savings in such market for the purpose of generating interest
revenues.27 The custodian bank, if it is not related either in terms of equity
ownership or management control to the borrower of the funds, or the
commercial paper dealer, is normally a preferred or traditional banker of such
borrower or dealer (here, Philfinance). The custodian bank would have every
incentive to protect the interest of its client the borrower or dealer as against
the placer of funds. The providers of such funds must be safeguarded from the
impact of stipulations privately made between the borrowers or dealers and
the custodian banks, and disclosed to fund-providers only after trouble has
erupted.
In the case at bar, the custodian-depositary bank Pilipinas refused to deliver
the security deposited with it when petitioner first demanded physical delivery
thereof on 2 April 1981. We must again note, in this connection, that on 2 April
1981, DMC PN No. 2731 had not yet matured and therefore, compensation or
offsetting against Philfinance PN No. 143-A had not yet taken place. Instead
of complying with the demand of the petitioner, Pilipinas purported to require
and await the instructions of Philfinance, in obvious contravention of its
undertaking under the DCR to effect physical delivery of the Note upon receipt
of "written instructions" from petitioner Sesbreo. The ostensible term written
into the DCR (i.e., "should this [DCR] remain outstanding in your favor thirty
[30] days after its maturity") was not a defense against petitioner's demand for
physical surrender of the Note on at least three grounds: firstly, such term was
never brought to the attention of petitioner Sesbreo at the time the money
market placement with Philfinance was made; secondly, such term runs
counter to the very purpose of the custodianship or depositary agreement as
an integral part of a money market transaction; and thirdly, it is inconsistent
with the provisions of Article 1988 of the Civil Code noted above. Indeed, in
principle, petitioner became entitled to demand physical delivery of the Note
held by Pilipinas as soon as petitioner's money market placement matured on
13 March 1981 without payment from Philfinance.
We conclude, therefore, that private respondent Pilipinas must respond to
petitioner for damages sustained by arising out of its breach of duty. By failing
to deliver the Note to the petitioner as depositor-beneficiary of the thing
deposited, Pilipinas effectively and unlawfully deprived petitioner of the Note
deposited with it. Whether or not Pilipinas itself benefitted from such
conversion or unlawful deprivation inflicted upon petitioner, is of no moment
for present purposes. Prima facie, the damages suffered by petitioner
consisted of P304,533.33, the portion of the DMC PN No. 2731 assigned to
petitioner but lost by him by reason of discharge of the Note by compensation,
plus legal interest of six percent (6%) per annum containing from 14 March
1981.
The conclusion we have reached is, of course, without prejudice to such right
of reimbursement as Pilipinas may have vis-a-vis Philfinance.
III.
The third principal contention of petitioner that Philfinance and private
respondents Delta and Pilipinas should be treated as one corporate entity
need not detain us for long.
In the first place, as already noted, jurisdiction over the person of Philfinance
was never acquired either by the trial court nor by the respondent Court of
Appeals. Petitioner similarly did not seek to implead Philfinance in the Petition
before us.
Secondly, it is not disputed that Philfinance and private respondents Delta and
Pilipinas have been organized as separate corporate entities. Petitioner asks
us to pierce their separate corporate entities, but has been able only to cite the
presence of a common Director Mr. Ricardo Silverio, Sr., sitting on the
Board of Directors of all three (3) companies. Petitioner has neither alleged
nor proved that one or another of the three (3) concededly related companies
used the other two (2) as mere alter egos or that the corporate affairs of the
other two (2) were administered and managed for the benefit of one. There is
simply not enough evidence of record to justify disregarding the separate
corporate personalities of delta and Pilipinas and to hold them liable for any
assumed or undetermined liability of Philfinance to petitioner.28
WHEREFORE, for all the foregoing, the Decision and Resolution of the Court
of Appeals in C.A.-G.R. CV No. 15195 dated 21 march 1989 and 17 July 1989,
respectively, are hereby MODIFIED and SET ASIDE, to the extent that such
Decision and Resolution had dismissed petitioner's complaint against Pilipinas
Bank. Private respondent Pilipinas bank is hereby ORDERED to indemnify
petitioner for damages in the amount of P304,533.33, plus legal interest
NEGOTIABLE INSTRUMENTS
thereon at the rate of six percent (6%) per annum counted from 2 April 1981.
As so modified, the Decision and Resolution of the Court of Appeals are hereby
AFFIRMED. No pronouncement as to costs.
