Cases in Negotiable Instruments Law

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 8-½% 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:

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 8-½% 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.

Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Fernando, Teehankee, Barredo and Villamor, JJ., concur.

Castro and Makasiar, JJ., took no part.

G.R. No. 97753 August 10, 1992

CALTEX (PHILIPPINES), INC., petitioner,

vs.
COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.

Bito, Lozada, Ortega & Castillo for petitioners.

Nepomuceno, Hofileña & Guingona for private.

REGALADO, J.:

This petition for review on certiorari impugns and seeks the reversal of the decision promulgated by respondent court on March 8, 1991
in CA-G.R. CV No. 23615 1 affirming with modifications, the earlier decision of the Regional Trial Court of Manila, Branch XLII, 2 which
dismissed the complaint filed therein by herein petitioner against respondent bank.

The undisputed background of this case, as found by the court a quo and adopted by respondent court, appears of record:

1. On various dates, defendant, a commercial banking institution, through its Sucat Branch issued 280 certificates of
time deposit (CTDs) in favor of one Angel dela Cruz who deposited with herein defendant the aggregate amount of
P1,120,000.00, as follows: (Joint Partial Stipulation of Facts and Statement of Issues, Original Records, p. 207;
Defendant's Exhibits 1 to 280);

CTD CTD
Dates Serial Nos. Quantity Amount

22 Feb. 82 90101 to 90120 20 P80,000

26 Feb. 82 74602 to 74691 90 360,000
2 Mar. 82 74701 to 74740 40 160,000
4 Mar. 82 90127 to 90146 20 80,000
5 Mar. 82 74797 to 94800 4 16,000
5 Mar. 82 89965 to 89986 22 88,000
5 Mar. 82 70147 to 90150 4 16,000
8 Mar. 82 90001 to 90020 20 80,000
9 Mar. 82 90023 to 90050 28 112,000
9 Mar. 82 89991 to 90000 10 40,000
9 Mar. 82 90251 to 90272 22 88,000
——— ————
Total 280 P1,120,000
===== ========

2. Angel dela Cruz delivered the said certificates of time (CTDs) to herein plaintiff in connection with his purchased of
fuel products from the latter (Original Record, p. 208).

3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo Tiangco, the Sucat Branch Manger, that he lost
all the certificates of time deposit in dispute. Mr. Tiangco advised said depositor to execute and submit a notarized
Affidavit of Loss, as required by defendant bank's procedure, if he desired replacement of said lost CTDs (TSN,
February 9, 1987, pp. 48-50).

4. On March 18, 1982, Angel dela Cruz executed and delivered to defendant bank the required Affidavit of Loss
(Defendant's Exhibit 281). On the basis of said affidavit of loss, 280 replacement CTDs were issued in favor of said
depositor (Defendant's Exhibits 282-561).

5. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan from defendant bank in the amount of Eight
Hundred Seventy Five Thousand Pesos (P875,000.00). On the same date, said depositor executed a notarized Deed
of Assignment of Time Deposit (Exhibit 562) which stated, among others, that he (de la Cruz) surrenders to
defendant bank "full control of the indicated time deposits from and after date" of the assignment and further
authorizes said bank to pre-terminate, set-off and "apply the said time deposits to the payment of whatever amount or
amounts may be due" on the loan upon its maturity (TSN, February 9, 1987, pp. 60-62).

6. Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff Caltex (Phils.) Inc., went to the defendant
bank's Sucat branch and presented for verification the CTDs declared lost by Angel dela Cruz alleging that the same
were delivered to herein plaintiff "as security for purchases made with Caltex Philippines, Inc." by said depositor
(TSN, February 9, 1987, pp. 54-68).

7. On November 26, 1982, defendant received a letter (Defendant's Exhibit 563) from herein plaintiff formally
informing it of its possession of the CTDs in question and of its decision to pre-terminate the same.
 8. On December 8, 1982, plaintiff was requested by herein defendant to furnish the former "a copy of the document
evidencing the guarantee agreement with Mr. Angel dela Cruz" as well as "the details of Mr. Angel dela Cruz"
obligation against which plaintiff proposed to apply the time deposits (Defendant's Exhibit 564).

9. No copy of the requested documents was furnished herein defendant.

10. Accordingly, defendant bank rejected the plaintiff's demand and claim for payment of the value of the CTDs in a
letter dated February 7, 1983 (Defendant's Exhibit 566).

11. In April 1983, the loan of Angel dela Cruz with the defendant bank matured and fell due and on August 5, 1983,
the latter set-off and applied the time deposits in question to the payment of the matured loan (TSN, February 9,
1987, pp. 130-131).

12. In view of the foregoing, plaintiff filed the instant complaint, praying that defendant bank be ordered to pay it the
aggregate value of the certificates of time deposit of P1,120,000.00 plus accrued interest and compounded interest
therein at 16% per annum, moral and exemplary damages as well as attorney's fees.

3
After trial, the court a quo rendered its decision dismissing the instant complaint.

On appeal, as earlier stated, respondent court affirmed the lower court's dismissal of the complaint, hence this petition wherein
petitioner faults respondent court in ruling (1) that the subject certificates of deposit are non-negotiable despite being clearly negotiable
instruments; (2) that petitioner did not become a holder in due course of the said certificates of deposit; and (3) in disregarding the
pertinent provisions of the Code of Commerce relating to lost instruments payable to bearer. 4

The instant petition is bereft of merit.

A sample text of the certificates of time deposit is reproduced below to provide a better understanding of the issues involved in this
recourse.

SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%

Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____

This is to Certify that B E A R E R has deposited in this Bank the sum of PESOS: FOUR
THOUSAND ONLY, SECURITY BANK SUCAT OFFICE P4,000 & 00 CTS Pesos, Philippine
Currency, repayable to said depositor 731 days. after date, upon presentation and surrender of this
certificate, with interest at the rate of 16% per cent per annum.

(Sgd. Illegible) (Sgd. Illegible)

—————————— ———————————

AUTHORIZED SIGNATURES 5

Respondent court ruled that the CTDs in question are non-negotiable instruments, nationalizing as follows:

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

We disagree with these findings and conclusions, and hereby hold that the CTDs in question are negotiable instruments. Section 1 Act
No. 2031, otherwise known as the Negotiable Instruments Law, enumerates the requisites for an instrument to become negotiable, viz:
 (a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money;

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

(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable
certainty.

The CTDs in question undoubtedly meet the requirements of the law for negotiability. The parties' bone of contention is with regard to
requisite (d) set forth above. It is noted that Mr. Timoteo P. Tiangco, Security Bank's Branch Manager way back in 1982, testified in
open court that the depositor reffered to in the CTDs is no other than Mr. Angel de la Cruz.

xxx xxx xxx

Atty. Calida:

q In other words Mr. Witness, you are saying that per books of the bank, the depositor referred (sic)
in these certificates states that it was Angel dela Cruz?

witness:

a Yes, your Honor, and we have the record to show that Angel dela Cruz was the one who cause
(sic) the amount.

Atty. Calida:

q And no other person or entity or company, Mr. Witness?

witness:

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 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:

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

Moreover, as correctly analyzed by private respondent, 37 Articles 548 to 558 of the Code of Commerce, on which petitioner seeks to
anchor respondent bank's supposed negligence, merely established, on the one hand, a right of recourse in favor of a dispossessed
owner or holder of a bearer instrument so that he may obtain a duplicate of the same, and, on the other, an option in favor of the party
liable thereon who, for some valid ground, may elect to refuse to issue a replacement of the instrument. Significantly, none of the
provisions cited by petitioner categorically restricts or prohibits the issuance a duplicate or replacement instrument sans compliance
with the procedure outlined therein, and none establishes a mandatory precedent requirement therefor.

WHEREFORE, on the modified premises above set forth, the petition is DENIED and the appealed decision is hereby AFFIRMED.

SO ORDERED.

Narvasa, C.J., Padilla and Nocon, JJ., concur.

G.R. No. 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:

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 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.

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 General 11 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.1âwphi1 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 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.

Narvasa, Gancayco, Griño-Aquino and Medialdea, JJ., concur.

G.R. No. 89252 May 24, 1993

RAUL SESBREÑO, petitioner,

vs.
HON. COURT OF APPEALS, DELTA MOTORS CORPORATION AND PILIPINAS BANK, respondents.

Salva, Villanueva & Associates for Delta Motors Corporation.

Reyes, Salazar & Associates for Pilipinas Bank.

FELICIANO, J.:

On 9 February 1981, petitioner Raul Sesbreño 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:

(a) the Certificate of Confirmation of Sale, "without recourse," No. 20496 of one (1) Delta Motors Corporation
Promissory Note ("DMC PN") No. 2731 for a term of 32 days at 17.0% per annum;

(b) the Certificate of securities Delivery Receipt No. 16587 indicating the sale of DMC PN No. 2731 to petitioner, with
the notation that the said security was in custodianship of Pilipinas Bank, as per Denominated Custodian Receipt
("DCR") No. 10805 dated 9 February 1981; and
 (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

TO Raul Sesbreño
 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.

SERIAL MAT. FACE ISSUED REGISTERED AMOUNT

NUMBER DATE VALUE BY HOLDER PAYEE

2731 4-6-81 2,300,833.34 DMC PHIL. 307,933.33

UNDERWRITERS
FINANCE CORP.

We further certify that these securities may be inspected by you or your duly authorized representative at any time
during regular banking hours.

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.

PILIPIN
AS
BANK
(By
Elizabet
h De
Villa
Illegible
Signatur
e)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 1981 3 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. 5The 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 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 Note 10 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

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.)
Florenci
o B.
Biagan
Senior
Vice
Presiden
t13

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 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 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 Sesbreño.

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 Sesbreño 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 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 Sesbreño. 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 Sesbreño 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 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.

Bidin, Davide, Jr., Romero and Melo, JJ., concur.

[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-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 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.
Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.

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 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.

PHILIPPINE NATIONAL BANK, G.R. No. 170325

Petitioner,
Present:
YNARES-SANTIAGO, J.,
Chairperson,
- versus - AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

ERLANDO T. RODRIGUEZ Promulgated:

and NORMA RODRIGUEZ,
Respondents. September 26, 2008
x--------------------------------------------------x

DECISION

REYES, R.T., J.:

WHEN the payee of the check is not intended to be the true recipient of its proceeds, is it payable to order or bearer? What is the fictitious-
payee rule and who is liable under it?Is there any exception?

These questions seek answers in this petition for review on certiorari of the Amended Decision[1] of the Court of Appeals (CA)
which affirmed with modification that of the Regional Trial Court (RTC). [2]

The Facts

The facts as borne by the records are as follows:

Respondents-Spouses Erlando and Norma Rodriguez were clients of petitioner Philippine National Bank (PNB), Amelia Avenue
Branch, Cebu City. They maintained savings and demand/checking accounts, namely, PNBig Demand Deposits (Checking/Current
Account No. 810624-6 under the account name Erlando and/or Norma Rodriguez), and PNBig Demand Deposit (Checking/Current
Account No. 810480-4 under the account name Erlando T. Rodriguez).

The spouses were engaged in the informal lending business. In line with their business, they had a discounting[3] arrangement
with the Philnabank Employees Savings and Loan Association (PEMSLA), an association of PNB employees. Naturally, PEMSLA was
likewise a client of PNB Amelia Avenue Branch. The association maintained current and savings accounts with petitioner bank.

PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount the postdated checks issued to members
whenever the association was short of funds. As was customary, the spouses would replace the postdated checks with their own checks
issued in the name of the members.
 It was PEMSLAs policy not to approve applications for loans of members with outstanding debts. To subvert this policy, some
PEMSLA officers devised a scheme to obtain additional loans despite their outstanding loan accounts. They took out loans in the names
of unknowing members, without the knowledge or consent of the latter. The PEMSLA checks issued for these loans were then given to
the spouses for rediscounting. The officers carried this out by forging the indorsement of the named payees in the checks.

In return, the spouses issued their personal checks (Rodriguez checks) in the name of the members and delivered the checks
to an officer of PEMSLA. The PEMSLA checks, on the other hand, were deposited by the spouses to their account.

Meanwhile, the Rodriguez checks were deposited directly by PEMSLA to its savings account without any indorsement from
the named payees. This was an irregular procedure made possible through the facilitation of Edmundo Palermo, Jr., treasurer of PEMSLA
and bank teller in the PNB Branch. It appears that this became the usual practice for the parties.

For the period November 1998 to February 1999, the spouses issued sixty nine (69) checks, in the total amount
of P2,345,804.00. These were payable to forty seven (47) individual payees who were all members of PEMSLA. [4]

Petitioner PNB eventually found out about these fraudulent acts. To put a stop to this scheme, PNB closed the current account
of PEMSLA. As a result, the PEMSLA checks deposited by the spouses were returned or dishonored for the reason Account Closed. The
corresponding Rodriguez checks, however, were deposited as usual to the PEMSLA savings account. The amounts were duly debited
from the Rodriguez account. Thus, because the PEMSLA checks given as payment were returned, spouses Rodriguez incurred losses
from the rediscounting transactions.

RTC Disposition

Alarmed over the unexpected turn of events, the spouses Rodriguez filed a civil complaint for damages against PEMSLA, the
Multi-Purpose Cooperative of Philnabankers (MCP), and petitioner PNB. They sought to recover the value of their checks that were
deposited to the PEMSLA savings account amounting to P2,345,804.00. The spouses contended that because PNB credited the
checks to the PEMSLA account even without indorsements, PNB violated its contractual obligation to them as depositors. PNBpaid
the wrong payees, hence, it should bear the loss.

PNB moved to dismiss the complaint on the ground of lack of cause of action. PNB argued that the claim for damages should come from
the payees of the checks, and not from spouses Rodriguez. Since there was no demand from the said payees, the obligation should be
considered as discharged.

In an Order dated January 12, 2000, the RTC denied PNBs motion to dismiss.

In its Answer,[5] PNB claimed it is not liable for the checks which it paid to the PEMSLA account without any indorsement from
the payees. The bank contended that spouses Rodriguez, the makers, actually did not intend for the named payees to receive the
proceeds of the checks. Consequently, the payees were considered as fictitious payees as defined under the Negotiable Instruments
Law (NIL). Being checks made to fictitious payees which are bearer instruments, the checks were negotiable by mere delivery. PNBs
Answer included its cross-claim against its co-defendants PEMSLA and the MCP, praying that in the event that judgment is rendered
against the bank, the cross-defendants should be ordered to reimburse PNB the amount it shall pay.

After trial, the RTC rendered judgment in favor of spouses Rodriguez (plaintiffs). It ruled that PNB (defendant) is liable to return
the value of the checks. All counterclaims and cross-claims were dismissed. The dispositive portion of the RTC decision reads:

WHEREFORE, in view of the foregoing, the Court hereby renders judgment, as follows:

1. Defendant is hereby ordered to pay the plaintiffs the total amount of P2,345,804.00 or reinstate or restore the amount
of P775,337.00 in the PNBig Demand Deposit Checking/Current Account No. 810480-4 of Erlando T.
Rodriguez, and the amount of P1,570,467.00 in the PNBig Demand Deposit, Checking/Current Account No.
810624-6 of Erlando T. Rodriguez and/or Norma Rodriguez, plus legal rate of interest thereon to be computed
from the filing of this complaint until fully paid;

2. The defendant PNB is hereby ordered to pay the plaintiffs the following reasonable amount of damages suffered by
them taking into consideration the standing of the plaintiffs being sugarcane planters, realtors, residential
subdivision owners, and other businesses:

(a) Consequential damages, unearned income in the amount of P4,000,000.00, as a result of their
having incurred great dificulty (sic) especially in the residential subdivision business, which was
not pushed through and the contractor even threatened to file a case against the plaintiffs;

(b) Moral damages in the amount of P1,000,000.00;

(c) Exemplary damages in the amount of P500,000.00;

(d) Attorneys fees in the amount of P150,000.00 considering that this case does not involve very
complicated issues; and for the

(e) Costs of suit.

 3. Other claims and counterclaims are hereby dismissed.[6]

CA Disposition

PNB appealed the decision of the trial court to the CA on the principal ground that the disputed checks should be considered as
payable to bearer and not to order.

In a Decision[7] dated July 22, 2004, the CA reversed and set aside the RTC disposition. The CA concluded that the checks were
obviously meant by the spouses to be really paid to PEMSLA. The court a quo declared:

We are not swayed by the contention of the plaintiffs-appellees (Spouses Rodriguez) that their cause of action
arose from the alleged breach of contract by the defendant-appellant (PNB) when it paid the value of the checks to
PEMSLA despite the checks being payable to order. Rather, we are more convinced by the strong and credible
evidence for the defendant-appellant with regard to the plaintiffs-appellees and PEMSLAs business arrangement that
the value of the rediscounted checks of the plaintiffs-appellees would be deposited in PEMSLAs account for payment
of the loans it has approved in exchange for PEMSLAs checks with the full value of the said loans. This is the only
obvious explanation as to why all the disputed sixty-nine (69) checks were in the possession of PEMSLAs errand boy
for presentment to the defendant-appellant that led to this present controversy. It also appears that the teller who
accepted the said checks was PEMSLAs officer, and that such was a regular practice by the parties until the defendant-
appellant discovered the scam. The logical conclusion, therefore, is that the checks were never meant to be paid to
order, but instead, to PEMSLA. We thus find no breach of contract on the part of the defendant-appellant.

According to plaintiff-appellee Erlando Rodriguez testimony, PEMSLA allegedly issued post-dated checks to
its qualified members who had applied for loans. However, because of PEMSLAs insufficiency of funds, PEMSLA
approached the plaintiffs-appellees for the latter to issue rediscounted checks in favor of said applicant
members. Based on the investigation of the defendant-appellant, meanwhile, this arrangement allowed the plaintiffs-
appellees to make a profit by issuing rediscounted checks, while the officers of PEMSLA and other members would be
able to claim their loans, despite the fact that they were disqualified for one reason or another. They were able to
achieve this conspiracy by using other members who had loaned lesser amounts of money or had not applied at all. x
x x.[8] (Emphasis added)

The CA found that the checks were bearer instruments, thus they do not require indorsement for negotiation; and that spouses Rodriguez
and PEMSLA conspired with each other to accomplish this money-making scheme. The payees in the checks were fictitious payees
because they were not the intended payees at all.

The spouses Rodriguez moved for reconsideration. They argued, inter alia, that the checks on their faces were unquestionably
payable to order; and that PNB committed a breach of contract when it paid the value of the checks to PEMSLA without indorsement
from the payees. They also argued that their cause of action is not only against PEMSLA but also against PNB to recover the value of
the checks.

On October 11, 2005, the CA reversed itself via an Amended Decision, the last paragraph and fallo of which read:

In sum, we rule that the defendant-appellant PNB is liable to the plaintiffs-appellees Sps. Rodriguez for the
following:

1. Actual damages in the amount of P2,345,804 with interest at 6% per annum from 14 May
1999 until fully paid;

2. Moral damages in the amount of P200,000;

3. Attorneys fees in the amount of P100,000; and

4. Costs of suit.

WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by Us AFFIRMING WITH
MODIFICATION the assailed decision rendered in Civil Case No. 99-10892, as set forth in the immediately next
preceding paragraph hereof, and SETTING ASIDE Our original decision promulgated in this case on 22 July 2004.

SO ORDERED.[9]

The CA ruled that the checks were payable to order. According to the appellate court, PNB failed to present sufficient proof to
defeat the claim of the spouses Rodriguez that they really intended the checks to be received by the specified payees. Thus, PNB is
liable for the value of the checks which it paid to PEMSLA without indorsements from the named payees. The award for damages was
deemed appropriate in view of the failure of PNB to treat the Rodriguez account with the highest degree of care considering the
fiduciary nature of their relationship, which constrained respondents to seek legal action.
Hence, the present recourse under Rule 45.

Issues

The issues may be compressed to whether the subject checks are payable to order or to bearer and who bears the loss?

PNB argues anew that when the spouses Rodriguez issued the disputed checks, they did not intend for the named payees to
receive the proceeds. Thus, they are bearer instruments that could be validly negotiated by mere delivery. Further, testimonial and
documentary evidence presented during trial amply proved that spouses Rodriguez and the officers of PEMSLA conspired with each
other to defraud the bank.

Our Ruling

Prefatorily, amendment of decisions is more acceptable than an erroneous judgment attaining finality to the prejudice of innocent
parties. A court discovering an erroneous judgment before it becomes final may, motu proprio or upon motion of the parties, correct its
judgment with the singular objective of achieving justice for the litigants. [10]

However, a word of caution to lower courts, the CA in Cebu in this particular case, is in order. The Court does not sanction
careless disposition of cases by courts of justice.The highest degree of diligence must go into the study of every controversy submitted
for decision by litigants. Every issue and factual detail must be closely scrutinized and analyzed, and all the applicable laws judiciously
studied, before the promulgation of every judgment by the court. Only in this manner will errors in judgments be avoided.

Now to the core of the petition.

As a rule, when the payee is fictitious or not intended to be the true recipient of the proceeds, the check is considered
as a bearer instrument. A check is a bill of exchange drawn on a bank payable on demand.[11] It is either an order or a bearer
instrument. Sections 8 and 9 of the NIL states:

SEC. 8. When payable to order. The instrument is payable to order where it is drawn payable to the order of
a specified person or to him or his order. It may be drawn payable to the order of

(a) A payee who is not maker, drawer, or drawee; or

(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or
(e) One or some of several payees; or
(f) The holder of an office for the time being.

Where the instrument is payable to order, the payee must be named or otherwise indicated therein with
reasonable certainty.

SEC. 9. When payable to bearer. The instrument is payable to bearer

(a) When it is expressed to be so payable; or

(b) When it is payable to a person named therein or bearer; or
(c) When it is payable to the order of a fictitious or non-existing person, and such fact is known to the
person making it so payable; or
(d) When the name of the payee does not purport to be the name of any person; or
(e) Where the only or last indorsement is an indorsement in blank. [12] (Underscoring supplied)

The distinction between bearer and order instruments lies in their manner of negotiation. Under Section 30 of the NIL, an order
instrument requires an indorsement from the payee or holder before it may be validly negotiated. A bearer instrument, on the other hand,
does not require an indorsement to be validly negotiated. It is negotiable by mere delivery. The provision reads:

SEC. 30. What constitutes negotiation. An instrument is negotiated when it is transferred from one person to
another in such manner as to constitute the transferee the holder thereof. If payable to bearer, it is negotiated by
delivery; if payable to order, it is negotiated by the indorsement of the holder completed by delivery.

A check that is payable to a specified payee is an order instrument. However, under Section 9(c) of the NIL, a check payable to
a specified payee may nevertheless be considered as a bearer instrument if it is payable to the order of a fictitious or non-existing person,
and such fact is known to the person making it so payable. Thus, checks issued to Prinsipe Abante or Si Malakas at si Maganda, who
are well-known characters in Philippine mythology, are bearer instruments because the named payees are fictitious and non-existent.

We have yet to discuss a broader meaning of the term fictitious as used in the NIL. It is for this reason that We look elsewhere
for guidance. Court rulings in the United States are a logical starting point since our law on negotiable instruments was directly lifted from
the Uniform Negotiable Instruments Law of the United States.[13]

A review of US jurisprudence yields that an actual, existing, and living payee may also be fictitious if the maker of the check did
not intend for the payee to in fact receive the proceeds of the check. This usually occurs when the maker places a name of an existing
payee on the check for convenience or to cover up an illegal activity. [14] Thus, a check made expressly payable to a non-fictitious and
existing person is not necessarily an order instrument. If the payee is not the intended recipient of the proceeds of the check, the
payee is considered a fictitious payee and the check is a bearer instrument.

In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer bears the loss. When faced with a
check payable to a fictitious payee, it is treated as a bearer instrument that can be negotiated by delivery. The underlying theory is that
one cannot expect a fictitious payee to negotiate the check by placing his indorsement thereon. And since the maker knew this limitation,
he must have intended for the instrument to be negotiated by mere delivery. Thus, in case of controversy, the drawer of the check will
bear the loss. This rule is justified for otherwise, it will be most convenient for the maker who desires to escape payment of the check to
always deny the validity of the indorsement. This despite the fact that the fictitious payee was purposely named without any intention that
the payee should receive the proceeds of the check. [15]

The fictitious-payee rule is best illustrated in Mueller & Martin v. Liberty Insurance Bank.[16] In the said case, the corporation
Mueller & Martin was defrauded by George L. Martin, one of its authorized signatories. Martin drew seven checks payable to the German
Savings Fund Company Building Association (GSFCBA) amounting to $2,972.50 against the account of the corporation without authority
from the latter. Martin was also an officer of the GSFCBA but did not have signing authority. At the back of the checks, Martin placed the
rubber stamp of the GSFCBA and signed his own name as indorsement. He then successfully drew the funds from Liberty Insurance
Bank for his own personal profit. When the corporation filed an action against the bank to recover the amount of the checks, the claim
was denied.

The US Supreme Court held in Mueller that when the person making the check so payable did not intend for the specified payee
to have any part in the transactions, the payee is considered as a fictitious payee. The check is then considered as a bearer instrument
to be validly negotiated by mere delivery. Thus, the US Supreme Court held that Liberty Insurance Bank, as drawee, was authorized to
make payment to the bearer of the check, regardless of whether prior indorsements were genuine or not. [17]

The more recent Getty Petroleum Corp. v. American Express Travel Related Services Company, Inc. [18] upheld the fictitious-
payee rule. The rule protects the depositary bank and assigns the loss to the drawer of the check who was in a better position to prevent
the loss in the first place. Due care is not even required from the drawee or depositary bank in accepting and paying the checks. The
effect is that a showing of negligence on the part of the depositary bank will not defeat the protection that is derived from this rule.

However, there is a commercial bad faith exception to the fictitious-payee rule. A showing of commercial bad faith on the
part of the drawee bank, or any transfereeof the check for that matter, will work to strip it of this defense. The exception will cause
it to bear the loss. Commercial bad faith is present if the transferee of the check acts dishonestly, and is a party to the fraudulent
scheme. Said the US Supreme Court in Getty:

Consequently, a transferees lapse of wary vigilance, disregard of suspicious circumstances which might have
well induced a prudent banker to investigate and other permutations of negligence are not relevant considerations
under Section 3-405 x x x. Rather, there is a commercial bad faith exception to UCC 3-405, applicable when the
transferee acts dishonestly where it has actual knowledge of facts and circumstances that amount to bad faith, thus
itself becoming a participant in a fraudulent scheme. x x x Such a test finds support in the text of the Code, which omits
a standard of care requirement from UCC 3-405 but imposes on all parties an obligation to act with honesty in fact. x x
x[19] (Emphasis added)

Getty also laid the principle that the fictitious-payee rule extends protection even to non-bank transferees of the checks.

In the case under review, the Rodriguez checks were payable to specified payees. It is unrefuted that the 69 checks were
payable to specific persons. Likewise, it is uncontroverted that the payees were actual, existing, and living persons who were members
of PEMSLA that had a rediscounting arrangement with spouses Rodriguez.

What remains to be determined is if the payees, though existing persons, were fictitious in its broader context.

For the fictitious-payee rule to be available as a defense, PNB must show that the makers did not intend for the named payees
to be part of the transaction involving the checks. At most, the banks thesis shows that the payees did not have knowledge of the existence
of the checks. This lack of knowledge on the part of the payees, however, was not tantamount to a lack of intention on the part
of respondents-spouses that the payees would not receive the checks proceeds. Considering that respondents-spouses were
transacting with PEMSLA and not the individual payees, it is understandable that they relied on the information given by the officers of
PEMSLA that the payees would be receiving the checks.

Verily, the subject checks are presumed order instruments. This is because, as found by both lower courts, PNB failed to present
sufficient evidence to defeat the claim of respondents-spouses that the named payees were the intended recipients of the checks
proceeds. The bank failed to satisfy a requisite condition of a fictitious-payee situation that the maker of the check intended for the payee
to have no interest in the transaction.

Because of a failure to show that the payees were fictitious in its broader sense, the fictitious-payee rule does not apply. Thus,
the checks are to be deemed payable to order. Consequently, the drawee bank bears the loss.[20]
 PNB was remiss in its duty as the drawee bank. It does not dispute the fact that its teller or tellers accepted the 69 checks
for deposit to the PEMSLA account even without any indorsement from the named payees. It bears stressing that order instruments can
only be negotiated with a valid indorsement.

A bank that regularly processes checks that are neither payable to the customer nor duly indorsed by the payee is apparently
grossly negligent in its operations.[21] This Court has recognized the unique public interest possessed by the banking industry and the
need for the people to have full trust and confidence in their banks.[22] For this reason, banks are minded to treat their customers accounts
with utmost care, confidence, and honesty.[23]

In a checking transaction, the drawee bank has the duty to verify the genuineness of the signature of the drawer and to pay the
check strictly in
accordance with the drawers instructions, i.e., to the named payee in the check. It should charge to the drawers accounts only the
payables authorized by the latter. Otherwise, the drawee will be violating the instructions of the drawer and it shall be liable for the
amount charged to the drawers account.[24]

In the case at bar, respondents-spouses were the banks depositors. The checks were drawn against respondents-spouses
accounts. PNB, as the drawee bank, had the responsibility to ascertain the regularity of the indorsements, and the genuineness of the
signatures on the checks before accepting them for deposit. Lastly, PNB was obligated to pay the checks in strict accordance with the
instructions of the drawers. Petitioner miserably failed to discharge this burden.

The checks were presented to PNB for deposit by a representative of PEMSLA absent any type of indorsement, forged or
otherwise. The facts clearly show that the bank did not pay the checks in strict accordance with the instructions of the drawers,
respondents-spouses. Instead, it paid the values of the checks not to the named payees or their order, but to PEMSLA, a third party to
the transaction between the drawers and the payees.

Moreover, PNB was negligent in the selection and supervision of its employees. The trustworthiness of bank employees is
indispensable to maintain the stability of the banking industry. Thus, banks are enjoined to be extra vigilant in the management and
supervision of their employees. In Bank of the Philippine Islands v. Court of Appeals,[25]this Court cautioned thus:

Banks handle daily transactions involving millions of pesos. By the very nature of their work the degree of
responsibility, care and trustworthiness expected of their employees and officials is far greater
than those of ordinary clerks and employees. For obvious reasons, the banks are expected to exercise the highest
degree of diligence in the selection and supervision of their employees. [26]

PNBs tellers and officers, in violation of banking rules of procedure, permitted the invalid deposits of checks to the PEMSLA
account. Indeed, when it is the gross negligence of the bank employees that caused the loss, the bank should be held liable. [27]

PNBs argument that there is no loss to compensate since no demand for payment has been made by the payees must also
fail. Damage was caused to respondents-spouses when the PEMSLA checks they deposited were returned for the reason Account
Closed. These PEMSLA checks were the corresponding payments to the Rodriguez checks. Since they could not encash the PEMSLA
checks, respondents-spouses were unable to collect payments for the amounts they had advanced.

A bank that has been remiss in its duty must suffer the consequences of its negligence. Being issued to named payees, PNB was
duty-bound by law and by banking rules and procedure to require that the checks be properly indorsed before accepting them for deposit
and payment. In fine, PNB should be held liable for the amounts of the checks.

One Last Note

We note that the RTC failed to thresh out the merits of PNBs cross-claim against its co-defendants PEMSLA and MPC. The
records are bereft of any pleading filed by these two defendants in answer to the complaint of respondents-spouses and cross-claim
of PNB. The Rules expressly provide that failure to file an answer is a ground for a declaration that defendant
is in default.[28] Yet, the RTC failed to sanction the failure of both PEMSLA and MPC to file responsive pleadings. Verily, the RTC dismissal
of PNBs cross-claim has no basis. Thus, this judgment shall be without prejudice to whatever action the bank might take against its co-
defendants in the trial court.

To PNBs credit, it became involved in the controversial transaction not of its own volition but due to the actions of some of its
employees. Considering that moral damages must be understood to be in concept of grants, not punitive or corrective in nature, We
resolve to reduce the award of moral damages to P50,000.00.[29]

WHEREFORE, the appealed Amended Decision is AFFIRMED with the MODIFICATION that the award for moral damages is
reduced to P50,000.00, and that this is without prejudice to whatever civil, criminal, or administrative action PNB might take against
PEMSLA, MPC, and the employees involved.

SO ORDERED.

RUBEN T. REYES
Associate Justice
WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

MA. ALICIA AUSTRIA-MARTINEZ MINITA V. CHICO-NAZARIO

Associate Justice Associate Justice

ANTONIO EDUARDO B. NACHURA

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons Attestation, I certify that the conclusions in
the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice

G.R. No. 85419 March 9, 1993

DEVELOPMENT BANK OF RIZAL, plaintiff-petitioner,

vs.
SIMA WEI and/or LEE KIAN HUAT, MARY CHENG UY, SAMSON TUNG, ASIAN INDUSTRIAL PLASTIC CORPORATION and
PRODUCERS BANK OF THE PHILIPPINES, defendants-respondents.

Yngson & Associates for petitioner.

Henry A. Reyes & Associates for Samso Tung & Asian Industrial Plastic Corporation.

Eduardo G. Castelo for Sima Wei.

Monsod, Tamargo & Associates for Producers Bank.

Rafael S. Santayana for Mary Cheng Uy.

CAMPOS, JR., J.:

On July 6, 1986, the Development Bank of Rizal (petitioner Bank for brevity) filed a complaint for a sum of money against respondents
Sima Wei and/or Lee Kian Huat, Mary Cheng Uy, Samson Tung, Asian Industrial Plastic Corporation (Plastic Corporation for short) and
the Producers Bank of the Philippines, on two causes of action:

(1) To enforce payment of the balance of P1,032,450.02 on a promissory note executed by respondent Sima Wei on
June 9, 1983; and

(2) To enforce payment of two checks executed by Sima Wei, payable to petitioner, and drawn against the China
Banking Corporation, to pay the balance due on the promissory note.

Except for Lee Kian Huat, defendants filed their separate Motions to Dismiss alleging a common ground that the complaint states no
cause of action. The trial court granted the defendants' Motions to Dismiss. The Court of Appeals affirmed this decision, * to which the
petitioner Bank, represented by its Legal Liquidator, filed this Petition for Review by Certiorari, assigning the following as the alleged
errors of the Court of Appeals:1

(1) THE COURT OF APPEALS ERRED IN HOLDING THAT THE PLAINTIFF-PETITIONER HAS NO CAUSE OF
ACTION AGAINST DEFENDANTS-RESPONDENTS HEREIN.

(2) THE COURT OF APPEALS ERRED IN HOLDING THAT SECTION 13, RULE 3 OF THE REVISED RULES OF
COURT ON ALTERNATIVE DEFENDANTS IS NOT APPLICABLE TO HEREIN DEFENDANTS-RESPONDENTS.

The antecedent facts of this case are as follows:

In consideration for a loan extended by petitioner Bank to respondent Sima Wei, the latter executed and delivered to the former a
promissory note, engaging to pay the petitioner Bank or order the amount of P1,820,000.00 on or before June 24, 1983 with interest at
32% per annum. Sima Wei made partial payments on the note, leaving a balance of P1,032,450.02. On November 18, 1983, Sima Wei
issued two crossed checks payable to petitioner Bank drawn against China Banking Corporation, bearing respectively the serial
numbers 384934, for the amount of P550,000.00 and 384935, for the amount of P500,000.00. The said checks were allegedly issued in
full settlement of the drawer's account evidenced by the promissory note. These two checks were not delivered to the petitioner-payee
or to any of its authorized representatives. For reasons not shown, these checks came into the possession of respondent Lee Kian
Huat, who deposited the checks without the petitioner-payee's indorsement (forged or otherwise) to the account of respondent Plastic
Corporation, at the Balintawak branch, Caloocan City, of the Producers Bank. Cheng Uy, Branch Manager of the Balintawak branch of
Producers Bank, relying on the assurance of respondent Samson Tung, President of Plastic Corporation, that the transaction was legal
and regular, instructed the cashier of Producers Bank to accept the checks for deposit and to credit them to the account of said Plastic
Corporation, inspite of the fact that the checks were crossed and payable to petitioner Bank and bore no indorsement of the latter.
Hence, petitioner filed the complaint as aforestated.

The main issue before Us is whether petitioner Bank has a cause of action against any or all of the defendants, in the alternative or
otherwise.

A cause of action is defined as an act or omission of one party in violation of the legal right or rights of another. The essential elements
are: (1) legal right of the plaintiff; (2) correlative obligation of the defendant; and (3) an act or omission of the defendant in violation of
said legal right.2

The normal parties to a check are the drawer, the payee and the drawee bank. Courts have long recognized the business custom of
using printed checks where blanks are provided for the date of issuance, the name of the payee, the amount payable and the drawer's
signature. All the drawer has to do when he wishes to issue a check is to properly fill up the blanks and sign it. However, the mere fact
that he has done these does not give rise to any liability on his part, until and unless the check is delivered to the payee or his
representative. A negotiable instrument, of which a check is, is not only a written evidence of a contract right but is also a species of
property. Just as a deed to a piece of land must be delivered in order to convey title to the grantee, so must a negotiable instrument be
delivered to the payee in order to evidence its existence as a binding contract. Section 16 of the Negotiable Instruments Law, which
governs checks, provides in part:

Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose
of giving effect thereto. . . .
Thus, the payee of a negotiable instrument acquires no interest with respect thereto until its delivery to him.3Delivery of an instrument
means transfer of possession, actual or constructive, from one person to another. 4 Without the initial delivery of the instrument from the
drawer to the payee, there can be no liability on the instrument. Moreover, such delivery must be intended to give effect to the
instrument.

The allegations of the petitioner in the original complaint show that the two (2) China Bank checks, numbered 384934 and 384935,
were not delivered to the payee, the petitioner herein. Without the delivery of said checks to petitioner-payee, the former did not acquire
any right or interest therein and cannot therefore assert any cause of action, founded on said checks, whether against the drawer Sima
Wei or against the Producers Bank or any of the other respondents.

In the original complaint, petitioner Bank, as plaintiff, sued respondent Sima Wei on the promissory note, and the alternative
defendants, including Sima Wei, on the two checks. On appeal from the orders of dismissal of the Regional Trial Court, petitioner Bank
alleged that its cause of action was not based on collecting the sum of money evidenced by the negotiable instruments stated but
on quasi-delict — a claim for damages on the ground of fraudulent acts and evident bad faith of the alternative respondents. This was
clearly an attempt by the petitioner Bank to change not only the theory of its case but the basis of his cause of action. It is well-settled
that a party cannot change his theory on appeal, as this would in effect deprive the other party of his day in court. 5

Notwithstanding the above, it does not necessarily follow that the drawer Sima Wei is freed from liability to petitioner Bank under the
loan evidenced by the promissory note agreed to by her. Her allegation that she has paid the balance of her loan with the two checks
payable to petitioner Bank has no merit for, as We have earlier explained, these checks were never delivered to petitioner Bank. And
even granting, without admitting, that there was delivery to petitioner Bank, the delivery of checks in payment of an obligation does not
constitute payment unless they are cashed or their value is impaired through the fault of the creditor. 6 None of these exceptions were
alleged by respondent Sima Wei.

Therefore, unless respondent Sima Wei proves that she has been relieved from liability on the promissory note by some other cause,
petitioner Bank has a right of action against her for the balance due thereon.

However, insofar as the other respondents are concerned, petitioner Bank has no privity with them. Since petitioner Bank never
received the checks on which it based its action against said respondents, it never owned them (the checks) nor did it acquire any
interest therein. Thus, anything which the respondents may have done with respect to said checks could not have prejudiced petitioner
Bank. It had no right or interest in the checks which could have been violated by said respondents. Petitioner Bank has therefore no
cause of action against said respondents, in the alternative or otherwise. If at all, it is Sima Wei, the drawer, who would have a cause of
action against her
co-respondents, if the allegations in the complaint are found to be true.

With respect to the second assignment of error raised by petitioner Bank regarding the applicability of Section 13, Rule 3 of the Rules of
Court, We find it unnecessary to discuss the same in view of Our finding that the petitioner Bank did not acquire any right or interest in
the checks due to lack of delivery. It therefore has no cause of action against the respondents, in the alternative or otherwise.

In the light of the foregoing, the judgment of the Court of Appeals dismissing the petitioner's complaint is AFFIRMED insofar as the
second cause of action is concerned. On the first cause of action, the case is REMANDED to the trial court for a trial on the merits,
consistent with this decision, in order to determine whether respondent Sima Wei is liable to the Development Bank of Rizal for any
amount under the promissory note allegedly signed by her.

SO ORDERED.

Narvasa, C.J., Padilla, Regalado and Nocon, JJ., concur.

SAN MIGUEL CORPORATION, G.R. No. 167567

Petitioner,

Present:

CORONA, C. J., Chairperson,

- versus - CARPIO MORALES,⃰
VELASCO, JR.,
DEL CASTILLO, and
PEREZ, JJ.
 BARTOLOME PUZON, JR., Promulgated:
Respondent. September 22, 2010
x-------------------------------------------------------------------x

DECISION

DEL CASTILLO, J.:

This petition for review assails the December 21, 2004 Decision[1]and March 28, 2005 Resolution[2]of the Court of Appeals (CA) in CA-G.R. SP No.
83905, which dismissed the petition before it and denied reconsideration, respectively.

Factual Antecedents

Respondent Bartolome V. Puzon, Jr., (Puzon) owner of Bartenmyk Enterprises, was a dealer of beer products of petitioner San Miguel Corporation
(SMC) for Paraaque City. Puzon purchased SMC products on credit. To ensure payment and as a business practice, SMC required him to issue
postdated checks equivalent to the value of the products purchased on credit before the same were released to him. Said checks were returned to
Puzon when the transactions covered by these checks were paid or settled in full.

On December 31, 2000, Puzon purchased products on credit amounting to P11,820,327 for which he issued, and gave to SMC, Bank of the Philippine
Islands (BPI) Check Nos. 27904 (forP309,500.00) and 27903 (for P11,510,827.00) to cover the said transaction.

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

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

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

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

the case for lack of evidence. SMC appealed.

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

Ruling of the Court of Appeals

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

WHEREFORE, finding no grave abuse of discretion committed by public respondent, the instant petition is hereby DISMISSED. The
assailed Resolutions of public respondent, dated 04 June 2003 and 23 April 2004, are AFFIRMED. No costs at this instance.

SO ORDERED.[7]

The motion for reconsideration of SMC was denied. Hence, the present petition.

Issues

Petitioner now raises the following issues:

I
WHETHER X X X PUZON HAD STOLEN FROM SMC ON JANUARY 23, 2001, AMONG OTHERS BPI CHECK NO. 27903
DATED MARCH 30, 2001 IN THE AMOUNT OF PESOS: ELEVEN MILLION FIVE HUNDRED TEN THOUSAND EIGHT
HUNDRED TWENTY SEVEN (Php11,510,827.00)

II
WHETHER X X X THE POSTDATED CHECKS ISSUED BY PUZON, PARTICULARLY BPI CHECK NO. 27903 DATED MARCH
30, 2001 IN THE AMOUNT OF PESOS: ELEVEN MILLION FIVE HUNDRED TEN THOUSAND EIGHT HUNDRED TWENTY
 SEVEN (Php11,510,827.00), WERE ISSUED IN PAYMENT OF HIS BEER PURCHASES OR WERE USED MERELY AS
SECURITY TO ENSURE PAYMENT OF PUZONS OBLIGATION.

III
WHETHER X X X THE PRACTICE OF SMC IN RETURNING THE POSTDATED CHECKS ISSUED IN PAYMENT OF BEER
PRODUCTS PURCHASED ON CREDIT SHOULD THE TRANSACTIONS COVERED BY THESE CHECKS [BE] SETTLED ON
[THE] MATURITY DATES THEREOF COULD BE LIKENED TO A CONTRACT OF PLEDGE.

IV
WHETHER X X X SMC HAD ESTABLISHED PROBABLE CAUSE TO JUSTIFY THE INDICTMENT OF PUZON FOR THE
CRIME OF THEFT PURSUANT TO ART. 308 OF THE REVISED PENAL CODE.[8]

Petitioner's Arguments

SMC contends that Puzon was positively identified by its employees to have taken the subject postdated checks. It also contends that ownership of the
checks was transferred to it because these were issued, not merely as security but were, in payment of Puzons purchases. SMC points out that it has
established more than sufficient probable cause to justify the indictment of Puzon for the crime of Theft.

Respondents Arguments

On the other hand, Puzon contends that SMC raises questions of fact that are beyond the province of an appeal on certiorari. He also insists that there
is no probable cause to charge him with theft because the subject checks were issued only as security and he therefore retained ownership of the same.

Our Ruling

The petition has no merit.

Preliminary Matters

At the outset we find that as pointed out by Puzon, SMC raises questions of fact. The resolution of the first issue raised by SMC of whether respondent
stole the subject check, which calls for the Court to determine whether respondent is guilty of a felony, first requires that the facts be duly established in
the proper forum and in accord with the proper procedure. This issue cannot be resolved based on mere allegations of facts and affidavits. The same is
true with the second issue raised by petitioner, to wit: whether the checks issued by Puzon were payments for his purchases or were intended merely
as security to ensure payment. These issues cannot be properly resolved in the present petition for review on certiorari which is rooted merely on the
resolution of the prosecutor finding no probable cause for the filing of an information for theft.

The third issue raised by petitioner, on the other hand, would entail venturing into constitutional matters for a complete resolution. This route is
unnecessary in the present case considering that the main matter for resolution here only concerns grave abuse of discretion and the existence of
probable cause for theft, which at this point is more properly resolved through another more clear cut route.

Probable Cause for Theft

Probable cause is defined as such facts and circumstances that will engender a well-founded belief that a crime has been committed and that the
respondent is probably guilty thereof and should be held for trial.[9] On the fine points of the determination of probable cause, Reyes v. Pearlbank
Securities, Inc.[10] comprehensively elaborated that:

The determination of [the existence or absence of probable cause] lies within the discretion of the prosecuting officers after
conducting a preliminary investigation upon complaint of an offended party. Thus, the decision whether to dismiss a complaint or not
is dependent upon the sound discretion of the prosecuting fiscal. He may dismiss the complaint forthwith, if he finds the charge
insufficient in form or substance or without any ground. Or he may proceed with the investigation if the complaint in his view is
sufficient and in proper form. To emphasize, the determination of probable cause for the filing of information in court is an executive
function, one that properly pertains at the first instance to the public prosecutor and, ultimately, to the Secretary of Justice, who may
direct the filing of the corresponding information or move for the dismissal of the case. Ultimately, whether or not a complaint will be
dismissed is dependent on the sound discretion of the Secretary of Justice. And unless made with grave abuse of discretion, findings
of the Secretary of Justice are not subject to review.

For this reason, the Court considers it sound judicial policy to refrain from interfering in the conduct of preliminary investigations and
to leave the Department of Justice ample latitude of discretion in the determination of what constitutes sufficient evidence to establish
probable cause for the prosecution of supposed offenders. Consistent with this policy, courts do not reverse the Secretary of Justice's
findings and conclusions on the matter of probable cause except in clear cases of grave abuse of discretion.

In the present case, we are also not sufficiently convinced to deviate from the general rule of non-interference. Indeed the CA did not err in dismissing
the petition for certiorari before it, absent grave abuse of discretion on the part of the DOJ Secretary in not finding probable cause against Puzon for theft.

The Revised Penal Code provides:

 Art. 308. Who are liable for theft. - Theft is committed by any person who, with intent to gain but without violence against, or
intimidation of persons nor force upon things, shall take personal property of another without the latters consent.

xxxx

[T]he essential elements of the crime of theft are the following: (1) that there be a taking of personal property; (2) that said property belongs to another;
(3) that the taking be done with intent to gain; (4) that the taking be done without the consent of the owner; and (5) that the taking be accomplished
without the use of violence or intimidation against persons or force upon things.[11]

Considering that the second element is that the thing taken belongs to another, it is relevant to determine whether ownership of the subject check was
transferred to petitioner. On this point the Negotiable Instruments Law provides:

Sec. 12. Antedated and postdated The instrument is not invalid for the reason only that it is antedated or postdated, provided this is
not done for an illegal or fraudulent purpose. The person to whom an instrument so dated is delivered acquires the title thereto as of
the date of delivery. (Underscoring supplied.)

Note however that delivery as the term is used in the aforementioned provision means that the party delivering did so for the purpose of giving effect
thereto.[12] Otherwise, it cannot be said that there has been delivery of the negotiable instrument. Once there is delivery, the person to whom the
instrument is delivered gets the title to the instrument completely and irrevocably.

If the subject check was given by Puzon to SMC in payment of the obligation, the purpose of giving effect to the instrument is evident thus title to or
ownership of the check was transferred upon delivery. However, if the check was not given as payment, there being no intent to give effect to the
instrument, then ownership of the check was not transferred to SMC.

The evidence of SMC failed to establish that the check was given in payment of the obligation of Puzon. There was no provisional receipt or official
receipt issued for the amount of the check.What was issued was a receipt for the document, a POSTDATED CHECK SLIP.[13]

Furthermore, the petitioner's demand letter sent to respondent states As per company policies on receivables, all issuances are to be covered by post-
dated checks. However, you have deviated from this policy by forcibly taking away the check you have issued to us to cover the December
issuance.[14] Notably, the term payment was not used instead the terms covered and cover were used.

Although the petitioner's witness, Gregorio L. Joven III, states in paragraph 6 of his affidavit that the check was given in payment of the obligation of
Puzon, the same is contradicted by his statements in paragraph 4, where he states that As a standard company operating procedure, all beer purchases
by dealers on credit shall be covered by postdated checks equivalent to the value of the beer products purchased; in paragraph 9 where he states that
the transaction covered by the said check had not yet been paid for, and in paragraph 8 which clearly shows that partial payment is expected to be made
by the return of beer empties, and not by the deposit or encashment of the check. Clearly the term cover was not meant to be used interchangeably with
payment.

When taken in conjunction with the counter-affidavit of Puzon where he states that As the [liquid beer] contents are paid for, SMC return[s] to me the
corresponding PDCs or request[s] me to replace them with whatever was the unpaid balance.[15] it becomes clear that both parties did not intend for the
check to pay for the beer products. The evidence proves that the check was accepted, not as payment, but in accordance with the long-standing policy
of SMC to require its dealers to issue postdated checks to cover its receivables. The check was only meant to coverthe transaction and in the meantime
Puzon was to pay for the transaction by some other means other than the check. This being so, title to the check did not transfer to SMC; it remained
with Puzon. The second element of the felony of theft was therefore not established. Petitioner was not able to show that Puzon took a check
that belonged to another. Hence, the prosecutor and the DOJ were correct in finding no probable cause for theft.

Consequently, the CA did not err in finding no grave abuse of discretion committed by the DOJ in sustaining the dismissal of the case for theft for lack of
probable cause.

WHEREFORE, the petition is DENIED. The December 21, 2004 Decision and March 28, 2005 Resolution of the Court of Appeals in CA-G.R. SP. No.
83905 are AFFIRMED.

SO ORDERED.

MARIANO C. DEL CASTILLO

Associate Justice

WE CONCUR:

RENATO C. CORONA
Chief Justice
Chairperson

CONCHITA CARPIO MORALES PRESBITERO J. VELASCO, JR.

Associate Justice Associate Justice
 JOSE PORTUGAL PEREZ
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.

RENATO C. CORONA
Chief Justice

G.R. Nos. L-25836-37 January 31, 1981

THE PHILIPPINE BANK OF COMMERCE, plaintiff-appellee,

vs.
JOSE M. ARUEGO, defendant-appellant.

FERNANDEZ, J.:

The defendant, Jose M. Aruego, appealed to the Court of Appeals from the order of the Court of First Instance of Manila, Branch XIII, in
Civil Case No. 42066 denying his motion to set aside the order declaring him in default, 1 and from the order of said court in the same
case denying his motion to set aside the judgment rendered after he was declared in default. 2 These two appeals of the defendant
were docketed as CA-G.R. NO. 27734-R and CA-G.R. NO. 27940-R, respectively.

Upon motion of the defendant on July 25, 1960, 3 he was allowed by the Court of Appeals to file one consolidated record on appeal of
CA-G.R. NO. 27734-R and CA-G.R. NO. 27940-R. 4

In a resolution promulgated on March 1, 1966, the Court of Appeals, First Division, certified the consolidated appeal to the Supreme
Court on the ground that only questions of law are involved. 5

On December 1, 1959, the Philippine Bank of Commerce instituted against Jose M. Aruego Civil Case No. 42066 for the recovery of the
total sum of about P35,000.00 with daily interest thereon from November 17, 1959 until fully paid and commission equivalent to 3/8%
for every thirty (30) days or fraction thereof plus attorney's fees equivalent to 10% of the total amount due and costs. 6 The complaint
filed by the Philippine Bank of Commerce contains twenty-two (22) causes of action referring to twenty-two (22) transactions entered
into by the said Bank and Aruego on different dates covering the period from August 28, 1950 to March 14, 1951. 7 The sum sought to
be recovered represents the cost of the printing of "World Current Events," a periodical published by the defendant. To facilitate the
payment of the printing the defendant obtained a credit accommodation from the plaintiff. Thus, for every printing of the "World Current
Events," the printer, Encal Press and Photo Engraving, collected the cost of printing by drawing a draft against the plaintiff, said draft
being sent later to the defendant for acceptance. As an added security for the payment of the amounts advanced to Encal Press and
Photo-Engraving, the plaintiff bank also required defendant Aruego to execute a trust receipt in favor of said bank wherein said
defendant undertook to hold in trust for plaintiff the periodicals and to sell the same with the promise to turn over to the plaintiff the
proceeds of the sale of said publication to answer for the payment of all obligations arising from the draft. 8

Aruego received a copy of the complaint together with the summons on December 2, 1959. 9 On December 14, 1959 defendant filed an
urgent motion for extension of time to plead, and set the hearing on December 16, 1959. 10At the hearing, the court denied defendant's
motion for extension. Whereupon, the defendant filed a motion to dismiss the complaint on December 17, 1959 on the ground that the
complaint states no cause of action because:

a) When the various bills of exchange were presented to the defendant as drawee for acceptance, the amounts thereof had already
been paid by the plaintiff to the drawer (Encal Press and Photo Engraving), without knowledge or consent of the defendant drawee.

b) In the case of a bill of exchange, like those involved in the case at bar, the defendant drawee is an accommodating party only for the
drawer (Encal Press and Photo-Engraving) and win be liable in the event that the accommodating party (drawer) fails to pay its
obligation to the plaintiff. 11

The complaint was dismissed in an order dated December 22, 1959, copy of which was received by the defendant on December 24,
1959. 12

On January 13, 1960, the plaintiff filed a motion for reconsideration. 13 On March 7, 1960, acting upon the motion for reconsideration
filed by the plaintiff, the trial court set aside its order dismissing the complaint and set the case for hearing on March 15, 1960 at 8:00 in
the morning. 14 A copy of the order setting aside the order of dismissal was received by the defendant on March 11, 1960 at 5:00
o'clock in the afternoon according to the affidavit of the deputy sheriff of Manila, Mamerto de la Cruz. On the following day, March 12,
1960, the defendant filed a motion to postpone the trial of the case on the ground that there having been no answer as yet, the issues
had not yet been joined. 15 On the same date, the defendant filed his answer to the complaint interposing the following defenses: That
he signed the document upon which the plaintiff sues in his capacity as President of the Philippine Education Foundation; that his
liability is only secondary; and that he believed that he was signing only as an accommodation party. 16

On March 15, 1960, the plaintiff filed an ex parte motion to declare the defendant in default on the ground that the defendant should
have filed his answer on March 11, 1960. He contends that by filing his answer on March 12, 1960, defendant was one day late. 17 On
March 19, 1960 the trial court declared the defendant in default. 18 The defendant learned of the order declaring him in default on March
21, 1960. On March 22, 1960 the defendant filed a motion to set aside the order of default alleging that although the order of the court
dated March 7, 1960 was received on March 11, 1960 at 5:00 in the afternoon, it could not have been reasonably expected of the
defendant to file his answer on the last day of the reglementary period, March 11, 1960, within office hours, especially because the
order of the court dated March 7, 1960 was brought to the attention of counsel only in the early hours of March 12, 1960. The defendant
also alleged that he has a good and substantial defense. Attached to the motion are the affidavits of deputy sheriff Mamerto de la Cruz
that he served the order of the court dated March 7, 1960 on March 11, 1960, at 5:00 o'clock in the afternoon and the affidavit of the
defendant Aruego that he has a good and substantial defense. 19 The trial court denied the defendant's motion on March 25,
1960. 20 On May 6, 1960, the trial court rendered judgment sentencing the defendant to pay to the plaintiff the sum of P35,444.35
representing the total amount of his obligation to the said plaintiff under the twenty-two (22) causes of action alleged in the complaint as
of November 15, 1957 and the sum of P10,000.00 as attorney's fees. 21

On May 9, 1960 the defendant filed a notice of appeal from the order dated March 25, 1961 denying his motion to set aside the order
declaring him in default, an appeal bond in the amount of P60.00, and his record on appeal. The plaintiff filed his opposition to the
approval of defendant's record on appeal on May 13, 1960. The following day, May 14, 1960, the lower court dismissed defendant's
appeal from the order dated March 25, 1960 denying his motion to set aside the order of default. 22 On May 19, 1960, the defendant
filed a motion for reconsideration of the trial court's order dismissing his appeal. 23 The plaintiff, on May 20, 1960, opposed the
defendant's motion for reconsideration of the order dismissing appeal. 24 On May 21, 1960, the trial court reconsidered its previous
order dismissing the appeal and approved the defendant's record on appeal. 25 On May 30, 1960, the defendant received a copy of a
notice from the Clerk of Court dated May 26, 1960, informing the defendant that the record on appeal filed ed by the defendant was
forwarded to the Clerk of Court of Appeals. 26

On June 1, 1960 Aruego filed a motion to set aside the judgment rendered after he was declared in default reiterating the same ground
previously advanced by him in his motion for relief from the order of default. 27 Upon opposition of the plaintiff filed on June 3,
1960, 28 the trial court denied the defendant's motion to set aside the judgment by default in an order of June 11, 1960. 29 On June 20,
1960, the defendant filed his notice of appeal from the order of the court denying his motion to set aside the judgment by default, his
appeal bond, and his record on appeal. The defendant's record on appeal was approved by the trial court on June 25, 1960. 30 Thus,
the defendant had two appeals with the Court of Appeals: (1) Appeal from the order of the lower court denying his motion to set aside
the order of default docketed as CA-G.R. NO. 27734-R; (2) Appeal from the order denying his motion to set aside the judgment by
default docketed as CA-G.R. NO. 27940-R.

In his brief, the defendant-appellant assigned the following errors:

THE LOWER COURT ERRED IN HOLDING THAT THE DEFENDANT WAS IN DEFAULT.

II

THE LOWER COURT ERRED IN ENTERTAINING THE MOTION TO DECLARE DEFENDANT IN DEFAULT
ALTHOUGH AT THE TIME THERE WAS ALREADY ON FILE AN ANSWER BY HIM WITHOUT FIRST DISPOSING
OF SAID ANSWER IN AN APPROPRIATE ACTION.

III

THE LOWER COURT ERRED IN DENYING DEFENDANT'S PETITION FOR RELIEF OF ORDER OF DEFAULT
AND FROM JUDGMENT BY DEFAULT AGAINST DEFENDANT. 31

It has been held that to entitle a party to relief from a judgment taken against him through his mistake, inadvertence, surprise or
excusable neglect, he must show to the court that he has a meritorious defense. 32 In other words, in order to set aside the order of
default, the defendant must not only show that his failure to answer was due to fraud, accident, mistake or excusable negligence but
also that he has a meritorious defense.

The record discloses that Aruego received a copy of the complaint together with the summons on December 2, 1960; that on December
17, 1960, the last day for filing his answer, Aruego filed a motion to dismiss; that on December 22, 1960 the lower court dismissed the
complaint; that on January 23, 1960, the plaintiff filed a motion for reconsideration and on March 7, 1960, acting upon the motion for
reconsideration, the trial court issued an order setting aside the order of dismissal; that a copy of the order was received by the
defendant on March 11, 1960 at 5:00 o'clock in the afternoon as shown in the affidavit of the deputy sheriff; and that on the following
day, March 12, 1960, the defendant filed his answer to the complaint.

The failure then of the defendant to file his answer on the last day for pleading is excusable. The order setting aside the dismissal of the
complaint was received at 5:00 o'clock in the afternoon. It was therefore impossible for him to have filed his answer on that same day
because the courts then held office only up to 5:00 o'clock in the afternoon. Moreover, the defendant immediately filed his answer on
the following day.

However, while the defendant successfully proved that his failure to answer was due to excusable negligence, he has failed to show
that he has a meritorious defense. The defendant does not have a good and substantial defense.

Defendant Aruego's defenses consist of the following:

a) The defendant signed the bills of exchange referred to in the plaintiff's complaint in a representative capacity, as the then President
of the Philippine Education Foundation Company, publisher of "World Current Events and Decision Law Journal," printed by Encal
Press and Photo-Engraving, drawer of the said bills of exchange in favor of the plaintiff bank;

b) The defendant signed these bills of exchange not as principal obligor, but as accommodation or additional party obligor, to add to the
security of said plaintiff bank. The reason for this statement is that unlike real bills of exchange, where payment of the face value is
advanced to the drawer only upon acceptance of the same by the drawee, in the case in question, payment for the supposed bills of
exchange were made before acceptance; so that in effect, although these documents are labelled bills of exchange, legally they are not
bills of exchange but mere instruments evidencing indebtedness of the drawee who received the face value thereof, with the defendant
as only additional security of the same. 33

The first defense of the defendant is that he signed the supposed bills of exchange as an agent of the Philippine Education Foundation
Company where he is president. Section 20 of the Negotiable Instruments Law provides that "Where the instrument contains or a
person adds to his signature words indicating that he signs for or on behalf of a principal or in a representative capacity, he is not liable
on the instrument if he was duly authorized; but the mere addition of words describing him as an agent or as filing a representative
character, without disclosing his principal, does not exempt him from personal liability."

An inspection of the drafts accepted by the defendant shows that nowhere has he disclosed that he was signing as a representative of
the Philippine Education Foundation Company. 34 He merely signed as follows: "JOSE ARUEGO (Acceptor) (SGD) JOSE ARGUEGO
For failure to disclose his principal, Aruego is personally liable for the drafts he accepted.

The defendant also contends that he signed the drafts only as an accommodation party and as such, should be made liable only after a
showing that the drawer is incapable of paying. This contention is also without merit.

An accommodation party is one who has signed the instrument as maker, drawer, indorser, without receiving value therefor and for the
purpose of lending his name to some other person. Such person is liable on the instrument to a holder for value, notwithstanding such
holder, at the time of the taking of the instrument knew him to be only an accommodation party. 35 In lending his name to the
accommodated party, the accommodation party is in effect a surety for the latter. He lends his name to enable the accommodated party
to obtain credit or to raise money. He receives no part of the consideration for the instrument but assumes liability to the other parties
thereto because he wants to accommodate another. In the instant case, the defendant signed as a drawee/acceptor. Under the
Negotiable Instrument Law, a drawee is primarily liable. Thus, if the defendant who is a lawyer, he should not have signed as an
acceptor/drawee. In doing so, he became primarily and personally liable for the drafts.

The defendant also contends that the drafts signed by him were not really bills of exchange but mere pieces of evidence of
indebtedness because payments were made before acceptance. This is also without merit. Under the Negotiable Instruments Law, a
bill of exchange is an unconditional order in writting addressed by one person to another, signed by the person giving it, requiring the
person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to
bearer. 36 As long as a commercial paper conforms with the definition of a bill of exchange, that paper is considered a bill of exchange.
The nature of acceptance is important only in the determination of the kind of liabilities of the parties involved, but not in the
determination of whether a commercial paper is a bill of exchange or not.

It is evident then that the defendant's appeal can not prosper. To grant the defendant's prayer will result in a new trial which will serve
no purpose and will just waste the time of the courts as well as of the parties because the defense is nil or ineffective. 37

WHEREFORE, the order appealed from in Civil Case No. 42066 of the Court of First Instance of Manila denying the petition for relief
from the judgment rendered in said case is hereby affirmed, without pronouncement as to costs.

SO ORDERED.

Teehankee (Chairman), Makasiar, Guerrero and Melencio-Herrera JJ., concur.

 JAI-ALAI CORPORATION OF THE PHILIPPINES, Petitioner, v. BANK OF THE PHILIPPINE ISLAND, Respondent.

CASTRO, J.:

This is a petition by the Jai-Alai Corporation of the Philippines (hereinafter referred to as the petitioner) for review of the decision of the
Court of Appeals in C.A.-G.R. 34042-R dated June 25, 1968 in favor of the Bank of the Philippine Islands (hereinafter referred to as the
respondent).

From April 2, 1959 to May 18, 1959, ten checks with a total face value of P8,030.58 were deposited by the petitioner in its current
account with the respondent bank. The particulars of these checks are as follows:

1. Drawn by the Delta Engineering Service upon the Pacific Banking Corporation and payable to the Inter-Island Gas Service Inc. or
order:

Date Check Exhibit

Deposited Number Amount Number

4/2/59 B-352680 P500.00 18

4/20/59 A-156907 372.32 19

4/24/59 A-156924 397.82 20

5/4/59 B-364764 250.00 23

5/6/59 B-364775 250.00 24

2. Drawn by the Enrique Cortiz & Co. upon the Pacific Banking Corporation and payable to the Inter-Island Gas Service, Inc. or bearer:

4/13/59 B-335063 P 2108.70 21

4/27/59 B-335072 P2210.94 22

3. Drawn by the Luzon Tinsmith & Company upon the China Banking Corporation and payable to the Inter-Island Gas Service, Inc. or
bearer:

5/18/59 VN430188 P940.80 25

4. Drawn by the Roxas Manufacturing, Inc. upon the Philippine National Bank and payable to the Inter-Island Gas Service, Inc. order:

5/14/59 1860160 P 500.00 26

5/18/59 1860660 P 500.00 27

All the foregoing checks, which were acquired by the petitioner from one Antonio J. Ramirez, a sales agent of the Inter-Island Gas and
a regular bettor at jai-alai games, were, upon deposit, temporarily credited to the petitioner's account in accordance with the clause
printed on the deposit slips issued by the respondent and which reads:

"Any credit allowed the depositor on the books of the Bank for checks or drafts hereby received for deposit, is provisional only, until
such time as the proceeds thereof, in current funds or solvent credits, shall have been actually received by the Bank and the latter
reserves to itself the right to charge back the item to the account of its depositor, at any time before that event, regardless of whether or
not the item itself can be returned."

About the latter part of July 1959, after Ramirez had resigned from the Inter-Island Gas and after the checks had been submitted to
inter-bank clearing, the Inter-Island Gas discovered that all the indorsements made on the checks purportedly by its cashiers, Santiago
Amplayo and Vicenta Mucor (who were merely authorized to deposit checks issued payable to the said company) as well as the rubber
stamp impression thereon reading "Inter-Island Gas Service, Inc.," were forgeries. In due time, the Inter-Island Gas advised the
petitioner, the respondent, the drawers and the drawee-banks of the said checks about the forgeries, and filed a criminal complaint
against Ramirez with the Office of the City Fiscal of Manila. 1

The respondent's cashier, Ramon Sarthou, upon receipt of the latter of Inter-Island Gas dated August 31, 1959, called up the
petitioner's cashier, Manuel Garcia, and advised the latter that in view of the circumstances he would debit the value of the checks
against the petitioner's account as soon as they were returned by the respective drawee-banks.

Meanwhile, the drawers of the checks, having been notified of the forgeries, demanded reimbursement to their respective accounts
from the drawee-banks, which in turn demanded from the respondent, as collecting bank, the return of the amounts they had paid on
account thereof. When the drawee-banks returned the checks to the respondent, the latter paid their value which the former in turn paid
to the Inter-Island Gas. The respondent, for its part, debited the petitioner's current account and forwarded to the latter the checks
containing the forged indorsements, which the petitioner, however, refused to accept.

On October 8, 1959 the petitioner drew against its current account with the respondent a check for P135,000 payable to the order of the
Mariano Olondriz y Cia. in payment of certain shares of stock. The check was, however, dishonored by the respondent as its records
showed that as of October 8, 1959 the current account of the petitioner, after netting out the value of the checks P8,030.58) with the
forged indorsements, had a balance of only P128,257.65.

The petitioner then filed a complaint against the respondent with the Court of First Instance of Manila, which was however dismissed by
the trial court after due trial, and as well by the Court of Appeals, on appeal.

Hence, the present recourse.

The issues posed by the petitioner in the instant petition may be briefly stated as follows:

(a) Whether the respondent had the right to debit the petitioner's current account in the amount corresponding to the total value of the
checks in question after more than three months had elapsed from the date their value was credited to the petitioner's account:(b)
Whether the respondent is estopped from claiming that the amount of P8,030.58, representing the total value of the checks with the
forged indorsements, had not been properly credited to the petitioner's account, since the same had already been paid by the drawee-
banks and received in due course by the respondent; and(c) On the assumption that the respondent had improperly debited the
petitioner's current account, whether the latter is entitled to damages.

These three issues interlock and will be resolved jointly.

In our opinion, the respondent acted within legal bounds when it debited the petitioner's account. When the petitioner deposited the
checks with the respondent, the nature of the relationship created at that stage was one of agency, that is, the bank was to collect from
the drawees of the checks the corresponding proceeds. It is true that the respondent had already collected the proceeds of the checks
when it debited the petitioner's account, so that following the rule in Gullas vs. Philippine National Bank 2 it might be argued that the
relationship between the parties had become that of creditor and debtor as to preclude the respondent from using the petitioner's funds
to make payments not authorized by the latter. It is our view nonetheless that no creditor-debtor relationship was created between the
parties.

Section 23 of the Negotiable Instruments Law (Act 2031) states that 3 —

"When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and
no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be
acquired through or under such signature, unless the party against whom it is sought to enforce such right is precluded from setting up
the forgery or want of authority."

Since under the foregoing provision, a forged signature in a negotiable instrument is wholly inoperative and no right to discharge it or
enforce its payment can be acquired through or under the forged signature except against a party who cannot invoke the forgery, it
stands to reason, upon the facts of record, that the respondent, as a collecting bank which indorsed the checks to the drawee-banks for
clearing, should be liable to the latter for reimbursement, for, as found by the court a quo and by the appellate court, the indorsements
on the checks had been forged prior to their delivery to the petitioner. In legal contemplation, therefore, the payments made by the
drawee-banks to the respondent on account of the said checks were ineffective; and, such being the case, the relationship of creditor
and debtor between the petitioner and the respondent had not been validly effected, the checks not having been properly and
legitimately converted into cash. 4

In Great Eastern Life Ins. Co. vs. Hongkong & Shanghai Bank, 5 the Court ruled that it is the obligation of the collecting bank to
reimburse the drawee-bank the value of the checks subsequently found to contain the forged indorsement of the payee. The reason is
that the bank with which the check was deposited has no right to pay the sum stated therein to the forger "or anyone else upon a forged
signature." "It was its duty to know," said the Court, "that [the payee's] endorsement was genuine before cashing the check." The
petitioner must in turn shoulder the loss of the amounts which the respondent; as its collecting agent, had to reimburse to the drawee-
banks.

We do not consider material for the purposes of the case at bar that more than three months had elapsed since the proceeds of the
checks in question were collected by the respondent. The record shows that the respondent had acted promptly after being informed
that the indorsements on the checks were forged. Moreover, having received the checks merely for collection and deposit, the
respondent cannot he expected to know or ascertain the genuineness of all prior indorsements on the said checks. Indeed, having itself
indorsed them to the respondent in accordance with the rules and practices of commercial banks, of which the Court takes due
cognizance, the petitioner is deemed to have given the warranty prescribed in Section 66 of the Negotiable Instruments Law that every
single one of those checks "is genuine and in all respects what it purports to be.".

The petitioner was, moreover, grossly recreant in accepting the checks in question from Ramirez. It could not have escaped the
attention of the petitioner that the payee of all the checks was a corporation — the Inter-Island Gas Service, Inc. Yet, the petitioner
cashed these checks to a mere individual who was admittedly a habitue at its jai-alai games without making any inquiry as to his
authority to exchange checks belonging to the payee-corporation. In Insular Drug Co. vs. National 6 the Court made the
pronouncement that.
". . . The right of an agent to indorse commercial paper is a very responsible power and will not be lightly inferred. A salesman with
authority to collect money belonging to his principal does not have the implied authority to indorse checks received in payment. Any
person taking checks made payable to a corporation, which can act only by agents, does so at his peril, and must abide by the
consequences if the agent who indorses the same is without authority." (underscoring supplied)

It must be noted further that three of the checks in question are crossed checks, namely, exhs. 21, 25 and 27, which may only be
deposited, but not encashed; yet, the petitioner negligently accepted them for cash. That two of the crossed checks, namely, exhs. 21
and 25, are bearer instruments would not, in our view, exculpate the petitioner from liability with respect to them. The fact that they are
bearer checks and at the same time crossed checks should have aroused the petitioner's suspicion as to the title of Ramirez over them
and his authority to cash them (apparently to purchase jai-alai tickets from the petitioner), it appearing on their face that a corporate
entity — the Inter Island Gas Service, Inc. — was the payee thereof and Ramirez delivered the said checks to the petitioner ostensibly
on the strength of the payee's cashiers' indorsements.

At all events, under Section 67 of the Negotiable Instruments Law, "Where a person places his indorsement on an instrument
negotiable by delivery he incurs all the liability of an indorser," and under Section 66 of the same statute a general indorser warrants
that the instrument "is genuine and in all respects what it purports to be." Considering that the petitioner indorsed the said checks when
it deposited them with the respondent, the petitioner as an indorser guaranteed the genuineness of all prior indorsements thereon. The
respondent which relied upon the petitioner's warranty should not be held liable for the resulting loss. This conclusion applied similarly
to exh. 22 which is an uncrossed bearer instrument, for under Section 65 of the Negotiable Instrument Law. "Every person negotiating
an instrument by delivery . . . warrants (a) That the instrument is genuine and in all respects what it purports to be." Under that same
section this warranty "extends in favor of no holder other than the immediate transferee," which, in the case at bar, would be the
respondent.

The provision in the deposit slip issued by the respondent which stipulates that it "reserves to itself the right to charge back the item to
the account of its depositor," at any time before "current funds or solvent credits shall have been actually received by the Bank," would
not materially affect the conclusion we have reached. That stipulation prescribes that there must be an actual receipt by the bank of
current funds or solvent credits; but as we have earlier indicated the transfer by the drawee-banks of funds to the respondent on
account of the checks in question was ineffectual because made under the mistaken and valid assumption that the indorsements of the
payee thereon were genuine. Under article 2154 of the New Civil Code "If something is received when there is no right to demand it
and it was unduly delivered through mistake, the obligation to return it arises." There was, therefore, in contemplation of law, no valid
payment of money made by the drawee-banks to the respondent on account of the questioned checks.

ACCORDINGLY, the judgment of the Court of Appeals is affirmed, at petitioner's cost.

Makasiar, Esguerra, Muñoz Palma and Martin, JJ., concur.

Teehankee, J., is on leave.

G.R. No. L-40796 July 31, 1975

REPUBLIC BANK, plaintiff-appellee,

vs.
MAURICIA T. EBRADA, defendant-appellant.

Sabino de Leon, Jr. for plaintiff-appellee.

Julio Baldonado for defendant-appellant.

MARTIN, J.:

Appeal on a question of law of the decision of the Court of First Instance of Manila, Branch XXIII in Civil Case No. 69288, entitled
"Republic Bank vs. Mauricia T. Ebrada."

On or about February 27, 1963 defendant Mauricia T. Ebrada, encashed Back Pay Check No. 508060 dated January 15, 1963 for
P1,246.08 at the main office of the plaintiff Republic Bank at Escolta, Manila. The check was issued by the Bureau of
Treasury.1 Plaintiff Bank was later advised by the said bureau that the alleged indorsement on the reverse side of the aforesaid check
by the payee, "Martin Lorenzo" was a forgery2 since the latter had allegedly died as of July 14, 1952.3 Plaintiff Bank was then requested
by the Bureau of Treasury to refund the amount of P1,246.08. 4 To recover what it had refunded to the Bureau of Treasury, plaintiff Bank
made verbal and formal demands upon defendant Ebrada to account for the sum of P1,246.08, but said defendant refused to do so. So
plaintiff Bank sued defendant Ebrada before the City Court of Manila.

On July 11, 1966, defendant Ebrada filed her answer denying the material allegations of the complaint and as affirmative defenses
alleged that she was a holder in due course of the check in question, or at the very least, has acquired her rights from a holder in due
course and therefore entitled to the proceeds thereof. She also alleged that the plaintiff Bank has no cause of action against her; that it
is in estoppel, or so negligent as not to be entitled to recover anything from her. 5

About the same day, July 11, 1966 defendant Ebrada filed a Third-Party complaint against Adelaida Dominguez who, in turn, filed on
September 14, 1966 a Fourth-Party complaint against Justina Tinio.

