G.R. No.

L-10221 February 28, 1958

Intestate of Luther Young and Pacita Young, spouses.

PACIFICA JIMENEZ, petitioner-appellee,
vs.
DR. JOSE BUCOY, administrator-appellant.

Frank W. Brady and Pablo C. de Guia, Jr. for appellee.

E. A. Beltran for appellant.

BENGZON, J.:

In this intestate of Luther Young and Pacita Young who died in

1954 and 1952 respectively, Pacifica Jimenez presented for
payment four promissory notes signed by Pacita for different
amounts totalling twenty-one thousand pesos (P21,000).

Acknowledging receipt by Pacita during the Japanese occupation,

in the currency then prevailing, the administrator manifested
willingness to pay provided adjustment of the sums be made in
line with the Ballantyne schedule.

The claimant objected to the adjustment insisting on full payment

in accordance with the notes.

Applying doctrines of this Court on the matter, the Hon. Primitive

L. Gonzales, Judge, held that the notes should be paid in the
currency prevailing after the war, and that consequently plaintiff
was entitled to recover P21,000 plus attorneys fees for the sum of
P2,000.

Hence this appeal.

Executed in the month of August 1944, the first promissory note

read as follows:

Received from Miss Pacifica Jimenez the total amount of

P10,000) ten thousand pesos payable six months after the
war, without interest.

The other three notes were couched in the same terms, except as
to amounts and dates.

There can be no serious question that the notes were promises to

pay "six months after the war," the amounts mentioned.
But the important question, which obviously compelled the
administrator to appeal, is whether the amounts should be paid,
peso for peso, or whether a reduction should be made in
accordance with the well-known Ballantyne schedule.

This matter of payment of loans contracted during the Japanese

occupation has received our attention in many litigations after the
liberation. The gist of our adjudications, in so far as material here,
is that if the loan should be paid during the Japanese occupation,
the Ballantyne schedule should apply with corresponding reduction
of the amount.1 However, if the loan was expressly agreed to be
payable only after the war or after liberation, or became payable
after those dates, no reduction could be effected, and peso-for-
peso payment shall be ordered in Philippine currency.2

The Ballantyne Conversion Table does not apply where the

monetary obligation, under the contract, was not payable
during the Japanese occupation but until after one year
counted for the date of ratification of the Treaty of Peace
concluding the Greater East Asia War. (Arellano vs. De
Domingo, 101 Phil., 902.)

When a monetary obligation is contracted during the

Japanese occupation, to be discharged after the war, the
payment should be made in Philippine Currency. (Kare et
al. vs. Imperial et al., 102 Phil., 173.)

Now then, as in the case before us, the debtor undertook to pay
"six months after the war," peso for peso payment is indicated.

The Ang Lam3 case cited by appellant is not controlling, because

the loan therein given could have been repaid during the Japanese
occupation. Dated December 26, 1944, it was payable within one
year. Payment could therefore have been made during January
1945. The notes here in question were payable only after the war.

The appellant administrator calls attention to the fact that the

notes contained no express promise to pay a specified amount.
We declare the point to be without merit. In accordance with
doctrines on the matter, the note herein-above quoted amounted
in effect to "a promise to pay ten thousand pesos six months after
the war, without interest." And so of the other notes.

"An acknowledgment may become a promise by the addition of

words by which a promise of payment is naturally implied, such as,
"payable," "payable" on a given day, "payable on demand,"
"paid . . . when called for," . . . (10 Corpus Juris Secundum p.
523.)

"To constitute a good promissory note, no precise words of

contract are necessary, provided they amount, in legal effect, to a
promise to pay. In other words, if over and above the mere
acknowledgment of the debt there may be collected from the
words used a promise to pay it, the instrument may be regarded
as a promissory note. 1 Daniel, Neg. Inst. sec. 36 et seq.; Byles,
Bills, 10, 11, and cases cited . . . "Due A. B. $325, payable on
demand," or, "I acknowledge myself to be indebted to A in $109,
to be paid on demand, for value received," or, "I O. U. $85 to be
paid on May 5th," are held to be promissory notes, significance
being given to words of payment as indicating a promise to pay."
1 Daniel Neg. Inst. see. 39, and cases cited. (Cowan vs. Hallack,
(Colo.) 13 Pacific Reporter 700, 703.)