SO ORDERED
5. Firestone v. CA
[G.R. No. 113236. March 5, 2001]
FIRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES, petitioner,
vs., COURT OF APPEALS and LUZON DEVELOPMENT BANK, respondents.
DECISION
QUISUMBING, J.:
This petition assails the decision[1] dated December 29, 1993 of the Court of
Appeals in CA-G.R. CV No. 29546, which affirmed the judgment[2] of the
Regional Trial Court of Pasay City, Branch 113 in Civil Case No. PQ-7854-P,
dismissing Firestones complaint for damages.
The facts of this case, adopted by the CA and based on findings by the trial
court, are as follows:
[D]efendant is a banking corporation. It operates under a certificate of authority
issued by the Central Bank of the Philippines, and among its activities, accepts
savings and time deposits. Said defendant had as one of its client-depositors
the Fojas-Arca Enterprises Company (Fojas-Arca for brevity). Fojas-Arca
maintaining a special savings account with the defendant, the latter authorized
and allowed withdrawals of funds therefrom through the medium of special
withdrawal slips. These are supplied by the defendant to Fojas-Arca.
In January 1978, plaintiff and Fojas-Arca entered into a Franchised Dealership
Agreement (Exh. B) whereby Fojas-Arca has the privilege to purchase on
credit and sell plaintiffs products.
On January 14, 1978 up to May 15, 1978. Pursuant to the aforesaid
Agreement, Fojas-Arca purchased on credit Firestone products from plaintiff
with a total amount of P4,896,000.00. In payment of these purchases, Fojas-
Arca delivered to plaintiff six (6) special withdrawal slips drawn upon the
defendant. In turn, these were deposited by the plaintiff with its current account
with the Citibank. All of them were honored and paid by the defendant. This
singular circumstance made plaintiff believe [sic] and relied [sic] on the fact
that the succeeding special withdrawal slips drawn upon the defendant would
be equally sufficiently funded. Relying on such confidence and belief and as a
direct consequence thereof, plaintiff extended to Fojas-Arca other purchases
on credit of its products.
On the following dates Fojas-Arca purchased Firestone products on credit
(Exh. M, I, J, K) and delivered to plaintiff the corresponding special withdrawal
slips in payment thereof drawn upon the defendant, to wit:
DATE WITHDRAWAL AMOUNT
SLIP NO.
June 15, 1978 42127 P1,198,092.80
July 15, 1978 42128 940,190.00
Aug. 15, 1978 42129 880,000.00
Sep. 15, 1978 42130 981,500.00
These were likewise deposited by plaintiff in its current account with Citibank
and in turn the Citibank forwarded it [sic] to the defendant for payment and
collection, as it had done in respect of the previous special withdrawal slips.
Out of these four (4) withdrawal slips only withdrawal slip No. 42130 in the
amount of P981,500.00 was honored and paid by the defendant in October
1978. Because of the absence for a long period coupled with the fact that
defendant honored and paid withdrawal slips No. 42128 dated July 15, 1978,
in the amount of P981,500.00 plaintiffs belief was all the more strengthened
that the other withdrawal slips were likewise sufficiently funded, and that it had
received full value and payment of Fojas-Arcas credit purchased then
outstanding at the time. On this basis, plaintiff was induced to continue
extending to Fojas-Arca further purchase on credit of its products as per
agreement (Exh. B).
However, on December 14, 1978, plaintiff was informed by Citibank that
special withdrawal slips No. 42127 dated June 15, 1978 for P1,198,092.80 and
No. 42129 dated August 15, 1978 for P880,000.00 were dishonored and not
paid for the reason NO ARRANGEMENT. As a consequence, the Citibank
debited plaintiffs account for the total sum of P2,078,092.80 representing the
aggregate amount of the above-two special withdrawal slips. Under such
situation, plaintiff averred that the pecuniary losses it suffered is caused by and
directly attributable to defendants gross negligence.
On September 25, 1979, counsel of plaintiff served a written demand upon the
defendant for the satisfaction of the damages suffered by it. And due to
defendants refusal to pay plaintiffs claim, plaintiff has been constrained to file
this complaint, thereby compelling plaintiff to incur litigation expenses and
attorneys fees which amount are recoverable from the defendant.