On March 21, 1967, the City Court of Manila rendered judgment for the plaintiff Bank against defendant Ebrada; for Third-Party plaintiff
against Third-Party defendant, Adelaida Dominguez, and for Fourth-Party plaintiff against Fourth-Party defendant, Justina Tinio.

From the judgment of the City Court, defendant Ebrada took an appeal to the Court of First Instance of Manila where the parties
submitted a partial stipulation of facts as follows:

COME NOW the undersigned counsel for the plaintiff, defendant, Third-Party defendant and Fourth-Party plaintiff and
unto this Honorable Court most respectfully submit the following:

PARTIAL STIPULATION OF FACTS

1. That they admit their respective capacities to sue and be sued;

2. That on January 15, 1963 the Treasury of the Philippines issued its Check No. BP-508060, payable to the order of
one MARTIN LORENZO, in the sum of P1,246.08, and drawn on the Republic Bank, plaintiff herein, which check will
be marked as Exhibit "A" for the plaintiff;

3. That the back side of aforementioned check bears the following signatures, in this order:

1) MARTIN LORENZO;

2) RAMON R. LORENZO;

3) DELIA DOMINGUEZ; and

4) MAURICIA T. EBRADA;

4. That the aforementioned check was delivered to the defendant MAURICIA T. EBRADA by the Third-Party defendant and Fourth-
Party plaintiff ADELAIDA DOMINGUEZ, for the purpose of encashment;

5. That the signature of defendant MAURICIA T. EBRADA was affixed on said check on February 27, 1963 when she
encashed it with the plaintiff Bank;

6. That immediately after defendant MAURICIA T. EBRADA received the cash proceeds of said check in the sum of
P1,246.08 from the plaintiff Bank, she immediately turned over the said amount to the third-party defendant and
fourth-party plaintiff ADELAIDA DOMINGUEZ, who in turn handed the said amount to the fourth-party defendant
JUSTINA TINIO on the same date, as evidenced by the receipt signed by her which will be marked as Exhibit "1-
Dominguez"; and

7. That the parties hereto reserve the right to present evidence on any other fact not covered by the foregoing
stipulations,

Manila, Philippines, June 6, 1969.

Based on the foregoing stipulation of facts and the documentary evidence presented, the trial court rendered a decision, the dispositive
portion of which reads as follows:

WHEREFORE, the Court renders judgment ordering the defendant Mauricia T. Ebrada to pay the plaintiff the amount
of ONE THOUSAND TWO FORTY-SIX 08/100 (P1,246.08), with interest at the legal rate from the filing of the
complaint on June 16, 1966, until fully paid, plus the costs in both instances against Mauricia T. Ebrada.

The right of Mauricia T. Ebrada to file whatever claim she may have against Adelaida Dominguez in connection with
this case is hereby reserved. The right of the estate of Dominguez to file the fourth-party complaint against Justina
Tinio is also reserved.

SO ORDERED.
In her appeal, defendant-appellant presses that the lower court erred:

IN ORDERING THE APPELLANT TO PAY THE APPELLEE THE FACE VALUE OF THE SUBJECT CHECK AFTER
FINDING THAT THE DRAWER ISSUED THE SUBJECT CHECK TO A PERSON ALREADY DECEASED FOR 11-½
YEARS AND THAT THE APPELLANT DID NOT BENEFIT FROM ENCASHING SAID CHECK.

From the stipulation of facts it is admitted that the check in question was delivered to defendant-appellant by Adelaida Dominguez for
the purpose of encashment and that her signature was affixed on said check when she cashed it with the plaintiff Bank. Likewise it is
admitted that defendant-appellant was the last indorser of the said check. As such indorser, she was supposed to have warranted that
she has good title to said check; for under Section 65 of the Negotiable Instruments Law: 6

Every person negotiating an instrument by delivery or by qualified indorsement, warrants:

(a) That the instrument is genuine and in all respects what it purports to be.

(b) That she has good title to it.

xxx xxx xxx

and under Section 65 of the same Act:

Every indorser who indorses without qualification warrants to all subsequent holders in due course:

(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding sections;

(b) That the instrument is at the time of his indorsement valid and subsisting.

It turned out, however, that the signature of the original payee of the check, Martin Lorenzo was a forgery because he was already dead
7 almost 11 years before the check in question was issued by the Bureau of Treasury. Under action 23 of the Negotiable Instruments
Law (Act 2031):

When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly
inoperative, and no right to retain the instruments, or to give a discharge thereof against any party thereto, can be
acquired through or under such signature unless the party against whom it is sought to enforce such right is
precluded from setting up the forgery or want of authority.

It is clear from the provision that where the signature on a negotiable instrument if forged, the negotiation of the check is without force
or effect. But does this mean that the existence of one forged signature therein will render void all the other negotiations of the check
with respect to the other parties whose signature are genuine?

In the case of Beam vs. Farrel, 135 Iowa 670, 113 N.W. 590, where a check has several indorsements on it, it was held that it is only
the negotiation based on the forged or unauthorized signature which is inoperative. Applying this principle to the case before Us, it can
be safely concluded that it is only the negotiation predicated on the forged indorsement that should be declared inoperative. This means
that the negotiation of the check in question from Martin Lorenzo, the original payee, to Ramon R. Lorenzo, the second indorser, should
be declared of no affect, but the negotiation of the aforesaid check from Ramon R. Lorenzo to Adelaida Dominguez, the third indorser,
and from Adelaida Dominguez to the defendant-appellant who did not know of the forgery, should be considered valid and enforceable,
barring any claim of forgery.

What happens then, if, after the drawee bank has paid the amount of the check to the holder thereof, it was discovered that the
signature of the payee was forged? Can the drawee bank recover from the one who encashed the check?

In the case of State v. Broadway Mut. Bank, 282 S.W. 196, 197, it was held that the drawee of a check can recover from the holder the
money paid to him on a forged instrument. It is not supposed to be its duty to ascertain whether the signatures of the payee or indorsers
are genuine or not. This is because the indorser is supposed to warrant to the drawee that the signatures of the payee and previous
indorsers are genuine, warranty not extending only to holders in due course. One who purchases a check or draft is bound to satisfy
himself that the paper is genuine and that by indorsing it or presenting it for payment or putting it into circulation before presentation he
impliedly asserts that he has performed his duty and the drawee who has paid the forged check, without actual negligence on his part,
may recover the money paid from such negligent purchasers. In such cases the recovery is permitted because although the drawee
was in a way negligent in failing to detect the forgery, yet if the encasher of the check had performed his duty, the forgery would in all
probability, have been detected and the fraud defeated. The reason for allowing the drawee bank to recover from the encasher is:

Every one with even the least experience in business knows that no business man would accept a check in exchange
for money or goods unless he is satisfied that the check is genuine. He accepts it only because he has proof that it is
 genuine, or because he has sufficient confidence in the honesty and financial responsibility of the person who
vouches for it. If he is deceived he has suffered a loss of his cash or goods through his own mistake. His own
credulity or recklessness, or misplaced confidence was the sole cause of the loss. Why should he be permitted to
shift the loss due to his own fault in assuming the risk, upon the drawee, simply because of the accidental
circumstance that the drawee afterwards failed to detect the forgery when the check was presented? 8

Similarly, in the case before Us, the defendant-appellant, upon receiving the check in question from Adelaida Dominguez, was duty-
bound to ascertain whether the check in question was genuine before presenting it to plaintiff Bank for payment. Her failure to do so
makes her liable for the loss and the plaintiff Bank may recover from her the money she received for the check. As reasoned out above,
had she performed the duty of ascertaining the genuineness of the check, in all probability the forgery would have been detected and
the fraud defeated.

In our jurisdiction We have a case of similar import. 9 The Great Eastern Life Insurance Company drew its check for P2000.00 on the
Hongkong and Shanghai Banking Corporation payable to the order of Lazaro Melicor. A certain E. M. Maasin fraudulently obtained the
check and forged the signature of Melicor, as an indorser, and then personally indorsed and presented the check to the Philippine
National Bank where the amount of the check was placed to his (Maasin's) credit. On the next day, the Philippine National Bank
indorsed the cheek to the Hongkong and Shanghai Banking Corporation which paid it and charged the amount of the check to the
insurance company. The Court held that the Hongkong and Shanghai Banking Corporation was liable to the insurance company for the
amount of the check and that the Philippine National Bank was in turn liable to the Hongkong and Shanghai Banking Corporation. Said
the Court:

Where a check is drawn payable to the order of one person and is presented to a bank by another and purports upon
its face to have been duly indorsed by the payee of the check, it is the duty of the bank to know that the check was
duly indorsed by the original payee, and where the bank pays the amount of the check to a third person, who has
forged the signature of the payee, the loss falls upon the bank who cashed the check, and its only remedy is against
the person to whom it paid the money.

With the foregoing doctrine We are to concede that the plaintiff Bank should suffer the loss when it paid the amount of the check in
question to defendant-appellant, but it has the remedy to recover from the latter the amount it paid to her. Although the defendant-
appellant to whom the plaintiff Bank paid the check was not proven to be the author of the supposed forgery, yet as last indorser of the
check, she has warranted that she has good title to it 10 even if in fact she did not have it because the payee of the check was already
dead 11 years before the check was issued. The fact that immediately after receiving title cash proceeds of the check in question in the
amount of P1,246.08 from the plaintiff Bank, defendant-appellant immediately turned over said amount to Adelaida Dominguez (Third-
Party defendant and the Fourth-Party plaintiff) who in turn handed the amount to Justina Tinio on the same date would not exempt her
from liability because by doing so, she acted as an accommodation party in the check for which she is also liable under Section 29 of
the Negotiable Instruments Law (Act 2031), thus: .An accommodation party is one who has signed the instrument as maker, drawer,
acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such a person is
liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument knew him to be only an
accommodation party.

IN VIEW OF THE FOREGOING, the judgment appealed from is hereby affirmed in toto with costs against defendant-appellant.

SO ORDERED.

Makalintal, C.J, Castro, Makasiar and Esguerra, JJ., concur.

G.R. No. L-62943 July 14, 1986

METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM, petitioner,

vs.
COURT OF APPEALS (Now INTERMEDIATE APPELLATE COURT) and THE PHILIPPINE NATIONAL BANK, respondents.

Juan J. Diaz and Cesar T. Basa for respondent PNB.

San Juan, Africa, Gonzales & San Agustin Law Offices for respondent PCIB.

GUTIERREZ, JR., J.:

This petition for review asks us to set aside the October 29, 1982 decision of the respondent Court of Appeals, now Intermediate
Appellate Court which reversed the decision of the Court of First Instance of Manila, Branch XL, and dismissed the plaintiff's complaint,
the third party complaint, as well as the defendant's counterclaim.
The background facts which led to the filing of the instant petition are summarized in the decision of the respondent Court of Appeals:

Metropolitan Waterworks and Sewerage System (hereinafter referred to as MWSS) is a government owned and
controlled corporation created under Republic Act No. 6234 as the successor-in- interest of the defunct NWSA. The
Philippine National Bank (PNB for short), on the other hand, is the depository bank of MWSS and its predecessor-in-
interest NWSA. Among the several accounts of NWSA with PNB is NWSA Account No. 6, otherwise known as
Account No. 381-777 and which is presently allocated No. 010-500281. The authorized signature for said Account
No. 6 were those of MWSS treasurer Jose Sanchez, its auditor Pedro Aguilar, and its acting General Manager Victor
L. Recio. Their respective specimen signatures were submitted by the MWSS to and on file with the PNB. By special
arrangement with the PNB, the MWSS used personalized checks in drawing from this account. These checks were
printed for MWSS by its printer, F. Mesina Enterprises, located at 1775 Rizal Extension, Caloocan City.

During the months of March, April and May 1969, twenty-three (23) checks were prepared, processed, issued and
released by NWSA, all of which were paid and cleared by PNB and debited by PNB against NWSA Account No. 6, to
wit:

Check No. Date Payee Amount Date Paid

By PNB

1. 59546 8-21-69 Deogracias P 3,187.79 4-2-69

Estrella

2. 59548 3-31-69 Natividad 2,848.86 4-23 69

Rosario

3. 59547 3-31-69 Pangilinan 195.00 Unreleased

Enterprises

4. 59549 3-31-69 Natividad 3,239.88 4-23-69

Rosario

5. 59552 4-1-69 Villarama 987.59 5-6-69

& Sons

6. 59554 4-1-69 Gascom 6,057.60 4-16 69

Engineering

7. 59558 4-2-69 The Evening 112.00 Unreleased

News

8. 59544 3-27-69 Progressive 18,391.20 4-18 69

Const.

9. 59564 4-2-69 Ind. Insp. 594.06 4-18 69

Int. Inc.

10. 59568 4-7-69 Roberto 800.00 4-22-69

Marsan
11. 59570 4-7-69 Paz Andres 200.00 4-22-69

12. 59574 4-8-69 Florentino 100,000.00 4-11-69

Santos

13. 59578 4-8-69 Mla. Daily 95.00 Unreleased

Bulletin

14. 59580 4-8-69 Phil. Herald 100.00 5-9-69

15. 59582 4-8-69 Galauran 7,729.09 5-6-69

& Pilar

16. 59581 4-8-69 Manila 110.00 5-12 69

Chronicle

17. 59588 4-8-69 Treago 21,583.00 4-11 69

Tunnel

18. 59587 4-8-69 Delfin 120,000.00 4-11-69

Santiago

19. 59589 4-10-69 Deogracias 1,257.49 4-16 69

Estrella

20. 59594 4-14-69 Philam Ac- 33.03 4-29 69

cident Inc.

21. 59577 4-8-69 Esla 9,429.78 4-29 69

22. 59601 4-16-69 Justino 20,000.00 4-18-69

Torres

23. 59595 4-14-69 Neris Phil. 4,274.00 5-20-69

Inc. --------------------

P 320,636.26

During the same months of March, April and May 1969, twenty-three (23) checks bearing the same numbers as the
aforementioned NWSA checks were likewise paid and cleared by PNB and debited against NWSA Account No. 6, to
wit:

Check Date Payee Amount Date Paid

No. Issued By PNB

1. 59546 3-6-69 Raul Dizon P 84,401.00 3-16-69

2. 59548 3-11-69 Raul Dizon 104,790.00 4-1-69

3. 59547 3-14-69 Arturo Sison 56,903.00 4-11-69

4. 59549 3-20-69 Arturo Sison 48,903.00 4-15-69

5. 59552 3-24-69 Arturo Sison 63,845.00 4-16-69

6. 59544 3-26-69 Arturo Sison 98,450.00 4-17-69

7. 59558 3-28-69 Arturo Sison 114,840.00 4-21-69

8. 59544 3-16-69 Antonio 38,490.00 4-22-69 Mendoza

9. 59564 3-31-69 Arturo Sison 180,900.00 4-23-69

10.59568 4-2-69 Arturo Sison 134,940.00 4- 5-69

11.59570 4-1-69 Arturo Sison 64,550.00 4-28-69

12.59574 4-2-69 Arturo Sison 148,610.00 4-29-69

13.59578 4-10-69 Antonio 93,950.00 4-29-69

Mendoza

14.59580 4-8-69 Arturo Sison 160,000.00 5-2-69

15.59582 4-10-69 Arturo Sison 155,400.00 5-5-69

16.59581 4-8-69 Antonio 176,580.00 5-6-69

Mendoza

17.59588 4-16-69 Arturo Sison 176,000.00 5-8-69

18.59587 4-16-69 Arturo Sison 300,000.00 5-12-69

19.59589 4-18-69 Arturo Sison 122,000.00 5-14-69

20.59594 4-18-69 Arturo Sison 280,000.00 5-15-69

21.59577 4-14-69 Antonio 260,000.00 5-16-69

Mendoza

22.59601 4-18-69 Arturo Sison 400,000.00 5-19-69

23.59595 4-28-69 Arturo Sison 190,800.00 5-21-69

---------------

P3,457,903.00

The foregoing checks were deposited by the payees Raul Dizon, Arturo Sison and Antonio Mendoza in their
respective current accounts with the Philippine Commercial and Industrial Bank (PCIB) and Philippine Bank of
Commerce (PBC) in the months of March, April and May 1969. Thru the Central Bank Clearing, these checks were
presented for payment by PBC and PCIB to the defendant PNB, and paid, also in the months of March, April and May
1969. At the time of their presentation to PNB these checks bear the standard indorsement which reads 'all prior
indorsement and/or lack of endorsement guaranteed.'

Subsequent investigation however, conducted by the NBI showed that Raul Dizon, Arturo Sison and Antonio
Mendoza were all fictitious persons. The respective balances in their current account with the PBC and/or PCIB stood
 as follows: Raul Dizon P3,455.00 as of April 30, 1969; Antonio Mendoza P18,182.00 as of May 23, 1969; and Arturo
Sison Pl,398.92 as of June 30, 1969.

On June 11, 1969, NWSA addressed a letter to PNB requesting the immediate restoration to its Account No. 6, of the
total sum of P3,457,903.00 corresponding to the total amount of these twenty-three (23) checks claimed by NWSA to
be forged and/or spurious checks. "In view of the refusal of PNB to credit back to Account No. 6 the said total sum of
P3,457,903.00 MWSS filed the instant complaint on November 10, 1972 before the Court of First Instance of Manila
and docketed thereat as Civil Case No. 88950.

In its answer, PNB contended among others, that the checks in question were regular on its face in all respects,
including the genuineness of the signatures of authorized NWSA signing officers and there was nothing on its face
that could have aroused any suspicion as to its genuineness and due execution and; that NWSA was guilty of
negligence which was the proximate cause of the loss.

PNB also filed a third party complaint against the negotiating banks PBC and PCIB on the ground that they failed to
ascertain the Identity of the payees and their title to the checks which were deposited in the respective new accounts
of the payees with them.

xxx xxx xxx

On February 6, 1976, the Court of First Instance of Manila rendered judgment in favor of the MWSS. The dispositive portion of the
decision reads:

WHEREFORE, on the COMPLAINT by a clear preponderance of evidence and in accordance with Section 23 of the
Negotiable Instruments Law, the Court hereby renders judgment in favor of the plaintiff Metropolitan Waterworks and
Sewerage System (MWSS) by ordering the defendant Philippine National Bank (PNB) to restore the total sum of
THREE MILLION FOUR HUNDRED FIFTY SEVEN THOUSAND NINE HUNDRED THREE PESOS (P3,457,903.00)
to plaintiff's Account No. 6, otherwise known as Account No. 010-50030-3, with legal interest thereon computed from
the date of the filing of the complaint and until as restored in the said Account No. 6.

On the THIRD PARTY COMPLAINT, the Court, for lack of evidence, hereby renders judgment in favor of the third
party defendants Philippine Bank of Commerce (PBC) and Philippine Commercial and Industrial Bank (PCIB) by
dismissing the Third Party Complaint.

The counterclaims of the third party defendants are likewise dismissed for lack of evidence.

No pronouncement as to costs.

As earlier stated, the respondent court reversed the decision of the Court of First Instance of Manila and rendered judgment in favor of
the respondent Philippine National Bank.

A motion for reconsideration filed by the petitioner MWSS was denied by the respondent court in a resolution dated January 3, 1983.

The petitioner now raises the following assignments of errors for the grant of this petition:

I. IN NOT HOLDING THAT AS THE SIGNATURES ON THE CHECKS WERE FORGED, THE DRAWEE BANK WAS
LIABLE FOR THE LOSS UNDER SECTION 23 OF THE NEGOTIABLE INSTRUMENTS LAW.

II. IN FAILING TO CONSIDER THE PROXIMATE NEGLIGENCE OF PNB IN ACCEPTING THE SPURIOUS
CHECKS DESPITE THE OBVIOUS IRREGULARITY OF TWO SETS OF CHECKS BEARING IdENTICAL NUMBER
BEING ENCASHED WITHIN DAYS OF EACH OTHER.

III. IN NOT HOLDING THAT THE SIGNATURES OF THE DRAWEE MWSS BEING CLEARLY FORGED, AND THE
CHECKS SPURIOUS, SAME ARE INOPERATIVE AS AGAINST THE ALLEGED DRAWEE.

The appellate court applied Section 24 of the Negotiable Instruments Law which provides:

Every negotiable instrument is deemed prima facie to have been issued for valuable consideration and every person
whose signature appears thereon to have become a party thereto for value.

The petitioner submits that the above provision does not apply to the facts of the instant case because the questioned checks were not
those of the MWSS and neither were they drawn by its authorized signatories. The petitioner states that granting that Section 24 of the
Negotiable Instruments Law is applicable, the same creates only a prima facie presumption which was overcome by the following
documents, to wit: (1) the NBI Report of November 2, 1970; (2) the NBI Report of November 21, 1974; (3) the NBI Chemistry Report
No. C-74891; (4) the Memorandum of Mr. Juan Dino, 3rd Assistant Auditor of the respondent drawee bank addressed to the Chief
Auditor of the petitioner; (5) the admission of the respondent bank's counsel in open court that the National Bureau of Investigation
found the signature on the twenty-three (23) checks in question to be forgeries; and (6) the admission of the respondent bank's witness,
Mr. Faustino Mesina, Jr. that the checks in question were not printed by his printing press. The petitioner contends that since the
signatures of the checks were forgeries, the respondent drawee bank must bear the loss under the rulings of this Court.

A bank is bound to know the signatures of its customers; and if it pays a forged check it must be considered as
making the payment out of its obligation funds, and cannot ordinarily charge the amount so paid to the account of the
depositor whose name was forged.

xxx xxx xxx

The signatures to the checks being forged, under Section 23 of the Negotiable Instruments Law they are not a charge
against plaintiff nor are the checks of any value to the defendant.

It must therefore be held that the proximate cause of loss was due to the negligence of the Bank of the Philippine
Islands in honoring and cashing the two forged checks. (San Carlos Milling Co. v. Bank of the P. I., 59 Phil. 59)

It is admitted that the Philippine National Bank cashed the check upon a forged signature, and placed the money to
the credit of Maasim, who was the forger. That the Philippine National Bank then endorsed the chock and forwarded
it to the Shanghai Bank by whom it was paid. The Philippine National Bank had no license or authority to pay the
money to Maasim or anyone else upon a forged signature. It was its legal duty to know that Malicor's endorsement
was genuine before cashing the check. Its remedy is against Maasim to whom it paid the money. (Great Eastern Life
Ins. Co. v. Hongkong & Shanghai Bank, 43 Phil. 678).

We have carefully reviewed the documents cited by the petitioner. There is no express and categorical finding in these documents that
the twenty-three (23) questioned checks were indeed signed by persons other than the authorized MWSS signatories. On the contrary,
the findings of the National Bureau of Investigation in its Report dated November 2, 1970 show that the MWSS fraud was an "inside
job" and that the petitioner's delay in the reconciliation of bank statements and the laxity and loose records control in the printing of its
personalized checks facilitated the fraud. Likewise, the questioned Documents Report No. 159-1074 dated November 21, 1974 of the
National Bureau of Investigation does not declare or prove that the signatures appearing on the questioned checks are forgeries. The
report merely mentions the alleged differences in the type face, checkwriting, and printing characteristics appearing in the standard or
submitted models and the questioned typewritings. The NBI Chemistry Report No. C-74-891 merely describes the inks and pens used
in writing the alleged forged signatures.

It is clear that these three (3) NBI Reports relied upon by the petitioner are inadequate to sustain its allegations of forgery. These
reports did not touch on the inherent qualities of the signatures which are indispensable in the determination of the existence of forgery.
There must be conclusive findings that there is a variance in the inherent characteristics of the signatures and that they were written by
two or more different persons.

Forgery cannot be presumed (Siasat, et al. v. Intermediate Appellate Court, et al, 139 SCRA 238). It must be established by clear,
positive, and convincing evidence. This was not done in the present case.

The cases of San Carlos Milling Co. Ltd. v. Bank of the Philippine Islands, et al. (59 Phil. 59) and Great Eastern Life Ins., Co. v.
Hongkong and Shanghai Bank (43 Phil. 678) relied upon by the petitioner are inapplicable in this case because the forgeries in those
cases were either clearly established or admitted while in the instant case, the allegations of forgery were not clearly established during
trial.

Considering the absence of sufficient security in the printing of the checks coupled with the very close similarities between the genuine
signatures and the alleged forgeries, the twenty-three (23) checks in question could have been presented to the petitioner's signatories
without their knowing that they were bogus checks. Indeed, the cashier of the petitioner whose signatures were allegedly forged was
unable to ten the difference between the allegedly forged signature and his own genuine signature. On the other hand, the MWSS
officials admitted that these checks could easily be passed on as genuine.

The memorandum of Mr. A. T. Tolentino, no, Assistant Chief Accountant of the drawee Philippine National Bank to Mr. E. Villatuya,
Executive Vice-President of the petitioner dated June 9, 1969 cites an instance where even the concerned NWSA officials could not ten
the differences between the genuine checks and the alleged forged checks.

At about 12:00 o'clock on June 6, 1969, VP Maramag requested me to see him in his office at the Cashier's Dept.
where Messrs. Jose M. Sanchez, treasurer of NAWASA and Romeo Oliva of the same office were present. Upon my
arrival I observed the NAWASA officials questioning the issue of the NAWASA checks appearing in their own list,
xerox copy attached.
 For verification purposes, therefore, the checks were taken from our file. To everybody there present namely VIP
Maramag, the two abovementioned NAWASA officials, AVP, Buhain, Asst. Cashier Castelo, Asst. Cashier Tejada
and Messrs. A. Lopez and L. Lechuga, both C/A bookkeepers, no one was able to point out any difference on the
signatures of the NAWASA officials appearing on the checks compared to their official signatures on file. In fact 3
checks, one of those under question, were presented to the NAWASA treasurer for verification but he could not point
out which was his genuine signature. After intent comparison, he pointed on the questioned check as bearing his
correct signature.

xxx xxx xxx

Moreover, the petitioner is barred from setting up the defense of forgery under Section 23 of the Negotiable Instruments Law which
provides that:

SEC. 23. FORGED SIGNATURE; EFFECT OF.- When the signature is forged or made without authority of the
person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a
discharge therefor, or to enforce payment thereof against any party thereto can be acquired through or under such
signature unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or
want of authority.

because it was guilty of negligence not only before the questioned checks were negotiated but even after the same had already been
negotiated. (See Republic v. Equitable Banking Corporation, 10 SCRA 8) The records show that at the time the twenty-three (23)
checks were prepared, negotiated, and encashed, the petitioner was using its own personalized checks, instead of the official PNB
Commercial blank checks. In the exercise of this special privilege, however, the petitioner failed to provide the needed security
measures. That there was gross negligence in the printing of its personalized checks is shown by the following uncontroverted facts, to
wit:

(1) The petitioner failed to give its printer, Mesina Enterprises, specific instructions relative to the safekeeping and disposition of excess
forms, check vouchers, and safety papers;

(2) The petitioner failed to retrieve from its printer all spoiled check forms;

(3) The petitioner failed to provide any control regarding the paper used in the printing of said checks;

(4) The petitioner failed to furnish the respondent drawee bank with samples of typewriting, cheek writing, and print used by its printer in
the printing of its checks and of the inks and pens used in signing the same; and

(5) The petitioner failed to send a representative to the printing office during the printing of said checks.

This gross negligence of the petitioner is very evident from the sworn statement dated June 19, 1969 of Faustino Mesina, Jr., the owner
of the printing press which printed the petitioner's personalized checks:

xxx xxx xxx

7. Q: Do you have any business transaction with the National Waterworks and Sewerage Authority
(NAWASA)?

A: Yes, sir. I have a contract with the NAWASA in printing NAWASA Forms such as NAWASA
Check

xxx xxx xxx

15. Q: Were you given any ingtruction by the NAWASA in connection with the printing of these
check vouchers?

A: There is none, sir. No instruction whatsoever was given to me.

16. Q: Were you not advised as to what kind of paper would be used in the check vouchers?

A: Only as per sample, sir.

xxx xxx xxx

 20. Q: Where did you buy this Hammermill Safety check paper?

A: From Tan Chiong, a paper dealer with store located at Juan Luna, Binondo, Manila. (In front of
the Metropolitan Bank).

xxx xxx xxx

24. Q: Were all these check vouchers printed by you submitted to NAWASA?

A: Not all, sir. Because we have to make reservations or allowances for spoilage.

25. Q: Out of these vouchers printed by you, how many were spoiled and how many were the
excess printed check vouchers?

A: Approximately four hundred (400) sheets, sir. I cannot determine the proportion of the excess
and spoiled because the final act of perforating these check vouchers has not yet been done and
spoilage can only be determined after this final act of printing.

26. Q: What did you do with these excess check vouchers?

A: I keep it under lock and key in my firing cabinet.

xxx xxx xxx

28. Q: Were you not instructed by the NAWASA authorities to bum these excess check vouchers?

A: No, sir. I was not instructed.

29. Q: What do you intend to do with these excess printed check vouchers?

A: I intend to use them for future orders from the

xxx xxx xxx

32. Q: In the process of printing the check vouchers ordered by the NAWASA, how many sheets
were actually spoiled?

A: I cannot approximate, sir. But there are spoilage in the process of printing and perforating.

33. Q: What did you do with these spoilages?

A: Spoiled printed materials are usually thrown out, in the garbage can.

34. Q: Was there any representative of the NAWASA to supervise the printing or watch the printing
of these check vouchers?

A: None, sir.

xxx xxx xxx

39. Q: During the period of printing after the days work, what measures do you undertake to
safeguard the mold and other paraphernalia used in the printing of these particular orders of
NAWASA?

A: Inasmuch as I have an employee who sleeps in the printing shop and at the same time do the
guarding, we just leave the mold attached to the machine and the other finished or unfinished work
check vouchers are left in the rack so that the work could be continued the following day.

The National Bureau of Investigation Report dated November 2, 1970 is even more explicit. Thus—
 xxx xxx xxx

60. We observed also that there is some laxity and loose control in the printing of NAWASA
cheeks. We gathered from MESINA ENTERPRISES, the printing firm that undertook the printing of
the check vouchers of NAWASA that NAWASA had no representative at the printing press during
the process of the printing and no particular security measure instructions adopted to safeguard the
interest of the government in connection with printing of this accountable form.

Another factor which facilitated the fraudulent encashment of the twenty-three (23) checks in question was the failure of the petitioner to
reconcile the bank statements with its own records.

It is accepted banking procedure for the depository bank to furnish its depositors bank statements and debt and credit memos through
the mail. The records show that the petitioner requested the respondent drawee bank to discontinue the practice of mailing the bank
statements, but instead to deliver the same to a certain Mr. Emiliano Zaporteza. For reasons known only to Mr. Zaporteza however, he
was unreasonably delayed in taking prompt deliveries of the said bank statements and credit and debit memos. As a consequence, Mr.
Zaporteza failed to reconcile the bank statements with the petitioner's records. If Mr. Zaporteza had not been remiss in his duty of
taking the bank statements and reconciling them with the petitioner's records, the fraudulent encashments of the first checks should
have been discovered, and further frauds prevented. This negligence was, therefore, the proximate cause of the failure to discover the
fraud. Thus,

When a person opens a checking account with a bank, he is given blank checks which he may fill out and use
whenever he wishes. Each time he issues a check, he should also fill out the check stub to which the check is usually
attached. This stub, if properly kept, will contain the number of the check, the date of its issue, the name of the payee
and the amount thereof. The drawer would therefore have a complete record of the checks he issues. It is the custom
of banks to send to its depositors a monthly statement of the status of their accounts, together with all the cancelled
checks which have been cashed by their respective holders. If the depositor has filled out his check stubs properly, a
comparison between them and the cancelled checks will reveal any forged check not taken from his checkbook. It is
the duty of a depositor to carefully examine the bank's statement, his cancelled checks, his check stubs and other
pertinent records within a reasonable time, and to report any errors without unreasonable delay. If his negligence
should cause the bank to honor a forged check or prevent it from recovering the amount it may have already paid on
such check, he cannot later complain should the bank refuse to recredit his account with the amount of such check.
(First Nat. Bank of Richmond v. Richmond Electric Co., 106 Va. 347, 56 SE 152, 7 LRA, NS 744 [1907]. See also
Leather Manufacturers' Bank v. Morgan, 117 US 96, 6 S. Ct. 657 [1886]; Deer Island Fish and Oyster Co. v. First Nat.
Bank of Biloxi, 166 Miss. 162, 146 So. 116 [1933]). Campos and Campos, Notes and Selected Cases on Negotiable
Instruments Law, 1971, pp. 267-268).

This failure of the petitioner to reconcile the bank statements with its cancelled checks was noted by the National Bureau of
Investigation in its report dated November 2, 1970:

58. One factor which facilitate this fraud was the delay in the reconciliation of bank (PNB) statements with the
NAWASA bank accounts. x x x. Had the NAWASA representative come to the PNB early for the statements and had
the bank been advised promptly of the reported bogus check, the negotiation of practically all of the remaining checks
on May, 1969, totalling P2,224,736.00 could have been prevented.

The records likewise show that the petitioner failed to provide appropriate security measures over its own records thereby laying
confidential records open to unauthorized persons. The petitioner's own Fact Finding Committee, in its report submitted to their General
manager underscored this laxity of records control. It observed that the "office of Mr. Ongtengco (Cashier No. VI of the Treasury
Department at the NAWASA) is quite open to any person known to him or his staff members and that the check writer is merely on top
of his table."

When confronted with this report at the Anti-Fraud Action Section of the National Bureau of Investigation. Mr. Ongtengco could only
state that:

A. Generally my order is not to allow anybody to enter my office. Only authorized persons are
allowed to enter my office. There are some cases, however, where some persons enter my office
because they are following up their checks. Maybe, these persons may have been authorized by
Mr. Pantig. Most of the people entering my office are changing checks as allowed by the Resolution
of the Board of Directors of the NAWASA and the Treasurer. The check writer was never placed on
my table. There is a place for the check write which is also under lock and key.

Q. Is Mr. Pantig authorized to allow unauthorized persons to enter your office?

A. No, sir.

Q. Why are you tolerating Mr. Pantig admitting unauthorized persons in your office?
 A. I do not want to embarrass Mr. Pantig. Most of the people following up checks are employees of
the NAWASA.

Q. Was the authority given by the Board of Directors and the approval by the Treasurer for
employees, and other persons to encash their checks carry with it their authority to enter your
office?

A. No, sir.

xxx xxx xxx

Q. From the answers that you have given to us we observed that actually there is laxity and poor
control on your part with regards to the preparations of check payments inasmuch as you allow
unauthorized persons to follow up their vouchers inside your office which may leakout confidential
informations or your books of account. After being apprised of all the shortcomings in your office,
as head of the Cashiers' Office of the Treasury Department what remedial measures do you intend
to undertake?

A. Time and again the Treasurer has been calling our attention not to allow interested persons to
hand carry their voucher checks and we are trying our best and if I can do it to follow the
instructions to the letter, I will do it but unfortunately the persons who are allowed to enter my office
are my co-employees and persons who have connections with our higher ups and I can not
possibly antagonize them. Rest assured that even though that everybody will get hurt, I win do my
best not to allow unauthorized persons to enter my office.

xxx xxx xxx

Q. Is it not possible inasmuch as your office is in charge of the posting of check payments in your
books that leakage of payments to the banks came from your office?

A. I am not aware of it but it only takes us a couple of minutes to process the checks. And there are
cases wherein every information about the checks may be obtained from the Accounting
Department, Auditing Department, or the Office of the General Manager.

Relying on the foregoing statement of Mr. Ongtengco, the National Bureau of Investigation concluded in its Report dated November 2,
1970 that the fraudulent encashment of the twenty-three (23)cheeks in question was an "inside job". Thus-

We have all the reasons to believe that this fraudulent act was an inside job or one pulled with inside connivance at
NAWASA. As pointed earlier in this report, the serial numbers of these checks in question conform with the numbers
in current use of NAWASA, aside from the fact that these fraudulent checks were found to be of the same kind and
design as that of NAWASA's own checks. While knowledge as to such facts may be obtained through the possession
of a NAWASA check of current issue, an outsider without information from the inside can not possibly pinpoint which
of NAWASA's various accounts has sufficient balance to cover all these fraudulent checks. None of these checks, it
should be noted, was dishonored for insufficiency of funds. . .

Even if the twenty-three (23) checks in question are considered forgeries, considering the petitioner's gross negligence, it is barred from
setting up the defense of forgery under Section 23 of the Negotiable Instruments Law.

Nonetheless, the petitioner claims that it was the negligence of the respondent Philippine National Bank that was the proximate cause
of the loss. The petitioner relies on our ruling in Philippine National Bank v. Court of Appeals (25 SCRA 693) that.

Thus, by not returning the cheek to the PCIB, by thereby indicating that the PNB had found nothing wrong with the
check and would honor the same, and by actually paying its amount to the PCIB, the PNB induced the latter, not only
to believe that the check was genuine and good in every respect, but, also, to pay its amount to Augusto Lim. In other
words, the PNB was the primary or proximate cause of the loss, and, hence, may not recover from the PCIB.

The argument has no merit. The records show that the respondent drawee bank, had taken the necessary measures in the detection of
forged checks and the prevention of their fraudulent encashment. In fact, long before the encashment of the twenty-three (23) checks in
question, the respondent Bank had issued constant reminders to all Current Account Bookkeepers informing them of the activities of
forgery syndicates. The Memorandum of the Assistant Vice-President and Chief Accountant of the Philippine National Bank dated
February 17, 1966 reads in part:

SUBJECT: ACTIVITIES OF FORGERY SYNDICATE

 From reliable information we have gathered that personalized checks of current account depositors are now the
target of the forgery syndicate. To protect the interest of the bank, you are hereby enjoined to be more careful in
examining said checks especially those coming from the clearing, mails and window transactions. As a reminder
please be guided with the following:

1. Signatures of drawers should be properly scrutinized and compared with those we have on file.

2. The serial numbers of the checks should be compared with the serial numbers registered with the Cashier's Dept.

3. The texture of the paper used and the printing of the checks should be compared with the sample we have on file
with the Cashier's Dept.

4. Checks bearing several indorsements should be given a special attention.

5. Alteration in amount both in figures and words should be carefully examined even if signed by the drawer.

6. Checks issued in substantial amounts particularly by depositors who do not usually issue checks in big amounts
should be brought to the attention of the drawer by telephone or any fastest means of communication for purposes of
confirmation.

and your attention is also invited to keep abreast of previous circulars and memo instructions issued to bookkeepers.

We cannot fault the respondent drawee Bank for not having detected the fraudulent encashment of the checks because the printing of
the petitioner's personalized checks was not done under the supervision and control of the Bank. There is no evidence on record
indicating that because of this private printing the petitioner furnished the respondent Bank with samples of checks, pens, and inks or
took other precautionary measures with the PNB to safeguard its interests.

Under the circumstances, therefore, the petitioner was in a better position to detect and prevent the fraudulent encashment of its
checks.

WHEREFORE, the petition for review on certiorari is hereby DISMISSED for lack of merit. The decision of the respondent Court of
Appeals dated October 29, 1982 is AFFIRMED. No pronouncement as to costs.

SO ORDERED.

Feria (Chairman), Fernan, Alampay and Cruz, JJ., concur.

Paras * , J., took no part.

G.R. No. 74917 January 20, 1988

BANCO DE ORO SAVINGS AND MORTGAGE BANK, petitioner,

vs.
EQUITABLE BANKING CORPORATION, PHILIPPINE CLEARING HOUSE CORPORATION, AND REGIONAL TRIAL COURT OF
QUEZON CITY, BRANCH XCII (92), respondents.

GANCAYCO, J.:

This is a petition for review on certiorari of a decision of the Regional Trial Court of Quezon City promulgated on March 24, 1986 in Civil
Case No. Q-46517 entitled Banco de Oro Savings and Mortgage Bank versus Equitable Banking Corporation and the Philippine
Clearing House Corporation after a review of the Decision of the Board of Directors of the Philippine Clearing House Corporation
(PCHC) in the case of Equitable Banking Corporation (EBC) vs. Banco de Oro Savings and Mortgage (BCO), ARBICOM Case No.
84033.

The undisputed facts are as follows:

It appears that some time in March, April, May and August 1983, plaintiff through its Visa Card Department, drew six
crossed Manager's check (Exhibits "A" to "F", and herein referred to as Checks) having an aggregate amount of Forty
Five Thousand Nine Hundred and Eighty Two & 23/100 (P45,982.23) Pesos and payable to certain member
 establishments of Visa Card. Subsequently, the Checks were deposited with the defendant to the credit of its
depositor, a certain Aida Trencio.

Following normal procedures, and after stamping at the back of the Checks the usual endorsements. All prior and/or
lack of endorsement guaranteed the defendant sent the checks for clearing through the Philippine Clearing House
Corporation (PCHC). Accordingly, plaintiff paid the Checks; its clearing account was debited for the value of the
Checks and defendant's clearing account was credited for the same amount,

Thereafter, plaintiff discovered that the endorsements appearing at the back of the Checks and purporting to be that
of the payees were forged and/or unauthorized or otherwise belong to persons other than the payees.

Pursuant to the PCHC Clearing Rules and Regulations, plaintiff presented the Checks directly to the defendant for
the purpose of claiming reimbursement from the latter. However, defendant refused to accept such direct
presentation and to reimburse the plaintiff for the value of the Checks; hence, this case.

In its Complaint, plaintiff prays for judgment to require the defendant to pay the plaintiff the sum of P45,982.23 with
interest at the rate of 12% per annum from the date of the complaint plus attorney's fees in the amount of P10,000.00
as well as the cost of the suit.

In accordance with Section 38 of the Clearing House Rules and Regulations, the dispute was presented for
Arbitration; and Atty. Ceasar Querubin was designated as the Arbitrator.

After an exhaustive investigation and hearing the Arbiter rendered a decision in favor of the plaintiff and against the
defendant ordering the PCHC to debit the clearing account of the defendant, and to credit the clearing account of the
plaintiff of the amount of P45,982.23 with interest at the rate of 12% per annum from date of the complaint and
Attorney's fee in the amount of P5,000.00. No pronouncement as to cost was made. 1

In a motion for reconsideration filed by the petitioner, the Board of Directors of the PCHC affirmed the decision of the said Arbiter in this
wise:

In view of all the foregoing, the decision of the Arbiter is confirmed; and the Philippine Clearing House Corporation is
hereby ordered to debit the clearing account of the defendant and credit the clearing account of plaintiff the amount of
Forty Five Thousand Nine Hundred Eighty Two & 23/100 (P45,982.23) Pesos with interest at the rate of 12% per
annum from date of the complaint, and the Attorney's fee in the amount of Five Thousand (P5,000.00) Pesos.

Thus, a petition for review was filed with the Regional Trial Court of Quezon City, Branch XCII, wherein in due course a decision was
rendered affirming in toto the decision of the PCHC.

Hence this petition.

The petition is focused on the following issues:

1. Did the PCHC have any jurisdiction to give due course to and adjudicate Arbicom Case No. 84033?

2. Were the subject checks non-negotiable and if not, does it fall under the ambit of the power of the PCHC?

3. Is the Negotiable Instrument Law, Act No. 2031 applicable in deciding controversies of this nature by the PCHC?

4. What law should govern in resolving controversies of this nature?

5. Was the petitioner bank negligent and thus responsible for any undue payment?

Petitioner maintains that the PCHC is not clothed with jurisdiction because the Clearing House Rules and Regulations of PCHC cover
and apply only to checks that are genuinely negotiable. Emphasis is laid on the primary purpose of the PCHC in the Articles of
Incorporation, which states:

To provide, maintain and render an effective, convenient, efficient, economical and relevant exchange and facilitate
service limited to check processing and sorting by way of assisting member banks, entities in clearing checks and
other clearing items as defined in existing and in future Central Bank of the Philippines circulars, memoranda, circular
letters, rules and regulations and policies in pursuance to the provisions of Section 107 of R.A. 265. ...

and Section 107 of R.A. 265 which provides:

 xxx xxx xxx

The deposit reserves maintained by the banks in the Central Bank, in accordance with the provisions of Section 1000
shall serve as a basis for the clearing of checks, and the settlement of interbank balances ...

Petitioner argues that by law and common sense, the term check should be interpreted as one that fits the articles of incorporation of
the PCHC, the Central Bank and the Clearing House Rules stating that it is a negotiable instrument citing the definition of a "check" as
basically a "bill of exchange" under Section 185 of the NIL and that it should be payable to "order" or to "bearer" under Section 126 of
game law. Petitioner alleges that with the cancellation of the printed words "or bearer from the face of the check, it becomes non-
negotiable so the PCHC has no jurisdiction over the case.

The Regional Trial Court took exception to this stand and conclusion put forth by the herein petitioner as it held:

Petitioner's theory cannot be maintained. As will be noted, the PCHC makes no distinction as to the character or
nature of the checks subject of its jurisdiction. The pertinent provisions quoted in petitioners memorandum simply
refer to check(s). Where the law does not distinguish, we shall not distinguish.

In the case of Reyes vs. Chuanico (CA-G.R. No. 20813 R, Feb. 5, 1962) the Appellate Court categorically stated that
there are four kinds of checks in this jurisdiction; the regular check; the cashier's check; the traveller's check; and the
crossed check. The Court, further elucidated, that while the Negotiable Instruments Law does not contain any
provision on crossed checks, it is coon practice in commercial and banking operations to issue checks of this
character, obviously in accordance with Article 541 of the Code of Commerce. Attention is likewise called to Section
185 of the Negotiable Instruments Law:

Sec. 185. Check defined. — A check is a bill of exchange drawn on a bank payable on demand.
Except as herein otherwise provided, the provisions of this act applicable to a bill of exchange
payable on demand apply to a check

and the provisions of Section 61 (supra) that the drawer may insert in the instrument an express stipulation negating
or limiting his own liability to the holder. Consequently, it appears that the use of the term "check" in the Articles of
Incorporation of PCHC is to be perceived as not limited to negotiable checks only, but to checks as is generally
known in use in commercial or business transactions.

Anent Petitioner's liability on said instruments, this court is in full accord with the ruling of the PCHC Board of
Directors that:

In presenting the Checks for clearing and for payment, the defendant made an express guarantee
on the validity of "all prior endorsements." Thus, stamped at the back of the checks are the
defendant's clear warranty; ALL PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS
GUARANTEED. With. out such warranty, plaintiff would not have paid on the checks.

No amount of legal jargon can reverse the clear meaning of defendant's warranty. As the warranty
has proven to be false and inaccurate, the defendant is liable for any damage arising out of the
falsity of its representation.

The principle of estoppel, effectively prevents the defendant from denying liability for any damage
sustained by the plaintiff which, relying upon an action or declaration of the defendant, paid on the
Checks. The same principle of estoppel effectively prevents the defendant from denying the
existence of the Checks. (Pp. 1011 Decision; pp. 4344, Rollo)

We agree.

As provided in the aforecited articles of incorporation of PCHC its operation extend to "clearing checks and other clearing items." No
doubt transactions on non-negotiable checks are within the ambit of its jurisdiction.

In a previous case, this Court had occasion to rule: "Ubi lex non distinguish nec nos distinguere debemos." 2 It was enunciated in Loc
Cham v. Ocampo, 77 Phil. 636 (1946):

The rule, founded on logic is a corollary of the principle that general words and phrases in a statute should ordinarily
be accorded their natural and general significance. In other words, there should be no distinction in the application of
a statute where none is indicated.
There should be no distinction in the application of a statute where none is indicated for courts are not authorized to distinguish where
the law makes no distinction. They should instead administer the law not as they think it ought to be but as they find it and without
regard to consequences. 3

The term check as used in the said Articles of Incorporation of PCHC can only connote checks in general use in commercial and
business activities. It cannot be conceived to be limited to negotiable checks only.

Checks are used between banks and bankers and their customers, and are designed to facilitate banking operations. It is of the
essence to be payable on demand, because the contract between the banker and the customer is that the money is needed on
demand. 4

The participation of the two banks, petitioner and private respondent, in the clearing operations of PCHC is a manifestation of their
submission to its jurisdiction. Sec. 3 and 36.6 of the PCHC-CHRR clearing rules and regulations provide:

SEC. 3. AGREEMENT TO THESE RULES. — It is the general agreement and understanding that any participant in
the Philippine Clearing House Corporation, MICR clearing operations by the mere fact of their participation, thereby
manifests its agreement to these Rules and Regulations and its subsequent amendments."

Sec 36.6. (ARBITRATION) — The fact that a bank participates in the clearing operations of the PCHC shall be
deemed its written and subscribed consent to the binding effect of this arbitration agreement as if it had done so in
accordance with section 4 of the Republic Act No. 876, otherwise known as the Arbitration Law.

Further Section 2 of the Arbitration Law mandates:

Two or more persons or parties may submit to the arbitration of one or more arbitrators any controversy existing
between them at the time of the submission and which may be the subject of an action, or the parties of any contract
may in such contract agree to settle by arbitration a controversy thereafter arising between them. Such submission or
contract shall be valid and irrevocable, save upon grounds as exist at law for the revocation of any contract.

Such submission or contract may include question arising out of valuations, appraisals or other controversies which
may be collateral, incidental, precedent or subsequent to any issue between the parties. ...

Sec. 21 of the same rules, says:

Items which have been the subject of material alteration or items bearing forged endorsement when such
endorsement is necessary for negotiation shall be returned by direct presentation or demand to the Presenting
Bank and not through the regular clearing house facilities within the period prescribed by law for the filing of a legal
action by the returning bank/branch, institution or entity sending the same. (Emphasis supplied)

Viewing these provisions the conclusion is clear that the PCHC Rules and Regulations should not be interpreted to be applicable only
to checks which are negotiable instruments but also to non-negotiable instruments and that the PCHC has jurisdiction over this case
even as the checks subject of this litigation are admittedly non-negotiable.

Moreover, petitioner is estopped from raising the defense of non-negotiability of the checks in question. It stamped its guarantee on the
back of the checks and subsequently presented these checks for clearing and it was on the basis of these endorsements by the
petitioner that the proceeds were credited in its clearing account.

The petitioner by its own acts and representation can not now deny liability because it assumed the liabilities of an endorser by
stamping its guarantee at the back of the checks.

The petitioner having stamped its guarantee of "all prior endorsements and/or lack of endorsements" (Exh. A-2 to F-2) is now estopped
from claiming that the checks under consideration are not negotiable instruments. The checks were accepted for deposit by the
petitioner stamping thereon its guarantee, in order that it can clear the said checks with the respondent bank. By such deliberate and
positive attitude of the petitioner it has for all legal intents and purposes treated the said cheeks as negotiable instruments and
accordingly assumed the warranty of the endorser when it stamped its guarantee of prior endorsements at the back of the checks. It led
the said respondent to believe that it was acting as endorser of the checks and on the strength of this guarantee said respondent
cleared the checks in question and credited the account of the petitioner. Petitioner is now barred from taking an opposite posture by
claiming that the disputed checks are not negotiable instrument.

This Court enunciated in Philippine National Bank vs. Court of Appeals 5 a point relevant to the issue when it stated the doctrine of
estoppel is based upon the grounds of public policy, fair dealing, good faith and justice and its purpose is to forbid one to speak against
his own act, representations or commitments to the injury of one to whom they were directed and who reasonably relied thereon.
A commercial bank cannot escape the liability of an endorser of a check and which may turn out to be a forged endorsement.
Whenever any bank treats the signature at the back of the checks as endorsements and thus logically guarantees the same as such
there can be no doubt said bank has considered the checks as negotiable.

Apropos the matter of forgery in endorsements, this Court has succinctly emphasized that the collecting bank or last endorser generally
suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the
check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness
of the endorsements. This is laid down in the case of PNB vs. National City Bank. 6 In another case, this court held that if the drawee-
bank discovers that the signature of the payee was forged after it has paid the amount of the check to the holder thereof, it can recover
the amount paid from the collecting bank. 7

A truism stated by this Court is that — "The doctrine of estoppel precludes a party from repudiating an obligation voluntarily assumed
after having accepted benefits therefrom. To countenance such repudiation would be contrary to equity and put premium on fraud or
misrepresentation". 8

We made clear in Our decision in Philippine National Bank vs. The National City Bank of NY & Motor Service Co. that:

Where a check is accepted or certified by the bank on which it is drawn, the bank is estopped to deny the
genuineness of the drawers signature and his capacity to issue the instrument.

If a drawee bank pays a forged check which was previously accepted or certified by the said bank, it can not recover
from a holder who did not participate in the forgery and did not have actual notice thereof.

The payment of a check does not include or imply its acceptance in the sense that this word is used in Section 62 of
the Negotiable Instruments Act. 9

The point that comes uppermost is whether the drawee bank was negligent in failing to discover the alteration or the forgery. Very akin
to the case at bar is one which involves a suit filed by the drawer of checks against the collecting bank and this came about in Farmers
State Bank 10 where it was held:

A cause of action against the (collecting bank) in favor of the appellee (the drawer) accrued as a result of the bank
breaching its implied warranty of the genuineness of the indorsements of the name of the payee by bringing about the
presentation of the checks (to the drawee bank) and collecting the amounts thereof, the right to enforce that cause of
action was not destroyed by the circumstance that another cause of action for the recovery of the amounts paid on
the checks would have accrued in favor of the appellee against another or to others than the bank if when the checks
were paid they have been indorsed by the payee. (United States vs. National Exchange Bank, 214 US, 302, 29 S
CT665, 53 L. Ed 1006, 16 Am. Cas. 11 84; Onondaga County Savings Bank vs. United States (E.C.A.) 64 F 703)

Section 66 of the Negotiable Instruments ordains that:

Every indorser who indorsee without qualification, warrants to all subsequent holders in due course' (a) that the
instrument is genuine and in all respects what it purports to be; (b) that he has good title to it; (c) that all prior parties
have capacity to contract; and (d) that the instrument is at the time of his indorsement valid and subsisting. 11

It has been enunciated in an American case particularly in American Exchange National Bank vs. Yorkville Bank 12that: "the drawer
owes no duty of diligence to the collecting bank (one who had accepted an altered check and had paid over the proceeds to the
depositor) except of seasonably discovering the alteration by a comparison of its returned checks and check stubs or other equivalent
record, and to inform the drawee thereof." In this case it was further held that:

The real and underlying reasons why negligence of the drawer constitutes no defense to the collecting bank are that
there is no privity between the drawer and the collecting bank (Corn Exchange Bank vs. Nassau Bank, 204 N.Y.S.
80) and the drawer owe to that bank no duty of vigilance (New York Produce Exchange Bank vs. Twelfth Ward Bank,
204 N.Y.S. 54) and no act of the collecting bank is induced by any act or representation or admission of the drawer
(Seaboard National Bank vs. Bank of America (supra) and it follows that negligence on the part of the drawer cannot
create any liability from it to the collecting bank, and the drawer thus is neither a necessary nor a proper party to an
action by the drawee bank against such bank. It is quite true that depositors in banks are under the obligation of
examining their passbooks and returned vouchers as a protection against the payment by the depository bank
against forged checks, and negligence in the performance of that obligation may relieve that bank of liability for the
repayment of amounts paid out on forged checks, which but for such negligence it would be bound to repay. A
leading case on that subject is Morgan vs. United States Mortgage and Trust Col. 208 N.Y. 218, 101 N.E. 871 Amn.
Cas. 1914D, 462, L.R.A. 1915D, 74.
Thus We hold that while the drawer generally owes no duty of diligence to the collecting bank, the law imposes a duty of diligence on
the collecting bank to scrutinize checks deposited with it for the purpose of determining their genuineness and regularity. The collecting
bank being primarily engaged in banking holds itself out to the public as the expert and the law holds it to a high standard of conduct.

And although the subject checks are non-negotiable the responsibility of petitioner as indorser thereof remains.

To countenance a repudiation by the petitioner of its obligation would be contrary to equity and would deal a negative blow to the whole
banking system of this country.

The court reproduces with approval the following disquisition of the PCHC in its decision —

II. Payments To Persons Other

Than The Payees Are Not Valid

And Give Rise To An Obligation

To Return Amounts Received

Nothing is more clear than that neither the defendant's depositor nor the defendant is entitled to receive payment
payable for the Checks. As the checks are not payable to defendant's depositor, payments to persons other than
payees named therein, their successor-in-interest or any person authorized to receive payment are not valid. Article
1240, New Civil Code of the Philippines unequivocably provides that:

"Art. 1240. Payment shall be made to the person in whose favor the obligation has been
constituted, or his successo-in-interest, or any person authorized to receive it. "

Considering that neither the defendant's depositor nor the defendant is entitled to receive payments for the Checks,
payments to any of them give rise to an obligation to return the amounts received. Section 2154 of the New Civil
Code mandates that:

Article 2154. If something is received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises.

It is contended that plaintiff should be held responsible for issuing the Checks notwithstanding that the underlying
transactions were fictitious This contention has no basis in our jurisprudence.

The nullity of the underlying transactions does not diminish, but in fact strengthens, plaintiffs right to recover from the
defendant. Such nullity clearly emphasizes the obligation of the payees to return the proceeds of the Checks. If a
failure of consideration is sufficient to warrant a finding that a payee is not entitled to payment or must return payment
already made, with more reason the defendant, who is neither the payee nor the person authorized by the payee,
should be compelled to surrender the proceeds of the Checks received by it. Defendant does not have any title to the
Checks; neither can it claim any derivative title to them.

III. Having Violated Its Warranty

On Validity Of All Endorsements,

Collecting Bank Cannot Deny

liability To Those Who Relied

On Its Warranty

In presenting the Checks for clearing and for payment, the defendant made an express guarantee on the validity of
"all prior endorsements." Thus, stamped at the bank of the checks are the defendant's clear warranty: ALL PRIOR
ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS GUARANTEED. Without such warranty, plaintiff would not
have paid on the checks.

No amount of legal jargon can reverse the clear meaning of defendant's warranty. As the warranty has proven to be
false and inaccurate, the defendant is liable for any damage arising out of the falsity of its representation.
 The principle of estoppel effectively prevents the defendant from denying liability for any damages sustained by the
plaintiff which, relying upon an action or declaration of the defendant, paid on the Checks. The same principle of
estoppel effectively prevents the defendant from denying the existence of the Checks.

Whether the Checks have been issued for valuable considerations or not is of no serious moment to this case. These
Checks have been made the subject of contracts of endorsement wherein the defendant made expressed warranties
to induce payment by the drawer of the Checks; and the defendant cannot now refuse liability for breach of warranty
as a consequence of such forged endorsements. The defendant has falsely warranted in favor of plaintiff the validity
of all endorsements and the genuineness of the cheeks in all respects what they purport to be.

The damage that will result if judgment is not rendered for the plaintiff is irreparable. The collecting bank has privity
with the depositor who is the principal culprit in this case. The defendant knows the depositor; her address and her
history, Depositor is defendant's client. It has taken a risk on its depositor when it allowed her to collect on the
crossed-checks.

Having accepted the crossed checks from persons other than the payees, the defendant is guilty of negligence; the
risk of wrongful payment has to be assumed by the defendant.

On the matter of the award of the interest and attorney's fees, the Board of Directors finds no reason to reverse the
decision of the Arbiter. The defendant's failure to reimburse the plaintiff has constrained the plaintiff to regular the
services of counsel in order to protect its interest notwithstanding that plaintiffs claim is plainly valid just and
demandable. In addition, defendant's clear obligation is to reimburse plaintiff upon direct presentation of the checks;
and it is undenied that up to this time the defendant has failed to make such reimbursement.

WHEREFORE, the petition is DISMISSED for lack of merit without pronouncement as to costs. The decision of the respondent court of
24 March 1986 and its order of 3 June 1986 are hereby declared to be immediately executory.

SO ORDERED.

Teehankee, C.J., Narvasa, Cruz and Paras, JJ., concur.

G.R. No. 92244 February 9, 1993

NATIVIDAD GEMPESAW, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS, respondents.

L.B. Camins for petitioner.

Angara, Abello, Concepcion, Regals & Cruz for private respondent

CAMPOS, JR., J.:

From the adverse decision * of the Court of Appeals (CA-G.R. CV No. 16447), petitioner, Natividad Gempesaw, appealed to this Court
in a Petition for Review, on the issue of the right of the drawer to recover from the drawee bank who pays a check with a forged
indorsement of the payee, debiting the same against the drawer's account.

The records show that on January 23, 1985, petitioner filed a Complaint against the private respondent Philippine Bank of
Communications (respondent drawee Bank) for recovery of the money value of eighty-two (82) checks charged against the petitioner's
account with the respondent drawee Bank on the ground that the payees' indorsements were forgeries. The Regional Trial Court,
Branch CXXVIII of Caloocan City, which tried the case, rendered a decision on November 17, 1987 dismissing the complaint as well as
the respondent drawee Bank's counterclaim. On appeal, the Court of Appeals in a decision rendered on February 22, 1990, affirmed
the decision of the RTC on two grounds, namely (1) that the plaintiff's (petitioner herein) gross negligence in issuing the checks was the
proximate cause of the loss and (2) assuming that the bank was also negligent, the loss must nevertheless be borne by the party
whose negligence was the proximate cause of the loss. On March 5, 1990, the petitioner filed this petition under Rule 45 of the Rules of
Court setting forth the following as the alleged errors of the respondent Court: 1

I
 THE RESPONDENT COURT OF APPEALS ERRED IN RULING THAT THE NEGLIGENCE OF THE DRAWER IS
THE PROXIMATE CAUSE OF THE RESULTING INJURY TO THE DRAWEE BANK, AND THE DRAWER IS
PRECLUDED FROM SETTING UP THE FORGERY OR WANT OF AUTHORITY.

II

THE RESPONDENT COURT OF APPEALS ALSO ERRED IN NOT FINDING AND RULING THAT IT IS THE
GROSS AND INEXCUSABLE NEGLIGENCE AND FRAUDULENT ACTS OF THE OFFICIALS AND EMPLOYEES
OF THE RESPONDENT BANK IN FORGING THE SIGNATURE OF THE PAYEES AND THE WRONG AND/OR
ILLEGAL PAYMENTS MADE TO PERSONS, OTHER THAN TO THE INTENDED PAYEES SPECIFIED IN THE
CHECKS, IS THE DIRECT AND PROXIMATE CAUSE OF THE DAMAGE TO PETITIONER WHOSE SAVING (SIC)
ACCOUNT WAS DEBITED.

III

THE RESPONDENT COURT OF APPEALS ALSO ERRED IN NOT ORDERING THE RESPONDENT BANK TO
RESTORE OR RE-CREDIT THE CHECKING ACCOUNT OF THE PETITIONER IN THE CALOOCAN CITY
BRANCH BY THE VALUE OF THE EIGHTY-TWO (82) CHECKS WHICH IS IN THE AMOUNT OF P1,208,606.89
WITH LEGAL INTEREST.

From the records, the relevant facts are as follows:

Petitioner Natividad O. Gempesaw (petitioner) owns and operates four grocery stores located at Rizal Avenue Extension and at Second
Avenue, Caloocan City. Among these groceries are D.G. Shopper's Mart and D.G. Whole Sale Mart. Petitioner maintains a checking
account numbered 13-00038-1 with the Caloocan City Branch of the respondent drawee Bank. To facilitate payment of debts to her
suppliers, petitioner draws checks against her checking account with the respondent bank as drawee. Her customary practice of issuing
checks in payment of her suppliers was as follows: the checks were prepared and filled up as to all material particulars by her trusted
bookkeeper, Alicia Galang, an employee for more than eight (8) years. After the bookkeeper prepared the checks, the completed
checks were submitted to the petitioner for her signature, together with the corresponding invoice receipts which indicate the correct
obligations due and payable to her suppliers. Petitioner signed each and every check without bothering to verify the accuracy of the
checks against the corresponding invoices because she reposed full and implicit trust and confidence on her bookkeeper. The issuance
and delivery of the checks to the payees named therein were left to the bookkeeper. Petitioner admitted that she did not make any
verification as to whether or not the checks were delivered to their respective payees. Although the respondent drawee Bank notified
her of all checks presented to and paid by the bank, petitioner did not verify he correctness of the returned checks, much less check if
the payees actually received the checks in payment for the supplies she received. In the course of her business operations covering a
period of two years, petitioner issued, following her usual practice stated above, a total of eighty-two (82) checks in favor of several
suppliers. These checks were all presented by the indorsees as holders thereof to, and honored by, the respondent drawee Bank.
Respondent drawee Bank correspondingly debited the amounts thereof against petitioner's checking account numbered 30-00038-1.
Most of the aforementioned checks were for amounts in excess of her actual obligations to the various payees as shown in their
corresponding invoices. To mention a few:

. . . 1) in Check No. 621127, dated June 27, 1984 in the amount of P11,895.23 in favor of Kawsek Inc. (Exh. A-60),
appellant's actual obligation to said payee was only P895.33 (Exh. A-83); (2) in Check No. 652282 issued on
September 18, 1984 in favor of Senson Enterprises in the amount of P11,041.20 (Exh. A-67) appellant's actual
obligation to said payee was only P1,041.20 (Exh. 7); (3) in Check No. 589092 dated April 7, 1984 for the amount of
P11,672.47 in favor of Marchem (Exh. A-61) appellant's obligation was only P1,672.47 (Exh. B); (4) in Check No.
620450 dated May 10, 1984 in favor of Knotberry for P11,677.10 (Exh. A-31) her actual obligation was only P677.10
(Exhs. C and C-1); (5) in Check No. 651862 dated August 9, 1984 in favor of Malinta Exchange Mart for P11,107.16
(Exh. A-62), her obligation was only P1,107.16 (Exh. D-2); (6) in Check No. 651863 dated August 11, 1984 in favor of
Grocer's International Food Corp. in the amount of P11,335.60 (Exh. A-66), her obligation was only P1,335.60 (Exh.
E and E-1); (7) in Check No. 589019 dated March 17, 1984 in favor of Sophy Products in the amount of P11,648.00
(Exh. A-78), her obligation was only P648.00 (Exh. G); (8) in Check No. 589028 dated March 10, 1984 for the amount
of P11,520.00 in favor of the Yakult Philippines (Exh. A-73), the latter's invoice was only P520.00 (Exh. H-2); (9) in
Check No. 62033 dated May 23, 1984 in the amount of P11,504.00 in favor of Monde Denmark Biscuit (Exh. A-34),
her obligation was only P504.00 (Exhs. I-1 and I-2).2

Practically, all the checks issued and honored by the respondent drawee bank were crossed checks. 3 Aside from the daily notice given
to the petitioner by the respondent drawee Bank, the latter also furnished her with a monthly statement of her transactions, attaching
thereto all the cancelled checks she had issued and which were debited against her current account. It was only after the lapse of more
two (2) years that petitioner found out about the fraudulent manipulations of her bookkeeper.

All the eighty-two (82) checks with forged signatures of the payees were brought to Ernest L. Boon, Chief Accountant of respondent
drawee Bank at the Buendia branch, who, without authority therefor, accepted them all for deposit at the Buendia branch to the credit
and/or in the accounts of Alfredo Y. Romero and Benito Lam. Ernest L. Boon was a very close friend of Alfredo Y. Romero. Sixty-three
(63) out of the eighty-two (82) checks were deposited in Savings Account No. 00844-5 of Alfredo Y. Romero at the respondent drawee
Bank's Buendia branch, and four (4) checks in his Savings Account No. 32-81-9 at its Ongpin branch. The rest of the checks were
deposited in Account No. 0443-4, under the name of Benito Lam at the Elcaño branch of the respondent drawee Bank.

About thirty (30) of the payees whose names were specifically written on the checks testified that they did not receive nor even see the
subject checks and that the indorsements appearing at the back of the checks were not theirs.

The team of auditors from the main office of the respondent drawee Bank which conducted periodic inspection of the branches'
operations failed to discover, check or stop the unauthorized acts of Ernest L. Boon. Under the rules of the respondent drawee Bank,
only a Branch Manager and no other official of the respondent drawee bank, may accept a second indorsement on a check for deposit.
In the case at bar, all the deposit slips of the eighty-two (82) checks in question were initialed and/or approved for deposit by Ernest L.
Boon. The Branch Managers of the Ongpin and Elcaño branches accepted the deposits made in the Buendia branch and credited the
accounts of Alfredo Y. Romero and Benito Lam in their respective branches.

On November 7, 1984, petitioner made a written demand on respondent drawee Bank to credit her account with the money value of the
eighty-two (82) checks totalling P1,208.606.89 for having been wrongfully charged against her account. Respondent drawee Bank
refused to grant petitioner's demand. On January 23, 1985, petitioner filed the complaint with the Regional Trial Court.

This is not a suit by the party whose signature was forged on a check drawn against the drawee bank. The payees are not parties to the
case. Rather, it is the drawer, whose signature is genuine, who instituted this action to recover from the drawee bank the money value
of eighty-two (82) checks paid out by the drawee bank to holders of those checks where the indorsements of the payees were forged.
How and by whom the forgeries were committed are not established on the record, but the respective payees admitted that they did not
receive those checks and therefore never indorsed the same. The applicable law is the Negotiable Instruments Law 4 (heretofore
referred to as the NIL). Section 23 of the NIL provides:

When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly
inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof
against any party thereto, can be acquired through or under such signature, unless the party against whom it is
sought to enforce such right is precluded from setting up the forgery or want of authority.

Under the aforecited provision, forgery is a real or absolute defense by the party whose signature is forged. A party whose
signature to an instrument was forged was never a party and never gave his consent to the contract which gave rise to the
instrument. Since his signature does not appear in the instrument, he cannot be held liable thereon by anyone, not even by a
holder in due course. Thus, if a person's signature is forged as a maker of a promissory note, he cannot be made to pay
because he never made the promise to pay. Or where a person's signature as a drawer of a check is forged, the drawee bank
cannot charge the amount thereof against the drawer's account because he never gave the bank the order to pay. And said
section does not refer only to the forged signature of the maker of a promissory note and of the drawer of a check. It covers
also a forged indorsement, i.e., the forged signature of the payee or indorsee of a note or check. Since under said provision a
forged signature is "wholly inoperative", no one can gain title to the instrument through such forged indorsement. Such an
indorsement prevents any subsequent party from acquiring any right as against any party whose name appears prior to the
forgery. Although rights may exist between and among parties subsequent to the forged indorsement, not one of them can
acquire rights against parties prior to the forgery. Such forged indorsement cuts off the rights of all subsequent parties as
against parties prior to the forgery. However, the law makes an exception to these rules where a party is precluded from
setting up forgery as a defense.

As a matter of practical significance, problems arising from forged indorsements of checks may generally be broken into two types of
cases: (1) where forgery was accomplished by a person not associated with the drawer — for example a mail robbery; and (2) where
the indorsement was forged by an agent of the drawer. This difference in situations would determine the effect of the drawer's
negligence with respect to forged indorsements. While there is no duty resting on the depositor to look for forged indorsements on his
cancelled checks in contrast to a duty imposed upon him to look for forgeries of his own name, a depositor is under a duty to set up an
accounting system and a business procedure as are reasonably calculated to prevent or render difficult the forgery of indorsements,
particularly by the depositor's own employees. And if the drawer (depositor) learns that a check drawn by him has been paid under a
forged indorsement, the drawer is under duty promptly to report such fact to the drawee bank. 5For his negligence or failure either to
discover or to report promptly the fact of such forgery to the drawee, the drawer loses his right against the drawee who has debited his
account under a forged indorsement.6 In other words, he is precluded from using forgery as a basis for his claim for re-crediting of his
account.

In the case at bar, petitioner admitted that the checks were filled up and completed by her trusted employee, Alicia Galang, and were
given to her for her signature. Her signing the checks made the negotiable instrument complete. Prior to signing the checks, there was
no valid contract yet.

Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument to the payee for the purpose of
giving effect thereto.7 The first delivery of the instrument, complete in form, to the payee who takes it as a holder, is called issuance of
the instrument.8 Without the initial delivery of the instrument from the drawer of the check to the payee, there can be no valid and
binding contract and no liability on the instrument.
Petitioner completed the checks by signing them as drawer and thereafter authorized her employee Alicia Galang to deliver the eighty-
two (82) checks to their respective payees. Instead of issuing the checks to the payees as named in the checks, Alicia Galang delivered
them to the Chief Accountant of the Buendia branch of the respondent drawee Bank, a certain Ernest L. Boon. It was established that
the signatures of the payees as first indorsers were forged. The record fails to show the identity of the party who made the forged
signatures. The checks were then indorsed for the second time with the names of Alfredo Y. Romero and Benito Lam, and were
deposited in the latter's accounts as earlier noted. The second indorsements were all genuine signatures of the alleged holders. All the
eighty-two (82) checks bearing the forged indorsements of the payees and the genuine second indorsements of Alfredo Y. Romero and
Benito Lam were accepted for deposit at the Buendia branch of respondent drawee Bank to the credit of their respective savings
accounts in the Buendia, Ongpin and Elcaño branches of the same bank. The total amount of P1,208,606.89, represented by eighty-
two (82) checks, were credited and paid out by respondent drawee Bank to Alfredo Y. Romero and Benito Lam, and debited against
petitioner's checking account No. 13-00038-1, Caloocan branch.

As a rule, a drawee bank who has paid a check on which an indorsement has been forged cannot charge the drawer's account for the
amount of said check. An exception to this rule is where the drawer is guilty of such negligence which causes the bank to honor such a
check or checks. If a check is stolen from the payee, it is quite obvious that the drawer cannot possibly discover the forged indorsement
by mere examination of his cancelled check. This accounts for the rule that although a depositor owes a duty to his drawee bank to
examine his cancelled checks for forgery of his own signature, he has no similar duty as to forged indorsements. A different situation
arises where the indorsement was forged by an employee or agent of the drawer, or done with the active participation of the latter. Most
of the cases involving forgery by an agent or employee deal with the payee's indorsement. The drawer and the payee often time shave
business relations of long standing. The continued occurrence of business transactions of the same nature provides the opportunity for
the agent/employee to commit the fraud after having developed familiarity with the signatures of the parties. However, sooner or later,
some leak will show on the drawer's books. It will then be just a question of time until the fraud is discovered. This is specially true when
the agent perpetrates a series of forgeries as in the case at bar.

The negligence of a depositor which will prevent recovery of an unauthorized payment is based on failure of the depositor to act as a
prudent businessman would under the circumstances. In the case at bar, the petitioner relied implicitly upon the honesty and loyalty of
her bookkeeper, and did not even verify the accuracy of amounts of the checks she signed against the invoices attached thereto.
Furthermore, although she regularly received her bank statements, she apparently did not carefully examine the same nor the check
stubs and the returned checks, and did not compare them with the same invoices. Otherwise, she could have easily discovered the
discrepancies between the checks and the documents serving as bases for the checks. With such discovery, the subsequent forgeries
would not have been accomplished. It was not until two years after the bookkeeper commenced her fraudulent scheme that petitioner
discovered that eighty-two (82) checks were wrongfully charged to her account, at which she notified the respondent drawee bank.

It is highly improbable that in a period of two years, not one of Petitioner's suppliers complained of non-payment. Assuming that even
one single complaint had been made, petitioner would have been duty-bound, as far as the respondent drawee Bank was concerned, to
make an adequate investigation on the matter. Had this been done, the discrepancies would have been discovered, sooner or later.
Petitioner's failure to make such adequate inquiry constituted negligence which resulted in the bank's honoring of the subsequent
checks with forged indorsements. On the other hand, since the record mentions nothing about such a complaint, the possibility exists
that the checks in question covered inexistent sales. But even in such a case, considering the length of a period of two (2) years, it is
hard to believe that petitioner did not know or realize that she was paying more than she should for the supplies she was actually
getting. A depositor may not sit idly by, after knowledge has come to her that her funds seem to be disappearing or that there may be a
leak in her business, and refrain from taking the steps that a careful and prudent businessman would take in such circumstances and if
taken, would result in stopping the continuance of the fraudulent scheme. If she fails to take steps, the facts may establish her
negligence, and in that event, she would be estopped from recovering from the bank. 9

One thing is clear from the records — that the petitioner failed to examine her records with reasonable diligence whether before she
signed the checks or after receiving her bank statements. Had the petitioner examined her records more carefully, particularly the
invoice receipts, cancelled checks, check book stubs, and had she compared the sums written as amounts payable in the eighty-two
(82) checks with the pertinent sales invoices, she would have easily discovered that in some checks, the amounts did not tally with
those appearing in the sales invoices. Had she noticed these discrepancies, she should not have signed those checks, and should
have conducted an inquiry as to the reason for the irregular entries. Likewise had petitioner been more vigilant in going over her current
account by taking careful note of the daily reports made by respondent drawee Bank in her issued checks, or at least made random
scrutiny of cancelled checks returned by respondent drawee Bank at the close of each month, she could have easily discovered the
fraud being perpetrated by Alicia Galang, and could have reported the matter to the respondent drawee Bank. The respondent drawee
Bank then could have taken immediate steps to prevent further commission of such fraud. Thus, petitioner's negligence was the
proximate cause of her loss. And since it was her negligence which caused the respondent drawee Bank to honor the forged checks or
prevented it from recovering the amount it had already paid on the checks, petitioner cannot now complain should the bank refuse to
recredit her account with the amount of such checks. 10 Under Section 23 of the NIL, she is now precluded from using the forgery to
prevent the bank's debiting of her account.