Another argument of appellant is that as the deceased Luther

Young did not sign these notes, his estate is not liable for the
same. This defense, however, was not interposed in the lower
court. There the only issue related to the amount to be amount,
considering that the money had been received in Japanese money.
It is now unfair to put up this new defense, because had it been
raised in the court below, appellees could have proved, what they
now alleged that Pacita contracted the obligation to support and
maintain herself, her son and her husband (then concentrated at
Santo Tomas University) during the hard days of the occupation.

It is now settled practice that on appeal a change of theory is not

permitted.

In order that a question may be raised on appeal, it is

essential that it be within the issues made by the parties in
their pleadings. Consequently, when a party deliberately
adopts a certain theory, and the case is tried and decided
upon that theory in the court below, he will not be permitted
to change his theory on appeal because, to permit him to do
so, would be unfair to the adverse party. (Rules of Court by
Moran-1957 Ed. Vol. I p. 715 citing Agoncillo vs. Javier, 38
Phil., 424; American Express Company vs. Natividad, 46 Phil.,
207; San Agustin vs. Barrios, 68 Phil., 475, 480;
Toribio vs. Dacasa, 55 Phil., 461.)
Appellant's last assignment of error concerns attorneys fees. He
says there was no reason for making this and exception to the
general rule that attorney's fees are not recoverable in the
absence of stipulation.

Under the new Civil Code, attorney's fees and expenses of

litigation new be awarded in this case if defendant acted in gross
and evident bad faith in refusing to satisfy plaintiff's plainly valid,
just and demandable claim" or "where the court deems it just and
equitable that attorney's fees be recovered" (Article 2208 Civil
Code). These are — if applicable — some of the exceptions to the
general rule that in the absence of stipulation no attorney's fees
shall be awarded.

The trial court did not explain why it ordered payment of counsel
fees. Needless to say, it is desirable that the decision should state
the reason why such award is made bearing in mind that it must
necessarily rest on an exceptional situation. Unless of course the
text of the decision plainly shows the case to fall into one of the
exceptions, for instance "in actions for legal support," when
exemplary damages are awarded," etc. In the case at bar,
defendant could not obviously be held to have acted in gross and
evident bad faith." He did not deny the debt, and merely pleaded
for adjustment, invoking decisions he thought to be controlling. If
the trial judge considered it "just and equitable" to require
payment of attorney's fees because the defense — adjustment
under Ballantyne schedule — proved to be untenable in view of
this Court's applicable rulings, it would be error to uphold his view.
Otherwise, every time a defendant loses, attorney's fees would
follow as a matter of course. Under the article above cited, even a
clearly untenable defense would be no ground for awarding
attorney's fees unless it amounted to "gross and evident bad
faith."

Plaintiff's attorneys attempt to sustain the award on the ground of

defendant's refusal to accept her offer, before the suit, to take
P5,000 in full settlement of her claim. We do not think this is
tenable, defendant's attitude being merely a consequence of his
line of defense, which though erroneous does not amount to
"gross and evident bad faith." For one thing, there is a point
raised by defendant, which so far as we are informed, has not
been directly passed upon in this jurisdiction: the notes contained
no express promise to pay a definite amount.
There being no circumstance making it reasonable and just to
require defendant to pay attorney's fees, the last assignment of
error must be upheld.

Wherefore, in view of the foregoing considerations, the appealed

decision is affirmed, except as to the attorney's fees which are
hereby disapproved. So ordered.

Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion,

Reyes, J.B.L. Endencia and Felix, JJ., concur.
G.R. No. L-22405 June 30, 1971

PHILIPPINE EDUCATION CO., INC., plaintiff-appellant,

vs.
MAURICIO A. SORIANO, ET AL., defendant-appellees.

Marcial Esposo for plaintiff-appellant.

Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor

General Antonio G. Ibarra and Attorney Concepcion Torrijos-
Agapinan for defendants-appellees.

DIZON, J.:

An appeal from a decision of the Court of First Instance of Manila

dismissing the complaint filed by the Philippine Education Co., Inc.
against Mauricio A. Soriano, Enrico Palomar and Rafael Contreras.