Controverting the foregoing asseverations of plaintiff, defendant asserted, inter
alia that the transactions mentioned by plaintiff are that of plaintiff and Fojas-
NEGOTIABLE INSTRUMENTS
Arca only, [in] which defendant is not involved; Vehemently, it was denied by
defendant that the special withdrawal slips were honored and treated as if it
were checks, the truth being that when the special withdrawal slips were
received by defendant, it only verified whether or not the signatures therein
were authentic, and whether or not the deposit level in the passbook concurred
with the savings ledger, and whether or not the deposit is sufficient to cover
the withdrawal; if plaintiff treated the special withdrawal slips paid by Fojas-
Arca as checks then plaintiff has to blame itself for being grossly negligent in
treating the withdrawal slips as check when it is clearly stated therein that the
withdrawal slips are non-negotiable; that defendant is not a privy to any of the
transactions between Fojas-Arca and plaintiff for which reason defendant is
not duty bound to notify nor give notice of anything to plaintiff. If at first
defendant had given notice to plaintiff it is merely an extension of usual bank
courtesy to a prospective client; that defendant is only dealing with its depositor
Fojas-Arca and not the plaintiff. In summation, defendant categorically stated
that plaintiff has no cause of action against it (pp. 1-3, Dec.; pp. 368-370, id).[3]
Petitioners complaint[4] for a sum of money and damages with the Regional
Trial Court of Pasay City, Branch 113, docketed as Civil Case No. 29546, was
dismissed together with the counterclaim of defendant.
Petitioner appealed the decision to the Court of Appeals. It averred that
respondent Luzon Development Bank was liable for damages under Article
2176[5] in relation to Articles 19[6] and 20[7] of the Civil Code. As noted by the
CA, petitioner alleged the following tortious acts on the part of private
respondent: 1) the acceptance and payment of the special withdrawal slips
without the presentation of the depositors passbook thereby giving the
impression that the withdrawal slips are instruments payable upon
presentment; 2) giving the special withdrawal slips the general appearance of
checks; and 3) the failure of respondent bank to seasonably warn petitioner
that it would not honor two of the four special withdrawal slips.
On December 29, 1993, the Court of Appeals promulgated its assailed
decision. It denied the appeal and affirmed the judgment of the trial court.
According to the appellate court, respondent bank notified the depositor to
present the passbook whenever it received a collection note from another
bank, belying petitioners claim that respondent bank was negligent in not
requiring a passbook under the subject transaction. The appellate court also
found that the special withdrawal slips in question were not purposely given
the appearance of checks, contrary to petitioners assertions, and thus should
not have been mistaken for checks. Lastly, the appellate court ruled that the
respondent bank was under no obligation to inform petitioner of the dishonor
of the special withdrawal slips, for to do so would have been a violation of the
law on the secrecy of bank deposits.
Hence, the instant petition, alleging the following assignment of error:
25. The CA grievously erred in holding that the [Luzon Development] Bank
was free from any fault or negligence regarding the dishonor, or in failing to
give fair and timely advice of the dishonor, of the two intermediate LDB Slips
and in failing to award damages to Firestone pursuant to Article 2176 of the
New Civil Code.[8]
The issue for our consideration is whether or not respondent bank should be
held liable for damages suffered by petitioner, due to its allegedly belated
notice of non-payment of the subject withdrawal slips.
The initial transaction in this case was between petitioner and Fojas-Arca,
whereby the latter purchased tires from the former with special withdrawal slips
drawn upon Fojas-Arcas special savings account with respondent bank.
Petitioner in turn deposited these withdrawal slips with Citibank. The latter
credited the same to petitioners current account, then presented the slips for
payment to respondent bank. It was at this point that the bone of contention
arose.
On December 14, 1978, Citibank informed petitioner that special withdrawal
slips Nos. 42127 and 42129 dated June 15, 1978 and August 15, 1978,
respectively, were refused payment by respondent bank due to insufficiency
of Fojas-Arcas funds on deposit. That information came about six months from
the time Fojas-Arca purchased tires from petitioner using the subject
withdrawal slips. Citibank then debited the amount of these withdrawal slips
from petitioners account, causing the alleged pecuniary damage subject of
petitioners cause of action.
At the outset, we note that petitioner admits that the withdrawal slips in
question were non-negotiable.[9] Hence, the rules governing the giving of
immediate notice of dishonor of negotiable instruments do not apply in this
case.[10] Petitioner itself concedes this point.[11] Thus, respondent bank was
under no obligation to give immediate notice that it would not make payment
on the subject withdrawal slips. Citibank should have known that withdrawal
slips were not negotiable instruments. It could not expect these slips to be
treated as checks by other entities. Payment or notice of dishonor from
respondent bank could not be expected immediately, in contrast to the
situation involving checks.