The doctrine in the case of Great Eastern Life Insurance Co. vs. Hongkong & Shanghai Bank 11 is not applicable to the case at bar
because in said case, the check was fraudulently taken and the signature of the payee was forged not by an agent or employee of the
drawer. The drawer was not found to be negligent in the handling of its business affairs and the theft of the check by a total stranger
was not attributable to negligence of the drawer; neither was the forging of the payee's indorsement due to the drawer's negligence.
Since the drawer was not negligent, the drawee was duty-bound to restore to the drawer's account the amount theretofore paid under
the check with a forged payee's indorsement because the drawee did not pay as ordered by the drawer.
Petitioner argues that respondent drawee Bank should not have honored the checks because they were crossed checks. Issuing a
crossed check imposes no legal obligation on the drawee not to honor such a check. It is more of a warning to the holder that the check
cannot be presented to the drawee bank for payment in cash. Instead, the check can only be deposited with the payee's bank which in
turn must present it for payment against the drawee bank in the course of normal banking transactions between banks. The crossed
check cannot be presented for payment but it can only be deposited and the drawee bank may only pay to another bank in the payee's
or indorser's account.

Petitioner likewise contends that banking rules prohibit the drawee bank from having checks with more than one indorsement. The
banking rule banning acceptance of checks for deposit or cash payment with more than one indorsement unless cleared by some bank
officials does not invalidate the instrument; neither does it invalidate the negotiation or transfer of the said check. In effect, this rule
destroys the negotiability of bills/checks by limiting their negotiation by indorsement of only the payee. Under the NIL, the only kind of
indorsement which stops the further negotiation of an instrument is a restrictive indorsement which prohibits the further negotiation
thereof.

Sec. 36. When indorsement restrictive. — An indorsement is restrictive which either

(a) Prohibits further negotiation of the instrument; or

xxx xxx xxx

In this kind of restrictive indorsement, the prohibition to transfer or negotiate must be written in express words at the back of the
instrument, so that any subsequent party may be forewarned that ceases to be negotiable. However, the restrictive indorsee acquires
the right to receive payment and bring any action thereon as any indorser, but he can no longer transfer his rights as such indorsee
where the form of the indorsement does not authorize him to do so. 12

Although the holder of a check cannot compel a drawee bank to honor it because there is no privity between them, as far as the
drawer-depositor is concerned, such bank may not legally refuse to honor a negotiable bill of exchange or a check drawn against it with
more than one indorsement if there is nothing irregular with the bill or check and the drawer has sufficient funds. The drawee cannot be
compelled to accept or pay the check by the drawer or any holder because as a drawee, he incurs no liability on the check unless he
accepts it. But the drawee will make itself liable to a suit for damages at the instance of the drawer for wrongful dishonor of the bill or
check.

Thus, it is clear that under the NIL, petitioner is precluded from raising the defense of forgery by reason of her gross negligence. But
under Section 196 of the NIL, any case not provided for in the Act shall be governed by the provisions of existing legislation. Under the
laws of quasi-delict, she cannot point to the negligence of the respondent drawee Bank in the selection and supervision of its
employees as being the cause of the loss because negligence is the proximate cause thereof and under Article 2179 of the Civil Code,
she may not be awarded damages. However, under Article 1170 of the same Code the respondent drawee Bank may be held liable for
damages. The article provides —

Those who in the performance of their obligations are guilty of fraud, negligence or delay, and those who in any
manner contravene the tenor thereof, are liable for damages.

There is no question that there is a contractual relation between petitioner as depositor (obligee) and the respondent drawee bank as
the obligor. In the performance of its obligation, the drawee bank is bound by its internal banking rules and regulations which form part
of any contract it enters into with any of its depositors. When it violated its internal rules that second endorsements are not to be
accepted without the approval of its branch managers and it did accept the same upon the mere approval of Boon, a chief accountant, it
contravened the tenor of its obligation at the very least, if it were not actually guilty of fraud or negligence.

Furthermore, the fact that the respondent drawee Bank did not discover the irregularity with respect to the acceptance of checks with
second indorsement for deposit even without the approval of the branch manager despite periodic inspection conducted by a team of
auditors from the main office constitutes negligence on the part of the bank in carrying out its obligations to its depositors. Article 1173
provides —

The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the
obligation and corresponds with the circumstance of the persons, of the time and of the place. . . .

We hold that banking business is so impressed with public interest where the trust and confidence of the public in general is of
paramount importance such that the appropriate standard of diligence must be a high degree of diligence, if not the utmost diligence.
Surely, respondent drawee Bank cannot claim it exercised such a degree of diligence that is required of it. There is no way We can
allow it now to escape liability for such negligence. Its liability as obligor is not merely vicarious but primary wherein the defense of
exercise of due diligence in the selection and supervision of its employees is of no moment.

Premises considered, respondent drawee Bank is adjudged liable to share the loss with the petitioner on a fifty-fifty ratio in accordance
with Article 172 which provides:
 Responsibility arising from negligence in the performance of every kind of obligation is also demandable, but such
liability may be regulated by the courts according to the circumstances.

With the foregoing provisions of the Civil Code being relied upon, it is being made clear that the decision to hold the drawee bank liable
is based on law and substantial justice and not on mere equity. And although the case was brought before the court not on breach of
contractual obligations, the courts are not precluded from applying to the circumstances of the case the laws pertinent thereto. Thus,
the fact that petitioner's negligence was found to be the proximate cause of her loss does not preclude her from recovering damages.
The reason why the decision dealt on a discussion on proximate cause is due to the error pointed out by petitioner as allegedly
committed by the respondent court. And in breaches of contract under Article 1173, due diligence on the part of the defendant is not a
defense.

PREMISES CONSIDERED, the case is hereby ordered REMANDED to the trial court for the reception of evidence to determine the
exact amount of loss suffered by the petitioner, considering that she partly benefited from the issuance of the questioned checks since
the obligation for which she issued them were apparently extinguished, such that only the excess amount over and above the total of
these actual obligations must be considered as loss of which one half must be paid by respondent drawee bank to herein petitioner.

SO ORDERED.

Narvasa, C.J., Feliciano, Regalado and Nocon, JJ., concur.

G.R. No. 107382/G.R. No. 107612 January 31, 1996

ASSOCIATED BANK, petitioner,

vs.
HON. COURT OF APPEALS, PROVINCE OF TARLAC and PHILIPPINE NATIONAL BANK, respondents.

xxxxxxxxxxxxxxxxxxxxx

G.R. No. 107612 January 31, 1996

PHILIPPINE NATIONAL BANK, petitioner,

vs.
HONORABLE COURT OF APPEALS, PROVINCE OF TARLAC, and ASSOCIATED BANK, respondents.

DECISION

ROMERO, J.:

Where thirty checks bearing forged endorsements are paid, who bears the loss, the drawer, the drawee bank or the collecting bank?

This is the main issue in these consolidated petitions for review assailing the decision of the Court of Appeals in "Province of Tarlac v.
Philippine National Bank v. Associated Bank v. Fausto Pangilinan, et. al." (CA-G.R. No. CV No. 17962). 1

The facts of the case are as follows:

The Province of Tarlac maintains a current account with the Philippine National Bank (PNB) Tarlac Branch where the provincial funds
are deposited. Checks issued by the Province are signed by the Provincial Treasurer and countersigned by the Provincial Auditor or the
Secretary of the Sangguniang Bayan.

A portion of the funds of the province is allocated to the Concepcion Emergency Hospital. 2 The allotment checks for said government
hospital are drawn to the order of "Concepcion Emergency Hospital, Concepcion, Tarlac" or "The Chief, Concepcion Emergency
Hospital, Concepcion, Tarlac." The checks are released by the Office of the Provincial Treasurer and received for the hospital by its
administrative officer and cashier.

In January 1981, the books of account of the Provincial Treasurer were post-audited by the Provincial Auditor. It was then discovered
that the hospital did not receive several allotment checks drawn by the Province.

On February 19, 1981, the Provincial Treasurer requested the manager of the PNB to return all of its cleared checks which were issued
from 1977 to 1980 in order to verify the regularity of their encashment. After the checks were examined, the Provincial Treasurer
learned that 30 checks amounting to P203,300.00 were encashed by one Fausto Pangilinan, with the Associated Bank acting as
collecting bank.
It turned out that Fausto Pangilinan, who was the administrative officer and cashier of payee hospital until his retirement on February
28, 1978, collected the questioned checks from the office of the Provincial Treasurer. He claimed to be assisting or helping the hospital
follow up the release of the checks and had official receipts. 3Pangilinan sought to encash the first check 4 with Associated Bank.
However, the manager of Associated Bank refused and suggested that Pangilinan deposit the check in his personal savings account
with the same bank. Pangilinan was able to withdraw the money when the check was cleared and paid by the drawee bank, PNB.

After forging the signature of Dr. Adena Canlas who was chief of the payee hospital, Pangilinan followed the same procedure for the
second check, in the amount of P5,000.00 and dated April 20, 1978, 5 as well as for twenty-eight other checks of various amounts and
on various dates. The last check negotiated by Pangilinan was for f8,000.00 and dated February 10, 1981. 6 All the checks bore the
stamp of Associated Bank which reads "All prior endorsements guaranteed ASSOCIATED BANK."

Jesus David, the manager of Associated Bank testified that Pangilinan made it appear that the checks were paid to him for certain
projects with the hospital. 7 He did not find as irregular the fact that the checks were not payable to Pangilinan but to the Concepcion
Emergency Hospital. While he admitted that his wife and Pangilinan's wife are first cousins, the manager denied having given
Pangilinan preferential treatment on this account. 8

On February 26, 1981, the Provincial Treasurer wrote the manager of the PNB seeking the restoration of the various amounts debited
from the current account of the Province. 9

In turn, the PNB manager demanded reimbursement from the Associated Bank on May 15, 1981. 10

As both banks resisted payment, the Province of Tarlac brought suit against PNB which, in turn, impleaded Associated Bank as third-
party defendant. The latter then filed a fourth-party complaint against Adena Canlas and Fausto Pangilinan. 11

After trial on the merits, the lower court rendered its decision on March 21, 1988, disposing as follows:

WHEREFORE, in view of the foregoing, judgment is hereby rendered:

1. On the basic complaint, in favor of plaintiff Province of Tarlac and against defendant Philippine National Bank (PNB),
ordering the latter to pay to the former, the sum of Two Hundred Three Thousand Three Hundred (P203,300.00) Pesos with
legal interest thereon from March 20, 1981 until fully paid;

2. On the third-party complaint, in favor of defendant/third-party plaintiff Philippine National Bank (PNB) and against third-party
defendant/fourth-party plaintiff Associated Bank ordering the latter to reimburse to the former the amount of Two Hundred
Three Thousand Three Hundred (P203,300.00) Pesos with legal interests thereon from March 20, 1981 until fully paid;.

3. On the fourth-party complaint, the same is hereby ordered dismissed for lack of cause of action as against fourth-party
defendant Adena Canlas and lack of jurisdiction over the person of fourth-party defendant Fausto Pangilinan as against the
latter.

4. On the counterclaims on the complaint, third-party complaint and fourth-party complaint, the same are hereby ordered
dismissed for lack of merit.

SO ORDERED. 12

13 Respondent
PNB and Associated Bank appealed to the Court of Appeals. court affirmed the trial court's decision in toto on
September 30, 1992.

Hence these consolidated petitions which seek a reversal of respondent appellate court's decision.

PNB assigned two errors. First, the bank contends that respondent court erred in exempting the Province of Tarlac from liability when,
in fact, the latter was negligent because it delivered and released the questioned checks to Fausto Pangilinan who was then already
retired as the hospital's cashier and administrative officer. PNB also maintains its innocence and alleges that as between two innocent
persons, the one whose act was the cause of the loss, in this case the Province of Tarlac, bears the loss.

Next, PNB asserts that it was error for the court to order it to pay the province and then seek reimbursement from Associated Bank.
According to petitioner bank, respondent appellate Court should have directed Associated Bank to pay the adjudged liability directly to
the Province of Tarlac to avoid circuity. 14

Associated Bank, on the other hand, argues that the order of liability should be totally reversed, with the drawee bank (PNB) solely and
ultimately bearing the loss.
Respondent court allegedly erred in applying Section 23 of the Philippine Clearing House Rules instead of Central Bank Circular No.
580, which, being an administrative regulation issued pursuant to law, has the force and effect of law. 15 The PCHC Rules are merely
contractual stipulations among and between member-banks. As such, they cannot prevail over the aforesaid CB Circular.

It likewise contends that PNB, the drawee bank, is estopped from asserting the defense of guarantee of prior indorsements against
Associated Bank, the collecting bank. In stamping the guarantee (for all prior indorsements), it merely followed a mandatory
requirement for clearing and had no choice but to place the stamp of guarantee; otherwise, there would be no clearing. The bank will be
in a "no-win" situation and will always bear the loss as against the drawee bank. 16

Associated Bank also claims that since PNB already cleared and paid the value of the forged checks in question, it is now estopped
from asserting the defense that Associated Bank guaranteed prior indorsements. The drawee bank allegedly has the primary duty to
verify the genuineness of payee's indorsement before paying the check. 17

While both banks are innocent of the forgery, Associated Bank claims that PNB was at fault and should solely bear the loss because it
cleared and paid the forged checks.

xxx xxx xxx

The case at bench concerns checks payable to the order of Concepcion Emergency Hospital or its Chief. They were properly issued
and bear the genuine signatures of the drawer, the Province of Tarlac. The infirmity in the questioned checks lies in the payee's
(Concepcion Emergency Hospital) indorsements which are forgeries. At the time of their indorsement, the checks were order
instruments.

Checks having forged indorsements should be differentiated from forged checks or checks bearing the forged signature of the drawer.

Section 23 of the Negotiable Instruments Law (NIL) provides:

Sec. 23. FORGED SIGNATURE, EFFECT OF. — When a signature is forged or made without authority of the person whose
signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to
enforce payment thereof against any party thereto, can be acquired through or under such signature unless the party against
whom it is sought to enforce such right is precluded from setting up the forgery or want of authority.

A forged signature, whether it be that of the drawer or the payee, is wholly inoperative and no one can gain title to the instrument
through it. A person whose signature to an instrument was forged was never a party and never consented to the contract which
allegedly gave rise to such instrument. 18 Section 23 does not avoid the instrument but only the forged signature. 19 Thus, a forged
indorsement does not operate as the payee's indorsement.

The exception to the general rule in Section 23 is where "a party against whom it is sought to enforce a right is precluded from setting
up the forgery or want of authority." Parties who warrant or admit the genuineness of the signature in question and those who, by their
acts, silence or negligence are estopped from setting up the defense of forgery, are precluded from using this defense. Indorsers,
persons negotiating by delivery and acceptors are warrantors of the genuineness of the signatures on the instrument. 20

In bearer instruments, the signature of the payee or holder is unnecessary to pass title to the instrument. Hence, when the indorsement
is a forgery, only the person whose signature is forged can raise the defense of forgery against a holder in due course. 21

The checks involved in this case are order instruments, hence, the following discussion is made with reference to the effects of a forged
indorsement on an instrument payable to order.

Where the instrument is payable to order at the time of the forgery, such as the checks in this case, the signature of its rightful holder
(here, the payee hospital) is essential to transfer title to the same instrument. When the holder's indorsement is forged, all parties prior
to the forgery may raise the real defense of forgery against all parties subsequent thereto. 22

An indorser of an order instrument warrants "that the instrument is genuine and in all respects what it purports to be; that he has a good
title to it; that all prior parties had capacity to contract; and that the instrument is at the time of his indorsement valid and
subsisting." 23 He cannot interpose the defense that signatures prior to him are forged.

A collecting bank where a check is deposited and which indorses the check upon presentment with the drawee bank, is such an
indorser. So even if the indorsement on the check deposited by the banks's client is forged, the collecting bank is bound by his
warranties as an indorser and cannot set up the defense of forgery as against the drawee bank.

The bank on which a check is drawn, known as the drawee bank, is under strict liability to pay the check to the order of the payee. The
drawer's instructions are reflected on the face and by the terms of the check. Payment under a forged indorsement is not to the
drawer's order. When the drawee bank pays a person other than the payee, it does not comply with the terms of the check and violates
its duty to charge its customer's (the drawer) account only for properly payable items. Since the drawee bank did not pay a holder or
other person entitled to receive payment, it has no right to reimbursement from the drawer. 24 The general rule then is that the drawee
bank may not debit the drawer's account and is not entitled to indemnification from the drawer. 25 The risk of loss must perforce fall on
the drawee bank.

However, if the drawee bank can prove a failure by the customer/drawer to exercise ordinary care that substantially contributed to the
making of the forged signature, the drawer is precluded from asserting the forgery.

If at the same time the drawee bank was also negligent to the point of substantially contributing to the loss, then such loss from the
forgery can be apportioned between the negligent drawer and the negligent bank. 26

In cases involving a forged check, where the drawer's signature is forged, the drawer can recover from the drawee bank. No drawee
bank has a right to pay a forged check. If it does, it shall have to recredit the amount of the check to the account of the drawer. The
liability chain ends with the drawee bank whose responsibility it is to know the drawer's signature since the latter is its customer. 27

In cases involving checks with forged indorsements, such as the present petition, the chain of liability does not end with the drawee
bank. The drawee bank may not debit the account of the drawer but may generally pass liability back through the collection chain to the
party who took from the forger and, of course, to the forger himself, if available. 28 In other words, the drawee bank canseek
reimbursement or a return of the amount it paid from the presentor bank or person. 29 Theoretically, the latter can demand
reimbursement from the person who indorsed the check to it and so on. The loss falls on the party who took the check from the forger,
or on the forger himself.

In this case, the checks were indorsed by the collecting bank (Associated Bank) to the drawee bank (PNB). The former will necessarily
be liable to the latter for the checks bearing forged indorsements. If the forgery is that of the payee's or holder's indorsement, the
collecting bank is held liable, without prejudice to the latter proceeding against the forger.

Since a forged indorsement is inoperative, the collecting bank had no right to be paid by the drawee bank. The former must necessarily
return the money paid by the latter because it was paid wrongfully. 30

More importantly, by reason of the statutory warranty of a general indorser in section 66 of the Negotiable Instruments Law, a collecting
bank which indorses a check bearing a forged indorsement and presents it to the drawee bank guarantees all prior indorsements,
including the forged indorsement. It warrants that the instrument is genuine, and that it is valid and subsisting at the time of his
indorsement. Because the indorsement is a forgery, the collecting bank commits a breach of this warranty and will be accountable to
the drawee bank. This liability scheme operates without regard to fault on the part of the collecting/presenting bank. Even if the latter
bank was not negligent, it would still be liable to the drawee bank because of its indorsement.

The Court has consistently ruled that "the collecting bank or last endorser generally suffers the loss because it has the duty to ascertain
the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion
that the party making the presentment has done its duty to ascertain the genuineness of the endorsements." 31

The drawee bank is not similarly situated as the collecting bank because the former makes no warranty as to the genuineness. of any
indorsement. 32 The drawee bank's duty is but to verify the genuineness of the drawer's signature and not of the indorsement because
the drawer is its client.

Moreover, the collecting bank is made liable because it is privy to the depositor who negotiated the check. The bank knows him, his
address and history because he is a client. It has taken a risk on his deposit. The bank is also in a better position to detect forgery,
fraud or irregularity in the indorsement.

Hence, the drawee bank can recover the amount paid on the check bearing a forged indorsement from the collecting bank. However, a
drawee bank has the duty to promptly inform the presentor of the forgery upon discovery. If the drawee bank delays in informing the
presentor of the forgery, thereby depriving said presentor of the right to recover from the forger, the former is deemed negligent and can
no longer recover from the presentor. 33

Applying these rules to the case at bench, PNB, the drawee bank, cannot debit the current account of the Province of Tarlac because it
paid checks which bore forged indorsements. However, if the Province of Tarlac as drawer was negligent to the point of substantially
contributing to the loss, then the drawee bank PNB can charge its account. If both drawee bank-PNB and drawer-Province of Tarlac
were negligent, the loss should be properly apportioned between them.

The loss incurred by drawee bank-PNB can be passed on to the collecting bank-Associated Bank which presented and indorsed the
checks to it. Associated Bank can, in turn, hold the forger, Fausto Pangilinan, liable.

If PNB negligently delayed in informing Associated Bank of the forgery, thus depriving the latter of the opportunity to recover from the
forger, it forfeits its right to reimbursement and will be made to bear the loss.
After careful examination of the records, the Court finds that the Province of Tarlac was equally negligent and should, therefore, share
the burden of loss from the checks bearing a forged indorsement.

The Province of Tarlac permitted Fausto Pangilinan to collect the checks when the latter, having already retired from government
service, was no longer connected with the hospital. With the exception of the first check (dated January 17, 1978), all the checks were
issued and released after Pangilinan's retirement on February 28, 1978. After nearly three years, the Treasurer's office was still
releasing the checks to the retired cashier. In addition, some of the aid allotment checks were released to Pangilinan and the others to
Elizabeth Juco, the new cashier. The fact that there were now two persons collecting the checks for the hospital is an unmistakable sign
of an irregularity which should have alerted employees in the Treasurer's office of the fraud being committed. There is also evidence
indicating that the provincial employees were aware of Pangilinan's retirement and consequent dissociation from the hospital. Jose
Meru, the Provincial Treasurer, testified:.

ATTY. MORGA:

Q Now, is it true that for a given month there were two releases of checks, one went to Mr. Pangilinan and one went to Miss
Juco?

JOSE MERU:

A Yes, sir.

Q Will you please tell us how at the time (sic) when the authorized representative of Concepcion Emergency Hospital is and
was supposed to be Miss Juco?

A Well, as far as my investigation show (sic) the assistant cashier told me that Pangilinan represented himself as also
authorized to help in the release of these checks and we were apparently misled because they accepted the representation of
Pangilinan that he was helping them in the release of the checks and besides according to them they were, Pangilinan, like the
rest, was able to present an official receipt to acknowledge these receipts and according to them since this is a government
check and believed that it will eventually go to the hospital following the standard procedure of negotiating government checks,
they released the checks to Pangilinan aside from Miss Juco.34

The failure of the Province of Tarlac to exercise due care contributed to a significant degree to the loss tantamount to negligence.
Hence, the Province of Tarlac should be liable for part of the total amount paid on the questioned checks.

The drawee bank PNB also breached its duty to pay only according to the terms of the check. Hence, it cannot escape liability and
should also bear part of the loss.

As earlier stated, PNB can recover from the collecting bank.

In the case of Associated Bank v. CA, 35 six crossed checks with forged indorsements were deposited in the forger's account with the
collecting bank and were later paid by four different drawee banks. The Court found the collecting bank (Associated) to be negligent
and held:

The Bank should have first verified his right to endorse the crossed checks, of which he was not the payee, and to deposit the
proceeds of the checks to his own account. The Bank was by reason of the nature of the checks put upon notice that they
were issued for deposit only to the private respondent's account. . . .

The situation in the case at bench is analogous to the above case, for it was not the payee who deposited the checks with the collecting
bank. Here, the checks were all payable to Concepcion Emergency Hospital but it was Fausto Pangilinan who deposited the checks in
his personal savings account.

Although Associated Bank claims that the guarantee stamped on the checks (All prior and/or lack of endorsements guaranteed) is
merely a requirement forced upon it by clearing house rules, it cannot but remain liable. The stamp guaranteeing prior indorsements is
not an empty rubric which a bank must fulfill for the sake of convenience. A bank is not required to accept all the checks negotiated to it.
It is within the bank's discretion to receive a check for no banking institution would consciously or deliberately accept a check bearing a
forged indorsement. When a check is deposited with the collecting bank, it takes a risk on its depositor. It is only logical that this bank
be held accountable for checks deposited by its customers.

A delay in informing the collecting bank (Associated Bank) of the forgery, which deprives it of the opportunity to go after the forger,
signifies negligence on the part of the drawee bank (PNB) and will preclude it from claiming reimbursement.

It is here that Associated Bank's assignment of error concerning C.B. Circular No. 580 and Section 23 of the Philippine Clearing House
Corporation Rules comes to fore. Under Section 4(c) of CB Circular No. 580, items bearing a forged endorsement shall be returned
within twenty-Sour (24) hours after discovery of the forgery but in no event beyond the period fixed or provided by law for filing of a legal
action by the returning bank. Section 23 of the PCHC Rules deleted the requirement that items bearing a forged endorsement should
be returned within twenty-four hours. Associated Bank now argues that the aforementioned Central Bank Circular is applicable. Since
PNB did not return the questioned checks within twenty-four hours, but several days later, Associated Bank alleges that PNB should be
considered negligent and not entitled to reimbursement of the amount it paid on the checks.

The Court deems it unnecessary to discuss Associated Bank's assertions that CB Circular No. 580 is an administrative regulation
issued pursuant to law and as such, must prevail over the PCHC rule. The Central Bank circular was in force for all banks until June
1980 when the Philippine Clearing House Corporation (PCHC) was set up and commenced operations. Banks in Metro Manila were
covered by the PCHC while banks located elsewhere still had to go through Central Bank Clearing. In any event, the twenty-four-hour
return rule was adopted by the PCHC until it was changed in 1982. The contending banks herein, which are both branches in Tarlac
province, are therefore not covered by PCHC Rules but by CB Circular No. 580. Clearly then, the CB circular was applicable when the
forgery of the checks was discovered in 1981.

The rule mandates that the checks be returned within twenty-four hours after discovery of the forgery but in no event beyond the period
fixed by law for filing a legal action. The rationale of the rule is to give the collecting bank (which indorsed the check) adequate
opportunity to proceed against the forger. If prompt notice is not given, the collecting bank maybe prejudiced and lose the opportunity to
go after its depositor.

The Court finds that even if PNB did not return the questioned checks to Associated Bank within twenty-four hours, as mandated by the
rule, PNB did not commit negligent delay. Under the circumstances, PNB gave prompt notice to Associated Bank and the latter bank
was not prejudiced in going after Fausto Pangilinan. After the Province of Tarlac informed PNB of the forgeries, PNB necessarily had to
inspect the checks and conduct its own investigation. Thereafter, it requested the Provincial Treasurer's office on March 31, 1981 to
return the checks for verification. The Province of Tarlac returned the checks only on April 22, 1981. Two days later, Associated Bank
received the checks from PNB. 36

Associated Bank was also furnished a copy of the Province's letter of demand to PNB dated March 20, 1981, thus giving it notice of the
forgeries. At this time, however, Pangilinan's account with Associated had only P24.63 in it. 37Had Associated Bank decided to debit
Pangilinan's account, it could not have recovered the amounts paid on the questioned checks. In addition, while Associated Bank filed a
fourth-party complaint against Fausto Pangilinan, it did not present evidence against Pangilinan and even presented him as its rebuttal
witness. 38 Hence, Associated Bank was not prejudiced by PNB's failure to comply with the twenty-four-hour return rule.

Next, Associated Bank contends that PNB is estopped from requiring reimbursement because the latter paid and cleared the checks.
The Court finds this contention unmeritorious. Even if PNB cleared and paid the checks, it can still recover from Associated Bank. This
is true even if the payee's Chief Officer who was supposed to have indorsed the checks is also a customer of the drawee
bank. 39 PNB's duty was to verify the genuineness of the drawer's signature and not the genuineness of payee's indorsement.
Associated Bank, as the collecting bank, is the entity with the duty to verify the genuineness of the payee's indorsement.

PNB also avers that respondent court erred in adjudging circuitous liability by directing PNB to return to the Province of Tarlac the
amount of the checks and then directing Associated Bank to reimburse PNB. The Court finds nothing wrong with the mode of the
award. The drawer, Province of Tarlac, is a clientor customer of the PNB, not of Associated Bank. There is no privity of contract
between the drawer and the collecting bank.

The trial court made PNB and Associated Bank liable with legal interest from March 20, 1981, the date of extrajudicial demand made by
the Province of Tarlac on PNB. The payments to be made in this case stem from the deposits of the Province of Tarlac in its current
account with the PNB. Bank deposits are considered under the law as loans. 40 Central Bank Circular No. 416 prescribes a twelve
percent (12%) interest per annum for loans, forebearance of money, goods or credits in the absence of express stipulation. Normally,
current accounts are likewise interest-bearing, by express contract, thus excluding them from the coverage of CB Circular No. 416. In
this case, however, the actual interest rate, if any, for the current account opened by the Province of Tarlac with PNB was not given in
evidence. Hence, the Court deems it wise to affirm the trial court's use of the legal interest rate, or six percent (6%) per annum. The
interest rate shall be computed from the date of default, or the date of judicial or extrajudicial demand. 41 The trial court did not err in
granting legal interest from March 20, 1981, the date of extrajudicial demand.

The Court finds as reasonable, the proportionate sharing of fifty percent - fifty percent (50%-50%). Due to the negligence of the
Province of Tarlac in releasing the checks to an unauthorized person (Fausto Pangilinan), in allowing the retired hospital cashier to
receive the checks for the payee hospital for a period close to three years and in not properly ascertaining why the retired hospital
cashier was collecting checks for the payee hospital in addition to the hospital's real cashier, respondent Province contributed to the
loss amounting to P203,300.00 and shall be liable to the PNB for fifty (50%) percent thereof. In effect, the Province of Tarlac can only
recover fifty percent (50%) of P203,300.00 from PNB.

The collecting bank, Associated Bank, shall be liable to PNB for fifty (50%) percent of P203,300.00. It is liable on its warranties as
indorser of the checks which were deposited by Fausto Pangilinan, having guaranteed the genuineness of all prior indorsements,
including that of the chief of the payee hospital, Dr. Adena Canlas. Associated Bank was also remiss in its duty to ascertain the
genuineness of the payee's indorsement.
IN VIEW OF THE FOREGOING, the petition for review filed by the Philippine National Bank (G.R. No. 107612) is hereby PARTIALLY
GRANTED. The petition for review filed by the Associated Bank (G.R. No. 107382) is hereby DENIED. The decision of the trial court is
MODIFIED. The Philippine National Bank shall pay fifty percent (50%) of P203,300.00 to the Province of Tarlac, with legal interest from
March 20, 1981 until the payment thereof. Associated Bank shall pay fifty percent (50%) of P203,300.00 to the Philippine National
Bank, likewise, with legal interest from March 20, 1981 until payment is made.

SO ORDERED.

Regalado, Puno and Mendoza, JJ., concur.

G.R. No. L-55079 November 19, 1982

METROPOLITAN BANK and TRUST COMPANY, petitioner,
vs.
THE FIRST NATIONAL CITY BANK and THE COURT OF APPEALS, respondents.

Resales, Perez & Assoc. for petitioner.

Siguion, Reyna, Montecillo and Ongsiako for respondent PNCB.

MELENCIO-HERRERA, J.:

This is a Petition for Review on certiorari of the Decision of the Court of Appeals in CA-G.R. No. 57129-R entitled, First National City
Bank vs. Metropolitan Bank and Trust Company, which affirmed in toto the Decision of the Court of First Instance of Manila, Branch
VIII, in Civil Case No. 61488, ordering petitioner herein, Metropolitan Bank, to reimburse respondent First National City Bank the
amount of P50,000.00, with legal rate of interest from June 25, 1965, and to pay attorney's fees of P5,000.00 and costs.

The controversy arose from the following facts:

On August 25, 1964, Check No. 7166 dated July 8, 1964 for P50,000.00, payable to CASH, drawn by Joaquin Cunanan & Company on
First National City Bank (FNCB for brevity) was deposited with Metropolitan Bank and Trust Company (Metro Bank for short) by a
certain Salvador Sales. Earlier that day, Sales had opened a current account with Metro Bank depositing P500.00 in cash. 1 Metro Bank
immediately sent the cash check to the Clearing House of the Central Bank with the following words stamped at the back of the check:

Metropolitan Bank and Trust Company Cleared (illegible) office All prior endorsements and/or Lack of endorsements
Guaranteed. 2

The check was cleared the same day. Private respondent paid petitioner through clearing the amount of P50,000.00, and Sales was
credited with the said amount in his deposit with Metro Bank.

On August 26, 1964, Sales made his first withdrawal of P480.00 from his current account. On August 28, 1964, he withdrew
P32,100.00. Then on August 31, 1964, he withdrew the balance of P17,920.00 and closed his account with Metro Bank.

On September 3, 1964, or nine (9) days later, FNCB returned cancelled Check No. 7166 to drawer Joaquin Cunanan & Company,
together with the monthly statement of the company's account with FNCB. That same day, the company notified FNCB that the check
had been altered. The actual amount of P50.00 was raised to P50,000.00, and over the name of the payee, Manila Polo Club, was
superimposed the word CASH.

FNCB notified Metro Bank of the alteration by telephone, confirming it the same day with a letter, which was received by Metro Bank on
the following day, September 4, 1964.

On September 10, 1964, FNCB wrote Metro Bank asking for reimbursement of the amount of P50,000.00. The latter did not oblige, so
that FNCB reiterated its request on September 29, 1964. Metro Bank was adamant in its refusal.

On June 29, 1965, FNCB filed in the Court of First Instance of Manila, Branch VIII, Civil Case No. 61488 against Metro Bank for
recovery of the amount of P50,000.00.

On January 27, 1975, the Trial Court rendered its Decision ordering Metro Bank to reimburse FNCB the amount of P50,000.00 with
legal rate of interest from June 25, 1965 until fully paid, to pay attorney's fees of P5,000.00, and costs.
Petitioner appealed said Decision to the Court of Appeals (CA-G.R. No. 57129-R). On August 29, 1980, respondent Appellate
Court 3 affirmed in toto the judgment of the Trial Court.

Petitioner came to this instance on appeal by Certiorari, alleging:

The Respondent Court of Appeals erred in completely ignoring and disregarding the 24-hour clearing house rule
provided for under Central Bank Circular No. 9, as amended, although:

1. The 24-hour regulation of the Central Bank in clearing house operations is valid and banks are subject to and are
bound by the same; and

2. The 24-hour clearing house rule applies to the present case of the petitioner and the private respondent.

II

The Respondent Court of Appeals erred in relying heavily on its decision in Gallaites, et al. vs. RCA, etc.,
promulgated on October 23, 1950 for the same is not controlling and is not applicable to the present case.

III

The Respondent Court of Appeals erred in disregarding and in not applying the doctrines in the cases of Republic of
the Philippines vs. Equitable Banking Corporation (10 SCRA 8) and Hongkong & Shanghai Banking Corporation vs.
People's Bank and Trust Company (35 SCRA 140) for the same are controlling and apply four square to the present
case.

IV

The Respondent Court of Appeals erred in not finding the private respondent guilty of operative negligence which is
the proximate cause of the loss.

The material facts of the case are not disputed. The issue for resolution is, which bank is liable for the payment of the altered check, the
drawee bank (FNCB) or the collecting bank (Metro Bank)?

The transaction occurred during the effectivity of Central Bank Circular No. 9 (February 17, 1949) as amended by Circular No. 138
(January 30, 1962), and Circular No. 169 (March 30, 1964). Section 4 of said Circular, as amended, states:

Section 4. Clearing Procedures.

(c) Procedures for Returned Items

Items which should be returned for any reason whatsoever shall be delivered to and received through the clearing
Office in the special red envelopes and shall be considered and accounted as debits to the banks to which the items
are returned. Nothing in this section shall prevent the returned items from being settled by reinbursement to the bank,
institution or entity returning the items. All items cleared on a particular clearing shall be returned not later than 3:30
P.M. on the following business day.

xxx xxx xxx

The facts of this case fall within said Circular. Under the procedure prescribed, the drawee bank receiving the check for clearing from
the Central Bank Clearing House must return the check to the collecting bank within the 24-hour period if the check is defective for any
reason.

Metro Bank invokes this 24-hour regulation of the Central Bank as its defense. FNCB on the other hand, relies on the guarantee of all
previous indorsements made by Metro Bank which guarantee had allegedly misled FNCB into believing that the check in question was
regular and the payee's indorsements genuine; as well as on "the general rule of law founded on equity and justice that a drawee or
payor bank which in good faith pays the amount of materially altered check to the holder thereof is entitled to recover its payment from
the said holder, even if he be an innocent holder. 4
The validity of the 24-hour clearing house regulation has been upheld by this Court in Republic vs. Equitable Banking Corporation, 10
SCRA 8 (1964). As held therein, since both parties are part of our banking system, and both are subject to the regulations of the
Central Bank, they are bound by the 24-hour clearing house rule of the Central Bank.

In this case, the check was not returned to Metro Bank in accordance with the 24-hour clearing house period, but was cleared by
FNCB. Failure of FNCB, therefore, to call the attention of Metro Bank to the alteration of the check in question until after the lapse of
nine days, negates whatever right it might have had against Metro Bank in the light of the said Central Bank Circular. Its remedy lies not
against Metro Bank, but against the party responsible for the changing the name of the payee 5 and the amount on the face of the
check.

FNCB contends that the stamp reading,

Metropolitan Bank and Trust Company Cleared (illegible) office All prior endorsements and/or Lack of endorsements
Guaranteed. 6

made by Metro Bank is an unqualified representation that the endorsement on the check was that of the true payee, and that the
amount thereon was the correct amount. In that connection, this Court in the Hongkong & Shanghai Bank case, supra, ruled:

.. But Plaintiff Bank insists that Defendant Bank is liable on its indorsement during clearing house operations. The
indorsement, itself, is very clear when it begins with words 'For clearance, clearing office **** In other words, such an
indorsement must be read together with the 24-hour regulation on clearing House Operations of the Central Bank.
Once that 24- hour period is over, the liability on such an indorsement has ceased. This being so, Plaintiff Bank has
not made out a case for relief. 7

Consistent with this ruling, Metro Bank can not be held liable for the payment of the altered check.

Moreover, FNCB did not deny the allegation of Metro Bank that before it allowed the withdrawal of the balance of P17,920.00 by
Salvador Sales, Metro Bank withheld payment and first verified, through its Assistant Cashier Federico Uy, the regularity and
genuineness of the check deposit from Marcelo Mirasol, Department Officer of FNCB, because its (Metro Bank) attention was called by
the fast movement of the account. Only upon being assured that the same is not unusual' did Metro Bank allow the withdrawal of the
balance.

Reliance by respondent Court of Appeals, on its own ruling in Gallaites vs. RCA, CA-G.R. No. 3805, October 23, 1950, by stating:

... The laxity of appellant in its dealing with customers, particularly in cases where the Identity of the person is new to
them (as in the case at bar) and in the obvious carelessness of the appellant in handling checks which can easily be
forged or altered boil down to one conclusion-negligence in the first order. This negligence enabled a swindler to
succeed in fraudulently encashing the chock in question thereby defrauding drawee bank (appellee) in the amount
thereof.

is misplaced not only because the factual milieu is not four square with this case but more so because it cannot prevail over the
doctrine laid down by this Court in the Hongkong & Shanghai Bank case which is more in point and, hence, controlling:

WHEREFORE, the challenged Decision of respondent Court of Appeals of August 29, 1980 is hereby set aside, and Civil Case No.
61488 is hereby dismissed.

Costs against private respondent The First National City Bank.

SO ORDERED.

Plana, Vasquez, Relova and Gutierrez, Jr., JJ., concur.

Teehankee ** (Chairman), J., took no part.

[G.R. No. 42725. April 22, 1991.]

REPUBLIC BANK, Petitioner, v. COURT OF APPEALS and FIRST NATIONAL CITY BANK, Respondents.

Lourdes C. Dorado for Petitioner.

Siguion Reyna, Montecillo & Ongsiako for private respondent Citibank.

 SYLLABUS

1. COMMERCIAL LAW; BANKING LAWS; 24-HOUR CLEARING HOUSE RULE APPLIES TO COMMERCIAL BANKS; FAILURE OF
DRAWEE BANK TO COMPLY WITH RULE ABSOLVES COLLECTING BANKS. — The 24-hour clearing house rule is a valid rule
applicable to commercial banks (Republic v. Equitable Banking Corporation, 10 SCRA 8 [1964]; Metropolitan Bank & Trust Co. v. First
National City Bank, 118 SCRA 537). It is true that when an endorsement is forged, the collecting bank or last endorser, as a general
rule, bears the loss (Banco de Oro Savings & Mortgage Bank v. Equitable Banking Corp., 157 SCRA 188). But the unqualified
endorsement of the collecting bank on the check should be read together with the 24-hour regulation on clearing house operation
(Metropolitan Bank & Trust Co. v. First National City Bank, supra). Thus, when the drawee bank fails to return a forged or altered check
to the collecting bank within the 24-hour clearing period, the collecting bank is absolved from liability. The following decisions of this
Court are also relevant and persuasive.

2. ID.; ID.; ID.; ID.; REMEDY OF DRAWEE BANK IS AGAINST PARTY RESPONSIBLE FOR FORGERY OR ALTERATION. — Every
bank that issues checks for the use of its customers should know whether or not the drawer’s signature thereon is genuine, whether
there are sufficient funds in the drawer’s account to cover checks issued, and it should be able to detect alterations, erasures,
superimpositions or intercalations thereon, for these instruments are prepared, printed and issued by itself, it has control of the drawer’s
account, and it is supposed to be familiar with the drawer’s signature. It should possess appropriate detecting devices for uncovering
forgeries and/or alterations on these instruments. Unless an alteration is attributable to the fault or negligence of the drawer himself,
such as when he leaves spaces on the check which would allow the fraudulent insertion of additional numerals in the amount appearing
thereon, the remedy of the drawee bank that negligently clears a forge and/or altered check for payment is against the party
responsible for the forgery or alteration (Hongkong & Shanghai Banking Corp. v. People’s Bank & Trust Co., 35 SCRA 140), otherwise,
it bears the loss. It may not charge the amount so paid to the account of the drawer, if the latter was free from blame, nor recover it from
the collecting bank if the latter made payment after proper clearance from the drawee.

DECISION

GRIÑO-AQUINO, J.:

On January 25, 1966, San Miguel Corporation (SMC for short), drew a dividend Check No. 108854 for P240, Philippine currency, on its
account in the respondent First National City Bank ("FNCB" for brevity) in favor of J. Roberto C. Delgado, a stockholder. After the check
had been delivered to Delgado, the amount on its face was fraudulently and without authority of the drawer, SMC, altered by increasing
it from P240 to P9,240. The check was indorsed and deposited on March 14, 1966 by Delgado in his account with the petitioner
Republic Bank (hereafter "Republic").

Republic accepted the check for deposit without ascertaining its genuineness and regularity. Later, Republic endorsed the check to
FNCB by stamping on the back of the check "all prior and/or lack of indorsement guaranteed" and presented it to FNCB for payment
through the Central Bank Clearing House. Believing the check was genuine, and relying on the guaranty and endorsement of Republic
appearing on the back of the check, FNCB paid P9,240 to Republic through the Central Bank Clearing House on March 15, 1966.

On April 19, 1966, SMC notified FNCB of the material alteration in the amount of the check in question. FNCB lost no time in recrediting
P9,240 to SMC. On May 19, 1966, FNCB informed Republic in writing of the alteration and the forgery of the endorsement of J. Roberto
C. Delgado. By then, Delgado had already withdrawn his account from Republic.

On August 15, 1966, FNCB demanded that Republic refund the P9,240 on the basis of the latter’s endorsement and guaranty. Republic
refused, claiming there was delay in giving it notice of the alteration; that it was not guilty of negligence; that it was the drawer’s (SMC’s)
fault in drawing the check in such a way as to permit the insertion of numerals increasing the amount; that FNCB, as drawee, was
absolved of any liability to the drawer (SMC), thus, FNCB had no right of recourse against Republic.

On April 8, 1968, the trial court rendered judgment ordering Republic to pay P9,240 to FNCB with 6% interest per annum from February
27, 1967 until fully paid, plus P2,000 for attorney’s fees and costs of the suit. The Court of Appeals affirmed that decision, but modified
the award of attorney’s fees by reducing it to P1,000 without pronouncement as to costs (CA-G.R. No. 41691-R, December 22,
1975).chanrobles virtual lawlibrary

In this petition for review, the lone issue is whether Republic, as the collecting bank, is protected, by the 24-hour clearing house rule,
found in CB Circular No. 9, as amended, from liability to refund the amount paid by FNCB, as drawee of the SMC dividend check.

The petition for review is meritorious and must be granted.

The 24-hour clearing house rule embodied in Section 4(c) of Central Bank Circular No. 9, as amended, provides:jgc:chanrobles.com.ph

"Items which should be returned for any reason whatsoever shall be returned directly to the bank, institution or entity from which the
item was received. For this purpose, the Receipt for Returned Checks (Cash Form No. 9) should be used. The original and duplicate
copies of said Receipt shall be given to the Bank, institution or entity which returned the items and the triplicate copy should be retained
by the bank, institution or entity whose demand is being returned. At the following clearing, the original of the Receipt for Returned
Checks shall be presented through the Clearing Office as a demand against the bank, institution or entity whose item has been
returned. Nothing in this section shall prevent the returned items from being settled by direct reimbursement to the bank, institution or
entity returning the items. All items cleared at 11:00 o’clock A.M. shall be returned not later than 2:00 o’clock P.M. on the same day and
all items cleared at 3:00 o’clock P.M. shall be returned not later than 8:30 A.M. of the following business day except for items cleared on
Saturday which may be returned not later than 8:30 A.M. of the following day."cralaw virtua1aw library

The 24-hour clearing house rule is a valid rule applicable to commercial banks (Republic v. Equitable Banking Corporation, 10 SCRA 8
[1964]; Metropolitan Bank & Trust Co. v. First National City Bank, 118 SCRA 537).

It is true that when an endorsement is forged, the collecting bank or last endorser, as a general rule, bears the loss (Banco de Oro
Savings & Mortgage Bank v. Equitable Banking Corp., 167 SCRA 188). But the unqualified endorsement of the collecting bank on the
check should be read together with the 24-hour regulation on clearing house operation (Metropolitan Bank & Trust Co. v. First National
City Bank, supra). Thus, when the drawee bank fails to return a forged or altered check to the collecting bank within the 24-hour
clearing period, the collecting bank is absolved from liability. The following decisions of this Court are also relevant and
persuasive:chanrob1es virtual 1aw library

In Hongkong & Shanghai Banking Corp. v. People’s Bank & Trust Co. (35 SCRA 140), a check for P14,608.05 was drawn by the
Philippine Long Distance Telephone Company on the Hongkong & Shanghai Banking Corporation payable to the same bank. It was
mailed to the payee but fell into the hands of a certain Florentino Changco who erased the name of the payee, typed his own name,
and thereafter deposited the altered check in his account in the People’s Bank & Trust Co. which presented it to the drawee bank with
the following indorsement:chanrobles law library

"For clearance, clearing office. All prior endorsements and or lack of endorsements guaranteed. People’s Bank and Trust
Company."cralaw virtua1aw library

The check was cleared by the drawee bank (Hongkong & Shanghai Bank), whereupon the People’s Bank credited Changco with the
amount of the check. Changco thereafter withdrew the contents of his bank account. A month later, when the check was returned to
PLDT, the alteration was discovered. The Hongkong & Shanghai Bank sued to recover from the People’s Bank the sum of P14,608.05.
The complaint was dismissed. Affirming the decision of the trial court, this Court held:jgc:chanrobles.com.ph

"The entire case of plaintiff is based on the indorsement that has been heretofore copied — namely, a guarantee of all prior
indorsement, made by People’s Bank and since such an indorsement carries with it a concomitant guarantee of genuineness, the
People’s Bank is liable to the Hongkong Shanghai Bank for alteration made in the name of payee. On the other hand, the People’s
Bank relies on the ‘24-hour’ regulation of the Central Bank that requires after a clearing, that all cleared items must be returned not later
than 3:00 P.M. of the following business day. And since the Hongkong Shanghai Bank only advised the People’s Bank as to the
alteration on April 12, 1965 or 27 days after clearing, the People’s Bank claims that it is now too late to do so. This regulation of the
Central Bank as to 24 hours is challenged by Plaintiff Bank as being merely part of an ingenious device to facilitate banking
transactions. Be that what it may — as both Plaintiff as well as Defendant Banks are part of our banking system and both are subject to
regulations of the Central Bank — they are both bound by such regulations. . . . But Plaintiff Bank insists that Defendant Bank is liable
on its indorsement during clearing house operations. The indorsement, itself, is very clear when it begins with the words `For clearance,
clearing office . . .’ In other words, such an indorsement must be read together with the 24-hour regulation on clearing House
Operations of the Central Bank. Once that 24-hour period is over, the liability on such an indorsement has ceased. This being so,
Plaintiff Bank has not made out a case for relief."cralaw virtua1aw library

"x x x

"Moreover, in one of the very cases relied upon by plaintiff, as appellant, mention is made of a principle on which defendant Bank could
have acted without incurring the liability now sought to be imposed by plaintiff. Thus: ‘It is a settled rule that a person who presents for
payment checks such as are here involved guarantees the genuineness of the check, and the drawee bank need concern itself with
nothing but the genuineness of the signature, and the state of the account with it of the drawee.’ (Interstate Trust Co. v. United States
National Bank, 185 Pac. 260 [1919]). If at all, then, whatever remedy the plaintiff has would lie not against defendant Bank but as
against the party responsible for changing the name of the payee. Its failure to call the attention of defendant Bank as to such alteration
until after the lapse of 27 days would, in the light of the above Central Bank circular, negate whatever right it might have had against
defendant Bank. . . ." (35 SCRA 140, 142-143; 145-146.)

In Metropolitan Bank & Trust Co. v. First National City Bank, Et. Al. (118 SCRA 537, 542) a check for P50, drawn by Joaquin Cunanan
and Company on its account at FNCB and payable to Manila Polo Club, was altered by changing the amount to P50,000 and the payee
was changed to "Cash." It was deposited by a certain Salvador Sales in his current account in the Metropolitan Bank which sent it to the
clearing house. The check was cleared the same day by FNCB which paid the amount of P50,000 to Metro Bank. Sales immediately
withdrew the whole amount and closed his account. Nine (9) days later, the alteration was discovered and FNCB sought to recover
from Metro Bank what it had paid. The trial court and the Court of Appeals rendered judgment for FNCB but this Court reversed it. We
ruled:jgc:chanrobles.com.ph

"The validity of the 24-hour clearing house regulation has been upheld by this Court in Republic v. Equitable Banking Corporation, 10
SCRA 8 (1964). As held therein, since both parties are part of our banking system, and both are subject to the regulations of the
Central Bank, they are bound by the 24-hour clearing house rule of the Central Bank.chanrobles.com.ph : virtual law library

"In this case, the check was not returned to Metro Bank in accordance with the 24-hour clearing house period, but was cleared by
FNCB. Failure of FNCB, therefore, to call the attention of Metro Bank to the alteration of the check in question until after the lapse of
nine days, negates whatever right it might have had against Metro Bank in the light of the said Central Bank Circular. Its remedy lies not
against Metro Bank, but against the party responsible for changing the name of the payee (Hongkong & Shanghai Banking Corp. v.
People’s Bank & Trust Co., 35 SCRA 140) and the amount on the face of the check." (p. 542.)

Every bank that issues checks for the use of its customers should know whether or not the drawer’s signature thereon is genuine,
whether there are sufficient funds in the drawers account to cover checks issued, and it should be able to detect alterations, erasures,
superimpositions or intercalations thereon, for these instruments are prepared, printed and issued by itself, it has control of the drawer’s
account, and it is supposed to be familiar with the drawer’s signature. It should possess appropriate detecting devices for uncovering
forgeries and/or alterations on these instruments. Unless an alteration is attributable to the fault or negligence of the drawer himself,
such as when he leaves spaces on the check which would allow the fraudulent insertion of additional numerals in the amount appearing
thereon, the remedy of the drawee bank that negligently clears a forged and/or altered check for payment is against the party
responsible for the forgery or alteration (Hongkong & Shanghai Banking Corp. v. People’s Bank & Trust Co., 35 SCRA 140), otherwise,
it bears the loss. It may not charge the amount so paid to the account of the drawer, if the latter was free from blame, nor recover it from
the collecting bank if the latter made payment after proper clearance from the drawee. As this Court pointed out in Philippine National
Bank v. Quimpo, Et Al., 158 SCRA 582, 584:jgc:chanrobles.com.ph

"There is nothing inequitable in such a rule for if in the regular course of business the check comes to the drawee bank which, having
the opportunity to ascertain its character, pronounces it to be valid and pays it, it is not only a question of payment under mistake, but
payment in neglect of duty which the commercial law places upon it, and the result of its negligence must rest upon it."cralaw virtua1aw
library

The Court of Appeals erred in laying upon Republic, instead of on FNCB the drawee bank, the burden of loss for the payment of the
altered SMC check, the fraudulent character of which FNCB failed to detect and warn Republic about, within the 24-hour clearing house
rule. The Court of Appeals departed from the ruling of this Court in an earlier PNB case, that:jgc:chanrobles.com.ph

"Where a loss, which must be borne by one of two parties alike innocent of forgery, can be traced to the neglect or fault of either, it is
reasonable that it would be borne by him, even if innocent of any intentional fraud, through whose means it has succeeded. (Phil.
National Bank v. National City Bank of New York, 63 Phil. 711, 733.)"

WHEREFORE, the petition for review is granted. The decision of the Court of Appeals is hereby reversed and set aside, and another is
entered absolving the petitioner Republic Bank from liability to refund to the First National City Bank the sum of P9,240, which the latter
paid on the check in question. No costs.

SO ORDERED.

Narvasa, Gancayco and Medialdea, JJ., concur.

Cruz, J., took no part.

G.R. No. 121413 January 29, 2001

PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR BANK OF ASIA AND AMERICA),petitioner,
vs.
COURT OF APPEALS and FORD PHILIPPINES, INC. and CITIBANK, N.A., respondents.

G.R. No. 121479 January 29, 2001

FORD PHILIPPINES, INC., petitioner-plaintiff,

vs.
COURT OF APPEALS and CITIBANK, N.A. and PHILIPPINE COMMERCIAL INTERNATIONAL BANK, respondents.

G.R. No. 128604 January 29, 2001

FORD PHILIPPINES, INC., petitioner,

vs.
CITIBANK, N.A., PHILIPPINE COMMERCIAL INTERNATIONAL BANK and COURT OF APPEALS, respondents.

QUISUMBING, J.:

These consolidated petitions involve several fraudulently negotiated checks.

The original actions a quo were instituted by Ford Philippines to recover from the drawee bank, CITIBANK, N.A. (Citibank) and
collecting bank, Philippine Commercial International Bank (PCIBank) [formerly Insular Bank of Asia and America], the value of several
checks payable to the Commissioner of Internal Revenue, which were embezzled allegedly by an organized syndicate.1âwphi1.nêt

G.R. Nos. 121413 and 121479 are twin petitions for review of the March 27, 1995 Decision 1 of the Court of Appeals in CA-G.R. CV No.
25017, entitled "Ford Philippines, Inc. vs. Citibank, N.A. and Insular Bank of Asia and America (now Philipppine Commercial
International Bank), and the August 8, 1995 Resolution,2 ordering the collecting bank, Philippine Commercial International Bank, to pay
the amount of Citibank Check No. SN-04867.

In G.R. No. 128604, petitioner Ford Philippines assails the October 15, 1996 Decision3 of the Court of Appeals and its March 5, 1997
Resolution4 in CA-G.R. No. 28430 entitled "Ford Philippines, Inc. vs. Citibank, N.A. and Philippine Commercial International Bank,"
affirming in toto the judgment of the trial court holding the defendant drawee bank, Citibank, N.A., solely liable to pay the amount of
P12,163,298.10 as damages for the misapplied proceeds of the plaintiff's Citibanl Check Numbers SN-10597 and 16508.

I. G.R. Nos. 121413 and 121479

The stipulated facts submitted by the parties as accepted by the Court of Appeals are as follows:

"On October 19, 1977, the plaintiff Ford drew and issued its Citibank Check No. SN-04867 in the amount of P4,746,114.41, in
favor of the Commissioner of Internal Revenue as payment of plaintiff;s percentage or manufacturer's sales taxes for the third
quarter of 1977.

The aforesaid check was deposited with the degendant IBAA (now PCIBank) and was subsequently cleared at the Central
Bank. Upon presentment with the defendant Citibank, the proceeds of the check was paid to IBAA as collecting or depository
bank.

The proceeds of the same Citibank check of the plaintiff was never paid to or received by the payee thereof, the Commissioner
of Internal Revenue.

As a consequence, upon demand of the Bureau and/or Commissioner of Internal Revenue, the plaintiff was compelled to
make a second payment to the Bureau of Internal Revenue of its percentage/manufacturers' sales taxes for the third quarter of
1977 and that said second payment of plaintiff in the amount of P4,746,114.41 was duly received by the Bureau of Internal
Revenue.

It is further admitted by defendant Citibank that during the time of the transactions in question, plaintiff had been maintaining a
checking account with defendant Citibank; that Citibank Check No. SN-04867 which was drawn and issued by the plaintiff in
favor of the Commissioner of Internal Revenue was a crossed check in that, on its face were two parallel lines and written in
between said lines was the phrase "Payee's Account Only"; and that defendant Citibank paid the full face value of the check in
the amount of P4,746,114.41 to the defendant IBAA.

It has been duly established that for the payment of plaintiff's percentage tax for the last quarter of 1977, the Bureau of Internal
Revenue issued Revenue Tax Receipt No. 18747002, dated October 20, 1977, designating therein in Muntinlupa, Metro
Manila, as the authorized agent bank of Metrobanl, Alabang branch to receive the tax payment of the plaintiff.

On December 19, 1977, plaintiff's Citibank Check No. SN-04867, together with the Revenue Tax Receipt No. 18747002, was
deposited with defendant IBAA, through its Ermita Branch. The latter accepted the check and sent it to the Central Clearing
House for clearing on the samd day, with the indorsement at the back "all prior indorsements and/or lack of indorsements
guaranteed." Thereafter, defendant IBAA presented the check for payment to defendant Citibank on same date, December 19,
1977, and the latter paid the face value of the check in the amount of P4,746,114.41. Consequently, the amount of
P4,746,114.41 was debited in plaintiff's account with the defendant Citibank and the check was returned to the plaintiff.

Upon verification, plaintiff discovered that its Citibank Check No. SN-04867 in the amount of P4,746,114.41 was not paid to
the Commissioner of Internal Revenue. Hence, in separate letters dated October 26, 1979, addressed to the defendants, the
plaintiff notified the latter that in case it will be re-assessed by the BIR for the payment of the taxes covered by the said
checks, then plaintiff shall hold the defendants liable for reimbursement of the face value of the same. Both defendants denied
liability and refused to pay.

In a letter dated February 28, 1980 by the Acting Commissioner of Internal Revenue addressed to the plaintiff - supposed to
be Exhibit "D", the latter was officially informed, among others, that its check in the amount of P4, 746,114.41 was not paid to
the government or its authorized agent and instead encashed by unauthorized persons, hence, plaintiff has to pay the said
amount within fifteen days from receipt of the letter. Upon advice of the plaintiff's lawyers, plaintiff on March 11, 1982, paid to
the Bureau of Internal Revenue, the amount of P4,746,114.41, representing payment of plaintiff's percentage tax for the third
quarter of 1977.
 As a consequence of defendant's refusal to reimburse plaintiff of the payment it had made for the second time to the BIR of its
percentage taxes, plaintiff filed on January 20, 1983 its original complaint before this Court.

On December 24, 1985, defendant IBAA was merged with the Philippine Commercial International Bank (PCI Bank) with the
latter as the surviving entity.

Defendant Citibank maintains that; the payment it made of plaintiff's Citibank Check No. SN-04867 in the amount of
P4,746,114.41 "was in due course"; it merely relied on the clearing stamp of the depository/collecting bank, the defendant
IBAA that "all prior indorsements and/or lack of indorsements guaranteed"; and the proximate cause of plaintiff's injury is the
gross negligence of defendant IBAA in indorsing the plaintiff's Citibank check in question.

It is admitted that on December 19, 1977 when the proceeds of plaintiff's Citibank Check No. SN-048867 was paid to
defendant IBAA as collecting bank, plaintiff was maintaining a checking account with defendant Citibank." 5

Although it was not among the stipulated facts, an investigation by the National Bureau of Investigation (NBI) revealed that Citibank
Check No. SN-04867 was recalled by Godofredo Rivera, the General Ledger Accountant of Ford. He purportedly needed to hold back
the check because there was an error in the computation of the tax due to the Bureau of Internal Revenue (BIR). With Rivera's
instruction, PCIBank replaced the check with two of its own Manager's Checks (MCs). Alleged members of a syndicate later deposited
the two MCs with the Pacific Banking Corporation.

Ford, with leave of court, filed a third-party complaint before the trial court impleading Pacific Banking Corporation (PBC) and
Godofredo Rivera, as third party defendants. But the court dismissed the complaint against PBC for lack of cause of action. The course
likewise dismissed the third-party complaint against Godofredo Rivera because he could not be served with summons as the NBI
declared him as a "fugitive from justice".

On June 15, 1989, the trial court rendered its decision, as follows:

"Premises considered, judgment is hereby rendered as follows:

"1. Ordering the defendants Citibank and IBAA (now PCI Bank), jointly and severally, to pay the plaintiff the amount of
P4,746,114.41 representing the face value of plaintiff's Citibank Check No. SN-04867, with interest thereon at the
legal rate starting January 20, 1983, the date when the original complaint was filed until the amount is fully paid, plus
costs;

"2. On defendant Citibank's cross-claim: ordering the cross-defendant IBAA (now PCI Bank) to reimburse defendant
Citibank for whatever amount the latter has paid or may pay to the plaintiff in accordance with next preceding
paragraph;

"3. The counterclaims asserted by the defendants against the plaintiff, as well as that asserted by the cross-
defendant against the cross-claimant are dismissed, for lack of merits; and

"4. With costs against the defendants.

SO ORDERED."6

Not satisfied with the said decision, both defendants, Citibank and PCIBank, elevated their respective petitions for review on certiorari
to the Courts of Appeals. On March 27, 1995, the appellate court issued its judgment as follows:

"WHEREFORE, in view of the foregoing, the court AFFIRMS the appealed decision with modifications.

The court hereby renderes judgment:

1. Dismissing the complaint in Civil Case No. 49287 insofar as defendant Citibank N.A. is concerned;

2. Ordering the defendant IBAA now PCI Bank to pay the plaintiff the amount of P4,746,114.41 representing the face
value of plaintiff's Citibank Check No. SN-04867, with interest thereon at the legal rate starting January 20, 1983, the
date when the original complaint was filed until the amount is fully paid;

3. Dismissing the counterclaims asserted by the defendants against the plaintiff as well as that asserted by the cross-
defendant against the cross-claimant, for lack of merits.

Costs against the defendant IBAA (now PCI Bank).

 IT IS SO ORDERED."7

PCI Bank moved to reconsider the above-quoted decision of the Court of Appeals, while Ford filed a "Motion for Partial
Reconsideration." Both motions were denied for lack of merit.

Separately, PCIBank and Ford filed before this Court, petitions for review by certiorari under Rule 45.

In G.R. No. 121413, PCIBank seeks the reversal of the decision and resolution of the Twelfth Division of the Court of Appeals
contending that it merely acted on the instruction of Ford and such casue of action had already prescribed.

PCIBank sets forth the following issues for consideration:

I. Did the respondent court err when, after finding that the petitioner acted on the check drawn by respondent Ford on the said
respondent's instructions, it nevertheless found the petitioner liable to the said respondent for the full amount of the said
check.

II. Did the respondent court err when it did not find prescription in favor of the petitioner. 8

In a counter move, Ford filed its petition docketed as G.R. No. 121479, questioning the same decision and resolution of the Court of
Appeals, and praying for the reinstatement in toto of the decision of the trial court which found both PCIBank and Citibank jointly and
severally liable for the loss.

In G.R. No. 121479, appellant Ford presents the following propositions for consideration:

I. Respondent Citibank is liable to petitioner Ford considering that:

1. As drawee bank, respondent Citibank owes to petitioner Ford, as the drawer of the subject check and a depositor
of respondent Citibank, an absolute and contractual duty to pay the proceeds of the subject check only to the payee
thereof, the Commissioner of Internal Revenue.

2. Respondent Citibank failed to observe its duty as banker with respect to the subject check, which was crossed and
payable to "Payee's Account Only."

3. Respondent Citibank raises an issue for the first time on appeal; thus the same should not be considered by the
Honorable Court.

4. As correctly held by the trial court, there is no evidence of gross negligence on the part of petitioner Ford.9

II. PCI Bank is liable to petitioner Ford considering that:

1. There were no instructions from petitioner Ford to deliver the proceeds of the subject check to a person other than
the payee named therein, the Commissioner of the Bureau of Internal Revenue; thus, PCIBank's only obligation is to
deliver the proceeds to the Commissioner of the Bureau of Internal Revenue. 10

2. PCIBank which affixed its indorsement on the subject check ("All prior indorsement and/or lack of indorsement
guaranteed"), is liable as collecting bank.11

3. PCIBank is barred from raising issues of fact in the instant proceedings. 12

4. Petitioner Ford's cause of action had not prescribed.13

II. G.R. No. 128604

The same sysndicate apparently embezzled the proceeds of checks intended, this time, to settle Ford's percentage taxes appertaining
to the second quarter of 1978 and the first quarter of 1979.

The facts as narrated by the Court of Appeals are as follows:

Ford drew Citibank Check No. SN-10597 on July 19, 1978 in the amount of P5,851,706.37 representing the percentage tax due for the
second quarter of 1978 payable to the Commissioner of Internal Revenue. A BIR Revenue Tax Receipt No. 28645385 was issued for
the said purpose.
On April 20, 1979, Ford drew another Citibank Check No. SN-16508 in the amount of P6,311,591.73, representing the payment of
percentage tax for the first quarter of 1979 and payable to the Commissioner of Internal Revenue. Again a BIR Revenue Tax Receipt
No. A-1697160 was issued for the said purpose.

Both checks were "crossed checks" and contain two diagonal lines on its upper corner between, which were written the words "payable
to the payee's account only."

The checks never reached the payee, CIR. Thus, in a letter dated February 28, 1980, the BIR, Region 4-B, demanded for the said tax
payments the corresponding periods above-mentioned.

As far as the BIR is concernced, the said two BIR Revenue Tax Receipts were considered "fake and spurious". This anomaly was
confirmed by the NBI upon the initiative of the BIR. The findings forced Ford to pay the BIR a new, while an action was filed against
Citibank and PCIBank for the recovery of the amount of Citibank Check Numbers SN-10597 and 16508.

The Regional Trial Court of Makati, Branch 57, which tried the case, made its findings on the modus operandi of the syndicate, as
follows:

"A certain Mr. Godofredo Rivera was employed by the plaintiff FORD as its General Ledger Accountant. As such, he prepared
the plaintiff's check marked Ex. 'A' [Citibank Check No. Sn-10597] for payment to the BIR. Instead, however, fo delivering the
same of the payee, he passed on the check to a co-conspirator named Remberto Castro who was a pro-manager of the San
Andres Branch of PCIB.* In connivance with one Winston Dulay, Castro himself subsequently opened a Checking Account in
the name of a fictitious person denominated as 'Reynaldo reyes' in the Meralco Branch of PCIBank where Dulay works as
Assistant Manager.

After an initial deposit of P100.00 to validate the account, Castro deposited a worthless Bank of America Check in exactly the
same amount as the first FORD check (Exh. "A", P5,851,706.37) while this worthless check was coursed through PCIB's main
office enroute to the Central Bank for clearing, replaced this worthless check with FORD's Exhibit 'A' and accordingly tampered
the accompanying documents to cover the replacement. As a result, Exhibit 'A' was cleared by defendant CITIBANK, and the
fictitious deposit account of 'Reynaldo Reyes' was credited at the PCIB Meralco Branch with the total amount of the FORD
check Exhibit 'A'. The same method was again utilized by the syndicate in profiting from Exh. 'B' [Citibank Check No. SN-
16508] which was subsequently pilfered by Alexis Marindo, Rivera's Assistant at FORD.

From this 'Reynaldo Reyes' account, Castro drew various checks distributing the sahres of the other participating conspirators
namely (1) CRISANTO BERNABE, the mastermind who formulated the method for the embezzlement; (2) RODOLFO R. DE
LEON a customs broker who negotiated the initial contact between Bernabe, FORD's Godofredo Rivera and PCIB's Remberto
Castro; (3) JUAN VASTILLO who assisted de Leon in the initial arrangements; (4) GODOFREDO RIVERA, FORD's
accountant who passed on the first check (Exhibit "A") to Castro; (5) REMERTO CASTRO, PCIB's pro-manager at San Andres
who performed the switching of checks in the clearing process and opened the fictitious Reynaldo Reyes account at the PCIB
Meralco Branch; (6) WINSTON DULAY, PCIB's Assistant Manager at its Meralco Branch, who assisted Castro in switching the
checks in the clearing process and facilitated the opening of the fictitious Reynaldo Reyes' bank account; (7) ALEXIS
MARINDO, Rivera's Assistant at FORD, who gave the second check (Exh. "B") to Castro; (8) ELEUTERIO JIMENEZ, BIR
Collection Agent who provided the fake and spurious revenue tax receipts to make it appear that the BIR had received FORD's
tax payments.

Several other persons and entities were utilized by the syndicate as conduits in the disbursements of the proceeds of the two
checks, but like the aforementioned participants in the conspiracy, have not been impleaded in the present case. The manner
by which the said funds were distributed among them are traceable from the record of checks drawn against the original
"Reynaldo Reyes" account and indubitably identify the parties who illegally benefited therefrom and readily indicate in what
amounts they did so."14

On December 9, 1988, Regional Trial Court of Makati, Branch 57, held drawee-bank, Citibank, liable for the value of the two checks
while adsolving PCIBank from any liability, disposing as follows:

"WHEREFORE, judgment is hereby rendered sentencing defendant CITIBANK to reimburse plaintiff FORD the total amount of
P12,163,298.10 prayed for in its complaint, with 6% interest thereon from date of first written demand until full payment, plus
P300,000.00 attorney's fees and expenses litigation, and to pay the defendant, PCIB (on its counterclaim to crossclaim) the
sum of P300,000.00 as attorney's fees and costs of litigation, and pay the costs.

SO ORDERED."15

Both Ford and Citibank appealed to the Court of Appeals which affirmed, in toto, the decision of the trial court. Hence, this petition.
Petitioner Ford prays that judgment be rendered setting aside the portion of the Court of Appeals decision and its resolution dated
March 5, 1997, with respect to the dismissal of the complaint against PCIBank and holding Citibank solely responsible for the proceeds
of Citibank Check Numbers SN-10597 and 16508 for P5,851,706.73 and P6,311,591.73 respectively.

Ford avers that the Court of Appeals erred in dismissing the complaint against defendant PCIBank considering that:

I. Defendant PCIBank was clearly negligent when it failed to exercise the diligence required to be exercised by it as a banking
insitution.

II. Defendant PCIBank clearly failed to observe the diligence required in the selection and supervision of its officers and
employees.

III. Defendant PCIBank was, due to its negligence, clearly liable for the loss or damage resulting to the plaintiff Ford as a
consequence of the substitution of the check consistent with Section 5 of Central Bank Circular No. 580 series of 1977.

IV. Assuming arguedo that defedant PCIBank did not accept, endorse or negotiate in due course the subject checks, it is
liable, under Article 2154 of the Civil Code, to return the money which it admits having received, and which was credited to it
its Central bank account.16

The main issue presented for our consideration by these petitions could be simplified as follows: Has petitioner Ford the right to recover
from the collecting bank (PCIBank) and the drawee bank (Citibank) the value of the checks intended as payment to the Commissioner
of Internal Revenue? Or has Ford's cause of action already prescribed?

Note that in these cases, the checks were drawn against the drawee bank, but the title of the person negotiating the same was
allegedly defective because the instrument was obtained by fraud and unlawful means, and the proceeds of the checks were not
remitted to the payee. It was established that instead of paying the checks to the CIR, for the settlement of the approprite quarterly
percentage taxes of Ford, the checks were diverted and encashed for the eventual distribution among the mmbers of the syndicate. As
to the unlawful negotiation of the check the applicable law is Section 55 of the Negotiable Instruments Law (NIL), which provides:

"When title defective -- The title of a person who negotiates an instrument is defective within the meaning of this Act when he
obtained the instrument, or any signature thereto, by fraud, duress, or fore and fear, or other unlawful means, or for an illegal
consideration, or when he negotiates it in breach of faith or under such circumstances as amount to a fraud."

Pursuant to this provision, it is vital to show that the negotiation is made by the perpetator in breach of faith amounting to fraud. The
person negotiating the checks must have gone beyond the authority given by his principal. If the principal could prove that there was no
negligence in the performance of his duties, he may set up the personal defense to escape liability and recover from other parties who.
Though their own negligence, alowed the commission of the crime.

In this case, we note that the direct perpetrators of the offense, namely the embezzlers belonging to a syndicate, are now fugitives from
justice. They have, even if temporarily, escaped liability for the embezzlement of millions of pesos. We are thus left only with the task of
determining who of the present parties before us must bear the burden of loss of these millions. It all boils down to thequestion of
liability based on the degree of negligence among the parties concerned.

Foremost, we must resolve whether the injured party, Ford, is guilty of the "imputed contributory negligence" that would defeat its claim
for reimbursement, bearing ing mind that its employees, Godofredo Rivera and Alexis Marindo, were among the members of the
syndicate.

Citibank points out that Ford allowed its very own employee, Godofredo Rivera, to negotiate the checks to his co-conspirators, instead
of delivering them to the designated authorized collecting bank (Metrobank-Alabang) of the payee, CIR. Citibank bewails the fact that
Ford was remiss in the supervision and control of its own employees, inasmuch as it only discovered the syndicate's activities through
the information given by the payee of the checks after an unreasonable period of time.

PCIBank also blames Ford of negligence when it allegedly authorized Godofredo Rivera to divert the proceeds of Citibank Check No.
SN-04867, instead of using it to pay the BIR. As to the subsequent run-around of unds of Citibank Check Nos. SN-10597 and 16508,
PCIBank claims that the proximate cause of the damge to Ford lies in its own officers and employees who carried out the fradulent
schemes and the transactions. These circumstances were not checked by other officers of the company including its comptroller or
internal auditor. PCIBank contends that the inaction of Ford despite the enormity of the amount involved was a sheer negligence and
stated that, as between two innocent persons, one of whom must suffer the consequences of a breach of trust, the one who made it
possible, by his act of negligence, must bear the loss.

For its part, Ford denies any negligence in the performance of its duties. It avers that there was no evidence presented before the trial
court showing lack of diligence on the part of Ford. And, citing the case of Gempesaw vs. Court of Appeals,17 Ford argues that even if
there was a finding therein that the drawer was negligent, the drawee bank was still ordered to pay damages.
Furthermore, Ford contends the Godofredo rivera was not authorized to make any representation in its behalf, specifically, to divert the
proceeds of the checks. It adds that Citibank raised the issue of imputed negligence against Ford for the first time on appeal. Thus, it
should not be considered by this Court.

On this point, jurisprudence regarding the imputed negligence of employer in a master-servant relationship is instructive. Since a
master may be held for his servant's wrongful act, the law imputes to the master the act of the servant, and if that act is negligent or
wrongful and proximately results in injury to a third person, the negligence or wrongful conduct is the negligence or wrongful conduct of
the master, for which he is liable.18 The general rule is that if the master is injured by the negligence of a third person and by the
concuring contributory negligence of his own servant or agent, the latter's negligence is imputed to his superior and will defeat the
superior's action against the third person, asuming, of course that the contributory negligence was the proximate cause of the injury of
which complaint is made.19

Accordingly, we need to determine whether or not the action of Godofredo Rivera, Ford's General Ledger Accountant, and/or Alexis
Marindo, his assistant, was the proximate cause of the loss or damage. AS defined, proximate cause is that which, in the natural and
continuous sequence, unbroken by any efficient, intervening cause produces the injury and without the result would not have
occurred.20

It appears that although the employees of Ford initiated the transactions attributable to an organized syndicate, in our view, their actions
were not the proximate cause of encashing the checks payable to the CIR. The degree of Ford's negligence, if any, could not be
characterized as the proximate cause of the injury to the parties.

The Board of Directors of Ford, we note, did not confirm the request of Godofredo Rivera to recall Citibank Check No. SN-04867.
Rivera's instruction to replace the said check with PCIBank's Manager's Check was not in theordinary course of business which could
have prompted PCIBank to validate the same.

As to the preparation of Citibank Checks Nos. SN-10597 and 16508, it was established that these checks were made payable to the
CIR. Both were crossed checks. These checks were apparently turned around by Ford's emploees, who were acting on their own
personal capacity.

Given these circumstances, the mere fact that the forgery was committed by a drawer-payor's confidential employee or agent, who by
virtue of his position had unusual facilities for perpertrating the fraud and imposing the forged paper upon the bank, does notentitle the
bank toshift the loss to the drawer-payor, in the absence of some circumstance raising estoppel against the drawer. 21 This rule likewise
applies to the checks fraudulently negotiated or diverted by the confidential employees who hold them in their possession.

With respect to the negligence of PCIBank in the payment of the three checks involved, separately, the trial courts found variations
between the negotiation of Citibank Check No. SN-04867 and the misapplication of total proceeds of Checks SN-10597 and 16508.
Therefore, we have to scrutinize, separately, PCIBank's share of negligence when the syndicate achieved its ultimate agenda of
stealing the proceeds of these checks.

