No. 11.

[G.R. No. 139130. November 27, 2002]

RAMON K. ILUSORIO, petitioner, vs. HON. COURT OF APPEALS, and THE MANILA BANKING CORPORATION, respondents.

DECISION

QUISUMBING, J.:

This petition for review seeks to reverse the decision[1] promulgated on January 28, 1999 by the Court of Appeals in CA-G.R. CV No. 47942, affirming the decision of the then
Court of First Instance of Rizal, Branch XV (now the Regional Trial Court of Makati, Branch 138) dismissing Civil Case No. 43907, for damages.

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

Petitioner is a prominent businessman who, at the time material to this case, was the Managing Director of Multinational Investment Bancorporation and the Chairman and/or
President of several other corporations. He was a depositor in good standing of respondent bank, the Manila Banking Corporation, under current Checking Account No. 06-
09037-0. As he was then running about 20 corporations, and was going out of the country a number of times, petitioner entrusted to his secretary, Katherine[2] E. Eugenio, his
credit cards and his checkbook with blank checks. It was also Eugenio who verified and reconciled the statements of said checking account.[3]

Between the dates September 5, 1980 and January 23, 1981, Eugenio was able to encash and deposit to her personal account about seventeen (17) checks drawn against the
account of the petitioner at the respondent bank, with an aggregate amount of P119,634.34. Petitioner did not bother to check his statement of account until a business partner
apprised him that he saw Eugenio use his credit cards. Petitioner fired Eugenio immediately, and instituted a criminal action against her for estafa thru falsification before the
Office of the Provincial Fiscal of Rizal. Private respondent, through an affidavit executed by its employee, Mr. Dante Razon, also lodged a complaint for estafa thru falsification of
commercial documents against Eugenio on the basis of petitioners statement that his signatures in the checks were forged.[4] Mr. Razons affidavit states:

That I have examined and scrutinized the following checks in accordance with prescribed verification procedures with utmost care and diligence by comparing the signatures
affixed thereat against the specimen signatures of Mr. Ramon K. Ilusorio which we have on file at our said office on such dates,

xxx

That the aforementioned checks were among those issued by Manilabank in favor of its client MR. RAMON K. ILUSORIO,

That the same were personally encashed by KATHERINE E. ESTEBAN, an executive secretary of MR. RAMON K. ILUSORIO in said Investment Corporation;

That I have met and known her as KATHERINE E. ESTEBAN the attending verifier when she personally encashed the above-mentioned checks at our said office;

That MR. RAMON K. ILUSORIO executed an affidavit expressly disowning his signature appearing on the checks further alleged to have not authorized the issuance and
encashment of the same.[5]
Petitioner then requested the respondent bank to credit back and restore to its account the value of the checks which were wrongfully encashed but respondent bank refused.
Hence, petitioner filed the instant case.[6]

At the trial, petitioner testified on his own behalf, attesting to the truth of the circumstances as narrated above, and how he discovered the alleged forgeries. Several employees
of Manila Bank were also called to the witness stand as hostile witnesses. They testified that it is the banks standard operating procedure that whenever a check is presented for
encashment or clearing, the signature on the check is first verified against the specimen signature cards on file with the bank.

Manila Bank also sought the expertise of the National Bureau of Investigation (NBI) in determining the genuineness of the signatures appearing on the checks. However, in a
letter dated March 25, 1987, the NBI informed the trial court that they could not conduct the desired examination for the reason that the standard specimens submitted were
not sufficient for purposes of rendering a definitive opinion. The NBI then suggested that petitioner be asked to submit seven (7) or more additional standard signatures
executed before or about, and immediately after the dates of the questioned checks. Petitioner, however, failed to comply with this request.

After evaluating the evidence on both sides, the court a quo rendered judgment on May 12, 1994 with the following dispositive portion:

WHEREFORE, finding no sufficient basis for plaintiff's cause herein against defendant bank, in the light of the foregoing considerations and established facts, this case would
have to be, as it is hereby DISMISSED.

Defendants counterclaim is likewise DISMISSED for lack of sufficient basis.

SO ORDERED.[7]

Aggrieved, petitioner elevated the case to the Court of Appeals by way of a petition for review but without success. The appellate court held that petitioners own negligence was
the proximate cause of his loss. The appellate court disposed as follows:

WHEREFORE, the judgment appealed from is AFFIRMED. Costs against the appellant.

SO ORDERED.[8]

Before us, petitioner ascribes the following errors to the Court of Appeals:

A. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE RESPONDENT BANK IS ESTOPPED FROM RAISING THE DEFENSE THAT THERE WAS NO FORGERY OF THE
SIGNATURES OF THE PETITIONER IN THE CHECK BECAUSE THE RESPONDENT FILED A CRIMINAL COMPLAINT FOR ESTAFA THRU FALSIFICATION OF COMMERCIAL DOCUMENTS
AGAINST KATHERINE EUGENIO USING THE AFFIDAVIT OF PETITIONER STATING THAT HIS SIGNATURES WERE FORGED AS PART OF THE AFFIDAVIT-COMPLAINT.[9]

B. THE COURT OF APPEALS ERRED IN NOT APPLYING SEC. 23, NEGOTIABLE INSTRUMENTS LAW.[10]

C. THE COURT OF APPEALS ERRED IN NOT HOLDING THE BURDEN OF PROOF IS WITH THE RESPONDENT BANK TO PROVE THE DUE DILIGENCE TO PREVENT DAMAGE, TO THE
PETITIONER, AND THAT IT WAS NOT NEGLIGENT IN THE SELECTION AND SUPERVISION OF ITS EMPLOYEES.[11]
D. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT BANK SHOULD BEAR THE LOSS, AND SHOULD BE MADE TO PAY PETITIONER, WITH RECOURSE AGAINST
KATHERINE EUGENIO ESTEBAN.[12]

Essentially the issues in this case are: (1) whether or not petitioner has a cause of action against private respondent; and (2) whether or not private respondent, in filing an estafa
case against petitioners secretary, is barred from raising the defense that the fact of forgery was not established.

Petitioner contends that Manila Bank is liable for damages for its negligence in failing to detect the discrepant checks. He adds that as a general rule a bank which has obtained
possession of a check upon an unauthorized or forged endorsement of the payees signature and which collects the amount of the check from the drawee is liable for the
proceeds thereof to the payee. Petitioner invokes the doctrine of estoppel, saying that having itself instituted a forgery case against Eugenio, Manila Bank is now estopped from
asserting that the fact of forgery was never proven.

For its part, Manila Bank contends that respondent appellate court did not depart from the accepted and usual course of judicial proceedings, hence there is no reason for the
reversal of its ruling. Manila Bank additionally points out that Section 23[13] of the Negotiable Instruments Law is inapplicable, considering that the fact of forgery was never
proven. Lastly, the bank negates petitioners claim of estoppel.[14]

On the first issue, we find that petitioner has no cause of action against Manila Bank. To be entitled to damages, petitioner has the burden of proving negligence on the part of
the bank for failure to detect the discrepancy in the signatures on the checks. It is incumbent upon petitioner to establish the fact of forgery, i.e., by submitting his specimen
signatures and comparing them with those on the questioned checks. Curiously though, petitioner failed to submit additional specimen signatures as requested by the National
Bureau of Investigation from which to draw a conclusive finding regarding forgery. The Court of Appeals found that petitioner, by his own inaction, was precluded from setting
up forgery. Said the appellate court:

We cannot fault the court a quo for such declaration, considering that the plaintiffs evidence on the alleged forgery is not convincing enough. The burden to prove forgery was
upon the plaintiff, which burden he failed to discharge. Aside from his own testimony, the appellant presented no other evidence to prove the fact of forgery. He did not even
submit his own specimen signatures, taken on or about the date of the questioned checks, for examination and comparison with those of the subject checks. On the other hand,
the appellee presented specimen signature cards of the appellant, taken at various years, namely, in 1976, 1979 and 1981 (Exhibits 1, 2, 3 and 7), showing variances in the
appellants unquestioned signatures. The evidence further shows that the appellee, as soon as it was informed by the appellant about his questioned signatures, sought to
borrow the questioned checks from the appellant for purposes of analysis and examination (Exhibit 9), but the same was denied by the appellant. It was also the former which
sought the assistance of the NBI for an expert analysis of the signatures on the questioned checks, but the same was unsuccessful for lack of sufficient specimen signatures.[15]

Moreover, petitioners contention that Manila Bank was remiss in the exercise of its duty as drawee lacks factual basis. Consistently, the CA and the RTC found that Manila Bank
employees exercised due diligence in cashing the checks. The banks employees in the present case did not have a hint as to Eugenios modus operandi because she was a regular
customer of the bank, having been designated by petitioner himself to transact in his behalf. According to the appellate court, the employees of the bank exercised due diligence
in the performance of their duties. Thus, it found that:

The evidence on both sides indicates that TMBCs employees exercised due diligence before encashing the checks. Its verifiers first verified the drawers signatures thereon as
against his specimen signature cards, and when in doubt, the verifier went further, such as by referring to a more experienced verifier for further verification. In some instances
the verifier made a confirmation by calling the depositor by phone. It is only after taking such precautionary measures that the subject checks were given to the teller for
payment.
Of course it is possible that the verifiers of TMBC might have made a mistake in failing to detect any forgery -- if indeed there was. However, a mistake is not equivalent to
negligence if they were honest mistakes. In the instant case, we believe and so hold that if there were mistakes, the same were not deliberate, since the bank took all the
precautions.[16]

As borne by the records, it was petitioner, not the bank, who was negligent. Negligence is the omission to do something which a reasonable man, guided by those considerations
which ordinarily regulate the conduct of human affairs, would do, or the doing of something which a prudent and reasonable man would do.[17] In the present case, it appears
that petitioner accorded his secretary unusual degree of trust and unrestricted access to his credit cards, passbooks, check books, bank statements, including custody and
possession of cancelled checks and reconciliation of accounts. Said the Court of Appeals on this matter:

Moreover, the appellant had introduced his secretary to the bank for purposes of reconciliation of his account, through a letter dated July 14, 1980 (Exhibit 8). Thus, the said
secretary became a familiar figure in the bank. What is worse, whenever the bank verifiers call the office of the appellant, it is the same secretary who answers and confirms the
checks.

The trouble is, the appellant had put so much trust and confidence in the said secretary, by entrusting not only his credit cards with her but also his checkbook with blank
checks. He also entrusted to her the verification and reconciliation of his account. Further adding to his injury was the fact that while the bank was sending him the monthly
Statements of Accounts, he was not personally checking the same. His testimony did not indicate that he was out of the country during the period covered by the checks. Thus,
he had all the opportunities to verify his account as well as the cancelled checks issued thereunder -- month after month. But he did not, until his partner asked him whether he
had entrusted his credit card to his secretary because the said partner had seen her use the same. It was only then that he was minded to verify the records of his account. [18]

The abovecited findings are binding upon the reviewing court. We stress the rule that the factual findings of a trial court, especially when affirmed by the appellate court, are
binding upon us[19] and entitled to utmost respect[20] and even finality. We find no palpable error that would warrant a reversal of the appellate courts assessment of facts
anchored upon the evidence on record.

Petitioners failure to examine his bank statements appears as the proximate cause of his own damage. Proximate cause 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.[21] In the instant case, the bank was not
shown to be remiss in its duty of sending monthly bank statements to petitioner so that any error or discrepancy in the entries therein could be brought to the banks attention
at the earliest opportunity. But, petitioner failed to examine these bank statements not because he was prevented by some cause in not doing so, but because he did not pay
sufficient attention to the matter. Had he done so, he could have been alerted to any anomaly committed against him. In other words, petitioner had sufficient opportunity to
prevent or detect any misappropriation by his secretary had he only reviewed the status of his accounts based on the bank statements sent to him regularly. In view of Article
2179 of the New Civil Code,[22] when the plaintiffs own negligence was the immediate and proximate cause of his injury, no recovery could be had for damages.

Petitioner further contends that under Section 23 of the Negotiable Instruments Law a forged check is inoperative, and that Manila Bank had no authority to pay the forged
checks. True, it is a rule that when a signature is forged or made without the authority of the person whose signature it purports to be, the check is wholly inoperative. No right
to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party, can be acquired through or under such signature. However, the rule
does provide for an exception, namely: unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. In the
instant case, it is the exception that applies. In our view, petitioner is precluded from setting up the forgery, assuming there is forgery, due to his own negligence in entrusting to
his secretary his credit cards and checkbook including the verification of his statements of account.
Petitioners reliance on Associated Bank vs. Court of Appeals[23] and Philippine Bank of Commerce vs. CA[24] to buttress his contention that respondent Manila Bank as the
collecting or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements is misplaced. In the cited cases, the fact of
forgery was not in issue. In the present case, the fact of forgery was not established with certainty. In those cited cases, the collecting banks were held to be negligent for failing
to observe precautionary measures to detect the forgery. In the case before us, both courts below uniformly found that Manila Banks personnel diligently performed their
duties, having compared the signature in the checks from the specimen signatures on record and satisfied themselves that it was petitioners.

On the second issue, the fact that Manila Bank had filed a case for estafa against Eugenio would not estop it from asserting the fact that forgery has not been clearly established.
Petitioner cannot hold private respondent in estoppel for the latter is not the actual party to the criminal action. In a criminal action, the State is the plaintiff, for the commission
of a felony is an offense against the State.[25] Thus, under Section 2, Rule 110 of the Rules of Court the complaint or information filed in court is required to be brought in the
name of the People of the Philippines. [26]

Further, as petitioner himself stated in his petition, respondent bank filed the estafa case against Eugenio on the basis of petitioners own affidavit,[27] but without admitting
that he had any personal knowledge of the alleged forgery. It is, therefore, easy to understand that the filing of the estafa case by respondent bank was a last ditch effort to
salvage its ties with the petitioner as a valuable client, by bolstering the estafa case which he filed against his secretary.

All told, we find no reversible error that can be ascribed to the Court of Appeals.

WHEREFORE, the instant petition is DENIED for lack of merit. The assailed decision of the Court of Appeals dated January 28, 1999 in CA-G.R. CV No. 47942, is AFFIRMED.

Costs against petitioner.

SO ORDERED.
12.

G.R. No. L-37467 December 11, 1933

SAN CARLOS MILLING CO., LTD., plaintiff-appellant,

vs.
BANK OF THE PHILIPPINE ISLANDS and CHINA BANKING CORPORATION, defendants-appellees.

Gibbs and McDonough and Roman Ozaeta for appellant.

Araneta, De Joya, Zaragosa and Araneta for appellee Bank of the Philippine Islands.
Marcelo Nubla and Guevara, Francisco and Recto for appellee China Banking Corporation.

HULL, J.:

Plaintiff corporation, organized under the laws of the Territory of Hawaii, is authorized to engaged in business in the Philippine Islands, and maintains its main office in these
Islands in the City of Manila.

The business in the Philippine Islands was in the hands of Alfred D. Cooper, its agent under general power of attorney with authority of substitution. The principal employee in
the Manila office was one Joseph L. Wilson, to whom had been given a general power of attorney but without power of substitution. In 1926 Cooper, desiring to go on vacation,
gave a general power of attorney to Newland Baldwin and at the same time revoked the power of Wilson relative to the dealings with the Bank of the Philippine Islands, one of
the banks in Manila in which plaintiff maintained a deposit.