In the case at bar, it appears that Citibank, with the knowledge that respondent
Luzon Development Bank, had honored and paid the previous withdrawal
slips, automatically credited petitioners current account with the amount of the
NEGOTIABLE INSTRUMENTS
subject withdrawal slips, then merely waited for the same to be honored and
paid by respondent bank. It presumed that the withdrawal slips were good.
It bears stressing that Citibank could not have missed the non-negotiable
nature of the withdrawal slips. The essence of negotiability which characterizes
a negotiable paper as a credit instrument lies in its freedom to circulate freely
as a substitute for money.[12] The withdrawal slips in question lacked this
character.
A bank is under obligation to treat the accounts of its depositors with
meticulous care, whether such account consists only of a few hundred pesos
or of millions of pesos.[13] The fact that the other withdrawal slips were
honored and paid by respondent bank was no license for Citibank to presume
that subsequent slips would be honored and paid immediately. By doing so, it
failed in its fiduciary duty to treat the accounts of its clients with the highest
degree of care.[14]
In the ordinary and usual course of banking operations, current account
deposits are accepted by the bank on the basis of deposit slips prepared and
signed by the depositor, or the latters agent or representative, who indicates
therein the current account number to which the deposit is to be credited, the
name of the depositor or current account holder, the date of the deposit, and
the amount of the deposit either in cash or in check.[15]
The withdrawal slips deposited with petitioners current account with Citibank
were not checks, as petitioner admits. Citibank was not bound to accept the
withdrawal slips as a valid mode of deposit. But having erroneously accepted
them as such, Citibank and petitioner as account-holder must bear the risks
attendant to the acceptance of these instruments. Petitioner and Citibank could
not now shift the risk and hold private respondent liable for their admitted
mistake.
WHEREFORE, the petition is DENIED and the decision of the Court of
Appeals in CA-G.R. CV No. 29546 is AFFIRMED. Costs against petitioner.
SO ORDERED.
6. Ang Tek Lian v. CA
G.R. No. L-2516 September 25, 1950
ANG TEK LIAN, petitioner,
vs.
THE COURT OF APPEALS, respondent.
Laurel, Sabido, Almario and Laurel for petitioner.
Office of the Solicitor General Felix Bautista Angelo and Solicitor Manuel
Tomacruz for respondent.
BENGZON, J.:
For having issued a rubber check, Ang Tek Lian was convicted of estafa in the
Court of First Instance of Manila. The Court of Appeals affirmed the verdict.
It appears that, knowing he had no funds therefor, Ang Tek Lian drew on
Saturday, November 16, 1946, the check Exhibits A upon the China Banking
Corporation for the sum of P4,000, payable to the order of "cash". He delivered
it to Lee Hua Hong in exchange for money which the latter handed in act. On
November 18, 1946, the next business day, the check was presented by Lee
Hua Hong to the drawee bank for payment, but it was dishonored for
insufficiency of funds, the balance of the deposit of Ang Tek Lian on both dates
being P335 only.
The Court of Appeals believed the version of Lee Huan Hong who testified that
"on November 16, 1946, appellant went to his (complainant's) office, at 1217
Herran, Paco, Manila, and asked him to exchange Exhibit A which he
(appellant) then brought with him with cash alleging that he needed badly
the sum of P4,000 represented by the check, but could not withdraw it from
the bank, it being then already closed; that in view of this request and relying
upon appellant's assurance that he had sufficient funds in the blank to meet
Exhibit A, and because they used to borrow money from each other, even
before the war, and appellant owns a hotel and restaurant known as the North
Bay Hotel, said complainant delivered to him, on the same date, the sum of
P4,000 in cash; that despite repeated efforts to notify him that the check had
been dishonored by the bank, appellant could not be located any-where, until
he was summoned in the City Fiscal's Office in view of the complaint for estafa
filed in connection therewith; and that appellant has not paid as yet the amount
of the check, or any part thereof."
Inasmuch as the findings of fact of the Court of Appeals are final, the only
question of law for decision is whether under the facts found, estafa had been
accomplished.
Article 315, paragraph (d), subsection 2 of the Revised Penal Code, punishes
swindling committed "By post dating a check, or issuing such check in payment
of an obligation the offender knowing that at the time he had no funds in the
bank, or the funds deposited by him in the bank were not sufficient to cover
NEGOTIABLE INSTRUMENTS
the amount of the check, and without informing the payee of such
circumstances".