G.R. Nos. 121413 and 121479

Citibank Check No. SN-04867 was deposited at PCIBank through its Ermita Branch. It was coursed through the ordinary banking
transaction, sent to Central Clearing with the indorsement at the back "all prior indorsements and/or lack of indorsements guaranteed,"
and was presented to Citibank for payment. Thereafter PCIBank, instead of remitting the proceeds to the CIR, prepared two of its
Manager's checks and enabled the syndicate to encash the same.

On record, PCIBank failed to verify the authority of Mr. Rivera to negotiate the checks. The neglect of PCIBank employees to verify
whether his letter requesting for the replacement of the Citibank Check No. SN-04867 was duly authorized, showed lack of care and
prudence required in the circumstances.

Furthermore, it was admitted that PCIBank is authorized to collect the payment of taxpayers in behalf of the BIR. As an agent of BIR,
PCIBank is duty bound to consult its principal regarding the unwarranted instructions given by the payor or its agent. As aptly stated by
the trial court, to wit:

"xxx. Since the questioned crossed check was deposited with IBAA [now PCIBank], which claimed to be a
depository/collecting bank of BIR, it has the responsibility to make sure that the check in question is deposited in Payee's
account only.

xxx xxx xxx

As agent of the BIR (the payee of the check), defendant IBAA should receive instructions only from its principal BIR and not
from any other person especially so when that person is not known to the defendant. It is very imprudent on the part of the
defendant IBAA to just rely on the alleged telephone call of the one Godofredo Rivera and in his signature considering that the
plaintiff is not a client of the defendant IBAA."
It is a well-settled rule that the relationship between the payee or holder of commercial paper and the bank to which it is sent for
collection is, in the absence of an argreement to the contrary, that of principal and agent. 22 A bank which receives such paper for
collection is the agent of the payee or holder.23

Even considering arguendo, that the diversion of the amount of a check payable to the collecting bank in behalf of the designated
payee may be allowed, still such diversion must be properly authorized by the payor. Otherwise stated, the diversion can be justified
only by proof of authority from the drawer, or that the drawer has clothed his agent with apparent authority to receive the proceeds of
such check.

Citibank further argues that PCI Bank's clearing stamp appearing at the back of the questioned checks stating that ALL PRIOR
INDORSEMENTS AND/OR LACK OF INDORSEMENTS GURANTEED should render PCIBank liable because it made it pass through
the clearing house and therefore Citibank had no other option but to pay it. Thus, Citibank had no other option but to pay it. Thus,
Citibank assets that the proximate cause of Ford's injury is the gross negligence of PCIBank. Since the questione dcrossed check was
deposited with PCIBank, which claimed to be a depository/collecting bank of the BIR, it had the responsibility to make sure that the
check in questions is deposited in Payee's account only.

Indeed, the crossing of the check with the phrase "Payee's Account Only," is a warning that the check should be deposited only in the
account of the CIR. Thus, it is the duty of the collecting bank PCIBank to ascertain that the check be deposited in payee's account only.
Therefore, it is the collecting bank (PCIBank) which is bound to scruninize the check and to know its depositors before it could make the
clearing indorsement "all prior indorsements and/or lack of indorsement guaranteed".

In Banco de Oro Savings and Mortgage Bank vs. Equitable Banking Corporation,24 we ruled:

"Anent petitioner's liability on said instruments, this court is in full accord with the ruling of the PCHC's Board of Directors that:

'In presenting the checks for clearing and for payment, the defendant made an express guarantee on the validity of "all prior
endorsements." Thus, stamped at the back of the checks are the defedant's clear warranty: ALL PRIOR ENDORSEMENTS
AND/OR LACK OF ENDORSEMENTS GUARANTEED. Without such warranty, plaintiff would not have paid on the checks.'

No amount of legal jargon can reverse the clear meaning of defendant's warranty. As the warranty has proven to be false and
inaccurate, the defendant is liable for any damage arising out of the falsity of its representation." 25

Lastly, banking business requires that the one who first cashes and negotiates the check must take some percautions to learn whether
or not it is genuine. And if the one cashing the check through indifference or othe circumstance assists the forger in committing the
fraud, he should not be permitted to retain the proceeds of the check from the drawee whose sole fault was that it did not discover the
forgery or the defect in the title of the person negotiating the instrument before paying the check. For this reason, a bank which cashes
a check drawn upon another bank, without requiring proof as to the identity of persons presenting it, or making inquiries with regard to
them, cannot hold the proceeds against the drawee when the proceeds of the checks were afterwards diverted to the hands of a third
party. In such cases the drawee bank has a right to believe that the cashing bank (or the collecting bank) had, by the usual proper
investigation, satisfied itself of the authenticity of the negotiation of the checks. Thus, one who encashed a check which had been
forged or diverted and in turn received payment thereon from the drawee, is guilty of negligence which proximately contributed to the
success of the fraud practiced on the drawee bank. The latter may recover from the holder the money paid on the check. 26

Having established that the collecting bank's negligence is the proximate cause of the loss, we conclude that PCIBank is liable in the
amount corresponding to the proceeds of Citibank Check No. SN-04867.

G.R. No. 128604

The trial court and the Court of Appeals found that PCIBank had no official act in the ordinary course of business that would attribute to
it the case of the embezzlement of Citibank Check Numbers SN-10597 and 16508, because PCIBank did not actually receive nor hold
the two Ford checks at all. The trial court held, thus:

"Neither is there any proof that defendant PCIBank contributed any official or conscious participation in the process of the
embezzlement. This Court is convinced that the switching operation (involving the checks while in transit for "clearing") were
the clandestine or hidden actuations performed by the members of the syndicate in their own personl, covert and private
capacity and done without the knowledge of the defendant PCIBank…"27

In this case, there was no evidence presented confirming the conscious particiapation of PCIBank in the embezzlement. As a general
rule, however, a banking corporation is liable for the wrongful or tortuous acts and declarations of its officers or agents within the course
and scope of their employment.28 A bank will be held liable for the negligence of its officers or agents when acting within the course and
scope of their employment. It may be liable for the tortuous acts of its officers even as regards that species of tort of which malice is an
essential element. In this case, we find a situation where the PCIBank appears also to be the victim of the scheme hatched by a
syndicate in which its own management employees had particiapted.
The pro-manager of San Andres Branch of PCIBank, Remberto Castro, received Citibank Check Numbers SN-10597 and 16508. He
passed the checks to a co-conspirator, an Assistant Manager of PCIBank's Meralco Branch, who helped Castro open a Checking
account of a fictitious person named "Reynaldo Reyes." Castro deposited a worthless Bank of America Check in exactly the same
amount of Ford checks. The syndicate tampered with the checks and succeeded in replacing the worthless checks and the eventual
encashment of Citibank Check Nos. SN 10597 and 16508. The PCIBank Ptro-manager, Castro, and his co-conspirator Assistant
Manager apparently performed their activities using facilities in their official capacity or authority but for their personal and private gain
or benefit.

A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by the frauds these officers or agents
were enabled to perpetrate in the apparent course of their employment; nor will t be permitted to shirk its responsibility for such frauds,
even though no benefit may accrue to the bank therefrom. For the general rule is that a bank is liable for the fraudulent acts or
representations of an officer or agent acting within the course and apparent scope of his employment or authority. 29 And if an officer or
employee of a bank, in his official capacity, receives money to satisfy an evidence of indebetedness lodged with his bank for collection,
the bank is liable for his misappropriation of such sum.30

Moreover, as correctly pointed out by Ford, Section 531 of Central Bank Circular No. 580, Series of 1977 provides that any theft
affecting items in transit for clearing, shall be for the account of sending bank, which in this case is PCIBank.

But in this case, responsibility for negligence does not lie on PCIBank's shoulders alone.

The evidence on record shows that Citibank as drawee bank was likewise negligent in the performance of its duties. Citibank failed to
establish that its payment of Ford's checjs were made in due course and legally in order. In its defense, Citibank claims the
genuineness and due execution of said checks, considering that Citibank (1) has no knowledge of any informity in the issuance of the
checks in question (2) coupled by the fact that said checks were sufficiently funded and (3) the endorsement of the Payee or lack
thereof was guaranteed by PCI Bank (formerly IBAA), thus, it has the obligation to honor and pay the same.

For its part, Ford contends that Citibank as the drawee bank owes to Ford an absolute and contractual duty to pay the proceeds of the
subject check only to the payee thereof, the CIR. Citing Section 62 32 of the Negotiable Instruments Law, Ford argues that by accepting
the instrument, the acceptro which is Citibank engages that it will pay according to the tenor of its acceptance, and that it will pay only to
the payee, (the CIR), considering the fact that here the check was crossed with annotation "Payees Account Only."

As ruled by the Court of Appeals, Citibank must likewise answer for the damages incurred by Ford on Citibank Checks Numbers SN
10597 and 16508, because of the contractual relationship existing between the two. Citibank, as the drawee bank breached its
contractual obligation with Ford and such degree of culpability contributed to the damage caused to the latter. On this score, we agree
with the respondent court's ruling.

Citibank should have scrutinized Citibank Check Numbers SN 10597 and 16508 before paying the amount of the proceeds thereof to
the collecting bank of the BIR. One thing is clear from the record: the clearing stamps at the back of Citibank Check Nos. SN 10597 and
16508 do not bear any initials. Citibank failed to notice and verify the absence of the clearing stamps. Had this been duly examined, the
switching of the worthless checks to Citibank Check Nos. 10597 and 16508 would have been discovered in time. For this reason,
Citibank had indeed failed to perform what was incumbent upon it, which is to ensure that the amount of the checks should be paid only
to its designated payee. The fact that the drawee bank did not discover the irregularity seasonably, in our view, consitutes negligence in
carrying out the bank's duty to its depositors. The point is that as a business affected with public interest and because of the nature of
its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the
fiduciary nature of their relationship.33

Thus, invoking the doctrine of comparative negligence, we are of the view that both PCIBank and Citibank failed in their respective
obligations and both were negligent in the selection and supervision of their employees resulting in the encashment of Citibank Check
Nos. SN 10597 AND 16508. Thus, we are constrained to hold them equally liable for the loss of the proceeds of said checks issued by
Ford in favor of the CIR.

Time and again, we have stressed that banking business is so impressed with public interest where the trust and confidence of the
public in general is of paramount umportance such that the appropriate standard of diligence must be very high, if not the highest,
degree of diligence.34 A bank's liability as obligor is not merely vicarious but primary, wherein the defense of exercise of due diligence in
the selection and supervision of its employees is of no moment. 35

Banks handle daily transactions involving millions of pesos. 36 By the very nature of their work the degree of responsibility, care and
trustworthiness expected of their employees and officials is far greater than those of ordinary clerks and employees. 37 Banks are
expected to exercise the highest degree of diligence in the selection and supervision of their employees.38

On the issue of prescription, PCIBank claims that the action of Ford had prescribed because of its inability to seek judicial relief
seasonably, considering that the alleged negligent act took place prior to December 19, 1977 but the relief was sought only in 1983, or
seven years thereafter.
The statute of limitations begins to run when the bank gives the depositor notice of the payment, which is ordinarily when the check is
returned to the alleged drawer as a voucher with a statement of his account,39 and an action upon a check is ordinarily governed by the
statutory period applicable to instruments in writing.40

Our laws on the matter provide that the action upon a written contract must be brought within ten year from the time the right of action
accrues.41 hence, the reckoning time for the prescriptive period begins when the instrument was issued and the corresponding check
was returned by the bank to its depositor (normally a month thereafter). Applying the same rule, the cause of action for the recovery of
the proceeds of Citibank Check No. SN 04867 would normally be a month after December 19, 1977, when Citibank paid the face value
of the check in the amount of P4,746,114.41. Since the original complaint for the cause of action was filed on January 20, 1984, barely
six years had lapsed. Thus, we conclude that Ford's cause of action to recover the amount of Citibank Check No. SN 04867 was
seasonably filed within the period provided by law.

Finally, we also find thet Ford is not completely blameless in its failure to detect the fraud. Failure on the part of the depositor to
examine its passbook, statements of account, and cancelled checks and to give notice within a reasonable time (or as required by
statute) of any discrepancy which it may in the exercise of due care and diligence find therein, serves to mitigate the banks' liability by
reducing the award of interest from twelve percent (12%) to six percent (6%) per annum. As provided in Article 1172 of the Civil Code of
the Philippines, respondibility arising from negligence in the performance of every kind of obligation is also demandable, but such
liability may be regulated by the courts, according to the circumstances. In quasi-delicts, the contributory negligence of the plaintiff shall
reduce the damages that he may recover.42

WHEREFORE, the assailed Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 25017 are AFFIRMED. PCIBank,
know formerly as Insular Bank of Asia and America, id declared solely responsible for the loss of the proceeds of Citibank Check No SN
04867 in the amount P4,746,114.41, which shall be paid together with six percent (6%) interest thereon to Ford Philippines Inc. from
the date when the original complaint was filed until said amount is fully paid.

However, the Decision and Resolution of the Court of Appeals in CA-G.R. No. 28430 are MODIFIED as follows: PCIBank and Citibank
are adjudged liable for and must share the loss, (concerning the proceeds of Citibank Check Numbers SN 10597 and 16508 totalling
P12,163,298.10) on a fifty-fifty ratio, and each bank is ORDERED to pay Ford Philippines Inc. P6,081,649.05, with six percent (6%)
interest thereon, from the date the complaint was filed until full payment of said amount.1âwphi1.nêt

Costs against Philippine Commercial International Bank and Citibank N.A.

SO ORDERED.

Bellosillo, Mendoza, Buena, De Leon, Jr., JJ, concur.

[G.R. No. 129015. August 13, 2004]

SAMSUNG CONSTRUCTION COMPANY PHILIPPINES, INC., petitioner, vs. FAR EAST BANK AND TRUST COMPANY AND
COURT OF APPEALS, respondents.

DECISION
TINGA, J.:

Called to fore in the present petition is a classic textbook question if a bank pays out on a forged check, is it liable to reimburse the
drawer from whose account the funds were paid out? The Court of Appeals, in reversing a trial court decision adverse to the bank, invoked
tenuous reasoning to acquit the bank of liability. We reverse, applying time-honored principles of law.
The salient facts follow.
Plaintiff Samsung Construction Company Philippines, Inc. (Samsung Construction), while based in Bian, Laguna, maintained a
current account with defendant Far East Bank and Trust Company[1] (FEBTC) at the latters Bel-Air, Makati branch.[2] The sole signatory
to Samsung Constructions account was Jong Kyu Lee (Jong), its Project Manager, [3] while the checks remained in the custody of the
companys accountant, Kyu Yong Lee (Kyu).[4]
On 19 March 1992, a certain Roberto Gonzaga presented for payment FEBTC Check No. 432100 to the banks branch in Bel-
Air, Makati. The check, payable to cash and drawn against Samsung Constructions current account, was in the amount of Nine Hundred
Ninety Nine Thousand Five Hundred Pesos (P999,500.00). The bank teller, Cleofe Justiani, first checked the balance of Samsung
Constructions account. After ascertaining there were enough funds to cover the check, [5] she compared the signature appearing on the
check with the specimen signature of Jong as contained in the specimen signature card with the bank. After comparing the two signatures,
Justiani was satisfied as to the authenticity of the signature appearing on the check. She then asked Gonzaga to submit proof of his
identity, and the latter presented three (3) identification cards. [6]
At the same time, Justiani forwarded the check to the branch Senior Assistant Cashier Gemma Velez, as it was bank policy that two
bank branch officers approve checks exceeding One Hundred Thousand Pesos, for payment or encashment. Velez likewise
counterchecked the signature on the check as against that on the signature card. He too concluded that the check was indeed signed by
Jong. Velez then forwarded the check and signature card to Shirley Syfu, another bank officer, for approval. Syfu then noticed that Jose
Sempio III (Sempio), the assistant accountant of Samsung Construction, was also in the bank. Sempio was well-known to Syfu and the
other bank officers, he being the assistant accountant of Samsung Construction. Syfu showed the check to Sempio, who vouched for the
genuineness of Jongs signature. Confirming the identity of Gonzaga, Sempio said that the check was for the purchase of equipment for
Samsung Construction. Satisfied with the genuineness of the signature of Jong, Syfu authorized the banks encashment of the check to
Gonzaga.
The following day, the accountant of Samsung Construction, Kyu, examined the balance of the bank account and discovered that a
check in the amount of Nine Hundred Ninety Nine Thousand Five Hundred Pesos (P999,500.00) had been encashed. Aware that he had
not prepared such a check for Jongs signature, Kyu perused the checkbook and found that the last blank check was missing. [7] He
reported the matter to Jong, who then proceeded to the bank. Jong learned of the encashment of the check, and realized that his signature
had been forged.The Bank Manager reputedly told Jong that he would be reimbursed for the amount of the check. [8] Jong proceeded to
the police station and consulted with his lawyers. [9] Subsequently, a criminal case for qualified theft was filed against Sempio before the
Laguna court.[10]
In a letter dated 6 May 1992, Samsung Construction, through counsel, demanded that FEBTC credit to it the amount of Nine
Hundred Ninety Nine Thousand Five Hundred Pesos (P999,500.00), with interest.[11] In response, FEBTC said that it was still conducting
an investigation on the matter. Unsatisfied, Samsung Construction filed a Complaint on 10 June 1992 for violation of Section 23 of the
Negotiable Instruments Law, and prayed for the payment of the amount debited as a result of the questioned check plus interest, and
attorneys fees.[12] The case was docketed as Civil Case No. 92-61506 before the Regional Trial Court (RTC) of Manila, Branch 9.[13]
During the trial, both sides presented their respective expert witnesses to testify on the claim that Jongs signature was
forged. Samsung Corporation, which had referred the check for investigation to the NBI, presented Senior NBI Document Examiner Roda
B. Flores. She testified that based on her examination, she concluded that Jongs signature had been forged on the check. On the other
hand, FEBTC, which had sought the assistance of the Philippine National Police (PNP), [14] presented Rosario C. Perez, a document
examiner from the PNP Crime Laboratory. She testified that her findings showed that Jongs signature on the check was genuine. [15]
Confronted with conflicting expert testimony, the RTC chose to believe the findings of the NBI expert. In a Decision dated 25 April
1994, the RTC held that Jongs signature on the check was forged and accordingly directed the bank to pay or credit back to Samsung
Constructions account the amount of Nine Hundred Ninety Nine Thousand Five Hundred Pesos (P999,500.00), together with interest
tolled from the time the complaint was filed, and attorneys fees in the amount of Fifteen Thousand Pesos (P15,000.00).
FEBTC timely appealed to the Court of Appeals. On 28 November 1996, the Special Fourteenth Division of the Court of Appeals
rendered a Decision,[16] reversing the RTC Decisionand absolving FEBTC from any liability. The Court of Appeals held that the
contradictory findings of the NBI and the PNP created doubt as to whether there was forgery. [17] Moreover, the appellate court also held
that assuming there was forgery, it occurred due to the negligence of Samsung Construction, imputing blame on the accountant Kyu for
lack of care and prudence in keeping the checks, which if observed would have prevented Sempio from gaining access thereto. [18] The
Court of Appeals invoked the ruling in PNB v. National City Bank of New York[19]that, if a loss, which must be borne by one or two innocent
persons, can be traced to the neglect or fault of either, such loss would be borne by the negligent party, even if innocent of intentional
fraud.[20]
Samsung Construction now argues that the Court of Appeals had seriously misapprehended the facts when it overturned the RTCs
finding of forgery. It also contends that the appellate court erred in finding that it had been negligent in safekeeping the check, and in
applying the equity principle enunciated in PNB v. National City Bank of New York.
Since the trial court and the Court of Appeals arrived at contrary findings on questions of fact, the Court is obliged to examine the
record to draw out the correct conclusions. Upon examination of the record, and based on the applicable laws and jurisprudence, we
reverse the Court of Appeals.
Section 23 of the Negotiable Instruments Law states:

When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and
no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be
acquired through or under such signature, unless the party against whom it is sought to enforce such right is precluded from setting
up the forgery or want of authority. (Emphasis supplied)

The general rule is to the effect that a forged signature is wholly inoperative, and payment made through or under such signature is
ineffectual or does not discharge the instrument.[21] If payment is made, the drawee cannot charge it to the drawers account. The traditional
justification for the result is that the drawee is in a superior position to detect a forgery because he has the makers signature and is
expected to know and compare it.[22] The rule has a healthy cautionary effect on banks by encouraging care in the comparison of the
signatures against those on the signature cards they have on file. Moreover, the very opportunity of the drawee to insure and to distribute
the cost among its customers who use checks makes the drawee an ideal party to spread the risk to insurance. [23]
Brady, in his treatise The Law of Forged and Altered Checks, elucidates:
When a person deposits money in a general account in a bank, against which he has the privilege of drawing checks in the ordi nary
course of business, the relationship between the bank and the depositor is that of debtor and creditor. So far as the legal relationship
between the two is concerned, the situation is the same as though the bank had borrowed money from the depositor, agreeing to repay
it on demand, or had bought goods from the depositor, agreeing to pay for them on demand. The bank owes the depositor money in the
same sense that any debtor owes money to his creditor. Added to this, in the case of bank and depositor, there is, of course, the banks
obligation to pay checks drawn by the depositor in proper form and presented in due course. When the bank receives the deposit, it
impliedly agrees to pay only upon the depositors order. When the bank pays a check, on which the depositors signature is a forgery, it
has failed to comply with its contract in this respect. Therefore, the bank is held liable.

The fact that the forgery is a clever one is immaterial. The forged signature may so closely resemble the genuine as to defy detection
by the depositor himself. And yet, if a bank pays the check, it is paying out its own money and not the depositors.

The forgery may be committed by a trusted employee or confidential agent. The bank still must bear the loss. Even in a case where the
forged check was drawn by the depositors partner, the loss was placed upon the bank. The case referred to is Robinson v. Security
Bank, Ark., 216 S. W. Rep. 717. In this case, the plaintiff brought suit against the defendant bank for money which had been deposited
to the plaintiffs credit and which the bank had paid out on checks bearing forgeries of the plaintiffs signature.

xxx

It was held that the bank was liable. It was further held that the fact that the plaintiff waited eight or nine months after discovering the
forgery, before notifying the bank, did not, as a matter of law, constitute a ratification of the payment, so as to preclude the plaintiff from
holding the bank liable. xxx

This rule of liability can be stated briefly in these words: A bank is bound to know its depositors signature. The rule is variously
expressed in the many decisions in which the question has been considered. But they all sum up to the proposition that a bank must
know the signatures of those whose general deposits it carries. [24]

By no means is the principle rendered obsolete with the advent of modern commercial transactions. Contemporary texts still affirm
this well-entrenched standard. Nickles, in his book Negotiable Instruments and Other Related Commercial Paper wrote, thus:

The deposit contract between a payor bank and its customer determines who can draw against the customers account by specifying
whose signature is necessary on checks that are chargeable against the customers account. Therefore, a check drawn against the
account of an individual customer that is signed by someone other than the customer, and without authority from her, is not properly
payable and is not chargeable to the customers account, inasmuch as any unauthorized signature on an instrument is ineffective as the
signature of the person whose name is signed.[25]

Under Section 23 of the Negotiable Instruments Law, forgery is a real or absolute defense by the party whose signature is
forged.[26] On the premise that Jongs signature was indeed forged, FEBTC is liable for the loss since it authorized the discharge of the
forged check. Such liability attaches even if the bank exerts due diligence and care in preventing such faulty discharge. Forgeries often
deceive the eye of the most cautious experts; and when a bank has been so deceived, it is a harsh rule which compels it to suffer although
no one has suffered by its being deceived. [27] The forgery may be so near like the genuine as to defy detection by the depositor himself,
and yet the bank is liable to the depositor if it pays the check. [28]
Thus, the first matter of inquiry is into whether the check was indeed forged. A document formally presented is presumed to be
genuine until it is proved to be fraudulent. In a forgery trial, this presumption must be overcome but this can only be done by convincing
testimony and effective illustrations.[29]
In ruling that forgery was not duly proven, the Court of Appeals held:

[There] is ground to doubt the findings of the trial court sustaining the alleged forgery in view of the conflicting conclusions made by
handwriting experts from the NBI and the PNP, both agencies of the government.

xxx

These contradictory findings create doubt on whether there was indeed a forgery. In the case of Tenio-Obsequio v. Court of Appeals,
230 SCRA 550, the Supreme Court held that forgery cannot be presumed; it must be proved by clear, positive and convincing
evidence.

This reasoning is pure sophistry. Any litigator worth his or her salt would never allow an opponents expert witness to stand
uncontradicted, thus the spectacle of competing expert witnesses is not unusual. The trier of fact will have to decide which version to
believe, and explain why or why not such version is more credible than the other. Reliance therefore cannot be placed merely on the fact
that there are colliding opinions of two experts, both clothed with the presumption of official duty, in order to draw a conclusion, especially
one which is extremely crucial. Doing so is tantamount to a jurisprudential cop-out.
Much is expected from the Court of Appeals as it occupies the penultimate tier in the judicial hierarchy. This Court has long deferred
to the appellate court as to its findings of fact in the understanding that it has the appropriate skill and competence to plough through
the minutiae that scatters the factual field. In failing to thoroughly evaluate the evidence before it, and relying instead on presumptions
haphazardly drawn, the Court of Appeals was sadly remiss. Of course, courts, like humans, are fallible, and not every error deserves a
stern rebuke. Yet, the appellate courts error in this case warrants special attention, as it is absurd and even dangerous as a precedent. If
this rationale were adopted as a governing standard by every court in the land, barely any actionable claim would prosper, defeated as it
would be by the mere invocation of the existence of a contrary expert opinion.
On the other hand, the RTC did adjudge the testimony of the NBI expert as more credible than that of the PNP, and explained its
reason behind the conclusion:

After subjecting the evidence of both parties to a crucible of analysis, the court arrived at the conclusion that the testimony of the NBI
document examiner is more credible because the testimony of the PNPCrime Laboratory Services document examiner reveals that
there are a lot of differences in the questioned signature as compared to the standard specimen signature. Furthermore, as testified to
by Ms. Rhoda Flores, NBI expert, the manner of execution of the standard signatures used reveals that it is a free rapid continuous
execution or stroke as shown by the tampering terminal stroke of the signatures whereas the questioned signature is a hesitating slow
drawn execution stroke. Clearly, the person who executed the questioned signature was hesitant when the signature was made.[30]

During the testimony of PNP expert Rosario Perez, the RTC bluntly noted that apparently, there [are] differences on that questioned
signature and the standard signatures.[31] This Court, in examining the signatures, makes a similar finding. The PNP expert excused the
noted differences by asserting that they were mere variations, which are normal deviations found in writing. [32] Yet the RTC, which had
the opportunity to examine the relevant documents and to personally observe the expert witness, clearly disbelieved the PNP expert. The
Court similarly finds the testimony of the PNP expert as unconvincing. During the trial, she was confronted several times with apparent
differences between strokes in the questioned signature and the genuine samples. Each time, she would just blandly assert that these
differences were just variations,[33] as if the mere conjuration of the word would sufficiently disquiet whatever doubts about the deviations.
Such conclusion, standing alone, would be of little or no value unless supported by sufficiently cogent reasons which might amount almost
to a demonstration.[34]
The most telling difference between the questioned and genuine signatures examined by the PNP is in the final upward stroke in
the signature, or the point to the short stroke of the terminal in the capital letter L, as referred to by the PNP examiner who had marked it
in her comparison chart as point no. 6. To the plain eye, such upward final stroke consists of a vertical line which forms a ninety degree
(90) angle with the previous stroke. Of the twenty one (21) other genuine samples examined by the PNP, at least nine (9) ended with an
upward stroke.[35]However, unlike the questioned signature, the upward strokes of eight (8) of these signatures are looped, while the
upward stroke of the seventh[36] forms a severe forty-five degree (45) with the previous stroke. The difference is glaring, and indeed, the
PNP examiner was confronted with the inconsistency in point no. 6.
Q: Now, in this questioned document point no. 6, the s stroke is directly upwards.
A: Yes, sir.
Q: Now, can you look at all these standard signature (sic) were (sic) point 6 is repeated or the last stroke s is pointing directly
upwards?
A: There is none in the standard signature, sir.[37]
Again, the PNP examiner downplayed the uniqueness of the final stroke in the questioned signature as a mere variation, [38] the
same excuse she proffered for the other marked differences noted by the Court and the counsel for petitioner. [39]
There is no reason to doubt why the RTC gave credence to the testimony of the NBI examiner, and not the PNP experts. The NBI
expert, Rhoda Flores, clearly qualifies as an expert witness. A document examiner for fifteen years, she had been promoted to the rank
of Senior Document Examiner with the NBI, and had held that rank for twelve years prior to her testimony. She had placed among the
top five examinees in the Competitive Seminar in Question Document Examination, conducted by the NBI Academy, which qualified her
as a document examiner.[40] She had trained with the Royal Hongkong Police Laboratory and is a member of the International Association
for Identification.[41] As of the time she testified, she had examined more than fifty to fifty-five thousand questioned documents, on an
average of fifteen to twenty documents a day.[42] In comparison, PNP document examiner Perez admitted to having examined only around
five hundred documents as of her testimony.[43]
In analyzing the signatures, NBI Examiner Flores utilized the scientific comparative examination method consisting of analysis,
recognition, comparison and evaluation of the writing habits with the use of instruments such as a magnifying lense, a stereoscopic
microscope, and varied lighting substances. She also prepared enlarged photographs of the signatures in order to facilitate the necessary
comparisons.[44] She compared the questioned signature as against ten (10) other sample signatures of Jong. Five of these signatures
were executed on checks previously issued by Jong, while the other five contained in business letters Jong had signed. [45] The NBI found
that there were significant differences in the handwriting characteristics existing between the questioned and the sample signatures, as
to manner of execution, link/connecting strokes, proportion characteristics, and other identifying details. [46]
The RTC was sufficiently convinced by the NBI examiners testimony, and explained her reasons in its Decisions. While the Court
of Appeals disagreed and upheld the findings of the PNP, it failed to convincingly demonstrate why such findings were more credible than
those of the NBI expert. As a throwaway, the assailed Decision noted that the PNP, not the NBI, had the opportunity to examine the
specimen signature card signed by Jong, which was relied upon by the employees of FEBTC in authenticating Jongs signature. The
distinction is irrelevant in establishing forgery. Forgery can be established comparing the contested signatures as against those of any
sample signature duly established as that of the persons whose signature was forged.
FEBTC lays undue emphasis on the fact that the PNP examiner did compare the questioned signature against the bank signature
cards. The crucial fact in question is whether or not the check was forged, not whether the bank could have detected the forgery.
The latter issue becomes relevant only if there is need to weigh the comparative negligence between the bank and the party
whose signature was forged.
At the same time, the Court of Appeals failed to assess the effect of Jongs testimony that the signature on the check was not
his.[47] The assertion may seem self-serving at first blush, yet it cannot be ignored that Jong was in the best position to know whether or
not the signature on the check was his. While his claim should not be taken at face value, any averments he would have on the matter, if
adjudged as truthful, deserve primacy in consideration. Jongs testimony is supported by the findings of the NBI examiner. They are also
backed by factual circumstances that support the conclusion that the assailed check was indeed forged. Judicial notice can be taken that
is highly unusual in practice for a business establishment to draw a check for close to a million pesos and make it payable to cash or
bearer, and not to order. Jong immediately reported the forgery upon its discovery. He filed the appropriate criminal charges against
Sempio, the putative forger.[48]
Now for determination is whether Samsung Construction was precluded from setting up the defense of forgery under Section 23 of
the Negotiable Instruments Law. The Court of Appeals concluded that Samsung Construction was negligent, and invoked the doctrines
that where a loss must be borne by one of two innocent person, can be traced to the neglect or fault of either, it is reasonable that it would
be borne by him, even if innocent of any intentional fraud, through whose means it has succeeded[49] or who put into the power of the
third person to perpetuate the wrong.[50] Applying these rules, the Court of Appeals determined that it was the negligence of Samsung
Construction that allowed the encashment of the forged check.

In the case at bar, the forgery appears to have been made possible through the acts of one Jose Sempio III, an assistant accountant
employed by the plaintiff Samsung [Construction] Co. Philippines, Inc. who supposedly stole the blank check and who presumably is
responsible for its encashment through a forged signature of Jong Kyu Lee. Sempio was assistant to the Korean accountant who was in
possession of the blank checks and who through negligence, enabled Sempio to have access to the same. Had the Korean accountant
been more careful and prudent in keeping the blank checks Sempio would not have had the chance to steal a page thereof and to
effect the forgery. Besides, Sempio was an employee who appears to have had dealings with the defendant Bank in behalf of the
plaintiff corporation and on the date the check was encashed, he was there to certify that it was a genuine check issued to purchase
equipment for the company.[51]

We recognize that Section 23 of the Negotiable Instruments Law bars a party from setting up the defense of forgery if it is guilty of
negligence.[52] Yet, we are unable to conclude that Samsung Construction was guilty of negligence in this case. The appellate court failed
to explain precisely how the Korean accountant was negligent or how more care and prudence on his part would have prevented the
forgery. We cannot sustain this tar and feathering resorted to without any basis.
The bare fact that the forgery was committed by an employee of the party whose signature was forged cannot necessarily imply
that such partys negligence was the cause for the forgery. Employers do not possess the preternatural gift of cognition as to the evil that
may lurk within the hearts and minds of their employees. The Courts pronouncement in PCI Bank v. Court of Appeals[53] applies in this
case, to wit:

[T]he mere fact that the forgery was committed by a drawer-payors confidential employee or agent, who by virtue of his position had
unusual facilities for perpetrating the fraud and imposing the forged paper upon the bank, does not entitle the bank to shift the loss to
the drawer-payor, in the absence of some circumstance raising estoppel against the drawer. [54]

Admittedly, the record does not clearly establish what measures Samsung Construction employed to safeguard its blank
checks. Jong did testify that his accountant, Kyu, kept the checks inside a safety box, [55] and no contrary version was presented by
FEBTC. However, such testimony cannot prove that the checks were indeed kept in a safety box, as Jongs testimony on that point is
hearsay, since Kyu, and not Jong, would have the personal knowledge as to how the checks were kept.
Still, in the absence of evidence to the contrary, we can conclude that there was no negligence on Samsung Constructions part. The
presumption remains that every person takes ordinary care of his concerns, [56] and that the ordinary course of business has been
followed.[57] Negligence is not presumed, but must be proven by him who alleges it. [58] While the complaint was lodged at the instance of
Samsung Construction, the matter it had to prove was the claim it had alleged - whether the check was forged. It cannot be required as
well to prove that it was not negligent, because the legal presumption remains that ordinary care was employed.
Thus, it was incumbent upon FEBTC, in defense, to prove the negative fact that Samsung Construction was negligent. While the
payee, as in this case, may not have the personal knowledge as to the standard procedures observed by the drawer, it well has the
means of disputing the presumption of regularity. Proving a negative fact may be a difficult office, [59] but necessarily so, as it seeks to
overcome a presumption in law. FEBTC was unable to dispute the presumption of ordinary care exercised by Samsung Construction,
hence we cannot agree with the Court of Appeals finding of negligence.
The assailed Decision replicated the extensive efforts which FEBTC devoted to establish that there was no negligence on the part
of the bank in its acceptance and payment of the forged check. However, the degree of diligence exercised by the bank would be irrelevant
if the drawer is not precluded from setting up the defense of forgery under Section 23 by his own negligence. The rule of equity enunciated
in PNB v. National City Bank of New York, [60] as relied upon by the Court of Appeals, deserves careful examination.

The point in issue has sometimes been said to be that of negligence. The drawee who has paid upon the forged signature is held
to bear the loss, because he has been negligent in failing to recognize that the handwriting is not that of his customer. But it
follows obviously that if the payee, holder, or presenter of the forged paper has himself been in default, if he has himself been guilty of a
negligence prior to that of the banker, or if by any act of his own he has at all contributed to induce the banker's negligence, then he
may lose his right to cast the loss upon the banker.[61] (Emphasis supplied)
 Quite palpably, the general rule remains that the drawee who has paid upon the forged signature bears the loss. The exception to
this rule arises only when negligence can be traced on the part of the drawer whose signature was forged, and the need arises to weigh
the comparative negligence between the drawer and the drawee to determine who should bear the burden of loss. The Court finds no
basis to conclude that Samsung Construction was negligent in the safekeeping of its checks. For one, the settled rule is that the mere
fact that the depositor leaves his check book lying around does not constitute such negligence as will free the bank from liability to him,
where a clerk of the depositor or other persons, taking advantage of the opportunity, abstract some of the check blanks, forges the
depositors signature and collect on the checks from the bank. [62] And for another, in point of fact Samsung Construction was not negligent
at all since it reported the forgery almost immediately upon discovery. [63]
It is also worth noting that the forged signatures in PNB v. National City Bank of New York were not of the drawer, but of
indorsers. The same circumstance attends PNB v. Court of Appeals,[64] which was also cited by the Court of Appeals. It is accepted that
a forged signature of the drawer differs in treatment than a forged signature of the indorser.

The justification for the distinction between forgery of the signature of the drawer and forgery of an indorsement is that the drawee is in
a position to verify the drawers signature by comparison with one in his hands, but has ordinarily no opportunity to verify an
indorsement.[65]

Thus, a drawee bank is generally liable to its depositor in paying a check which bears either a forgery of the drawers signature or a
forged indorsement. But the bank may, as a general rule, recover back the money which it has paid on a check bearing a forged
indorsement, whereas it has not this right to the same extent with reference to a check bearing a forgery of the drawers signature.[66]

The general rule imputing liability on the drawee who paid out on the forgery holds in this case.
Since FEBTC puts into issue the degree of care it exercised before paying out on the forged check, we might as well comment on
the banks performance of its duty. It might be so that the bank complied with its own internal rules prior to paying out on the questionable
check. Yet, there are several troubling circumstances that lead us to believe that the bank itself was remiss in its duty.
The fact that the check was made out in the amount of nearly one million pesos is unusual enough to require a higher degree of
caution on the part of the bank. Indeed, FEBTC confirms this through its own internal procedures. Checks below twenty-five thousand
pesos require only the approval of the teller; those between twenty-five thousand to one hundred thousand pesos necessitate the approval
of one bank officer; and should the amount exceed one hundred thousand pesos, the concurrence of two bank officers is required.[67]
In this case, not only did the amount in the check nearly total one million pesos, it was also payable to cash. That latter circumstance
should have aroused the suspicion of the bank, as it is not ordinary business practice for a check for such large amount to be made
payable to cash or to bearer, instead of to the order of a specified person. [68] Moreover, the check was presented for payment by one
Roberto Gonzaga, who was not designated as the payee of the check, and who did not carry with him any written proof that he was
authorized by Samsung Construction to encash the check. Gonzaga, a stranger to FEBTC, was not even an employee of Samsung
Construction.[69] These circumstances are already suspicious if taken independently, much more so if they are evaluated in
concurrence. Given the shadiness attending Gonzagas presentment of the check, it was not sufficient for FEBTC to have merely complied
with its internal procedures, but mandatory that all earnest efforts be undertaken to ensure the validity of the check, and of the authority
of Gonzaga to collect payment therefor.
According to FEBTC Senior Assistant Cashier Gemma Velez, the bank tried, but failed, to contact Jong over the phone to verify the
check.[70] She added that calling the issuer or drawer of the check to verify the same was not part of the standard procedure of the bank,
but an extra effort.[71] Even assuming that such personal verification is tantamount to extraordinary diligence, it cannot be denied that
FEBTC still paid out the check despite the absence of any proof of verification from the drawer. Instead, the bank seems to have relied
heavily on the say-so of Sempio, who was present at the bank at the time the check was presented.
FEBTC alleges that Sempio was well-known to the bank officers, as he had regularly transacted with the bank in behalf of Samsung
Construction. It was even claimed that everytime FEBTC would contact Jong about problems with his account, Jong would hand the
phone over to Sempio.[72] However, the only proof of such allegations is the testimony of Gemma Velez, who also testified that she did not
know Sempio personally,[73] and had met Sempio for the first time only on the day the check was encashed. [74] In fact, Velez had to inquire
with the other officers of the bank as to whether Sempio was actually known to the employees of the bank. [75] Obviously, Velez had no
personal knowledge as to the past relationship between FEBTC and Sempio, and any averments of her to that effect should be deemed
hearsay evidence. Interestingly, FEBTC did not present as a witness any other employee of their Bel-Air branch, including those who
supposedly had transacted with Sempio before.
Even assuming that FEBTC had a standing habit of dealing with Sempio, acting in behalf of Samsung Construction, the irregular
circumstances attending the presentment of the forged check should have put the bank on the highest degree of alert. The Court recently
emphasized that the highest degree of care and diligence is required of banks.

Banks are engaged in a business impressed with public interest, and it is their duty to protect in return their many clients and depositors
who transact business with them. They have the obligation to treat their clients account meticulously and with the highest degree of
care, considering the fiduciary nature of their relationship. The diligence required of banks, therefore, is more than that of a good father
of a family.[76]

Given the circumstances, extraordinary diligence dictates that FEBTC should have ascertained from Jong personally that the
signature in the questionable check was his.
 Still, even if the bank performed with utmost diligence, the drawer whose signature was forged may still recover from the bank as
long as he or she is not precluded from setting up the defense of forgery. After all, Section 23 of the Negotiable Instruments Law plainly
states that no right to enforce the payment of a check can arise out of a forged signature. Since the drawer, Samsung Construction, is
not precluded by negligence from setting up the forgery, the general rule should apply. Consequently, if a bank pays a forged check, it
must be considered as paying out of its funds and cannot charge the amount so paid to the account of the depositor. [77] A bank is liable,
irrespective of its good faith, in paying a forged check.[78]
WHEREFORE, the Petition is GRANTED. The Decision of the Court of Appeals dated 28 November 1996 is REVERSED, and
the Decision of the Regional Trial Court of Manila, Branch 9, dated 25 April 1994 is REINSTATED. Costs against respondent.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.

G.R. No. 107508 April 25, 1996

PHILIPPINE NATIONAL BANK, petitioner,

vs.
COURT OF APPEALS, CAPITOL CITY DEVELOPMENT BANK, PHILIPPINE BANK OF COMMUNICATIONS, and F. ABANTE
MARKETING, respondents.

KAPUNAN, J.:p

This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the decision dated April 29, 1992 of respondent
Court of Appeals in CA-G.R. CV No. 24776 and its resolution dated September 16, 1992, denying petitioner Philippine National Bank's
motion for reconsideration of said decision.

The facts of the case are as follows.

A check with serial number 7-3666-223-3, dated August 7, 1981 in the amount of P97,650.00 was issued by the Ministry of Education
and Culture (now Department of Education, Culture and Sports [DECS]) payable to F. Abante Marketing. This check was drawn against
Philippine National Bank (herein petitioner).

On August 11, 1981, F. Abante Marketing, a client of Capitol City Development Bank (Capitol), deposited the questioned check in its
savings account with said bank. In turn, Capitol deposited the same in its account with the Philippine Bank of Communications
(PBCom) which, in turn, sent the check to petitioner for clearing.

Petitioner cleared the check as good and, thereafter, PBCom credited Capitol's account for the amount stated in the check. However,
on October 19, 1981, petitioner returned the check to PBCom and debited PBCom's account for the amount covered by the check, the
reason being that there was a "material alteration" of the check number.

PBCom, as collecting agent of Capitol, then proceeded to debit the latter's account for the same amount, and subsequently, sent the
check back to petitioner. Petitioner, however, returned the check to PBCom.

On the other hand, Capitol could not, in turn, debit F. Abante Marketing's account since the latter had already withdrawn the amount of
the check as of October 15, 1981. Capitol sought clarification from PBCom and demanded the re-crediting of the amount. PBCom
followed suit by requesting an explanation and re-crediting from petitioner.

Since the demands of Capitol were not heeded, it filed a civil suit with the Regional Trial Court of Manila against PBCom which, in turn,
filed a third-party complaint against petitioner for reimbursement/indemnity with respect to the claims of Capitol. Petitioner, on its part,
filed a fourth-party complaint against F. Abante Marketing.

On October 3, 1989; the Regional Trial Court rendered its decision the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered as follows:

1.) On plaintiffs complaint, defendant Philippine Bank of Communications is ordered to re-credit or reimburse plaintiff
Capitol City Development Bank the amount of P97,650.00, plus interest of 12 percent thereto from October 19, 1981
until the amount is fully paid;
 2.) On Philippine Bank of Communications third-party complaint third-party defendant PNB is ordered to reimburse
and indemnify Philippine Bank of Communications for whatever amount PBCom pays to plaintiff;

3.) On Philippine National Bank's fourth-party complaint, F. Abante Marketing is ordered to reimburse and indemnify
PNB for whatever amount PNB pays to PBCom;

4.) On attorney's fees, Philippine Bank of Communications is ordered to pay Capitol City Development Bank
attorney's fees in the amount of Ten Thousand (P10,000.00) Pesos; but PBCom is entitled to
reimbursement/indemnity from PNB; and Philippine National Bank to be, in turn reimbursed or indemnified by F.
Abante Marketing for the same amount;

5.) The Counterclaims of PBCom and PNB are hereby dismissed;

6.) No pronouncement as to costs.

SO ORDERED.1

An appeal was interposed before the respondent Court of Appeals which rendered its decision on April 29, 1992, the decretal portion of
which reads:

WHEREFORE, the judgment appealed from is modified by exempting PBCom from liability to plaintiff-appellee for
attorney's fees and ordering PNB to honor the check for P97,650.00, with interest as declared by the trial court, and
pay plaintiff-appellee attorney's fees of P10,000.00. After the check shall have been honored by PNB, PBCom shall
re-credit plaintiff-appellee's account with it with the amount. No pronouncement as to costs.

SO ORDERED.2

A motion for reconsideration of the decision was denied by the respondent Court in its resolution dated September 16, 1992 for lack of
merit.3

Hence, petitioner filed the instant petition which raises the following issues:

WHETHER OR NOT AN ALTERATION OF THE SERIAL NUMBER OF A CHECK IS A MATERIAL ALTERATION

UNDER THE NEGOTIABLE INSTRUMENTS LAW.

II

WHETHER OR NOT A CERTIFICATION HEREIN ISSUED BY THE MINISTRY OF EDUCATION CAN BE GIVEN
WEIGHT IN EVIDENCE.

III

WHETHER OR NOT A DRAWEE BANK WHO FAILED TO RETURN A. CHECK WITHIN THE TWENTY FOUR (24)
HOUR CLEARING PERIOD MAY RECOVER THE VALUE OF THE CHECK FROM THE COLLECTING BANK.

IV

WHETHER OR NOT IN THE ABSENCE OF MALICE OR ILL WILL PETITIONER PNB MAY BE HELD LIABLE FOR
ATTORNEY'S FEES.4

We find no merit in the petition.

We shall first deal with the effect of the alteration of the serial number on the negotiability of the check in question.

Petitioner anchors its position on Section 125 of the Negotiable Instruments Law (ACT No. 2031)5 which provides:

Sec. 225. What constitutes a material alteration. Any alteration which changes:

(a) The date;

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

(c) The time or place of payment;

(d) The number or the relations of the parties;

(e) The medium or currency in which payment is to be made;

(f) Or which adds a place of payment where no place of payment is specified, or any other change or addition which
alters the effect of the instrument in any respect, is a material alteration.

Petitioner alleges that there is no hard and fast rule in the interpretation of the aforequoted provision of the Negotiable Instruments Law.
It maintains that under Section 125(f), any change that alters the effect of the instrument is a material alteration. 6

We do not agree.

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

instrument.7 It means an unauthorized change in an instrument that purports to modify in any respect the obligation of a party or an
unauthorized addition of words or numbers or other change to an incomplete instrument relating to the obligation of a party. 8 In other
words, a material alteration is one which changes the items which are required to be stated under Section 1 of the Negotiable
Instruments Law.

Section 1 of the Negotiable Instruments Law provides:

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.

In his book entitled "Pandect of Commercial Law and Jurisprudence," Justice Jose C. Vitug opines that "an innocent alteration
(generally, changes on items other than those required to be stated under Sec. 1, N.I.L.) and spoliation (alterations done by a stranger)
will not avoid the instrument, but the holder may enforce it only according to its original tenor."9

Reproduced hereunder are some examples of material and immaterial alterations:

A. Material Alterations:

(1) Substituting the words "or bearer" for "order."

(2) Writing "protest waived" above blank indorsements.

(3) A change in the date from which interest is to run.

(4) A check was originally drawn as follows: "Iron County Bank, Crystal Falls, Mich. Aug. 5, 1901. Pay to G.L. or order
$9 fifty cents CTR" The insertion of the figure 5 before the figure 9, the instrument being otherwise unchanged.

(5) Adding the words "with interest" with or without a fixed rate.

(6) An alteration in the maturity of a note, whether the time for payment is thereby curtailed or extended.

(7) An instrument was payable "First Nat'l Bank" the plaintiff added the word "Marion."
 (8) Plaintiff, without consent of the defendant, struck out the name of the defendant as payee and inserted the name
of the maker of the original note.

(9) Striking out the name of the payee and substituting that of the person who actually discounted the note.

(10) Substituting the address of the maker for the name of a co-maker.10

B. Immaterial Alterations:

(1) Changing "I promise to pay" to "We promise to pay", where there are two makers.

(2) Adding the word "annual" after the interest clause.

(3) Adding the date of maturity as a marginal notation.

(4) Filling in the date of actual delivery where the makers of a note gave it with the date in blank, "July ____."

(5) An alteration of the marginal figures of a note where the sum stated in words in the body remained unchanged.

(6) The insertion of the legal rate of interest where the note had a provision for "interest at _______ per cent."

(7) A printed form of promissory note had on the margin the printed words, "Extended to ________." The holder on or
after maturity wrote in the blank space the words "May 1, 1913," as a reference memorandum of a promise made by
him to the principal maker at the time the words were written to extend the time of payment.

(8) Where there was a blank for the place of payment, filling in the blank with the place desired.

(9) Adding to an indorsee's name the abbreviation "Cash" when it had been agreed that the draft should be
discounted by the trust company of which the indorsee was cashier.

(10) The indorsement of a note by a stranger after its delivery to the payee at the time the note was negotiated to the
plaintiff.

(11) An extension of time given by the holder of a note to the principal maker, without the consent of a surety co-
maker.11

The case at bench is unique in the sense that what was altered is the serial number of the check in question, an item which, it can
readily be observed, is not an essential requisite for negotiability under Section 1 of the Negotiable Instruments Law. The
aforementioned alteration did not change the relations between the parties. The name of the drawer and the drawee were not altered.
The intended payee was the same. The sum of money due to the payee remained the same. Despite these findings, however,
petitioner insists, that:

xxx xxx xxx

It is an accepted concept, besides being a negotiable instrument itself, that a TCAA check by its very nature is the
medium of exchange of governments (sic) instrumentalities of agencies. And as (a) safety measure, every
government office o(r) agency (is) assigned TCAA checks bearing different number series.

A concrete example is that of the disbursements of the Ministry of Education and Culture. It is issued by the Bureau
of Treasury sizeable bundles of checks in booklet form with serial numbers different from other government office or
agency. Now, for fictitious payee to succeed in its malicious intentions to defraud the government, all it need do is to
get hold of a TCAA Check and have the serial numbers of portion (sic) thereof changed or altered to make it appear
that the same was issued by the MEG.

Otherwise, stated, it is through the serial numbers that (a) TCAA Check is determined to have been issued by a
particular office or agency of the government.12

xxx xxx xxx

Petitioner's arguments fail to convince. The check's serial number is not the sole indication of its origin.. As succinctly found by the
Court of Appeals, the name of the government agency which issued the subject check was prominently printed therein. The check's
issuer was therefore sufficiently identified, rendering the referral to the serial number redundant and inconsequential. Thus , we quote
with favor the findings of the respondent court:

xxx xxx xxx

If the purpose of the serial number is merely to identify the issuing government office or agency, its alteration in this
case had no material effect whatsoever on the integrity of the check. The identity of the issuing government office or
agency was not changed thereby and the amount of the check was not charged against the account of another
government office or agency which had no liability under the check. The owner and issuer of the check is boldly and
clearly printed on its face, second line from the top: "MINISTRY OF EDUCATION AND CULTURE," and below the
name of the payee are the rubber-stamped words: "Ministry of Educ. & Culture." These words are not alleged to have
been falsely or fraudulently intercalated into the check. The ownership of the check is established without the
necessity of recourse to the serial number. Neither there any proof that the amount of the check was erroneously
charged against the account of a government office or agency other than the Ministry of Education and Culture.
Hence, the alteration in the number of the check did not affect or change the liability of the Ministry of Education and
Culture under the check and, therefore, is immaterial. The genuineness of the amount and the signatures therein of
then Deputy Minister of Education Hermenegildo C. Dumlao and of the resident Auditor, Penomio C. Alvarez are not
challenged. Neither is the authenticity of the different codes appearing therein questioned . . . 13(Emphasis ours.)

Petitioner, thus cannot refuse to accept the check in question on the ground that the serial number was altered, the same being an
immaterial or innocent one.

We now go to the second issue. It is petitioner's submission that the certification issued by Minrado C. Batonghinog, Cashier III of the
MEC clearly shows that the check was altered. Said certification reads:

TO WHOM IT MAY CONCERN:

This is to certify that according to the records of this Office, TCAA PNB Check Mo. SN7-3666223-3 dated August 7,
1981 drawn in favor of F. Abante Marketing in the amount of NINETY (S)EVEN THOUSAND SIX HUNDRED FIFTY
PESOS ONLY (P97,650.00) was not issued by this Office nor released to the payee concerned. The series number
of said check was not included among those requisition by this Office from the Bureau of Treasury.

Very
truly
yours,

(SGD.) MINRADO C. BATONGHINOG

Cashier
III14

Petitioner claims that even if the author of the certification issued by the Ministry of Education and Culture (MEG) was not presented,
still the best evidence of the material alteration would be the disputed check itself and the serial number thereon. Petitioner thus assails
the refusal of respondent court to give weight to the certification because the author thereof was not presented to identify it and to be
cross-examined thereon.15

We agree with the respondent court.

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

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

However, the amount of P10,000.00 as attorney's fees is hereby deleted. In their respective decisions, the trial court and the Court of
Appeals failed to explicitly state the rationale for the said award. The trial court merely ruled as follows:

With respect to Capitol's claim for damages consisting of alleged loss of opportunity, this Court finds that Capitol
failed to adequately substantiate its claim. What Capitol had presented was a self-serving, unsubstantiated and
speculative computation of what it allegedly could have earned or realized were it not for the debit made by PBCom
which was triggered by the return and debit made by PNB. However, this Court finds that it would be fair and
reasonable to impose interest at 12% per annum on the principal amount of the check computed from October 19,
1981 (the date PBCom debited Capitol's account) until the amount is fully paid and reasonable attorney's fees.17
(Emphasis ours.)

And contrary to the Court of Appeal's resolution, petitioner unambiguously questioned before it the award of attorney's fees, assigning
the latter as one of the errors committed by the trial court. 18

The foregoing is in conformity with the guiding principles laid down in a long line of cases and reiterated recently in Consolidated Bank
& Trust Corporation (Solidbank) v. Court of Appeals:19

The award of attorney's fees lies within the discretion of the court and depends upon the circumstances of each case.
However, the discretion of the court to award attorney's fees under Article 2208 of the Civil Code of the Philippines
demands factual, legal and equitable justification, without which the award is a conclusion without a premise and
improperly left to speculation and conjecture. It becomes a violation of the proscription against the imposition of a
penalty on the right to litigate (Universal Shipping Lines, Inc. v. Intermediate Appellate Court, 188 SCRA 170 [1990]).
The reason for the award must be stated in the text of the court's decision. If it is stated only in the dispositive portion
of the decision, the same shall be disallowed. As to the award of attorney's fees being an exception rather than the
rule, it is necessary for the court to make findings of fact and law that would bring the case within the exception and
justify the grant of the award (Refractories Corporation of the Philippines v. Intermediate Appellate Court, 176 SCRA
539 [176 SCRA 539]).

WHEREFORE, premises considered, except for the deletion of the award of attorney's fees, the decision of the Court of Appeals is
hereby AFFIRMED.

SO ORDERED.

Padilla, Bellosillo, Vitug and Hermosisima, Jr., JJ., concur.

G.R. No. L-2861 February 26, 1951

ENRIQUE P. MONTINOLA, plaintiff-appellant,

vs.
THE PHILIPPINE NATIONAL BANK, ET AL., defendants-appellees.

Quijano, Rosete and Lucena for appellant.

Second Assistant Corporate Counsel Hilarion U. Jarencio for appellee Philippine National Bank.
Office of the Solicitor General Felix Bautista Angelo and Solicitor Augusto M. Luciano for appellee Provincial Treasurer of Misamis
Oriental.

MONTEMAYOR, J.:

In August, 1947, Enrique P. Montinola filed a complaint in the Court of First Instance of Manila against the Philippine National Bank and
the Provincial Treasurer of Misamis Oriental to collect the sum of P100,000, the amount of Check No. 1382 issued on May 2, 1942 by
the Provincial Treasurer of Misamis Oriental to Mariano V. Ramos and supposedly indorsed to Montinola. After hearing, the court
rendered a decision dismissing the complaint with costs against plaintiff-appellant. Montinola has appealed from that decision directly to
this Court inasmuch as the amount in controversy exceeds P50,000.

There is no dispute as to the following facts. In April and May, 1942, Ubaldo D. Laya was the Provincial Treasurer of Misamis Oriental.
As such Provincial Treasurer he was ex officio agent of the Philippine National Bank branch in the province. Mariano V. Ramos worked
under him as assistant agent in the bank branch aforementioned. In April of that year 1942, the currency being used in Mindanao,
particularly Misamis Oriental and Lanao which had not yet been occupied by the Japanese invading forces, was the emergency
currency which had been issued since January, 1942 by the Mindanao Emergency Currency Board by authority of the late President
Quezon.

About April 26, 1942, thru the recommendation of Provincial Treasurer Laya, his assistant agent M. V. Ramos was inducted into the
United States Armed Forces in the Far East (USAFFE) as disbursing officer of an army division. As such disbursing officer, M. V.
Ramos on April 30, 1942, went to the neighboring Province Lanao to procure a cash advance in the amount of P800,000 for the use of
the USAFFE in Cagayan de Misamis. Pedro Encarnacion, Provincial Treasurer of Lanao did not have that amount in cash. So, he gave
Ramos P300,000 in emergency notes and a check for P500,000. On May 2, 1942 Ramos went to the office of Provincial Treasurer
Laya at Misamis Oriental to encash the check for P500,000 which he had received from the Provincial Treasurer of Lanao. Laya did not
have enough cash to cover the check so he gave Ramos P400,000 in emergency notes and a check No. 1382 for P100,000 drawn on
the Philippine National Bank. According to Laya he had previously deposited P500,000 emergency notes in the Philippine National
Bank branch in Cebu and he expected to have the check issued by him cashed in Cebu against said deposit.

Ramos had no opportunity to cash the check because in the evening of the same day the check was issued to him, the Japanese
forces entered the capital of Misamis Oriental, and on June 10, 1942, the USAFFE forces to which he was attached surrendered.
Ramos was made a prisoner of war until February 12, 1943, after which, he was released and he resumed his status as a civilian.

About the last days of December, 1944 or the first days of January, 1945, M. V. Ramos allegedly indorsed this check No. 1382 to
Enrique P. Montinola. The circumstances and conditions under which the negotiation or transfer was made are in controversy.

According to Montinola's version, sometime in June, 1944, Ramos, needing money with which to buy foodstuffs and medicine, offered
to sell him the check; to be sure that it was genuine and negotiable, Montinola, accompanied by his agents and by Ramos himself, went
to see President Carmona of the Philippine National Bank in Manila about said check; that after examining it President Carmona told
him that it was negotiable but that he should not let the Japanese catch him with it because possession of the same would indicate that
he was still waiting for the return of the Americans to the Philippines; that he and Ramos finally agreed to the sale of the check for
P850,000 Japanese military notes, payable in installments; that of this amount, P450,000 was paid to Ramos in Japanese military notes
in five installments, and the balance of P400,000 was paid in kind, namely, four bottles of sulphatia sole, each bottle containing 1,000
tablets, and each tablet valued at P100; that upon payment of the full price, M. V. Ramos duly indorsed the check to him. This
indorsement which now appears on the back of the document is described in detail by trial court as follows:

The endorsement now appearing at the back of the check (see Exhibit A-1) may be described as follows: The woods, "pay to
the order of" — in rubber stamp and in violet color are placed about one inch from the top. This is followed by the words
"Enrique P. Montinola" in typewriting which is approximately 5/8 an inch below the stamped words "pay to the order of". Below
"Enrique P. Montinola", in typewriting are words and figures also in typewriting, "517 Isabel Street" and about ¹/8 of an inch
therefrom, the edges of the check appear to have been burned, but there are words stamped apparently in rubber stamp
which, according to Montinola, are a facsimile of the signature of Ramos. There is a signature which apparently reads "M. V.
Ramos" also in green ink but made in handwriting."

To the above description we may add that the name of M. V. Ramos is hand printed in green ink, under the signature. According to
Montinola, he asked Ramos to hand print it because Ramos' signature was not clear.

Ramos in his turn told the court that the agreement between himself and Montinola regarding the transfer of the check was that he was
selling only P30,000 of the check and for this reason, at the back of the document he wrote in longhand the following:

Pay to the order of Enrique P. Montinola P30,000 only. The balance to be deposited in the Philippine National Bank to the
credit of M. V. Ramos.

Ramos further said that in exchange for this assignment of P30,000 Montinola would pay him P90,000 in Japanese military notes but
that Montinola gave him only two checks of P20,000 and P25,000, leaving a balance unpaid of P45,000. In this he was corroborated by
Atty. Simeon Ramos Jr. who told the court that the agreement between Ramos and Montinola was that the latter, for the sale to him of
P30,000 of the check, was to pay Ramos P90,000 in Japanese military notes; that when the first check for P20,000 was issued by
Montinola, he (Simeon) prepared a document evidencing said payment of P20,000; that when the second check for P25,000 was
issued by Montinola, he (Simeon) prepared another document with two copies, one for Montinola and the other for Ramos, both signed
by Montinola and M. V. Ramos, evidencing said payment, with the understanding that the balance of P45,000 would be paid in a few
days.

The indorsement or writing described by M. V. Ramos which had been written by him at the back of the check, Exhibit A, does not now
appear at the back of said check. What appears thereon is the indosement testified to by Montinola and described by the trial court as
reproduced above. Before going into a discussion of the merits of the version given by Ramos and Montinola as to the indorsement or
writing at the back of the check, it is well to give a further description of it as we shall later.

When Montinola filed his complaint in 1947 he stated therein that the check had been lost, and so in lieu thereof he filed a supposed
photostic copy. However, at the trial, he presented the check itself and had its face marked Exhibit A and the back thereof Exhibit A-1.
But the check is badly mutilated, bottled, torn and partly burned, and its condition can best be appreciated by seeing it. Roughly, it may
be stated that looking at the face of the check (Exhibit A) we see that the left third portion of the paper has been cut off perpendicularly
and severed from the remaining 2/3 portion; a triangular portion of the upper right hand corner of said remaining 2/3portion has been
similarly cut off and severed, and to keep and attach this triangular portion and the rectangular ¹/3 portion to the rest of the document,
the entire check is pasted on both sides with cellophane; the edges of the severed portions as well as of the remaining major portion,
where cut bear traces of burning and searing; there is a big blot with indelible ink about the right middle portion, which seems to have
penetrated to the back of the check (Exhibit A-1), which back bears a larger smear right under the blot, but not black and sharp as the
blot itself; finally, all this tearing, burning, blotting and smearing and pasting of the check renders it difficult if not impossible to read
some of the words and figures on the check.

In explanation of the mutilation of the check Montinola told the court that several months after indorsing and delivering the check to him,
Ramos demanded the return of the check to him, threatening Montinola with bodily harm, even death by himself or his guerrilla forces if
he did not return said check, and that in order to justify the non-delivery of the document and to discourage Ramos from getting it back,
he (Montinola) had to resort to the mutilation of the document.

As to what was really written at the back of the check which Montinola claims to be a full indorsement of the check, we agree with trial
court that the original writing of Ramos on the back of the check was to the effect that he was assigning only P30,000 of the value of the
document and that he was instructing the bank to deposit to his credit the balance. This writing was in some mysterious way obliterated,
and in its place was placed the present indorsement appearing thereon. Said present indorsement occupies a good portion of the back
of the check. It has already been described in detail. As to how said present indorsement came to be written, the circumstances
surrounding its preparation, the supposed participation of M. V. Ramos in it and the writing originally appearing on the reverse side of
the check, Exhibit A-1, we quote with approval what the trial court presided over by Judge Conrado V. Sanchez, in its well-prepared
decision, says on these points:

The allegedly indorsement: "Pay to the order of Enrique P. Montinola the amount of P30,000 only. The balance to be
deposited to the credit of M. V. Ramos", signed by M. V. Ramos-according to the latter-does not now appear at the back of the
check. A different indorsement, as aforesaid, now appears.

Had Montinola really paid in full the sum of P850,000 in Japanese Military Notes as consideration for the check? The following
observations are in point:

(a) According to plaintiff's witness Gregorio A. Cortado, the oval line in violet, enclosing "P." of the words "Enrique P.
Montinola" and the line in the form of cane handle crossing the word "street" in the words and figures "517 Isabel Street" in the
endorsement Exhibit A-1 "unusual" to him, and that as far as he could remember this writing did not appear on the instrument
and he had no knowledge as to how it happened to be there. Obviously Cortado had no recollection as to how such marks
ever were stamped at the back of the check.

(b) Again Cortado, speaking of the endorsement as it now appears at the back of the check (Exh. A-1) stated that Ramos
typewrote these words outside of the premises of Montinola, that is, a nearby house. Montinola, on the other hand, testified
that Ramos typewrote the words "Enrique P. Montinola 517 Isabel Street", in his own house. Speaking of the rubber stamp
used at the back of the check and which produced the words "pay to the order of", Cortado stated that when he (Cortado),
Atadero, Montinola and Ramos returned in group to the house of Montinola, the rubber stamp was already in the house of
Montinola, and it was on the table of the upper floor of the house, together with the stamp pad used to stamp the same.
Montinola, on the other hand, testified that Ramos carried in his pocket the said rubber stamp as well as the ink pad, and
stamped it in his house.

The unusually big space occupied by the indorsement on the back of the check and the discrepancies in the versions of
Montinola and his witness Cortado just noted, create doubts as to whether or not really Ramos made the indorsement as it
now appears at the back of Exhibit A. One thing difficult to understand is why Ramos should go into the laborious task of
placing the rubber stamp "Pay to the order of" and afterwards move to the typewriter and write the words "Enrique P.
Montinola" "and "517 Isabel Street", and finally sign his name too far below the main indorsement.

(c) Another circumstances which bears heavily upon the claim of plaintiff Montinola that he acquired the full value of the check
and paid the full consideration therefor is the present condition of said check. It is now so unclean and discolored; it is pasted
in cellophane, bottled with ink on both sides torn three parts, and with portions thereof burned-all done by plaintiff, the alleged
owner thereof.

The acts done by the very plaintiff on a document so important and valuable to him, and which according to him involves his
life savings, approximate intentional cancellation. The only reason advanced by plaintiff as to why tore check, burned the torn
edges and bottled out the registration at the back, is found in the following: That Ramos came to his house, armed with a
revolver, threatened his life and demanded from him the return of the check; that when he informed Ramos that he did not
have it in the house, but in some deposit outside thereof and that Ramos promised to return the next day; that the same night
he tore the check into three parts, burned the sides with a parrafin candle to show traces of burning; and that upon the return
of Ramos the next day he showed the two parts of the check, the triangle on the right upper part and the torn piece on the left
part, and upon seeing the condition thereof Ramos did not bother to get the check back. He also said that he placed the blots
 in indelible ink to prevent Ramos — if he would be forced to surrender the middle part of the check — from seeing that it was
registered in the General Auditing Office.

Conceding at the moment these facts to be true, the question is: Why should Montinola be afraid of Ramos? Montinola claims
that Ramos went there about April, 1945, that is, during liberation. If he believed he was standing by his rights, he could have
very well sought police protection or transferred to some place where Ramos could not bother him. And then, really Ramos did
not have anything more to do with this check for the reason that Montinola had obtained in full the amount thereof, there could
not be any reason why Ramos should have threatened Montinola as stated by the latter. Under the circumstances, the most
logical conclusion is that Ramos wanted the check at all costs because Montinola did not acquire the check to such an extent
that it borders on intentional cancellation thereof (see Sections 119-123 Negotiable Instruments Law) there is room to believe
that Montinola did not have so much investments in that check as to adopted an "what do I care?" attitude.

And there is the circumstance of the alleged loss of the check. At the time of the filing of the complaint the check was allegedly
lost, so much so that a photostatic copy thereof was merely attached to the complaint (see paragraph 7 of the complaint). Yet,
during the trial the original check Exhibit A was produced in court.

But a comparison between the photostatic copy and the original check reveals discrepancies between the two. The condition
of the check as it was produced is such that it was partially burned, partially blotted, badly mutilated, discolored and pasted
with cellophane. What is worse is that Montinola's excuse as to how it was lost, that it was mixed up with household effects is
not plausible, considering the fact that it involves his life savings, and that before the alleged loss, he took extreme pains and
precautions to save the check from the possible ravages of the war, had it photographed, registered said check with the
General Auditing Office and he knew that Ramos, since liberation, was hot after the possession of that check.

(d) It seems that Montinola was not so sure as to what he had testified to in reference to the consideration he paid for the
check. In court he testified that he paid P450,000 in cash from June to December 1944, and P400,000 worth of sulphatiazole
in January 1945 to complete the alleged consideration of P850,000. When Montinola testified this way in court, obviously he
overlooked a letter he wrote to the provincial treasurer of Cagayan, Oriental Misamis, dated May 1, 1947, Exhibit 3 the record.
In that letter Exhibit 3, Montinola told Provincial Treasurer Elizalde of Misamis Oriental that "Ramos endorsed it (referring to
check) to me for goods in kind, medicine, etc., received by him for the use of the guerrillas." In said letter Exhibit 3, Montinola
did not mention the cash that he paid for the check.

From the foregoing the court concludes that plaintiff Montinola came into the possession of the check in question about the
end of December 1944 by reason of the fact that M. V. Ramos sold to him P30,000 of the face value thereof in consideration
of the sum of P90,000 Japanese money, of which only one-half or P45,000 (in Japanese money) was actually paid by said
plaintiff to Ramos. (R. on A., pp. 31-33; Brief of Appellee, pp. 14-20.)

At the beginning of this decision, we stated that as Provincial Treasurer of Misamis Oriental, Ubaldo D. Laya was ex officio agent of the
Philippine National Bank branch in that province. On the face of the check (Exh. A) we now find the words in parenthesis "Agent, Phil.
National Bank" under the signature of Laya, purportedly showing that he issued the check as agent of the Philippine National Bank. It
this is true, then the bank is not only drawee but also a drawer of the check, and Montinola evidently is trying to hold the Philippine
National Bank liable in that capacity of drawer, because as drawee alone, inasmuch as the bank has not yet accepted or certified the
check, it may yet avoid payment.

Laya, testifying in court, stated that he issued the check only as Provincial Treasurer, and that the words in parenthesis "Agent, Phil.
National Bank" now appearing under his signature did not appear on the check when he issued the same. In this he was corroborated
by the payee M. V. Ramos who equally assured the court that when he received the check and then delivered it to Montinola, those
words did not appear under the signature of Ubaldo D. Laya. We again quote with approval the pertinent portion of the trial court's
decision:

The question is reduced to whether or not the words, "Agent, Phil. National Bank" were added after Laya had issued the
check. In a straightforward manner and without vacillation Laya positively testified that the check Exhibit A was issued by him
in his capacity as Provincial Treasurer of Misamis Oriental and that the words "Agent, Phil. National Bank" which now appear
on the check Exhibit A were not typewritten below his signature when he signed the said check and delivered the same to
Ramos. Laya assured the court that there could not be any mistake as to this. For, according to Laya, when he issued check in
his capacity as agent of the Misamis Oriental agency of the Philippine National Bank the said check must be countersigned by
the cashier of the said agency — not by the provincial auditor. He also testified that the said check was issued by him in his
capacity as provincial treasurer of Misamis Oriental and that is why the same was countersigned by Provincial Auditor Flores.
The Provincial Auditor at that time had no connection in any capacity with the Misamis Oriental agency of the Philippine
National Bank. Plaintiff Montinola on the other hand testified that when he received the check Exhibit A it already bore the
words "Agent, Phil. National Bank" below the signature of Laya and the printed words "Provincial Treasurer".

After considering the testimony of the one and the other, the court finds that the preponderance of the evidence supports
Laya's testimony. In the first place, his testimony was corroborated by the payee M. V. Ramos. But what renders more
probable the testimony of Laya and Ramos is the fact that the money for which the check was issued was expressly for the
use of the USAFFE of which Ramos was then disbursing officer, so much so that upon the delivery of the P400,000 in
emergency notes and the P100,000 check to Ramos, Laya credited his depository accounts as provincial treasurer with the
 corresponding credit entry. In the normal course of events the check could not have been issued by the bank, and this is borne
by the fact that the signature of Laya was countersigned by the provincial auditor, not the bank cashier. And then, too there is
the circumstance that this check was issued by the provincial treasurer of Lanao to Ramos who requisitioned the said funds in
his capacity as disbursing officer of the USAFFE. The check, Exhibit A is not what we may term in business parlance, "certified
check" or "cashier's check."

Besides, at the time the check was issued, Laya already knew that Cebu and Manila were already occupied. He could not
have therefore issued the check-as a bank employee-payable at the central office of the Philippine National Bank.

Upon the foregoing circumstances the court concludes that the words "Agent, Phil. National Bank' below the signature of
Ubaldo D. Laya and the printed words "Provincial Treasurer" were added in the check after the same was issued by the
Provincial Treasurer of Misamis Oriental.

From all the foregoing, we may safely conclude as we do that the words "Agent, Phil. National Bank" now appearing on the face of the
check (Exh. A) were added or placed in the instrument after it was issued by Provincial Treasurer Laya to M. V. Ramos. There is no
reason known to us why Provincial Treasurer Laya should issue the check (Exh. A) as agent of the Philippine National Bank. Said
check for P100,000 was issued to complete the payment of the other check for P500,000 issued by the Provincial Treasurer of Lanao to
Ramos, as part of the advance funds for the USAFFE in Cagayan de Misamis. The balance of P400,000 in cash was paid to Ramos by
Laya from the funds, not of the bank but of the Provincial Treasury. Said USAFFE were being financed not by the Bank but by the
Government and, presumably, one of the reasons for the issuance of the emergency notes in Mindanao was for this purpose. As
already stated, according to Provincial Treasurer Laya, upon receiving a relatively considerable amount of these emergency notes for
his office, he deposited P500,000 of said currency in the Philippine National Bank branch in Cebu, and that in issuing the check (Exh.
A), he expected to have it cashed at said Cebu bank branch against his deposit of P500,000.

The logical conclusion, therefore, is that the check was issued by Laya only as Provincial Treasurer and as an official of the
Government which was under obligation to provide the USAFFE with advance funds, and not by the Philippine National Bank which has
no such obligation. The very Annex C, made part of plaintiff's complaint, and later introduced in evidence for him as Exhibit E states
that Laya issued the check "in his capacity as Provincial Treasurer of Misamis Oriental", obviously, not as agent of the Bank.

Now, did M. V. Ramos add or place those words below the signature of Laya before transferring the check to Montinola? Let us bear in
mind that Ramos before his induction into the USAFFE had been working as assistant of Treasurer Laya as ex-officio agent of the
Misamis Oriental branch of the Philippine National Bank. Naturally, Ramos must have known the procedure followed there as to the
issuance of checks, namely, that when a check is issued by the Provincial Treasurer as such, it is countersigned by the Provincial
Auditor as was done on the check (Exhibit A), but that if the Provincial Treasurer issues a check as agent of the Philippine National
Bank, the check is countersigned not by the Provincial Auditor who has nothing to do with the bank, but by the bank cashier, which was
not done in this case. It is not likely, therefore, that Ramos had made the insertion of the words "Agent, Phil. National Bank" after he
received the check, because he should have realized that following the practice already described, the check having been issued by
Laya as Provincial Treasurer, and not as agent of the bank, and since the check bears the countersignature not of the Bank cashier of
the Provincial Auditor, the addition of the words "Agent, Phil. National Bank" could not change the status and responsibility of the bank.
It is therefore more logical to believe and to find that the addition of those words was made after the check had been transferred by
Ramos to Montinola. Moreover, there are other facts and circumstances involved in the case which support this view. Referring to the
mimeographed record on appeal filed by the plaintiff-appellant, we find that in transcribing and copying the check, particularly the face
of it (Exhibit A) in the complaint, the words "Agent, Phil. National Bank" now appearing on the face of the check under the signature of
the Provincial Treasurer, is missing. Unless the plaintiff in making this copy or transcription in the complaint committed a serious
omission which is decisive as far as the bank is concerned, the inference is, that at the time the complaint was filed, said phrase did not
appear on the face of the check. That probably was the reason why the bank in its motion to dismiss dated September 2, 1947,
contended that if the check in question had been issued by the provincial treasurer in his capacity as agent of the Philippine National
Bank, said treasurer would have placed below his signature the words "Agent of the Philippine National Bank". The plaintiff because of
the alleged loss of the check, allegedly attached to the complaint a photostatic copy of said check and marked it as Annex A. But in
transcribing and copying said Annex A in his complaint, the phrase "Agent, Phil. National Bank" does not appear under the signature of
the provincial treasurer. We tried to verify this discrepancy by going over the original records of the Court of First Instance so as to
compare the copy of Annex A in the complaint, with the original Annex A, the photostatic copy, but said original Annex A appears to be
missing from the record. How it disappeared is not explained. Of course, now we have in the list of exhibit a photostatic copy marked
Annex A and Exhibit B, but according to the manifestation of counsel for the plaintiff dated October 15, 1948, said photostatic copy now
marked Annex A and Exhibit B was submitted on October 15, 1948, in compliance with the verbal order of the trial court. It is therefore
evident that the Annex A now available is not the same original Annex A attached to the complaint in 1947.