About a year thereafter Wilson, conspiring together with one Alfredo Dolores, a messenger-clerk in plaintiff's Manila office, sent a cable gram in code to the company in
Honolulu requesting a telegraphic transfer to the China Banking Corporation of Manila of $100,00. The money was transferred by cable, and upon its receipt the China Banking
Corporation, likewise a bank in which plaintiff maintained a deposit, sent an exchange contract to plaintiff corporation offering the sum of P201,000, which was then the current
rate of exchange. On this contract was forged the name of Newland Baldwin and typed on the body of the contract was a note:lawphil.net

Please send us certified check in our favor when transfer is received.

A manager's check on the China Banking Corporation for P201,000 payable to San Carlos Milling Company or order was receipted for by Dolores. On the same date, September
28, 1927, the manger's check was deposited with the Bank of the Philippine Islands by the following endorsement:

For deposit only with Bank of the Philippine Islands, to credit of account of San Carlos Milling Co., Ltd.

By (Sgd.) NEWLAND BALDWIN

For Agent

The endorsement to which the name of Newland Baldwin was affixed was spurious.

The Bank of the Philippine Islands thereupon credited the current account of plaintiff in the sum of P201,000 and passed the cashier's check in the ordinary course of business
through the clearing house, where it was paid by the China Banking Corporation.
On the same day the cashier of the Bank of the Philippine Islands received a letter, purporting to be signed by Newland Baldwin, directing that P200,000 in bills of various
denominations, named in the letter, be packed for shipment and delivery the next day. The next day, Dolores witnessed the counting and packing of the money, and shortly
afterwards returned with the check for the sum of P200,000, purporting to be signed by Newland Baldwin as agent.

Plaintiff had frequently withdrawn currency for shipment to its mill from the Bank of the Philippine Islands but never in so large an amount, and according to the record, never
under the sole supervision of Dolores as the representative of plaintiff.

Before delivering the money, the bank asked Dolores for P1 to cover the cost of packing the money, and he left the bank and shortly afterwards returned with another check for
P1, purporting to be signed by Newland Baldwin. Whereupon the money was turned over to Dolores, who took it to plaintiff's office, where he turned the money over to Wilson
and received as his share, P10,000.

Shortly thereafter the crime was discovered, and upon the defendant bank refusing to credit plaintiff with the amount withdrawn by the two forged checks of P200,000 and P1,
suit was brought against the Bank of the Philippine Islands, and finally on the suggestion of the defendant bank, an amended complaint was filed by plaintiff against both the
Bank of the Philippine Islands and the China Banking Corporation.

At the trial the China Banking Corporation contended that they had drawn a check to the credit of the plaintiff company, that the check had been endorsed for deposit, and that
as the prior endorsement had in law been guaranteed by the Bank of the Philippine Islands, when they presented the cashier's check to it for payment, the China Banking
Corporation was absolved even if the endorsement of Newland Baldwin on the check was a forgery.

The Bank of the Philippine Islands presented many special defenses, but in the main their contentions were that they had been guilty of no negligence, that they had dealt with
the accredited representatives of the company in the due course of business, and that the loss was due to the dishonesty of plaintiff's employees and the negligence of plaintiff's
general agent.

In plaintiff's Manila office, besides the general agent, Wilson, and Dolores, most of the time there was employed a woman stenographer and cashier. The agent did not keep in
his personal possession either the code-book or the blank checks of either the Bank of the Philippine Islands or the China Banking Corporation. Baldwin was authorized to draw
checks on either of the depositaries. Wilson could draw checks in the name of the plaintiff on the China Banking Corporation.

After trial in which much testimony was taken, the trial court held that the deposit of P201,000 in the Bank of the Philippine Islands being the result of a forged endorsement,
the relation of depositor and banker did not exist, but the bank was only a gratuitous bailee; that the Bank of the Philippine Islands acted in good faith in the ordinary course of
its business, was not guilty of negligence, and therefore under article 1902 of the Civil Code which should control the case, plaintiff could not recover; and that as the cause of
loss was the criminal actions of Wilson and Dolores, employees of plaintiff, and as Newland Baldwin, the agent, had not exercised adequate supervision over plaintiff's Manila
office, therefore plaintiff was guilty of negligence, which ground would likewise defeat recovery.

From the decision of the trial court absolving the defendants, plaintiff brings this appeal and makes nine assignments of error which we do not deem it necessary to discuss in
detail.

There is a mild assertion on the part of the defendant bank that the disputed signatures of Newland Baldwin were genuine and that he had been in the habit of signing checks in
blank and turning the checks so signed over to Wilson.

The proof as to the falsity of the questioned signatures of Baldwin places the matter beyond reasonable doubt, nor is it believed that Baldwin signed checks in blank and turned
them over to Wilson.
As to the China Banking Corporation, it will be seen that it drew its check payable to the order of plaintiff and delivered it to plaintiff's agent who was authorized to receive it. A
bank that cashes a check must know to whom it pays. In connection with the cashier's check, this duty was therefore upon the Bank of the Philippine Islands, and the China
Banking Corporation was not bound to inspect and verify all endorsements of the check, even if some of them were also those of depositors in that bank. It had a right to rely
upon the endorsement of the Bank of the Philippine Islands when it gave the latter bank credit for its own cashier's check. Even if we would treat the China Banking
Corporation's cashier's check the same as the check of a depositor and attempt to apply the doctrines of the Great Eastern Life Insurance Co. vs. Hongkong & Shanghai Banking
Corporation and National Bank (43 Phil., 678), and hold the China Banking Corporation indebted to plaintiff, we would at the same time have to hold that the Bank of the
Philippine Islands was indebted to the China Banking Corporation in the same amount. As, however, the money was in fact paid to plaintiff corporation, we must hold that the
China Banking Corporation is indebted neither to plaintiff nor to the Bank of the Philippine Islands, and the judgment of the lower court far as it absolves the China Banking
Corporation from responsibility is affirmed.

Returning to the relation between plaintiff and the Bank of the Philippine Islands, we will now consider the effect of the deposit of P201,000. It must be noted that this was not a
presenting of the check for cash payment but for deposit only. It is a matter of general knowledge that most endorsements for deposit only, are informal. Most are by means of a
rubber stamp. The bank would have been justified in accepting the check for deposit even with only a typed endorsement. It accepted the check and duly credited plaintiff's
account with the amount on the face of the check. Plaintiff was not harmed by the transaction as the only result was the removal of that sum of money from a bank from which
Wilson could have drawn it out in his own name to a bank where Wilson would not have authority to draw checks and where funds could only be drawn out by the check of
Baldwin.

Plaintiff in its letter of December 23, 1928, to the Bank of the Philippine Islands said in part:

". . . we now leave to demand that you pay over to us the entire amount of said manager's check of two hundred one thousand (P201,000) pesos, together with interest
thereon at the agreed rate of 3 ½ per cent per annum on daily balances of our credit in account current with your bank to this date. In the event of your refusal to pay,
we shall claim interest at the legal rate of 6 per cent from and after the date of this demand inasmuch as we desire to withdraw and make use of the money." Such
language might well be treated as a ratification of the deposit.

The contention of the bank that it was a gratuitous bailee is without merit. In the first place, it is absolutely contrary to what the bank did. It did not take it up as a separate
account but it transferred the credit to plaintiff's current account as a depositor of that bank. Furthermore, banks are not gratuitous bailees of the funds deposited with them by
their customers. Banks are run for gain, and they solicit deposits in order that they can use the money for that very purpose. In this case the action was neither gratuitous nor
was it a bailment.

On the other hand, we cannot agree with the theory of plaintiff that the Bank of the Philippine Islands was an intermeddling bank. In the many cases cited by plaintiff where the
bank that cashed the forged endorsement was held as an intermeddler, in none was the claimant a regular depositor of the bank, nor in any of the cases cited, was the
endorsement for deposit only. It is therefore clear that the relation of plaintiff with the Bank of the Philippine Islands in regard to this item of P201,000 was that of depositor and
banker, creditor and debtor.

We now come to consider the legal effect of payment by the bank to Dolores of the sum of P201,000, on two checks on which the name of Baldwin was forged as drawer. As
above stated, the fact that these signatures were forged is beyond question. It is an elementary principle both of banking and of the Negotiable Instruments Law that —

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 own funds, and cannot
ordinarily charge the amount so paid to the account of the depositor whose name was forged. (7 C.J., 683.)

There is no act of the plaintiff that led the Bank of the Philippine Islands astray. If it was in fact lulled into a false sense of security, it was by the effrontery of Dolores, the
messenger to whom it entrusted this large sum of money.
The bank paid out its money because it relied upon the genuineness of the purported signatures of Baldwin. These, they never questioned at the time its employees should have
used care. In fact, even today the bank represents that it has a relief that they are genuine signatures.

The signatures to the check 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.

The judgment absolving the Bank of the Philippine Islands must therefore be reversed, and a judgment entered in favor of plaintiff-appellant and against the Bank of the
Philippine Islands, defendant-appellee, for the sum of P200,001, with legal interest thereon from December 23,1928, until payment, together with costs in both instances. So
ordered.
13.

G.R. No. L-43596 October 31, 1936

PHILIPPINE NATIONAL BANK, plaintiff-appellee,

vs.
THE NATIONAL CITY BANK OF NEW YORK, and MOTOR SERVICE COMPANY, INC., defendants.
MOTOR SERVICE COMPANY, INC., appellant.

L. D. Lockwood for appellant.

Camus and Delgado for appellee.

RECTO, J.:

This case was submitted for decision to the court below on the following stipulation of facts:

1. That plaintiff is a banking corporation organized and existing under and by virtue of a special act of the Philippine Legislature, with office as principal place of business
at the Masonic Temple Bldg., Escolta, Manila, P. I.; that the defendant National City Bank of New York is a foreign banking corporation with a branch office duly
authorized and licensed to carry and engage in banking business in the Philippine Islands, with branch office and place of business in the National City Bank Bldg., City of
Manila, P. I., and that the defendant Motor Service Company, Inc., is a corporation organized and existing under and by virtue of the general corporation law of the
Philippine Islands, with office and principal place of business at 408 Rizal Avenue, City of Manila, P. I., engaged in the purchase and sale of automobile spare parts and
accessories.

2. That on April 7 and 9, 1933, an unknown person or persons negotiated with defendant Motor Service Company, Inc., the checks marked as Exhibits A and A-1,
respectively, which are made parts of the stipulation, in payment for automobile tires purchased from said defendant's stores, purporting to have been issued by the
"Pangasinan Transportation Co., Inc. by J. L. Klar, Manager and Treasurer", against the Philippine National Bank and in favor of the International Auto Repair Shop, for
P144.50 and P215.75; and said checks were indorsed by said unknown persons in the manner indicated at the back thereof, the Motor Service Co., Inc., believing at the
time that the signature of J. L. Klar, Manager and Treasurer of the Pangasinan Transportation Co., Inc., on both checks were genuine.

3. The checks Exhibits A and A-1 were then indorsed for deposit by the defendant Motor Service Company, Inc, at the National City Bank of New York and the former
was accordingly credited with the amounts thereof, or P144.50 and P215.75.

4. On April 8 and 10, 1933, the said checks were cleared at the clearing house and the Philippine National Bank credited the National City Bank of New York for the
amounts thereof, believing at the time that the signatures of the drawer were genuine, that the payee is an existing entity and the endorsement at the back thereof
regular and genuine.
 5. The Philippine National Bank then found out that the purported signatures of J. L. Klar, as Manager and Treasurer of the Pangasinan Transportation Company, Inc., in
said Exhibits A and A-1 were forged when so informed by the said Company, and it accordingly demanded from the defendants the reimbursement of the amounts for
which it credited the National City Bank of New York at the clearing house and for which the latter credited the Motor Service Co., but the defendants refused, and
continue to refuse, to make such reimbursements.

6. The Pangasinan Transportation Co., Inc., objected to have the proceeds of said check deducted from their deposit.

7. Exhibits B, C, D, E, F, and G, which were introduced at the trial in the municipal court of Manila and forming part of the record of the present case, are admitted by
the parties as genuine and are made part of this stipulation as well as Exhibit H hereto attached and made a part hereof.

Upon plaintiff's motion, the case was dismissed before trial as to the defendant National City Bank of New York. a decision was thereafter rendered giving plaintiff judgment for
the total amount of P360.25, with interest and costs. From this decision the instant appeal was taken.

Before us is the preliminary question of whether the original appeal taken by the plaintiff from the decision of the municipal court of Manila where this case originated, became
perfected because of plaintiff's failure to attach to the record within 15 days from receipt of notice of said decision, the certificate of appeal bond required by section 76 of the
Code of Civil Procedure. It is not disputed that both the appeal docket fee and the appeal cash bond were paid and deposited within the prescribed time. The issue is whether
the mere failure to file the official receipt showing that such deposit was made within the said period is a sufficient ground to dismiss plaintiff's appeal. This question was settled
by our decision in the case of Blanco vs. Bernabe and lawyers Cooperative Publishing Co. (page 124, ante), and no further consideration. No error was committed in allowing said
appeal.

We now pass on to consider and determine the main question presented by this appeal, namely, whether the appellee has the right to recover from the appellant, under the
circumstances of this case, the value of the checks on which the signatures of the drawer were forged. The appellant maintains that the question should be answered in the
negative and in support of its contention appellant advanced various reasons presently to be examined carefully.

I. It is contended, first of all, that the payment of the checks in question made by the drawee bank constitutes an "acceptance", and, consequently, the case should be governed
by the provisions of section 62 of the Negotiable Instruments Law, which says:

SEC. 62. Liability of acceptor. —The acceptor by accepting the instrument engages that he will pay it according to the tenor of his acceptance; and admits:

(a) The existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the instrument; and

(b) The existence of the payee and his then capacity to indorse.

This contention is without merit. A check is a bill of exchange payable on demand and only the rules governing bills of exchange payable on demand are applicable to it,
according to section 185 of the Negotiable Instruments Law. In view of the fact that acceptance is a step unnecessary, in so far as bills of exchange payable on demand are
concerned (sec. 143), it follows that the provisions relative to "acceptance" are without application to checks. Acceptance implies, in effect, subsequent negotiation of the
instrument, which is not true in case of the payment of a check because from the moment a check is paid it is withdrawn from circulation. The warranty established by section
62, is in favor of holders of the instrument after its acceptance. When the drawee bank cashes or pays a check, the cycle of negotiation is terminated, and it is illogical thereafter
to speak of subsequent holders who can invoke the warranty provided in section 62 against the drawee. Moreover, according to section 191, "acceptance" means "an
acceptance completed by delivery or notification" and this concept is entirely incompatible with payment, because when payment is made the check is retained by the bank, and
there is no such thing as delivery or notification to the party receiving the payment. Checks are not to be accepted, but presented at once for payment. (1 Bouvier's Law
Dictionary, 476.) There can be no such thing as "acceptance" in the ordinary sense of the term. A check being payable immediately and on demand, the bank can fulfill its duty to
the depositor only by paying the amount demanded. The holder has no right to demand from the bank anything but payment of the check, and the bank has no right, as against
the drawer, to do anything but pay it. (5 R. C. L., p. 516, par. 38.) A check is not an instrument which in the ordinary course of business calls for acceptance. The holder can never
claim acceptance as his legal right. He can present for payment, and only for payment. (1 Morse on Banks and Banking, 6th ed., pp. 898, 899.)