On April 18, 1958 Enrique Montinola sought to purchase from the

Manila Post Office ten (10) money orders of P200.00 each payable
to E.P. Montinola withaddress at Lucena, Quezon. After the postal
teller had made out money ordersnumbered 124685, 124687-
124695, Montinola offered to pay for them with a private checks
were not generally accepted in payment of money orders, the
teller advised him to see the Chief of the Money Order Division,
but instead of doing so, Montinola managed to leave building with
his own check and the ten(10) money orders without the
knowledge of the teller.

On the same date, April 18, 1958, upon discovery of the

disappearance of the unpaid money orders, an urgent message
was sent to all postmasters, and the following day notice was
likewise served upon all banks, instructing them not to pay
anyone of the money orders aforesaid if presented for payment.
The Bank of America received a copy of said notice three days
later.

On April 23, 1958 one of the above-mentioned money orders

numbered 124688 was received by appellant as part of its sales
receipts. The following day it deposited the same with the Bank of
America, and one day thereafter the latter cleared it with the
Bureau of Posts and received from the latter its face value of
P200.00.
On September 27, 1961, appellee Mauricio A. Soriano, Chief of the
Money Order Division of the Manila Post Office, acting for and in
behalf of his co-appellee, Postmaster Enrico Palomar, notified the
Bank of America that money order No. 124688 attached to his
letter had been found to have been irregularly issued and that, in
view thereof, the amount it represented had been deducted from
the bank's clearing account. For its part, on August 2 of the same
year, the Bank of America debited appellant's account with the
same amount and gave it advice thereof by means of a debit
memo.

On October 12, 1961 appellant requested the Postmaster General

to reconsider the action taken by his office deducting the sum of
P200.00 from the clearing account of the Bank of America, but his
request was denied. So was appellant's subsequent request that
the matter be referred to the Secretary of Justice for advice.
Thereafter, appellant elevated the matter to the Secretary of
Public Works and Communications, but the latter sustained the
actions taken by the postal officers.

In connection with the events set forth above, Montinola was

charged with theft in the Court of First Instance of Manila
(Criminal Case No. 43866) but after trial he was acquitted on the
ground of reasonable doubt.

On January 8, 1962 appellant filed an action against appellees in

the Municipal Court of Manila praying for judgment as follows:

WHEREFORE, plaintiff prays that after hearing defendants

be ordered:

(a) To countermand the notice given to the Bank of

America on September 27, 1961, deducting from the said
Bank's clearing account the sum of P200.00 represented
by postal money order No. 124688, or in the alternative
indemnify the plaintiff in the same amount with interest
at 8-½% per annum from September 27, 1961, which is
the rate of interest being paid by plaintiff on its overdraft
account;

(b) To pay to the plaintiff out of their own personal funds,

jointly and severally, actual and moral damages in the
amount of P1,000.00 or in such amount as will be proved
and/or determined by this Honorable Court: exemplary
 damages in the amount of P1,000.00, attorney's fees of
P1,000.00, and the costs of action.

Plaintiff also prays for such other and further relief as

may be deemed just and equitable.

On November 17, 1962, after the parties had submitted the

stipulation of facts reproduced at pages 12 to 15 of the Record on
Appeal, the above-named court rendered judgment as follows:

WHEREFORE, judgment is hereby rendered, ordering the

defendants to countermand the notice given to the Bank
of America on September 27, 1961, deducting from said
Bank's clearing account the sum of P200.00 representing
the amount of postal money order No. 124688, or in the
alternative, to indemnify the plaintiff in the said sum of
P200.00 with interest thereon at the rate of 8-½% per
annum from September 27, 1961 until fully paid; without
any pronouncement as to cost and attorney's fees.

The case was appealed to the Court of First Instance of Manila

where, after the parties had resubmitted the same stipulation of
facts, the appealed decision dismissing the complaint, with costs,
was rendered.

The first, second and fifth assignments of error discussed in

appellant's brief are related to the other and will therefore be
discussed jointly. They raise this main issue: that the postal
money order in question is a negotiable instrument; that its
nature as such is not in anyway affected by the letter dated
October 26, 1948 signed by the Director of Posts and addressed to
all banks with a clearing account with the Post Office, and that
money orders, once issued, create a contractual relationship of
debtor and creditor, respectively, between the government, on the
one hand, and the remitters payees or endorses, on the other.