There is one other circumstance, important and worth nothing. If Annex A also marked Exhibit B is the photostatic copy of the original
check No. 1382 particularly the face thereof (Exhibit A), then said photostatic copy should be a faithful and accurate reproduction of the
check, particularly of the phrase "Agent, Phil. National Bank" now appearing under the signature of the Provincial Treasurer on the face
of the original check (Exhibit A). But a minute examination of and comparison between Annex A, the photostatic copy also marked
Exhibit B and the face of the check, Exhibit A, especially with the aid of a handlens, show notable differences and discrepancies. For
instance, on Exhibit A, the letter A of the word "Agent" is toward the right of the tail of the beginning letter of the signature of Ubaldo D.
Laya; this same letter "A" however in Exhibit B is directly under said tail.

The letter "N" of the word "National" on Exhibit A is underneath the space between "Provincial" and "Treasurer"; but the same letter "N"
is directly under the letter "I" of the word "Provincial" in Exhibit B.
The first letter "a" of the word "National" is under "T" of the word "Treasurer" in Exhibit A; but the same letter "a" in Exhibit "B" is just
below the space between the words "Provincial" and "Treasurer".

The letter "k" of the word "Bank" in Exhibit A is after the green perpendicular border line near the lower right hand corner of the edge of
the check (Exh. A); this same letter "k" however, on Exhibit B is on the very border line itself or even before said border line.

The closing parenthesis ")" on Exhibit A is a little far from the perpendicular green border line and appears to be double instead of one
single line; this same ")" on Exhibit B appears in a single line and is relatively nearer to the border line.

There are other notable discrepancies between the check Annex A and the photostatic copy, Exhibit B, as regards the relative position
of the phrase "Agent, Phil. National Bank", with the title Provincial Treasurer, giving ground to the doubt that Exhibit B is a photostatic
copy of the check (Exhibit A).

We then have the following facts. Exhibit A was issued by Laya in his capacity as Provincial Treasurer of Misamis Oriental as drawer on
the Philippine National Bank as drawee. Ramos sold P30,000 of the check to Enrique P. Montinola for P90,000 Japanese military
notes, of which only P45,000 was paid by Montinola. The writing made by Ramos at the back of the check was an instruction to the
bank to pay P30,000 to Montinola and to deposit the balance to his (Ramos) credit. This writing was obliterated and in its place we now
have the supposed indorsement appearing on the back of the check (Exh. A-1).

At the time of the transfer of this check (Exh. A) to Montinola about the last days of December, 1944, or the first days of January, 1945,
the check which, being a negotiable instrument, was payable on demand, was long overdue by about 2 ½ years. It may therefore be
considered, even then, a stable check. Of course, Montinola claims that about June, 1944 when Ramos supposedly approached him for
the purpose of negotiating the check, he (Montinola) consulted President Carmona of the Philippine National Bank who assured him
that the check was good and negotiable. However, President Carmona on the witness stand flatly denied Montinola's claim and
assured the court that the first time that he saw Montinola was after the Philippine National Bank, of which he was President, reopened,
after liberation, around August or September, 1945, and that when shown the check he told Montinola that it was stale. M. V. Ramos
also told the court that it is not true that he ever went with Montinola to see President Carmona about the check in 1944.

On the basis of the facts above related there are several reasons why the complaint of Montinola cannot prosper. The insertion of the
words "Agent, Phil. National Bank" which converts the bank from a mere drawee to a drawer and therefore changes its liability,
constitutes a material alteration of the instrument without the consent of the parties liable thereon, and so discharges the instrument.
(Section 124 of the Negotiable Instruments Law). The check was not legally negotiated within the meaning of the Negotiable
Instruments Law. Section 32 of the same law provides that "the indorsement must be an indorsement of the entire instrument. An
indorsement which purports to transfer to the indorsee a part only of the amount payable, . . . (as in this case) does not operate as a
negotiation of the instrument." Montinola may therefore not be regarded as an indorsee. At most he may be regarded as a mere
assignee of the P30,000 sold to him by Ramos, in which case, as such assignee, he is subject to all defenses available to the drawer
Provincial Treasurer of Misamis Oriental and against Ramos. Neither can Montinola be considered as a holder in due course because
section 52 of said law defines a holder in due course as a holder who has taken the instrument under certain conditions, one of which is
that he became the holder before it was overdue. When Montinola received the check, it was long overdue. And, Montinola is not even
a holder because section 191 of the same law defines holder as the payee or indorsee of a bill or note and Montinola is not a payee.
Neither is he an indorsee for as already stated, at most he can be considered only as assignee. Neither could it be said that he took it in
good faith. As already stated, he has not paid the full amount of P90,000 for which Ramos sold him P30,000 of the value of the check.
In the second place, as was stated by the trial court in its decision, Montinola speculated on the check and took a chance on its being
paid after the war. Montinola must have known that at the time the check was issued in May, 1942, the money circulating in Mindanao
and the Visayas was only the emergency notes and that the check was intended to be payable in that currency. Also, he should have
known that a check for such a large amount of P100,000 could not have been issued to Ramos in his private capacity but rather in his
capacity as disbursing officer of the USAFFE, and that at the time that Ramos sold a part of the check to him, Ramos was no longer
connected with the USAFFE but already a civilian who needed the money only for himself and his family.

As already stated, as a mere assignee Montinola is subject to all the defenses available against assignor Ramos. And, Ramos had he
retained the check may not now collect its value because it had been issued to him as disbursing officer. As observed by the trial court,
the check was issued to M. V. Ramos not as a person but M. V. Ramos as the disbursing officer of the USAFFE. Therefore, he had no
right to indorse it personally to plaintiff. It was negotiated in breach of trust, hence he transferred nothing to the plaintiff.

In view of all the foregoing, finding no reversible error in the decision appealed from, the same is hereby affirmed with costs.

In the prayer for relief contained at the end of the brief for the Philippine National Bank dated September 27, 1949, we find this prayer:

It is also respectfully prayed that this Honorable Court refer the check, Exhibit A, to the City Fiscal's Office for appropriate
criminal action against the plaintiff-appellant if the facts so warrant.

Subsequently, in a petition signed by plaintiff-appellant Enrique P. Montinola dated February 27, 1950, he asked this Court to allow him
to withdraw the original check (Exh. A) for him to keep, expressing his willingness to submit it to the court whenever needed for
examination and verification. The bank on March 2, 1950 opposed the said petition on the ground that inasmuch as the appellant's
cause of action in this case is based on the said check, it is absolutely necessary for the court to examine the original in order to see
the actual alterations supposedly made thereon, and that should this Court grant the prayer contained in the bank's brief that the check
be later referred to the city fiscal for appropriate action, said check may no longer be available if the appellant is allowed to withdraw
said document. In view of said opposition this Court resolution of March 6, 1950, denied said petition for withdrawal.

Acting upon the petition contained in the bank's brief already mentioned, once the decision becomes final, let the Clerk of Court
transmit to the city fiscal the check (Exh. A) together with all pertinent papers and documents in this case, for any action he may deem
proper in the premises.

Moran, C.J., Paras, Feria, Pablo, Bengzon, Padilla, Tuazon, Reyes and Bautista Angelo, JJ., concur.

G.R. No. L-17845 April 27, 1967

INTESTATE ESTATE OF VICTOR SEVILLA. SIMEON SADAYA, petitioner,

vs.
FRANCISCO SEVILLA, respondent.

Belen Law Offices for petitioner.

Poblador, Cruz & Nazareno for respondent.

SANCHEZ, J.:

On March 28, 1949, Victor Sevilla, Oscar Varona and Simeon Sadaya executed, jointly and severally, in favor of the Bank of the
Philippine Islands, or its order, a promissory note for P15,000.00 with interest at 8% per annum, payable on demand. The entire,
amount of P15,000.00, proceeds of the promissory note, was received from the bank by Oscar Varona alone. Victor Sevilla and Simeon
Sadaya signed the promissory note as co-makers only as a favor to Oscar Varona. Payments were made on account. As of June 15,
1950, the outstanding balance stood P4,850.00. No payment thereafter made.

On October 6, 1952, the bank collected from Sadaya the foregoing balance which, together with interest, totalled P5,416.12. Varona
failed to reimburse Sadaya despite repeated demands.

Victor Sevilla died. Intestate estate proceedings were started in the Court of First Instance of Rizal, Special Proceeding No. 1518.
Francisco Sevilla was named administrator.

In Special Proceeding No. 1518, Sadaya filed a creditor's claim for the above sum of P5,746.12, plus attorneys fees in the sum of
P1,500.00. The administrator resisted the claim upon the averment that the deceased Victor Sevilla "did not receive any amount as
consideration for the promissory note," but signed it only "as surety for Oscar Varona".

On June 5, 1957, the trial court issued an order admitting the claim of Simeon Sadaya in the amount of P5,746.12, and directing the
administrator to pay the same from any available funds belonging to the estate of the deceased Victor Sevilla.

The motion to reconsider having been overruled, the administrator appealed. 1 The Court of Appeals, in a decision promulgated on July,
15, 1960, voted to set aside the order appealed from and to disapprove and disallow "appellee's claim of P5,746.12 against the
intestate estate."

The case is now before this Court on certiorari to review the judgment of the Court of Appeals.

Sadaya's brief here seeks reversal of the appellate court's decision and prays that his claim "in the amount of 50% of P5,746.12, or
P2,873.06, against the intestate estate of the deceased Victor Sevilla," be approved.

1. That Victor Sevilla and Simeon Sadaya were joint and several accommodation makers of the 15,000.00-peso promissory note in
favor of the Bank of the Philippine Islands, need not be essayed. As such accommodation the makers, the individual obligation of each
of them to the bank is no different from, and no greater and no less than, that contract by Oscar Varona. For, while these two did not
receive value on the promissory note, they executed the same with, and for the purpose of lending their names to, Oscar Varona. Their
liability to the bank upon the explicit terms of the promissory note is joint and several.2 Better yet, the bank could have pursued its right
to collect the unpaid balance against either Sevilla or Sadaya. And the fact is that one of the last two, Simeon Sadaya, paid that
balance.

2. It is beyond debate that Simeon Sadaya could have sought reimbursement of the total amount paid from Oscar Varona. This is but
right and just. Varona received full value of the promissory note. 3 Sadaya received nothing therefrom. He paid the bank because he
was a joint and several obligor. The least that can be said is that, as between Varona and Sadaya, there is an implied contract of
indemnity. And Varona is bound by the obligation to reimburse Sadaya. 4
3. The common creditor, the Bank of the Philippine Islands, now out of the way, we first look into the relations inter se amongst the
three consigners of the promissory note. Their relations vis-a-vis the Bank, we repeat, is that of joint and several obligors. But can the
same thing be said about the relations of the three consigners, in respect to each other?

Surely enough, as amongst the three, the obligation of Varona and Sevilla to Sadaya who paid can not be joint and several. For,
indeed, had payment been made by Oscar Varona, instead of Simeon Sadaya, Varona could not have had reason to seek
reimbursement from either Sevilla or Sadaya, or both. After all, the proceeds of the loan went to Varona and the other two received
nothing therefrom.

4. On principle, a solidary accommodation maker — who made payment — has the right to contribution, from his co-accommodation
maker, in the absence of agreement to the contrary between them, and subject to conditions imposed by law. This right springs from an
implied promise between the accommodation makers to share equally the burdens that may ensue from their having consented to
stamp their signatures on the promissory note.5 For having lent their signatures to the principal debtor, they clearly placed themselves
— in so far as payment made by one may create liability on the other — in the category of mere joint grantors of the former.6 This is as
it should be. Not one of them benefited by the promissory note. They stand on the same footing. In misfortune, their burdens should be
equally spread.

Manresa, commenting on Article 1844 of the Civil Code of Spain,7 which is substantially reproduced in Article 2073 8of our Civil Code,
on this point stated:

Otros, como Pothier, entienden que, si bien el principio es evidente enestricto concepto juridico, se han extremado sus
consecuencias hasta el punto de que estas son contrarias, no solo a la logica, sino tambien a la equidad, que debe ser el
alma del Derecho, como ha dicho Laurent.

Esa accion — sostienen — no nace de la fianza, pues, en efecto, el hecho de afianzar una misma deuda no crea ningun
vinculo juridico, ni ninguna razon de obligar entre los fiadores, sino que trae, por el contrario, su origen de una acto posterior,
cual es el pago de toda la deuda realizado por uno de ellos, y la equdad, no permite que los denias fiadores, que igualmente
estaban estaban obligos a dicho pago, se aprovenchen de ese acto en perjuico del que lo realozo.

Lo cierto es que esa accion concedida al fiador nace, si, del hecho del pago, pero es consecuencia del beneficio o
del derecho de division, como tenemos ya dicho. En efecto, por virtud de esta todos los cofiadores vienen obligados a
contribuir al pago de parte que a cada uno corresponde. De ese obligacion, contraida por todos ellos, se libran los que no han
pagado por consecuencia del acto realizado por el que pago, y si bien este no hizo mas que cumplir el deber que el contracto
de fianza le imponia de responder de todo el debito cuando no limito su obligacion a parte alguna del mismo, dicho acto
redunda en beneficio de los otros cofiadores los cuales se aprovechan de el para quedar desligados de todo compromiso con
el acreedor.9

5. And now, to the requisites before one accommodation maker can seek reimbursement from a co-accommodation maker.

By Article 18 of the Civil Code in matters not covered by the special laws, "their deficiency shall be supplied by the provisions of this
Code". Nothing extant in the Negotiable Instruments Law would define the right of one accommodation maker to seek reimbursement
from another. Perforce, we must go to the Civil Code.1äwphï1.ñët

Because Sevilla and Sadaya, in themselves, are but co-guarantors of Varona, their case comes within the ambit of Article 2073 of the
Civil Code which reads:

ART. 2073. When there are two or more guarantors of the same debtor and for the same debt, the one among them who has
paid may demand of each of the others the share which is proportionally owing from him.

If any of the guarantors should be insolvent, his share shall be borne by the others, including the payer, in the same
proportion.

The provisions of this article shall not be applicable, unless the payment has been made in virtue of a judicial demand or
unless the principal debtor is insolvent.10

As Mr. Justice Street puts it: "[T]hat article deals with the situation which arises when one surety has paid the debt to the creditor and is
seeking contribution from his cosureties."11

Not that the requirements in paragraph 3, Article 2073, just quoted, are devoid of cogent reason. Says Manresa: 12

c) Requisitos para el ejercicio del derecho de reintegro o de reembolso derivado de la corresponsabilidad de los cofiadores.
 — La tercera de las prescripciones que comprende el articulo se refiere a los requisitos que deben concurrir para que pueda
tener lugar lo dispuesto en el mismo. Ese derecho que concede al fiador para reintegrarse directamente de los fiadores de lo
que pago por ellos en vez de dirigir su reclamacion contra el deudor, es un beneficio otorgado por la ley solo ell dos casos
determinados, cuya justificacion resulta evidenciada desde luego; y esa limitacion este debidamente aconsejada por
una razon de prudencia que no puede desconocerse, cual es la de evitar que por la mera voluntad de uno de los cofiadores
pueda hacerse surgir la accion de reintegro contra los demas en prejuicio de los mismos.

El perjuicio que con tal motivo puede inferirse a los cofiadores es bien notorio, pues teniendo en primer termino el fiador que
paga por el deudor el derecho de indemnizacion contra este, sancionado por el art. 1,838, es de todo punto indudable que
ejercitando esta accion pueden quedar libres de toda responsabilidad los demas cofiadores si, a consecuencia de ella,
indemniza el fiado a aquel en los terminos establecidos en el expresado articulo. Por el contrario de prescindir de dicho
derecho el fiador, reclamando de los confiadores en primer lugar el oportuno reintegro, estos en tendrian mas remedio que
satisfacer sus ductares respectivas, repitiendo despues por ellas contra el deudor con la imposicion de las molestias y gastos
consiguientes.

No es aventurado asegurar que si el fiador que paga pudiera libremente utilizar uno u otro de dichos derechos, el de
indemnizacion por el deudor y el del reintegro por los cofiadores, indudablemente optaria siempre y en todo caso por el
segundo, puesto que mucha mas garantias de solvencia y mucha mas seguridad del cobro ha de encontrar en los fiadores
que en el deudor; y en la practica quedaria reducido el primero a la indemnizacion por el deudor a los confiadores que
hubieran hecho el reintegro, obligando a estos, sin excepcion alguna, a soportar siempre los gastos y las molestias que
anteriormente homos indicado. Y para evitar estos perjuicios, la ley no ha podido menos de reducir el ejercicio de ese derecho
a los casos en que absolutamente sea indispensable.13

6. All of the foregoing postulate the following rules: (1) A joint and several accommodation maker of a negotiable promissory note may
demand from the principal debtor reimbursement for the amount that he paid to the payee; and (2) a joint and several accommodation
maker who pays on the said promissory note may directly demand reimbursement from his co-accommodation maker without first
directing his action against the principal debtor provided that (a) he made the payment by virtue of a judicial demand, or (b) a principal
debtor is insolvent.

The Court of Appeals found that Sadaya's payment to the bank "was made voluntarily and without any judicial demand," and that "there
is an absolute absence of evidence showing that Varona is insolvent". This combination of fact and lack of fact epitomizes the fatal
distance between payment by Sadaya and Sadaya's right to demand of Sevilla "the share which is proportionately owing from him."

For the reasons given, the judgment of the Court of Appeals under review is hereby affirmed. No costs. So ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar and Castro, JJ., concur.

G.R. No. 80599 September 15, 1989

ERNESTINA CRISOLOGO-JOSE, petitioner,

vs.
COURT OF APPEALS and RICARDO S. SANTOS, JR. in his own behalf and as Vice-President for Sales of Mover Enterprises,
Inc., respondents.

Melquiades P. de Leon for petitioner.

Rogelio A. Ajes for private respondent.

REGALADO, J.:

Petitioner seeks the annulment of the decision 1 of respondent Court of Appeals, promulgated on September 8, 1987, which reversed
the decision of the trial Court 2 dismissing the complaint for consignation filed by therein plaintiff Ricardo S. Santos, Jr.

The parties are substantially agreed on the following facts as found by both lower courts:

In 1980, plaintiff Ricardo S. Santos, Jr. was the vice-president of Mover Enterprises, Inc. in-charge of marketing and
sales; and the president of the said corporation was Atty. Oscar Z. Benares. On April 30, 1980, Atty. Benares, in
accommodation of his clients, the spouses Jaime and Clarita Ong, issued Check No. 093553 drawn against Traders
Royal Bank, dated June 14, 1980, in the amount of P45,000.00 (Exh- 'I') payable to defendant Ernestina Crisologo-
Jose. Since the check was under the account of Mover Enterprises, Inc., the same was to be signed by its president,
Atty. Oscar Z. Benares, and the treasurer of the said corporation. However, since at that time, the treasurer of Mover
 Enterprises was not available, Atty. Benares prevailed upon the plaintiff, Ricardo S. Santos, Jr., to sign the aforesaid
chEck as an alternate story. Plaintiff Ricardo S. Santos, Jr. did sign the check.

It appears that the check (Exh. '1') was issued to defendant Ernestina Crisologo-Jose in consideration of the waiver
or quitclaim by said defendant over a certain property which the Government Service Insurance System (GSIS)
agreed to sell to the clients of Atty. Oscar Benares, the spouses Jaime and Clarita Ong, with the understanding that
upon approval by the GSIS of the compromise agreement with the spouses Ong, the check will be encashed
accordingly. However, since the compromise agreement was not approved within the expected period of time, the
aforesaid check for P45,000.00 (Exh. '1') was replaced by Atty. Benares with another Traders Royal Bank cheek
bearing No. 379299 dated August 10, 1980, in the same amount of P45,000.00 (Exhs. 'A' and '2'), also payable to the
defendant Jose. This replacement check was also signed by Atty. Oscar Z. Benares and by the plaintiff Ricardo S.
Santos, Jr. When defendant deposited this replacement check (Exhs. 'A' and '2') with her account at Family Savings
Bank, Mayon Branch, it was dishonored for insufficiency of funds. A subsequent redepositing of the said check was
likewise dishonored by the bank for the same reason. Hence, defendant through counsel was constrained to file a
criminal complaint for violation of Batas Pambansa Blg. 22 with the Quezon City Fiscal's Office against Atty. Oscar Z.
Benares and plaintiff Ricardo S. Santos, Jr. The investigating Assistant City Fiscal, Alfonso Llamas, accordingly filed
an amended information with the court charging both Oscar Benares and Ricardo S. Santos, Jr., for violation of Batas
Pambansa Blg. 22 docketed as Criminal Case No. Q-14867 of then Court of First Instance of Rizal, Quezon City.

Meanwhile, during the preliminary investigation of the criminal charge against Benares and the plaintiff herein, before
Assistant City Fiscal Alfonso T. Llamas, plaintiff Ricardo S. Santos, Jr. tendered cashier's check No. CC 160152 for
P45,000.00 dated April 10, 1981 to the defendant Ernestina Crisologo-Jose, the complainant in that criminal case.
The defendant refused to receive the cashier's check in payment of the dishonored check in the amount of
P45,000.00. Hence, plaintiff encashed the aforesaid cashier's check and subsequently deposited said amount of
P45,000.00 with the Clerk of Court on August 14, 1981 (Exhs. 'D' and 'E'). Incidentally, the cashier's check adverted
to above was purchased by Atty. Oscar Z. Benares and given to the plaintiff herein to be applied in payment of the
dishonored check. 3

After trial, the court a quo, holding that it was "not persuaded to believe that consignation referred to in Article 1256 of the Civil Code is
applicable to this case," rendered judgment dismissing plaintiff s complaint and defendant's counterclaim. 4

As earlier stated, respondent court reversed and set aside said judgment of dismissal and revived the complaint for consignation,
directing the trial court to give due course thereto.

Hence, the instant petition, the assignment of errors wherein are prefatorily stated and discussed seriatim.

1. Petitioner contends that respondent Court of Appeals erred in holding that private respondent, one of the
signatories of the check issued under the account of Mover Enterprises, Inc., is an accommodation party under the
Negotiable Instruments Law and a debtor of petitioner to the extent of the amount of said check.

Petitioner avers that the accommodation party in this case is Mover Enterprises, Inc. and not private respondent who merely signed the
check in question in a representative capacity, that is, as vice-president of said corporation, hence he is not liable thereon under the
Negotiable Instruments Law.

The pertinent provision of said law referred to provides:

Sec. 29. Liability of accommodation party an accommodation party is one who has signed the instrument as maker,
drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other
person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of
taking the instrument, knew him to be only an accommodation party.

Consequently, to be considered an accommodation party, a person must (1) be a party to the instrument, signing as maker, drawer,
acceptor, or indorser, (2) not receive value therefor, and (3) sign for the purpose of lending his name for the credit of some other
person.

Based on the foregoing requisites, it is not a valid defense that the accommodation party did not receive any valuable consideration
when he executed the instrument. From the standpoint of contract law, he differs from the ordinary concept of a debtor therein in the
sense that he has not received any valuable consideration for the instrument he signs. Nevertheless, he is liable to a holder for value as
if the contract was not for accommodation 5 in whatever capacity such accommodation party signed the instrument, whether primarily or
secondarily. Thus, it has been held that in lending his name to the accommodated party, the accommodation party is in effect a surety
for the latter. 6

Assuming arguendo that Mover Enterprises, Inc. is the accommodation party in this case, as petitioner suggests, the inevitable question
is whether or not it may be held liable on the accommodation instrument, that is, the check issued in favor of herein petitioner.
We hold in the negative.

The aforequoted provision of the Negotiable Instruments Law which holds an accommodation party liable on the instrument to a holder
for value, although such holder at the time of taking the instrument knew him to be only an accommodation party, does not include nor
apply to corporations which are accommodation parties. 7 This is because the issue or indorsement of negotiable paper by a
corporation without consideration and for the accommodation of another is ultra vires. 8 Hence, one who has taken the instrument with
knowledge of the accommodation nature thereof cannot recover against a corporation where it is only an accommodation party. If the
form of the instrument, or the nature of the transaction, is such as to charge the indorsee with knowledge that the issue or indorsement
of the instrument by the corporation is for the accommodation of another, he cannot recover against the corporation thereon. 9

By way of exception, an officer or agent of a corporation shall have the power to execute or indorse a negotiable paper in the name of
the corporation for the accommodation of a third person only if specifically authorized to do so. 10 Corollarily, corporate officers, such as
the president and vice-president, have no power to execute for mere accommodation a negotiable instrument of the corporation for their
individual debts or transactions arising from or in relation to matters in which the corporation has no legitimate concern. Since such
accommodation paper cannot thus be enforced against the corporation, especially since it is not involved in any aspect of the corporate
business or operations, the inescapable conclusion in law and in logic is that the signatories thereof shall be personally liable therefor,
as well as the consequences arising from their acts in connection therewith.

The instant case falls squarely within the purview of the aforesaid decisional rules. If we indulge petitioner in her aforesaid postulation,
then she is effectively barred from recovering from Mover Enterprises, Inc. the value of the check. Be that as it may, petitioner is not
without recourse.

The fact that for lack of capacity the corporation is not bound by an accommodation paper does not thereby absolve, but should render
personally liable, the signatories of said instrument where the facts show that the accommodation involved was for their personal
account, undertaking or purpose and the creditor was aware thereof.

Petitioner, as hereinbefore explained, was evidently charged with the knowledge that the cheek was issued at the instance and for the
personal account of Atty. Benares who merely prevailed upon respondent Santos to act as co-signatory in accordance with the
arrangement of the corporation with its depository bank. That it was a personal undertaking of said corporate officers was apparent to
petitioner by reason of her personal involvement in the financial arrangement and the fact that, while it was the corporation's check
which was issued to her for the amount involved, she actually had no transaction directly with said corporation.

There should be no legal obstacle, therefore, to petitioner's claims being directed personally against Atty. Oscar Z. Benares and
respondent Ricardo S. Santos, Jr., president and vice-president, respectively, of Mover Enterprises, Inc.

2. On her second assignment of error, petitioner argues that the Court of Appeals erred in holding that the
consignation of the sum of P45,000.00, made by private respondent after his tender of payment was refused by
petitioner, was proper under Article 1256 of the Civil Code.

Petitioner's submission is that no creditor-debtor relationship exists between the parties, hence consignation is not proper.
Concomitantly, this argument was premised on the assumption that private respondent Santos is not an accommodation party.

As previously discussed, however, respondent Santos is an accommodation party and is, therefore, liable for the value of the check.
The fact that he was only a co-signatory does not detract from his personal liability. A co-maker or co-drawer under the circumstances
in this case is as much an accommodation party as the other co-signatory or, for that matter, as a lone signatory in an accommodation
instrument. Under the doctrine in Philippine Bank of Commerce vs. Aruego, supra, he is in effect a co-surety for the accommodated
party with whom he and his co-signatory, as the other co-surety, assume solidary liability ex lege for the debt involved. With the
dishonor of the check, there was created a debtor-creditor relationship, as between Atty. Benares and respondent Santos, on the one
hand, and petitioner, on the other. This circumstance enables respondent Santos to resort to an action of consignation where his tender
of payment had been refused by petitioner.

We interpose the caveat, however, that by holding that the remedy of consignation is proper under the given circumstances, we do not
thereby rule that all the operative facts for consignation which would produce the effect of payment are present in this case. Those are
factual issues that are not clear in the records before us and which are for the Regional Trial Court of Quezon City to ascertain in Civil
Case No. Q-33160, for which reason it has advisedly been directed by respondent court to give due course to the complaint for
consignation, and which would be subject to such issues or claims as may be raised by defendant and the counterclaim filed therein
which is hereby ordered similarly revived.

3. That respondent court virtually prejudged Criminal Case No. Q-14687 of the Regional Trial Court of Quezon City
filed against private respondent for violation of Batas Pambansa Blg. 22, by holding that no criminal liability had yet
attached to private respondent when he deposited with the court the amount of P45,000.00 is the final plaint of
petitioner.

We sustain petitioner on this score.

Indeed, respondent court went beyond the ratiocination called for in the appeal to it in CA-G.R. CV. No. 05464. In its own decision
therein, it declared that "(t)he lone issue dwells in the question of whether an accommodation party can validly consign the amount of
the debt due with the court after his tender of payment was refused by the creditor." Yet, from the commercial and civil law aspects
determinative of said issue, it digressed into the merits of the aforesaid Criminal Case No. Q-14867, thus:

Section 2 of B.P. 22 establishes the prima facie evidence of knowledge of such insufficiency of funds or credit. Thus,
the making, drawing and issuance of a check, payment of which is refused by the drawee because of insufficient
funds in or credit with such bank is prima facie evidence of knowledge of insufficiency of funds or credit, when the
check is presented within 90 days from the date of the check.

It will be noted that the last part of Section 2 of B.P. 22 provides that the element of knowledge of insufficiency of
funds or credit is not present and, therefore, the crime does not exist, when the drawer pays the holder the amount
due or makes arrangements for payment in full by the drawee of such check within five (5) banking days after
receiving notice that such check has not been paid by the drawee.

Based on the foregoing consideration, this Court finds that the plaintiff-appellant acted within Ms legal rights when he
consigned the amount of P45,000.00 on August 14, 1981, between August 7, 1981, the date when plaintiff-appellant
receive (sic) the notice of non-payment, and August 14, 1981, the date when the debt due was deposited with the
Clerk of Court (a Saturday and a Sunday which are not banking days) intervened. The fifth banking day fell on August
14, 1981. Hence, no criminal liability has yet attached to plaintiff-appellant when he deposited the amount of
P45,000.00 with the Court a quo on August 14, 1981. 11

That said observations made in the civil case at bar and the intrusion into the merits of the criminal case pending in another court are
improper do not have to be belabored. In the latter case, the criminal trial court has to grapple with such factual issues as, for instance,
whether or not the period of five banking days had expired, in the process determining whether notice of dishonor should be reckoned
from any prior notice if any has been given or from receipt by private respondents of the subpoena therein with supporting affidavits, if
any, or from the first day of actual preliminary investigation; and whether there was a justification for not making the requisite
arrangements for payment in full of such check by the drawee bank within the said period. These are matters alien to the present
controversy on tender and consignation of payment, where no such period and its legal effects are involved.

These are aside from the considerations that the disputed period involved in the criminal case is only a presumptive rule, juris tantum at
that, to determine whether or not there was knowledge of insufficiency of funds in or credit with the drawee bank; that payment of civil
liability is not a mode for extinguishment of criminal liability; and that the requisite quantum of evidence in the two types of cases are not
the same.

To repeat, the foregoing matters are properly addressed to the trial court in Criminal Case No. Q-14867, the resolution of which should
not be interfered with by respondent Court of Appeals at the present posture of said case, much less preempted by the inappropriate
and unnecessary holdings in the aforequoted portion of the decision of said respondent court. Consequently, we modify the decision of
respondent court in CA-G.R. CV No. 05464 by setting aside and declaring without force and effect its pronouncements and findings
insofar as the merits of Criminal Case No. Q-14867 and the liability of the accused therein are concerned.

WHEREFORE, subject to the aforesaid modifications, the judgment of respondent Court of Appeals is AFFIRMED.

SO ORDERED.

Paras, Padilla and Sarmiento, JJ., concur.

Melencio-Herrera J., took no part.

G.R. No. 96160 June 17, 1992

STELCO MARKETING CORPORATION, petitioner,

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

NARVASA, c.J.:

Stelco Marketing Corporation is engaged in the distribution and sale to the public of structural steel bars. 1 On seven (7) different
occasions in September and October, 1980, it sold to RYL Construction, Inc. quantities of steels bars of various sizes and rolls of G.I.
wire. These bars and wire were delivered at different places at the indication of RYL Construction, Inc. The aggregate price for the
purchases was P126,859.61.
Although the corresponding invoices issued by STELCO stipulated that RYL pay "COD" (cash on delivery), the latter made no
payments for the construction materials thus ordered and delivered despite insistent demands for payment by the former.

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

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

On account of the dishonor of Metrobank Check No. 765380, and on complaint of Armstrong Industries (through a Mr. Young), Rafael
Limson and Artemio Torres were charged in the Regional Trial Court of Manila with a violation of Batas Pambansa Bilang 22. 7 They
were acquitted in a decision rendered on June 28, 1984 "on the ground that the check in question was not issued by the drawer "to
apply on account for value," it being merely for accommodation purposes. 8 The judgment however conditioned the acquittal with the
following pronouncement:

This is not however to release Steelweld Corporation from its liability under Sec. 29 of the Negotiable Instruments
Law for having issued it for the accommodation of Romeo Lim.

Eleven months or so later — and some four (4) years after issuance of the check in question — in May, 1985, STELCO filed with the
Regional Trial Court at Caloocan City a civil complaint 9 against both RYL and STEELWELD for the recovery of the valued of the steel
bars and wire sold to and delivered to RYL (as already narrated) in the amount of P126,129.86, "plus 18% interest from August 20,
1980 . . . (and) 25% of the total amount sought to be recovered as and by way of attorney's fees . . . ." 10 Among the allegations of its
complaint was that Metrobank Check No. 765380 above mentioned had been given to it in payment of RYL's indebtedness, duly
indorsed by R.Y. Lim. 11 A preliminary attachment was issued by the trial court on the basis of the averments of the complaint but was
shortly dissolved upon the filing of a counter-bond by STEELWELD.

RYL could no longer be located and could not be served with

summons. 12 It never appeared. Only STEELWELD filed an answer, under date of July 16, 1985. 13 In said pleading, it specifically
denied the facts alleged in the complaint, the truth, according to Steelweld, being basically that —

1) STELCO "is a complete stranger to it;" it had "not entered into any transaction or business dealing of any kind" with STELCO, the
transactions described in the complaint having been solely and exclusively between the plaintiff and RYL Construction;

2) the check in question was "only given to a certain R. Lim to be used as collateral for another obligation . . . (but) in breach of his
agreement (Lim) utilized and negotiated the check for another purpose. . . .;

3) nevertheless, the check "is wholly inoperative since . . . Steelweld

. . . did not issue it for any valuable consideration either to R. Lim or to the plaintiff not to mention also the fact that the said plaintiff
failed to comply with the requirements of the law to hold the said defendant (STEELWELD) liable
. . ."

Trial ensued upon these issues, after which judgment was rendered on June 26, 1986. 14 The judgment sentenced "the defendant
Steelweld Corporation to pay to . . . (Stelco Marketing Corporation) the amount of P126,129.86 with legal rate of interest from May 9,
1985, when this case was instituted until fully paid, plus another sum equivalent to 25% of the total amount due as and for attorney's
fees . . . 15 That disposition was justified in the judgment as follows:16

There is no question, then, that as far as any commercial transaction is concerned between plaintiff and defendant
Steelweld no such transaction ever occurred. Ordinarily, under civil law rules, there having been no transaction
between them involving the purchase of certain merchandise there would be no privity of contract between them, and
plaintiff will have no right to sue the defendant for payment of said merchandise for the simple reason that the
defendant did not order them, such less receive them.

But we have here a case where the defendant Steelweld thru its President Peter Rafael Limson admitted to have
issued a check payable to cash in favor of his friend Romeo Lim who was the President of RYL Construction by way
of accommodation. Under the Negotiable Instruments Law an accommodation party is liable.

Sec. 29. Liability of an accommodation party. — An accommodation party is one who has signed
the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the
 purpose of lending his name to some other person. Such a person is liable on the instrument to a
holder for value notwithstanding such holder at the time of taking the instrument knew him to be
only an accommodation party.

From this adverse judgment STEELWELD appealed to the Court of Appeals 17 and there succeeded in reversing the judgment. By
Decision promulgated on May 29, 1990, 18 the Court of Appeals 19 ordered "the complaint against appellant (STEELWELD)
DISMISSED; (and the appellee, STELCO) to pay appellant the sum of P15,000.00 as attorney's fees and cost of litigation, the suit . . .
(being) a baseless one that dragged appellant in court and caused it to incur attorney's fees and expense of litigation.

20
STELCO's motion for reconsideration was denied by the Appellate Tribunal's resolution dated November 13, 1990. The Court
stressed that —

. . . as far as Steelweld is concerned, there was no commercial transaction between said appellant and appellee.
Moreover, there is no evidence that appellee Stelco Marketing became a holder for value. Nowhere in the check itself
does the name of Stelco Marketing appear as payee, indorsee or depositor thereof. Finally, appellee's complaint is for
the collection of the unpaid accounts for delivery of steels bars and construction materials. It having been established
that appellee had no commercial transaction with appellant Stelco, appellee had no cause of action against said
appellant.

STELCO appealed to this Court in accordance with Rule 45 of the Rules of Court. In this Court it seeks to make the following points in
connection with its plea for the overthrow of the Appellate Tribunal's aforesaid decision, viz.:

1) said decision is "not in accord with law and jurisprudence;"

2) "STELCO is a "holder" within the meaning of the Negotiable Instruments Law;"

3) "STELCO is a holder in due course of Metrobank Check No. 765380 . . . (and hence) holds the same free from personal or equitable
defense;" and

4) "Negotiation in breach of faith is a personal defense . . . (and hence) not effective as against a holder in due course."

The points are not well taken.

The crucial question is whether or not STELCO ever became a holder in due course of Check No. 765380, a bearer instrument, within
the contemplation of the Negotiable Instruments Law. It never did.

STELCO evidently places much reliance on the pronouncement of the Regional Trial Court in Criminal Case No. 66571, 21 that the
acquittal of the two (2) accused (Limson and Torres) did not operate "to release Steelweld Corporation from its liability under Sec. 29 of
the Negotiable Instruments Law for having issued . . . (the check) for the accommodation of Romeo Lim." The cited provision reads as
follows:

Sec. 29. Liability of accommodation party. — An accommodation party is one who has singed the instrument as
maker, drawer, acceptor, or indorser, without receiving valued therefor, and for the purpose of lending his name to
some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder, at
the time of taking the instrument, knew him to be only an accommodation party.

It is noteworthy that the Trial Court's pronouncement containing reference to said Section 29 did not specify to whom STEELWELD, as
accommodation party, is supposed to be liable; and certain it is that neither said pronouncement nor any other part of the judgment of
acquittal declared it liable to STELCO.

22
"A holder in due course," says the law, "is a holder who has taken the instrument under the following conditions:

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

(b) That he became the holder of it before it was overdue, and without notice that it had been previously dishonored,
if such was the fact;

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

(d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title of
the persons negotiating it.
To be sure, as regards an accommodation party (such as STEELWELD), the fourth condition, i.e., lack of notice of any infirmity in the
instruments or defect in title of the persons negotiating it, has no application. This is because Section 29 of the law above quoted
preserves the right of recourse of a "holder for value" against the accommodation party notwithstanding that "such holder, at the time of
taking the instrument, knew him to be only an accommodation
party." 23

Now, STELCO theorizes that it should be deemed a "holder for value" of STEELWELD's Check No. 765380 because the record shows
it to have been in "actual possession" thereof; otherwise, it "could not have presented, marked and introduced (said check) in evidence
. . . before the court a quo." "Besides," it adds, the check in question was presented by STELCO to the drawee bank for payment
through Armstrong Industries, the manufacturing arm of STELCO and its sister company." 24

The trouble is, there is no evidence whatever that STELCO's possession of Check No. 765380 ever dated back to nay time before the
instrument's presentment and dishonor. There is no evidence whatsoever that the check was ever given to it, or indorsed to it in any
manner or form in payment of an obligation or as security for an obligation, or for any other purpose before it was presented for
payment. On the contrary, the factual finding of the Court of Appeals, which by traditional precept is normally conclusive on this Court,
is that STELCO never became a holder for value and that "(n)owhere in the check itself does the name of Stelco Marketing appear as
payee, indorsee or depositor thereof." 25

What the record shows is that: (1) the STEELWELD company check in question was given by its president to R.Y. Lim; (2) it was given
only by way of accommodation, to be "used as collateral for another obligation;" (3) in breach of the agreement, however, R.Y. Lim
indorsed the check to Armstrong in payment of obligation; (4) Armstrong deposited the check to its account, after indorsing it; (5) the
check was dishonored. The record does not show any intervention or participation by STELCO in any manner of form whatsoever in
these transactions, or any communication of any sort between STEELWELD and STELCO, or between either of them and Armstrong
Industries, at any time before the dishonor of the check.

The record does show that after the check had been deposited and dishonored, STELCO came into possession of it in some way, and
was able, several years after the dishonor of the check, to give it in evidence at the trial of the civil case it had instituted against the
drawers of the check (Limson and Torres) and RYL. But, as already pointed out, possession of a negotiable instrument after
presentment and dishonor, or payment, is utterly inconsequential; it does not make the possessor a holder for value within the meaning
of the law; it gives rise to no liability on the part of the maker or drawer and indorsers.

It is clear from the relevant circumstances that STELCO cannot be deemed a holder of the check for value. It does not meet two of the
essential requisites prescribed by the statute. It did not become "the holder of it before it was overdue, and without notice that it had
been previously dishonored," and it did not take the check "in good faith and for value." 26

Neither is there any evidence whatever that Armstrong Industries, to whom R.Y. Lim negotiated the check accepted the instrument and
attempted to encash it in behalf, and as agent of STELCO. On the contrary, the indications are that Armstrong was really the intended
payee of the check and was the party actually injured by its dishonor; it was after all its representative (a Mr. Young) who instituted the
criminal prosecution of the drawers, Limson and Torres, albeit unsuccessfully.

The petitioner has failed to show any sufficient cause for modification or reversal of the challenged judgment of the Court of Appeals
which, on the contrary, appears to be entirely in accord with the facts and the applicable law.

WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals in CA-G.R. CV No. 13418 is AFFIRMED in toto. Costs
against petitioner.

SO ORDERED

Paras, Padilla and Regalado, JJ., concur.

Nocon., J., is on leave.

[G.R. No. 112392. February 29, 2000]

BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. COURT OF APPEALS and BENJAMIN C. NAPIZA, respondents.

DECISION

YNARES-SANTIAGO, J.:

This is a petition for review on certiorari of the Decision[1] of the Court of Appeals in CA-G.R. CV No. 37392 affirming in toto that of the
Regional Trial Court of Makati, Branch 139,[2] which dismissed the complaint filed by petitioner Bank of the Philippine Islands against
private respondent Benjamin C. Napiza for sum of money. Sdaad
On September 3, 1987, private respondent deposited in Foreign Currency Deposit Unit (FCDU) Savings Account No. 028-187[3] which
he maintained in petitioner banks Buendia Avenue Extension Branch, Continental Bank Managers Check No. 00014757 [4] dated August
17, 1984, payable to "cash" in the amount of Two Thousand Five Hundred Dollars ($2,500.00) and duly endorsed by private respondent
on its dorsal side.[5] It appears that the check belonged to a certain Henry Chan who went to the office of private respondent and
requested him to deposit the check in his dollar account by way of accommodation and for the purpose of clearing the same. Private
respondent acceded, and agreed to deliver to Chan a signed blank withdrawal slip, with the understanding that as soon as the check is
cleared, both of them would go to the bank to withdraw the amount of the check upon private respondents presentation to the bank of
his passbook.

Using the blank withdrawal slip given by private respondent to Chan, on October 23, 1984, one Ruben Gayon, Jr. was able to withdraw
the amount of $2,541.67 from FCDU Savings Account No. 028-187. Notably, the withdrawal slip shows that the amount was payable to
Ramon A. de Guzman and Agnes C. de Guzman and was duly initialed by the branch assistant manager, Teresita Lindo. [6]

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

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

In reply, private respondent wrote petitioners counsel on April 20, 1985[13] stating that he deposited the check "for clearing purposes"
only to accommodate Chan. He added:

"Further, please take notice that said check was deposited on September 3, 1984 and withdrawn on October 23,
1984, or a total period of fifty (50) days had elapsed at the time of withdrawal. Also, it may not be amiss to mention
here that I merely signed an authority to withdraw said deposit subject to its clearing, the reason why the transaction
is not reflected in the passbook of the account. Besides, I did not receive its proceeds as may be gleaned from the
withdrawal slip under the captioned signature of recipient.

If at all, my obligation on the transaction is moral in nature, which (sic) I have been and is (sic) still exerting utmost
and maximum efforts to collect from Mr. Henry Chan who is directly liable under the circumstances. Scsdaad

xxx......xxx......xxx."

On August 12, 1986, petitioner filed a complaint against private respondent, praying for the return of the amount of $2,500.00 or the
prevailing peso equivalent plus legal interest from date of demand to date of full payment, a sum equivalent to 20% of the total amount
due as attorney's fees, and litigation and/or costs of suit.

Private respondent filed his answer, admitting that he indeed signed a "blank" withdrawal slip with the understanding that the amount
deposited would be withdrawn only after the check in question has been cleared. He likewise alleged that he instructed the party to
whom he issued the signed blank withdrawal slip to return it to him after the bank drafts clearance so that he could lend that party his
passbook for the purpose of withdrawing the amount of $2,500.00. However, without his knowledge, said party was able to withdraw
the amount of $2,541.67 from his dollar savings account through collusion with one of petitioners employees. Private respondent added
that he had "given the Plaintiff fifty one (51) days with which to clear the bank draft in question." Petitioner should have disallowed the
withdrawal because his passbook was not presented. He claimed that petitioner had no one to blame except itself "for being grossly
negligent;" in fact, it had allegedly admitted having paid the amount in the check "by mistake" x x x "if not altogether due to collusion
and/or bad faith on the part of (its) employees." Charging petitioner with "apparent ignorance of routine bank procedures," by way of
counterclaim, private respondent prayed for moral damages of P100,000.00, exemplary damages of P50,000.00 and attorneys fees of
30% of whatever amount that would be awarded to him plus an honorarium of P500.00 per appearance in court.

Private respondent also filed a motion for admission of a third party complaint against Chan. He alleged that "thru strategem and/or
manipulation," Chan was able to withdraw the amount of $2,500.00 even without private respondents passbook. Thus, private
respondent prayed that third party defendant Chan be made to refund to him the amount withdrawn and to pay attorneys fees of
P5,000.00 plus P300.00 honorarium per appearance.

Petitioner filed a comment on the motion for leave of court to admit the third party complaint, wherein it asserted that per paragraph 2 of
the Rules and Regulations governing BPI savings accounts, private respondent alone was liable "for the value of the credit given on
account of the draft or check deposited." It contended that private respondent was estopped from disclaiming liability because he
himself authorized the withdrawal of the amount by signing the withdrawal slip. Petitioner prayed for the denial of the said motion so as
not to unduly delay the disposition of the main case asserting that private respondents claim could be ventilated in another case.

Private respondent replied that for the parties to obtain complete relief and to avoid multiplicity of suits, the motion to admit third party
complaint should be granted. Meanwhile, the trial court issued orders on August 25, 1987 and October 28, 1987 directing private
respondent to actively participate in locating Chan. After private respondent failed to comply, the trial court, on May 18, 1988, dismissed
the third party complaint without prejudice.

On November 4, 1991, a decision was rendered dismissing the complaint. The lower court held that petitioner could not hold private
respondent liable based on the checks face value alone. To so hold him liable "would render inutile the requirement of clearance from
the drawee bank before the value of a particular foreign check or draft can be credited to the account of a depositor making such
deposit." The lower court further held that "it was incumbent upon the petitioner to credit the value of the check in question to the
account of the private respondent only upon receipt of the notice of final payment and should not have authorized the withdrawal from
the latters account of the value or proceeds of the check." Having admitted that it committed a "mistake" in not waiting for the clearance
of the check before authorizing the withdrawal of its value or proceeds, petitioner should suffer the resultant loss. Supremax

On appeal, the Court of Appeals affirmed the lower courts decision. The appellate court held that petitioner committed "clear gross
negligence" in allowing Ruben Gayon, Jr. to withdraw the money without presenting private respondents passbook and, before the
check was cleared and in crediting the amount indicated therein in private respondents account. It stressed that the mere deposit of a
check in private respondents account did not mean that the check was already private respondents property. The check still had to be
cleared and its proceeds can only be withdrawn upon presentation of a passbook in accordance with the banks rules and regulations.
Furthermore, petitioners contention that private respondent warranted the checks genuineness by endorsing it is untenable for it would
render useless the clearance requirement. Likewise, the requirement of presentation of a passbook to ascertain the propriety of the
accounting reflected would be a meaningless exercise. After all, these requirements are designed to protect the bank from deception or
fraud.

The Court of Appeals cited the case of Roman Catholic Bishop of Malolos, Inc. v. IAC,[14] where this Court stated that a personal check
is not legal tender or money, and held that the check deposited in this case must be cleared before its value could be properly
transferred to private respondent's account.

Without filing a motion for the reconsideration of the Court of Appeals Decision, petitioner filed this petition for review on certiorari,
raising the following issues:

1.......WHETHER OR NOT RESPONDENT NAPIZA IS LIABLE UNDER HIS WARRANTIES AS A GENERAL

INDORSER.

2.......WHETHER OR NOT A CONTRACT OF AGENCY WAS CREATED BETWEEN RESPONDENT NAPIZA AND
RUBEN GAYON.

3.......WHETHER OR NOT PETITIONER WAS GROSSLY NEGLIGENT IN ALLOWING THE WITHDRAWAL.

Petitioner claims that private respondent, having affixed his signature at the dorsal side of the check, should be liable for the amount
stated therein in accordance with the following provision of the Negotiable Instruments Law (Act No. 2031):

"SEC. 66. Liability of general indorser. Every indorser who indorses without qualification, warrants to all subsequent
holders in due course

(a)......The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section; and

(b)......That the instrument is at the time of his indorsement, valid and subsisting.

And, in addition, he engages that on due presentment, it shall be accepted or paid, or both, as the case may be,
according to its tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly taken, he will
pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it."

Section 65, on the other hand, provides for the following warranties of a person negotiating an instrument by delivery or by qualified
indorsement: (a) that the instrument is genuine and in all respects what it purports to be; (b) that he has a good title to it, and (c) that all
prior parties had capacity to contract.[15] In People v. Maniego,[16] this Court described the liabilities of an indorser as follows: Juris

"Appellants contention that as mere indorser, she may not be liable on account of the dishonor of the checks indorsed
by her, is likewise untenable. Under the law, the holder or last indorsee of a negotiable instrument has the right to
enforce payment of the instrument for the full amount thereof against all parties liable thereon. Among the parties
liable thereon is an indorser of the instrument, i.e., a person placing his signature upon an instrument otherwise than
as a maker, drawer or acceptor * * unless he clearly indicated by appropriate words his intention to be bound in some
 other capacity. Such an indorser who indorses without qualification, inter alia engages that on due presentment, * *
(the instrument) shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be
dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder,
or any subsequent indorser who may be compelled to pay it. Maniego may also be deemed an accommodation party
in the light of the facts, i.e., a person who has signed the instrument as maker, drawer, acceptor, or indorser, without
receiving value therefor, and for the purpose of lending his name to some other person. As such, she is under the law
liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument knew * *
(her) to be only an accommodation party, although she has the right, after paying the holder, to obtain reimbursement
from the party accommodated, since the relation between them is in effect that of principal and surety, the
accommodation party being the surety."

It is thus clear that ordinarily private respondent may be held liable as an indorser of the check or even as an accommodation
party.[17] However, to hold private respondent liable for the amount of the check he deposited by the strict application of the law and
without considering the attending circumstances in the case would result in an injustice and in the erosion of the public trust in the
banking system. The interest of justice thus demands looking into the events that led to the encashment of the check.

Petitioner asserts that by signing the withdrawal slip, private respondent "presented the opportunity for the withdrawal of the amount in
question." Petitioner relied "on the genuine signature on the withdrawal slip, the personality of private respondents son and the lapse of
more than fifty (50) days from date of deposit of the Continental Bank draft, without the same being returned yet." [18] We hold, however,
that the propriety of the withdrawal should be gauged by compliance with the rules thereon that both petitioner bank and its depositors
are duty-bound to observe.

In the passbook that petitioner issued to private respondent, the following rules on withdrawal of deposits appear:

"4.......Withdrawals must be made by the depositor personally but in some exceptional circumstances, the Bank may
allow withdrawal by another upon the depositors written authority duly authenticated; and neither a deposit nor a
withdrawal will be permitted except upon the presentation of the depositors savings passbook, in which the amount
deposited withdrawn shall be entered only by the Bank.

5.......Withdrawals may be made by draft, mail or telegraphic transfer in currency of the account at the request of the
depositor in writing on the withdrawal slip or by authenticated cable. Such request must indicate the name of the
payee/s, amount and the place where the funds are to be paid. Any stamp, transmission and other charges related to
such withdrawals shall be for the account of the depositor and shall be paid by him/her upon demand. Withdrawals
may also be made in the form of travellers checks and in pesos. Withdrawals in the form of notes/bills are allowed
subject however, to their (availability).

6.......Deposits shall not be subject to withdrawal by check, and may be withdrawn only in the manner above
provided, upon presentation of the depositors savings passbook and with the withdrawal form supplied by the Bank at
the counter."[19] Scjuris

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

Such contention would have been valid if not for the fact that the withdrawal slip itself indicates a special instruction that the amount is
payable to "Ramon A. de Guzman &/or Agnes C. de Guzman." Such being the case, petitioners personnel should have been duly
warned that Gayon, who was also employed in petitioners Buendia Ave. Extension branch,[21] was not the proper payee of the proceeds
of the check. Otherwise, either Ramon or Agnes de Guzman should have issued another authority to Gayon for such withdrawal. Of
course, at the dorsal side of the withdrawal slip is an "authority to withdraw" naming Gayon the person who can withdraw the amount
indicated in the check. Private respondent does not deny having signed such authority. However, considering petitioners clear
admission that the withdrawal slip was a blank one except for private respondents signature, the unavoidable conclusion is that the
typewritten name of "Ruben C. Gayon, Jr." was intercalated and thereafter it was signed by Gayon or whoever was allowed by
petitioner to withdraw the amount. Under these facts, there could not have been a principal-agent relationship between private
respondent and Gayon so as to render the former liable for the amount withdrawn.

Moreover, the withdrawal slip contains a boxed warning that states: "This receipt must be signed and presented with the corresponding
foreign currency savings passbook by the depositor in person. For withdrawals thru a representative, depositor should accomplish the
authority at the back." The requirement of presentation of the passbook when withdrawing an amount cannot be given mere lip service
even though the person making the withdrawal is authorized by the depositor to do so. This is clear from Rule No. 6 set out by
petitioner so that, for the protection of the banks interest and as a reminder to the depositor, the withdrawal shall be entered in the
depositors passbook. The fact that private respondents passbook was not presented during the withdrawal is evidenced by the entries
therein showing that the last transaction that he made with the bank was on September 3, 1984, the date he deposited the controversial
check in the amount of $2,500.00.[22]

In allowing the withdrawal, petitioner likewise overlooked another rule that is printed in the passbook. Thus:

"2.......All deposits will be received as current funds and will be repaid in the same manner; provided, however,
that deposits of drafts, checks, money orders, etc. will be accepted as subject to collection only and credited to the
account only upon receipt of the notice of final payment. Collection charges by the Banks foreign correspondent in
effecting such collection shall be for the account of the depositor. If the account has sufficient balance, the collection
shall be debited by the Bank against the account. If, for any reason, the proceeds of the deposited checks, drafts,
money orders, etc., cannot be collected or if the Bank is required to return such proceeds, the provisional entry
therefor made by the Bank in the savings passbook and its records shall be deemed automatically cancelled
regardless of the time that has elapsed, and whether or not the defective items can be returned to the depositor; and
the Bank is hereby authorized to execute immediately the necessary corrections, amendments or changes in its
record, as well as on the savings passbook at the first opportunity to reflect such cancellation." (Italics and underlining
supplied.) Jurissc

As correctly held by the Court of Appeals, in depositing the check in his name, private respondent did not become the outright owner of
the amount stated therein. Under the above rule, by depositing the check with petitioner, private respondent was, in a way, merely
designating petitioner as the collecting bank. This is in consonance with the rule that a negotiable instrument, such as a check, whether
a managers check or ordinary check, is not legal tender.[23] As such, after receiving the deposit, under its own rules, petitioner shall
credit the amount in private respondents account or infuse value thereon only after the drawee bank shall have paid the amount of the
check or the check has been cleared for deposit. Again, this is in accordance with ordinary banking practices and with this Courts
pronouncement that "the collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the
genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that
the party making the presentment has done its duty to ascertain the genuineness of the endorsements."[24] The rule finds more meaning
in this case where the check involved is drawn on a foreign bank and therefore collection is more difficult than when the drawee bank is
a local one even though the check in question is a managers check. [25] Misjuris

In Banco Atlantico v. Auditor General,[26] Banco Atlantico, a commercial bank in Madrid, Spain, paid the amounts represented in three
(3) checks to Virginia Boncan, the finance officer of the Philippine Embassy in Madrid. The bank did so without previously clearing the
checks with the drawee bank, the Philippine National Bank in New York, on account of the "special treatment" that Boncan received
from the personnel of Banco Atlanticos foreign department. The Court held that the encashment of the checks without prior clearance is
"contrary to normal or ordinary banking practice specially so where the drawee bank is a foreign bank and the amounts involved were
large." Accordingly, the Court approved the Auditor Generals denial of Banco Atlanticos claim for payment of the value of the checks
that was withdrawn by Boncan.

Said ruling brings to light the fact that the banking business is affected with public interest. By the nature of its functions, a bank is
under obligation to treat the accounts of its depositors "with meticulous care, always having in mind the fiduciary nature of their
relationship."[27] As such, in dealing with its depositors, a bank should exercise its functions not only with the diligence of a good father
of a family but it should do so with the highest degree of care.[28]

In the case at bar, petitioner, in allowing the withdrawal of private respondents deposit, failed to exercise the diligence of a good father
of a family. In total disregard of its own rules, petitioners personnel negligently handled private respondents account to petitioners
detriment. As this Court once said on this matter:

"Negligence is the omission to do something which a reasonable man, guided by those considerations which
ordinarily regulate the conduct of human affairs, would do, or the doing of something which a prudent and reasonable
man would do. The seventy-eight (78)-year-old, yet still relevant, case of Picart v. Smith, provides the test by which to
determine the existence of negligence in a particular case which may be stated as follows: Did the defendant in doing
the alleged negligent act use that reasonable care and caution which an ordinarily prudent person would have used in
the same situation? If not, then he is guilty of negligence. The law here in effect adopts the standard supposed to be
supplied by the imaginary conduct of the discreet pater-familias of the Roman law. The existence of negligence in a
given case is not determined by reference to the personal judgment of the actor in the situation before him. The law
considers what would be reckless, blameworthy, or negligent in the man of ordinary intelligence and prudence and
determines liability by that."[29]

Petitioner violated its own rules by allowing the withdrawal of an amount that is definitely over and above the aggregate amount of
private respondents dollar deposits that had yet to be cleared. The banks ledger on private respondents account shows that before he
deposited $2,500.00, private respondent had a balance of only $750.00. [30] Upon private respondents deposit of $2,500.00 on
September 3, 1984, that amount was credited in his ledger as a deposit resulting in the corresponding total balance of $3,250.00. [31] On
September 10, 1984, the amount of $600.00 and the additional charges of $10.00 were indicated therein as withdrawn thereby leaving
a balance of $2,640.00. On September 30, 1984, an interest of $11.59 was reflected in the ledger and on October 23, 1984, the amount
of $2,541.67 was entered as withdrawn with a balance of $109.92. [32] On November 19, 1984 the word "hold" was written beside the
balance of $109.92.[33] That must have been the time when Reyes, petitioners branch manager, was informed unofficially of the fact that
the check deposited was a counterfeit, but petitioners Buendia Ave. Extension Branch received a copy of the communication thereon
from Wells Fargo Bank International in New York the following day, November 20, 1984. [34]According to Reyes, Wells Fargo Bank
International handled the clearing of checks drawn against U.S. banks that were deposited with petitioner. [35] Jjlex

From these facts on record, it is at once apparent that petitioners personnel allowed the withdrawal of an amount bigger than the
original deposit of $750.00 and the value of the check deposited in the amount of $2,500.00 although they had not yet received notice
from the clearing bank in the United States on whether or not the check was funded. Reyes contention that after the lapse of the 35-day
period the amount of a deposited check could be withdrawn even in the absence of a clearance thereon, otherwise it could take a long
time before a depositor could make a withdrawal, [36] is untenable. Said practice amounts to a disregard of the clearance requirement of
the banking system.

While it is true that private respondents having signed a blank withdrawal slip set in motion the events that resulted in the withdrawal
and encashment of the counterfeit check, the negligence of petitioners personnel was the proximate cause of the loss that petitioner
sustained. Proximate cause, which is determined by a mixed consideration of logic, common sense, policy and precedent, is "that
cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which
the result would not have occurred."[37] The proximate cause of the withdrawal and eventual loss of the amount of $2,500.00 on
petitioners part was its personnels negligence in allowing such withdrawal in disregard of its own rules and the clearing requirement in
the banking system. In so doing, petitioner assumed the risk of incurring a loss on account of a forged or counterfeit foreign check and
hence, it should suffer the resulting damage.

WHEREFORE, the petition for review on certiorari is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 37392 is
AFFIRMED.

SO ORDERED. Newmiso

Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo, JJ., concur.

AGRO CONGLOMERATES, INC. and MARIO SORIANO, petitioners, vs. THE HON. COURT OF APPEALS and REGENT SAVINGS
and LOAN BANK, INC., respondents.

DECISION
QUISUMBING, J.:

This is a petition for review challenging the decision[1] dated October 17, 1994 of the Court of Appeals in CA-G.R. No. 32933, which
affirmed in toto the judgment of the Manila Regional Trial Court, Branch 27, in consolidated Cases Nos. 86-37374, 86-37388, 86-37543.
This petition springs from three complaints for sums of money filed by respondent bank against herein petitioners. In the decision
of the Court of Appeals, petitioners were ordered to pay respondent bank, as follows:

Wherefore, judgment is hereby rendered in favor of plaintiff and against defendants, as follows:

1) In Civil Case No. 86-37374, defendants [petitioners, herein] are ordered jointly and severally, to pay to plaintiff the amount
of P78,212.29, together with interest and service charge thereon, at the rates of 14% and 3% per annum, respectively,
computed from November 10, 1982, until fully paid, plus stipulated penalty on unpaid principal at the rate of 6% per annum,
computed from November 10, 1982, plus 15% as liquidated damage plus 10% of the total amount due, as attorneys fees,
plus costs;
2) In Civil Case No. 86-37388, defendant is ordered to pay plaintiff the amount of P632,911.39, together with interest and
service charge thereon at the rate of 14% and 3% per annum, respectively, computed from January 15, 1983, until fully
paid, plus stipulated penalty on unpaid principal at the rate of 6% per annum, computed from January 15, 1983, plus
liquidated damages equivalent to 15% of the total amount due, plus attorneys fees equivalent to 10% of the total amount
due, plus costs; and
3) In Civil Case No. 86-37543, defendant is ordered to pay plaintiff, on the first cause of action, the amount of P510,000.00,
together with interest and service charge thereon, at the rates of 14% and 2% per annum, respectively, computed from
March 13, 1983, until fully paid, plus a penalty of 6% per annum, based on the outstanding principal of the loan, computed
from March 13, 1983, until fully paid; and on the second cause of action, the amount of P494,936.71, together with interest
and service charge thereon at the rates of 14% and 2%, per annum, respectively, computed from March 30, 1983, until fully
paid, plus a penalty charge of 6% per annum, based on the unpaid principal, computed from March 30, 1983, until fully
paid, plus (on both causes of action) an amount equal to 15% of the total amounts due, as liquidated damages, plus
attorneys fees equal to 10% of the total amounts due, plus costs. [2]
Based on the records, the following are the factual antecedents.
On July 17, 1982, petitioner Agro Conglomerates, Inc. as vendor, sold two parcels of land to Wonderland Food Industries, Inc. In
their Memorandum of Agreement,[3] the parties covenanted that the purchase price of Five Million (P5,000,000.00) Pesos would be settled
by the vendee, under the following terms and conditions: (1) One Million (P1,000,000.00) Pesos shall be paid in cash upon the signing of
the agreement; (2) Two Million (P2,000,000.00) Pesos worth of common shares of stock of the Wonderland Food Industries, Inc.; and (3)
The balance of P2,000,000.00 shall be paid in four equal installments, the first installment falling due, 180 days after the signing of the
agreement and every six months thereafter, with an interest rate of 18% per annum, to be advanced by the vendee upon the signing of
the agreement.
On July 19, 1982, the vendor, the vendee, and the respondent bank Regent Savings & Loan Bank (formerly Summa Savings &
Loan Association), executed an Addendum [4]to the previous Memorandum of Agreement. The new arrangement pertained to the revision
of settlement of the initial payments of P1,000,000.00 and prepaid interest of P360,000.00 (18% of P2,000,000.00) as follows:

Whereas, the parties have agreed to qualify the stipulated terms for the payment of the said ONE MILLION THREE HUNDRED SIXTY
THOUSAND (P1,360,000.00) PESOS.

WHEREFORE, in consideration of the mutual covenant and agreement of the parties, they do further covenant and agree as follows:

1. That the VENDEE instead of paying the amount of ONE MILLION THREE HUNDRED SIXTY THOUSAND (P1,360,000.00)
PESOS in cash, hereby authorizes the VENDOR to obtain a loan from Summa Savings and Loan Association with office
address at Valenzuela, Metro Manila, being represented herein by its President, Mr. Jaime Cario and referred to hereafter
as Financier; in the amount of ONE MILLION THREE HUNDRED SIXTY THOUSAND (P1,360,000.00)PESOS, plus
interest thereon at such rate as the VENDEE and the Financier may agree, which amount shall cover the ONE MILLION
(P1,000,000.00) PESOS cash which was agreed to be paid upon signing of the Memorandum of Agreement, plus 18%
interest on the balance of two million pesos stipulated upon in Item No. 1(c) of the said agreement; provided however, that
said loan shall be made for and in the name of the VENDOR.
2. The VENDEE also agrees that the full amount of ONE MILLION THREE HUNDRED SIXTY THOUSAND (P1,360,000.00)
PESOS be paid directly to the VENDOR; however, the VENDEE hereby undertakes to pay the full amount of the said loan
to the Financier on such terms and conditions agreed upon by the Financier and the VENDOR, it being understood that
while the loan will be secured from and in the name of the VENDOR, the VENDEE will be the one liable to pay the entire
proceeds thereof including interest and other charges. [5]
This addendum was not notarized.
Consequently, petitioner Mario Soriano signed as maker several promissory notes,[6] payable to the respondent bank. Thereafter,
the bank released the proceeds of the loan to petitioners. However, petitioners failed to meet their obligations as they fell due. During that
time, the bank was experiencing financial turmoil and was under the supervision of the Central Bank. Central Bank examiner and liquidator
Cordula de Jesus, endorsed the subject promissory notes to the banks counsel for collection. The bank gave petitioners opportunity to
settle their account by extending payment due dates. Mario Soriano manifested his intention to re-structure the loan, yet did not show up
nor submit his formal written request.
Respondent bank filed three separate complaints before the Regional Trial Court of Manila for Collection of Sums of money. The
corresponding case histories are illustrated in the table below:

Date of Amount Payment Payment

Loan Due Extension
Date Dates
Civil Case
86-37374 P78,212.29 Nov. 10, Feb. 8,
August 12, 1982 1983
1982 May 9,
1983
Aug. 7,
1983

Civil Case
86-37388 P632,911.39 Jan. 15, May 16,
July 19, 1983 1983
1982 Aug. 14,
1983

Civil Case
86-37543 P510,000.00 March June 11,
September 13, 1983 1983
14, 1982 Sept. 9,
P494,936.71 1983
March
October 1, 30, 1983 June 28,
1982 1983
Sept. 26,
1983
In their answer, petitioners interposed the defense of novation and insisted there was a valid substitution of debtor. They alleged that
the addendum specifically states that although the promissory notes were in their names, Wonderland shall be responsible for the
payment thereof.
The trial court held that petitioners are liable, to wit:

The evidences, however, disclose that Wonderland did not comply with its obligation under said Addendum (Exh. S) as the agreement
to turn over the farmland to it, did not materialize (57 tsn, May 29, 1990), and there was, actually no sale of the land (58 tsn,
ibid). Hence, Wonderland is not answerable. And since the loans obtained under the four promissory notes (Exhs. A, C, G, and E) have
not been paid, despite opportunities given by plaintiff to defendants to make payments, it stands to reason that defendants are liable to
pay their obligations thereunder to plaintiff. In fact, defendants failed to file a third-party complaint against Wonderland, which shows the
weakness of its stand that Wonderland is answerable to make said payments. [7]

Petitioners appealed to the Court of Appeals. The trial courts decision was affirmed by the appellate court.
Hence, this recourse, wherein petitioners raise the sole issue of:

WHETHER THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE ADDENDUM, SIGNED BY THE PETITIONERS,
RESPONDENT BANK AND WONDERLAND INC., CONSTITUTES A NOVATION OF THE CONTRACT BY SUBSTITUTION OF
DEBTOR, WHICH EXEMPTS THE PETITIONERS FROM ANY LIABILITY OVER THE PROMISSORY NOTES.

Revealed by the facts on record, the conflict among the parties started from a contract of sale of a farmland between petitioners and
Wonderland Food Industries, Inc. As found by the trial court, no such sale materialized.
A contract of sale is a reciprocal transaction. The obligation or promise of each party is the cause or consideration for the obligation
or promise by the other. The vendee is obliged to pay the price, while the vendor must deliver actual possession of the land. In the instant
case the original plan was that the initial payments would be paid in cash. Subsequently, the parties (with the participation of respondent
bank) executed an addendum providing instead, that the petitioners would secure a loan in the name of Agro Conglomerates Inc. for the
total amount of the initial payments, while the settlement of said loan would be assumed by Wonderland. Thereafter, petitioner Soriano
signed several promissory notes and received the proceeds in behalf of petitioner-company.
By this time, we note a subsidiary contract of suretyship had taken effect since petitioners signed the promissory notes as maker
and accommodation party for the benefit of Wonderland. Petitioners became liable as accommodation party. An accommodation party is
a person who has signed the instrument as maker, acceptor, or indorser, without receiving value therefor, and for the purpose of lending
his name to some other person and is liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the
instrument knew (the signatory) to be an accommodation party.[8] He has the right, after paying the holder, to obtain reimbursement from
the party accommodated, since the relation between them has in effect become one of principal and surety, the accommodation party
being the surety.[9] Suretyship is defined as the relation which exists where one person has undertaken an obligation and another person
is also under the obligation or other duty to the obligee, who is entitled to but one performance, and as between the two who are bound,
one rather than the other should perform. [10] The suretys liability to the creditor or promisee of the principal is said to be direct, primary
and absolute; in other words, he is directly and equally bound with the principal.[11] And the creditor may proceed against any one of the
solidary debtors.[12]
We do not give credence to petitioners assertion that, as provided by the addendum, their obligation to pay the promissory notes
was novated by substitution of a new debtor, Wonderland. Contrary to petitioners contention, the attendant facts herein do not make a
case of novation.
Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which
extinguishes or modifies the first, either by changing the object or principal conditions, or by substituting another in place of the debtor, or
by subrogating a third person in the rights of the creditor. [13] In order that a novation can take place, the concurrence of the following
requisites[14] are indispensable:
1) There must be a previous valid obligation;
2) There must be an agreement of the parties concerned to a new contract;
3) There must be the extinguishment of the old contract; and
4) There must be the validity of the new contract.
In the instant case, the first requisite for a valid novation is lacking. There was no novation by substitution of debtor because there
was no prior obligation which was substituted by a new contract. It will be noted that the promissory notes, which bound the petitioners
to pay, were executed after the addendum. The addendum modified the contract of sale, not the stipulations in the promissory notes
which pertain to the surety contract. At this instance, Wonderland apparently assured the payment of future debts to be incurred by the
petitioners.Consequently, only a contract of surety arose. It was wrong for petitioners to presume a novation had taken place. The well-
settled rule is that novation is never presumed,[15] it must be clearly and unequivocally shown.[16]
As it turned out, the contract of surety between Wonderland and the petitioners was extinguished by the rescission of the contract
of sale of the farmland. With the rescission, there was confusion or merger in the persons of the principal obligor and the surety, namely
the petitioners herein. The addendum which was dependent thereon likewise lost its efficacy.
 It is true that the basic and fundamental rule in the interpretation of contract is that, if the terms thereof are clear and leave no doubt
as to the intention of the contracting parties, the literal meaning shall control. However, in order to judge the intention of the parties, their
contemporaneous and subsequent acts should be considered.[17]
The contract of sale between Wonderland and petitioners did not materialize. But it was admitted that petitioners received the
proceeds of the promissory notes obtained from respondent bank.
Sec. 22 of the Civil Code provides:

Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at
the expense of the latter without just or legal ground, shall return the same to him.

Petitioners had no legal or just ground to retain the proceeds of the loan at the expense of private respondent. Neither could
petitioners excuse themselves and hold Wonderland still liable to pay the loan upon the rescission of their sales contract. If petitioners
sustained damages as a result of the rescission, they should have impleaded Wonderland and asked damages. The non-inclusion of a
necessary party does not prevent the court from proceeding in the action, and the judgment rendered therein shall be without prejudice
to the rights of such necessary party.[18] But respondent appellate court did not err in holding that petitioners are duty-bound under the
law to pay the claims of respondent bank from whom they had obtained the loan proceeds.
WHEREFORE, the petition is DENIED for lack of merit. The assailed decision of the Court of Appeals dated October 17, 1994 is
AFFIRMED. Costs against petitioners.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.

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

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

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

Vicente Formoso, Jr. for plaintiff-appellee.

Reyes and Pangalañgan for defendants-appellants.