There is, however, nothing in the law or in, business practice against the presentation of checks for acceptance, before they are paid, in which case we have a "certification"
equivalent to "acceptance" according to section 187, which provides that "where a check is certified by the bank on which it is drawn, the certification is equivalent to an
acceptance", and it is then that the warranty under section 62 exists. This certification or acceptance consists in the signification by the drawee of his assent to the order of the
drawer, which must not express that the drawee will perform his promise by any other means than the payment of money. (Sec. 132.) When the holder of a check procures it to
be accepted or certified, the drawer and all indorsers are discharged from liability thereon (sec. 188), and then the check operates as an assignment of a part of the funds to the
credit of the drawer with the bank. (Sec. 189.) There is nothing in the nature of the check which intrinsically precludes its acceptance, in like manner and with like effect as a bill
of exchange or draft may be accepted. The bank may accept if it chooses; and it is frequently induced by convenience, by the exigencies of business, or by the desire to oblige
customers, voluntarily to incur the obligation. The act by which the bank places itself under obligation to pay to the holder the sum called for by a check must be the expressed
promise or undertaking of the bank signifying its intent to assume the obligation, or some act from which the law will imperatively imply such valid promise or undertaking. The
most ordinary form which such an act assumes is the acceptance by the bank of the check, or, as it is perhaps more often called, the certifying of the check. (1 Morse on Banks
and Banking, pp. 898, 899; 5 R. C. L., p. 520.)

No doubt a bank may by an unequivocal promise in writing make itself liable in any event to pay the check upon demand, but this is not an "acceptance" of the check in the true
sense of that term. Although a check does not call for acceptance, and the holder can present it only for payment, the certification of checks is a means in constant and extensive
use in the business of banking, and its effects and consequences are regulated by the law merchant. Checks drawn upon banks or bankers, thus marked and certified, enter
largely into the commercial and financial transactions of the country; they pass from hand to hand, in the payment of debts, the purchase of property, and in the transfer of
balances from one house and one bank to another. In the great commercial centers, they make up no inconsiderable portion of the circulation, and thus perform a useful,
valuable, and an almost indispensable office. The purpose of procuring a check to be certified is to impart strength and credit to the paper by obtaining an acknowledgment
from the certifying bank that the drawer has funds therein sufficient to cover the check and securing the engagement of the bank that the check will be paid upon presentation.
A certified check has a distinctive character as a species of commercial paper, and performs important functions in banking and commercial business. When a check is certified, it
ceases to possess the character, or to perform the functions, of a check, and represents so much money on deposit, payable to the holder on demand. The check becomes a basis
of credit — an easy mode of passing money from hand to hand, and answers the purposes of money. (5 R. C. L., pp. 516, 517.)lâwphi1.nêt

All the authorities, both English and American, hold that a check may be accepted, though acceptance is not usual. By the law merchant, the certificate of the bank that a check
is good is equivalent to acceptance. It implies that the check is drawn upon sufficient funds in the hands of the drawee, that they have been set apart for its satisfaction, and that
they shall be so applied whenever the check is presented for payment. It is an undertaking that the check is good then, and shall continue good, and this agreement is as binding
on the bank as its notes of circulation, a certificate of deposit payable to the order of the depositor, or any other obligation it can assume. The object of certifying a check, as
regards both parties is to enable the holder to use it as money. The transferee takes it with the same readiness and sense of security that he would take the notes of the bank. It
is available also to him for all the purposes of money. Thus it continues to perform its important functions until in the course of business it goes back to the bank for redemption,
and is extinguished by payment. It cannot be doubted that the certifying bank intended these consequences, and it is liable accordingly. To hold otherwise would render these
important securities only a snare and a delusion. A bank incurs no greater risk in certifying a check than in giving a certificate of deposit. In well-regulated banks the practice is at
once to charge the check to the account of the drawer, to credit it in a certified check account, and, when the check is paid, to debit that account with the amount. Nothing can
be simpler or safer than this process. (Merchants' Bank vs. States Bank, 10 Wall., 604, at p. 647; 19 Law. ed., 1008, 1019.)

Ordinarily the acceptance or certification of a check is performed and evidenced by some word or mark, usually the words "good", "certified" or "accepted" written upon the
check by the banker or bank officer. (1 Morse, Banks and Banking, 915; 1 Bouvier's Law Dictionary, 476.) The bank virtually says, that check is good; we have the money of the
drawer here ready to pay it. We will pay it now if you will receive it. The holder says, No, I will not take the money; you may certify the check and retain the money for me until
this check is presented. The law will not permit a check, when due, to be thus presented, and the money to be left with the bank for the accommodation of the holder without
discharging the drawer. The money being due and the check presented, it is his own fault if the holder declines to receive the pay, and for his own convenience has the money
appropriated to that check subject to its future presentment at any time within the statute of limitations. (1 Morse on Banks and Banking, p. 920.)

The theory of the appellant and of the decisions on which it relies to support its view is vitiated by the fact that they take the word "acceptance" in its ordinary meaning and not
in the technical sense in which it is used in the Negotiable Instruments Law. Appellant says that when payment is made, such payment amounts to an acceptance, because he
who pays accepts. This is true in common parlance but "acceptance" in legal contemplation. The word "acceptance" has a peculiar meaning in the Negotiable Instruments Law,
and, as has been above stated, in the instant case there was payment but no acceptatance, or what is equivalent to acceptance, certification.

With few exceptions, the weight of authority is to the effect that "payment" neither includes nor implies "acceptance".

In National Bank vs. First National Bank ([19101, 141 Mo. App., 719; 125 S. W., 513), the court asks, if a mere promise to pay a check is binding on a bank, why should not the
absolute payment of the check have the same effect? In response, it is submitted that the two things, — that is acceptance and payment, — are entirely different. If the drawee
accepts the paper after seeing it, and then permits it to go into circulation as genuine, on all the principles of estoppel, he ought to be prevented from setting up forgery to
defeat liability to one who has taken the paper on the faith of the acceptance, or certification. On the other hand, mere payment of the paper at the termination of its course
does not act as an estoppel. The attempt to state a general rule covering both acceptance and payment is responsible for a large part of the conflicting arguments which have
been advanced by the courts with respect to the rule. (Annotation at 12 A. L. R., 1090 1921].)

In First National Bank vs. Brule National Bank ([1917], 12 A. L. R., 1079, 1085), the court said:

We are of the opinion that "payment is not acceptance". Acceptance, as defined by section 131, cannot be confounded with payment. . . .

Acceptance, certification, or payment of a check, by the express language of the statute, discharges the liability only of the persons named in the statute, to wit, the
drawer and all indorsers, and the contract of indorsement by the negotiator if the check is discharged by acceptance, certification, or payment. But clearly the statute
does not say that the contract of warranty of the negotiator, created by section 65, is discharged by these acts.

The rule supported by the majority of the cases (14 A. L. R. 764), that payment of a check on a forged or unauthorized indorsement of the payee's name, and charging the same
to the drawer's account, do not amount to an acceptance so as to make the bank liable to the payee, is supported by all of the recent cases in which the question is considered.
(Cases cited, Annotation at 69 A. L. R., 1076, 1077 [1930].)

Merely stamping a check "Paid" upon its payment on a forged or unauthorized indorsement is not an acceptance thereof so as to render the drawee bank liable to the true
payee. (Anderson vs. Tacoma National Bank [1928], 146 Wash., 520; 264 Pac., 8; Annotation at 69 A. L. R., 1077, [1930].)

In State Bank of Chicago vs. Mid-City Trust & Savings Bank (12 A. L. R., 989, 991, 992), the court said:

The defendant in error contends that the payment of the check shows acceptance by the bank, urging that there can be no more definite act by the bank upon which a check has
been drawn, showing acceptance than the payment of the check. Section 184 of the Negotiable Instruments Act (sec. 202) provides that the provisions of the act applicable to
bills of exchange apply to a check, and section 131 (sec. 149), that the acceptance of a bill must be in writing signed by the drawee. Payment is the final act which extinguishes a
bill. Acceptance is a promise to pay in the future and continues the life of the bill. It was held in the First National Bank vs. Whitman (94 U. S., 343; 24 L. ed., 229), that payment
of a check upon a forged indorsement did not operate as an acceptance in favor of the true owner. The contrary was held in Pickle vs. Muse (Fickle vs. People's Nat. Bank, 88
Tenn., 380; 7 L.R.A., 93; 17 Am. St. Rep., 900; 12 S. W., 919), and Seventh National Bank vs. Cook (73 Pa., 483; 13 Am. Rep., 751) at a time when the Negotiable Instruments Act
was not in force in those states. The opinion of the Supreme Court of the United States seems more logical, and the provision of the Negotiable Instruments Act now require an
acceptance to be in writing. Under this statute the payment of a check on a forged indorsement, stamping it "paid," and charging it to the account of the drawer, do not
constitute an acceptance of the check or create a liability of the bank to the true holder or the payee. (Elyria Sav. & Bkg. Co. vs. Walker Bin Co., 92 Ohio St., 406; L. R. A., 1916D,
433; 111 N. E., 147; Ann. Cas. 1917D, 1055; Baltimore & O. R. Co. vs. First National Bank, 102 Va., 753; 47 S. E., 837; State Bank of Chicago vs. Mid-City Trust & Savings Bank 12 A.
L. R., pp. 989, 991, 992.)

Before drawee's acceptance of check there is no privity of contract between drawee and payee. Drawee's payment of check on unauthorized indorsement does not constitute
"acceptance" of check. (Sinclair Refining Co. vs. Moultrie Banking Co., 165 S. E., 860 [1932].)

The great weight of authority is to the effect that the payment of a check upon a forged or unauthorized indorsement and the stamping of it "paid" does not constitute an
acceptance. (Dakota Radio Apparatus Co. vs. First Nat. Bank of Rapid City, 244 N. W., 351, 352 [1932].)

Payment of the check, cashing it on presentment is not acceptance. (South Boston Trust Co. vs. Levin, 249 Mass., 45, 48, 49; 143 N. E., 816; Blocker, Shepard Co. vs. Granite Trust
Company, 187 Me., 53, 54 [1933].)

In Rauch vs. Bankers National Bank of Chicago (143 Ill. App., 625, 636, 637 [1908]), the language of the decision was as follows:

. . . The plaintiffs say that this acceptance was made by the very unauthorized payments of which they complain. This suggestion does not seem forceful to us. It is the
contention which was made before the Supreme Court of the United States in First National Bank vs. Whitman (94 U. S., 343), and repudiated by that court. The
language of the opinion in that case is so apt in the present case that we quote it:

"It is further contended that such an acceptance of a check as creates a privity between the payee and the bank is established by the payment of the amount of this
check in the manner described. This argument is based upon the erroneous assumption that the bank has paid this check. If this were true, it would have discharged all
of its duty, and there would be an end to the claim against it. The bank supposed that it had paid the check, but this was an error. The money it paid was upon a
pretended and not a real indorsement of the name of the payee. . . . We cannot recognize the argument that payment of the amount of the check or sight draft under
such circumstances amounts to an acceptance creating a privity of contract with the real owner.

"It is difficult to construe a payment as an acceptance under any circumstances. . . . A banker or individual may be ready to make actual payment of a check or draft
when presented, while unwilling to make a promise to pay at a future time. Many, on the other hand, are more ready to promise to pay than to meet the promise when
required. The difference between the transactions is essential and inherent."

And in Wharf vs. Seattle National Bank (24 Pac. [2d]), 120, 123 [1933]):

It is the rule that payment of a check on unauthorized or forged indorsement does not operate as an acceptance of the check so as to authorize an action by the real
owner to recover its amount from the drawee bank. (Michie on Banks and Banking, vol. 5, sec. 278, p. 521.) A full list of the authorities supporting the rule will be found
in a footnote to the foregoing citation. (See also, Federal Land Bank vs. Collins, 156 Miss., 893; 127 So., 570; 69 A. L. R., 1068.)

In a very recent case, Federal Land Bank vs. Collins (69 A. L. R., 1068, 1072-1074), this question was discussed at considerable length. The court said:

In the light of the first of these statutes, counsel for appellant is forced to stand upon the narrow ledge that the payment of the check by the two banks will constitute an
acceptance. The drawee bank simply marked it "paid" and did not write anything else except the date. The bank first paying the check, the Commercial National Bank and Trust
Company, simply wrote its name as indorser and passed the check on to the drawee bank; does this constitute an acceptance? The precise question has not been presented to
this court for decision. Without reference to authorities in other jurisdictions it would appear that the drawee bank had never written its name across the paper and therefore,
under the strict terms of the statute, could not be bound as an acceptor; in the second place, it does not appear to us to be illogical and unsound to say that the payment of a
check by the drawee, and the stamping of it "paid", is equivalent to the same thing as the acceptance of a check; however, there is a variety of opinions in the various
jurisdictions on this question. Counsel correctly states that the theory upon which the numerous courts hold that the payment of a check creates privity between the holder of
the check and the drawee bank is tantamount to apro tanto assignment of that part of the funds. It is most easily understood how the payment of the check, when not
authorized to be done by the drawee bank, might under such circumstances create liability on the part of the drawee to the drawer. Counsel cites the case of Pickle vs. Muse (88
Tenn, 380; 12 S. W., 919; 7 L. R. A., 93; 17 Am. St. Rep., 900), wherein Judge Lurton held that the acceptance of a check was necessary in order to give the holder thereof a right
of action thereon against the bank, and further held in a case similar to this, so far as this question is concerned, that the acceptance of a check so as to give a right of action to
the payee is inferred from the retention of the check by the bank and its subsequent charge of the amount to the drawer, although it was presented by, and payment made, an
unauthorized person. Judge Lurton cited the case of National Bank of the Republic vs. Millard (10 Wall., 152; 19 L. ed., 897), wherein the Supreme Court of the United States, not
having such a case before it, threw out the suggestion that, if it was shown that a bank had charged the check on its books against the drawer and made settlement with the
drawee that the holder could recover on account of money had and received, invoking the rule of justice and fairness, it might be said there was an implied promise to the
holder to pay it on demand. (SeeNational Bank of the Republic vs. Millard, 10 Wall. [77 U. S.], 152; 19 L. ed., 899.) The Tennessee court then argued that it would be inequitable
and unconscionable for the owner and payee of the check to be limited to an action against an insolvent drawer and might thereby lose the debt. They recognized the legal
principle that there is no privity between the drawer bank and the holder, or payee, of the check, and proceeded to hold that no particular kind of writing was necessary to
constitute an acceptance and that it became a question of fact, and the bank became liable when it stamped it "paid" and charged it to the account of the drawer, and cites, in
support of its opinion, Seventh National Bank vs. Cook (73 Pa., 483; 13 Am. Rep., 751); Saylor vs. Bushong (100 Pa., 23; 45 Am. Rep., 353); and Dodge vs. Bank (20 Ohio St., 234; 5
Am. Rep., 648).