It is not disputed that our postal statutes were patterned after

statutes in force in the United States. For this reason, ours are
generally construed in accordance with the construction given in
the United States to their own postal statutes, in the absence of
any special reason justifying a departure from this policy or
practice. The weight of authority in the United States is that postal
money orders are not negotiable instruments (Bolognesi vs. U.S.
189 Fed. 395; U.S. vs. Stock Drawers National Bank, 30 Fed. 912),
the reason behind this rule being that, in establishing and
operating a postal money order system, the government is not
engaging in commercial transactions but merely exercises a
governmental power for the public benefit.

It is to be noted in this connection that some of the restrictions

imposed upon money orders by postal laws and regulations are
inconsistent with the character of negotiable instruments. For
instance, such laws and regulations usually provide for not more
than one endorsement; payment of money orders may be
withheld under a variety of circumstances (49 C.J. 1153).

Of particular application to the postal money order in question are

the conditions laid down in the letter of the Director of Posts of
October 26, 1948 (Exhibit 3) to the Bank of America for the
redemption of postal money orders received by it from its
depositors. Among others, the condition is imposed that "in cases
of adverse claim, the money order or money orders involved will
be returned to you (the bank) and the, corresponding amount will
have to be refunded to the Postmaster, Manila, who reserves the
right to deduct the value thereof from any amount due you if such
step is deemed necessary." The conditions thus imposed in order
to enable the bank to continue enjoying the facilities theretofore
enjoyed by its depositors, were accepted by the Bank of America.
The latter is therefore bound by them. That it is so is clearly
referred from the fact that, upon receiving advice that the amount
represented by the money order in question had been deducted
from its clearing account with the Manila Post Office, it did not file
any protest against such action.

Moreover, not being a party to the understanding existing

between the postal officers, on the one hand, and the Bank of
America, on the other, appellant has no right to assail the terms
and conditions thereof on the ground that the letter setting forth
the terms and conditions aforesaid is void because it was not
issued by a Department Head in accordance with Sec. 79 (B) of
the Revised Administrative Code. In reality, however, said legal
provision does not apply to the letter in question because it does
not provide for a department regulation but merely sets down
certain conditions upon the privilege granted to the Bank of
Amrica to accept and pay postal money orders presented for
payment at the Manila Post Office. Such being the case, it is clear
that the Director of Posts had ample authority to issue it pursuant
to Sec. 1190 of the Revised Administrative Code.

In view of the foregoing, We do not find it necessary to resolve

the issues raised in the third and fourth assignments of error.

WHEREFORE, the appealed decision being in accordance with law,

the same is hereby affirmed with costs.
G.R. No. 74451 May 25, 1988

EQUITABLE BANKING CORPORATION, petitioner,

vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT and
THE EDWARD J. NELL CO., respondents.

William R. Veto for petitioner.

Pelaez, Adriano & Gregorio for respondents.

MELENCIO-HERRERA, J.:

In this Petition for Review on certiorari petitioner, Equitable

Banking Corporation, prays that the adverse judgment against it
rendered by respondent Appellate Court, 1 dated 4 October 1985,
and its majority Resolution, dated 28 April 1986, denying
petitioner's Motion for Reconsideration, 2 be annulled and set
aside.

The facts pertinent to this Petition, as summarized by the Trial

Court and adopted by reference by Respondent Appellate Court,
emanated from the case entitled "Edward J. Nell Co. vs. Liberato V.
Casals, Casville Enterprises, Inc., and Equitable Banking
Corporation" of the Court of First Instance of Rizal (Civil Case No.
25112), and read:

From the evidence submitted by the parties, the Court

finds that sometime in 1975 defendant Liberato Casals
went to plaintiff Edward J. Nell Company and told its
senior sales engineer, Amado Claustro that he was
interested in buying one of the plaintiff's garrett skidders.
Plaintiff was a dealer of machineries, equipment and
supplies. Defendant Casals represented himself as the
majority stockholder, president and general manager of
Casville Enterprises, Inc., a firm engaged in the large
scale production, procurement and processing of logs and
lumber products, which had a plywood plant in Sta. Ana,
Metro Manila.