LABRADOR, J.:

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

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

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

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

First. — That on or about 8 September 1953, in the evening, defendant Anita C. Gatchalian who was then interested in looking
for a car for the use of her husband and the family, was shown and offered a car by Manuel Gonzales who was accompanied
by Emil Fajardo, the latter being personally known to defendant Anita C. Gatchalian;

Second. — That Manuel Gonzales represented to defend Anita C. Gatchalian that he was duly authorized by the owner of the
car, Ocampo Clinic, to look for a buyer of said car and to negotiate for and accomplish said sale, but which facts were not
known to plaintiff;

Third. — That defendant Anita C. Gatchalian, finding the price of the car quoted by Manuel Gonzales to her satisfaction,
requested Manuel Gonzales to bring the car the day following together with the certificate of registration of the car, so that her
husband would be able to see same; that on this request of defendant Anita C. Gatchalian, Manuel Gonzales advised her that
the owner of the car will not be willing to give the certificate of registration unless there is a showing that the party interested in
the purchase of said car is ready and willing to make such purchase and that for this purpose Manuel Gonzales requested
 defendant Anita C. Gatchalian to give him (Manuel Gonzales) a check which will be shown to the owner as evidence of buyer's
good faith in the intention to purchase the said car, the said check to be for safekeeping only of Manuel Gonzales and to be
returned to defendant Anita C. Gatchalian the following day when Manuel Gonzales brings the car and the certificate of
registration, but which facts were not known to plaintiff;

Fourth. — That relying on these representations of Manuel Gonzales and with his assurance that said check will be only for
safekeeping and which will be returned to said defendant the following day when the car and its certificate of registration will
be brought by Manuel Gonzales to defendants, but which facts were not known to plaintiff, defendant Anita C. Gatchalian drew
and issued a check, Exh. "B"; that Manuel Gonzales executed and issued a receipt for said check, Exh. "1";

Fifth. — That on the failure of Manuel Gonzales to appear the day following and on his failure to bring the car and its certificate
of registration and to return the check, Exh. "B", on the following day as previously agreed upon, defendant Anita C.
Gatchalian issued a "Stop Payment Order" on the check, Exh. "3", with the drawee bank. Said "Stop Payment Order" was
issued without previous notice on plaintiff not being know to defendant, Anita C. Gatchalian and who furthermore had no
reason to know check was given to plaintiff;

Sixth. — That defendants, both or either of them, did not know personally Manuel Gonzales or any member of his family at any
time prior to September 1953, but that defendant Hipolito Gatchalian is personally acquainted with V. R. de Ocampo;

Seventh. — That defendants, both or either of them, had no arrangements or agreement with the Ocampo Clinic at any time
prior to, on or after 9 September 1953 for the hospitalization of the wife of Manuel Gonzales and neither or both of said
defendants had assumed, expressly or impliedly, with the Ocampo Clinic, the obligation of Manuel Gonzales or his wife for the
hospitalization of the latter;

Eight. — That defendants, both or either of them, had no obligation or liability, directly or indirectly with the Ocampo Clinic
before, or on 9 September 1953;

Ninth. — That Manuel Gonzales having received the check Exh. "B" from defendant Anita C. Gatchalian under the
representations and conditions herein above specified, delivered the same to the Ocampo Clinic, in payment of the fees and
expenses arising from the hospitalization of his wife;

Tenth. — That plaintiff for and in consideration of fees and expenses of hospitalization and the release of the wife of Manuel
Gonzales from its hospital, accepted said check, applying P441.75 (Exhibit "A") thereof to payment of said fees and expenses
and delivering to Manuel Gonzales the amount of P158.25 (as per receipt, Exhibit "D") representing the balance on the
amount of the said check, Exh. "B";

Eleventh. — That the acts of acceptance of the check and application of its proceeds in the manner specified above were
made without previous inquiry by plaintiff from defendants:

Twelfth. — That plaintiff filed or caused to be filed with the Office of the City Fiscal of Manila, a complaint for estafa against
Manuel Gonzales based on and arising from the acts of said Manuel Gonzales in paying his obligations with plaintiff and
receiving the cash balance of the check, Exh. "B" and that said complaint was subsequently dropped;

Thirteenth. — That the exhibits mentioned in this stipulation and the other exhibits submitted previously, be considered as
parts of this stipulation, without necessity of formally offering them in evidence;

WHEREFORE, it is most respectfully prayed that this agreed stipulation of facts be admitted and that the parties hereto be
given fifteen days from today within which to submit simultaneously their memorandum to discuss the issues of law arising
from the facts, reserving to either party the right to submit reply memorandum, if necessary, within ten days from receipt of
their main memoranda. (pp. 21-25, Defendant's Record on Appeal).

No other evidence was submitted and upon said stipulation the court rendered the judgment already alluded above.

In their appeal defendants-appellants contend that the check is not a negotiable instrument, under the facts and circumstances stated in
the stipulation of facts, and that plaintiff is not a holder in due course. In support of the first contention, it is argued that defendant
Gatchalian had no intention to transfer her property in the instrument as it was for safekeeping merely and, therefore, there was no
delivery required by law (Section 16, Negotiable Instruments Law); that assuming for the sake of argument that delivery was not for
safekeeping merely, delivery was conditional and the condition was not fulfilled.

In support of the contention that plaintiff-appellee is not a holder in due course, the appellant argues that plaintiff-appellee cannot be a
holder in due course because there was no negotiation prior to plaintiff-appellee's acquiring the possession of the check; that a holder
in due course presupposes a prior party from whose hands negotiation proceeded, and in the case at bar, plaintiff-appellee is the
payee, the maker and the payee being original parties. It is also claimed that the plaintiff-appellee is not a holder in due course because
it acquired the check with notice of defect in the title of the holder, Manuel Gonzales, and because under the circumstances stated in
the stipulation of facts there were circumstances that brought suspicion about Gonzales' possession and negotiation, which
circumstances should have placed the plaintiff-appellee under the duty, to inquire into the title of the holder. The circumstances are as
follows:

The check is not a personal check of Manuel Gonzales. (Paragraph Ninth, Stipulation of Facts). Plaintiff could have inquired
why a person would use the check of another to pay his own debt. Furthermore, plaintiff had the "means of knowledge"
inasmuch as defendant Hipolito Gatchalian is personally acquainted with V. R. de Ocampo (Paragraph Sixth, Stipulation of
Facts.).

The maker Anita C. Gatchalian is a complete stranger to Manuel Gonzales and Dr. V. R. de Ocampo (Paragraph Sixth,
Stipulation of Facts).

The maker is not in any manner obligated to Ocampo Clinic nor to Manuel Gonzales. (Par. 7, Stipulation of Facts.)

The check could not have been intended to pay the hospital fees which amounted only to P441.75. The check is in the amount
of P600.00, which is in excess of the amount due plaintiff. (Par. 10, Stipulation of Facts).

It was necessary for plaintiff to give Manuel Gonzales change in the sum P158.25 (Par. 10, Stipulation of Facts). Since Manuel
Gonzales is the party obliged to pay, plaintiff should have been more cautious and wary in accepting a piece of paper and
disbursing cold cash.

The check is payable to bearer. Hence, any person who holds it should have been subjected to inquiries. EVEN IN A BANK,
CHECKS ARE NOT CASHED WITHOUT INQUIRY FROM THE BEARER. The same inquiries should have been made by
plaintiff. (Defendants-appellants' brief, pp. 52-53)

Answering the first contention of appellant, counsel for plaintiff-appellee argues that in accordance with the best authority on the
Negotiable Instruments Law, plaintiff-appellee may be considered as a holder in due course, citing Brannan's Negotiable Instruments
Law, 6th edition, page 252. On this issue Brannan holds that a payee may be a holder in due course and says that to this effect is the
greater weight of authority, thus:

Whether the payee may be a holder in due course under the N. I. L., as he was at common law, is a question upon which the
courts are in serious conflict. There can be no doubt that a proper interpretation of the act read as a whole leads to the
conclusion that a payee may be a holder in due course under any circumstance in which he meets the requirements of Sec.
52.

The argument of Professor Brannan in an earlier edition of this work has never been successfully answered and is here
repeated.

Section 191 defines "holder" as the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof. Sec. 52
defendants defines a holder in due course as "a holder who has taken the instrument under the following conditions: 1. That it
is complete and regular on its face. 2. That he became the holder of it before it was overdue, and without notice that it had
been previously dishonored, if such was the fact. 3. That he took it in good faith and for value. 4. That at the time it was
negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it."

Since "holder", as defined in sec. 191, includes a payee who is in possession the word holder in the first clause of sec. 52 and
in the second subsection may be replaced by the definition in sec. 191 so as to read "a holder in due course is a payee or
indorsee who is in possession," etc. (Brannan's on Negotiable Instruments Law, 6th ed., p. 543).

The first argument of the defendants-appellants, therefore, depends upon whether or not the plaintiff-appellee is a holder in due course.
If it is such a holder in due course, it is immaterial that it was the payee and an immediate party to the instrument.

The other contention of the plaintiff is that there has been no negotiation of the instrument, because the drawer did not deliver the
instrument to Manuel Gonzales with the intention of negotiating the same, or for the purpose of giving effect thereto, for as the
stipulation of facts declares the check was to remain in the possession Manuel Gonzales, and was not to be negotiated, but was to
serve merely as evidence of good faith of defendants in their desire to purchase the car being sold to them. Admitting that such was the
intention of the drawer of the check when she delivered it to Manuel Gonzales, it was no fault of the plaintiff-appellee drawee if Manuel
Gonzales delivered the check or negotiated it. As the check was payable to the plaintiff-appellee, and was entrusted to Manuel
Gonzales by Gatchalian, the delivery to Manuel Gonzales was a delivery by the drawer to his own agent; in other words, Manuel
Gonzales was the agent of the drawer Anita Gatchalian insofar as the possession of the check is concerned. So, when the agent of
drawer Manuel Gonzales negotiated the check with the intention of getting its value from plaintiff-appellee, negotiation took place
through no fault of the plaintiff-appellee, unless it can be shown that the plaintiff-appellee should be considered as having notice of the
defect in the possession of the holder Manuel Gonzales. Our resolution of this issue leads us to a consideration of the last question
presented by the appellants, i.e., whether the plaintiff-appellee may be considered as a holder in due course.
Section 52, Negotiable Instruments Law, defines holder in due course, thus:

A holder in due course is a holder who has taken the instrument under the following conditions:

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

(b) That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such
was the fact;

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

(d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the
person negotiating it.

The stipulation of facts expressly states that plaintiff-appellee was not aware of the circumstances under which the check was delivered
to Manuel Gonzales, but we agree with the defendants-appellants that the circumstances indicated by them in their briefs, such as the
fact that appellants had no obligation or liability to the Ocampo Clinic; that the amount of the check did not correspond exactly with the
obligation of Matilde Gonzales to Dr. V. R. de Ocampo; and that the check had two parallel lines in the upper left hand corner, which
practice means that the check could only be deposited but may not be converted into cash — all these circumstances should have put
the plaintiff-appellee to inquiry as to the why and wherefore of the possession of the check by Manuel Gonzales, and why he used it to
pay Matilde's account. It was payee's duty to ascertain from the holder Manuel Gonzales what the nature of the latter's title to the check
was or the nature of his possession. Having failed in this respect, we must declare that plaintiff-appellee was guilty of gross neglect in
not finding out the nature of the title and possession of Manuel Gonzales, amounting to legal absence of good faith, and it may not be
considered as a holder of the check in good faith. To such effect is the consensus of authority.

In order to show that the defendant had "knowledge of such facts that his action in taking the instrument amounted to bad
faith," it is not necessary to prove that the defendant knew the exact fraud that was practiced upon the plaintiff by the
defendant's assignor, it being sufficient to show that the defendant had notice that there was something wrong about his
assignor's acquisition of title, although he did not have notice of the particular wrong that was committed. Paika v. Perry, 225
Mass. 563, 114 N.E. 830.

It is sufficient that the buyer of a note had notice or knowledge that the note was in some way tainted with fraud. It is not
necessary that he should know the particulars or even the nature of the fraud, since all that is required is knowledge of such
facts that his action in taking the note amounted bad faith. Ozark Motor Co. v. Horton (Mo. App.), 196 S.W. 395. Accord. Davis
v. First Nat. Bank, 26 Ariz. 621, 229 Pac. 391.

Liberty bonds stolen from the plaintiff were brought by the thief, a boy fifteen years old, less than five feet tall, immature in
appearance and bearing on his face the stamp a degenerate, to the defendants' clerk for sale. The boy stated that they
belonged to his mother. The defendants paid the boy for the bonds without any further inquiry. Held, the plaintiff could recover
the value of the bonds. The term 'bad faith' does not necessarily involve furtive motives, but means bad faith in a commercial
sense. The manner in which the defendants conducted their Liberty Loan department provided an easy way for thieves to
dispose of their plunder. It was a case of "no questions asked." Although gross negligence does not of itself constitute bad
faith, it is evidence from which bad faith may be inferred. The circumstances thrust the duty upon the defendants to make
further inquiries and they had no right to shut their eyes deliberately to obvious facts. Morris v. Muir, 111 Misc. Rep. 739, 181
N.Y. Supp. 913, affd. in memo., 191 App. Div. 947, 181 N.Y. Supp. 945." (pp. 640-642, Brannan's Negotiable Instruments
Law, 6th ed.).

The above considerations would seem sufficient to justify our ruling that plaintiff-appellee should not be allowed to recover the value of
the check. Let us now examine the express provisions of the Negotiable Instruments Law pertinent to the matter to find if our ruling
conforms thereto. Section 52 (c) provides that a holder in due course is one who takes the instrument "in good faith and for value;"
Section 59, "that every holder is deemed prima facie to be a holder in due course;" and Section 52 (d), that in order that one may be a
holder in due course it is necessary that "at the time the instrument was negotiated to him "he had no notice of any . . . defect in the title
of the person negotiating it;" and lastly Section 59, that every holder is deemed prima facieto be a holder in due course.

In the case at bar the rule that a possessor of the instrument is prima faciea holder in due course does not apply because there was a
defect in the title of the holder (Manuel Gonzales), because the instrument is not payable to him or to bearer. On the other hand, the
stipulation of facts indicated by the appellants in their brief, like the fact that the drawer had no account with the payee; that the holder
did not show or tell the payee why he had the check in his possession and why he was using it for the payment of his own personal
account — show that holder's title was defective or suspicious, to say the least. As holder's title was defective or suspicious, it cannot
be stated that the payee acquired the check without knowledge of said defect in holder's title, and for this reason the presumption that it
is a holder in due course or that it acquired the instrument in good faith does not exist. And having presented no evidence that it
acquired the check in good faith, it (payee) cannot be considered as a holder in due course. In other words, under the circumstances of
the case, instead of the presumption that payee was a holder in good faith, the fact is that it acquired possession of the instrument
under circumstances that should have put it to inquiry as to the title of the holder who negotiated the check to it. The burden was,
therefore, placed upon it to show that notwithstanding the suspicious circumstances, it acquired the check in actual good faith.
The rule applicable to the case at bar is that described in the case of Howard National Bank v. Wilson, et al., 96 Vt. 438, 120 At. 889,
894, where the Supreme Court of Vermont made the following disquisition:

Prior to the Negotiable Instruments Act, two distinct lines of cases had developed in this country. The first had its origin in Gill
v. Cubitt, 3 B. & C. 466, 10 E. L. 215, where the rule was distinctly laid down by the court of King's Bench that the purchaser of
negotiable paper must exercise reasonable prudence and caution, and that, if the circumstances were such as ought to have
excited the suspicion of a prudent and careful man, and he made no inquiry, he did not stand in the legal position of a bona
fide holder. The rule was adopted by the courts of this country generally and seem to have become a fixed rule in the law of
negotiable paper. Later in Goodman v. Harvey, 4 A. & E. 870, 31 E. C. L. 381, the English court abandoned its former position
and adopted the rule that nothing short of actual bad faith or fraud in the purchaser would deprive him of the character of a
bona fide purchaser and let in defenses existing between prior parties, that no circumstances of suspicion merely, or want of
proper caution in the purchaser, would have this effect, and that even gross negligence would have no effect, except as
evidence tending to establish bad faith or fraud. Some of the American courts adhered to the earlier rule, while others followed
the change inaugurated in Goodman v. Harvey. The question was before this court in Roth v. Colvin, 32 Vt. 125, and, on full
consideration of the question, a rule was adopted in harmony with that announced in Gill v. Cubitt, which has been adhered to
in subsequent cases, including those cited above. Stated briefly, one line of cases including our own had adopted the test of
the reasonably prudent man and the other that of actual good faith. It would seem that it was the intent of the Negotiable
Instruments Act to harmonize this disagreement by adopting the latter test. That such is the view generally accepted by the
courts appears from a recent review of the cases concerning what constitutes notice of defect. Brannan on Neg. Ins. Law, 187-
201. To effectuate the general purpose of the act to make uniform the Negotiable Instruments Law of those states which
should enact it, we are constrained to hold (contrary to the rule adopted in our former decisions) that negligence on the part of
the plaintiff, or suspicious circumstances sufficient to put a prudent man on inquiry, will not of themselves prevent a recovery,
but are to be considered merely as evidence bearing on the question of bad faith. See G. L. 3113, 3172, where such a course
is required in construing other uniform acts.

It comes to this then: When the case has taken such shape that the plaintiff is called upon to prove himself a holder in due
course to be entitled to recover, he is required to establish the conditions entitling him to standing as such, including good faith
in taking the instrument. It devolves upon him to disclose the facts and circumstances attending the transfer, from which good
or bad faith in the transaction may be inferred.

In the case at bar as the payee acquired the check under circumstances which should have put it to inquiry, why the holder had the
check and used it to pay his own personal account, the duty devolved upon it, plaintiff-appellee, to prove that it actually acquired said
check in good faith. The stipulation of facts contains no statement of such good faith, hence we are forced to the conclusion that plaintiff
payee has not proved that it acquired the check in good faith and may not be deemed a holder in due course thereof.

For the foregoing considerations, the decision appealed from should be, as it is hereby, reversed, and the defendants are absolved
from the complaint. With costs against plaintiff-appellee.

Padilla, Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon and De Leon, JJ., concur.
Bengzon, C.J., concurs in the result.

G.R. No. 70145 November 13, 1986

MARCELO A. MESINA, petitioner,

vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT, HON. ARSENIO M. GONONG, in his capacity as Judge of Regional
Trial Court — Manila (Branch VIII), JOSE GO, and ALBERT UY, respondents.

PARAS, J.:

This is an appeal by certiorari from the decision of the then Intermediate Appellate Court (IAC for short), now the Court of Appeals (CA)
in AC-G.R. S.P. 04710, dated Jan. 22, 1985, which dismissed the petition for certiorari and prohibition filed by Marcelo A. Mesina
against the trial court in Civil Case No. 84-22515. Said case (an Interpleader) was filed by Associated Bank against Jose Go and
Marcelo A. Mesina regarding their conflicting claims over Associated Bank Cashier's Check No. 011302 for P800,000.00, dated
December 29, 1983.

Briefly, the facts and statement of the case are as follows:

Respondent Jose Go, on December 29, 1983, purchased from Associated Bank Cashier's Check No. 011302 for P800,000.00.
Unfortunately, Jose Go left said check on the top of the desk of the bank manager when he left the bank. The bank manager entrusted
the check for safekeeping to a bank official, a certain Albert Uy, who had then a visitor in the person of Alexander Lim. Uy had to
answer a phone call on a nearby telephone after which he proceeded to the men's room. When he returned to his desk, his visitor Lim
was already gone. When Jose Go inquired for his cashier's check from Albert Uy, the check was not in his folder and nowhere to be
found. The latter advised Jose Go to go to the bank to accomplish a "STOP PAYMENT" order, which suggestion Jose Go immediately
followed. He also executed an affidavit of loss. Albert Uy went to the police to report the loss of the check, pointing to the person of
Alexander Lim as the one who could shed light on it.

The records of the police show that Associated Bank received the lost check for clearing on December 31, 1983, coming from
Prudential Bank, Escolta Branch. The check was immediately dishonored by Associated Bank by sending it back to Prudential Bank,
with the words "Payment Stopped" stamped on it. However, the same was again returned to Associated Bank on January 4, 1984 and
for the second time it was dishonored. Several days later, respondent Associated Bank received a letter, dated January 9, 1984, from a
certain Atty. Lorenzo Navarro demanding payment on the cashier's check in question, which was being held by his client. He however
refused to reveal the name of his client and threatened to sue, if payment is not made. Respondent bank, in its letter, dated January 20,
1984, replied saying the check belonged to Jose Go who lost it in the bank and is laying claim to it.

On February 1, 1984, police sent a letter to the Manager of the Prudential Bank, Escolta Branch, requesting assistance in Identifying
the person who tried to encash the check but said bank refused saying that it had to protect its client's interest and the Identity could
only be revealed with the client's conformity. Unsure of what to do on the matter, respondent Associated Bank on February 2, 1984 filed
an action for Interpleader naming as respondent, Jose Go and one John Doe, Atty. Navarro's then unnamed client. On even date,
respondent bank received summons and copy of the complaint for damages of a certain Marcelo A. Mesina from the Regional Trial
Court (RTC) of Caloocan City filed on January 23, 1984 bearing the number C-11139. Respondent bank moved to amend its complaint,
having been notified for the first time of the name of Atty. Navarro's client and substituted Marcelo A. Mesina for John Doe.
Simultaneously, respondent bank, thru representative Albert Uy, informed Cpl. Gimao of the Western Police District that the lost check
of Jose Go is in the possession of Marcelo Mesina, herein petitioner. When Cpl. Gimao went to Marcelo Mesina to ask how he came to
possess the check, he said it was paid to him by Alexander Lim in a "certain transaction" but refused to elucidate further. An information
for theft (Annex J) was instituted against Alexander Lim and the corresponding warrant for his arrest was issued (Annex 6-A) which up
to the date of the filing of this instant petition remains unserved because of Alexander Lim's successful evation thereof.

Meanwhile, Jose Go filed his answer on February 24, 1984 in the Interpleader Case and moved to participate as intervenor in the
complain for damages. Albert Uy filed a motion of intervention and answer in the complaint for Interpleader. On the Scheduled date of
pretrial conference inthe interpleader case, it was disclosed that the "John Doe" impleaded as one of the defendants is actually
petitioner Marcelo A. Mesina. Petitioner instead of filing his answer to the complaint in the interpleader filed on May 17, 1984 an
Omnibus Motion to Dismiss Ex Abudante Cautela alleging lack of jurisdiction in view of the absence of an order to litigate, failure to
state a cause of action and lack of personality to sue. Respondent bank in the other civil case (CC-11139) for damages moved to
dismiss suit in view of the existence already of the Interpleader case.

The trial court in the interpleader case issued an order dated July 13, 1984, denying the motion to dismiss of petitioner Mesina and
ruling that respondent bank's complaint sufficiently pleaded a cause of action for itnerpleader. Petitioner filed his motion for
reconsideration which was denied by the trial court on September 26, 1984. Upon motion for respondent Jose Go dated October 31,
1984, respondent judge issued an order on November 6, 1984, declaring petitioner in default since his period to answer has already
expirecd and set the ex-parte presentation of respondent bank's evidence on November 7, 1984.

Petitioner Mesina filed a petition for certioari with preliminary injunction with IAC to set aside 1) order of respondent court denying his
omnibus Motion to Dismiss 2) order of 3) the order of default against him.

On January 22, 1985, IAC rendered its decision dimissing the petition for certiorari. Petitioner Mesina filed his Motion for
Reconsideration which was also denied by the same court in its resolution dated February 18, 1985.

Meanwhile, on same date (February 18, 1985), the trial court in Civil Case #84-22515 (Interpleader) rendered a decisio, the dispositive
portion reading as follows:

WHEREFORE, in view of the foregoing, judgment is hereby rendered ordering plaintiff Associate Bank to replace
Cashier's Check No. 011302 in favor of Jose Go or its cas equivalent with legal rate of itnerest from date of
complaint, and with costs of suit against the latter.

SO ORDERED.

On March 29, 1985, the trial court in Civil Case No. C-11139, for damages, issued an order, the pertinent portion of
which states:

The records of this case show that on August 20, 1984 proceedings in this case was (were) ordered suspended
because the main issue in Civil Case No. 84-22515 and in this instant case are the same which is: who between
Marcelo Mesina and Jose Go is entitled to payment of Associated Bank's Cashier's Check No. CC-011302? Said
issue having been resolved already in Civil casde No. 84-22515, really this instant case has become moot and
academic.

WHEREFORE, in view of the foregoing, the motion sholud be as it is hereby granted and this case is ordered
dismissed.
 In view of the foregoing ruling no more action should be taken on the "Motion For Reconsideration (of the order
admitting the Intervention)" dated June 21, 1984 as well as the Motion For Reconsideration dated September 10,
1984.

SO ORDERED.

Petitioner now comes to Us, alleging that:

1. IAC erred in ruling that a cashier's check can be countermanded even in the hands of a holder in due course.

2. IAC erred in countenancing the filing and maintenance of an interpleader suit by a party who had earlier been sued on the same
claim.

3. IAC erred in upholding the trial court's order declaring petitioner as in default when there was no proper order for him to plead in the
interpleader complaint.

4. IAC went beyond the scope of its certiorari jurisdiction by making findings of facts in advance of trial.

Petitioner now interposes the following prayer:

1. Reverse the decision of the IAC, dated January 22, 1985 and set aside the February 18, 1985 resolution denying the Motion for
Reconsideration.

2. Annul the orders of respondent Judge of RTC Manila giving due course to the interpleader suit and declaring petitioner in default.

Petitioner's allegations hold no water. Theories and examples advanced by petitioner on causes and effects of a cashier's check such
as 1) it cannot be countermanded in the hands of a holder in due course and 2) a cashier's check is a bill of exchange drawn by the
bank against itself-are general principles which cannot be aptly applied to the case at bar, without considering other things. Petitioner
failed to substantiate his claim that he is a holder in due course and for consideration or value as shown by the established facts of the
case. Admittedly, petitioner became the holder of the cashier's check as endorsed by Alexander Lim who stole the check. He refused to
say how and why it was passed to him. He had therefore notice of the defect of his title over the check from the start. The holder of a
cashier's check who is not a holder in due course cannot enforce such check against the issuing bank which dishonors the same. If a
payee of a cashier's check obtained it from the issuing bank by fraud, or if there is some other reason why the payee is not entitled to
collect the check, the respondent bank would, of course, have the right to refuse payment of the check when presented by the payee,
since respondent bank was aware of the facts surrounding the loss of the check in question. Moreover, there is no similarity in the
cases cited by petitioner since respondent bank did not issue the cashier's check in payment of its obligation. Jose Go bought it from
respondent bank for purposes of transferring his funds from respondent bank to another bank near his establishment realizing that
carrying money in this form is safer than if it were in cash. The check was Jose Go's property when it was misplaced or stolen, hence
he stopped its payment. At the outset, respondent bank knew it was Jose Go's check and no one else since Go had not paid or
indorsed it to anyone. The bank was therefore liable to nobody on the check but Jose Go. The bank had no intention to issue it to
petitioner but only to buyer Jose Go. When payment on it was therefore stopped, respondent bank was not the one who did it but Jose
Go, the owner of the check. Respondent bank could not be drawer and drawee for clearly, Jose Go owns the money it represents and
he is therefore the drawer and the drawee in the same manner as if he has a current account and he issued a check against it; and
from the moment said cashier's check was lost and/or stolen no one outside of Jose Go can be termed a holder in due course because
Jose Go had not indorsed it in due course. The check in question suffers from the infirmity of not having been properly negotiated and
for value by respondent Jose Go who as already been said is the real owner of said instrument.

In his second assignment of error, petitioner stubbornly insists that there is no showing of conflicting claims and interpleader is out of
the question. There is enough evidence to establish the contrary. Considering the aforementioned facts and circumstances, respondent
bank merely took the necessary precaution not to make a mistake as to whom to pay and therefore interpleader was its proper remedy.
It has been shown that the interpleader suit was filed by respondent bank because petitioner and Jose Go were both laying their claims
on the check, petitioner asking payment thereon and Jose Go as the purchaser or owner. The allegation of petitioner that respondent
bank had effectively relieved itself of its primary liability under the check by simply filing a complaint for interpleader is belied by the
willingness of respondent bank to issue a certificate of time deposit in the amount of P800,000 representing the cashier's check in
question in the name of the Clerk of Court of Manila to be awarded to whoever wig be found by the court as validly entitled to it. Said
validity will depend on the strength of the parties' respective rights and titles thereto. Bank filed the interpleader suit not because
petitioner sued it but because petitioner is laying claim to the same check that Go is claiming. On the very day that the bank instituted
the case in interpleader, it was not aware of any suit for damages filed by petitioner against it as supported by the fact that the
interpleader case was first entitled Associated Bank vs. Jose Go and John Doe, but later on changed to Marcelo A. Mesina for John
Doe when his name became known to respondent bank.

In his third assignment of error, petitioner assails the then respondent IAC in upholding the trial court's order declaring petitioner in
default when there was no proper order for him to plead in the interpleader case. Again, such contention is untenable. The trial court
issued an order, compelling petitioner and respondent Jose Go to file their Answers setting forth their respective claims. Subsequently,
a Pre-Trial Conference was set with notice to parties to submit position papers. Petitioner argues in his memorandum that this order
requiring petitioner to file his answer was issued without jurisdiction alleging that since he is presumably a holder in due course and for
value, how can he be compelled to litigate against Jose Go who is not even a party to the check? Such argument is trite and ridiculous
if we have to consider that neither his name or Jose Go's name appears on the check. Following such line of argument, petitioner is not
a party to the check either and therefore has no valid claim to the Check. Furthermore, the Order of the trial court requiring the parties
to file their answers is to all intents and purposes an order to interplead, substantially and essentially and therefore in compliance with
the provisions of Rule 63 of the Rules of Court. What else is the purpose of a law suit but to litigate?

The records of the case show that respondent bank had to resort to details in support of its action for Interpleader. Before it resorted to
Interpleader, respondent bank took an precautionary and necessary measures to bring out the truth. On the other hand, petitioner
concealed the circumstances known to him and now that private respondent bank brought these circumstances out in court (which
eventually rendered its decision in the light of these facts), petitioner charges it with "gratuitous excursions into these non-issues."
Respondent IAC cannot rule on whether respondent RTC committed an abuse of discretion or not, without being apprised of the facts
and reasons why respondent Associated Bank instituted the Interpleader case. Both parties were given an opportunity to present their
sides. Petitioner chose to withhold substantial facts. Respondents were not forbidden to present their side-this is the purpose of the
Comment of respondent to the petition. IAC decided the question by considering both the facts submitted by petitioner and those given
by respondents. IAC did not act therefore beyond the scope of the remedy sought in the petition.

WHEREFORE, finding that the instant petition is merely dilatory, the same is hereby denied and the assailed orders of the respondent
court are hereby AFFIRMED in toto.

SO ORDERED.

Feria (Chairman), Fernan, Alampay and Gutierrez, Jr., JJ., concur.

G.R. No. L-39641 February 28, 1983

METROPOL (BACOLOD) FINANCING & INVESTMENT CORPORATION, plaintiff-appellee,

vs.
SAMBOK MOTORS COMPANY and NG SAMBOK SONS MOTORS CO., LTD., defendants-appellants.

Rizal Quimpo & Cornelio P. Revena for plaintiff-appellee.

Diosdado Garingalao for defendants-appellants.

DE CASTRO, J.:

The former Court of Appeals, by its resolution dated October 16, 1974 certified this case to this Court the issue issued therein being
one purely of law.

On April 15, 1969 Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons Motors Co., Ltd., in the amount of
P15,939.00 payable in twelve (12) equal monthly installments, beginning May 18, 1969, with interest at the rate of one percent per
month. It is further provided that in case on non-payment of any of the installments, the total principal sum then remaining unpaid shall
become due and payable with an additional interest equal to twenty-five percent of the total amount due.

On the same date, Sambok Motors Company (hereinafter referred to as Sambok), a sister company of Ng Sambok Sons Motors Co.,
Ltd., and under the same management as the former, negotiated and indorsed the note in favor of plaintiff Metropol Financing &
Investment Corporation with the following indorsement:

Pay to the order of Metropol Bacolod Financing & Investment Corporation with recourse. Notice of Demand;
Dishonor; Protest; and Presentment are hereby waived.

SAMBOK MOTORS CO. (BACOLOD)

By:

RODOLFO G. NONILLO Asst. General Manager

The maker, Dr. Villaruel defaulted in the payment of his installments when they became due, so on October 30, 1969 plaintiff formally
presented the promissory note for payment to the maker. Dr. Villaruel failed to pay the promissory note as demanded, hence plaintiff
notified Sambok as indorsee of said note of the fact that the same has been dishonored and demanded payment.
Sambok failed to pay, so on November 26, 1969 plaintiff filed a complaint for collection of a sum of money before the Court of First
Instance of Iloilo, Branch I. Sambok did not deny its liability but contended that it could not be obliged to pay until after its co-defendant
Dr. Villaruel has been declared insolvent.

During the pendency of the case in the trial court, defendant Dr. Villaruel died, hence, on October 24, 1972 the lower court, on motion,
dismissed the case against Dr. Villaruel pursuant to Section 21, Rule 3 of the Rules of Court. 1

On plaintiff's motion for summary judgment, the trial court rendered its decision dated September 12, 1973, the dispositive portion of
which reads as follows:

WHEREFORE, judgment is rendered:

(a) Ordering Sambok Motors Company to pay to the plaintiff the sum of P15,939.00 plus the legal rate of interest from
October 30, 1969;

(b) Ordering same defendant to pay to plaintiff the sum equivalent to 25% of P15,939.00 plus interest thereon until
fully paid; and

(c) To pay the cost of suit.

Not satisfied with the decision, the present appeal was instituted, appellant Sambok raising a lone assignment of error as follows:

The trial court erred in not dismissing the complaint by finding defendant appellant Sambok Motors Company as
assignor and a qualified indorsee of the subject promissory note and in not holding it as only secondarily liable
thereof.

Appellant Sambok argues that by adding the words "with recourse" in the indorsement of the note, it becomes a qualified indorser that
being a qualified indorser, it does not warrant that if said note is dishonored by the maker on presentment, it will pay the amount to the
holder; that it only warrants the following pursuant to Section 65 of the Negotiable Instruments Law: (a) that the instrument is genuine
and in all respects what it purports to be; (b) that he has a good title to it; (c) that all prior parties had capacity to contract; (d) that he
has no knowledge of any fact which would impair the validity of the instrument or render it valueless.

The appeal is without merit.

A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may be made by adding to the
indorser's signature the words "without recourse" or any words of similar import. 2 Such an indorsement relieves the indorser of the
general obligation to pay if the instrument is dishonored but not of the liability arising from warranties on the instrument as provided in
Section 65 of the Negotiable Instruments Law already mentioned herein. However, appellant Sambok indorsed the note "with recourse"
and even waived the notice of demand, dishonor, protest and presentment.

"Recourse" means resort to a person who is secondarily liable after the default of the person who is primarily liable. 3 Appellant, by
indorsing the note "with recourse" does not make itself a qualified indorser but a general indorser who is secondarily liable, because by
such indorsement, it agreed that if Dr. Villaruel fails to pay the note, plaintiff-appellee can go after said appellant. The effect of such
indorsement is that the note was indorsed without qualification. A person who indorses without qualification engages that on due
presentment, the note shall be accepted or paid, or both as the case may be, and that if it be dishonored, he will pay the amount thereof
to the holder. 4 Appellant Sambok's intention of indorsing the note without qualification is made even more apparent by the fact that the
notice of demand, dishonor, protest and presentment were an waived. The words added by said appellant do not limit his liability, but
rather confirm his obligation as a general indorser.

Lastly, the lower court did not err in not declaring appellant as only secondarily liable because after an instrument is dishonored by non-
payment, the person secondarily liable thereon ceases to be such and becomes a principal debtor. 5 His liabiliy becomes the same as
that of the original obligor. 6 Consequently, the holder need not even proceed against the maker before suing the indorser.

WHEREFORE, the decision of the lower court is hereby affirmed. No costs.

SO ORDERED.

Makasiar (Chairman), Concepcion, Jr., Guerrero and Escolin, JJ., concur.

Aquino, J., is on leave.

Separate Opinions

ABAD SANTOS, J., concurring:

I concur and wish to add the observation that the appeal could have been treated as a petition for review under R.A. 5440 and
dismissed by minute resolution.

Separate Opinions

ABAD SANTOS, J., concurring:

I concur and wish to add the observation that the appeal could have been treated as a petition for review under R.A. 5440 and
dismissed by minute resolution.

[G.R. No. 130756. January 21, 1999]

ESTER B. MARALIT, petitioner, vs. JESUSA CORAZON L. IMPERIAL, respondent.

DECISION
MENDOZA, J.:

This is a petition for review on certiorari of the decision, dated August 26, 1997, and the resolution, dated September 29, 1997, of
the Regional Trial Court of Naga City (Branch 21) in Special Civil Case No. RTC 97-3744.
The facts are as follows:
Petitioner Ester B. Maralit filed three complaints for estafa through falsification of commercial documents through reckless
imprudence against respondent Jesusa Corazon L. Imperial. [1] Maralit alleged that she was assistant manager of the Naga City branch
of the Philippine National Bank (PNB); that on May 20, 1992, June 1, 1992, and July 1, 1992 respondent Imperial separately deposited
in her savings account at the PNB three United States treasury warrants bearing USTW Nos. 2034-91254963, 2034-91180047, and 2034-
33330760 and on the same days withdrew their peso equivalent of P59,216.86, P130,743.60, and P130,326.00, respectively; and that
the treasury warrants were subsequently returned one after the other by the United States Treasury, through the Makati branch of the
Citibank, on the ground that the amounts thereof had been altered. Maralit claimed that, as a consequence, she was held personally
liable by the PNB for the total amount of P320,287.30.
In her counter-affidavit, respondent claimed that she merely helped a relative, Aida Abengoza, encash the treasury warrants; that
she deposited the treasury warrants in her savings account and then withdrew their peso equivalent with the approval of petitioner; that
she gave the money to Aida Abengoza; that she did not know that the amounts on the treasury warrants had been altered nor did she
represent to petitioner that the treasury warrants were genuine; and that upon being informed of the dishonor of the warrants she
immediately contacted Aida Abengoza and signed an acknowledgment of debt promising to pay the total amount of the treasury warrants.
After preliminary investigation, the City Prosecutor of Naga City filed three informations against respondent in the Municipal Trial
Court of Naga City (Branch 3).
On September 26, 1996, judgment was rendered as follows:

WHEREFORE, in view of the foregoing considerations, the Court finds no ground to hold the accused criminally liable for which she is
charged, hence Corazon Jesusa L. Imperial is ACQUITTED of all the charges against her. The accused however is civilly liable as
indorser of the checks which is (sic) the subject matter of the criminal action. [2]

The decision having become final and executory, the MTC, on November 11, 1996, ordered the enforcement of the civil liability
against the accused arising from the criminal action. [3] The writ of execution, dated December 9, 1996, directed the sheriff as follows:[4]
NOW, THEREFORE, you are hereby commanded to cause the execution of the aforesaid judgment in the amount of THREE
HUNDRED TWENTY THOUSAND TWO HUNDRED EIGHTY SIX & 46/100 (P320,286.46) ONLY, equivalent to the amount of the 3
three US$ checks amounting to $12,621.13, and to levy the goods and chattels of the defendant/s, except those which are exempt from
execution and to make the sale thereat in accordance with the procedure outlined by Rule 39, Revised Rules of Court and such cases
made and provided, together with all your lawful fees for the services of this writ.

Accordingly, the sheriff served a notice of garnishment on the PNB.

Respondent at first moved to declare her savings account exempt from execution on the ground that the same represented her
salary as an employee of the Commission on Audit, which was not even sufficient for her expenses and that of her family. Later, she
moved to quash the writ of execution on the ground that the judgment did not order the accused to pay [a] specific amount of money to a
particular person as it merely adjudicated the criminal aspect but not the civil aspect hence there was no judgment rendered which can
be the subject of execution.
Both motions of respondent were denied by the MTC for lack of merit in its order, dated February 24, 1997. [5] Accordingly, an alias
writ of execution was issued.
On April 14, 1997, respondent filed a petition for certiorari and prohibition in the Regional Trial Court of Naga City, contending that
the writ of execution issued by the MTC was at variance with the judgment in the criminal cases.
The RTC issued a writ of preliminary injunction enjoining enforcement of the writ of execution issued by the MTC. On August 26,
1997, it rendered a decision, which, among other things, made permanent the injunction. The RTC held that the decision of the MTC did
not really find respondent liable for P320,286.46 because in fact it was petitioner who was found responsible for making the defraudation
possible.
Petitioner moved for reconsideration alleging that respondent filed her petition for certiorari and prohibition more than three months
after the MTC had ordered execution of its decision on November 11, 1996. However, her motion was denied on September 28,
1997.[6] The RTC held that the three-month period should be counted from April 1, 1997, when the alias writ of execution was issued, or
from April 7, 1997, when the MTC denied private respondents motion for reconsideration of the order denying her motion to quash the
writ of execution. The RTC likewise found the second ground of petitioners motion for reconsideration, i.e., that its decision was contrary
to law and jurisprudence, devoid of merit.
Hence, this petition. Petitioner raises the following issues:[7]
1. Whether respondents Petition for Certiorari and Prohibition under Rule 65 of the Rules of Court was filed out of time;
2. Whether this case warrants the relaxation of the rule that Certiorari is not a substitute for a lost or lapsed appeal.
3. Whether or not the MTC committed grave abuse of discretion amounting to lack or excess of jurisdiction, when it issued the
Order of Execution, Writ of Execution and Alias Writ of Execution to implement its final and executory civil judgment in
Criminal Cases No. 68697, 68698 and 68699, which reads: . . . The accused however is civilly liable as indorser of the
checks subject matter of the criminal action.
4. Whether or not the MTC merely adjudicated the criminal aspect but not the civil aspect of Criminal Cases 68697, 68698 and
68699.
5. Whether there was substantial variance as between the dispositive portion of the civil judgment and the writ of execution
issued thereunder.
6. Whether or not a court exercising certiorari jurisdiction has the authority to modify or alter the final and executory decision
of the lower court even by way of an obiter dictum.
Petitioner contends that the phrase civilly liable in the judgment part of the MTCs decision also connotes an order to pay on
respondents part.
It may fairly be assumed that the decision of the MTC was an adjudication of both the criminal and civil liability of respondent
inasmuch as it does not appear that petitioner instituted a separate civil action or reserved or waived the right to bring such action. The
question is whether the decision of the MTC finds respondent civilly liable and, in the affirmative, for how much. As already stated, the
RTC held that the MTC did not really find respondent liable. In reaching that conclusion, the RTC said:

A mere reading of the dispositive portion of the judgment and the writ of execution will readily show that there is variance between the
two. Whereas, the judgment pronounced [respondent herein] to be civilly liable as indorser of the checks which is the subject matter of
the criminal action, the writ of execution commanded the Sheriff to cause the execution of the aforesaid judgment in the amount of
THREE HUNDRED TWENTY THOUSAND TWO HUNDRED EIGHTY SIX & 46/100 (P320,286.46) ONLY, equivalent to the amount of
the 3 three US$ checks amounting to $12,621.13, . . . . In the judgment, nothing is mentioned about the amount for which [respondent
herein] is liable as indorser, but in the writ of execution, the civil liability of the [respondent herein] has already been fixed at
P320,286.46. The variance, therefore, between the judgment and the writ of execution is substantial because it consists of the addition
of the amount of the civil liability of the [respondent herein].

....
. . . The [MTCs] findings of facts and conclusions of law as expressed in the body of the decision do not support the dispositive
portion of the judgment that [respondent herein] is civilly liable. On the contrary a reading of the body of the judgment in
question will show that [respondent] is not civilly liable. For three (3) times, the Court stated in the body of its decision that it is
[petitioner] Maralit herself who should be faulted and be held responsible for the payment of the dishonored US Dollar
checks.

Hereunder quoted are portions of the body of the decision in question showing that [respondent] herein should not be held civilly liable
and that it was [petitioner] Maralit who should be blamed and be held responsible:

. . . The Court however is quite intrigue[d] on why the accused was allowed to encash the peso equivalent despite the fact that the
check was deposited for collection and clearing. It is the established procedure of banks that out of town checks and US Treasury
Warrants should first be cleared before the same is to be paid. More so if the holder is a second indorser. The private complainant in
this regard explained that [as assistant branch manager] she has the discretion and that there is no hold order appearing in the savings
account of the accused. She likewise explained that she trusted the accused whom she knew is working in the same building and a
depositor. In short she took the risk of approving the withdrawal of the peso equivalent, without the check being cleared and if the same
is dishonored she should be responsible. (page 5, judgment).

The information accuses the accused for disregarding the banking laws and procedure of the PNB. This is a generous statement. In the
first place the accused is not an employee of the bank. She has no control nor supervision over its employees. If there is anyone who
has disregarded banking laws, it is the private complainant for approving withdrawals before the check were cleared. Mrs. Maralit is
more knowledgeable of the banking procedures of the bank of which she is the assistant manager. She knows the risk of approving
encashment before clearing. She took the risk therefore she should be responsible for the outcome of the risk she has
taken. (page 6, Judgment).

The Court is of the opinion that there was negligence on both the complainant and the accused but greater responsibility should be
borne by the private complainant. The accused could not have encashed and deposited the checks without her approval. If the
complainant was not remiss in her duty in imposing the banking rules strictly, then these things could not have happened. (page 7,
Judgment).[8]

This portion of the decision of the MTC actually refers to respondents criminal liability and not her civil liability. More specifically, the
portion in question refers to the allegations in the three informations that respondent committed falsification of commercial documents
through reckless imprudence by 1) taking advantage of [her] position as state auditor of the Commission on Audit assigned at the PNB,
Naga Branch, 2) disregard[ing] existing procedure, banking laws, policies, and circulars of the PNB, 3) . . . not tak[ing] the necessary
precaution to determine the genuineness of the Treasury Warrants and the alteration of the amount[s] therein deposited and [in]
encash[ing] the checks, and 4) . . . [her] negligence, carelessness, and imprudence [which] caused damage and loss to
[petitioner].[9]Nevertheless, the MTC held that respondent was civilly liable as the penultimate paragraph of its decision makes clear:

The Court symphatizes with the complainant that there was indeed damage and loss, but said loss is chargeable to the accused who
upon her indorsements warrant that the instrument is genuine in all respect what it purports to be and that she will pay the amount
thereof in case of dishonor. (Sec. 66 Negotiable Instrument Law) [10]

Thus, while the MTC found petitioner partly responsible for the encashment of the altered checks, it found respondent civilly liable
because of her indorsements of the treasury warrants, in addition to the fact that respondent executed a notarized acknowledgment of
debt promising to pay the total amount of said warrants.
In this case, to affirm the RTCs decision would be to hold that respondent was absolved from both criminal and civil liability by the
MTC. Such reading of the MTC decision will not, however, bear analysis. For one, the dispositive portion of the decision of the MTC
expressly declares respondent to be civilly liable as indorser of the checks which is [sic] the subject matter of the criminal action. To find
therefore that there is no declaration of civil liability of respondent would be to disregard the judgment of the MTC. Worse, it would be to
amend a final and executory decision of a court.
It is argued that the decision of the MTC did not order respondent, as accused in the case, to pay a specific amount of money to
any particular person such that it could not be an adjudication of respondents civil liability. However, the ambiguity can easily be clarified
by a resort to the text of the decision or, what is properly called, the opinion part. Doing so, it is clear that it can only be to petitioner that
respondent was made liable as the former was the offended party in the case. As for what amount respondent is liable, it can only be for
the total amount of the treasury warrants subject of the case, determined according to their peso equivalent, in the decision of the MTC.
For another, that respondent should pay petitioner the amounts of the altered treasury warrants is the logical consequence of the
MTCs holding that private respondent is civilly liable for the treasury warrants subject of the case.[11]
WHEREFORE, the decision of the Regional Trial Court of Naga City (Branch 21) is REVERSED.
SO ORDERED.
Bellosillo (Chairman), Puno, Quisumbing, and Buena, JJ., concur.
 G.R. No. 128927. September 14, 1999]

REMEDIOS NOTA SAPIERA, petitioner, vs. COURT OF APPEALS and RAMON SUA, respondents.

DECISION
BELLOSILLO, J.:

REMEDIOS NOTA SAPIERA appeals to us through this petition for review the Decision of the Court of Appeals [1] which acquitted
her of the crime of estafa but held her liable nonetheless for the value of the checks she indorsed in favor of private respondent Ramon
Sua.
On several occasions petitioner Remedios Nota Sapiera, a sari-sari store owner, purchased from Monrico Mart certain grocery
items, mostly cigarettes, and paid for them with checks issued by one Arturo de Guzman: (a) PCIB Check No. 157059 dated 26 February
1987 for P140,000.00; (b) PCIB Check No. 157073 dated 26 February 1987 for P28,000.00; (c) PCIB Check No. 157057 dated 27
February 1987 for P42,150.00; and, d) Metrobank Check No. DAG - 045104758 PA dated 2 March 1987 for P125,000.00. These checks
were signed at the back by petitioner. When presented for payment the checks were dishonored because the drawers account was
already closed. Private respondent Ramon Sua informed Arturo de Guzman and petitioner about the dishonor but both failed to pay the
value of the checks.Hence, four (4) charges of estafa were filed against petitioner with the Regional Trial Court of Dagupan City, docketed
as Crim. Cases Nos. D-8728, D-8729, D-8730 and D-8731. Arturo de Guzman was charged with two (2) counts of violation of B.P. Blg.
22, docketed as Crim. Cases Nos. D-8733 and D-8734. These cases against petitioner and de Guzman were consolidated and tried
jointly.
On 27 December 1989 the court a quo[2] acquitted petitioner of all the charges of estafa but did not rule on whether she could be
held civilly liable for the checks she indorsed to private respondent. The trial court found Arturo de Guzman guilty of Violation of B.P. Blg.
22 on two (2) counts and sentenced him to suffer imprisonment of six (6) months and one (1) day in each of the cases, and to pay private
respondent P167,150.00 as civil indemnity.
Private respondent filed a notice of appeal with the trial court with regard to the civil aspect but the court refused to give due course
to the appeal on the ground that the acquittal of petitioner was absolute. Private respondent then filed a petition for mandamus with the
Court of Appeals, docketed as CA-GR SP No. 24626, praying that the court a quo be ordered to give due course to the appeal on the
civil aspect of the decision. The Court of Appeals granted the petition and ruled that private respondent could appeal with respect to the
civil aspect the judgment of acquittal by the trial court.
On 22 January 1996, the Court of Appeals in CA-GR CV No. 36376 rendered the assailed Decision insofar as it sustained the
appeal of private respondent on the civil aspect and ordering petitioner to pay private respondent P335,000.00 representing the aggregate
face value of the four (4) checks indorsed by petitioner plus legal interest from the notice of dishonor.
Petitioner filed a motion for reconsideration of the Decision. On 19 March 1997 the Court of Appeals issued a Resolution noting the
admission of both parties that private respondent had already collected the amount of P125,000.00 from Arturo de Guzman with regard
to his civil liability in Crim. Cases Nos. 8733 and 8734. The appellate court noted that private respondent was the same offended party in
the criminal cases against petitioner and against de Guzman. Criminal Cases Nos. 8733 and 8734 against De Guzman, and Crim. Cases
Nos. 8730 and 8729 against petitioner, involved the same checks, to wit:PCIB Checks Nos. 157057 for P42,150.00 and Metrobank Check
No. DAG-045104758 PA for P125,000.00.
Thus, the Court of Appeals ruled that private respondent could not recover twice on the same checks. Since he had
collected P125,000.00 as civil indemnity in Crim. Cases Nos. 8733 and 8734, this amount should be deducted from the sum total of the
civil indemnity due him arising from the estafa cases against petitioner. The appellate court then corrected its previous award, which was
erroneously placed at P335,000.00, to P335,150.00 as the sum total of the amounts of the four (4) checks involved. Deducting the amount
of P125,000.00 already collected by private respondent, petitioner was adjudged to pay P210,150.00 as civil liability to private
respondent. Hence, this petition alleging that respondent Court of Appeals erred in holding petitioner civilly liable to private respondent
because her acquittal by the trial court from charges of estafa in Crim. Cases Nos. D-8728, D-8729, D-8730 and D-8731 was absolute,
the trial court having declared in its decision that the fact from which the civil liability might have arisen did not exist.
We cannot sustain petitioner. The issue is whether respondent Court of Appeals committed reversible error in requiring petitioner to
pay civil indemnity to private respondent after the trial court had acquitted her of the criminal charges. Section 2, par. (b), of Rule 111 of
the Rules of Court, as amended, specifically provides: "Extinction of the penal action does not carry with it extinction of the civil, unless
the extinction proceeds from a declaration in a final judgment that the fact from which the civil might arise did not exist.
The judgment of acquittal extinguishes the liability of the accused for damages only when it includes a declaration that the fact from
which the civil liability might arise did not exist. Thus, the civil liability is not extinguished by acquittal where: (a) the acquittal is based on
reasonable doubt; (b) where the court expressly declares that the liability of the accused is not criminal but only civil in nature; and, (c)
where the civil liability is not derived from or based on the criminal act of which the accused is acquitted. [3] Thus, under Art. 29 of the Civil
Code -

When the accused in a criminal prosecution is acquitted on the ground that his guilt has not been proved beyond reasonable doubt, a
civil action for damages for the same act or omission may be instituted.Such action requires only a preponderance of evidence. Upon
motion of the defendant, the court may require the plaintiff to file a bond to answer for damages in case the complaint should be found
to be malicious.

In a criminal case where the judgment of acquittal is based upon reasonable doubt, the court shall so declare. In the absence of any
declaration to that effect, it may be inferred from the text of the decision whether or not acquittal is due to that ground.

An examination of the decision in the criminal cases reveals these findings of the trial court -

Evidence for the prosecution tends to show that on various occasions, Remedios Nota Sapiera purchased from Monrico Mart grocery
items (mostly cigarettes) which purchases were paid with checks issued by Arturo de Guzman; that those purchases and payments
with checks were as follows:

(a) Sales Invoice No. 20104 dated February 26, 1987 in the amount of P28,000.00; that said items purchased were paid with PCIBank
Check No. 157073 dated February 26, 1987;

(b) Sales Invoice No. 20108 dated February 26, 1987 in the amount of P140,000.00; that said items purchased were paid with PCIBank
No. 157059 dated February 26, 1987;

(c) Sales Invoice No. 20120 dated February 27, 1987 in the amount of P42,150.00; that said items were paid with PCIBank Check No.
157057 dated February 27, 1987;

(d) Sales Invoice No. 20148 and 20149 both dated March 2, 1987 in the amount of P120,103.75; said items were paid with Metrobank
Check No. 045104758 dated March 2, 1987 in the amount of P125,000.00.

That all these checks were deposited with the Consolidated Bank and Trust Company, Dagupan Branch, for collection from the
drawee bank;

That when presented for payment by the collecting bank to the drawee bank, said checks were dishonored due to account closed, as
evidenced by check return slips; x x x x.

From the evidence, the Court finds that accused Remedios Nota Sapiera is the owner of a sari-sari store inside the public market; that
she sells can(ned) goods, candies and assorted grocery items; that she knows accused Arturo De Guzman, a customer since February
1987; that de Guzman purchases from her grocery items including cigarettes; that she knows Ramon Sua; that she has business
dealings with him for 5 years; that her purchase orders were in clean sheets of paper; that she never pays in check; that Ramon Sua
asked her to sign subject checks as identification of the signature of Arturo de Guzman; that she pays in cash; sometimes delayed by
several days; that she signed the four (4) checks on the reverse side; that she did not know the subject invoices; that de Guzman made
the purchases and he issued the checks; that the goods were delivered to de Guzman; that she was not informed of dishonored
checks; and that counsel for Ramon Sua informed de Guzman and told him to pay x x x x

In the case of accused Remedios Nota Sapiera, the prosecution failed to prove conspiracy.

Based on the above findings of the trial court, the exoneration of petitioner of the charges of estafa was based on the failure of the
prosecution to present sufficient evidence showing conspiracy between her and the other accused Arturo de Guzman in defrauding
private respondent. However, by her own testimony, petitioner admitted having signed the four (4) checks in question on the reverse
side. The evidence of the prosecution shows that petitioner purchased goods from the grocery store of private respondent as shown by
the sales invoices issued by private respondent; that these purchases were paid with the four (4) subject checks issued by de Guzman;
that petitioner signed the same checks on the reverse side; and when presented for payment, the checks were dishonored by the drawee
bank due to the closure of the drawers account; and, petitioner was informed of the dishonor.
We affirm the findings of the Court of Appeals that despite the conflicting versions of the parties, it is undisputed that the four (4)
checks issued by de Guzman were signed by petitioner at the back without any indication as to how she should be bound thereby and,
therefore, she is deemed to be an indorser thereof. The Negotiable Instruments Law clearly provides -

Sec. 17. Construction where instrument is ambiguous. - Where the language of the instrument is ambiguous, or there are admissions
therein, the following rules of construction apply: x x x x (f) Where a signature is so placed upon the instrument that it is not clear in
what capacity the person making the same intended to sign, he is deemed an indorser. x x x x

Sec. 63. When person deemed indorser. - A person placing his signature upon an instrument otherwise than as maker, drawer or
acceptor, is deemed to be an indorser unless he clearly indicates by appropriate words his intention to be bound in some other
capacity.

Sec. 66. Liability of general indorser. - Every indorser who indorses without qualification, warrants to all subsequent holders in due
course: (a) The matters and things mentioned in subdivisions (a), (b) and (c) of the next preceding section; and (b) That the instrument
is, at the time of the indorsement, valid and subsisting;
And, in addition, he engages that, on due presentment, it shall be accepted or paid or both, as the case may be, according to its tenor,
and that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder or to
any subsequent indorser who may be compelled to pay it.

The dismissal of the criminal cases against petitioner did not erase her civil liability since the dismissal was due to insufficiency of
evidence and not from a declaration from the court that the fact from which the civil action might arise did not exist.[4] An accused acquitted
of estafa may nevertheless be held civilly liable where the facts established by the evidence so warrant. The accused should be adjudged
liable for the unpaid value of the checks signed by her in favor of the complainant. [5]
The rationale behind the award of civil indemnity despite a judgment of acquittal when evidence is sufficient to sustain the award
was explained by the Code Commission in connection with Art. 29 of the Civil Code, to wit:

The old rule that the acquittal of the accused in a criminal case also releases him from civil liability is one of the most serious flaws in
the Philippine legal system. It has given rise to numberless instances of miscarriage of justice, where the acquittal was due to a
reasonable doubt in the mind of the court as to the guilt of the accused. The reasoning followed is that inasmuch as the civil
responsibility is derived from the criminal offense, when the latter is not proved, civil liability cannot be demanded.

This is one of those cases where confused thinking leads to unfortunate and deplorable consequences. Such reasoning fails to draw a
clear line of demarcation between criminal liability and civil responsibility, and to determine the logical result of the distinction. The two
liabilities are separate and distinct from each other. One affects the social order and the other private rights. One is for punishment or
correction of the offender while the other is for reparation of damages suffered by the aggrieved party x x x x It is just and proper that for
the purposes of imprisonment of or fine upon the accused, the offense should be proved beyond reasonable doubt. But for the purpose
of indemnifying the complaining party, why should the offense also be proved beyond reasonable doubt? Is not the invasion or violation
of every private right to be proved only by preponderance of evidence? Is the right of the aggrieved person any less private because the
wrongful act is also punishable by the criminal law? [6]

Finally, with regard to the computation of the civil liability of petitioner, the finding of the Court of Appeals that petitioner is civilly
liable for the aggregate value of the unpaid four (4) checks subject of the criminal cases in the sum of P335,150.00, less the amount
of P125,000.00 already collected by private respondent pending appeal, resulting in the amount of P210,150.00 still due private
respondent, is a factual matter which is binding and conclusive upon this Court.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals dated 22 January 1996 as amended by its Resolution
dated 19 March 1997 ordering petitioner Remedios Nota Sapiera to pay private respondent Ramon Sua the remaining amount
of P210,150.00 as civil liability, is AFFIRMED. Costs against petitioners.
SO ORDERED.
Mendoza, Quisumbing, and Buena, JJ., concur.

[G.R. No. 112392. February 29, 2000]

BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. COURT OF APPEALS and BENJAMIN C. NAPIZA, respondents.

DECISION

YNARES-SANTIAGO, J.:

This is a petition for review on certiorari of the Decision[1] of the Court of Appeals in CA-G.R. CV No. 37392 affirming in toto that of the
Regional Trial Court of Makati, Branch 139,[2] which dismissed the complaint filed by petitioner Bank of the Philippine Islands against
private respondent Benjamin C. Napiza for sum of money. Sdaad

On September 3, 1987, private respondent deposited in Foreign Currency Deposit Unit (FCDU) Savings Account No. 028-187[3] which
he maintained in petitioner banks Buendia Avenue Extension Branch, Continental Bank Managers Check No. 00014757 [4] dated August
17, 1984, payable to "cash" in the amount of Two Thousand Five Hundred Dollars ($2,500.00) and duly endorsed by private respondent
on its dorsal side.[5] It appears that the check belonged to a certain Henry Chan who went to the office of private respondent and
requested him to deposit the check in his dollar account by way of accommodation and for the purpose of clearing the same. Private
respondent acceded, and agreed to deliver to Chan a signed blank withdrawal slip, with the understanding that as soon as the check is
cleared, both of them would go to the bank to withdraw the amount of the check upon private respondents presentation to the bank of
his passbook.

Using the blank withdrawal slip given by private respondent to Chan, on October 23, 1984, one Ruben Gayon, Jr. was able to withdraw
the amount of $2,541.67 from FCDU Savings Account No. 028-187. Notably, the withdrawal slip shows that the amount was payable to
Ramon A. de Guzman and Agnes C. de Guzman and was duly initialed by the branch assistant manager, Teresita Lindo. [6]

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

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

In reply, private respondent wrote petitioners counsel on April 20, 1985[13] stating that he deposited the check "for clearing purposes"
only to accommodate Chan. He added:

"Further, please take notice that said check was deposited on September 3, 1984 and withdrawn on October 23,
1984, or a total period of fifty (50) days had elapsed at the time of withdrawal. Also, it may not be amiss to mention
here that I merely signed an authority to withdraw said deposit subject to its clearing, the reason why the transaction
is not reflected in the passbook of the account. Besides, I did not receive its proceeds as may be gleaned from the
withdrawal slip under the captioned signature of recipient.

If at all, my obligation on the transaction is moral in nature, which (sic) I have been and is (sic) still exerting utmost
and maximum efforts to collect from Mr. Henry Chan who is directly liable under the circumstances. Scsdaad

xxx......xxx......xxx."

On August 12, 1986, petitioner filed a complaint against private respondent, praying for the return of the amount of $2,500.00 or the
prevailing peso equivalent plus legal interest from date of demand to date of full payment, a sum equivalent to 20% of the total amount
due as attorney's fees, and litigation and/or costs of suit.

Private respondent filed his answer, admitting that he indeed signed a "blank" withdrawal slip with the understanding that the amount
deposited would be withdrawn only after the check in question has been cleared. He likewise alleged that he instructed the party to
whom he issued the signed blank withdrawal slip to return it to him after the bank drafts clearance so that he could lend that party his
passbook for the purpose of withdrawing the amount of $2,500.00. However, without his knowledge, said party was able to withdraw
the amount of $2,541.67 from his dollar savings account through collusion with one of petitioners employees. Private respondent added
that he had "given the Plaintiff fifty one (51) days with which to clear the bank draft in question." Petitioner should have disallowed the
withdrawal because his passbook was not presented. He claimed that petitioner had no one to blame except itself "for being grossly
negligent;" in fact, it had allegedly admitted having paid the amount in the check "by mistake" x x x "if not altogether due to collusion
and/or bad faith on the part of (its) employees." Charging petitioner with "apparent ignorance of routine bank procedures," by way of
counterclaim, private respondent prayed for moral damages of P100,000.00, exemplary damages of P50,000.00 and attorneys fees of
30% of whatever amount that would be awarded to him plus an honorarium of P500.00 per appearance in court.

Private respondent also filed a motion for admission of a third party complaint against Chan. He alleged that "thru strategem and/or
manipulation," Chan was able to withdraw the amount of $2,500.00 even without private respondents passbook. Thus, private
respondent prayed that third party defendant Chan be made to refund to him the amount withdrawn and to pay attorneys fees of
P5,000.00 plus P300.00 honorarium per appearance.

Petitioner filed a comment on the motion for leave of court to admit the third party complaint, wherein it asserted that per paragraph 2 of
the Rules and Regulations governing BPI savings accounts, private respondent alone was liable "for the value of the credit given on
account of the draft or check deposited." It contended that private respondent was estopped from disclaiming liability because he
himself authorized the withdrawal of the amount by signing the withdrawal slip. Petitioner prayed for the denial of the said motion so as
not to unduly delay the disposition of the main case asserting that private respondents claim could be ventilated in another case.

Private respondent replied that for the parties to obtain complete relief and to avoid multiplicity of suits, the motion to admit third party
complaint should be granted. Meanwhile, the trial court issued orders on August 25, 1987 and October 28, 1987 directing private
respondent to actively participate in locating Chan. After private respondent failed to comply, the trial court, on May 18, 1988, dismissed
the third party complaint without prejudice.

On November 4, 1991, a decision was rendered dismissing the complaint. The lower court held that petitioner could not hold private
respondent liable based on the checks face value alone. To so hold him liable "would render inutile the requirement of clearance from
the drawee bank before the value of a particular foreign check or draft can be credited to the account of a depositor making such
deposit." The lower court further held that "it was incumbent upon the petitioner to credit the value of the check in question to the
account of the private respondent only upon receipt of the notice of final payment and should not have authorized the withdrawal from
the latters account of the value or proceeds of the check." Having admitted that it committed a "mistake" in not waiting for the clearance
of the check before authorizing the withdrawal of its value or proceeds, petitioner should suffer the resultant loss. Supremax
On appeal, the Court of Appeals affirmed the lower courts decision. The appellate court held that petitioner committed "clear gross
negligence" in allowing Ruben Gayon, Jr. to withdraw the money without presenting private respondents passbook and, before the
check was cleared and in crediting the amount indicated therein in private respondents account. It stressed that the mere deposit of a
check in private respondents account did not mean that the check was already private respondents property. The check still had to be
cleared and its proceeds can only be withdrawn upon presentation of a passbook in accordance with the banks rules and regulations.
Furthermore, petitioners contention that private respondent warranted the checks genuineness by endorsing it is untenable for it would
render useless the clearance requirement. Likewise, the requirement of presentation of a passbook to ascertain the propriety of the
accounting reflected would be a meaningless exercise. After all, these requirements are designed to protect the bank from deception or
fraud.

The Court of Appeals cited the case of Roman Catholic Bishop of Malolos, Inc. v. IAC,[14] where this Court stated that a personal check
is not legal tender or money, and held that the check deposited in this case must be cleared before its value could be properly
transferred to private respondent's account.

Without filing a motion for the reconsideration of the Court of Appeals Decision, petitioner filed this petition for review on certiorari,
raising the following issues:

1.......WHETHER OR NOT RESPONDENT NAPIZA IS LIABLE UNDER HIS WARRANTIES AS A GENERAL

INDORSER.

2.......WHETHER OR NOT A CONTRACT OF AGENCY WAS CREATED BETWEEN RESPONDENT NAPIZA AND
RUBEN GAYON.

3.......WHETHER OR NOT PETITIONER WAS GROSSLY NEGLIGENT IN ALLOWING THE WITHDRAWAL.

Petitioner claims that private respondent, having affixed his signature at the dorsal side of the check, should be liable for the amount
stated therein in accordance with the following provision of the Negotiable Instruments Law (Act No. 2031):

"SEC. 66. Liability of general indorser. Every indorser who indorses without qualification, warrants to all subsequent
holders in due course

(a)......The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section; and

(b)......That the instrument is at the time of his indorsement, valid and subsisting.

And, in addition, he engages that on due presentment, it shall be accepted or paid, or both, as the case may be,
according to its tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly taken, he will
pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it."

Section 65, on the other hand, provides for the following warranties of a person negotiating an instrument by delivery or by qualified
indorsement: (a) that the instrument is genuine and in all respects what it purports to be; (b) that he has a good title to it, and (c) that all
prior parties had capacity to contract.[15] In People v. Maniego,[16] this Court described the liabilities of an indorser as follows: Juris

"Appellants contention that as mere indorser, she may not be liable on account of the dishonor of the checks indorsed
by her, is likewise untenable. Under the law, the holder or last indorsee of a negotiable instrument has the right to
enforce payment of the instrument for the full amount thereof against all parties liable thereon. Among the parties
liable thereon is an indorser of the instrument, i.e., a person placing his signature upon an instrument otherwise than
as a maker, drawer or acceptor * * unless he clearly indicated by appropriate words his intention to be bound in some
other capacity. Such an indorser who indorses without qualification, inter alia engages that on due presentment, * *
(the instrument) shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be
dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder,
or any subsequent indorser who may be compelled to pay it. Maniego may also be deemed an accommodation party
in the light of the facts, i.e., a person who has signed the instrument as maker, drawer, acceptor, or indorser, without
receiving value therefor, and for the purpose of lending his name to some other person. As such, she is under the law
liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument knew * *
(her) to be only an accommodation party, although she has the right, after paying the holder, to obtain reimbursement
from the party accommodated, since the relation between them is in effect that of principal and surety, the
accommodation party being the surety."

It is thus clear that ordinarily private respondent may be held liable as an indorser of the check or even as an accommodation
party.[17] However, to hold private respondent liable for the amount of the check he deposited by the strict application of the law and
without considering the attending circumstances in the case would result in an injustice and in the erosion of the public trust in the
banking system. The interest of justice thus demands looking into the events that led to the encashment of the check.
Petitioner asserts that by signing the withdrawal slip, private respondent "presented the opportunity for the withdrawal of the amount in
question." Petitioner relied "on the genuine signature on the withdrawal slip, the personality of private respondents son and the lapse of
more than fifty (50) days from date of deposit of the Continental Bank draft, without the same being returned yet." [18] We hold, however,
that the propriety of the withdrawal should be gauged by compliance with the rules thereon that both petitioner bank and its depositors
are duty-bound to observe.

In the passbook that petitioner issued to private respondent, the following rules on withdrawal of deposits appear:

"4.......Withdrawals must be made by the depositor personally but in some exceptional circumstances, the Bank may
allow withdrawal by another upon the depositors written authority duly authenticated; and neither a deposit nor a
withdrawal will be permitted except upon the presentation of the depositors savings passbook, in which the amount
deposited withdrawn shall be entered only by the Bank.

5.......Withdrawals may be made by draft, mail or telegraphic transfer in currency of the account at the request of the
depositor in writing on the withdrawal slip or by authenticated cable. Such request must indicate the name of the
payee/s, amount and the place where the funds are to be paid. Any stamp, transmission and other charges related to
such withdrawals shall be for the account of the depositor and shall be paid by him/her upon demand. Withdrawals
may also be made in the form of travellers checks and in pesos. Withdrawals in the form of notes/bills are allowed
subject however, to their (availability).

6.......Deposits shall not be subject to withdrawal by check, and may be withdrawn only in the manner above
provided, upon presentation of the depositors savings passbook and with the withdrawal form supplied by the Bank at
the counter."[19] Scjuris

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

Such contention would have been valid if not for the fact that the withdrawal slip itself indicates a special instruction that the amount is
payable to "Ramon A. de Guzman &/or Agnes C. de Guzman." Such being the case, petitioners personnel should have been duly
warned that Gayon, who was also employed in petitioners Buendia Ave. Extension branch,[21] was not the proper payee of the proceeds
of the check. Otherwise, either Ramon or Agnes de Guzman should have issued another authority to Gayon for such withdrawal. Of
course, at the dorsal side of the withdrawal slip is an "authority to withdraw" naming Gayon the person who can withdraw the amount
indicated in the check. Private respondent does not deny having signed such authority. However, considering petitioners clear
admission that the withdrawal slip was a blank one except for private respondents signature, the unavoidable conclusion is that the
typewritten name of "Ruben C. Gayon, Jr." was intercalated and thereafter it was signed by Gayon or whoever was allowed by
petitioner to withdraw the amount. Under these facts, there could not have been a principal-agent relationship between private
respondent and Gayon so as to render the former liable for the amount withdrawn.

Moreover, the withdrawal slip contains a boxed warning that states: "This receipt must be signed and presented with the corresponding
foreign currency savings passbook by the depositor in person. For withdrawals thru a representative, depositor should accomplish the
authority at the back." The requirement of presentation of the passbook when withdrawing an amount cannot be given mere lip service
even though the person making the withdrawal is authorized by the depositor to do so. This is clear from Rule No. 6 set out by
petitioner so that, for the protection of the banks interest and as a reminder to the depositor, the withdrawal shall be entered in the
depositors passbook. The fact that private respondents passbook was not presented during the withdrawal is evidenced by the entries
therein showing that the last transaction that he made with the bank was on September 3, 1984, the date he deposited the controversial
check in the amount of $2,500.00.[22]

In allowing the withdrawal, petitioner likewise overlooked another rule that is printed in the passbook. Thus:

"2.......All deposits will be received as current funds and will be repaid in the same manner; provided, however,
that deposits of drafts, checks, money orders, etc. will be accepted as subject to collection only and credited to the
account only upon receipt of the notice of final payment. Collection charges by the Banks foreign correspondent in
effecting such collection shall be for the account of the depositor. If the account has sufficient balance, the collection
shall be debited by the Bank against the account. If, for any reason, the proceeds of the deposited checks, drafts,
money orders, etc., cannot be collected or if the Bank is required to return such proceeds, the provisional entry
therefor made by the Bank in the savings passbook and its records shall be deemed automatically cancelled
regardless of the time that has elapsed, and whether or not the defective items can be returned to the depositor; and
the Bank is hereby authorized to execute immediately the necessary corrections, amendments or changes in its
record, as well as on the savings passbook at the first opportunity to reflect such cancellation." (Italics and underlining
supplied.) Jurissc
As correctly held by the Court of Appeals, in depositing the check in his name, private respondent did not become the outright owner of
the amount stated therein. Under the above rule, by depositing the check with petitioner, private respondent was, in a way, merely
designating petitioner as the collecting bank. This is in consonance with the rule that a negotiable instrument, such as a check, whether
a managers check or ordinary check, is not legal tender.[23] As such, after receiving the deposit, under its own rules, petitioner shall
credit the amount in private respondents account or infuse value thereon only after the drawee bank shall have paid the amount of the
check or the check has been cleared for deposit. Again, this is in accordance with ordinary banking practices and with this Courts
pronouncement that "the collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the
genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that
the party making the presentment has done its duty to ascertain the genuineness of the endorsements."[24] The rule finds more meaning
in this case where the check involved is drawn on a foreign bank and therefore collection is more difficult than when the drawee bank is
a local one even though the check in question is a managers check. [25] Misjuris

In Banco Atlantico v. Auditor General,[26] Banco Atlantico, a commercial bank in Madrid, Spain, paid the amounts represented in three
(3) checks to Virginia Boncan, the finance officer of the Philippine Embassy in Madrid. The bank did so without previously clearing the
checks with the drawee bank, the Philippine National Bank in New York, on account of the "special treatment" that Boncan received
from the personnel of Banco Atlanticos foreign department. The Court held that the encashment of the checks without prior clearance is
"contrary to normal or ordinary banking practice specially so where the drawee bank is a foreign bank and the amounts involved were
large." Accordingly, the Court approved the Auditor Generals denial of Banco Atlanticos claim for payment of the value of the checks
that was withdrawn by Boncan.

Said ruling brings to light the fact that the banking business is affected with public interest. By the nature of its functions, a bank is
under obligation to treat the accounts of its depositors "with meticulous care, always having in mind the fiduciary nature of their
relationship."[27] As such, in dealing with its depositors, a bank should exercise its functions not only with the diligence of a good father
of a family but it should do so with the highest degree of care.[28]

In the case at bar, petitioner, in allowing the withdrawal of private respondents deposit, failed to exercise the diligence of a good father
of a family. In total disregard of its own rules, petitioners personnel negligently handled private respondents account to petitioners
detriment. As this Court once said on this matter:

"Negligence is the omission to do something which a reasonable man, guided by those considerations which
ordinarily regulate the conduct of human affairs, would do, or the doing of something which a prudent and reasonable
man would do. The seventy-eight (78)-year-old, yet still relevant, case of Picart v. Smith, provides the test by which to
determine the existence of negligence in a particular case which may be stated as follows: Did the defendant in doing
the alleged negligent act use that reasonable care and caution which an ordinarily prudent person would have used in
the same situation? If not, then he is guilty of negligence. The law here in effect adopts the standard supposed to be
supplied by the imaginary conduct of the discreet pater-familias of the Roman law. The existence of negligence in a
given case is not determined by reference to the personal judgment of the actor in the situation before him. The law
considers what would be reckless, blameworthy, or negligent in the man of ordinary intelligence and prudence and
determines liability by that."[29]

Petitioner violated its own rules by allowing the withdrawal of an amount that is definitely over and above the aggregate amount of
private respondents dollar deposits that had yet to be cleared. The banks ledger on private respondents account shows that before he
deposited $2,500.00, private respondent had a balance of only $750.00.[30] Upon private respondents deposit of $2,500.00 on
September 3, 1984, that amount was credited in his ledger as a deposit resulting in the corresponding total balance of $3,250.00. [31] On
September 10, 1984, the amount of $600.00 and the additional charges of $10.00 were indicated therein as withdrawn thereby leaving
a balance of $2,640.00. On September 30, 1984, an interest of $11.59 was reflected in the ledger and on October 23, 1984, the amount
of $2,541.67 was entered as withdrawn with a balance of $109.92. [32] On November 19, 1984 the word "hold" was written beside the
balance of $109.92.[33] That must have been the time when Reyes, petitioners branch manager, was informed unofficially of the fact that
the check deposited was a counterfeit, but petitioners Buendia Ave. Extension Branch received a copy of the communication thereon
from Wells Fargo Bank International in New York the following day, November 20, 1984. [34]According to Reyes, Wells Fargo Bank
International handled the clearing of checks drawn against U.S. banks that were deposited with petitioner.[35] Jjlex

From these facts on record, it is at once apparent that petitioners personnel allowed the withdrawal of an amount bigger than the
original deposit of $750.00 and the value of the check deposited in the amount of $2,500.00 although they had not yet received notice
from the clearing bank in the United States on whether or not the check was funded. Reyes contention that after the lapse of the 35-day
period the amount of a deposited check could be withdrawn even in the absence of a clearance thereon, otherwise it could take a long
time before a depositor could make a withdrawal, [36] is untenable. Said practice amounts to a disregard of the clearance requirement of
the banking system.