This decision was in 1890, prior to the enactment of the Negotiable Instruments Law by the State of Tennessee. However, in this case Judge Snodgrass points out that
the Millard case, supra, was dicta. The Dodge case, from the Ohio court, held exactly as the Tennessee court, but subsequently in the case of Elyria Bank vs. Walker Bin
Co. (92 Ohio St., 406; 111 N. E., 147; L. R. A. 1916D, 433; Ann. Cas. 1917D, 1055), the court held to the contrary, called attention to the fact that the Dodge case was no
longer the law, and proceeded to announce that, whatever might have been the law before the passage of the Negotiable Instrument Act in that state, it was no longer
the law; that the rule announced in the Dodge case had been "discarded." The court, in the latter case, expressed its doubts that the courts of Tennessee and
Pennsylvania would adhere to the rule announced in the Pickle case, quoted supra, in the face of the Negotiable Instrument Law. Subsequent to the Millard case, the
Supreme Court of the United States, in the case of First National Bank of Washington vs. Whitman (94 U. S., 343, 347; 24 L. ed., 229), where the bank, without any
knowledge that the indorsement of the payee was unauthorized, paid the check, and it was contended that by the payment the privity of contract existing between the
drawer and drawee was imparted to the payee, said:

"It is further contended that such an acceptance of the check as creates a privity between the payee and the bank is established by the payment of the amount of this
check in the manner described. This argument is based upon the erroneous assumption that the bank has paid this check. If this were true, it would have discharged all
of its duty, and there would be an end of the claim against it. The bank supposed that it had paid the check; but this was an error. The money it paid was upon a
pretended and not a real indorsement of the name of the payee. The real indorsement of the payee was as necessary to a valid payment as the real signature of the
drawer; and in law the check remains unpaid. Its pretended payment did not diminish the funds of the drawer in the bank, or put money in the pocket of the person
entitled to the payment. The state of the account was the same after the pretended payment as it was before.

"We cannot recognize the argument that a payment of the amount of a check or sight draft under such circumstances amounts to an acceptance, creating a privity of
contract with the real owner. It is difficult to construe a payment as an acceptance under any circumstances. The two things are essentially different. One is a promise
to perform an act, the other an actual performance. A banker or an individual may be ready to make actual payment of a check or draft when presented, while unwilling
to make a promise to pay at a future time. Many, on the other hand, are more ready to promise to pay than to meet the promise when required. The difference
between the transactions is essential and inherent."

Counsel for the appellant cite other cases holding that the stamping of the check "paid" and the charging of the amount thereof to the drawer constituted an
acceptance, but we are of opinion that none of these cases cited hold that it is in compliance with the Negotiable Instruments Act; paying the check and stamping same
is not the equivalent of accepting the check in writing signed by the drawee. The cases holding that payment as indicated above constituted acceptance were rendered
 prior to the adoption of the Negotiable Instruments Act in the particular state, and these decisions are divided into two classes: the one holding that the check delivered
by the drawer to the holder and presented to the bank or drawee constitutes an assignment pro tanto; the other holding that the payment of the check and the
charging of same to the drawee although paid to an unauthorized person creates privity of contract between the holder and the drawee bank.

We have already seen that our own court has repudiated the assignment pro tanto theory, and since the adoption of the Negotiable Instrument Act by this state we are
compelled to say that payment of a check is not equivalent to accepting a check in writing and signing the name of the acceptor thereon. Payment of the check and the
charging of same to the drawer does not constitute an acceptance. Payment of the check is the end of the voyage; acceptance of the check is to fuel the vessel and
strengthen it for continued operation on the commercial sea. What we have said applies to the holder and not to the drawer of the check. On this question we conclude
that the general rule is that an action cannot be maintained by a payee of the check against the bank on which is draw unless the check has been certified or accepted
by the bank in compliance with the statute, even though at the time the check is that an action cannot be maintained by a payee of the drawer of the check out of
which the check is legally payable; and that the payment of the check by the bank on which it is drawn, even though paid on the unauthorized indorsement of the name
of the holder (without notice of the defect by the bank), does not constitute a certification thereof, neither is it an acceptance thereof; and without acceptance or
certification, as provided by statute, there is no privity of contract between the drawee bank and the payee, or holder of the check. Neither is there an assignment pro
tanto of the funds where the check is not drawn on a particular fund, or does not show on its face that it is an assignment of a particular fund. The above rule as stated
seems to have been the rule in the majority of the states even before the passage of the uniform Negotiable Instruments Act in the several states.

The decision in the case of First National Bank vs. Bank of Cottage Grove (59 Or., 388), which appellant cites in its brief (pp. 12, 13 ) has been expressly overruled by the Supreme
Court of Massachusetts in South Boston Trust Co. vs. Levin (143 N. E., 816, 817), in the following language:

In First National Bank vs. Bank of Cottage Grove (59 Or., 388; 117 Pac., 293, 296, at page 396), it was said: "The payment of a bill or check by the drawee amounts to
more than an acceptance. The rule, holding that such a payment has all the efficacy of an acceptance, is founded upon the principle that the greater includes the less."
We are unable to agree with this statement as there is no similarity between acceptance and payment; payment discharges the instrument, and no one else is expected
to advance anything on the faith of it; acceptance, contemplates further circulation, induced by the fact of acceptance. The rule that the acceptor made certain
admissions which will inure to the benefit of subsequent holders, has no applicability to payment of the instrument where subsequent holders can never exist.

II. The old doctrine that a bank was bound to know its correspondent's signature and that a drawee could not recover money paid upon a forgery of the drawer's name, because
it was said, the drawee was negligent not to know the forgery and it must bear the consequence of its negligence, is fast fading into the misty past, where it belongs. It was
founded in misconception of the fundamental principles of law and common sense. (2 Morse, Banks and Banking, p. 1031.)

Some of the cases carried the rule to its furthest limit and held that under no circumstances (except, of course, where the purchaser of the bill has participated in the fraud upon
the drawee) would the drawee be allowed to recover bank money paid under a mistake of fact upon a bill of exchange to which the name of the drawer had been forged. This
doctrine has been freely criticized by the eminent authorities, as a rule too favorable to the holder, not the most fair, nor best calculated to effectuate justice between the
drawee and the drawer. (5 R.C.L., p. 556.)

The old rule which was originally announced by Lord Mansfield in the leading case of Price vs. Neal (3 Burr., 1354), elicited the following comment from Justice Holmes, then
Chief Justice of the Supreme Court of Massachusetts, in the case of Dedham National Bank vs. Everett National Bank (177 Mass., 392). "Probably the rule was adopted from an
impression of convenience rather than for any more academic reason; or perhaps we may say that Lord Mansfield took the case out of the doctrine as to payments under a
mistake of fact by the assumption that a holder who simply presents negotiable paper for payment makes no representation as to the signature, and that the drawee pays at his
peril."

Such was the reaction that followed Lord Mansfield's rule which Justice Story of the United States Supreme adopted in the case of Bank of United States vs. Georgia (10 Wheat.,
333), that in B. B. Ford & Co. vs. People's Bank of Orangeburg (74 S. C., 180), it was held that "an unrestricted indorsement of a draft and presentation to the drawee is a
representation that the signature of the drawer is genuine", and in Lisbon First National Bank vs. Wyndmere Bank (15 N. D., 299), it was also held that "the drawee of a forged
check who has paid the same without detecting the forgery, may upon discovery of the forgery, recover the money paid from the party who received the money, even though
the latter was a good faith holder, provided the latter has not been misled or prejudiced by the drawee's failure to detect the forgery."

Daniel, in his treatise on Negotiable Instruments, has the following to say:

In all the cases which hold the drawee absolutely estoppel by acceptance or payment from denying genuineness of the drawer's name, the loss is thrown upon him on the
ground of negligence on his part in accepting or paying, until he has ascertained the bill to be genuine. But the holder has preceded him in negligence, by himself not
ascertaining the true character of the paper before he received it, or presented it for acceptance or payment. And although, as a general rule, the drawee is more likely to know
the drawer's handwriting than a stranger is, if he is in fact deceived as to its genuineness, we do not perceive that he should suffer more deeply by mistake than a stranger, who,
without knowing the handwriting, has taken the paper without previously ascertaining its genuineness. And the mistake of the drawee should always be allowed to be
corrected, unless the holder, acting upon faith and confidence induced by his honoring the draft, would be placed in a worse position by according such privilege to him. This
view has been applied in a well considered case, and is intimidated in another; and is forcibly presented by Mr. Chitty, who says it is going a great way to charge the acceptor
with knowledge of his correspondent's handwriting, "unless some bona fide holder has purchased the paper on the faith of such an act." Negligence in making payment under a
mistake of fact is not now deemed a bar to recovery of it, and we do not see why any exception should be made to the principle, which would apply as well as to release an
obligation not consummated by payment. ( Vol. 2, 6th edition, pp. 1537-1539.)

III. But now the rule is perfectly well settled that in determining the relative rights of a drawee who, under a mistake of fact, has paid, and a holder who has received such
payment, upon a check to which the name of the drawer has been forged, it is only fair to consider the question of diligence or negligence of the parties in respect thereto.
(Woods and Malone vs. Colony Bank [1902], 56 L. R. A., 929, 932.) The responsibility of the drawee who pays a forged check, for the genuineness of the drawer's signature, is
absolute only in favor of one who has not, by his own fault or negligence, contributed to the success of the fraud or to mislead the drawee. (National Bank of America vs.Bangs,
106 Mass., 441; 8 Am. Rep., 349; Woods and Malone vs. Colony Bank, supra; De Feriet vs. Bank of America, 23 La. Ann., 310; B. B. Ford & Co. vs. People's Bank of Orangeburg, 74
S. C., 180; 10 L. R. A. [N. S.], 63.) If it appears that the one to whom payment was made was not an innocent sufferer, but was guilty of negligence in not doing something, which
plain duty demanded, and which, if it had been done, would have avoided entailing loss on any one, he is not entitled to retain the moneys paid through a mistake on the part of
the drawee bank. (First Nat. Bank of Danvers vs. First Nat. Bank of Salem, 151 Mass., 280; 24 N. E., 44; 21 A. S. R., 450; First Nat. Bank of Orleans vs. State Bank of Alma, 22 Neb.,
769; 36 N. W., 289; 3 A. S. R., 294; American Exp. Co. vs. State Nat. Bank, 27 Okla., 824; 113 Pac., 711; 33 L. R. A. [N. S.], 188; B. B. Ford & Co. vs. People's Bank of Orangeburg, 74
S. C., 180; 54 S. E., 204; 114 A. S. R., 986; 7 Ann. Cas., 744; 10 L. R. A. [N. S.], 63; People's Bank vs. Franklin Bank, 88 Tenn. 299; 12 S. W., 716; 17 A. S. R.) 884; 6 L. R. A., 724;
Canadian Bank of Commerce vs. Bingham, 30 Wash., 484; 71 Pac., 43; 60 L. R. A., 955.) In other words, to entitle the holder of a forged check to retain the money obtained he
must be able to show that the whole responsibility of determining the validity of the signature was upon the drawee, and that the negligence of such drawee was not lessened
by any failure of any precaution which, from his implied assertion in presenting the check as a sufficient voucher, the drawee had the right to believe he had taken. (Ellis vs. Ohio
Life Insurance & Trust Co., 4 Ohio St., 628; Rouvant vs. Bank, 63 Tex., 610; Bank vs. Ricker, 71 Ill., 429; First National Bank of Danvers vs. First Nat. Bank of Salem, 24 N. E., 44, 45;
B. B. Ford & Co. vs.People's Bank of Orangeburg, supra.) The recovery is permitted in such case, because, although the drawee was constructively negligent in failing to detect
the forgery, yet if the purchaser had performed his duty, the forgery would in all probability have been detected and the fraud defeated. (First National Bank of Lisbon vs. Bank
of Wyndmere, 15 N. D., 209; 10 L. R. A. [N. S.], 49.) In the absence of actual fault on the part of the drawee, his constructive fault in not knowing the signature of the drawer and
detecting the forgery will not preclude his recovery from one who took the check under circumstances of suspicion without proper precaution, or whose conduct has been such
as to mislead the drawee or induce him to pay the check without the usual scrutiny or other precautions against mistake or fraud. (National Bank of America vs. Bangs, supra;
First National Bank vs. Indiana National Bank, 30 N. E., 808-810; Woods and Malone vs. Colony Bank, supra; First National Bank of Danvers vs. First Nat. Bank of Salem, 151
Mass., 280.) 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 unreasonable that it would be
borne by him, even if innocent of any intentional fraud, through whose means it has succeeded. (Gloucester Bank vs. Salem Bank, 17 Mass., 33; First Nat. Bank of
Danvers vs. First National Bank of Salem, supra; B. B. Ford & Co. vs. People's Bank of Orangeburg, supra.) Again if the indorser is guilty of negligence in receiving and paying the
check or draft, or has reason to believe that the instrument is not genuine, but fails to inform the drawee of his suspicions the indorser according to the reasoning of some
courts will be held liable to the drawee upon his implied warranty that the instrument is genuine. (B. B. Ford & Co. vs. People's Bank of Orangeburg, supra; Newberry Sav.
Bank vs. Bank of Columbia, 93 S. C., 294; 38 L. R. A. [N. S], 1200.) Most of the courts now agree that 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, the drawee,
who has, without actual negligence on his part, paid the forged demand, may recover the money paid from such negligent purchaser. (Lisbon First National Bank vs. Wyndmere
Bank, supra.) Of course, the drawee must, in order to recover back the holder, show that he himself was free from fault. (See also 5 R. C. L., pp. 556-558.)

So, if a collecting bank is alone culpable, and, on account of its negligence only, the loss has occurred, the drawee may recover the amount it paid on the forged draft or check.
(Security Commercial & Sav. Bank vs. Southern Trust & C. Bank [1925], 74 Cal. App., 734; 241 Pac., 945.)

But we are aware of no case in which the principle that the drawee is bound to know the signature of the drawer of a bill or check which he undertakes to pay has been held to
be decisive in favor of a payee of a forged bill or check to which he has himself given credit by his indorsement. (Secalso, Mckleroy vs. Bank, 14 La. Ann., 458; Canal Bank vs. Bank
of Albany, 1 Hill, 287; Rouvant vs. Bank, supra, First Nat. Bank vs. Indiana National Bank; 30 N. E., 808-810.)

In First Nat. Bank vs. United States National Bank ([1921], 100 Or., 264; 14 A. L. R., 479; 197 Pac., 547), the court declared: "A holder cannot profit by a mistake which his
negligent disregard of duty has contributed to induce the drawee to commit. . . . The holder must refund, if by his negligence he has contributed to the consummation of the
mistake on the part of the drawee by misleading him. . . . If the only fault attributable to the drawee is the constructive fault which the law raises from the bald fact that he has
failed to detect the forgery, and if he is not chargeable with actual fault in addition to such constructive fault, then he is not precluded from recovery from a holder whose
conduct has been such as to mislead the drawee or induce him to pay the check or bill of exchange without the usual security against fraud. The holder must refund to a drawee
who is not guilty of actual fault if the holder was negligent in not making due inquiry concerning the validity of the check before he took it, and if the drawee can be said to have
been excused from making inquiry before taking the check because of having had a right to, presume that the holder had made such inquiry."

The rule that one who first negotiates forged paper without taking some precaution to learn whether or not it is genuine should not be allowed to retain the proceeds of the
draft or check from the drawee, whose sole fault was that he did not discover the forgery before he paid the draft or check, has been followed by the later cases. (Security
Commercial & Savings Bank vs. Southern Trust & C. Bank [1925], 74 Cal. App., 734; 241 Pac., 945; Hutcheson Hardware Co. vs. Planters State Bank [1921], 26 Ga. App., 321; 105
S. E., 854; [Annotation at 71 A. L. R., 337].)