We believe that under this provision of law Ang Tek Lian was properly held
liable. In this connection, it must be stated that, as explained in People vs.
Fernandez (59 Phil., 615), estafa is committed by issuing either a postdated
check or an ordinary check to accomplish the deceit.
It is argued, however, that as the check had been made payable to "cash" and
had not been endorsed by Ang Tek Lian, the defendant is not guilty of the
offense charged. Based on the proposition that "by uniform practice of all
banks in the Philippines a check so drawn is invariably dishonored," the
following line of reasoning is advanced in support of the argument:
. . . When, therefore, he (the offended party ) accepted the check (Exhibit A)
from the appellant, he did so with full knowledge that it would be dishonored
upon presentment. In that sense, the appellant could not be said to have acted
fraudulently because the complainant, in so accepting the check as it was
drawn, must be considered, by every rational consideration, to have done so
fully aware of the risk he was running thereby." (Brief for the appellant, p. 11.)
We are not aware of the uniformity of such practice. Instances have
undoubtedly occurred wherein the Bank required the indorsement of the
drawer before honoring a check payable to "cash." But cases there are too,
where no such requirement had been made . It depends upon the
circumstances of each transaction.
Under the Negotiable Instruments Law (sec. 9 [d], a check drawn payable to
the order of "cash" is a check payable to bearer, and the bank may pay it to
the person presenting it for payment without the drawer's indorsement.
A check payable to the order of cash is a bearer instrument. Bacal vs. National
City Bank of New York (1933), 146 Misc., 732; 262 N. Y. S., 839; Cleary vs.
De Beck Plate Glass Co. (1907), 54 Misc., 537; 104 N. Y. S., 831;
Massachusetts Bonding & Insurance Co. vs. Pittsburgh Pipe & Supply Co.
(Tex. Civ. App., 1939), 135 S. W. (2d), 818. See also H. Cook & Son vs. Moody
(1916), 17 Ga. App., 465; 87 S. E., 713.
Where a check is made payable to the order of "cash", the word cash "does
not purport to be the name of any person", and hence the instrument is payable
to bearer. The drawee bank need not obtain any indorsement of the check, but
may pay it to the person presenting it without any indorsement. . . . (Zollmann,
Banks and Banking, Permanent Edition, Vol. 6, p. 494.)
Of course, if the bank is not sure of the bearer's identity or financial solvency,
it has the right to demand identification and /or assurance against possible
complications, for instance, (a) forgery of drawer's signature, (b) loss of the
check by the rightful owner, (c) raising of the amount payable, etc. The bank
may therefore require, for its protection, that the indorsement of the drawer
or of some other person known to it be obtained. But where the Bank is
satisfied of the identity and /or the economic standing of the bearer who
tenders the check for collection, it will pay the instrument without further
question; and it would incur no liability to the drawer in thus acting.
A check payable to bearer is authority for payment to holder. Where a check
is in the ordinary form, and is payable to bearer, so that no indorsement is
required, a bank, to which it is presented for payment, need not have the holder
identified, and is not negligent in falling to do so. . . . (Michie on Banks and
Banking, Permanent Edition, Vol. 5, p. 343.)
. . . Consequently, a drawee bank to which a bearer check is presented for
payment need not necessarily have the holder identified and ordinarily may
not be charged with negligence in failing to do so. See Opinions 6C:2 and 6C:3
If the bank has no reasonable cause for suspecting any irregularity, it will be
protected in paying a bearer check, "no matter what facts unknown to it may
have occurred prior to the presentment." 1 Morse, Banks and Banking, sec.
393.
Although a bank is entitled to pay the amount of a bearer check without further
inquiry, it is entirely reasonable for the bank to insist that holder give
satisfactory proof of his identity. . . . (Paton's Digest, Vol. I, p. 1089.)
Anyway, it is significant, and conclusive, that the form of the check Exhibit A
was totally unconnected with its dishonor. The Court of Appeals declared that
it was returned unsatisfied because the drawer had insufficient funds not
because the drawer's indorsement was lacking.
Wherefore, there being no question as to the correctness of the penalty
imposed on the appellant, the writ of certiorari is denied and the decision of
the Court of Appeals is hereby affirmed, with costs.
Moran, C. J., Ozaeta, Paras, Pablo, Tuason, and Reyes, JJ., concur.