While it is true that private respondents having signed a blank withdrawal slip set in motion the events that resulted in the withdrawal
and encashment of the counterfeit check, the negligence of petitioners personnel was the proximate cause of the loss that petitioner
sustained. Proximate cause, which is determined by a mixed consideration of logic, common sense, policy and precedent, is "that
cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which
the result would not have occurred."[37] The proximate cause of the withdrawal and eventual loss of the amount of $2,500.00 on
petitioners part was its personnels negligence in allowing such withdrawal in disregard of its own rules and the clearing requirement in
the banking system. In so doing, petitioner assumed the risk of incurring a loss on account of a forged or counterfeit foreign check and
hence, it should suffer the resulting damage.
WHEREFORE, the petition for review on certiorari is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 37392 is
AFFIRMED.

SO ORDERED. Newmiso

Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo, JJ., concur.

G.R. No. 74886 December 8, 1992

PRUDENTIAL BANK, petitioner,

vs.
INTERMEDIATE APPELLATE COURT, PHILIPPINE RAYON MILLS, INC. and ANACLETO R. CHI, respondents.

DAVIDE, JR., J.:

Petitioner seeks to review and set aside the decision 1 of public respondent; Intermediate Appellate Court (now Court of Appeals),
dated 10 March 1986, in AC-G.R. No. 66733 which affirmed in toto the 15 June 1978 decision of Branch 9 (Quezon City) of the then
Court of First Instance (now Regional Trial Court) of Rizal in Civil Case No. Q-19312. The latter involved an action instituted by the
petitioner for the recovery of a sum of money representing the amount paid by it to the Nissho Company Ltd. of Japan for textile
machinery imported by the defendant, now private respondent, Philippine Rayon Mills, Inc. (hereinafter Philippine Rayon), represented
by co-defendant Anacleto R. Chi.

The facts which gave rise to the instant controversy are summarized by the public respondent as follows:

On August 8, 1962, defendant-appellant Philippine Rayon Mills, Inc. entered into a contract with Nissho Co., Ltd. of
Japan for the importation of textile machineries under a five-year deferred payment plan (Exhibit B, Plaintiff's Folder
of Exhibits, p 2). To effect payment for said machineries, the defendant-appellant applied for a commercial letter of
credit with the Prudential Bank and Trust Company in favor of Nissho. By virtue of said application, the Prudential
Bank opened Letter of Credit No. DPP-63762 for $128,548.78 (Exhibit A, Ibid., p. 1). Against this letter of credit,
drafts were drawn and issued by Nissho (Exhibits X, X-1 to X-11, Ibid., pp. 65, 66 to 76), which were all paid by the
Prudential Bank through its correspondent in Japan, the Bank of Tokyo, Ltd. As indicated on their faces, two of these
drafts (Exhibit X and X-1, Ibid., pp. 65-66) were accepted by the defendant-appellant through its president, Anacleto
R. Chi, while the others were not (Exhibits X-2 to X-11, Ibid., pp. 66 to 76).

Upon the arrival of the machineries, the Prudential Bank indorsed the shipping documents to the defendant-appellant
which accepted delivery of the same. To enable the defendant-appellant to take delivery of the machineries, it
executed, by prior arrangement with the Prudential Bank, a trust receipt which was signed by Anacleto R. Chi in his
capacity as President (sic) of defendant-appellant company (Exhibit C, Ibid., p. 13).

At the back of the trust receipt is a printed form to be accomplished by two sureties who, by the very terms and
conditions thereof, were to be jointly and severally liable to the Prudential Bank should the defendant-appellant fail to
pay the total amount or any portion of the drafts issued by Nissho and paid for by Prudential Bank. The defendant-
appellant was able to take delivery of the textile machineries and installed the same at its factory site at 69 Obudan
Street, Quezon City.

Sometime in 1967, the defendant-appellant ceased business operation (sic). On December 29, 1969, defendant-
appellant's factory was leased by Yupangco Cotton Mills for an annual rental of P200,000.00 (Exhibit I, Ibid., p. 22).
The lease was renewed on January 3, 1973 (Exhibit J, Ibid., p. 26). On January 5, 1974, all the textile machineries in
the defendant-appellant's factory were sold to AIC Development Corporation for P300,000.00 (Exhibit K, Ibid., p. 29).

The obligation of the defendant-appellant arising from the letter of credit and the trust receipt remained unpaid and
unliquidated. Repeated formal demands (Exhibits U, V, and W, Ibid., pp. 62, 63, 64) for the payment of the said trust
receipt yielded no result Hence, the present action for the collection of the principal amount of P956,384.95 was filed
on October 3, 1974 against the defendant-appellant and Anacleto R. Chi. In their respective answers, the defendants
interposed identical special defenses, viz., the complaint states no cause of action; if there is, the same has
prescribed; and the plaintiff is guilty of laches. 2

On 15 June 1978, the trial court rendered its decision the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered sentencing the defendant Philippine Rayon Mills, Inc. to pay plaintiff the
sum of P153,645.22, the amounts due under Exhibits "X" & "X-1", with interest at 6% per annum beginning
September 15, 1974 until fully paid.
 Insofar as the amounts involved in drafts Exhs. "X" (sic) to "X-11", inclusive, the same not having been accepted by
defendant Philippine Rayon Mills, Inc., plaintiff's cause of action thereon has not accrued, hence, the instant case is
premature.

Insofar as defendant Anacleto R. Chi is concerned, the case is dismissed. Plaintiff is ordered to pay defendant
Anacleto R. Chi the sum of P20,000.00 as attorney's fees.

With costs against defendant Philippine Rayon Mills, Inc.

SO ORDERED. 3

Petitioner appealed the decision to the then Intermediate Appellate Court. In urging the said court to reverse or modify the decision,
petitioner alleged in its Brief that the trial court erred in (a) disregarding its right to reimbursement from the private respondents for the
entire unpaid balance of the imported machines, the total amount of which was paid to the Nissho Company Ltd., thereby violating the
principle of the third party payor's right to reimbursement provided for in the second paragraph of Article 1236 of the Civil Code and
under the rule against unjust enrichment; (b) refusing to hold Anacleto R. Chi, as the responsible officer of defendant corporation, liable
under Section 13 of P.D No 115 for the entire unpaid balance of the imported machines covered by the bank's trust receipt (Exhibit "C");
(c) finding that the solidary guaranty clause signed by Anacleto R. Chi is not a guaranty at all; (d) controverting the judicial admissions
of Anacleto R. Chi that he is at least a simple guarantor of the said trust receipt obligation; (e) contravening, based on the assumption
that Chi is a simple guarantor, Articles 2059, 2060 and 2062 of the Civil Code and the related evidence and jurisprudence which
provide that such liability had already attached; (f) contravening the judicial admissions of Philippine Rayon with respect to its liability to
pay the petitioner the amounts involved in the drafts (Exhibits "X", "X-l" to "X-11''); and (g) interpreting "sight" drafts as requiring
acceptance by Philippine Rayon before the latter could be held liable thereon. 4

In its decision, public respondent sustained the trial court in all respects. As to the first and last assigned errors, it ruled that the
provision on unjust enrichment, Article 2142 of the Civil Code, applies only if there is no express contract between the parties and there
is a clear showing that the payment is justified. In the instant case, the relationship existing between the petitioner and Philippine Rayon
is governed by specific contracts, namely the application for letters of credit, the promissory note, the drafts and the trust receipt. With
respect to the last ten (10) drafts (Exhibits "X-2" to "X-11") which had not been presented to and were not accepted by Philippine
Rayon, petitioner was not justified in unilaterally paying the amounts stated therein. The public respondent did not agree with the
petitioner's claim that the drafts were sight drafts which did not require presentment for acceptance to Philippine Rayon because
paragraph 8 of the trust receipt presupposes prior acceptance of the drafts. Since the ten (10) drafts were not presented and accepted,
no valid demand for payment can be made.

Public respondent also disagreed with the petitioner's contention that private respondent Chi is solidarily liable with Philippine Rayon
pursuant to Section 13 of P.D. No. 115 and based on his signature on the solidary guaranty clause at the dorsal side of the trust receipt.
As to the first contention, the public respondent ruled that the civil liability provided for in said Section 13 attaches only after conviction.
As to the second, it expressed misgivings as to whether Chi's signature on the trust receipt made the latter automatically liable thereon
because the so-called solidary guaranty clause at the dorsal portion of the trust receipt is to be signed not by one (1) person alone, but
by two (2) persons; the last sentence of the same is incomplete and unsigned by witnesses; and it is not acknowledged before a notary
public. Besides, even granting that it was executed and acknowledged before a notary public, Chi cannot be held liable therefor
because the records fail to show that petitioner had either exhausted the properties of Philippine Rayon or had resorted to all legal
remedies as required in Article 2058 of the Civil Code. As provided for under Articles 2052 and 2054 of the Civil Code, the obligation of
a guarantor is merely accessory and subsidiary, respectively. Chi's liability would therefore arise only when the principal debtor fails to
comply with his obligation. 5

Its motion to reconsider the decision having been denied by the public respondent in its Resolution of 11 June 1986, 6 petitioner filed
the instant petition on 31 July 1986 submitting the following legal issues:

I. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY ERRED IN DENYING

PETITIONER'S CLAIM FOR FULL REIMBURSEMENT AGAINST THE PRIVATE RESPONDENTS FOR THE
PAYMENT PETITIONER MADE TO NISSHO CO. LTD. FOR THE BENEFIT OF PRIVATE RESPONDENT UNDER
ART. 1283 OF THE NEW CIVIL CODE OF THE PHILIPPINES AND UNDER THE GENERAL PRINCIPLE AGAINST
UNJUST ENRICHMENT;

II. WHETHER OR NOT RESPONDENT CHI IS SOLIDARILY LIABLE UNDER THE TRUST RECEIPT (EXH. C);

III. WHETHER OR NOT ON THE BASIS OF THE JUDICIAL ADMISSIONS OF RESPONDENT CHI HE IS LIABLE
THEREON AND TO WHAT EXTENT;

IV. WHETHER OR NOT RESPONDENT CHI IS MERELY A SIMPLE GUARANTOR; AND IF SO; HAS HIS
LIABILITY AS SUCH ALREADY ATTACHED;

V. WHETHER OR NOT AS THE SIGNATORY AND RESPONSIBLE OFFICER OF RESPONDENT PHIL. RAYON
RESPONDENT CHI IS PERSONALLY LIABLE PURSUANT TO THE PROVISION OF SECTION 13, P.D. 115;
 VI. WHETHER OR NOT RESPONDENT PHIL. RAYON IS LIABLE TO THE PETITIONER UNDER THE TRUST
RECEIPT (EXH. C);

VII. WHETHER OR NOT ON THE BASIS OF THE JUDICIAL ADMISSIONS RESPONDENT PHIL. RAYON IS
LIABLE TO THE PETITIONER UNDER THE DRAFTS (EXHS. X, X-1 TO X-11) AND TO WHAT EXTENT;

VIII. WHETHER OR NOT SIGHT DRAFTS REQUIRE PRIOR ACCEPTANCE FROM RESPONDENT PHIL. RAYON
BEFORE THE LATTER BECOMES LIABLE TO PETITIONER. 7

In the Resolution of 12 March 1990, 8 this Court gave due course to the petition after the filing of the Comment thereto by private
respondent Anacleto Chi and of the Reply to the latter by the petitioner; both parties were also required to submit their respective
memoranda which they subsequently complied with.

As We see it, the issues may be reduced as follows:

1. Whether presentment for acceptance of the drafts was indispensable to make Philippine Rayon
liable thereon;

2. Whether Philippine Rayon is liable on the basis of the trust receipt;

3. Whether private respondent Chi is jointly and severally liable with Philippine Rayon for the
obligation sought to be enforced and if not, whether he may be considered a guarantor; in the latter
situation, whether the case should have been dismissed on the ground of lack of cause of action as
there was no prior exhaustion of Philippine Rayon's properties.

Both the trial court and the public respondent ruled that Philippine Rayon could be held liable for the two (2) drafts, Exhibits "X" and "X-
1", because only these appear to have been accepted by the latter after due presentment. The liability for the remaining ten (10) drafts
(Exhibits "X-2" to "X-11" inclusive) did not arise because the same were not presented for acceptance. In short, both courts concluded
that acceptance of the drafts by Philippine Rayon was indispensable to make the latter liable thereon. We are unable to agree with this
proposition. The transaction in the case at bar stemmed from Philippine Rayon's application for a commercial letter of credit with the
petitioner in the amount of $128,548.78 to cover the former's contract to purchase and import loom and textile machinery from Nissho
Company, Ltd. of Japan under a five-year deferred payment plan. Petitioner approved the application. As correctly ruled by the trial
court in its Order of 6 March 1975: 9

. . . By virtue of said Application and Agreement for Commercial Letter of Credit, plaintiff bank 10 was under obligation
to pay through its correspondent bank in Japan the drafts that Nisso (sic) Company, Ltd., periodically drew against
said letter of credit from 1963 to 1968, pursuant to plaintiff's contract with the defendant Philippine Rayon Mills, Inc. In
turn, defendant Philippine Rayon Mills, Inc., was obligated to pay plaintiff bank the amounts of the drafts drawn by
Nisso (sic) Company, Ltd. against said plaintiff bank together with any accruing commercial charges, interest, etc.
pursuant to the terms and conditions stipulated in the Application and Agreement of Commercial Letter of Credit
Annex "A".

A letter of credit is defined as an engagement by a bank or other person made at the request of a customer that the issuer will honor
drafts or other demands for payment upon compliance with the conditions specified in the credit. 11Through a letter of credit, the bank
merely substitutes its own promise to pay for one of its customers who in return promises to pay the bank the amount of funds
mentioned in the letter of credit plus credit or commitment fees mutually agreed upon. 12 In the instant case then, the drawee was
necessarily the herein petitioner. It was to the latter that the drafts were presented for payment. In fact, there was no need for
acceptance as the issued drafts are sight drafts. Presentment for acceptance is necessary only in the cases expressly provided for in
Section 143 of the Negotiable Instruments Law (NIL). 13 The said section reads:

Sec. 143. When presentment for acceptance must be made. — Presentment for acceptance must be made:

(a) Where the bill is payable after sight, or in any other case, where presentment
for acceptance is necessary in order to fix the maturity of the instrument; or

(b) Where the bill expressly stipulates that it shall be presented for acceptance;
or

(c) Where the bill is drawn payable elsewhere than at the residence or place of
business of the drawee.

In no other case is presentment for acceptance necessary in order to render any party to the bill liable.
Obviously then, sight drafts do not require presentment for acceptance.

14
The acceptance of a bill is the signification by the drawee of his assent to the order of the drawer; this may be done in writing by the
drawee in the bill itself, or in a separate instrument. 15

The parties herein agree, and the trial court explicitly ruled, that the subject, drafts are sight drafts. Said the latter:

. . . In the instant case the drafts being at sight, they are supposed to be payable upon acceptance unless plaintiff
bank has given the Philippine Rayon Mills Inc. time within which to pay the same. The first two drafts (Annexes C &
D, Exh. X & X-1) were duly accepted as indicated on their face (sic), and upon such acceptance should have been
paid forthwith. These two drafts were not paid and although Philippine Rayon Mills
ought to have paid the same, the fact remains that until now they are still unpaid. 16

Corollarily, they are, pursuant to Section 7 of the NIL, payable on demand. Section 7 provides:

Sec. 7. When payable on demand. — An instrument is payable on demand —

(a) When so it is expressed to be payable on demand, or at sight, or on

presentation; or

(b) In which no time for payment in expressed.

Where an instrument is issued, accepted, or indorsed when overdue, it is, as regards the person so issuing,
accepting, or indorsing it, payable on demand. (emphasis supplied)

Paragraph 8 of the Trust Receipt which reads: "My/our liability for payment at maturity of any accepted draft, bill of exchange
or indebtedness shall not be extinguished or modified" 17 does not, contrary to the holding of the public respondent,
contemplate prior acceptance by Philippine Rayon, but by the petitioner. Acceptance, however, was not even necessary in the
first place because the drafts which were eventually issued were sight drafts And even if these were not sight drafts, thereby
necessitating acceptance, it would be the petitioner — and not Philippine Rayon — which had to accept the same for the latter
was not the drawee. Presentment for acceptance is defined an the production of a bill of exchange to a drawee for
acceptance. 18The trial court and the public respondent, therefore, erred in ruling that presentment for acceptance was an
indispensable requisite for Philippine Rayon's liability on the drafts to attach. Contrary to both courts' pronouncements,
Philippine Rayon immediately became liable thereon upon petitioner's payment thereof. Such is the essence of the letter of
credit issued by the petitioner. A different conclusion would violate the principle upon which commercial letters of credit are
founded because in such a case, both the beneficiary and the issuer, Nissho Company Ltd. and the petitioner, respectively,
would be placed at the mercy of Philippine Rayon even if the latter had already received the imported machinery and the
petitioner had fully paid for it. The typical setting and purpose of a letter of credit are described in Hibernia Bank and Trust
Co.vs. J. Aron & Co., Inc., 19 thus:

Commercial letters of credit have come into general use in international sales transactions where much time
necessarily elapses between the sale and the receipt by a purchaser of the merchandise, during which interval great
price changes may occur. Buyers and sellers struggle for the advantage of position. The seller is desirous of being
paid as surely and as soon as possible, realizing that the vendee at a distant point has it in his power to reject on
trivial grounds merchandise on arrival, and cause considerable hardship to the shipper. Letters of credit meet this
condition by affording celerity and certainty of payment. Their purpose is to insure to a seller payment of a definite
amount upon presentation of documents. The bank deals only with documents. It has nothing to do with the quality of
the merchandise. Disputes as to the merchandise shipped may arise and be litigated later between vendor and
vendee, but they may not impede acceptance of drafts and payment by the issuing bank when the proper documents
are presented.

The trial court and the public respondent likewise erred in disregarding the trust receipt and in not holding that Philippine Rayon was
liable thereon. In People vs. Yu Chai Ho, 20 this Court explains the nature of a trust receipt by quoting In re Dunlap Carpet Co., 21 thus:

By this arrangement a banker advances money to an intending importer, and thereby lends the aid of capital, of
credit, or of business facilities and agencies abroad, to the enterprise of foreign commerce. Much of this trade could
hardly be carried on by any other means, and therefore it is of the first importance that the fundamental factor in the
transaction, the banker's advance of money and credit, should receive the amplest protection. Accordingly, in order to
secure that the banker shall be repaid at the critical point — that is, when the imported goods finally reach the hands
of the intended vendee — the banker takes the full title to the goods at the very beginning; he takes it as soon as the
goods are bought and settled for by his payments or acceptances in the foreign country, and he continues to hold that
title as his indispensable security until the goods are sold in the United States and the vendee is called upon to pay
for them. This security is not an ordinary pledge by the importer to the banker, for the importer has never owned the
goods, and moreover he is not able to deliver the possession; but the security is the complete title vested originally in
the bankers, and this characteristic of the transaction has again and again been recognized and protected by the
 courts. Of course, the title is at bottom a security title, as it has sometimes been called, and the banker is always
under the obligation to reconvey; but only after his advances have been fully repaid and after the importer has fulfilled
the other terms of the contract.

As further stated in National Bank vs. Viuda e Hijos de Angel Jose, 22 trust receipts:

. . . [I]n a certain manner, . . . partake of the nature of a conditional sale as provided by the Chattel Mortgage Law,
that is, the importer becomes absolute owner of the imported merchandise as soon an he has paid its price. The
ownership of the merchandise continues to be vested in the owner thereof or in the person who has advanced
payment, until he has been paid in full, or if the merchandise has already been sold, the proceeds of the sale should
be turned over to him by the importer or by his representative or successor in interest.

Under P.D. No. 115, otherwise known an the Trust Receipts Law, which took effect on 29 January 1973, a trust receipt transaction is
defined as "any transaction by and between a person referred to in this Decree as the entruster, and another person referred to in this
Decree as the entrustee, whereby the entruster, who owns or holds absolute title or security interests' over certain specified goods,
documents or instruments, releases the same to the possession of the entrustee upon the latter's execution and delivery to the
entruster of a signed document called the "trust receipt" wherein the entrustee binds himself to hold the designated goods, documents
or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or instruments with the obligation to
turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the
goods, instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in
the trusts receipt, or for other purposes substantially equivalent to any one of the following: . . ."

It is alleged in the complaint that private respondents "not only have presumably put said machinery to good use and have profited by
its operation and/or disposition but very recent information that (sic) reached plaintiff bank that defendants already sold the machinery
covered by the trust receipt to Yupangco Cotton Mills," and that "as trustees of the property covered by the trust receipt, . . . and
therefore acting in fiduciary (sic) capacity, defendants have willfully violated their duty to account for the whereabouts of the machinery
covered by the trust receipt or for the proceeds of any lease, sale or other disposition of the same that they may have made,
notwithstanding demands therefor; defendants have fraudulently misapplied or converted to their own use any money realized from the
lease, sale, and other disposition of said machinery." 23 While there is no specific prayer for the delivery to the petitioner by Philippine
Rayon of the proceeds of the sale of the machinery covered by the trust receipt, such relief is covered by the general prayer for "such
further and other relief as may be just and equitable on the premises." 24 And although it is true that the petitioner commenced a
criminal action for the violation of the Trust Receipts Law, no legal obstacle prevented it from enforcing the civil liability arising out of the
trust, receipt in a separate civil action. Under Section 13 of the Trust Receipts Law, the failure of an entrustee to turn over the proceeds
of the sale of goods, documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as
appear in the trust receipt or to return said goods, documents or instruments if they were not sold or disposed of in accordance with the
terms of the trust receipt shall constitute the crime of estafa, punishable under the provisions of Article 315, paragraph 1(b) of the
Revised Penal Code. 25 Under Article 33 of the Civil Code, a civil action for damages, entirely separate and distinct from the criminal
action, may be brought by the injured party in cases of defamation, fraud and physical injuries. Estafa falls under fraud.

We also conclude, for the reason hereinafter discussed, and not for that adduced by the public respondent, that private respondent
Chi's signature in the dorsal portion of the trust receipt did not bind him solidarily with Philippine Rayon. The statement at the dorsal
portion of the said trust receipt, which petitioner describes as a "solidary guaranty clause", reads:

In consideration of the PRUDENTIAL BANK AND TRUST COMPANY complying with the foregoing, we jointly and
severally agree and undertake to pay on demand to the PRUDENTIAL BANK AND TRUST COMPANY all sums of
money which the said PRUDENTIAL BANK AND TRUST COMPANY may call upon us to pay arising out of or
pertaining to, and/or in any event connected with the default of and/or non-fulfillment in any respect of the undertaking
of the aforesaid:

PHILIPPINE RAYON MILLS, INC.

We further agree that the PRUDENTIAL BANK AND TRUST COMPANY does not have to take any steps or exhaust
its remedy against aforesaid:

before making demand on me/us.

(Sgd.)
Anacleto
R. Chi
ANACL
ETO R.
CHI 26

Petitioner insists that by virtue of the clear wording of the statement, specifically the clause ". . . we jointly and severally agree and
undertake . . .," and the concluding sentence on exhaustion, Chi's liability therein is solidary.
In holding otherwise, the public respondent ratiocinates as follows:

With respect to the second argument, we have our misgivings as to whether the mere signature of defendant-
appellee Chi of (sic) the guaranty agreement, Exhibit "C-1", will make it an actionable document. It should be noted
that Exhibit "C-1" was prepared and printed by the plaintiff-appellant. A perusal of Exhibit "C-1" shows that it was to
be signed and executed by two persons. It was signed only by defendant-appellee Chi. Exhibit "C-1" was to be
witnessed by two persons, but no one signed in that capacity. The last sentence of the guaranty clause is incomplete.
Furthermore, the plaintiff-appellant also failed to have the purported guarantee clause acknowledged before a notary
public. All these show that the alleged guaranty provision was disregarded and, therefore, not consummated.

But granting arguendo that the guaranty provision in Exhibit "C-1" was fully executed and acknowledged still
defendant-appellee Chi cannot be held liable thereunder because the records show that the plaintiff-appellant had
neither exhausted the property of the defendant-appellant nor had it resorted to all legal remedies against the said
defendant-appellant as provided in Article 2058 of the Civil Code. The obligation of a guarantor is merely accessory
under Article 2052 of the Civil Code and subsidiary under Article 2054 of the Civil Code. Therefore, the liability of the
defendant-appellee arises only when the principal debtor fails to comply with his obligation. 27

Our own reading of the questioned solidary guaranty clause yields no other conclusion than that the obligation of Chi is only that of
a guarantor. This is further bolstered by the last sentence which speaks of waiver of exhaustion, which, nevertheless, is ineffective in
this case because the space therein for the party whose property may not be exhausted was not filled up. Under Article 2058 of the
Civil Code, the defense of exhaustion (excussion) may be raised by a guarantor before he may be held liable for the obligation.
Petitioner likewise admits that the questioned provision is a solidary guaranty clause, thereby clearly distinguishing it from a contract of
surety. It, however, described the guaranty as solidary between the guarantors; this would have been correct if two (2) guarantors had
signed it. The clause "we jointly and severally agree and undertake" refers to the undertaking of the two (2) parties who are to sign it or
to the liability existing between themselves. It does not refer to the undertaking between either one or both of them on the one hand and
the petitioner on the other with respect to the liability described under the trust receipt. Elsewise stated, their liability is not divisible as
between them, i.e., it can be enforced to its full extent against any one of them.

Furthermore, any doubt as to the import, or true intent of the solidary guaranty clause should be resolved against the petitioner. The
trust receipt, together with the questioned solidary guaranty clause, is on a form drafted and prepared solely by the petitioner; Chi's
participation therein is limited to the affixing of his signature thereon. It is, therefore, a contract of adhesion; 28 as such, it must be strictly
construed against the party responsible for its preparation. 29

Neither can We agree with the reasoning of the public respondent that this solidary guaranty clause was effectively disregarded simply
because it was not signed and witnessed by two (2) persons and acknowledged before a notary public. While indeed, the clause ought
to have been signed by two (2) guarantors, the fact that it was only Chi who signed the same did not make his act an idle ceremony or
render the clause totally meaningless. By his signing, Chi became the sole guarantor. The attestation by witnesses and the
acknowledgement before a notary public are not required by law to make a party liable on the instrument. The rule is that contracts
shall be obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present;
however, when the law requires that a contract be in some form in order that it may be valid or enforceable, or that it be proved in a
certain way, that requirement is absolute and indispensable. 30 With respect to a guaranty, 31 which is a promise to answer for the debt
or default of another, the law merely requires that it, or some note or memorandum thereof, be in writing. Otherwise, it would be
unenforceable unless ratified. 32 While the acknowledgement of a surety before a notary public is required to make the same a public
document, under Article 1358 of the Civil Code, a contract of guaranty does not have to appear in a public document.

And now to the other ground relied upon by the petitioner as basis for the solidary liability of Chi, namely the criminal proceedings
against the latter for the violation of P.D. No. 115. Petitioner claims that because of the said criminal proceedings, Chi would be
answerable for the civil liability arising therefrom pursuant to Section 13 of P.D. No. 115. Public respondent rejected this claim because
such civil liability presupposes prior conviction as can be gleaned from the phrase "without prejudice to the civil liability arising from the
criminal offense." Both are wrong. The said section reads:

Sec. 13. Penalty Clause. — The failure of an entrustee to turn over the proceeds of the sale of the goods, documents
or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as appears in the trust
receipt or to return said goods, documents or instruments if they were not sold or disposed of in accordance with the
terms of the trust receipt shall constitute the crime of estafa, punishable under the provisions of Article Three hundred
and fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred and fifteen, as amended, otherwise
known as the Revised Penal Code. If the violation or offense is committed by a corporation, partnership, association
or other juridical entities, the penalty provided for in this Decree shall be imposed upon the directors, officers,
employees or other officials or persons therein responsible for the offense, without prejudice to the civil liabilities
arising from the criminal offense.

A close examination of the quoted provision reveals that it is the last sentence which provides for the correct solution. It is clear that if
the violation or offense is committed by a corporation, partnership, association or other juridical entities, the penalty shall be imposed
upon the directors, officers, employees or other officials or persons therein responsible for the offense. The penalty referred to is
imprisonment, the duration of which would depend on the amount of the fraud as provided for in Article 315 of the Revised Penal Code.
The reason for this is obvious: corporations, partnerships, associations and other juridical entities cannot be put in jail. However, it is
these entities which are made liable for the civil liability arising from the criminal offense. This is the import of the clause "without
prejudice to the civil liabilities arising from the criminal offense." And, as We stated earlier, since that violation of a trust receipt
constitutes fraud under Article 33 of the Civil Code, petitioner was acting well within its rights in filing an independent civil action to
enforce the civil liability arising therefrom against Philippine Rayon.

The remaining issue to be resolved concerns the propriety of the dismissal of the case against private respondent Chi. The trial court
based the dismissal, and the respondent Court its affirmance thereof, on the theory that Chi is not liable on the trust receipt in any
capacity — either as surety or as guarantor — because his signature at the dorsal portion thereof was useless; and even if he could be
bound by such signature as a simple guarantor, he cannot, pursuant to Article 2058 of the Civil Code, be compelled to pay until
after petitioner has exhausted and resorted to all legal remedies against the principal debtor, Philippine Rayon. The records fail to show
that petitioner had done so 33 Reliance is thus placed on Article 2058 of the Civil Code which provides:

Art. 2056. The guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of
the debtor, and has resorted to all the legal remedies against the debtor.

Simply stated, there is as yet no cause of action against Chi.

We are not persuaded. Excussion is not a condition sine qua non for the institution of an action against a guarantor. In Southern
Motors, Inc. vs. Barbosa, 34 this Court stated:

4. Although an ordinary personal guarantor — not a mortgagor or pledgor — may demand the aforementioned
exhaustion, the creditor may, prior thereto, secure a judgment against said guarantor, who shall be entitled, however,
to a deferment of the execution of said judgment against him until after the properties of the principal debtor shall
have been exhausted to satisfy the obligation involved in the case.

There was then nothing procedurally objectionable in impleading private respondent Chi as a co-defendant in Civil Case No. Q-19312
before the trial court. As a matter of fact, Section 6, Rule 3 of the Rules of Court on permissive joinder of parties explicitly allows it. It
reads:

Sec. 6. Permissive joinder of parties. — All persons in whom or against whom any right to relief in respect to or
arising out of the same transaction or series of transactions is alleged to exist, whether jointly, severally, or in the
alternative, may, except as otherwise provided in these rules, join as plaintiffs or be joined as defendants in one
complaint, where any question of law or fact common to all such plaintiffs or to all such defendants may arise in the
action; but the court may make such orders as may be just to prevent any plaintiff or defendant from being
embarrassed or put to expense in connection with any proceedings in which he may have no interest.

This is the equity rule relating to multifariousness. It is based on trial convenience and is designed to permit the joinder of plaintiffs or
defendants whenever there is a common question of law or fact. It will save the parties unnecessary work, trouble and expense. 35

However, Chi's liability is limited to the principal obligation in the trust receipt plus all the accessories thereof including judicial costs;
with respect to the latter, he shall only be liable for those costs incurred after being judicially required to pay. 36 Interest and damages,
being accessories of the principal obligation, should also be paid; these, however, shall run only from the date of the filing of the
complaint. Attorney's fees may even be allowed in appropriate cases. 37

In the instant case, the attorney's fees to be paid by Chi cannot be the same as that to be paid by Philippine Rayon since it is only the
trust receipt that is covered by the guaranty and not the full extent of the latter's liability. All things considered, he can be held liable for
the sum of P10,000.00 as attorney's fees in favor of the petitioner.

Thus, the trial court committed grave abuse of discretion in dismissing the complaint as against private respondent Chi and condemning
petitioner to pay him P20,000.00 as attorney's fees.

In the light of the foregoing, it would no longer necessary to discuss the other issues raised by the petitioner

WHEREFORE, the instant Petition is hereby GRANTED.

The appealed Decision of 10 March 1986 of the public respondent in AC-G.R. CV No. 66733 and, necessarily, that of Branch
9 (Quezon City) of the then Court of First Instance of Rizal in Civil Case No. Q-19312 are hereby REVERSED and SET ASIDE
and another is hereby entered:

1. Declaring private respondent Philippine Rayon Mills, Inc. liable on the twelve drafts in question
(Exhibits "X", "X-1" to "X-11", inclusive) and on the trust receipt (Exhibit "C"), and ordering it to pay
petitioner: (a) the amounts due thereon in the total sum of P956,384.95 as of 15 September 1974,
with interest thereon at six percent (6%) per annum from 16 September 1974 until it is fully paid,
 less whatever may have been applied thereto by virtue of foreclosure of mortgages, if any; (b) a
sum equal to ten percent (10%) of the aforesaid amount as attorney's fees; and (c) the costs.

2. Declaring private respondent Anacleto R. Chi secondarily liable on the trust receipt and ordering
him to pay the face value thereof, with interest at the legal rate, commencing from the date of the
filing of the complaint in Civil Case No. Q-19312 until the same is fully paid as well as the costs and
attorney's fees in the sum of P10,000.00 if the writ of execution for the enforcement of the above
awards against Philippine Rayon Mills, Inc. is returned unsatisfied.

Costs against private respondents.

SO ORDERED.

Gutierrez, Jr., Bidin, Romero and Melo, JJ., concur.

[G.R. No. 117857. February 2, 2001]

LUIS S. WONG, petitioner, vs. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.

DECISION
QUISUMBING, J.:

For review on certiorari is the decision dated October 28, 1994 of the Court of Appeals in C.A. G.R. CR 11856 [1] which affirmed the
decision of the Regional Trial Court of Cebu City, Branch 17, convicting petitioner on three (3) counts of Batas Pambansa Blg. 22 (the
Bouncing Checks Law) violations, and sentencing him to imprisonment of four (4) months for each count, and to pay private respondent
the amounts of P5,500.00, P6,410.00 and P3,375.00, respectively, corresponding to the value of the checks involved, with the legal rate
of interest from the time of filing of the criminal charges, as well as to pay the costs.
The factual antecedents of the case are as follows:
Petitioner Wong was an agent of Limtong Press Inc. (LPI), a manufacturer of calendars. LPI would print sample calendars, then
give them to agents to present to customers. The agents would get the purchase orders of customers and forward them to LPI. After
printing the calendars, LPI would ship the calendars directly to the customers. Thereafter, the agents would come around to collect the
payments. Petitioner, however, had a history of unremitted collections, which he duly acknowledged in a confirmation receipt he co-signed
with his wife.[2] Hence, petitioners customers were required to issue postdated checks before LPI would accept their purchase orders.
In early December 1985, Wong issued six (6) postdated checks totaling P18,025.00, all dated December 30, 1985 and drawn
payable to the order of LPI, as follows:

(1) Allied Banking Corporation (ABC) Check No. 660143464-C for P6,410.00 (Exh. B);

(2) ABC Check No. 660143460-C for P 540.00 (Exh. C);

(3) ABC Check No. PA660143451-C for P5,500.00 (Exh. D);

(4) ABC Check No. PA660143465-C for P1,100.00 (Exh. E);

(5) ABC Check No. PA660143463-C for P3,375.00 (Exh. F);

(6) ABC Check No. PA660143452-C for P1,100.00 (Exh. G).

These checks were initially intended to guarantee the calendar orders of customers who failed to issue post-dated checks. However,
following company policy, LPI refused to accept the checks as guarantees. Instead, the parties agreed to apply the checks to the payment
of petitioners unremitted collections for 1984 amounting to P18,077.07.[3] LPI waived the P52.07 difference.
Before the maturity of the checks, petitioner prevailed upon LPI not to deposit the checks and promised to replace them within 30
days. However, petitioner reneged on his promise. Hence, on June 5, 1986, LPI deposited the checks with Rizal Commercial Banking
Corporation (RCBC). The checks were returned for the reason account closed. The dishonor of the checks was evidenced by the RCBC
return slip.
 On June 20, 1986, complainant through counsel notified the petitioner of the dishonor. Petitioner failed to make arrangements for
payment within five (5) banking days.
On November 6, 1987, petitioner was charged with three (3) counts of violation of B.P. Blg. 22 [4] under three separate Informations
for the three checks amounting to P5,500.00, P3,375.00, and P6,410.00.[5]
The Information in Criminal Case No. CBU-12055 reads as follows:[6]

That on or about the 30th day of December, 1985 and for sometime subsequent thereto, in the City of Cebu, Philippines, and within the
jurisdiction of this Honorable Court, the said accused, knowing at the time of issue of the check she/he does not have sufficient funds in
or credit with the drawee bank for the payment of such check in full upon its presentment, with deliberate intent, with intent of gain and
of causing damage, did then and there issue, make or draw Allied Banking Corporation Check No. 660143451 dated 12-30-85 in the
amount of P5,500.00 payable to Manuel T. Limtong which check was issued in payment of an obligation of said accused, but when the
said check was presented with said bank, the same was dishonored for reason ACCOUNT CLOSED and despite notice and demands
made to redeem or make good said check, said accused failed and refused, and up to the present time still fails and refuses to do so, to
the damage and prejudice of said Manuel T. Limtong in the amount of P5,500.00 Philippine Currency.

Contrary to law.

Petitioner was similarly charged in Criminal Case No. 12057 for ABC Check No. 660143463 in the amount of P3,375.00, and in
Criminal Case No. 12058 for ABC Check No. 660143464 for P6,410.00.Both cases were raffled to the same trial court.
Upon arraignment, Wong pleaded not guilty. Trial ensued.
Manuel T. Limtong, general manager of LPI, testified on behalf of the company. Limtong averred that he refused to accept the
personal checks of petitioner since it was against company policy to accept personal checks from agents. Hence, he and petitioner simply
agreed to use the checks to pay petitioners unremitted collections to LPI. According to Limtong, a few days before maturity of the checks,
Wong requested him to defer the deposit of said checks for lack of funds. Wong promised to replace them within thirty days, but failed to
do so. Hence, upon advice of counsel, he deposited the checks which were subsequently returned on the ground of account closed.
The version of the defense is that petitioner issued the six (6) checks to guarantee the 1985 calendar bookings of his customers.
According to petitioner, he issued the checks not as payment for any obligation, but to guarantee the orders of his customers. In fact, the
face value of the six (6) postdated checks tallied with the total amount of the calendar orders of the six (6) customers of the accused,
namely, Golden Friendship Supermarket, Inc. (P6,410.00), New Society Rice and Corn Mill (P5,500.00), Cuesta Enterprises (P540.00),
Pelrico Marketing (P1,100.00), New Asia Restaurant (P3,375.00), and New China Restaurant (P1,100.00). Although these customers
had already paid their respective orders, petitioner claimed LPI did not return the said checks to him.
On August 30, 1990, the trial court issued its decision, disposing as follows: [7]

Wherefore, premises considered, this Court finds the accused Luis S. Wong GUILTY beyond reasonable doubt of the offense of
Violations of Section 1 of Batas Pambansa Bilang 22 in THREE (3) Counts and is hereby sentenced to serve an imprisonment of FOUR
(4) MONTHS for each count; to pay Private Complainant Manuel T. Limtong the sums of Five Thousand Five Hundred (P5,500.00)
Pesos, Six Thousand Four Hundred Ten (P6,410.00) Pesos and Three Thousand Three Hundred Seventy-Five (P3,375.00) Pesos
corresponding to the amounts indicated in Allied Banking Checks Nos. 660143451, 66[0]143464 and 660143463 all issued on
December 30, 1985 together with the legal rate of interest from the time of the filing of the criminal charges in Court and pay the costs.[8]

Petitioner appealed his conviction to the Court of Appeals. On October 28, 1994, it affirmed the trial courts decision in toto.[9]
Hence, the present petition.[10] Petitioner raises the following questions of law -[11]

May a complainant successfully prosecute a case under BP 22 --- if there is no more consideration or price or value -- ever the
binding tie that it is in contracts in general and in negotiable instruments in particular -- behind the checks? -- if even before he
deposits the checks, he has ceased to be a holder for value because the purchase orders (PO's) guaranteed by the checks were
already paid?

Given the fact that the checks lost their reason for being, as above stated, is it not then the duty of complainant -- knowing he is no
longer a holder for value -- to return the checks and not to deposit them ever? Upon what legal basis then may such a holder
deposit them and get paid twice?

Is petitioner, as the drawer of the guarantee checks which lost their reason for being, still bound under BP 22 to maintain his
account long after 90 days from maturity of the checks?

May the prosecution apply the prima facie presumption of knowledge of lack of funds against the drawer if the checks were
belatedly deposited by the complainant 157 days after maturity, or will it be then necessary for the prosecution to show actual
proof of lack of funds during the 90-day term?

Petitioner insists that the checks were issued as guarantees for the 1985 purchase orders (POs) of his customers. He contends that
private respondent is not a holder for value considering that the checks were deposited by private respondent after the customers already
paid their orders. Instead of depositing the checks, private respondent should have returned the checks to him. Petitioner further assails
the credibility of complainant considering that his answers to cross-examination questions included: I cannot recall, anymore and We
have no more record.
In his Comment,[12] the Solicitor General concedes that the checks might have been initially intended by petitioner to guarantee
payments due from customers, but upon the refusal of LPI to accept said personal checks per company policy, the parties had agreed
that the checks would be used to pay off petitioners unremitted collections. Petitioners contention that he did not demand the return of
the checks because he trusted LPIs good faith is contrary to human nature and sound business practice, according to the Solicitor
General.
The issue as to whether the checks were issued merely as guarantee or for payment of petitioners unremitted collections is a factual
issue involving as it does the credibility of witnesses. Said factual issue has been settled by the trial court and Court of Appeals. Although
initially intended to be used as guarantee for the purchase orders of customers, they found the checks were eventually used to settle the
remaining obligations of petitioner with LPI. Although Manuel Limtong was the sole witness for the prosecution, his testimony was found
sufficient to prove all the elements of the offense charged. [13] We find no cogent reason to depart from findings of both the trial and
appellate courts. In cases elevated from the Court of Appeals, our review is confined to alleged errors of law. Its findings of fact are
generally conclusive. Absent any showing that the findings by the respondent court are entirely devoid of any substantiation on record,
the same must stand.[14] The lack of accounting between the parties is not the issue in this case. As repeatedly held, this Court is not a
trier of facts.[15] Moreover, in Llamado v. Court of Appeals,[16] we held that [t]o determine the reason for which checks are issued, or the
terms and conditions for their issuance, will greatly erode the faith the public reposes in the stability and commercial value of checks as
currency substitutes, and bring about havoc in trade and in banking communities. So what the law punishes is the issuance of a bouncing
check and not the purpose for which it was issued nor the terms and conditions relating to its issuance. The mere act of issuing a worthless
check is malum prohibitum. Nothing herein persuades us to hold otherwise.
The only issue for our resolution now is whether or not the prosecution was able to establish beyond reasonable doubt all the
elements of the offense penalized under B.P. Blg. 22.
There are two (2) ways of violating B.P. Blg. 22: (1) by making or drawing and issuing a check to apply on account or for value
knowing at the time of issue that the check is not sufficiently funded; and (2) by having sufficient funds in or credit with the drawee bank
at the time of issue but failing to keep sufficient funds therein or credit with said bank to cover the full amount of the check when presented
to the drawee bank within a period of ninety (90) days. [17]
The elements of B.P. Blg. 22 under the first situation, pertinent to the present case, are: [18]

(1) The making, drawing and issuance of any check to apply for account or for value;

(2) The knowledge of the maker, drawer, or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee
bank for the payment of such check in full upon its presentment; and

(3) The subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had
not the drawer, without any valid cause, ordered the bank to stop payment.

Petitioner contends that the first element does not exist because the checks were not issued to apply for account or for value. He
attempts to distinguish his situation from the usual cut-and-dried B.P. 22 case by claiming that the checks were issued as guarantee and
the obligations they were supposed to guarantee were already paid. This flawed argument has no factual basis, the RTC and CA having
both ruled that the checks were in payment for unremitted collections, and not as guarantee. Likewise, the argument has no legal basis,
for what B.P. Blg. 22 punishes is the issuance of a bouncing check and not the purpose for which it was issued nor the terms and
conditions relating to its issuance.[19]
As to the second element, B.P. Blg. 22 creates a presumption juris tantum that the second element prima facie exists when the first
and third elements of the offense are present.[20] Thus, the makers knowledge is presumed from the dishonor of the check for insufficiency
of funds.[21]
Petitioner avers that since the complainant deposited the checks on June 5, 1986, or 157 days after the December 30, 1985 maturity
date, the presumption of knowledge of lack of funds under Section 2 of B.P. Blg. 22 should not apply to him. He further claims that he
should not be expected to keep his bank account active and funded beyond the ninety-day period.
Section 2 of B.P. Blg. 22 provides:

Evidence of knowledge of insufficient funds. -- The making, drawing and issuance of a check payment of which is refused by the
drawee because of insufficient funds in or credit with such bank, when presented within ninety (90) days from the date of the check,
shall be prima facie evidence of knowledge of such insufficiency of funds or credit unless such maker or drawer pays the holder thereof
the amount due thereon, or makes arrangements for payment in full by the drawee of such check within five (5) banking days after
receiving notice that such check has not been paid by the drawee.

An essential element of the offense is knowledge on the part of the maker or drawer of the check of the insufficiency of his funds in
or credit with the bank to cover the check upon its presentment. Since this involves a state of mind difficult to establish, the statute itself
creates a prima facie presumption of such knowledge where payment of the check is refused by the drawee because of insufficient funds
in or credit with such bank when presented within ninety (90) days from the date of the check. To mitigate the harshness of the law in its
application, the statute provides that such presumption shall not arise if within five (5) banking days from receipt of the notice of dishonor,
the maker or drawer makes arrangements for payment of the check by the bank or pays the holder the amount of the check.[22]
Contrary to petitioners assertions, nowhere in said provision does the law require a maker to maintain funds in his bank account for
only 90 days. Rather, the clear import of the law is to establish a prima facie presumption of knowledge of such insufficiency of funds
under the following conditions (1) presentment within 90 days from date of the check, and (2) the dishonor of the check and failure of the
maker to make arrangements for payment in full within 5 banking days after notice thereof. That the check must be deposited within
ninety (90) days is simply one of the conditions for the prima facie presumption of knowledge of lack of funds to arise. It is not an element
of the offense. Neither does it discharge petitioner from his duty to maintain sufficient funds in the account within a reasonable time
thereof. Under Section 186 of the Negotiable Instruments Law, a check must be presented for payment within a reasonable time after its
issue or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay. By current banking practice, a
check becomes stale after more than six (6) months, [23] or 180 days. Private respondent herein deposited the checks 157 days after the
date of the check. Hence said checks cannot be considered stale. Only the presumption of knowledge of insufficiency of funds was lost,
but such knowledge could still be proven by direct or circumstantial evidence. As found by the trial court, private respondent did not
deposit the checks because of the reassurance of petitioner that he would issue new checks. Upon his failure to do so, LPI was
constrained to deposit the said checks. After the checks were dishonored, petitioner was duly notified of such fact but failed to make
arrangements for full payment within five (5) banking days thereof. There is, on record, sufficient evidence that petitioner had knowledge
of the insufficiency of his funds in or credit with the drawee bank at the time of issuance of the checks. And despite petitioners insistent
plea of innocence, we find no error in the respondent courts affirmance of his conviction by the trial court for violations of the Bouncing
Checks Law.
However, pursuant to the policy guidelines in Administrative Circular No. 12-2000, which took effect on November 21, 2000, the
penalty imposed on petitioner should now be modified to a fine of not less than but not more than double the amount of the checks that
were dishonored.
WHEREFORE, the petition is DENIED. Petitioner Luis S. Wong is found liable for violation of Batas Pambansa Blg. 22 but the
penalty imposed on him is hereby MODIFIED so that the sentence of imprisonment is deleted. Petitioner is ORDERED to pay a FINE of
(1) P6,750.00, equivalent to double the amount of the check involved in Criminal Case No. CBU-12057, (2) P12,820.00, equivalent to
double the amount of the check involved in Criminal Case No. CBU-12058, and (3) P11,000.00, equivalent to double the amount of the
check involved in Criminal Case No. CBU-12055, with subsidiary imprisonment[24] in case of insolvency to pay the aforesaid fines. Finally,
as civil indemnity, petitioner is also ordered to pay to LPI the face value of said checks totaling P18,025.00 with legal interest thereon
from the time of filing the criminal charges in court, as well as to pay the costs.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.

[G.R. No. 141968. February 12, 2001]

THE INTERNATIONAL CORPORATE BANK (now UNION BANK OF THE PHILIPPINES), petitioner, vs. SPS. FRANCIS S. GUECO
and MA. LUZ E. GUECO, respondents.

DECISION
KAPUNAN, J.:

The respondents Gueco Spouses obtained a loan from petitioner International Corporate Bank (now Union Bank of the Philippines)
to purchase a car a Nissan Sentra 1600 4DR, 1989 Model. In consideration thereof, the Spouses executed promissory notes which were
payable in monthly installments and chattel mortgage over the car to serve as security for the notes.
The Spouses defaulted in payment of installments. Consequently, the Bank filed on August 7, 1995 a civil action docketed as Civil
Case No. 658-95 for Sum of Money with Prayer for a Writ of Replevin[1] before the Metropolitan Trial Court of Pasay City, Branch 45. [2] On
August 25, 1995, Dr. Francis Gueco was served summons and was fetched by the sheriff and representative of the bank for a meeting
in the bank premises. Desi Tomas, the Banks Assistant Vice President demanded payment of the amount of P184,000.00 which
represents the unpaid balance for the car loan. After some negotiations and computation, the amount was lowered
to P154,000.00, However, as a result of the non-payment of the reduced amount on that date, the car was detained inside the banks
compound.
On August 28, 1995, Dr. Gueco went to the bank and talked with its Administrative Support, Auto Loans/Credit Card Collection
Head, Jefferson Rivera. The negotiations resulted in the further reduction of the outstanding loan to P150,000.00.
On August 29, 1995, Dr. Gueco delivered a managers check in the amount of P150,000.00 but the car was not released because
of his refusal to sign the Joint Motion to Dismiss. It is the contention of the Gueco spouses and their counsel that Dr. Gueco need not
sign the motion for joint dismissal considering that they had not yet filed their Answer. Petitioner, however, insisted that the joint motion
to dismiss is standard operating procedure in their bank to effect a compromise and to preclude future filing of claims, counterclaims or
suits for damages.
 After several demand letters and meetings with bank representatives, the respondents Gueco spouses initiated a civil action for
damages before the Metropolitan Trial Court of Quezon City, Branch 33.The Metropolitan Trial Court dismissed the complaint for lack of
merit.[3]
On appeal to the Regional Trial Court, Branch 227 of Quezon City, the decision of the Metropolitan Trial Court was reversed. In its
decision, the RTC held that there was a meeting of the minds between the parties as to the reduction of the amount of indebtedness and
the release of the car but said agreement did not include the signing of the joint motion to dismiss as a condition sine qua non for the
effectivity of the compromise. The court further ordered the bank:
1. to return immediately the subject car to the appellants in good working condition; Appellee may deposit the Managers check
the proceeds of which have long been under the control of the issuing bank in favor of the appellee since its issuance,
whereas the funds have long been paid by appellants to secure said Managers Check, over which appellants have no
control;
2. to pay the appellants the sum of P50,000.00 as moral damages; P25,000.00 as exemplary damages, and P25,000.00 as
attorneys fees, and
3. to pay the cost of suit.

In other respect, the decision of the Metropolitan Trial Court Branch 33 is hereby AFFIRMED. [4]

The case was elevated to the Court of Appeals, which on February 17, 2000, issued the assailed decision, the decretal portion of
which reads:

WHEREFORE, premises considered, the petition for review on certiorari is hereby DENIED and the Decision of the Regional Trial Court
of Quezon City, Branch 227, in Civil Case No. Q-97-31176, for lack of any reversible error, is AFFIRMED in toto. Costs against
petitioner.

SO ORDERED.[5]

The Court of Appeals essentially relied on the respect accorded to the finality of the findings of facts by the lower court and on the
latter's finding of the existence of fraud which constitutes the basis for the award of damages.
The petitioner comes to this Court by way of petition for review on certiorari under Rule 45 of the Rules of Court, raising the following
assigned errors:
I

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO AGREEMENT WITH RESPECT TO THE EXECUTION OF
THE JOINT MOTION TO DISMISS AS A CONDITION FOR THE COMPROMISE AGREEMENT.

II

THE COURT OF APPEALS ERRED IN GRANTING MORAL AND EXEMPLARY DAMAGES AND ATTORNEYS FEES IN FAVOR OF
THE RESPONDENTS.

III

THE COURT OF APPEALS ERRED IN HOLDING THAT THE PETITIONER RETURN THE SUBJECT CAR TO THE RESPONDENTS,
WITHOUT MAKING ANY PROVISION FOR THE ISSUANCE OF THE NEW MANAGERS/CASHIERS CHECK BY THE
RESPONDENTS IN FAVOR OF THE PETITIONER IN LIEU OF THE ORIGINAL CASHIERS CHECK THAT ALREADY BECAME
STALE.[6]

As to the first issue, we find for the respondents. The issue as to what constitutes the terms of the oral compromise or any
subsequent novation is a question of fact that was resolved by the Regional Trial Court and the Court of Appeals in favor of respondents. It
is well settled that the findings of fact of the lower court, especially when affirmed by the Court of Appeals, are binding upon this
Court.[7] While there are exceptions to this rule,[8] the present case does not fall under any one of them, the petitioners claim to the
contrary, notwithstanding.
Being an affirmative allegation, petitioner has the burden of evidence to prove his claim that the oral compromise entered into by
the parties on August 28, 1995 included the stipulation that the parties would jointly file a motion to dismiss. This petitioner failed to
do. Notably, even the Metropolitan Trial Court, while ruling in favor of the petitioner and thereby dismissing the complaint, did not make
a factual finding that the compromise agreement included the condition of the signing of a joint motion to dismiss.
The Court of Appeals made the factual findings in this wise:
In support of its claim, petitioner presented the testimony of Mr. Jefferson Rivera who related that respondent Dr. Gueco was aware that
the signing of the draft of the Joint Motion to Dismiss was one of the conditions set by the bank for the acceptance of the reduced
amount of indebtedness and the release of the car. (TSN, October 23, 1996, pp. 17-21, Rollo, pp. 18, 5). Respondents, however,
maintained that no such condition was ever discussed during their meeting of August 28, 1995 (Rollo, p. 32).

The trial court, whose factual findings are entitled to respect since it has the opportunity to directly observe the witnesses and to
determine by their demeanor on the stand the probative value of their testimonies (People vs. Yadao, et al. 216 SCRA 1, 7 [1992]),
failed to make a categorical finding on the issue. In dismissing the claim of damages of the respondents, it merely observed that
respondents are not entitled to indemnity since it was their unjustified reluctance to sign of the Joint Motion to Dismiss that delayed the
release of the car. The trial court opined, thus:

As regards the third issue, plaintiffs claim for damages is unavailing. First, the plaintiffs could have avoided the renting of another car
and could have avoided this litigation had he signed the Joint Motion to Dismiss. While it is true that herein defendant can unilaterally
dismiss the case for collection of sum of money with replevin, it is equally true that there is nothing wrong for the plaintiff to affix his
signature in the Joint Motion to Dismiss, for after all, the dismissal of the case against him is for his own good and benefit. In fact, the
signing of the Joint Motion to Dismiss gives the plaintiff three (3) advantages.First, he will recover his car. Second, he will pay his
obligation to the bank on its reduced amount of P150,000.00 instead of its original claim of P184,985.09. And third, the case against
him will be dismissed. Plaintiffs, likewise, are not entitled to the award of moral damages and exemplary damages as there is no
showing that the defendant bank acted fraudulently or in bad faith. (Rollo, p. 15)

The Court has noted, however, that the trial court, in its findings of facts, clearly indicated that the agreement of the parties on August
28, 1995 was merely for the lowering of the price, hence -

xxx On August 28, 1995, bank representative Jefferson Rivera and plaintiff entered into an oral compromise agreement,
whereby the original claim of the bank of P184,985.09 was reduced to P150,000.00 and that upon payment of which,
plaintiff was informed that the subject motor vehicle would be released to him. (Rollo, p. 12)

The lower court, on the other hand, expressly made a finding that petitioner failed to include the aforesaid signing of the Joint Motion to
Dismiss as part of the agreement. In dismissing petitioners claim, the lower court declared, thus:

If it is true, as the appellees allege, that the signing of the joint motion was a condition sine qua non for the reduction of the appellants
obligation, it is only reasonable and logical to assume that the joint motion should have been shown to Dr. Gueco in the August 28,
1995 meeting. Why Dr. Gueco was not given a copy of the joint motion that day of August 28, 1995, for his family or legal counsel to
see to be brought signed, together with the P150,000.00 in managers check form to be submitted on the following day on August 29,
1995? (sic) [I]s a question whereby the answer up to now eludes this Courts comprehension. The appellees would like this Court to
believe that Dr. Gueco was informed by Mr. Rivera of the bank requirement of signing the joint motion on August 28, 1995 but he did
not bother to show a copy thereof to his family or legal counsel that day August 28, 1995. This part of the theory of appellee is too
complicated for any simple oral agreement. The idea of a Joint Motion to Dismiss being signed as a condition to the pushing through a
deal surfaced only on August 29, 1995.

This Court is not convinced by the appellees posturing. Such claim rests on too slender a frame, being inconsistent with human
experience. Considering the effect of the signing of the Joint Motion to Dismiss on the appellants substantive right, it is more in accord
with human experience to expect Dr. Gueco, upon being shown the Joint Motion to Dismiss, to refuse to pay the Managers Check and
for the bank to refuse to accept the manager's check. The only logical explanation for this inaction is that Dr. Gueco was not shown the
Joint Motion to Dismiss in the meeting of August 28, 1995, bolstering his claim that its signing was never put into consideration in
reaching a compromise. xxx.[9]

We see no reason to reverse.

Anent the issue of award of damages, we find the claim of petitioner meritorious. In finding the petitioner liable for damages, both
the Regional Trial Court and the Court of Appeals ruled that there was fraud on the part of the petitioner. The CA thus declared:
The lower court's finding of fraud which became the basis of the award of damages was likewise sufficiently proven. Fraud under
Article 1170 of the Civil Code of the Philippines, as amended is the deliberate and intentional evasion of the normal fulfillment of
obligation When petitioner refused to release the car despite respondent's tender of payment in the form of a manager's check, the former
intentionally evaded its obligation and thereby became liable for moral and exemplary damages, as well as attorneys fees.[10]
We disagree.
Fraud has been defined as the deliberate intention to cause damage or prejudice. It is the voluntary execution of a wrongful act, or
a willful omission, knowing and intending the effects which naturally and necessarily arise from such act or omission; the fraud referred
to in Article 1170 of the Civil Code is the deliberate and intentional evasion of the normal fulfillment of obligation.[11] We fail to see how
the act of the petitioner bank in requiring the respondent to sign the joint motion to dismiss could constitute as fraud. True, petitioner may
have been remiss in informing Dr. Gueco that the signing of a joint motion to dismiss is a standard operating procedure of petitioner
bank. However, this can not in anyway have prejudiced Dr. Gueco. The motion to dismiss was in fact also for the benefit of Dr. Gueco,
as the case filed by petitioner against it before the lower court would be dismissed with prejudice. The whole point of the parties entering
into the compromise agreement was in order that Dr. Gueco would pay his outstanding account and in return petitioner would return the
car and drop the case for money and replevin before the Metropolitan Trial Court. The joint motion to dismiss was but a natural
consequence of the compromise agreement and simply stated that Dr. Gueco had fully settled his obligation, hence, the dismissal of the
case. Petitioner's act of requiring Dr. Gueco to sign the joint motion to dismiss can not be said to be a deliberate attempt on the part of
petitioner to renege on the compromise agreement of the parties. It should, likewise, be noted that in cases of breach of contract, moral
damages may only be awarded when the breach was attended by fraud or bad faith. [12] The law presumes good faith. Dr. Gueco failed to
present an iota of evidence to overcome this presumption. In fact, the act of petitioner bank in lowering the debt of Dr. Gueco
from P184,000.00 to P150,000.00 is indicative of its good faith and sincere desire to settle the case. If respondent did suffer any damage,
as a result of the withholding of his car by petitioner, he has only himself to blame. Necessarily, the claim for exemplary damages must
fail. In no way, may the conduct of petitioner be characterized as wanton, fraudulent, reckless, oppressive or malevolent.[13]
We, likewise, find for the petitioner with respect to the third assigned error. In the meeting of August 29, 1995, respondent Dr. Gueco
delivered a managers check representing the reduced amount of P150,000.00. Said check was given to Mr. Rivera, a representative of
respondent bank. However, since Dr. Gueco refused to sign the joint motion to dismiss, he was made to execute a statement to the effect
that he was withholding the payment of the check. [14]Subsequently, in a letter addressed to Ms. Desi Tomas, vice president of the bank,
dated September 4, 1995, Dr. Gueco instructed the bank to disregard the hold order letter and demanded the immediate release of his
car,[15] to which the former replied that the condition of signing the joint motion to dismiss must be satisfied and that they had kept the
checkwhich could be claimed by Dr. Gueco anytime.[16] While there is controversy as to whether the document evidencing the order to
hold payment of the check was formally offered as evidence by petitioners, [17] it appears from the pleadings that said check has not been
encashed.
The decision of the Regional Trial Court, which was affirmed in toto by the Court of Appeals, orders the petitioner:

1. to return immediately the subject car to the appellants in good working condition. Appellee may deposit the Managers Check the
proceeds of which have long been under the control of the issuing bank in favor of the appellee since its issuance, whereas the funds
have long been paid by appellants to secure said Managers Check over which appellants have no control. [18]

Respondents would make us hold that petitioner should return the car or its value and that the latter, because of its own negligence,
should suffer the loss occasioned by the fact that the check had become stale. [19] It is their position that delivery of the managers
check produced the effect of payment[20] and, thus, petitioner was negligent in opting not to deposit or use said check. Rudimentary sense
of justice and fair play would not countenance respondents position.
A stale check is one which has not been presented for payment within a reasonable time after its issue. It is valueless and, therefore,
should not be paid. Under the negotiable instruments law, an instrument not payable on demand must be presented for payment on the
day it falls due. When the instrument is payable on demand, presentment must be made within a reasonable time after its issue. In the
case of a bill of exchange, presentment is sufficient if made within a reasonable time after the last negotiation thereof. [21]
A check must be presented for payment within a reasonable time after its issue, [22] and in determining what is a reasonable time,
regard is to be had to the nature of the instrument, the usage of trade or business with respect to such instruments, and the facts of the
particular case.[23] The test is whether the payee employed such diligence as a prudent man exercises in his own affairs. [24] This is
because the nature and theory behind the use of a check points to its immediate use and payability. In a case, a check payable on
demand which was long overdue by about two and a half (2-1/2) years was considered a stale check.[25] Failure of a payee to encash a
check for more than ten (10) years undoubtedly resulted in the check becoming stale.[26] Thus, even a delay of one (1) week[27] or two (2)
days,[28] under the specific circumstances of the cited cases constituted unreasonable time as a matter of law.
In the case at bar, however, the check involved is not an ordinary bill of exchange but a managers check. A managers check is one
drawn by the banks manager upon the bank itself. It is similar to a cashiers check both as to effect and use. A cashiers check is a check
of the banks cashier on his own or another check. In effect, it is a bill of exchange drawn by the cashier of a bank upon the bank itself,
and accepted in advance by the act of its issuance.[29] It is really the banks own check and may be treated as a promissory note with the
bank as a maker.[30] The check becomes the primary obligation of the bank which issues it and constitutes its written promise to pay upon
demand. The mere issuance of it is considered an acceptance thereof. If treated as promissory note, the drawer would be the maker and
in which case the holder need not prove presentment for payment or present the bill to the drawee for acceptance. [31]
Even assuming that presentment is needed, failure to present for payment within a reasonable time will result to the discharge of
the drawer only to the extent of the loss caused by the delay.[32] Failure to present on time, thus, does not totally wipe out all liability. In
fact, the legal situation amounts to an acknowledgment of liability in the sum stated in the check. In this case, the Gueco spouses have
not alleged, much less shown that they or the bank which issued the managers check has suffered damage or loss caused by the delay
or non-presentment. Definitely, the original obligation to pay certainly has not been erased.
It has been held that, if the check had become stale, it becomes imperative that the circumstances that caused its non-presentment
be determined.[33] In the case at bar, there is no doubt that the petitioner bank held on the check and refused to encash the same because
of the controversy surrounding the signing of the joint motion to dismiss. We see no bad faith or negligence in this position taken by the
Bank.
WHEREFORE, premises considered, the petition for review is given due course. The decision of the Court of Appeals affirming the
decision of the Regional Trial Court is SET ASIDE. Respondents are further ordered to pay the original obligation amounting to
P150,000.00 to the petitioner upon surrender or cancellation of the managers check in the latters possession, afterwhich, petitioner is to
return the subject motor vehicle in good working condition.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Pardo, and Ynares-Santiago, JJ., concur.
G.R. No. 101163 January 11, 1993

STATE INVESTMENT HOUSE, INC., petitioner,

vs.
COURT OF APPEALS and NORA B. MOULIC, respondents.

Escober, Alon & Associates for petitioner.

Martin D. Pantaleon for private respondents.

BELLOSILLO, J.:

The liability to a holder in due course of the drawer of checks issued to another merely as security, and the right of a real estate
mortgagee after extrajudicial foreclosure to recover the balance of the obligation, are the issues in this Petition for Review of the
Decision of respondent Court of Appeals.

Private respondent Nora B. Moulic issued to Corazon Victoriano, as security for pieces of jewelry to be sold on commission, two (2)
post-dated Equitable Banking Corporation checks in the amount of Fifty Thousand Pesos (P50,000.00) each, one dated 30 August
1979 and the other, 30 September 1979. Thereafter, the payee negotiated the checks to petitioner State Investment House. Inc.
(STATE).

MOULIC failed to sell the pieces of jewelry, so she returned them to the payee before maturity of the checks. The checks, however,
could no longer be retrieved as they had already been negotiated. Consequently, before their maturity dates, MOULIC withdrew her
funds from the drawee bank.

Upon presentment for payment, the checks were dishonored for insufficiency of funds. On 20 December 1979, STATE allegedly notified
MOULIC of the dishonor of the checks and requested that it be paid in cash instead, although MOULIC avers that no such notice was
given her.

On 6 October 1983, STATE sued to recover the value of the checks plus attorney's fees and expenses of litigation.

In her Answer, MOULIC contends that she incurred no obligation on the checks because the jewelry was never sold and the checks
were negotiated without her knowledge and consent. She also instituted a Third-Party Complaint against Corazon Victoriano, who later
assumed full responsibility for the checks.

On 26 May 1988, the trial court dismissed the Complaint as well as the Third-Party Complaint, and ordered STATE to pay MOULIC
P3,000.00 for attorney's fees.

STATE elevated the order of dismissal to the Court of Appeals, but the appellate court affirmed the trial court on the ground that the
Notice of Dishonor to MOULIC was made beyond the period prescribed by the Negotiable Instruments Law and that even if STATE did
serve such notice on MOULIC within the reglementary period it would be of no consequence as the checks should never have been
presented for payment. The sale of the jewelry was never effected; the checks, therefore, ceased to serve their purpose as security for
the jewelry.

We are not persuaded.

The negotiability of the checks is not in dispute. Indubitably, they were negotiable. After all, at the pre-trial, the parties agreed to limit the
issue to whether or not STATE was a holder of the checks in due course. 1

In this regard, Sec. 52 of the Negotiable Instruments Law provides —

Sec. 52. What constitutes a holder in due course. — A holder in due course is a holder who has taken the instrument
under the following conditions: (a) That it is complete and regular upon its face; (b) That he became the holder of it
before it was overdue, and without notice that it was previously dishonored, if such was the fact; (c) That he took it in
good faith and for value; (d) That at the time it was negotiated to him he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it.
Culled from the foregoing, a prima facie presumption exists that the holder of a negotiable instrument is a holder in due
course.2 Consequently, the burden of proving that STATE is not a holder in due course lies in the person who disputes the
presumption. In this regard, MOULIC failed.

The evidence clearly shows that: (a) on their faces the post-dated checks were complete and regular: (b) petitioner bought these
checks from the payee, Corazon Victoriano, before their due dates; 3 (c) petitioner took these checks in good faith and for value, albeit
at a discounted price; and, (d) petitioner was never informed nor made aware that these checks were merely issued to payee as
security and not for value.

Consequently, STATE is indeed a holder in due course. As such, it holds the instruments free from any defect of title of prior parties,
and from defenses available to prior parties among themselves; STATE may, therefore, enforce full payment of the checks. 4

MOULIC cannot set up against STATE the defense that there was failure or absence of consideration. MOULIC can only invoke this
defense against STATE if it was privy to the purpose for which they were issued and therefore is not a holder in due course.

That the post-dated checks were merely issued as security is not a ground for the discharge of the instrument as against a holder in
due course. For the only grounds are those outlined in Sec. 119 of the Negotiable Instruments Law:

Sec. 119. Instrument; how discharged. — A negotiable instrument is discharged: (a) By payment in due course by or
on behalf of the principal debtor; (b) By payment in due course by the party accommodated, where the instrument is
made or accepted for his accommodation; (c) By the intentional cancellation thereof by the holder; (d) By any other
act which will discharge a simple contract for the payment of money; (e) When the principal debtor becomes the
holder of the instrument at or after maturity in his own right.

Obviously, MOULIC may only invoke paragraphs (c) and (d) as possible grounds for the discharge of the instrument. But, the intentional
cancellation contemplated under paragraph (c) is that cancellation effected by destroying the instrument either by tearing it up,5 burning
it,6 or writing the word "cancelled" on the instrument. The act of destroying the instrument must also be made by the holder of the
instrument intentionally. Since MOULIC failed to get back possession of the post-dated checks, the intentional cancellation of the said
checks is altogether impossible.

On the other hand, the acts which will discharge a simple contract for the payment of money under paragraph (d) are determined by
other existing legislations since Sec. 119 does not specify what these acts are, e.g., Art. 1231 of the Civil Code 7 which enumerates the
modes of extinguishing obligations. Again, none of the modes outlined therein is applicable in the instant case as Sec. 119
contemplates of a situation where the holder of the instrument is the creditor while its drawer is the debtor. In the present action, the
payee, Corazon Victoriano, was no longer MOULIC's creditor at the time the jewelry was returned.

Correspondingly, MOULIC may not unilaterally discharge herself from her liability by the mere expediency of withdrawing her funds
from the drawee bank. She is thus liable as she has no legal basis to excuse herself from liability on her checks to a holder in due
course.

Moreover, the fact that STATE failed to give Notice of Dishonor to MOULIC is of no moment. The need for such notice is not absolute;
there are exceptions under Sec. 114 of the Negotiable Instruments Law:

Sec. 114. When notice need not be given to drawer. — Notice of dishonor is not required to be given to the drawer in
the following cases: (a) Where the drawer and the drawee are the same person; (b) When the drawee is a fictitious
person or a person not having capacity to contract; (c) When the drawer is the person to whom the instrument is
presented for payment: (d) Where the drawer has no right to expect or require that the drawee or acceptor will honor
the instrument; (e) Where the drawer had countermanded payment.

Indeed, MOULIC'S actuations leave much to be desired. She did not retrieve the checks when she returned the jewelry. She simply
withdrew her funds from her drawee bank and transferred them to another to protect herself. After withdrawing her funds, she could not
have expected her checks to be honored. In other words, she was responsible for the dishonor of her checks, hence, there was no
need to serve her Notice of Dishonor, which is simply bringing to the knowledge of the drawer or indorser of the instrument, either
verbally or by writing, the fact that a specified instrument, upon proper proceedings taken, has not been accepted or has not been paid,
and that the party notified is expected to pay it.8

In addition, the Negotiable Instruments Law was enacted for the purpose of facilitating, not hindering or hampering transactions in
commercial paper. Thus, the said statute should not be tampered with haphazardly or lightly. Nor should it be brushed aside in order to
meet the necessities in a single case.9

The drawing and negotiation of a check have certain effects aside from the transfer of title or the incurring of liability in regard to the
instrument by the transferor. The holder who takes the negotiated paper makes a contract with the parties on the face of the instrument.
There is an implied representation that funds or credit are available for the payment of the instrument in the bank upon which it is
drawn.10 Consequently, the withdrawal of the money from the drawee bank to avoid liability on the checks cannot prejudice the rights of
holders in due course. In the instant case, such withdrawal renders the drawer, Nora B. Moulic, liable to STATE, a holder in due course
of the checks.

Under the facts of this case, STATE could not expect payment as MOULIC left no funds with the drawee bank to meet her obligation on
the checks,11 so that Notice of Dishonor would be futile.

The Court of Appeals also held that allowing recovery on the checks would constitute unjust enrichment on the part of STATE
Investment House, Inc. This is error.

The record shows that Mr. Romelito Caoili, an Account Assistant, testified that the obligation of Corazon Victoriano and her husband at
the time their property mortgaged to STATE was extrajudicially foreclosed amounted to P1.9 million; the bid price at public auction was
only P1 million.12 Thus, the value of the property foreclosed was not even enough to pay the debt in full.

Where the proceeds of the sale are insufficient to cover the debt in an extrajudicial foreclosure of mortgage, the mortgagee is entitled to
claim the deficiency from the debtor.13 The step thus taken by the mortgagee-bank in resorting to an extra-judicial foreclosure was
merely to find a proceeding for the sale of the property and its action cannot be taken to mean a waiver of its right to demand payment
for the whole debt.14 For, while Act 3135, as amended, does not discuss the mortgagee's right to recover such deficiency, it does not
contain any provision either, expressly or impliedly, prohibiting recovery. In this jurisdiction, when the legislature intends to foreclose the
right of a creditor to sue for any deficiency resulting from foreclosure of a security given to guarantee an obligation, it so expressly
provides. For instance, with respect to pledges, Art. 2115 of the Civil Code 15 does not allow the creditor to recover the deficiency from
the sale of the thing pledged. Likewise, in the case of a chattel mortgage, or a thing sold on installment basis, in the event of
foreclosure, the vendor "shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement
to the contrary will be void".16

It is clear then that in the absence of a similar provision in Act No. 3135, as amended, it cannot be concluded that the creditor loses his
right recognized by the Rules of Court to take action for the recovery of any unpaid balance on the principal obligation simply because
he has chosen to extrajudicially foreclose the real estate mortgage pursuant to a Special Power of Attorney given him by the mortgagor
in the contract of mortgage.17

The filing of the Complaint and the Third-Party Complaint to enforce the checks against MOULIC and the VICTORIANO spouses,
respectively, is just another means of recovering the unpaid balance of the debt of the VICTORIANOs.

In fine, MOULIC, as drawer, is liable for the value of the checks she issued to the holder in due course, STATE, without prejudice to any
action for recompense she may pursue against the VICTORIANOs as Third-Party Defendants who had already been declared as in
default.

WHEREFORE, the petition is GRANTED. The decision appealed from is REVERSED and a new one entered declaring private
respondent NORA B. MOULIC liable to petitioner STATE INVESTMENT HOUSE, INC., for the value of EBC Checks Nos. 30089658
and 30089660 in the total amount of P100,000.00, P3,000.00 as attorney's fees, and the costs of suit, without prejudice to any action
for recompense she may pursue against the VICTORIANOs as Third-Party Defendants.

Costs against private respondent.

SO ORDERED.

Cruz and Griño-Aquino, JJ., concur.

Padilla, J., took no part.

G.R. No. 93048 March 3, 1994

BATAAN CIGAR AND CIGARETTE FACTORY, INC., petitioner,

vs.
THE COURT OF APPEALS and STATE INVESTMENT HOUSE, INC., respondents.

Teresita Gandiongco Oledan for petitioner.

Acaban & Sabado for private respondent.

NOCON, J.:
For our review is the decision of the Court of Appeals in the case entitled "State Investment House, Inc. v. Bataan Cigar & Cigarette
Factory Inc.,"1 affirming the decision of the Regional Trial Court2 in a complaint filed by the State Investment House, Inc. (hereinafter
referred to as SIHI) for collection on three unpaid checks issued by Bataan Cigar & Cigarette Factory, Inc. (hereinafter referred to as
BCCFI). The foregoing decisions unanimously ruled in favor of SIHI, the private respondent in this case.

Emanating from the records are the following facts. Petitioner, Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a corporation involved in
the manufacturing of cigarettes, engaged one of its suppliers, King Tim Pua George (herein after referred to as George King), to deliver
2,000 bales of tobacco leaf starting October 1978. In consideration thereof, BCCFI, on July 13, 1978 issued crossed checks post dated
sometime in March 1979 in the total amount of P820,000.00. 3

Relying on the supplier's representation that he would complete delivery within three months from December 5, 1978, petitioner agreed
to purchase additional 2,500 bales of tobacco leaves, despite the supplier's failure to deliver in accordance with their earlier agreement.
Again petitioner issued post dated crossed checks in the total amount of P1,100,000.00, payable sometime in September 1979. 4

During these times, George King was simultaneously dealing with private respondent SIHI. On July 19, 1978, he sold at a discount
check TCBT 5518265 bearing an amount of P164,000.00, post dated March 31, 1979, drawn by petitioner, naming George King as
payee to SIHI. On December 19 and 26, 1978, he again sold to respondent checks TCBT Nos. 608967 & 608968,6 both in the amount
of P100,000.00, post dated September 15 & 30, 1979 respectively, drawn by petitioner in favor of George King.