Where a bank, without inquiry or identification of the person presenting a forged check, purchases it, indorses it, generally, and presents it to the drawee bank, which pays it,
the latter may recover if its only negligence was its mistake in having failed to detect the forgery, since its mistake, did not mislead the purchaser or bring about a change in
position. (Security Commercial & Savings Bank vs. Southern Trust & C. Bank [1925], 74 Cal. App., 734; 241 Pac., 945.)

Also, a drawee could recover from another bank the portion of the proceeds of a forged check cashed by the latter and deposited by the forger in the second bank and never
withdrawn, upon the discovery of the forgery three months later, after the drawee had paid the check and returned the voucher to the purported drawer, where the purchasing
bank was negligent in taking the check, and was not injured by the drawee's negligence in discovering and reporting the forgery as to the amount left on deposit, since it was not
a purchaser for value. (First State Bank & T. Co. vs. First Nat. Bank [1924], 314 Ill., 269; 145 N. E., 382.)

Similarly, it has been held that the drawee of a check could recover the amount paid on the check, after discovery of the forgery, from another bank, which put the check into
circulation by cashing it for the one who had forged the signature of both drawer and payee without making any inquiry as to who he was although he was a stranger, after
which the check reached, and was paid by, the drawee, after going through the hands of several intermediate indorsees. (71 A. L. R., p. 340.)

In First National Bank vs. Brule National Bank ([1917], 12 A. L. R., 1079, 1085), the following statement was made:

We are clearly of opinion, therefore that the warranty of genuineness, arising upon the act of the Brule National Bank in putting the check in circulation, was not discharged by
payment of the check by the drawee (First National Bank), nor was the Brule National Bank deceived or misled to its prejudice by such payment. The Brule National Bank by its
indorsement and delivery warranted its own identification of Kost and the genuineness of his signature. The indorsement of the check by the Brule National Bank was such as to
assign the title to the check to its assignee, the Whitbeck National Bank, and the amount was credited to the indorser. The check bore no indication that it was deposited for
collection, and was not in any manner restricted so as to constitute the indorsee the agent of the indorser, nor did it prohibit farther negotiation of the instrument, nor did it
appear to be in trust for, or to the use of, any other person, nor was it conditional. Certainly the Pukwana Bank was justified in relying upon the warrant of genuineness, which
implied the full identification of Kost, and his signature by the defendant bank. This view of the statute is in accord with the decisions of many courts. (First National
Bank vs. State Bank, 22 Neb., 769; 3 Am. St. Rep., 294; 36 N. W., 289; First National Bank vs. First National Bank, 151 Mass., 280; 21 Am. St. Rep., 450; 24 N. E., 44; People's
Bank vs. Franklin Bank, 88 Tenn., 299; 6 L. R. A., 727; 17 Am. St. Rep., 884; 12 S. W., 716.)"

The appellant leans heavily on the case of Fidelity & Co. vs. Planenscheck (71 A. L. R., 331), decided in 1929. We have carefully examined this decision and we do not feel justified
in accepting its conclusions. It is but a restatement of the long abandoned rule of Neal vs. Price, and it predicated on the wrong premise that the payment includes acceptance,
and that a bank drawee paying a check drawn on it becomes ipso facto an acceptor within the meaning of section 62 of the Negotiable Instruments Act. Moreover in a more
recent decision, that of Louisa National Bank vs. Kentucky National Bank (39 S. W. [2nd] 497, 501) decided in 1931, the Court of Appeals of Kentucky held the following:

The appellee, on presentation for payment of $600 check, failed to discover it was a forgery. It was bound to know the signature of its customer, Armstrong, and it was
derelict in failing to give his signature to the check sufficient attention and examination to enable it to discover instantly the forgery. The appellant, when the check was
presented to it by Banfield, failed to make an inquiry of or about him and did not cause or have him to be identified. Its act in so paying to him the check is a degree of
negligence on its part equivalent to positive negligence. It indorsed the check, and, while such indorsement may not be regarded within the meaning of the Negotiable
Instrument Law as amounting to a warranty to appellant of that which it indorsed, it at least substantially served as a representation to it that it had exercised ordinary
care and had complied with the rules and customs of prudent banking. Its indorsement was calculated, if it did not in fact do so, to lull the drawee bank into
indifference as to the drawer's signature to it when paying the check and charging it to its customer's account and remitting its proceeds to appellant's correspondent.

If in such a transaction between the drawee and the holder of a check both are without fault, no recovery may be had of the money so paid. (Deposit Bank of
Georgetown vs. Fayette National Bank, supra, and cases cited.) Or the rule may be more accurately stated that, where the drawee pays the money, he cannot recover it
back from a holder in good faith, for value and without fault.

If, on the other hand, the holder acts in bad faith, or is guilty of culpable negligence, a recovery may be had by the drawee of such holder. The negligence of the Bank of
Louisa in failing to inquire of and about Banfield, and to cause or to have him identified before it parted with its money on the forged check, may be regarded as the
primary and proximate cause of the loss. Its negligence in this respect reached in its effect the appellee, and induced incaution on its part. In comparison of the degrees
of the negligence of the two, it is apparent that of the appellant excels in culpability. Both appellant and appellee inadvertently made a mistake, doubtless due to a
hurry incident to business. The first and most grievous one was made by the appellant , amounting to its disregard of the duty, it owed itself as well as the duty it owed
to the appellee, and it cannot on account thereof retain as against the appellee the money which it so received. It cannot shift the loss to the appellee, for such
disregard of its duty inevitably contributed to induce the appellee to omit its duty critically to examine the signature of Armstrong, even if it did not know it instantly at
the time it paid the check. (Farmers' Bank of Augusta vs. Farmer's Bank of Maysville, supra, and cases cited.)

IV. The question now is to determine whether the appellant's negligence in purchasing the checks in question is such as to give the appellee the right to recover upon said
checks, and on the other hand, whether the drawee bank was not itself negligent, except for its constructive fault in not knowing the signature of the drawer and detecting the
forgery.

We quote with approval the following conclusions of the court a quo:

Check Exhibit A bears number 637023-D and is dated April 6, 1933, whereas check Exhibit A-1 bears number 637020-D and is dated April 7, 1933. Therefore, the latter
check, which is prior in number to the former check, is however, issued on a later date. This circumstance must have aroused at least the curiosity of the Motor Service
Co., Inc.
 The Motor Service Co., Inc., accepted the two checks from unknown persons. And not only this; check Exhibit A is indorsed by a subagent of the agent of the payee,
International Auto Repair Shop. The Motor Service Co., Inc., made no inquiry whatsoever as to the extent of the authority of these unknown persons. Our Supreme
Court said once that "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" (Insular Drug Co. vs. National Bank, 58, Phil., 684).

xxx xxx xxx

Check Exhibit A-1, aside from having been indorsed by a supposed agent of the international Auto Repair Shop is crossed generally. The existence of two parallel lines
transversally drawn on the face of this check was a warning that the check could only be collected through a banking institution (Jacobs, Law of Bills of Exchange, etc.,
pp., 179, 180; Bills of Exchange Act of England, secs. 76 and 79). Yet the Motor Service Co., Inc., accepted the check in payment for merchandise.

. . . In Exhibit H attached to the stipulation of facts as an integral part thereof, the Motor Service Co., Inc., stated the following:

"The Pangasinan Transportation Co. is a good customer of this firm and we received checks from them every month in payment of their account. The two checks in
question seem to be exactly similar to the checks which we received from the Pangasinan Transportation Co. every month."

If the failure of the Motor Service Co., Inc., to detect the forgery of the drawer's signature in the two checks, may be considered as an omission in good faith because of
the similarity stated in the letter, then the same consideration applies to the Philippine National Bank, for the drawer is a customer of both the Motor Service Co., Inc.,
and the Philippine National Bank. (B. of E., pp. 25, 28, 35.)

We are of opinion that the facts of the present case do not make it one between two equally innocent persons, the drawee bank and the holder, and that they are governed by
the authorities already cited and also the following:

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. The courts have shown a steadily increasing disposition to extend the application of this
rule over the new conditions of fact which from time to time arise, until it can now rarely happen that the holder, payee, or presenter can escape the imputation of
having been in some degree contributory towards the mistake. Without any actual change in the abstract doctrines of the law, which are clear, just, and simple enough,
the gradual but sure tendency and effect of the decisions have been to put as heavy a burden of responsibility upon the payee as upon the drawee, contrary to the
original custom. . . . (2 Morse on Banks and Banking, 5th ed., secs. 464 and 466, pp. 82-85 and 86, 87.)

In First National Bank vs. Brule National Bank (12 A. L. R., 1079, 1088, 1089), the following statement appears in the concurring opinion:

What, then, should be the rule? The drawee asks to recover for money had and received. If his claim did not rest upon a transaction relating to a negotiable instrument
plaintiff could recover as for money paid under mistake, unless defendant could show some equitable reason, such as changed condition since, and relying upon,
payment by plaintiff. In the Wyndmere Case, the North Dakota court holds that this rule giving right to recover money paid under mistake should extend to negotiable
paper, and it rejects in its entirety the theory of estoppel and puts a case of this kind on exactly the same basis as the ordinary case of payment under mistake. But the
great weight of authority, and that based on the better reasoning, holds that the exigencies of business demand a different rule in relation to negotiable paper. What is
that rule? Is it an absolute estoppel against the drawee in favor of a holder, no matter how negligent such holder has been? It surely is not. The correct rule recognizes
the fact that, in case of payment without a prior acceptance or certification, the holder takes the paper upon the of the prior indorsers and the credit of the drawer, and
not upon the credit of the drawee, in making payment, has a right to rely upon the assumption that the payee used due diligence, especially where such payee
 negotiated the bill or check to a holder, thus representing that it had so fully satisfied itself as to the identity and signature of the maker that it was willing to warrant as
relates thereto to all subsequent holders. (Uniform Act, secs. 65 and 66.) Such correct rule denies the drawee the right to recover when the holder was without fault or
when there has been some change of position calling for equitable relief. When a holder of a bill of exchange uses all due care in the taking of bill or check and the
drawee thereafter pays same, the transaction is absolutely closed — modern business could not be done on any other basis. While the correct rule promotes the
fluidity of two recognized mediums of exchange, those mediums by which the great bulk of business is carried on, checks and drafts, upon the other hand it encourages
and demands prudent business methods upon the part of those receiving such mediums of exchange. (Pennington County Bank vs. First State Bank, 110 Minn., 263; 26
L. R. A. [N. S.], 849; 136 Am. St. Rep., 496; 125 N. W., 119; First National Bank vs. State Bank, 22 Neb., 769; 3 Am. St. Rep., 294; 36 N. W., 289; Bank of
Williamson, vs. McDowell County Bank, 66 W. Va., 545; 36 L. R. A. [N. S.], 605; 66 S. E., 761; Germania Bank vs. Boutell, 60 Minn., 189; 27 L. R. A., 635; 51 Am. St. Rep.,
519; 62 N. W., 327; American Express Co. vs. State National Bank, 27 Okla., 824; 33 L. R. A. [N. S.], 188; 113 Pac., 711; Farmers' National Bank vs. Farmers' & Traders
Bank, L. R. A., 1915A, 77, and note (159 Ky., 141; 166 S. W., 986].)

That the defendant bank did not use reasonable business prudence is clear. It took this check from a strangerwithout other identification than that given by another
stranger; its cashier witnessed the mark of such stranger thus vouching for the identity and signature of the maker; and it indorsed the check as "Paid," thus further
throwing plaintiff off guard. Defendant could not but have known, when negotiating such check and putting it into the channel through which it would finally be
presented to plaintiff for payment, that plaintiff, if it paid such check, as defendant was asking it to do, would have to rely solely upon the apparent faith and credit that
defendant had placed in the drawer. From the very circumstances of this case plaintiff had to act on the facts as presented to it by defendant, upon such facts only.

But appellant argues that it so changed its position, after payment by plaintiff, that in "equity and good conscience" plaintiff should not recover — it says it did not pay
over any money to the forger until after plaintiff had paid the check. There would be merit in such contention if defendant had indorsed the check for "collection," thus
advising plaintiff that it was relying on plaintiff and not on the drawer. It stands in court where it would have been if it had done as it represented.

In Woods and Malone vs. Colony Bank (56 L. R. A., 929, 932), the court said:

. . . If the holder has been negligent in paying the forged paper, or has by his conduct, however innocent, misled or deceived the drawee to his damage, it would be
unjust for him to be allowed to shield himself from the results of his own carelessness by asserting that the drawee was bound in law to know his drawer's signature.

V. Section 23 of the Negotiable Instruments Act provides that "when a signature is forged or made without the authority of the person whose signature it purports to be, 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.

It not appearing that the appellee bank did not warrant to the appellant the genuineness of the checks in question, by its acceptance thereof, nor did it perform any act which
would have induced the appellant to believe in the genuineness of said instruments before appellant purchased them for value, it can not be said that the appellee is precluded
from setting up the forgery and, therefore, the appellant is not entitled to retain the amount of the forged check paid to it by the appellee.

VI. It has been held by many courts that a drawee of a check, who is deceived by a forgery of the drawer's signature may recover the payment back, unless his mistake has
placed an innocent holder of the paper in a worse position than he would have been in if the discovery of the forgery had been made on presentation. (5 R. C. L., p. 559; 2 Daniel
on Negotiable Instruments, 1538.) Forgeries often deceived the eye of the most cautious experts; and when a bank has been deceived, it is a harsh rule which compels it to
suffer although no one has suffered by its being deceived. (17 A. L. R. 891; 5 R. C. L., 559.)

In the instant case should the drawee bank be allowed recovery, the appellant's position would not become worse than if the drawee had refused the payment of these checks
upon their presentation. The appellant has lost nothing by anything which the drawee has done. It had in its hands some forged worthless papers. It did not purchase or acquire
these papers because of any representation made to it by the drawee. It purchased them from unknown persons and under suspicious circumstances. It had no valid title to
them, because the persons from whom it received them did not have such title. The appellant could not have compelled the drawee to pay them, and the drawee could have
refused payment had it been able to detect the forgery. By making a refund, the appellant would only returning what it had received without any title or right. And when
appellant pays back the money it had received it will be entitled to have restored to it the forged papers it parted with. There is no good reason why the accidental payment
made by the appellant should inure to the benefit of the appellant. If there were injury to the appellant said injury was caused not by the failure of the appellee to detect the
forgery but by the very negligence of the appellant in purchasing commercial papers from unknown persons without making inquiry as to their genuineness.