After defendant Casals talked with plaintiff's sales

engineer, he was referred to plaintiffs executive vice-
president, Apolonio Javier, for negotiation in connection
with the manner of payment. When Javier asked for cash
payment for the skidders, defendant Casals informed him
that his corporation, defendant Casville Enterprises, Inc.,
had a credit line with defendant Equitable Banking
Corporation. Apparently, impressed with this assertion,
Javier agreed to have the skidders paid by way of a
domestic letter of credit which defendant Casals promised
to open in plaintiffs favor, in lieu of cash payment.
Accordingly, on December 22, 1975, defendant Casville,
through its president, defendant Casals, ordered from
plaintiff two units of garrett skidders ...

The purchase order for the garrett skidders bearing No.

0051 and dated December 22, 1975 (Exhibit "A")
contained the following terms and conditions:

Two (2) units GARRETT Skidders Model 30A complete as

basically described in the bulletin

PRICE: F.O.B. dock

Manila P485,000.00/unit

For two (2) units P970,000.00

SHIPMENT: We will inform you the date and name of the

vessel as soon as arranged.

TERMS: By irrevocable domestic letter of credit to be

issued in favor of THE EDWARD J. NELL CO. or ORDER
payable in thirty six (36) months and will be opened
within ninety (90) days after date of shipment. at first
installment will be due one hundred eighty (180) days
after date of shipment. Interest-14% per annum (Exhibit
A)

xxx xxx xxx

... in a letter dated April 21, 1976, defendants Casals and

Casville requested from plaintiff the delivery of one (1)
unit of the bidders, complete with tools and cables, to
Cagayan de Oro, on or before Saturday, April 24,1976,
on board a Lorenzo shipping vessel, with the information
that an irrevocable Domestic Letter of Credit would be
opened in plaintiff's favor on or before June 30, 1976
under the terms and conditions agreed upon (Exhibit "B")

On May 3, 1976, in compliance with defendant Casvile's

recognition request, plaintiff shipped to Cagayan de Oro
City a Garrett skidder. Plaintiff paid the shipping cost in
the amount of P10,640.00 because of the verbal
assurance of defendant Casville that it would be covered
by the letter of credit soon to be opened.

xxx xxx xxx

On July 15, 1976, defendant Casals handed to plaintiff a

check in the amount of P300,000.00 postdated August 4,
1976, which was followed by another check of same date.
Plaintiff considered these checks either as partial
payment for the skidder that was already delivered to
Cagayan de Oro or as reimbursement for the marginal
deposit that plaintiff was supposed to pay.

In a letter dated August 3, 1976 (Exhibit "C"), defendants

Casville informed the plaintiff that their application for a
letter of credit for the payment of the Garrett skidders
had been approved by the Equitable Banking Corporation.
However, the defendants said that they would need the
sum of P300,000.00 to stand as collateral or marginal
deposit in favor of Equitable Banking Corporation and an
additional amount of P100,000.00, also in favor of
Equitable Banking Corporation, to clear the title of the
Estrada property belonging to defendant Casals which
had been approved as security for the trust receipts to be
issued by the bank, covering the above-mentioned
equipment.

Although the marginal deposit was supposed to be

produced by defendant Casville Enterprises, plaintiff
agreed to advance the necessary amount in order to
facilitate the transaction. Accordingly, on August 5,1976,
plaintiff issued a check in the amount of P400,000.00
(Exhibit "2") drawn against the First National City Bank
and made payable to the order of Equitable Banking
Corporation and with the following notation or
memorandum:
 a/c of Casville Enterprises Inc. for Marginal
deposit and payment of balance on Estrada
Property to be used as security for trust receipt
for opening L/C of Garrett Skidders in favor of
the Edward J. Nell Co." Said check together with
the cash disbursement voucher (Exhibit "2-A")
containing the explanation:

Payment for marginal deposit and other

expenses re opening of L/C for account of
Casville Ent..

A covering letter (Exhibit "3") was also sent and when

the three documents were presented to Severino Santos,
executive vice president of defendant bank, Santos did
not accept them because the terms and conditions
required by the bank for the opening of the letter of
credit had not yet been agreed on.

On August 9, 1976, defendant Casville wrote the bank

applying for two letters of credit to cover its purchase
from plaintiff of two Garrett skidders, under the following
terms and conditions:

a) On sight Letter of Credit for P485,000.00; b) One 36

months Letter of Credit for P606,000.00; c) P300,000.00
CASH marginal deposit1 d) Real Estate Collateral to
secure the Trust Receipts; e) We shall chattel mortgage
the equipments purchased even after payment of the first
L/C as additional security for the balance of the second
L/C and f) Other conditions you deem necessary to
protect the interest of the bank."