In as much as George King failed to deliver the bales of tobacco leaf as agreed despite petitioner's demand, BCCFI issued on March
30, 1979, a stop payment order on all checks payable to George King, including check TCBT 551826. Subsequently, stop payment was
also ordered on checks TCBT Nos. 608967 & 608968 on September 14 & 28, 1979, respectively, due to George King's failure to deliver
the tobacco leaves.

Efforts of SIHI to collect from BCCFI having failed, it instituted the present case, naming only BCCFI as party defendant. The trial court
pronounced SIHI as having a valid claim being a holder in due course. It further said that the non-inclusion of King Tim Pua George as
party defendant is immaterial in this case, since he, as payee, is not an indispensable party.

The main issue then is whether SIHI, a second indorser, a holder of crossed checks, is a holder in due course, to be able to collect from
the drawer, BCCFI.

The Negotiable Instruments Law states what constitutes a holder in due course, thus:

Sec. 52 — A holder in due course is a holder who has taken the instrument under the following conditions:

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

(b) That he became the holder of it before it was overdue, and without notice that it had been previously dishonored,
if such was the fact;

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

(d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of
the person negotiating it.

Section 59 of the NIL further states that every holder is deemed prima facie a holder in due course. However, when it is shown that the
title of any person who has negotiated the instrument was defective, the burden is on the holder to prove that he or some person under
whom he claims, acquired the title as holder in due course.

The facts in this present case are on all fours to the case of State Investment House, Inc. (the very respondent in this case) v.
Intermediate Appellate Court 7 wherein we made a discourse on the effects of crossing of checks.

As preliminary, a check is defined by law as a bill of exchange drawn on a bank payable on demand. 8 There are a variety of checks,
the more popular of which are the memorandum check, cashier's check, traveler's check and crossed check. Crossed check is one
where two parallel lines are drawn across its face or across a corner thereof. It may be crossed generally or specially.

A check is crossed specially when the name of a particular banker or a company is written between the parallel lines drawn. It is
crossed generally when only the words "and company" are written or nothing is written at all between the parallel lines. It may be issued
so that the presentment can be made only by a bank. Veritably the Negotiable Instruments Law (NIL) does not mention "crossed
checks," although Article 541 9 of the Code of Commerce refers to such instruments.

According to commentators, the negotiability of a check is not affected by its being crossed, whether specially or generally. It may
legally be negotiated from one person to another as long as the one who encashes the check with the drawee bank is another bank, or
 10This
if it is specially crossed, by the bank mentioned between the parallel lines. is specially true in England where the Negotiable
Instrument Law originated.

In the Philippine business setting, however, we used to be beset with bouncing checks, forging of checks, and so forth that banks have
become quite guarded in encashing checks, particularly those which name a specific payee. Unless one is a valued client, a bank will
not even accept second indorsements on checks.

In order to preserve the credit worthiness of checks, jurisprudence has pronounced that crossing of a check should have the following
effects: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only once — to one who
has an account with a bank; (c) and the act of crossing the check serves as warning to the holder that the check has been issued for a
definite purpose so that he must inquire if he has received the check pursuant to that purpose, otherwise, he is not a holder in due
course. 11

The foregoing was adopted in the case of SIHI v. IAC, supra. In that case, New Sikatuna Wood Industries, Inc. also sold at a discount
to SIHI three post dated crossed checks, issued by Anita Peña Chua naming as payee New Sikatuna Wood Industries, Inc. Ruling that
SIHI was not a holder in due course, we then said:

The three checks in the case at bar had been crossed generally and issued payable to New Sikatuna Wood
Industries, Inc. which could only mean that the drawer had intended the same for deposit only by the rightful person,
i.e. the payee named therein. Apparently, it was not the payee who presented the same for payment and therefore,
there was no proper presentment, and the liability did not attach to the drawer. Thus, in the absence of due
presentment, the drawer did not become liable. Consequently, no right of recourse is available to petitioner (SIHI)
against the drawer of the subject checks, private respondent wife (Anita), considering that petitioner is not the proper
party authorized to make presentment of the checks in question.

xxx xxx xxx

That the subject checks had been issued subject to the condition that private respondents (Anita and her husband)
on due date would make the back up deposit for said checks but which condition apparently was not made, thus
resulting in the non-consummation of the loan intended to be granted by private respondents to New Sikatuna Wood
Industries, Inc., constitutes a good defense against petitioner who is not a holder in due course. 12

It is then settled that crossing of checks should put the holder on inquiry and upon him devolves the duty to ascertain the indorser's title
to the check or the nature of his possession. Failing in this respect, the holder is declared guilty of gross negligence amounting to legal
absence of good faith, contrary to Sec. 52(c) of the Negotiable Instruments Law, 13 and as such the consensus of authority is to the
effect that the holder of the check is not a holder in due course.

In the present case, BCCFI's defense in stopping payment is as good to SIHI as it is to George King. Because, really, the checks were
issued with the intention that George King would supply BCCFI with the bales of tobacco leaf. There being failure of consideration, SIHI
is not a holder in due course. Consequently, BCCFI cannot be obliged to pay the checks.

The foregoing does not mean, however, that respondent could not recover from the checks. The only disadvantage of a holder who is
not a holder in due course is that the instrument is subject to defenses as if it were
non-negotiable. 14 Hence, respondent can collect from the immediate indorser, in this case, George King.

WHEREFORE, finding that the court a quo erred in the application of law, the instant petition is hereby GRANTED. The decision of the
Regional Trial Court as affirmed by the Court of Appeals is hereby REVERSED. Cost against private respondent.

SO ORDERED.

Narvasa, C.J., Regalado and Puno, JJ., concur.

Padilla, J., took no part.

G.R. No. 84281 May 27, 1994

CITYTRUST BANKING CORPORATION, petitioner,

vs.
THE INTERMEDIATE APPELLATE COURT and EMME HERRERO, respondents.

Agcaoili and Associates for petitioner.

David B. Agoncillo for private respondent.

Humberto B. Basco, collaborating counsel for private respondent.

VITUG, J.:

This case emanated from a complaint filed by private respondent Emme Herrero for damages against petitioner Citytrust Banking
Corporation. In her complaint, private respondent averred that she, a businesswoman, made regular deposits, starting September of
1979, with petitioner Citytrust Banking Corporation at its Burgos branch in Calamba, Laguna. On 15 May 1980, she deposited with
petitioner the amount of Thirty One Thousand Five Hundred Pesos (P31,500.00), in cash, in order to amply cover six (6) postdated
checks she issued, viz:

Check No. Amount

007383 — P1,507.00
007384 — 1,262.00
007387 — 4,299.00
007387 — 2,204.00
007492 — 6,281.00
007400 — 4,716.00

When presented for encashment upon maturity, all the checks were dishonored due to "insufficient funds." The last check No.
007400, however, was personally redeemed by private respondent in cash before it could be redeposited.

Petitioner, in its answer, asserted that it was due to private respondent's fault that her checks were dishonored. It averred that instead
of stating her correct account number, i.e., 29000823, in her deposit slip, she inaccurately wrote 2900823.

The Regional Trial Court (Branch XXXIV) of Calamba, Laguna, on

27 February 1984, dismissed the complaint for lack of merit; thus:

WHEREFORE, judgment is hereby rendered in favor of the defendant and against the plaintiff, DISMISSING the
complaint for lack of merit, plaintiff is hereby adjudged to pay the defendant reasonable attorney's fee in the amount
of FIVE THOUSAND PESOS (P5,000.00) plus cost of suit.

Private respondent went to the Court of Appeals, which found the appeal meritorious. Hence, it rendered judgment, on 15 July 1988,
reversing the trial court's decision. The appellate court ruled:

WHEREFORE, the judgment appealed from is REVERSED and a new one entered thereby ordering defendant to
pay plaintiff nominal damages of P2,000.00, temperate and moderate damages of P5,000.00, and attorney's fees of
P4,000.00.

The counterclaim of defendant is dismissed for lack of merit, with costs against him.

Petitioner Citytrust Banking Corporation is now before us in this petition for review on certiorari.

Petitioner bank concedes that it is its obligation to honor checks issued by private respondent which are sufficiently funded, but, it
contends, private respondent has also the duty to use her account in accordance with the rules of petitioner bank to which she has
contractually acceded. Among such rules, contained in its "brochures" governing current account deposits, is the following printed
provision:

In making a deposit . . . kindly insure accuracy in filing said deposit slip forms as we hold ourselves free of any liability
for loss due to an incorrect account number indicated in the deposit slip although the name of the depositor is
correctly written.

Exactly the same issue was addressed by the appellate court, which, after its deliberations, made the following findings and
conclusions:1

We cannot uphold the position of defendant. For, even if it be true that there was error on the part of the plaintiff in
omitting a "zero" in her account number, yet, it is a fact that her name, "Emme E. Herrero", is clearly written on said
deposit slip (Exh. "B"). This is controlling in determining in whose account the deposit is made or should be posted.
This is so because it is not likely to commit an error in one's name than merely relying on numbers which are difficult
to remember, especially a number with eight (8) digits as the account numbers of defendant's depositors. We view
the use of numbers as simply for the convenience of the bank but was never intended to disregard the real name of
 its depositors. The bank is engaged in business impressed with public interest, and it is its duty to protect in return its
many clients and depositors who transact business with it. It should not be a matter of the bank alone receiving
deposits, lending out money and collecting interests. It is also its obligation to see to it that all funds invested with it
are properly accounted for and duly posted in its ledgers.

In the case before Us, We are not persuaded that defendant bank was not free from blame for the fiasco. In the first
place, the teller should not have accepted plaintiff's deposit without correcting the account number on the deposit slip
which, obviously, was erroneous because, as pointed out by defendant, it contained only seven (7) digits instead of
eight (8). Second, the complete name of plaintiff depositor appears in bold letters on the deposit slip (Exh. "B"). There
could be no mistaking in her name, and that the deposit was made in her name, "Emma E. Herrero." In fact,
defendant's teller should not have fed her deposit slip to the computer knowing that her account number written
thereon was wrong as it contained only seven (7) digits. As it happened, according to defendant, plaintiff's deposit
had to be consigned to the suspense accounts pending verification. This, indeed, could have been avoided at the first
instance had the teller of defendant bank performed her duties efficiently and well. For then she could have readily
detected that the account number in the name of "Emma E. Herrero" was erroneous and would be rejected by the
computer. That is, or should be, part of the training and standard operating procedure of the bank's employees. On
the other hand, the depositors are not concerned with banking procedure. That is the responsibility of the bank and its
employees. Depositors are only concerned with the facility of depositing their money, earning interest thereon, if any,
and withdrawing therefrom, particularly businessmen, like plaintiff, who are supposed to be always "on-the-go".
Plaintiff's account is a "current account" which should immediately be posted. After all, it does not earn interest. At
least, the forbearance should be commensurated with prompt, efficient and satisfactory service.

Bank clients are supposed to rely on the services extended by the bank, including the assurance that their deposits
will be duly credited them as soon as they are made. For, any delay in crediting their account can be embarrassing to
them as in the case of plaintiff.

We agree with plaintiff that —

. . . even in computerized systems of accounts, ways and means are available whereby deposits
with erroneous account numbers are properly credited depositor's correct account numbers. They
add that failure on the part of the defendant to do so is negligence for which they are liable. As
proof thereof plaintiff alludes to five particular incidents where plaintiff admittedly wrongly indicated
her account number in her deposit slips
(Exhs. "J", "L", "N", "O" and "P"), but were nevertheless properly credited her deposit (pp. 4-5,
Decision).

We have already ruled in Mundin v. Far East Bank & Trust Co., AC-G.R. CV No. 03639, prom. Nov. 2, 1985, quoting
the court a quo in an almost identical set of facts, that —

Having accepted a deposit in the course of its business transactions, it behooved upon defendant
bank to see to it and without recklessness — that the depositor was accurately credited therefor. To
post a deposit in somebody else's name despite the name of the depositor clearly written on the
deposit slip is indeed sheer negligence which could have easily been avoided if defendant bank
exercised due diligence and circumspection in the acceptance and posting of plaintiff's deposit.

We subscribe to the above disquisitions of the appellate court. In Simex International (Manila), Inc. vs. Court of Appeals, 183 SCRA
360, reiterated in Bank of Philippine Islands vs. Intermediate Appellate Court, 206 SCRA 408, we similarly said, in cautioning depository
banks on their fiduciary responsibility, that —

In every case, the depositor expects the bank to treat his account with utmost fidelity, whether such account consists
only of a few hundred pesos or of millions. The bank must record every single transaction accurately, down to the last
centavo, and as promptly as possible. This has to be done if the account is to reflect at any given time the amount of
money the depositor can dispose of as he sees fit, confident that the bank will deliver it as and to whomever he
directs. A blunder on the part of the bank, such as the dishonor of a check without good reason, can cause the
depositor not a little embarrassment if not also financial loss and perhaps even civil and criminal litigation.

The point is that as a business affected with public interest and because of the nature of its functions, the bank is
under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary
nature of their relationship.

We agree with petitioner, however, that it is wrong to award, along with nominal damages, temperate or moderate damages. The two
awards are incompatible and cannot be granted concurrently. Nominal damages are given in order that a right of the plaintiff, which has
been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any
loss suffered by him (Art. 2221, New Civil Code; Manila Banking Corp. vs. Intermediate Appellate Court, 131 SCRA 271). Temperate or
moderate damages, which are more than nominal but less than compensatory damages, on the other hand, may be recovered when
the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with
reasonable certainty (Art. 2224, New Civil Code).

In the instant case, we also find need for vindicating the wrong done on private respondent, and we accordingly agree with the Court of
Appeals in granting to her nominal damages but not in similarly awarding temperate or moderate damages.

WHEREFORE, the appealed decision is MODIFIED by deleting the award of temperate or moderate damages. In all other respects, the
appellate court's decision is AFFIRMED. No costs in this instance.

SO ORDERED.

Feliciano, Bidin, Romero and Melo, JJ., concur.

G.R. No. 108555 December 20, 1994

RAMON TAN, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and RIZAL COMMERCIAL BANKING CORPORATION, respondents.

Yulo, Quisumbing, Torres, Ali & Bello Law Offices for petitioner.

Siguion Reyna, Montecillo & Ongsiako for private respondent.

KAPUNAN, J.:

This petition seeks to set aside the decision of the Court of Appeals dated January 12, 1993 in CA-G.R. CV No. 31083, entitled Ramon
Tan, plaintiff-appellee, vs. Rizal Commercial Banking Corporation, defendant-appellant, reversing the decision of the Regional Trial
Court dated December 28, 1990 ordering respondent bank Rizal Commercial Banking Corporation (RCBC), Binondo Branch, to pay
petitioner damages and attorney's fees in the amount of ONE MILLION THIRTY FIVE THOUSAND (P1,035,000.00) PESOS.

The following are the uncontroverted facts:

Petitioner Ramon Tan, a trader-businessman and community leader in Puerto Princesa, had maintained since 1976 Current Account
No. 109058068 with respondent bank's Binondo branch. On March 11, 1988, to avoid carrying cash while enroute to Manila, he
secured a Cashier's Check No. L 406000126 from the Philippine Commercial Industrial Bank (PCIB), Puerto Princesa branch, in the
amount of Thirty Thousand (P30,000.00) Pesos, payable to his order. He deposited the check in his account with RCBC Binondo on
March 15. On the same day, RCBC erroneously sent the same cashier's check for clearing to the Central Bank which was returned for
having been "missent" or "misrouted."1 The next day, March 16, RCBC debited the amount covered by the same cashier's check from
the account of the petitioner. Respondent bank at this time had not informed the petitioner of its action which the latter claims he
learned of only 42 days after, specifically on March 16, when he received the bank's debit memo. 2 Relying on the common knowledge
that a cashier's check was as good as cash, that the usual banking practice that local checks are cleared within three (3) working days
and regional checks within seven (7) working days, and the fact that the cashier's check was accepted, petitioner issued two (2)
personal checks both dated March 18. Check No. 040719 in the name of Go Lac for Five Thousand Five Hundred (P5,5000.00) Pesos
was presented on April 25,3more than 30 days from petitioner's deposit date of the cashier's check. Check
No. 040718 in the name of MS Development Trading Corporation for Six Thousand Fifty-Three Pesos and Seventy Centavos
(P6,053.70) was returned twice on March 24, nine (9) days from his deposit date and again on April 26, twenty-two days after the day
the cashier's check was deposited for insufficiency of funds. 4

Petitioner, alleging to have suffered humiliation and loss of face in the business sector due to the bounced checks, filed a complaint
against RCBC for damages in the Regional Trial Court of Palawan and Puerto Princesa, Branch 47, docketed as Civil Case No. 2101.5

During the trial, petitioner sought to prove:

First, that it was RCBC's responsibility to call his attention there and then that he had erroneously filled the wrong deposit slip at the
time he deposited the cashier's check with the respondent bank's teller and it was negligence on RCBC's part not to have done so;6

Second, that RCBC had been remiss in the performance of its obligation to the petitioner when it "missent" the cashier's check to the
Central Bank knowing, as it should, that the source of the check, PCIB, Puerto Princesa Branch, is not included in the areas required to
be cleared by the Central Bank, a fact known to the banking world and surely to the respondent bank; 7
Third, that RCBC upon knowing of its error in "missending" the cashier's check to the Central Bank did not attempt to rectify its
"misclearing" error by clearing it seasonably with PCIB, Puerto Princesa, thru its own RCBC Puerto Princesa Branch with whom it had
direct radio contact;8

Fourth, that as an old client, with twelve (12) years of good standing then, RCBC should have given him more consideration by exerting
greater diligence in clearing the check with PCIB, Puerto Princesa, to protect its client's interest;9

Fifth, that RCBC failed to inform petitioner promptly that the check had not been cleared, despite its debiting without delay the amount
covered by the check from the account of the petitioner and hastily charging the latter service fees immediately after the return of the
"missent checks"; 10 and

Finally, that the bounced checks resulting from RCBC's "misclearing" had put in doubt his credibility among his business peers and
sullied his reputation as a community leader which he had painstakingly cultivated for years. His community standing as a business-
socio-civic leader was a source of pride for him in his old age of 70. He cited being Chairman of Palawan Boy Scout Council, 2-term
President of the Rotary Club of Puerto Princesa, member of Palawan Chamber of Commerce and Industry, member of the Monitoring
Team of the Palawan Integrated Area Development Project, member of Lion's Club, Philippine Rifle Pistol Association and the Saturday
Health Club to justify his claim for moral damages.11

In its defense, RCBC disowning any negligence, put the blame for the "misrouting" on the petitioner for using the wrong check deposit
slip. It insisted that the misuse of a local check deposit slip, instead of a regional check deposit slip, triggered the "misrouting" by RCBC
of the cashier's check to the Central Bank and it was petitioner's negligent "misuse" of a local deposit slip which was the proximate
cause of the "misrouting," thus he should bear the consequence. 12

RCBC alleged that it complied strictly with accepted banking practice when it debited the amount of P30,000.00 against petitioner's
account since under Resolution No. 2202 dated December 21, 1979 of the Monetary Board, it is a matter of policy to prohibit the
drawing against uncollected deposits (DAUDS) except when the drawings are made against uncollected deposits representing bank
manager's/cashier's/treasurer's checks, treasury warrants, postal money orders and duly funded "on us" checks which may
be permitted at the discretion of each bank. 13 Without crediting the P30,000.00 deposit, petitioner's balance before and after was Two
Thousand Seven Hundred
Ninety-Two Pesos and the (P2,792.88) Eighty-Eight Centavos.14 Thus, it dishonored the two (2) checks amounting to P11,553.70 since
they were drawn against insufficient funds. RCBC added that petitioner had no bills purchase (BP) line which allows a depositor to
receive or draw from proceeds of a check without waiting it to be cleared. Besides, RCBC maintained, had it forwarded the Cashier's
Check to PCIB Puerto Princesa, Palawan, it would take at least twenty (20) working days for the cashier's check to be cleared and it
would take the same length of time to clear the two (2) personal checks of Tan. 15

RCBC further asseverated it was merely acting as petitioner's collecting agent and it assumed no responsibilitybeyond care in selecting
correspondents under the theory that where a check is deposited with a collecting bank the relationship created is that of agency and
not creditor-debtor, thus it cannot be liable.16

Finally, respondent claimed that serious attempts were made to contact petitioner through the telephone numbers in the signature
specimen card of petitioner but to no avail.17 The Assistant Branch Accountant of RCBC Binondo Branch testified that the first
telephone number in the card had been deleted from the phone company's list and that when RCBC tried to contact petitioner's
daughter Evelyn Tan-Banzon thru a certain telephone number and when they asked for Evelyn Tan, they were told there was no such
person.18

19
The trial court rendered a decision on December 28, 1990 in petitioner's favor, the dispositive portion of which reads:

WHEREFORE, premises considered, plaintiff having proven the allegations of his verified complaint by
preponderance of evidence, the court hereby renders judgment ordering defendant bank, Binondo Branch, Manila, to
pay him damages and attorney's fees in the total amount of P1,035,000.00 Philippine Currency, broken down as
follows: P700,000.00 as moral damages, P200,000.00 as exemplary damages; P135,000.00 which is 15% of the sum
herein awarded to plaintiff, as attorney's fees and to pay costs of suit.

For having failed to prove by any receipt or writing to underpin it, plaintiff's claim for actual damage is denied for lack
of merit.

IT IS SO ORDERED.

RCBC appealed to the Court of Appeals contending that the trial court erred in holding RCBC liable to petitioner on account of its
alleged negligence and in awarding petitioner moral and exemplary damages and attorney's fees.

20
The Court of Appeals on January 12, 1993 rendered a decision with the following decretal portion:
 WHEREFORE, and upon all the foregoing, the decision of the court below is REVERSED and this complaint is
DISMISSED without pronouncement as to cost.

21
The Court of Appeals' decision is based on the following findings:

What appeared to have caused the unfortunate incident was that the plaintiff filled up the wrong deposit slip which led
to the sending of the check to the Central Bank when the clearing should have been made elsewhere.

But the claim of the plaintiff that he was not advised that the Cashier's check was missent does not seem to be
correct. The evidence indicated that the defendant bank thru its personnel had called him up thru telephone in the
number (No. 60-45-23) which he gave in his specimen signature card. But it came out, that said telephone number
was no longer active or was already deleted from the list of telephone numbers.

There was an instruction on the part of the plaintiff for the bank to contact his daughter, Mrs. Evelyn Tan Banzon and
according to the plaintiff, she too, was not contacted as per his instruction. The evidence, however, indicated that Ms.
Evelyn Tan also could not be contacted at the number supposed to pertain to her as appeared in the specimen
signature card. In other words while there was compliance with the instructions given by the plaintiff but said
instructions were faulty. The plaintiff as a customer of the bank is under obligation to inform the defendant of any
changes in the telephone numbers to be contacted in the event of any exigency.

All in all, the facts indicate that the refusal of RCBC to credit the amount of P30,000.00 to the plaintiff's current
account is consistent with the accepted banking practice. As the defendant bank had claimed, under Resolution No.
2202 dated December 21, 1979 of the Monetary Board, it had been emphatically declared as a matter of policy that
no drawings should be made against uncollected deposits except when the drawings are made against uncollected
deposits representing bank manager's/cashier's/treasurer's checks, treasury warrants, postal money orders, and duly
funded "on-us" checks as may be permitted at the discretion of each bank.

It is clear that immediate payment without awaiting clearance of a cashier's check is discretionary with the bank to
whom the check is presented and such being the case, the refusal to allow it as in this case is not to be equated with
negligence in the basic perception that discretion is not demandable as a right. In the instant case, prior to the deposit
of P30,000.00, the plaintiff's account appeared to be only in the amount of P2,792.98. So the two (2) checks issued
by the plaintiff amounting to P11,553.70 had to be dishonored since they were drawn against insufficient funds.

What the plaintiff should have done, before issuing the two (2) checks, was to await the clearance of the Cashier's
check and his failure to do so is a fault not ascribable to the defendant who appeared under the circumstance merely
to have followed the usual banking practice.

Petitioner now seeks to reverse the decision of the Court of Appeals and affirm that of the lower court. He raises the following errors:

1. THE HONORABLE COURT OF APPEALS COMMITTED GROSS AND MANIFEST ERROR IN CONCLUDING
THAT THE NEGLIGENCE WAS ASCRIBABLE TO HEREIN PETITIONER.

2. THE HONORABLE COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION IN FINDING THAT THE
RESPONDENT BANK HAD NOT BEEN REMISS IN THE PERFORMANCE OF ITS OBLIGATIONS TO HEREIN
PETITIONER.

3. THE HONORABLE COURT OF APPEALS COMMITTED GROSS AND MANIFEST ERROR AND GRAVE ABUSE
OF DISCRETION IN REVERSING THE AWARD OF MORAL AND EXEMPLARY DAMAGES TO THE PETITIONER.

4. THE HONORABLE COURT OF APPEALS COMMITTED GROSS AND MANIFEST ERROR AND GRAVE ABUSE
OF DISCRETION IN NOT AWARDING ATTORNEY'S FEES TO PETITIONER.

In a most recent case decided by this Court, City Trust Corporation v. The Intermediate Appellate Court, 22 involving damages against
City Trust Banking Corporation, the depositor, instead of stating her correct account number 29000823 inaccurately wrote 2900823.
Because of this error, six postdated checks amounting to P20,209.00 she issued were dishonored for insufficiency of funds. The
Regional Trial Court dismissed the complaint for lack of merit. The Court of Appeals, however, found the appeal meritorious and
ordered the bank to pay nominal damages of P2,000.00, temperate and moderate damages of P5,000.00 and attorney's fees of
P4,000.00. Upon review, this Court quoted with favor the disquisition of the appellate court:

We cannot uphold the position of defendant. For, even if it be true that there was error on the part of the plaintiff in
omitting a zero in her account number, yet, it is a fact that her name, Emma E. Herrero, is clearly written on said
deposit slip (Exh. B). This is controlling in determining in whose account the deposit is made or should be posted.
This is so because it is not likely to commit an error in one's name that merely relying on numbers which are difficult
to remember, especially a number with eight (8) digits as the account numbers of defendant's depositors. We view
 the use of numbers as simply for the convenience of the bank but was never intended to disregard the real name of
its depositors. The bank is engaged in business impressed with public interests, and it is its duty to protect in return
its many clients and depositors who transact business with it. It should not be a matter of the bank alone receiving
deposits, lending out money and collecting interests. It is also its obligation to see to it that all funds invested with it
are properly accounted for and duly posted in its ledgers.

In the case before Us, we are not persuaded that defendant bank was not free from blame for the fiasco. In the first
place, the teller should not have accepted plaintiff's deposit without correcting the account number on the deposit slip
which, obviously, was erroneous because, as pointed out by defendant, it contained only seven (7) digits instead of
eight (8). Second, the complete name of plaintiff depositor appears in bold letters on the deposit slip (Exh. B). There
could be no mistaking in her name, and that the deposit was made in her name, Emma E. Herrero. In fact,
defendant's teller should not have fed her deposit slip to the computer knowing that her account number written
thereon was wrong as it contained only seven (7) digits. As it happened, according to defendant, plaintiff's deposit
had to be consigned to the suspense accounts pending verification. This, indeed, could have been avoided at the first
instance had the teller of defendant bank performed her duties efficiently and well. For then she could have readily
detected that the account number in the name of Emma E. Herrero was erroneous and would be rejected by the
computer. That is, or should be, part of the training and standard operating procedure of the bank's employees. On
the other hand, the depositors are not concerned with banking procedure. That is the responsibility of the bank and its
employees. Depositors are only concerned with the facility of depositing their money, earning interest thereon, if any,
and withdrawing therefrom, particularly businessmen, like plaintiff, who are supposed to be always on-the-go.
Plaintiff's account is a current account which should immediately be posted. After all, it does not earn interest. At
least, the forbearance should be commensurated with prompt, efficient and satisfactory service.

Bank clients are supposed to rely on the services extended by the bank, including the assurance that their deposits
will be duly credited them as soon as they are made. For, any delay in crediting their account can be embarrassing to
them as in the case of plaintiff.

The point is that as a business affected with public interest and because of the nature of its functions, the bank is
under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary
nature of their relationship. (Emphasis supplied).

In the light of the above-cited case, the respondent bank cannot exculpate itself from liability by claiming that its depositor "impliedly
instructed" the bank to clear his check with the Central Bank by filling a local check deposit slip. Such posture is disingenuous, to say
the least. First, why would RCBC follow a patently erroneous act born of ignorance or inattention or both. Second, bank transactions
pass through a succession of bank personnel whose duty is to check and countercheck transactions for possible errors. In the instant
case, the teller should not have accepted the local deposit slip with the cashier's check that on its face was clearly a regional check
without calling the depositor's attention to the mistake at the very moment this was presented to her. Neither should everyone else
down the line who processed the same check for clearing have allowed the check to be sent to Central Bank. Depositors do not pretend
to be past master of banking technicalities, much more of clearing procedures. As soon as their deposits are accepted by the bank
teller, they wholly repose trust in the bank personnel's mastery of banking, their and the bank's sworn profession of diligence and
meticulousness in giving irreproachable service.

We do not subscribe to RCBC's assertion that petitioner's use of the wrong deposit slip was the proximate cause of the clearing fiasco
and so, petitioner must bear the consequence. In Pilipinas Bank, v. CA, 23 this Court said:

The bank is not expected to be infallible but, as correctly observed by respondent Appellate Court, in this instance, it
must bear the blame for not discovering the mistake of its teller despite the established procedure requiring the
papers and bank books to pass through a battery of bank personnel whose duty it is to check and countercheck them
for possible errors. Apparently, the officials and employees tasked to do that did not perform their duties with due
care, . . .

So it is in the instance case, where the conclusion is inevitable that respondent RCBC had been remiss in the performance of its duty
and obligation to its client, as well as to itself. We draw attention to the fact that the two dishonored checks issued by petitioner, Check
No. 040719 and Check
No. 040718 were presented for payment 24 more than 45 days from the day the cashier's check was deposited. This gave RCBC more
than ample time to have cleared the cashier's check had it corrected its "missending" the same upon return from Central Bank using the
correct slip this time so it can be cleared properly. Instead, RCBC promptly debited the amount of P30,000.00 against petitioner's
account and left it at that.

We observe, likewise, that RCBC inquired about an Evelyn Tan but no Evelyn Tan-Banzon as specifically instructed in the same
signature card. (Emphasis supplied) 25

RCBC insists that immediate payment without awaiting clearance of a cashier's check is discretionary with the bank to whom the check
is presented and such being the case, its refusal to immediately pay the cashier's check in this case is not to be equated with
negligence on its part. We find this disturbing and unfortunate.
An ordinary check is not a mere undertaking to pay an amount of money. There is an element of certainty or assurance that it will be
paid upon presentation that is why it is perceived as a convenient substitute for currency in commercial and financial transactions. The
basis of the perception being confidence. Any practice that destroys that confidence will impair the usefulness of the check as a
currency substitute and create havoc in trade circles and the banking community. 26

Now, what was presented for deposit in the instant cases was not just an ordinary check but a cashier's check payable to the account
of the depositor himself. A cashier's check is a primary obligation of the issuing bank and accepted in advance by its mere
issuance. 27 By its very nature, a cashier's check is the bank's order to pay drawn upon itself, committing in effect its total resources,
integrity and honor behind the check. A cashier's check by its peculiar character and general use in the commercial world is regarded
substantially to be as good as the money which it represents.28 In this case, therefore, PCIB by issuing the check created an
unconditional credit in favor of any collecting bank.

All these considered, petitioner's reliance on the layman's perception that a cashier's check is as good as cash is not entirely misplaced,
as it is rooted in practice, tradition, and principle. We see no reason thus why this so-called discretion was not exercised in favor of
petitioner, specially since PCIB and RCBC are members of the same clearing house group relying on each other's solvency. RCBC
could surely rely on the solvency of PCIB when the latter issued its cashier's check.

On the third and fourth issue, RCBC contends that moral damages cannot be recovered in an action for breach of contract since under
Article 2219 of the New Civil Code, the instant case is not among those enumerated. For an award of moral damages in a breach of
contract, it is imperative that the party acted in bad faith or fraudulently as provided for in Art. 2220 of the Civil Code, to wit:

Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find that,
under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the
defendant acted fraudulently or in bad faith.

In the absence of moral damages, RCBC argues, exemplary damages cannot be awarded under Art. 2225 of the same Code which
states:

Exemplary damages or corrective damages are imposed, by way of example or correction for the public good, in
addition to the moral, temperate, liquidated or compensatory damages.

We hold that petitioner has the right to recover moral damages even if the bank's negligence may not have been attended with malice
and bad faith. In American Express International, Inc. v. IAC, 29 we held:

While petitioner was not in bad faith, its negligence caused the private respondent to suffer mental anguish, serious
anxiety, embarrassment and humiliation, for which he is entitled to recover, reasonable moral damages (Art. 2217,
Civil Code).

In Zenith Insurance Corporation v. CA, 30 we also said that moral damages are not meant to enrich a complainant at the expense of
defendant. It is only intended to alleviate the moral suffering he has undergone. In the instant case, we find the award of P700,000.00
as moral damages excessive and, accordingly, reduce it to one hundred thousand (P100,000.00) pesos. We find the award of
exemplary damages of P200,000.00 unjustified in the absence of malice, bad faith or gross negligence.31 The award of reasonable
attorney's fees is proper for the petitioner was compelled to litigate to protect his interest. 32

IN VIEW WHEREOF, we REVERSE the decision of respondent Court of Appeals and hereby order private respondent RCBC, Binondo
Branch, to pay petitioner the amount of one hundred thousand (P100,000.00) pesos as moral damages and the sum of fifty thousand
(P50,000.00) pesos as attorney's fees, plus costs.

SO ORDERED.

Padilla, Davide, Jr., Bellosillo and Quiason, JJ., concur.

MYRON C. PAPA, Administrator of the Testate Estate of Angela M. Butte, petitioner, vs. A. U. VALENCIA and CO. INC., FELIX
PEARROYO, SPS. ARSENIO B. REYES & AMANDA SANTOS, and DELFIN JAO, respondents.

DECISION
KAPUNAN, J.:

In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Myron C. Papa seeks to reverse and set
aside 1) the Decision dated 27 January 1992 of the Court of Appeals which affirmed with modification the decision of the trial court; and,
2) the Resolution dated 22 April 1992 of the same court, which denied petitioners motion for reconsideration of the above decision.
The antecedent facts of this case are as follows:
 Sometime in June 1982, herein private respondents A.U. Valencia and Co., Inc. (hereinafter referred to as respondent Valencia, for
brevity) and Felix Pearroyo (hereinafter called respondent Pearroyo), filed with the Regional Trial Court of Pasig, Branch 151, a complaint
for specific performance against herein petitioner Myron C. Papa, in his capacity as administrator of the Testate Estate of one Angela M.
Butte.
The complaint alleged that on 15 June 1973, petitioner Myron C. Papa, acting as attorney-in-fact of Angela M. Butte, sold to
respondent Pearroyo, through respondent Valencia, a parcel of land, consisting of 286.60 square meters, located at corner Retiro and
Cadiz Streets, La Loma, Quezon City, and covered by Transfer Certificate of Title No. 28993 of the Register of Deeds of Quezon City;
that prior to the alleged sale, the said property, together with several other parcels of land likewise owned by Angela M. Butte, had been
mortgaged by her to the Associated Banking Corporation (now Associated Citizens Bank); that after the alleged sale, but before the title
to the subject property had been released, Angela M. Butte passed away; that despite representations made by herein respondents to
the bank to release the title to the property sold to respondent Pearroyo, the bank refused to release it unless and until all the mortgaged
properties of the late Angela M. Butte were also redeemed; that in order to protect his rights and interests over the property, respondent
Pearroyo caused the annotation on the title of an adverse claim as evidenced by Entry No. P.E. - 6118/T-28993, inscribed on 18 January
1977.
The complaint further alleged that it was only upon the release of the title to the property, sometime in April 1977, that respondents
Valencia and Pearroyo discovered that the mortgage rights of the bank had been assigned to one Tomas L. Parpana (now deceased),
as special administrator of the Estate of Ramon Papa, Jr., on 12 April 1977; that since then, herein petitioner had been collecting monthly
rentals in the amount of P800.00 from the tenants of the property, knowing that said property had already been sold to private respondents
on 15 June 1973; that despite repeated demands from said respondents, petitioner refused and failed to deliver the title to the
property. Thereupon, respondents Valencia and Pearroyo filed a complaint for specific performance, praying that petitioner be ordered to
deliver to respondent Pearroyo the title to the subject property (TCT 28993); to turn over to the latter the sum of P72,000.00 as accrued
rentals as of April 1982, and the monthly rental of P800.00 until the property is delivered to respondent Pearroyo; to pay respondents the
sum of P20,000.00 as attorneys fees; and to pay the costs of the suit.
In his Answer, petitioner admitted that the lot had been mortgaged to the Associated Banking Corporation (now Associated Citizens
Bank). He contended, however, that the complaint did not state a cause of action; that the real property in interest was the Testate Estate
of Angela M. Butte, which should have been joined as a party defendant; that the case amounted to a claim against the Estate of Angela
M. Butte and should have been filed in Special Proceedings No. A-17910 before the Probate Court in Quezon City; and that, if as alleged
in the complaint, the property had been assigned to Tomas L. Parpana, as special administrator of the Estate of Ramon Papa, Jr., said
estate should be impleaded. Petitioner, likewise, claimed that he could not recall in detail the transaction which allegedly occurred in
1973; that he did not have TCT No. 28993 in his possession; that he could not be held personally liable as he signed the deed merely as
attorney-in-fact of said Angela M. Butte. Finally, petitioner asseverated that as a result of the filing of the case, he was compelled to hire
the services of counsel for a fee of P20,000.00, for which respondents should be held liable.
Upon his motion, herein private respondent Delfin Jao was allowed to intervene in the case. Making common cause with respondents
Valencia and Pearroyo, respondent Jao alleged that the subject lot which had been sold to respondent Pearroyo through respondent
Valencia was in turn sold to him on 20 August 1973 for the sum of P71,500.00, upon his paying earnest money in the amount
of P5,000.00. He, therefore, prayed that judgment be rendered in favor of respondents Valencia and Pearroyo; and, that after the delivery
of the title to said respondents, the latter in turn be ordered to execute in his favor the appropriate deed of conveyance covering the
property in question and to turn over to him the rentals which aforesaid respondents sought to collect from petitioner Myron C. Papa.
Respondent Jao, likewise, averred that as a result of petitioners refusal to deliver the title to the property to respondents Valencia
and Pearroyo, who in turn failed to deliver the said title to him, he suffered mental anguish and serious anxiety for which he sought
payment of moral damages; and, additionally, the payment of attorneys fees and costs.
For his part, petitioner, as administrator of the Testate Estate of Angela M. Butte, filed a third-party complaint against herein private
respondents, spouses Arsenio B. Reyes and Amanda Santos (respondent Reyes spouses, for short). He averred, among others, that the
late Angela M. Butte was the owner of the subject property; that due to non-payment of real estate tax said property was sold at public
auction by the City Treasurer of Quezon City to the respondent Reyes spouses on 21 January 1980 for the sum of P14,000.00; that the
one-year period of redemption had expired; that respondents Valencia and Pearroyo had sued petitioner Papa as administrator of the
estate of Angela M. Butte, for the delivery of the title to the property; that the same aforenamed respondents had acknowledged that the
price paid by them was insufficient, and that they were willing to add a reasonable amount or a minimum of P55,000.00 to the price upon
delivery of the property, considering that the same was estimated to be worth P143,000.00; that petitioner was willing to reimburse
respondent Reyes spouses whatever amount they might have paid for taxes and other charges, since the subject property was still
registered in the name of the late Angela M. Butte; that it was inequitable to allow respondent Reyes spouses to acquire property
estimated to be worth P143,000.00, for a measly sum of P14,000.00. Petitioner prayed that judgment be rendered cancelling the tax sale
to respondent Reyes spouses; restoring the subject property to him upon payment by him to said respondent Reyes spouses of the
amount of P14,000.00, plus legal interest; and, ordering respondents Valencia and Pearroyo to pay him at least P55,000.00 plus
everything they might have to pay the Reyes spouses in recovering the property.
Respondent Reyes spouses in their Answer raised the defense of prescription of petitioners right to redeem the property.
At the trial, only respondent Pearroyo testified. All the other parties only submitted documentary proof.
On 29 June 1987, the trial court rendered a decision, the dispositive portion of which reads:

WHEREUPON, judgment is hereby rendered as follows:

1) Allowing defendant to redeem from third-party defendants and ordering the latter to allow the former to redeem the property in
question, by paying the sum of P14,000.00 plus legal interest of 12% thereon from January 21, 1980;

2) Ordering defendant to execute a Deed of Absolute Sale in favor of plaintiff Felix Pearroyo covering the property in question and to
deliver peaceful possession and enjoyment of the said property to the said plaintiff, free from any liens and encumbrances;

Should this not be possible, for any reason not attributable to defendant, said defendant is ordered to pay to plaintiff Felix Pearroyo the
sum of P45,000.00 plus legal interest of 12% from June 15, 1973;

3) Ordering plaintiff Felix Pearroyo to execute and deliver to intervenor a deed of absolute sale over the same property, upon the latters
payment to the former of the balance of the purchase price of P71,500.00;

Should this not be possible, plaintiff Felix Pearroyo is ordered to pay intervenor the sum of P5,000.00 plus legal interest of 12% from
August 23, 1973; and

4) Ordering defendant to pay plaintiffs the amount of P5,000.00 for and as attorneys fees and litigation expenses.

SO ORDERED.[1]

Petitioner appealed the aforesaid decision of the trial court to the Court of Appeals, alleging among others that the sale was never
consummated as he did not encash the check (in the amount of P40,000.00) given by respondents Valencia and Pearroyo in payment of
the full purchase price of the subject lot. He maintained that what said respondents had actually paid was only the amount of P5,000.00
(in cash) as earnest money.
Respondent Reyes spouses, likewise, appealed the above decision. However, their appeal was dismissed because of failure to file
their appellants brief.
On 27 January 1992, the Court of Appeals rendered a decision, affirming with modification the trial courts decision, thus:

WHEREFORE, the second paragraph of the dispositive portion of the appealed decision is MODIFIED, by ordering the defendant-
appellant to deliver to plaintiff-appellees the owners duplicate of TCT No. 28993 of Angela M. Butte and the peaceful possession and
enjoyment of the lot in question or, if the owners duplicate certificate cannot be produced, to authorize the Register of Deeds to cancel it
and issue a certificate of title in the name of Felix Pearroyo. In all other respects, the decision appealed from is AFFIRMED. Costs
against defendant-appellant Myron C. Papa.

SO ORDERED.[2]

In affirming the trial courts decision, respondent court held that contrary to petitioners claim that he did not encash the aforesaid
check, and therefore, the sale was not consummated, there was no evidence at all that petitioner did not, in fact, encash said check. On
the other hand, respondent Pearroyo testified in court that petitioner Papa had received the amount of P45,000.00 and issued receipts
therefor. According to respondent court, the presumption is that the check was encashed, especially since the payment by check was not
denied by defendant-appellant (herein petitioner) who, in his Answer, merely alleged that he can no longer recall the transaction which is
supposed to have happened 10 years ago.[3]
On petitioners claim that he cannot be held personally liable as he had acted merely as attorney-in-fact of the owner, Angela M.
Butte, respondent court held that such contention is without merit. This action was not brought against him in his personal capacity, but in
his capacity as the administrator of the Testate Estate of Angela M. Butte. [4]
On petitioners contention that the estate of Angela M. Butte should have been joined in the action as the real party in interest,
respondent court held that pursuant to Rule 3, Section 3 of the Rules of Court, the estate of Angela M. Butte does not have to be joined
in the action. Likewise, the estate of Ramon Papa, Jr., is not an indispensable party under Rule 3, Section 7 of the same Rules. For the
fact is that Ramon Papa, Jr., or his estate, was not a party to the Deed of Absolute Sale, and it is basic law that contracts bind only those
who are parties thereto.[5]
Respondent court observed that the conditions under which the mortgage rights of the bank were assigned are not clear. In any
case, any obligation which the estate of Angela M. Butte might have to the estate of Ramon Papa, Jr. is strictly between
them. Respondents Valencia and Pearroyo are not bound by any such obligation.
Petitioner filed a motion for reconsideration of the above decision, which motion was denied by respondent Court of Appeals.
Hence, this petition wherein petitioner raises the following issues:
I. THE CONCLUSION OR FINDING OF THE COURT OF APPEALS THAT THE SALE IN QUESTION WAS CONSUMMATED
IS GROUNDED ON SPECULATION OR CONJECTURE, AND IS CONTRARY TO THE APPLICABLE LEGAL PRINCIPLE.
II. THE COURT OF APPEALS, IN MODIFYING THE DECISION OF THE TRIAL COURT, ERRED BECAUSE IT, IN EFFECT,
CANCELLED OR NULLIFIED AN ASSIGNMENT OF THE SUBJECT PROPERTY IN FAVOR OF THE ESTATE OF RAMON PAPA,
JR. WHICH IS NOT A PARTY IN THIS CASE.
 III. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE ESTATE OF ANGELA M. BUTTE AND THE ESTATE
OF RAMON PAPA, JR. ARE INDISPENSABLE PARTIES IN THIS CASE.[6]
Petitioner argues that respondent Court of Appeals erred in concluding that the alleged sale of the subject property had been
consummated. He contends that such a conclusion is based on the erroneous presumption that the check (in the amount of P40,000.00)
had been cashed, citing Art. 1249 of the Civil Code, which provides, in part, that payment by checks shall produce the effect of payment
only when they have been cashed or when through the fault of the creditor they have been impaired. [7] Petitioner insists that he never
cashed said check; and, such being the case, its delivery never produced the effect of payment. Petitioner, while admitting that he had
issued receipts for the payments, asserts that said receipts, particularly the receipt of PCIB Check No. 761025 in the amount
of P40,000.00, do not prove payment. He avers that there must be a showing that said check had been encashed. If, according to
petitioner, the check had been encashed, respondent Pearroyo should have presented PCIB Check No. 761025 duly stamped received
by the payee, or at least its microfilm copy.
Petitioner finally avers that, in fact, the consideration for the sale was still in the hands of respondents Valencia and Pearroyo,
as evidenced by a letter addressed to him in which saidrespondents wrote, in part:

x x x. Please be informed that I had been authorized by Dr. Ramon Papa, Jr., heir of Mrs. Angela M. Butte to pay you the
aforementioned amount of P75,000.00 for the release and cancellation of subject propertys mortgage. The money is with me and if it is
alright with you, I would like to tender the payment as soon as possible. x x x. [8]

We find no merit in petitioners arguments.

It is an undisputed fact that respondents Valencia and Pearroyo had given petitioner Myron C. Papa the amounts of Five Thousand
Pesos (P5,000.00) in cash on 24 May 1973, and Forty Thousand Pesos (P40,000.00) in check on 15 June 1973, in payment of the
purchase price of the subject lot. Petitioner himself admits having received said amounts, [9] and having issued receipts
therefor.[10] Petitioners assertion that he never encashed the aforesaid check is not subtantiated and is at odds with his statement in his
answer that he can no longer recall the transaction which is supposed to have happened 10 years ago. After more than ten (10) years
from the payment in part by cash and in part by check, the presumption is that the check had been encashed. As already stated, he even
waived the presentation of oral evidence.
Granting that petitioner had never encashed the check, his failure to do so for more than ten (10) years undoubtedly resulted in the
impairment of the check through his unreasonable and unexplained delay.
While it is true that the delivery of a check produces the effect of payment only when it is cashed, pursuant to Art. 1249 of the Civil
Code, the rule is otherwise if the debtor is prejudiced by the creditors unreasonable delay in presentment. The acceptance of a check
implies an undertaking of due diligence in presenting it for payment, and if he from whom it is received sustains loss by want of such
diligence, it will be held to operate as actual payment of the debt or obligation for which it was given.[11] It has, likewise, been held that if
no presentment is made at all, the drawer cannot be held liable irrespective of loss or injury [12] unless presentment is otherwise
excused. This is in harmony with Article 1249 of the Civil Code under which payment by way of check or other negotiable instrument is
conditioned on its being cashed, except when through the fault of the creditor, the instrument is impaired. The payee of a check would
be a creditor under this provision and if its non-payment is caused by his negligence, payment will be deemed effected and the obligation
for which the check was given as conditional payment will be discharged. [13]
Considering that respondents Valencia and Pearroyo had fulfilled their part of the contract of sale by delivering the payment of the
purchase price, said respondents, therefore, had the right to compel petitioner to deliver to them the owners duplicate of TCT No. 28993
of Angela M. Butte and the peaceful possession and enjoyment of the lot in question.
With regard to the alleged assignment of mortgage rights, respondent Court of Appeals has found that the conditions under
which said mortgage rights of the bank were assigned are not clear. Indeed, a perusal of the original records of the case would show that
there is nothing there that could shed light on the transactions leading to the said assignment of rights; nor is there any evidence on
record of the conditions under which said mortgage rights were assigned. What is certain is that despite the said assignment of mortgage
rights, the title to the subject property has remained in the name of the late Angela M. Butte.[14] This much is admitted by petitioner himself
in his answer to respondents complaint as well as in the third-party complaint that petitioner filed against respondent-spouses Arsenio B.
Reyes and Amanda Santos.[15] Assuming arquendo that the mortgage rights of the Associated Citizens Bank had been assigned to the
estate of Ramon Papa, Jr., and granting that the assigned mortgage rights validly exist and constitute a lien on the property, the estate
may file the appropriate action toenforce such lien. The cause of action for specific performance which respondents Valencia and
Pearroyo have against petitioner is different from the cause of action which the estate of Ramon Papa, Jr. may have to enforce whatever
rights or liens it has on the property by reason of its being an alleged assignee of the banks rights of mortgage.
Finally, the estate of Angela M. Butte is not an indispensable party. Under Section 3 of Rule 3 of the Rules of Court, an executor or
administrator may sue or be sued without joining the party for whose benefit the action is presented or defended, thus:

Sec. 3. Representative parties. - A trustee of an express trust, a guardian, executor or administrator, or a party authorized by statute,
may sue or be sued without joining the party for whose benefit the action is presented or defended; but the court may, at any stage of
the proceedings, order such beneficiary to be made a party. An agent acting in his own name and for the benefit of an undisclosed
principal may sue or be sued without joining the principal except when the contract involves things belonging to the principal. [16]

Neither is the estate of Ramon Papa, Jr. an indispensable party without whom, no final determination of the action can be had.
Whatever prior and subsisting mortgage rights the estate of Ramon Papa, Jr. has over the property may still be enforced regardless of
the change in ownership thereof.
 WHEREFORE, the petition for review is hereby DENIED and the Decision of the Court of Appeals, dated 27 January 1992 is
AFFIRMED.
SO ORDERED.
Davide, Jr., Bellosillo, and Vitug, JJ., concur.
ENGR. JOSE E. CAYANAN, G.R. No. 172954

Petitioner, Present:

CORONA, C.J.,
Chairperson,
LEONARDO-DE CASTRO,
BERSAMIN,
DEL CASTILLO, and
VILLARAMA, JR., JJ.
- versus -

Promulgated:

October 5, 2011

NORTH STAR INTERNATIONAL TRAVEL, INC.,

Respondent.
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

VILLARAMA, JR., J.:

Petitioner Engr. Jose E. Cayanan appeals the May 31, 2006 Decision [1] of the Court of Appeals (CA) in CA-G.R. SP No. 65538 finding
him civilly liable for the value of the five checks which are the subject of Criminal Case Nos. 166549-53.

The antecedent facts are as follows:

North Star International Travel Incorporated (North Star) is a corporation engaged in the travel agency business while petitioner is the
owner/general manager of JEAC International Management and Contractor Services, a recruitment agency.

On March 17,[2] 1994, Virginia Balagtas, the General Manager of North Star, in accommodation and upon the instruction of its client,
petitioner herein, sent the amount of US$60,000[3] to View Sea Ventures Ltd., in Nigeria from her personal account in Citibank Makati. On
March 29, 1994, Virginia again sent US$40,000 to View Sea Ventures by telegraphic transfer, [4] with US$15,000 coming from
petitioner. Likewise, on various dates, North Star extended credit to petitioner for the airplane tickets of his clients, with the total amount
of such indebtedness under the credit extensions eventually reaching P510,035.47.[5]

To cover payment of the foregoing obligations, petitioner issued the following five checks to North Star:

Check No : 246822

Drawn Against : Republic Planters Bank

Amount : P695,000.00

Dated/Postdated : May 15, 1994

Payable to : North Star International Travel, Inc.

Check No : 246823

Drawn Against : Republic Planters Bank

Amount : P278,000.00

Dated/Postdated : May 15, 1994

Payable to : North Star International Travel, Inc.

Check No : 246824

Drawn Against : Republic Planters Bank

Amount : P22,703.00

Dated/Postdated : May 15, 1994

Payable to : North Star International Travel, Inc.

Check No : 687803

Drawn Against : PCIB

Amount : P1,500,000.00

Dated/Postdated : April 14, 1994

Payable to : North Star International Travel, Inc.

Check No : 687804

Drawn Against : PCIB

Amount : P35,000.00

Dated/Postdated : April 14, 1994

Payable to : North Star International Travel, Inc.[6]

When presented for payment, the checks in the amount of P1,500,000 and P35,000 were dishonored for insufficiency of funds while the
other three checks were dishonored because of a stop payment order from petitioner.[7] North Star, through its counsel, wrote
petitioner on September 14, 1994[8] informing him that the checks he issued had been dishonored. North Star demanded payment, but
petitioner failed to settle his obligations. Hence, North Star instituted Criminal Case Nos. 166549-53 charging petitioner with violation
of Batas Pambansa Blg. 22, or the Bouncing Checks Law, before the Metropolitan Trial Court (MeTC) of Makati City.

The Informations,[9] which were similarly worded except as to the check numbers, the dates and amounts of the checks, alleged:

That on or about and during the month of March 1994 in the Municipality of Makati, Metro Manila, Philippines, a place
within the jurisdiction of this Honorable Court, the above-named accused, being the authorized signatory of [JEAC] Intl
Mgt & Cont. Serv. did then and there willfully, unlawfully and feloniously make out[,] draw and issue to North Star Intl.
Travel Inc. herein rep. by Virginia D. Balagtas to apply on account or for value the checks described below:

xxxx

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

Contrary to law.

Upon arraignment, petitioner pleaded not guilty to the charges.

After trial, the MeTC found petitioner guilty beyond reasonable doubt of violation of B.P. 22. Thus:
 WHEREFORE, finding the accused, ENGR. JOSE E. CAYANAN GUILTY beyond reasonable doubt of Violation of
Batas Pambansa Blg. 22 he is hereby sentenced to suffer imprisonment of one (1) year for each of the offense
committed.

Accused is likewise ordered to indemnify the complainant North Star International Travel, Inc. represented in
this case by Virginia Balagtas, the sum of TWO MILLION FIVE HUNDRED THIRTY THOUSAND AND SEVEN
HUNDRED THREE PESOS (P2,530,703.00) representing the total value of the checks in [question] plus FOUR
HUNDRED EIGHTY[-]FOUR THOUSAND SEVENTY[-]EIGHT PESOS AND FORTY[-]TWO CENTAVOS
(P484,078.42) as interest of the value of the checks subject matter of the instant case, deducting therefrom the amount
of TWO HUNDRED TWENTY THOUSAND PESOS (P220,000.00) paid by the accused as interest on the value of the
checks duly receipted by the complainant and marked as Exhibit FF of the record.

xxxx

SO ORDERED.[10]

On appeal, the Regional Trial Court (RTC) acquitted petitioner of the criminal charges. The RTC also held that there is no basis
for the imposition of the civil liability on petitioner. The RTC ratiocinated that:

In the instant cases, the checks issued by the accused were presented beyond the period of NINETY (90)
DAYS and therefore, there is no violation of the provision of Batas Pambansa Blg. 22 and the accused is not considered
to have committed the offense. There being no offense committed, accused is not criminally liable and there would be
no basis for the imposition of the civil liability arising from the offense.[11]

Aggrieved, North Star elevated the case to the CA. On May 31, 2006, the CA reversed the decision of the RTC insofar as the
civil aspect is concerned and held petitioner civilly liable for the value of the subject checks. The fallo of the CA decision reads:

WHEREFORE, the petition is GRANTED. The assailed Decision of the RTC insofar as Cayanan's civil liability
is concerned, is NULLIFIED and SET ASIDE. The indemnity awarded by the MeTC in its September 1, 1999 Decision is
REINSTATED.

SO ORDERED.[12]

The CA ruled that although Cayanan was acquitted of the criminal charges, he may still be held civilly liable for the checks he
issued since he never denied having issued the five postdated checks which were dishonored.

Petitioner now assails the CA decision raising the lone issue of whether the CA erred in holding him civilly liable to North Star for the
value of the checks.[13]

Petitioner argues that the CA erred in holding him civilly liable to North Star for the value of the checks since North Star did not
give any valuable consideration for the checks. He insists that the US$85,000 sent to View Sea Ventures was not sent for the account of
North Star but for the account of Virginia as her investment. He points out that said amount was taken from Virginias personal dollar
account in Citibank and not from North Stars corporate account.

Respondent North Star, for its part, counters that petitioner is liable for the value of the five subject checks as they were issued
for value. Respondent insists that petitioner owes North Star P2,530,703 plus interest of P264,078.45, and that the P220,000 petitioner
paid to North Star is conclusive proof that the checks were issued for value.

The petition is bereft of merit.

We have held that upon issuance of a check, in the absence of evidence to the contrary, it is presumed that the same was
issued for valuable consideration which may consist either in some right, interest, profit or benefit accruing to the party who makes the
contract, or some forbearance, detriment, loss or some responsibility, to act, or labor, or service given, suffered or undertaken by the
other side.[14] Under the Negotiable Instruments Law, it is presumed that every party to an instrument acquires the same for a
consideration or for value.[15] As petitioner alleged that there was no consideration for the issuance of the subject checks, it devolved
upon him to present convincing evidence to overthrow the presumption and prove that the checks were in fact issued without valuable
consideration.[16] Sadly, however, petitioner has not presented any credible evidence to rebut the presumption, as well as North Stars
assertion, that the checks were issued as payment for the US$85,000 petitioner owed.
 Notably, petitioner anchors his defense of lack of consideration on the fact that he did not personally receive the US$85,000
from Virginia. However, we note that in his pleadings, he never denied having instructed Virginia to remit the US$85,000 to View Sea
Ventures. Evidently, Virginia sent the money upon the agreement that petitioner will give to North Star the peso equivalent of the amount
remitted plus interest. As testified to by Virginia, Check No. 246822 dated May 15, 1994 in the amount of P695,000.00 is equivalent to
US$25,000; Check No. 246823 dated May 15, 1994 in the amount of P278,000 is equivalent to US$10,000; Check No. 246824 in the
amount of P22,703 represents the one month interest for P695,000 and P278,000 at the rate of twenty-eight (28%) percent per
annum;[17] Check No. 687803 dated April 14, 1994 in the amount of P1,500,000 is equivalent to US$50,000 and Check No. 687804 dated
14 April 1994 in the amount of P35,000 represents the one month interest for P1,500,000 at the rate of twenty-eight (28%) percent per
annum.[18] Petitioner has not substantially refuted these averments.

Concomitantly, petitioners assertion that the dollars sent to Nigeria was for the account of Virginia Balagtas and as her own
investment with View Sea Ventures deserves no credence. Virginia has not been shown to have any business transactions with View
Sea Ventures and from all indications, she only remitted the money upon the request and in accordance with petitioners instructions. The
evidence shows that it was petitioner who had a contract with View Sea Ventures as he was sending contract workers to Nigeria; Virginia
Balagtass participation was merely to send the money through telegraphic transfer in exchange for the checks issued by petitioner to
North Star. Indeed, the transaction between petitioner and North Star is actually in the nature of a loan and the checks were issued as
payment of the principal and the interest.

As aptly found by the trial court:

It is to be noted that the checks subject matter of the instant case were issued in the name of North Star International
Inc., represented by private complainant Virginia Balagtas in replacement of the amount of dollars remitted by the latter
to Vie[w] Sea Ventures in Nigeria. x x x But Virginia Balagtas has no business transaction with Vie[w] Sea Ventures
where accused has been sending his contract workers and the North Star provided the trip tickets for said workers sent
by the accused. North Star International has no participation at all in the transaction between accused and the Vie[w]
Sea Ventures except in providing plane ticket used by the contract workers of the accused upon its understanding with
the latter. The contention of the accused that the dollars were sent by Virginia Balagtas to Nigeria as business
investment has not been shown by any proof to set aside the foregoing negative presumptions, thus negates accused
contentions regarding the absence of consideration for the issuance of checks. x x x[19]

Petitioner claims that North Star did not give any valuable consideration for the checks since the US$85,000 was taken from the
personal dollar account of Virginia and not the corporate funds of North Star. The contention, however, deserves scant consideration. The
subject checks, bearing petitioners signature, speak for themselves. The fact that petitioner himself specifically named North Star as the
payee of the checks is an admission of his liability to North Star and not to Virginia Balagtas, who as manager merely facilitated the
transfer of funds. Indeed, it is highly inconceivable that an experienced businessman like petitioner would issue various checks in sizeable
amounts to a payee if these are without consideration. Moreover, we note that Virginia Balagtas averred in her Affidavit[20] that North Star
caused the payment of the US$60,000 and US$25,000 to View Sea Ventures to accommodate petitioner, which statement petitioner
failed to refute. In addition, petitioner did not question the Statement of Account No. 8639[21] dated August 31, 1994 issued by North Star
which contained itemized amounts including the US$60,000 and US$25,000 sent through telegraphic transfer to View Sea Ventures per
his instruction. Thus, the inevitable conclusion is that when petitioner issued the subject checks to North Star as payee, he did so to settle
his obligation with North Star for the US$85,000. And since the only payment petitioner made to North Star was in the amount
of P220,000.00, which was applied to interest due, his liability is not extinguished.Having failed to fully settle his obligation under the
checks, the appellate court was correct in holding petitioner liable to pay the value of the five checks he issued in favor of North Star.

WHEREFORE, the present appeal by way of a petition for review on certiorari is DENIED for lack of merit. The Decision dated May 31,
2006 of the Court of Appeals in CA-G.R. SP No. 65538 is AFFIRMED.

With costs against petitioner.

SO ORDERED.

ANAMER SALAZAR, G.R. No. 171998

Petitioner,

Present:

CARPIO, J., Chairperson,

- versus - NACHURA,

LEONARDO-DE CASTRO,*
 PERALTA, and

MENDOZA, JJ.

J.Y. BROTHERS MARKETING CORPORATION, Promulgated:

Respondent.

October 20, 2010

x-----------------------------------------------------------------------------------------x

DECISION

PERALTA, J.:

Before us is a petition for review seeking to annul and set aside the Decision [1] dated September 29, 2005 and the
Resolution[2] dated March 2, 2006 of the Court of Appeals (CA) in CA-G.R. CV No. 83104.

The facts, as found by the Court of Appeals, are not disputed, thus:

J.Y. Brothers Marketing (J.Y. Bros., for short) is a corporation engaged in the business of selling sugar, rice and other
commodities. On October 15, 1996, Anamer Salazar, a freelance sales agent, was approached by Isagani Calleja and
Jess Kallos, if she knew a supplier of rice. Answering in the positive, Salazar accompanied the two to J.Y. Bros. As a
consequence, Salazar with Calleja and Kallos procured from J. Y. Bros. 300 cavans of rice worth P214,000.00. As
payment, Salazar negotiated and indorsed to J.Y. Bros. Prudential Bank Check No. 067481 dated October 15,
1996 issued by Nena Jaucian Timario in the amount of P214,000.00 with the assurance that the check is good as cash.
On that assurance, J.Y. Bros. parted with 300 cavans of rice to Salazar. However, upon presentment, the check was
dishonored due to closed account.

Informed of the dishonor of the check, Calleja, Kallos and Salazar delivered to J.Y. Bros. a replacement cross Solid
Bank Check No. PA365704 dated October 29, 1996 again issued by Nena Jaucian Timario in the amount
of P214,000.00 but which, just the same, bounced due to insufficient funds. When despite the demand letter
dated February 27, 1997, Salazar failed to settle the amount due J.Y. Bros., the latter charged Salazar and Timario
with the crime of estafa before the Regional Trial Court of Legaspi City, docketed as Criminal Case No. 7474.

After the prosecution rested its case and with prior leave of court, Salazar submitted a demurrer to evidence.
On November 19, 2001, the court a quo rendered an Order, the dispositive portion of which reads:

WHEREFORE, premises considered, the accused Anamer D. Salazar is hereby

ACQUITTED of the crime charged but is hereby held liable for the value of the 300 bags of rice.
Accused Anamer D. Salazar is therefore ordered to pay J.Y. Brothers Marketing Corporation the sum
of P214,000.00. Costs against the accused.

SO ORDERED.

Aggrieved, accused attempted a reconsideration on the civil aspect of the order and to allow her to present
evidence thereon. The motion was denied. Accused went up to the Supreme Court on a petition for review on certiorari
under Rule 45 of the Rules of Court. Docketed as G.R. 151931, in its Decision dated September 23, 2003, the High
Court ruled:
 IN LIGHT OF ALL THE FOREGOING, the Petition is GRANTED. The Orders dated November 19,
2001 and January 14, 2002 are SET ASIDE and NULLIFIED. The Regional Trial Court of Legaspi
City, Branch 5, is hereby DIRECTED to set Criminal Case No. 7474 for the continuation of trial for
the reception of the evidence-in-chief of the petitioner on the civil aspect of the case and for the
rebuttal evidence of the private complainant and the sur-rebuttal evidence of the parties if they opt to
adduce any.

SO ORDERED.[3]

The Regional Trial Court (RTC) of Legaspi City, Branch 5, then proceeded with the trial on the civil aspect of the criminal case.

On April 1, 2004, the RTC rendered its Decision,[4] the dispositive portion of which reads:

WHEREFORE, Premises Considered, judgment is rendered DISMISSING as against Anamer D. Salazar the civil aspect
of the above-entitled case. No pronouncement as to costs.

Place into the files (archive) the record of the above-entitled case as against the other accused Nena Jaucian Timario.
Let an alias (bench) warrant of arrest without expiry dated issue for her apprehension, and fix the amount of the bail
bond for her provisional liberty at 59,000.00 pesos.

SO ORDERED.[5]

The RTC found that the Prudential Bank check drawn by Timario for the amount of P214,000.00 was payable to the order of respondent,
and such check was a negotiable order instrument; that petitioner was not the payee appearing in the check, but respondent who had
not endorsed the check, much less delivered it to petitioner. It then found that petitioners liability should be limited to the allegation in the
amended information that she endorsed and negotiated said check, and since she had never been the holder of the check, petitioner's
signing of her name on the face of the dorsal side of the check did not produce the technical effect of an indorsement arising from
negotiation. The RTC ruled that after the Prudential Bank check was dishonored, it was replaced by a Solid Bank check which, however,
was also subsequently dishonored; that since the Solid Bank check was a crossed check, which meant that such check was only for
deposit in payees account, a condition that rendered such check non-negotiable, the substitution of a non-negotiable Solid Bank check
for a negotiable Prudential Bank check was an essential change which had the effect of discharging from the obligation whoever may be
the endorser of the negotiable check. The RTC concluded that the absence of negotiability rendered nugatory the obligation arising from
the technical act of indorsing a check and, thus, had the effect of novation; and that the ultimate effect of such substitution was to
extinguish the obligation arising from the issuance of the Prudential Bank check.

Respondent filed an appeal with the CA on the sole assignment of error that:

IN BRIEF, THE LOWER COURT ERRED IN RULING THAT ACCUSED ANAMER SALAZAR BY INDORSING
THE CHECK (A) DID NOT BECOME A HOLDER OF THE CHECK, (B) DID NOT PRODUCE THE TECHNICAL
EFFECT OF AN INDORSEMENT ARISING FROM NEGOTIATION; AND (C) DID NOT INCUR CIVIL LIABILITY.[6]

After petitioner filed her appellees' brief, the case was submitted for decision. On September 29, 2005, the CA rendered its
assailed Decision, the decretal portion of which reads:

IN VIEW OF ALL THE FOREGOING, the instant appeal is GRANTED, the challenged Decision is REVERSED and
SET ASIDE, and a new one entered ordering the appellee to pay the appellant the amount of P214,000.00, plus interest
at the legal rate from the written demand until full payment. Costs against the appellee.[7]

In so ruling, the CA found that petitioner indorsed the Prudential Bank check, which was later replaced by a Solid Bank check issued by
Timario, also indorsed by petitioner as payment for the 300 cavans of rice bought from respondent. The CA, applying Sections
63,[8] 66[9] and 29[10] of the Negotiable Instruments Law, found that petitioner was considered an indorser of the checks paid to respondent
and considered her as an accommodation indorser, who was liable on the instrument to a holder for value, notwithstanding that such
holder at the time of the taking of the instrument knew her only to be an accommodation party.

Respondent filed a motion for reconsideration, which the CA denied in a Resolution dated March 2, 2006.

Hence this petition, wherein petitioner raises the following assignment of errors:

1. THE COURT OF APPEALS ERRED IN IGNORING THE RAMIFICATIONS OF THE ISSUANCE OF THE
SOLIDBANK CHECK IN REPLACEMENT OF THE PRUDENTIAL BANK CHECK WHICH WOULD HAVE
RESULTED TO THE NOVATION OF THE OBLIGATION ARISING FROM THE ISSUANCE OF THE LATTER
CHECK.

2. THE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF

THE REGIONAL TRIAL COURT OF LEGASPI CITY, BRANCH 5, DISMISSING AS AGAINST THE
PETITIONER THE CIVIL ASPECT OF THE CRIMINAL ACTION ON THE GROUND OF NOVATION OF
OBLIGATION ARISING FROM THE ISSUANCE OF THE PRUDENTIAL BANK CHECK.

3. THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR

EXCESS OF JURISDICTION WHEN IT DENIED THE MOTION FOR RECONSIDERATION OF THE
PETITIONER ON THE GROUND THAT THE ISSUE RAISED THEREIN HAD ALREADY BEEN PASSED
UPON AND CONSIDERED IN THE DECISION SOUGHT TO BE RECONSIDERED WHEN IN TRUTH AND
IN FACT SUCH ISSUE HAD NOT BEEN RESOLVED AS YET.[11]

Petitioner contends that the issuance of the Solid Bank check and the acceptance thereof by the respondent, in replacement of the
dishonored Prudential Bank check, amounted to novation that discharged the latter check; that respondent's acceptance of the Solid
Bank check, notwithstanding its eventual dishonor by the drawee bank, had the effect of erasing whatever criminal responsibility, under
Article 315 of the Revised Penal Code, the drawer or indorser of the Prudential Bank check would have incurred in the issuance thereof
in the amount of P214,000.00; and that a check is a contract which is susceptible to a novation just like any other contract.

Respondent filed its Comment, echoing the findings of the CA. Petitioner filed her Reply thereto.

We find no merit in this petition.

Section 119 of the Negotiable Instrument Law provides, thus:

SECTION 119. Instrument; how discharged. A negotiable instrument is discharged:

(a) By payment in due course by or on behalf of the principal debtor;

(b) By payment in due course by the party accommodated, where the instrument is made or
accepted for his accommodation;
(c) By the intentional cancellation thereof by the holder;
(d) By any other act which will discharge a simple contract for the payment of money;
(e) When the principal debtor becomes the holder of the instrument at or after maturity in his own
right. (Emphasis ours)

And, under Article 1231 of the Civil Code, obligations are extinguished:

xxxx
(6) By novation.
Petitioner's claim that respondent's acceptance of the Solid Bank check which replaced the dishonored Prudential bank check resulted
to novation which discharged the latter check is unmeritorious.

In Foundation Specialists, Inc. v. Betonval Ready Concrete, Inc. and Stronghold Insurance Co., Inc.,[12] we stated the concept
of novation, thus:
 x x x Novation is done by the substitution or change of the obligation by a subsequent one which extinguishes the first,
either by changing the object or principal conditions, or by substituting the person of the debtor, or by subrogating a
third person in the rights of the creditor. Novation may:

[E]ither be extinctive or modificatory, much being dependent on the nature of the change
and the intention of the parties. Extinctive novation is never presumed; there must be an express
intention to novate; in cases where it is implied, the acts of the parties must clearly demonstrate their
intent to dissolve the old obligation as the moving consideration for the emergence of the new one.
Implied novation necessitates that the incompatibility between the old and new obligation be total on
every point such that the old obligation is completely superceded by the new one. The test of
incompatibility is whether they can stand together, each one having an independent existence; if they
cannot and are irreconcilable, the subsequent obligation would also extinguish the first.

An extinctive novation would thus have the twin effects of, first, extinguishing an existing
obligation and, second, creating a new one in its stead. This kind of novation presupposes a
confluence of four essential requisites: (1) a previous valid obligation, (2) an agreement of all parties
concerned to a new contract, (3) the extinguishment of the old obligation, and (4) the birth of a valid
new obligation. Novation is merely modificatory where the change brought about by any subsequent
agreement is merely incidental to the main obligation (e.g., a change in interest rates or an extension
of time to pay; in this instance, the new agreement will not have the effect of extinguishing the first
but would merely supplement it or supplant some but not all of its provisions.)

The obligation to pay a sum of money is not novated by an instrument that expressly recognizes the old,
changes only the terms of payment, adds other obligations not incompatible with the old ones or the new contract
merely supplements the old one.[13]

In Nyco Sales Corporation v. BA Finance Corporation,[14] we found untenable petitioner Nyco's claim that novation took place when the
dishonored BPI check it endorsed to BA Finance Corporation was subsequently replaced by a Security Bank check,[15] and said:

There are only two ways which indicate the presence of novation and thereby produce the effect of extinguishing an
obligation by another which substitutes the same. First, novation must be explicitly stated and declared in unequivocal
terms as novation is never presumed. Secondly, the old and the new obligations must be incompatible on every point.
The test of incompatibility is whether or not the two obligations can stand together, each one having its independent
existence. If they cannot, they are incompatible and the latter obligation novates the first. In the instant case, there was
no express agreement that BA Finance's acceptance of the SBTC check will discharge Nyco from liability. Neither is
there incompatibility because both checks were given precisely to terminate a single obligation arising from Nyco's sale
of credit to BA Finance. As novation speaks of two distinct obligations, such is inapplicable to this case. [16]

In this case, respondents acceptance of the Solid Bank check, which replaced the dishonored Prudential Bank check, did not
result to novation as there was no express agreement to establish that petitioner was already discharged from his liability to pay
respondent the amount of P214,000.00 as payment for the 300 bags of rice. As we said, novation is never presumed, there must be an
express intention to novate. In fact, when the Solid Bank check was delivered to respondent, the same was also indorsed by petitioner
which shows petitioners recognition of the existing obligation to respondent to pay P214,000.00 subject of the replaced Prudential Bank
check.

Moreover, respondents acceptance of the Solid Bank check did not result to any incompatibility, since the two checks −
Prudential and Solid Bank checks − were precisely for the purpose of paying the amount of P214,000.00, i.e., the credit obtained from
the purchase of the 300 bags of rice from respondent. Indeed, there was no substantial change in the object or principal condition of the
obligation of petitioner as the indorser of the check to pay the amount of P214,000.00. It would appear that respondent accepted the
Solid Bank check to give petitioner the chance to pay her obligation.

Petitioner also contends that the acceptance of the Solid Bank check, a non-negotiable check being a crossed check, which replaced
the dishonored Prudential Bank check, a negotiable check, is a new obligation in lieu of the old obligation arising from the issuance of
the Prudential Bank check, since there was an essential change in the circumstance of each check.

Such argument deserves scant consideration.

Among the different types of checks issued by a drawer is the crossed check.[17] The Negotiable Instruments Law is silent with
respect to crossed checks,[18] although the Code of Commerce makes reference to such instruments.[19] We have taken judicial
cognizance of the practice that a check with two parallel lines in the upper left hand corner means that it could only be dep osited and
could not be converted into cash.[20] Thus, the effect of crossing a check relates to the mode of payment, meaning that the drawer had
intended the check for deposit only by the rightful person, i.e., the payee named therein.[21] The change in the mode of paying the
obligation was not a change in any of the objects or principal condition of the contract for novation to take place.[22]

Considering that when the Solid Bank check, which replaced the Prudential Bank check, was presented for payment, the same
was again dishonored; thus, the obligation which was secured by the Prudential Bank check was not extinguished and the Prudential
Bank check was not discharged. Thus, we found no reversible error committed by the CA in holding petitioner liable as an accommodation
indorser for the payment of the dishonored Prudential Bank check.

WHEREFORE, the petition is DENIED. The Decision dated September 29, 2005 and the Resolution dated March 2, 2006, of the Court
of Appeals in CA-G.R. CV No. 83104, are AFFIRMED.

SO ORDERED.