In the light of the foregoing discussion, we conclude:

1. 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 drawer's signature and his capacity
to issue the instrument;

2. That if a drawee bank pays a forged check which was previously accepted or certified by the said bank it cannot recover from a holder who did not participate in the
forgery and did not have actual notice thereof;

3. That 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 Law;

4. That in the case of the payment of a forged check, even without former acceptance, the drawee can not recover from a holder in due course not chargeable with any
act of negligence or disregard of duty;

5. That to entitle the holder of a forged check to retain the money obtained thereon, there must be a showing that the duty to ascertain the genuineness of the
signature rested entirely upon the drawee, and that the constructive negligence of such drawee in failing to detect the forgery was not affected by any disregard of duty
on the part of the holder, or by failure of any precaution which, from his implied assertion in presenting the check as a sufficient voucher, the drawee had the right to
believe he had taken;

6. That in the absence of actual fault on the part of the drawee, his constructive fault in not knowing the signature of the drawer and detecting the forgery will nor
preclude his recovery from one who took the check under circumstances of suspicion and without proper precaution, or whose conduct has been such as to mislead the
drawee or induce him to pay the check without the usual scrutiny or other precautions against mistake or fraud;

7. That on 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 performed his duty;

8. That while the foregoing rule, chosen from a welter of decisions on the issue as the correct one, will not hinder the circulation of two recognized mediums of
exchange by which the great bulk of business is carried on, namely, drafts and checks, on the other hand, it will encourage and demand prudent business methods on
the part of those receiving such mediums of exchange;

9. That it being a matter of record in the present case, that the appellee bank in no more chargeable with the knowledge of the drawer's signature than the appellant is,
as the drawer was as much the customer of the appellant as of the appellee, the presumption that a drawee bank is bound to kn ow more than any indorser the
signature of its depositor does not hold;

10. That according to the undisputed facts of the case the appellant in purchasing the papers in question from unknown persons without making any inquiry as to the
identity and authority of the said persons negotiating and indorsing them, acted negligently and contributed to the appellee's constructive negligence in failing to
detect the forgery;
 11. That under the circumstances of the case, if the appellee bank is allowed to recover, there will be no change of position as to the injury or prejudice of the appellant.

Wherefore, the assignments of error are overruled, and the judgment appealed from must be, as it is hereby, affirmed, with costs against the appellant. So ordered.
14.
G.R. No. L-56169 June 26, 1992

TRAVEL-ON, INC., petitioner,

vs.
COURT OF APPEALS and ARTURO S. MIRANDA, respondents.

RESOLUTION

FELICIANO, J.:

Petitioner Travel-On. Inc. ("Travel-On") is a travel agency selling airline tickets on commission basis for and in behalf of different airline companies. Private respondent Arturo S.
Miranda had a revolving credit line with petitioner. He procured tickets from petitioner on behalf of airline passengers and derived commissions therefrom.

On 14 June 1972, Travel-On filed suit before the Court of First Instance ("CFI") of Manila to collect on six (6) checks issued by private respondent with a total face amount of
P115,000.00. The complaint, with a prayer for the issuance of a writ of preliminary attachment and attorney's fees, averred that from 5 August 1969 to 16 January 1970,
petitioner sold and delivered various airline tickets to respondent at a total price of P278,201.57; that to settle said account, private respondent paid various amounts in cash
and in kind, and thereafter issued six (6) postdated checks amounting to P115,000.00 which were all dishonored by the drawee banks. Travel-On further alleged that in March
1972, private respondent made another payment of P10,000.00 reducing his indebtedness to P105,000.00. The writ of attachment was granted by the court a quo.

In his answer, private respondent admitted having had transactions with Travel-On during the period stipulated in the complaint. Private respondent, however, claimed that he
had already fully paid and even overpaid his obligations and that refunds were in fact due to him. He argued that he had issued the postdated checks for purposes of
accommodation, as he had in the past accorded similar favors to petitioner. During the proceedings, private respondent contested several tickets alleged to have been
erroneously debited to his account. He claimed reimbursement of his alleged over payments, plus litigation expenses, and exemplary and moral damages by reason of the
allegedly improper attachment of his properties.

In support of his theory that the checks were issued for accommodation, private respondent testified that he bad issued the checks in the name of Travel-On in order that its
General Manager, Elita Montilla, could show to Travel-On's Board of Directors that the accounts receivable of the company were still good. He further stated that Elita Montilla
tried to encash the same, but that these were dishonored and were subsequently returned to him after the accommodation purpose had been attained.

Travel-On's witness, Elita Montilla, on the other hand explained that the "accommodation" extended to Travel-On by private respondent related to situations where one or
more of its passengers needed money in Hongkong, and upon request of Travel-On respondent would contact his friends in Hongkong to advance Hongkong money to the
passenger. The passenger then paid Travel-On upon his return to Manila and which payment would be credited by Travel-On to respondent's running account with it.

In its decision dated 31 January 1975, the court a quo ordered Travel-On to pay private respondent the amount of P8,894.91 representing net overpayments by private
respondent, moral damages of P10,000.00 for the wrongful issuance of the writ of attachment and for the filing of this case, P5,000.00 for attorney's fees and the costs of the
suit.

The trial court ruled that private respondent's indebtedness to petitioner was not satisfactorily established and that the postdated checks were issued not for the purpose of
encashment to pay his indebtedness but to accommodate the General Manager of Travel-On to enable her to show to the Board of Directors that Travel-On was financially
stable.
Petitioner filed a motion for reconsideration that was, however, denied by the trial court, which in fact then increased the award of moral damages to P50,000.00.

On appeal, the Court of Appeals affirmed the decision of the trial court, but reduced the award of moral damages to P20,000.00, with interest at the legal rate from the date of
the filing of the Answer on 28 August 1972.

Petitioner moved for reconsideration of the Court of Appeal's' decision, without success.

In the instant Petition for Review, it is urged that the postdated checks are per se evidence of liability on the part of private respondent. Petitioner further argues that even
assuming that the checks were for accommodation, private respondent is still liable thereunder considering that petitioner is a holder for value.

Both the trial and appellate courts had rejected the checks as evidence of indebtedness on the ground that the various statements of account prepared by petitioner did not
show that Private respondent had an outstanding balance of P115,000.00 which is the total amount of the checks he issued. It was pointed out that while the various exhibits of
petitioner showed various accountabilities of private respondent, they did not satisfactorily establish the amount of the outstanding indebtedness of private respondent. The
appellate court made much of the fact that the figures representing private respondent's unpaid accounts found in the "Schedule of Outstanding Account" dated 31 January
1970 did not tally with the figures found in the statement which showed private respondent's transactions with petitioner for the years 1969 and 1970; that there was no
satisfactory explanation as to why the total outstanding amount of P278,432.74 was still used as basis in the accounting of 7 April 1972 considering that according to the table of
transactions for the year 1969 and 1970, the total unpaid account of private respondent amounted to P239,794.57.

We have, however, examined the record and it shows that the 7 April 1972 Statement of Account had simply not been updated; that if we use as basis the figure as of 31
January 1970 which is P278,432.74 and from it deduct P38,638.17 which represents some of the payments subsequently made by private respondent, the figure — P239,794.57
will be obtained.

Also, the fact alone that the various statements of account had variances in figures, simply did not mean that private respondent had no more financial obligations to petitioner.
It must be stressed that private respondent's account with petitioner was a running or open one, which explains the varying figures in each of the statements rendered as of a
given date.

The appellate court erred in considering only the statements of account in determining whether private respondent was indebted to petitioner under the checks. By doing so, it
failed to give due importance to the most telling piece of evidence of private respondent's indebtedness — the checks themselves which he had issued.

Contrary to the view held by the Court of Appeals, this Court finds that the checks are the all important evidence of petitioner's case; that these checks clearly established
private respondent's indebtedness to petitioner; that private respondent was liable thereunder.

It is important to stress that a check which is regular on its face is deemed prima facie to have been issued for a valuable consideration and every person whose signature
appears thereon is deemed to have become a party thereto for value. 1 Thus, the mere introduction of the instrument sued on in evidence prima facie entitles the plaintiff to
recovery. Further, the rule is quite settled that a negotiable instrument is presumed to have been given or indorsed for a sufficient consideration unless otherwise contradicted
and overcome by other competent evidence. 2

In the case at bar, the Court of Appeals, contrary to these established rules, placed the burden of proving the existence of valuable consideration upon petitioner. This cannot be
countenanced; it was up to private respondent to show that he had indeed issued the checks without sufficient consideration. The Court considers that Private respondent was
unable to rebut satisfactorily this legal presumption. It must also be noted that those checks were issued immediately after a letter demanding payment had been sent to private
respondent by petitioner Travel-On.
The fact that all the checks issued by private respondent to petitioner were presented for payment by the latter would lead to no other conclusion than that these checks were
intended for encashment. There is nothing in the checks themselves (or in any other document for that matter) that states otherwise.

We are unable to accept the Court of Appeals' conclusion that the checks here involved were issued for "accommodation" and that accordingly private respondent maker of
those checks was not liable thereon to petitioner payee of those checks.

In the first place, while the Negotiable Instruments Law does refer to accommodation transactions, no such transaction was here shown. Section 29 of the Negotiable
Instruments Law provides as follows:

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.

In accommodation transactions recognized by the Negotiable Instruments Law, an accommodating party lends his credit to the accommodated party, by issuing or
indorsing a check which is held by a payee or indorsee as a holder in due course, who gave full value therefor to the accommodated party. The latter, in other words,
receives or realizes full value which the accommodated party then must repay to the accommodating party, unless of course the accommodating party intended to
make a donation to the accommodated party. But the accommodating party is bound on the check to the holder in due course who is necessarily a third party and
is not the accommodated party. Having issued or indorsed the check, the accommodating party has warranted to the holder in due course that he will pay the same
according to its tenor. 3

In the case at bar, Travel-On was payee of all six (6) checks, it presented these checks for payment at the drawee bank but the checks bounced. Travel-On obviously was not an
accommodated party; it realized no value on the checks which bounced.

Travel-On was entitled to the benefit of the statutory presumption that it was a holder in due course, 4 that the checks were supported by valuable consideration. 5 Private
respondent maker of the checks did not successfully rebut these presumptions. The only evidence aliunde that private respondent offered was his own self-serving
uncorroborated testimony. He claimed that he had issued the checks to Travel-On as payee to "accommodate" its General Manager who allegedly wished to show those checks
to the Board of Directors of Travel-On to "prove" that Travel-On's account receivables were somehow "still good." It will be seen that this claim was in fact a claim that the
checks were merely simulated, that private respondent did not intend to bind himself thereon. Only evidence of the clearest and most convincing kind will suffice for that
purpose; 6 no such evidence was submitted by private respondent. The latter's explanation was denied by Travel-On's General Manager; that explanation, in any case, appears
merely contrived and quite hollow to us. Upon the other hand, the "accommodation" or assistance extended to Travel-On's passengers abroad as testified by petitioner's
General Manager involved, not the accommodation transactions recognized by the NIL, but rather the circumvention of then existing foreign exchange regulations by passengers
booked by Travel-On, which incidentally involved receipt of full consideration by private respondent.

Thus, we believe and so hold that private respondent must be held liable on the six (6) checks here involved. Those checks in themselves constituted evidence of indebtedness of
private respondent, evidence not successfully overturned or rebutted by private respondent.

Since the checks constitute the best evidence of private respondent's liability to petitioner Travel-On, the amount of such liability is the face amount of the checks, reduced only
by the P10,000.00 which Travel-On admitted in its complaint to have been paid by private respondent sometime in March 1992.

The award of moral damages to Private respondent must be set aside, for the reason that Petitioner's application for the writ of attachment rested on sufficient basis and no bad
faith was shown on the part of Travel-On. If anyone was in bad faith, it was private respondent who issued bad checks and then pretended to have "accommodated" petitioner's
General Manager by assisting her in a supposed scheme to deceive petitioner's Board of Directors and to misrepresent Travel-On's financial condition.
ACCORDINGLY, the Court Resolved to GRANT due course to the Petition for Review on Certiorari and to REVERSE and SET ASIDE the Decision dated 22 October 1980 and the
Resolution of 23 January 1981 of the Court of Appeals, as well as the Decision dated 31 January 1975 of the trial court, and to enter a new decision requiring private respondent
Arturo S. Miranda to pay to petitioner Travel-On the amount of P105,000.00 with legal interest thereon from 14 June 1972, plus ten percent (10%) of the total amount due as
attorney's fees. Costs against Private respondent.

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

15.

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
16.

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.
17.

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

February 9, 1981
———————
VALUE DATE

TO Raul Sesbreño
 April 6, 1981
————————
MATURITY DATE

NO. 10805

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.

PILIPINAS BANK
(By Elizabeth De Villa
Illegible Signature)1

On 2 April 1981, petitioner approached Ms. Elizabeth de Villa of private respondent Pilipinas, Makati Branch, and handed her a demand letter informing the bank that his
placement with Philfinance in the amount reflected in the DCR No. 10805 had remained unpaid and outstanding, and that he in effect was asking for the physical delivery of the
underlying promissory note. Petitioner then examined the original of the DMC PN No. 2731 and found: that the security had been issued on 10 April 1980; that it would mature
on 6 April 1981; that it had a face value of P2,300,833.33, with the Philfinance as "payee" and private respondent Delta Motors Corporation ("Delta") as "maker;" and that on
face of the promissory note was stamped "NON NEGOTIABLE." Pilipinas did not deliver the Note, nor any certificate of participation in respect thereof, to petitioner.

Petitioner later made similar demand letters, dated 3 July 1981 and 3 August 1981, 2 again asking private respondent Pilipinas for physical delivery of the original of DMC PN No.
2731. Pilipinas allegedly referred all of petitioner's demand letters to Philfinance for written instructions, as has been supposedly agreed upon in "Securities Custodianship
Agreement" between Pilipinas and Philfinance. Philfinance did not provide the appropriate instructions; Pilipinas never released DMC PN No. 2731, nor any other instrument in
respect thereof, to petitioner.

Petitioner also made a written demand on 14 July 19813 upon private respondent Delta for the partial satisfaction of DMC PN No. 2731, explaining that Philfinance, as payee
thereof, had assigned to him said Note to the extent of P307,933.33. Delta, however, denied any liability to petitioner on the promissory note, and explained in turn that it had
previously agreed with Philfinance to offset its DMC PN No. 2731 (along with DMC PN No. 2730) against Philfinance PN No. 143-A issued in favor of Delta.
In the meantime, Philfinance, on 18 June 1981, was placed under the joint management of the Securities and exchange commission ("SEC") and the Central Bank. Pilipinas
delivered to the SEC DMC PN No. 2731, which to date apparently remains in the custody of the SEC. 4

As petitioner had failed to collect his investment and interest thereon, he filed on 28 September 1982 an action for damages with the Regional Trial Court ("RTC") of Cebu City,
Branch 21, against private respondents Delta and Pilipinas.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 Note10 and because maker Delta and payee Philfinance intended that this Note would be offset against the outstanding obligation of Philfinance
represented by Philfinance PN No. 143-A issued to Delta as payee;

(2) that the assignment of DMC PN No. 2731 by Philfinance was without Delta's consent, if not against its instructions; and

(3) assuming (arguendo only) that the partial assignment in favor of petitioner was valid, petitioner took the Note subject to the defenses available to Delta, in
particular, the offsetting of DMC PN No. 2731 against Philfinance PN No. 143-A.11

We consider Delta's arguments seriatim.

Firstly, it is important to bear in mind that the negotiation of a negotiable instrument must be distinguished from the assignment or transfer of an instrument whether that be
negotiable or non-negotiable. Only an instrument qualifying as a negotiable instrument under the relevant statute may be negotiated either by indorsement thereof coupled
with delivery, or by delivery alone where the negotiable instrument is in bearer form. A negotiable instrument may, however, instead of being negotiated, also
be assigned or transferred. The legal consequences of negotiation as distinguished from assignment of a negotiable instrument are, of course, different. A non-negotiable
instrument may, obviously, not be negotiated; but it may be assigned or transferred, absent an express prohibition against assignment or transfer written in the face of the
instrument:

The words "not negotiable," stamped on the face of the bill of lading, did not destroy its assignability, but the sole effect was to exempt the bill from the
statutory provisions relative thereto, and a bill, though not negotiable, may be transferred by assignment; the assignee taking subject to the equities between
the original parties.12 (Emphasis added)

DMC PN No. 2731, while marked "non-negotiable," was not at the same time stamped "non-transferable" or "non-assignable." It contained no stipulation which prohibited
Philfinance from assigning or transferring, in whole or in part, that Note.