In a letter dated August 11, 1976 (Exhibit "D-l"),

defendant bank replied stating that it was ready to open
the letters of credit upon defendant's compliance of the
following terms and conditions:

c) 30% cash margin deposit; d) Acceptable Real Estate

Collateral to secure the Trust Receipts; e) Chattel
Mortgage on the equipment; and Ashville f) Other terms
and conditions that our bank may impose.

Defendant Casville sent a copy of the foregoing letter to

the plaintiff enclosing three postdated checks. In said
letter, plaintiff was informed of the requirements imposed
by the defendant bank pointing out that the "cash
marginal required under paragraph (c) is 30% of
Pl,091,000.00 or P327,300.00 plus another P100,000.00
to clean up the Estrada property or a total of
P427,300.00" and that the check covering said amount
should be made payable "to the Order of EQUITABLE
BANKING CORPORATION for the account of Casville
Enterprises Inc." Defendant Casville also stated that the
three (3) enclosed postdated checks were intended as
replacement of the checks that were previously issued to
plaintiff to secure the sum of P427,300.00 that plaintiff
would advance to defendant bank for the account of
defendant Casville. All the new checks were postdated
November 19, 1976 and drawn in the sum of Pl45,500.00
(Exhibit "F"), P181,800.00 (Exhibit "G") and P100,000.00
(Exhibit "H").

On the same occasion, defendant Casals delivered to

plaintiff TCT No. 11891 of the Register of Deeds of
Quezon City and TCT No. 50851 of the Register of Deeds
of Rizal covering two pieces of real estate properties.

Subsequently, Cesar Umali, plaintiffs credit and collection

manager, accompanied by a representative of defendant
Casville, went to see Severino Santos to find out the
status of the credit line being sought by defendant
Casville. Santos assured Umali that the letters of credit
would be opened as soon as the requirements imposed
by defendant bank in its letter dated August 11, 1976
had been complied with by defendant Casville.

On August 16, 1976, plaintiff issued a check for

P427,300.00, payable to the "order of EQUITABLE
BANKING CORPORATION A/C CASVILLE ENTERPRISES,
INC." and drawn against the first National City Bank
(Exhibit "E-l"). The check did not contain the notation
found in the previous check issued by the plaintiff
(Exhibit "2") but the substance of said notation was
reproduced in a covering letter dated August 16,1976
that went with the check (Exhibit
"E").<äre||anº•1àw> Both the check and the covering
letter were sent to defendant bank through defendant
Casals. Plaintiff entrusted the delivery of the check and
the latter to defendant Casals because it believed that no
one, including defendant Casals, could encash the same
as it was made payable to the defendant bank alone.
Besides, defendant Casals was known to the bank as the
one following up the application for the letters of credit.

Upon receiving the check for P427,300.00 entrusted to

him by plaintiff defendant Casals immediately deposited
it with the defendant bank and the bank teller accepted
the same for deposit in defendant Casville's checking
account. After depositing said check, defendant Casville,
acting through defendant Casals, then withdrew all the
amount deposited.

Meanwhile, upon their presentation for encashment,

plaintiff discovered that the three checks (Exhibits "F, "G"
and "H") in the total amount of P427,300.00, that were
issued by defendant Casville as collateral were all
dishonored for having been drawn against a closed
account.

As defendant Casville failed to pay its obligation to

defendant bank, the latter foreclosed the mortgage
executed by defendant Casville on the Estrada property
which was sold in a public auction sale to a third party.

Plaintiff allowed some time before following up the

application for the letters of credit knowing that it took
time to process the same. However, when the three
checks issued to it by defendant Casville were dishonored,
plaintiff became apprehensive and sent Umali on
November 29, 1976, to inquire about the status of the
application for the letters of credit. When plaintiff was
informed that no letters of credit were opened by the
defendant bank in its favor and then discovered that
defendant Casville had in the meanwhile withdrawn the
entire amount of P427,300.00, without paying its
obligation to the bank plaintiff filed the instant action.

While the the instant case was being tried, defendants

Casals and Casville assigned the garrett skidder to
plaintiff which credited in favor of defendants the amount
 of P450,000.00, as partial satisfaction of plaintiff's claim
against them.