Delta adduced the "Letter of Agreement" which it had entered into with Philfinance and which should be quoted in full:

April 10, 1980

 Philippine Underwriters Finance Corp.
Benavidez St., Makati,
Metro Manila.

Attention: Mr. Alfredo O. Banaria

SVP-Treasurer

GENTLEMEN:

This refers to our outstanding placement of P4,601,666.67 as evidenced by your Promissory Note No. 143-A, dated April 10, 1980, to mature on April 6, 1981.

As agreed upon, we enclose our non-negotiable Promissory Note No. 2730 and 2731 for P2,000,000.00 each, dated April 10, 1980, to be offsetted [sic] against
your PN No. 143-A upon co-terminal maturity.

Please deliver the proceeds of our PNs to our representative, Mr. Eric Castillo.

Very Truly Yours,

(Sgd.)
Florencio B. Biagan
Senior Vice President13

We find nothing in his "Letter of Agreement" which can be reasonably construed as a prohibition upon Philfinance assigning or transferring all or part of DMC PN No. 2731,
before the maturity thereof. It is scarcely necessary to add that, even had this "Letter of Agreement" set forth an explicit prohibition of transfer upon Philfinance, such a
prohibition cannot be invoked against an assignee or transferee of the Note who parted with valuable consideration in good faith and without notice of such prohibition. It is not
disputed that petitioner was such an assignee or transferee. Our conclusion on this point is reinforced by the fact that what Philfinance and Delta were doing by their exchange
of their promissory notes was this: Delta invested, by making a money market placement with Philfinance, approximately P4,600,000.00 on 10 April 1980; but promptly, on the
same day, borrowed back the bulk of that placement, i.e., P4,000,000.00, by issuing its two (2) promissory notes: DMC PN No. 2730 and DMC PN No. 2731, both also dated 10
April 1980. Thus, Philfinance was left with not P4,600,000.00 but only P600,000.00 in cash and the two (2) Delta promissory notes.

Apropos Delta's complaint that the partial assignment by Philfinance of DMC PN No. 2731 had been effected without the consent of Delta, we note that such consent was not
necessary for the validity and enforceability of the assignment in favor of petitioner. 14 Delta's argument that Philfinance's sale or assignment of part of its rights to DMC PN No.
2731 constituted conventional subrogation, which required its (Delta's) consent, is quite mistaken. Conventional subrogation, which in the first place is never lightly
inferred,15 must be clearly established by the unequivocal terms of the substituting obligation or by the evident incompatibility of the new and old obligations on every
point.16 Nothing of the sort is present in the instant case.

It is in fact difficult to be impressed with Delta's complaint, since it released its DMC PN No. 2731 to Philfinance, an entity engaged in the business of buying and selling debt
instruments and other securities, and more generally, in money market transactions. In Perez v. Court of Appeals,17 the Court, speaking through Mme. Justice Herrera, made the
following important statement:

There is another aspect to this case. What is involved here is a money market transaction. As defined by Lawrence Smith "the money market is a market
dealing in standardized short-term credit instruments (involving large amounts) where lenders and borrowers do not deal directly with each other but through
 a middle manor a dealer in the open market." It involves "commercial papers" which are instruments "evidencing indebtness of any person or entity. . ., which
are issued, endorsed, sold or transferred or in any manner conveyed to another person or entity, with or without recourse". The fundamental function of the
money market device in its operation is to match and bring together in a most impersonal manner both the "fund users" and the "fund suppliers." The money
market is an "impersonal market", free from personal considerations. "The market mechanism is intended to provide quick mobility of money and securities."

The impersonal character of the money market device overlooks the individuals or entities concerned. The issuer of a commercial paper in the money market
necessarily knows in advance that it would be expenditiously transacted and transferred to any investor/lender without need of notice to said issuer. In practice,
no notification is given to the borrower or issuer of commercial paper of the sale or transfer to the investor.

xxx xxx xxx

There is need to individuate a money market transaction, a relatively novel institution in the Philippine commercial scene. It has been intended to facilitate the
flow and acquisition of capital on an impersonal basis. And as specifically required by Presidential Decree No. 678, the investing public must be given adequate
and effective protection in availing of the credit of a borrower in the commercial paper market. 18(Citations omitted; emphasis supplied)

We turn to Delta's arguments concerning alleged compensation or offsetting between DMC PN No. 2731 and Philfinance PN No. 143-A. It is important to note that at the time
Philfinance sold part of its rights under DMC PN No. 2731 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.
18.

FIRST DIVISION

[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
18.

FIRST DIVISION

BANK OF THE PHILIPPINE ISLANDS, G.R. No. 136202

Petitioner, Present:

PUNO, C.J., Chairperson,

- versus - SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA, and
GARCIA, JJ.

COURT OF APPEALS, ANNABELLE A. SALAZAR, and

JULIO R. TEMPLONUEVO, Promulgated:
Respondents.
January 25, 2007

x-----------------------------------------------------------------------------------------x

DECISION

AZCUNA, J.:

This is a petition for review under Rule 45 of the Rules of Court seeking the reversal of the Decision [1] dated April 3, 1998, and the Resolution[2] dated November 9, 1998,

of the Court of Appeals in CA-G.R. CV No. 42241.

The facts[3] are as follows:

A.A. Salazar Construction and Engineering Services filed an action for a sum of money with damages against herein petitioner Bank of the Philippine Islands (BPI) on

December 5, 1991 before Branch 156 of the Regional Trial Court (RTC) of Pasig City. The complaint was later amended by substituting the name of Annabelle A. Salazar as the

real party in interest in place of A.A. Salazar Construction and Engineering Services. Private respondent Salazar prayed for the recovery of the amount of Two Hundred Sixty-
Seven Thousand, Seven Hundred Seven Pesos and Seventy Centavos (P267,707.70) debited by petitioner BPI from her account. She likewise prayed for damages and attorneys

fees.

Petitioner BPI, in its answer, alleged that on August 31, 1991, Julio R. Templonuevo, third-party defendant and herein also a private respondent, demanded from the

former payment of the amount of Two Hundred Sixty-Seven Thousand, Six Hundred Ninety-Two Pesos and Fifty Centavos (P267,692.50) representing the aggregate value of

three (3) checks, which were allegedly payable to him, but which were deposited with the petitioner bank to private respondent Salazars account (Account No. 0203-1187-67)

without his knowledge and corresponding endorsement.

Accepting that Templonuevos claim was a valid one, petitioner BPI froze Account No. 0201-0588-48 of A.A. Salazar and Construction and Engineering Services, instead of

Account No. 0203-1187-67 where the checks were deposited, since this account was already closed by private respondent Salazar or had an insufficient balance.

Private respondent Salazar was advised to settle the matter with Templonuevo but they did not arrive at any settlement. As it appeared that private respondent Salazar

was not entitled to the funds represented by the checks which were deposited and accepted for deposit, petitioner BPI decided to debit the amount of P267,707.70 from her

Account No. 0201-0588-48 and the sum of P267,692.50 was paid to Templonuevo by means of a cashiers check. The difference between the value of the checks (P267,692.50)

and the amount actually debited from her account (P267,707.70) represented bank charges in connection with the issuance of a cashiers check to Templonuevo.

In the answer to the third-party complaint, private respondent Templonuevo admitted the payment to him of P267,692.50 and argued that said payment was to correct

the malicious deposit made by private respondent Salazar to her private account, and that petitioner banks negligence and tolerance regarding the matter was violative of the

primary and ordinary rules of banking. He likewise contended that the debiting or taking of the reimbursed amount from the account of private respondent Salazar by petitioner

BPI was a matter exclusively between said parties and may be pursuant to banking rules and regulations, but did not in any way affect him. The debiting from another account of

private respondent Salazar, considering that her other account was effectively closed, was not his concern.

After trial, the RTC rendered a decision, the dispositive portion of which reads thus:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff [private respondent Salazar] and against the defendant
[petitioner BPI] and ordering the latter to pay as follows:

1. The amount of P267,707.70 with 12% interest thereon from September 16, 1991 until the said amount is fully paid;
 2. The amount of P30,000.00 as and for actual damages;
3. The amount of P50,000.00 as and for moral damages;
4. The amount of P50,000.00 as and for exemplary damages;
5. The amount of P30,000.00 as and for attorneys fees; and
6. Costs of suit.

The counterclaim is hereby ordered DISMISSED for lack of factual basis.

The third-party complaint [filed by petitioner] is hereby likewise ordered DISMISSED for lack of merit.

Third-party defendants [i.e., private respondent Templonuevos] counterclaim is hereby likewise DISMISSED for lack of factual basis.

SO ORDERED.[4]

On appeal, the Court of Appeals (CA) affirmed the decision of the RTC and held that respondent Salazar was entitled to the proceeds of the three (3) checks

notwithstanding the lack of endorsement thereon by the payee. The CA concluded that Salazar and Templonuevo had previously agreed that the checks payable to JRT

Construction and Trading[5] actually belonged to Salazar and would be deposited to her account, with petitioner acquiescing to the arrangement.[6]

Petitioner therefore filed this petition on these grounds:

I.
The Court of Appeals committed reversible error in misinterpreting Section 49 of the Negotiable Instruments Law and Section 3 (r and s) of Rule 131 of the
New Rules on Evidence.

II.
The Court of Appeals committed reversible error in NOT applying the provisions of Articles 22, 1278 and 1290 of the Civil Code in favor of BPI.

III.
The Court of Appeals committed a reversible error in holding, based on a misapprehension of facts, that the account from which BPI debited the amount
of P267,707.70 belonged to a corporation with a separate and distinct personality.

IV.
The Court of Appeals committed a reversible error in holding, based entirely on speculations, surmises or conjectures, that there was an agreement between
SALAZAR and TEMPLONUEVO that checks payable to TEMPLONUEVO may be deposited by SALAZAR to her personal account and that BPI was privy to this
agreement.
V.
The Court of Appeals committed reversible error in holding, based entirely on speculation, surmises or conjectures, that SALAZAR suffered great damage and
prejudice and that her business standing was eroded.

VI.
The Court of Appeals erred in affirming instead of reversing the decision of the lower court against BPI and dismissing SALAZARs complaint.
VII.
The Honorable Court erred in affirming the decision of the lower court dismissing the third-party complaint of BPI.[7]

The issues center on the propriety of the deductions made by petitioner from private respondent Salazars account. Stated otherwise, does a collecting bank, over the

objections of its depositor, have the authority to withdraw unilaterally from such depositors account the amount it had previously paid upon certain unendorsed order

instruments deposited by the depositor to another account that she later closed?

Petitioner argues thus:

1. There is no presumption in law that a check payable to order, when found in the possession of a person who is neither a payee nor the indorsee thereof, has

been lawfully transferred for value. Hence, the CA should not have presumed that Salazar was a transferee for value within the contemplation of Section 49 of

the Negotiable Instruments Law,[8] as the latter applies only to a holder defined under Section 191of the same. [9]

2. Salazar failed to adduce sufficient evidence to prove that her possession of the three checks was lawful despite her allegations that these checks were

deposited pursuant to a prior internal arrangement with Templonuevo and that petitioner was privy to the arrangement.

3. The CA should have applied the Civil Code provisions on legal compensation because in deducting the subject amount from Salazars account, petitioner was

merely rectifying the undue payment it made upon the checks and exercising its prerogative to alter or modify an erroneous credit entry in the regular course

of its business.

4. The debit of the amount from the account of A.A. Salazar Construction and Engineering Services was proper even though the value of the checks had been

originally credited to the personal account of Salazar because A.A. Salazar Construction and Engineering Services, an unincorporated single proprietorship, had

no separate and distinct personality from Salazar.

5. Assuming the deduction from Salazars account was improper, the CA should not have dismissed petitioners third-party complaint against Templonuevo

because the latter would have the legal duty to return to petitioner the proceeds of the checks which he previously received from it.
 6. There was no factual basis for the award of damages to Salazar.

The petition is partly meritorious.

First, the issue raised by petitioner requires an inquiry into the factual findings made by the CA. The CAs conclusion that the deductions from the bank account of A.A.

Salazar Construction and Engineering Services were improper stemmed from its finding that there was no ineffective payment to Salazar which would call for the exercise of

petitioners right to set off against the formers bank deposits. This finding, in turn, was drawn from the pleadings of the parties, the evidence adduced during trial and upon the

admissions and stipulations of fact made during the pre-trial, most significantly the following:

(a) That Salazar previously had in her possession the following checks:

(1) Solid Bank Check No. CB766556 dated January 30, 1990 in the amount of P57,712.50;
(2) Solid Bank Check No. CB898978 dated July 31, 1990 in the amount of P55,180.00; and,
(3) Equitable Banking Corporation Check No. 32380638 dated August 28, 1990 for the amount of P154,800.00;

(b) That these checks which had an aggregate amount of P267,692.50 were payable to the order of JRT Construction and Trading, the name and style under

which Templonuevo does business;

(c) That despite the lack of endorsement of the designated payee upon such checks, Salazar was able to deposit the checks in her personal savings account with

petitioner and encash the same;

(d) That petitioner accepted and paid the checks on three (3) separate occasions over a span of eight months in 1990; and

(e) That Templonuevo only protested the purportedly unauthorized encashment of the checks after the lapse of one year from the date of the last check.[10]

Petitioner concedes that when it credited the value of the checks to the account of private respondent Salazar, it made a mistake because it failed to notice the lack of

endorsement thereon by the designated payee. The CA, however, did not lend credence to this claim and concluded that petitioners actions were deliberate, in view of its
admission that the mistake was committed three times on three separate occasions, indicating acquiescence to the internal arrangement between Salazar and Templonuevo.

The CA explained thus:

It was quite apparent that the three checks which appellee Salazar deposited were not indorsed. Three times she deposited them to her account and
three times the amounts borne by these checks were credited to the same. And in those separate occasions, the bank did not return the checks to her so that
she could have them indorsed. Neither did the bank question her as to why she was depositing the checks to her account considering that she was not the
payee thereof, thus allowing us to come to the conclusion that defendant-appellant BPI was fully aware that the proceeds of the three checks belong to
appellee.

For if the bank was not privy to the agreement between Salazar and Templonuevo, it is most unlikely that appellant BPI (or any bank for that matter)
would have accepted the checks for deposit on three separate times nary any question. Banks are most finicky over accepting checks for deposit without the
corresponding indorsement by their payee. In fact, they hesitate to accept indorsed checks for deposit if the depositor is not one they know very well. [11]

The CA likewise sustained Salazars position that she received the checks from Templonuevo pursuant to an internal arrangement between them, ratiocinating as

follows:

If there was indeed no arrangement between Templonuevo and the plaintiff over the three questioned checks, it baffles us why it was only on August
31, 1991 or more than a year after the third and last check was deposited that he demanded for the refund of the total amount of P267,692.50.

A prudent man knowing that payment is due him would have demanded payment by his debtor from the moment the same became due and
demandable. More so if the sum involved runs in hundreds of thousand of pesos. By and large, every person, at the very moment he learns that he was
deprived of a thing which rightfully belongs to him, would have created a big fuss. He would not have waited for a year within which to do so. It is most
inconceivable that Templonuevo did not do this.[12]

Generally, only questions of law may be raised in an appeal by certiorari under Rule 45 of the Rules of Court.[13] Factual findings of the CA are entitled to great weight

and respect, especially when the CA affirms the factual findings of the trial court. [14] Such questions on whether certain items of evidence should be accorded probative value or

weight, or rejected as feeble or spurious, or whether or not the proofs on one side or the other are clear and convincing and adequate to establish a proposition in issue, are

questions of fact. The same holds true for questions on whether or not the body of proofs presented by a party, weighed and analyzed in relation to contrary evidence

submitted by the adverse party may be said to be strong, clear and convincing, or whether or not inconsistencies in the body of proofs of a party are of such gravity as to justify

refusing to give said proofs weight all these are issues of fact which are not reviewable by the Court. [15]

This rule, however, is not absolute and admits of certain exceptions, namely: a) when the conclusion is a finding grounded entirely on speculations, surmises, or

conjectures; b) when the inference made is manifestly mistaken, absurd, or impossible; c) when there is a grave abuse of discretion; d) when the judgment is based on a

misapprehension of facts; e) when the findings of fact are conflicting; f) when the CA, in making its findings, went beyond the issues of the case and the same are contrary to the
admissions of both appellant and appellee; g) when the findings of the CA are contrary to those of the trial court; h) when the findings of fact are conclusions without citation of

specific evidence on which they are based; i) when the finding of fact of the CA is premised on the supposed absence of evidence but is contradicted by the evidence on record;

and j) when the CA manifestly overlooked certain relevant facts not disputed by the parties and which, if properly considered, would justify a different conclusion.[16]

In the present case, the records do not support the finding made by the CA and the trial court that a prior arrangement existed between Salazar and Templonuevo

regarding the transfer of ownership of the checks. This fact is crucial as Salazars entitlement to the value of the instruments is based on the assumption that she is a transferee

within the contemplation of Section 49 of the Negotiable Instruments Law.

Section 49 of the Negotiable Instruments Law contemplates a situation whereby the payee or indorsee delivers a negotiable instrument for value without indorsing it,

thus:

Transfer without indorsement; effect of- Where the holder of an instrument payable to his order transfers it for value without indorsing it, the transfer
vests in the transferee such title as the transferor had therein, and the transferee acquires in addition, the right to have the indorsement of the transferor. But
for the purpose of determining whether the transferee is a holder in due course, the negotiation takes effect as of the time when the indorsement is actually
made. [17]

It bears stressing that the above transaction is an equitable assignment and the transferee acquires the instrument subject to defenses and equities available among

prior parties. Thus, if the transferor had legal title, the transferee acquires such title and, in addition, the right to have the indorsement of the transferor and also the right, as

holder of the legal title, to maintain legal action against the maker or acceptor or other party liable to the transferor. The underlying premise of this provision, however, is that a

valid transfer of ownership of the negotiable instrument in question has taken place.

Transferees in this situation do not enjoy the presumption of ownership in favor of holders since they are neither payees nor indorsees of such instruments. The weight

of authority is that the mere possession of a negotiable instrument does not in itself conclusively establish either the right of the possessor to receive payment, or of the right of

one who has made payment to be discharged from liability. Thus, something more than mere possession by persons who are not payees or indorsers of the instrument is

necessary to authorize payment to them in the absence of any other facts from which the authority to receive payment may be inferred. [18]

The CA and the trial court surmised that the subject checks belonged to private respondent Salazar based on the pre-trial stipulation that Templonuevo incurred a one-

year delay in demanding reimbursement for the proceeds of the same. To the Courts mind, however, such period of delay is not of such unreasonable length as to estop

Templonuevo from asserting ownership over the checks especially considering that it was readily apparent on the face of the instruments[19] that these were crossed checks.

In State Investment House v. IAC,[20] the Court enumerated the effects of crossing a check, thus: (1) that the check may not be encashed but only deposited in the bank;

(2) that the check may be negotiated only once - to one who has an account with a bank; and (3) that the act of crossing the check serves as a warning to the holder that the

check has been issued for a definite purpose so that such holder must inquire if the check has been received pursuant to that purpose.
 Thus, even if the delay in the demand for reimbursement is taken in conjunction with Salazars possession of the checks, it cannot be said that the presumption of

ownership in Templonuevos favor as the designated payee therein was sufficiently overcome. This is consistent with the principle that if instruments payable to named payees

or to their order have not been indorsed in blank, only such payees or their indorsees can be holders and entitled to receive payment in their own right. [21]

The presumption under Section 131(s) of the Rules of Court stating that a negotiable instrument was given for a sufficient consideration will not inure to the benefit of

Salazar because the term given does not pertain merely to a transfer of physical possession of the instrument. The phrase given or indorsed in the context of a negotiable

instrument refers to the manner in which such instrument may be negotiated. Negotiable instruments are negotiated by transfer to one person or another in such a 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 completed by

delivery.[22] The present case involves checks payable to order. Not being a payee or indorsee of the checks, private respondent Salazar could not be a holder thereof.

It is an exception to the general rule for a payee of an order instrument to transfer the instrument without indorsement. Precisely because the situation is abnormal, it

is but fair to the maker and to prior holders to require possessors to prove without the aid of an initial presumption in their favor, that they came into possession by virtue of a

legitimate transaction with the last holder.[23] Salazar failed to discharge this burden, and the return of the check proceeds to Templonuevo was therefore warranted under the

circumstances despite the fact that Templonuevo may not have clearly demonstrated that he never authorized Salazar to deposit the checks or to encash the same. Noteworthy

also is the fact that petitioner stamped on the back of the checks the words: "All prior endorsements and/or lack of endorsements guaranteed," thereby making the assurance

that it had ascertained the genuineness of all prior endorsements. Having assumed the liability of a general indorser, petitioners liability to the designated payee cannot be

denied.

Consequently, petitioner, as the collecting bank, had the right to debit Salazars account for the value of the checks it previously credited in her favor. It is of no moment

that the account debited by petitioner was different from the original account to which the proceeds of the check were credited because both admittedly belonged to Salazar,

the former being the account of the sole proprietorship which had no separate and distinct personality from her, and the latter being her personal account.

The right of set-off was explained in Associated Bank v. Tan:[24]

A bank generally has a right of set-off over the deposits therein for the payment of any withdrawals on the part of a depositor. The right of a collecting
bank to debit a client's account for the value of a dishonored check that has previously been credited has fairly been established by jurisprudence. To begin
with, Article 1980 of the Civil Code provides that "[f]ixed, savings, and current deposits of money in banks and similar institutions shall be governed by the
provisions concerning simple loan.

Hence, the relationship between banks and depositors has been held to be that of creditor and debtor. Thus, legal compensation under Article 1278 of
the Civil Code may take place "when all the requisites mentioned in Article 1279 are present," as follows:
 (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if
the latter has been stated;
(3) That the two debts be 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.

While, however, it is conceded that petitioner had the right of set-off over the amount it paid to Templonuevo against the deposit of Salazar, the issue of whether it

acted judiciously is an entirely different matter.[25] As businesses affected with public interest, and because of the nature of their functions, banks are under obligation to treat

the accounts of their depositors with meticulous care, always having in mind the fiduciary nature of their relationship. [26] In this regard, petitioner was clearly remiss in its duty to

private respondent Salazar as its depositor.

To begin with, the irregularity appeared plainly on the face of the checks. Despite the obvious lack of indorsement thereon, petitioner permitted the encashment of

these checks three times on three separate occasions. This negates petitioners claim that it merely made a mistake in crediting the value of the checks to Salazars account and

instead bolsters the conclusion of the CA that petitioner recognized Salazars claim of ownership of checks and acted deliberately in paying the same, contrary to ordinary

banking policy and practice. It must be emphasized that the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it, for the purpose of

determining their genuineness and regularity. The collecting bank, being primarily engaged in banking, holds itself out to the public as the expert on this field, and the law thus

holds it to a high standard of conduct.[27] The taking and collection of a check without the proper indorsement amount to a conversion of the check by the bank. [28]

More importantly, however, solely upon the prompting of Templonuevo, and with full knowledge of the brewing dispute between Salazar and Templonuevo, petitioner

debited the account held in the name of the sole proprietorship of Salazar without even serving due notice upon her. This ran contrary to petitioners assurances to private

respondent Salazar that the account would remain untouched, pending the resolution of the controversy between her and Templonuevo. [29] In this connection, the CA cited the

letter dated September 5, 1991 of Mr. Manuel Ablan, Senior Manager of petitioner banks Pasig/Ortigas branch, to private respondent Salazar informing her that her account had

been frozen, thus:

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

The records further bear out the fact that respondent Salazar had issued several checks drawn against the account of A.A. Salazar Construction and Engineering Services

prior to any notice of deduction being served. The CA sustained private respondent Salazars claim of damages in this regard:

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

These checks, it must be emphasized, were subsequently dishonored, thereby causing private respondent Salazar undue embarrassment and inflicting damage to her

standing in the business community. Under the circumstances, she was clearly not given the opportunity to protect her interest when petitioner unilaterally withdrew the above

amount from her account without informing her that it had already done so.

For the above reasons, the Court finds no reason to disturb the award of damages granted by the CA against petitioner. This whole incident would have been avoided

had petitioner adhered to the standard of diligence expected of one engaged in the banking business. A depositor has the right to recover reasonable moral damages even if the

banks negligence may not have been attended with malice and bad faith, if the former suffered mental anguish, serious anxiety, embarrassment and humiliation. [31] Moral

damages are not meant to enrich a complainant at the expense of defendant. It is only intended to alleviate the moral suffering she has undergone. The award of exemplary

damages is justified, on the other hand, when the acts of the bank are attended by malice, bad faith or gross negligence. The award of reasonable attorneys fees is proper where

exemplary damages are awarded. It is proper where depositors are compelled to litigate to protect their interest. [32]

WHEREFORE, the petition is partially GRANTED. The assailed Decision dated April 3, 1998 and Resolution dated April 3, 1998 rendered by the Court of Appeals in CA-

G.R. CV No. 42241 are MODIFIED insofar as it ordered petitioner Bank of the Philippine Islands to return the amount of Two Hundred Sixty-seven Thousand Seven Hundred and

Seven and 70/100 Pesos (P267,707.70) to respondent Annabelle A. Salazar, which portion is REVERSED and SET ASIDE. In all other respects, the same are AFFIRMED.

No costs.

SO ORDERED.
19.

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.
20.

G.R. No. L-11526 January 2, 1917

B. A. GREEN, ET AL., plaintiffs-appellees,

vs.
M. LOPEZ, ET AL., defendants-appellants.

Delgado & Delgado for appellants.

Crossfield & O'Brien for appellees.

CARSON, J.:

This is an appeal from a judgment for the face value of a negotiable note, in favor of the plaintiffs who purchased the note, and against the makers, with a declaration of the
subsidiary liability of the payee, from whom the note was purchased and by whom it was indorsed to the plaintiffs.

The complaint alleged that the note was indorsed by the payee to the plaintiffs "for value received," and this allegation was conclusively established by the evidence adduced at
the trial. We are of opinion that this allegation was substantially equivalent to a formal allegation that the indorsement was made for a valuable consideration, and that the
truth of this allegation having been established by the introduction of competent evidence establishing the fact that the indorsement was made for a valuable consideration, the
purchasers were clearly entitled to judgment for the face value of the note.

By the decisive weight of authority in this country, where negotiable paper has been put in circulation, and there is no infirmity or defense between the antecedent
parties thereto, a purchaser of such security is entitled to recover thereon, as against the maker, the whole amount, irrespective of what he may have paid therefor.
(146 U. S., 327.1)

It follows that any allegation which sets forth the existence of a valuable consideration for the transfer by indorsement is sufficient, notwithstanding the failure to allege
expressly the amount which was in fact paid by the indorser.

What has been said disposes of the various contentions of appellants based upon the failure of the court below to sustain a demurrer to the complaint because of the lack of an
allegation setting forth specifically the nature and amount of the consideration paid by the plaintiffs to the payee of the note, by whom it was indoresed in their favor.

The real defense relied upon in the court below by the makers of the note was that the plaintiffs were not bona fide holders of the note by indorsement, in that they had
knowledge of the existence of certain equitable defenses which the maker were entitled to set us against the payee of the note, before they acquired it by indorsement from the
payee.

But there was nothing on the face of the note to put the purchasers on notice of the existence of such equitable defenses. It was entirely regular in form and came into their
possession in the usual course of business. Under these circumstances the burden of proof was manifestly upon the makers of the note to establish the fact of knowledge of
these equitable defenses before they could be permitted to rely upon such defenses as against the purchasers.

The only evidence tending to establish such knowledge was the testimony of Lopez, one of the maker of the note, that a person unknown to him and representing himself to be
an employee of Green, one of the plaintiffs, came to him, and made inquiries as to the validity and genuineness of the note, stating that his principal desired this information
because he was contemplating its purchase; and that he then and there explained the nature of his equitable defenses ad against the payee, and repudiated any obligation to
meet the note.

There is no evidence of record upon which to base a finding that these alleged disclosures were in truth and in fact made to an employee of either of the plaintiffs other than the
testimony of Lopez to the effect that these alleged disclosures were made to a person unknown to him, who represented himself to be an employee of one of the plaintiffs; and
the testimony of Green, one of the plaintiffs who stated that before purchasing the note he sent an employed to call upon the makers of the note to inquire whether it was a
good note which would be paid at maturity, and that upon his return this employee stated that he had been informed by the makers of the note that it was a good note duly
executed by them and that it would be paid when due. We do not stop to consider whether this evidence is sufficient to establish the fact that the person to whom the maker of
the note claims to have disclosed the alleged equitable defenses was in truth and in fact the employee sent by the plaintiffs to the makers of the note for the purpose of
inquiring as to is validity, because we are satisfied that, admitting that the person with whom Lopez claims to have had the interview was an employee of one or both of the
purchasers, we do not think that the evidence sustains an affirmative finding that the plaintiffs had knowledge of the alleged equitable defenses when they purchased the note.
One of the purchasers of the note is a broker, engaged in business in the city of Manila, and the other is an attorney, licensed to practice in the courts of these Islands, and it
would require stronger and more convincing evidence than the interested testimony of one of the makers of the note to satisfy us, as against their testimony to the contrary,
that these gentlemen were so imprudent as to discount negotiable paper, in the ordinary course of business, after having received formal notice of the existence of equitable
defenses against the payee; and our opinion in this regard is strengthened by the undoubted fact that they took the precaution before purchasing the note to send an agent to
make inquiries as to its validity. We are forced to conclude with the trial judge that the testimony of the maker of the note as to the disclosures made to the purchasers' agent
must be rejected, either on the ground that it is wholly false, or upon the ground that he failed to make himself understood in the course o f his alleged interview with the
plaintiffs' agent, with the result in either event that knowledge of the existence of equitable defenses was not brought home to the purchasers of the note. Equitable defenses of
this nature can in no event defeat the right of the holders of a negotiable note by indorsement and for valuable consideration until and unless knowledged of the existence of
such equitable defenses is brought home to them, or until it appears that the holders had such knowledged of the existence of defects in the instrument as to charge them with
bad faith in acquiring it under all the attendant circumstances. (Confer numerous cases cited in notes, 7 Cyc., p. 945.)

The judgment entered in the court below should be affirmed, with the costs of this instance against the appellants. So ordered.