Defendants Casals and Casville hardly disputed their

liability to plaintiff. Not only did they show lack of interest
in disputing plaintiff's claim by not appearing in most of
the hearings, but they also assigned to plaintiff the
garrett skidder which is an action of clear recognition of
their liability.

What is left for the Court to determine, therefore, is only

the liability of defendant bank to plaintiff.

xxx xxx xxx

Resolving that issue, the Trial Court rendered judgment, affirmed

by Respondent Court in toto, the pertinent portion of which reads:

xxx xxx xxx

Defendants Casals and Casville Enterprises and Equitable

Banking Corporation are ordered to pay plaintiff, jointly
and severally, the sum of P427,300.00, representing the
amount of plaintiff's check which defendant bank
erroneously credited to the account of defendant Casville
and which defendants Casal and Casville misappropriated,
with 12% interest thereon from April 5, 1977, until the
said sum is fully paid.

Defendant Equitable Banking Corporation is ordered to

pay plaintiff attorney's fees in the sum of P25,000.00 .

Proportionate cost against all the defendants.

SO ORDERED.

The crucial issue to resolve is whether or not petitioner Equitable

Banking Corporation (briefly, the Bank) is liable to private
respondent Edward J. Nell Co. (NELL, for short) for the value of
the second check issued by NELL, Exhibit "E-l," which was made
payable

to the order of EQUITABLE Ashville BANIUNG

CORPORATION A/C OF CASVILLE ENTERPRISES INC.

and which the Bank teller credited to the account of Casville.

The Trial Court found that the amount of the second check had
been erroneously credited to the Casville account; held the Bank
liable for the mistake of its employees; and ordered the Bank to
pay NELL the value of the check in the sum of P427,300.00, with
legal interest. Explained the Trial Court:

The Court finds that the check in question was payable

only to the defendant bank and to no one else. Although
the words "A/C OF CASVILLE ENTERPRISES INC. "appear
on the face of the check after or under the name of
defendant bank, the payee was still the latter. The
addition of said words did not in any way make Casville
Enterprises, Inc. the Payee of the instrument for the
words merely indicated for whose account or in
connection with what account the check was issued by
the plaintiff.

Indeed, the bank teller who received it was fully aware

that the check was not negotiable since he stamped
thereon the words "NON-NEGOTIABLE For Payee's
Account Only" and "NON-NEGOTIABLE TELLER NO. 4,
August 17,1976 EQUITABLE BANKING CORPORATION.

But said teller should have exercised more prudence in

the handling of Id check because it was not made out in
the usual manner. The addition of the words A/C OF
CASVILLE ENTERPRISES INC." should have placed the
teller on guard and he should have clarified the matter
with his superiors. Instead of doing so, however, the
teller decided to rely on his own judgment and at the risk
of making a wrong decision, credited the entire amount
in the name of defendant Casville although the latter was
not the payee named in the check. Such mistake was
crucial and was, without doubt, the proximate cause of
plaintiffs defraudation.

xxx xxx xxx

Respondent Appellate Court upheld the above conclusions stating

in addition:

1) The appellee made the subject check payable to

appellant's order, for the account of Casville Enterprises,
Inc. In the light of the other facts, the directive was for
 the appellant bank to apply the value of the check as
payment for the letter of credit which Casville Enterprises,
Inc. had previously applied for in favor of the appellee
(Exhibit D-1, p. 5). The issuance of the subject check was
precisely to meet the bank's prior requirement of
payment before issuing the letter of credit previously
applied for by Casville Enterprises in favor of the
appellee;

xxx xxx xxx

We disagree.

1) The subject check was equivocal and patently ambiguous. By

making the check read:

Pay to the EQUITABLE BANKING CORPORATION Order of

A/C OF CASVILLE ENTERPRISES, INC.

the payee ceased to be indicated with reasonable certainty in

contravention of Section 8 of the Negotiable Instruments
Law. 3 As worded, it could be accepted as deposit to the account
of the party named after the symbols "A/C," or payable to the
Bank as trustee, or as an agent, for Casville Enterprises, Inc., with
the latter being the ultimate beneficiary. That ambiguity is to be
taken contra proferentem that is, construed against NELL who
caused the ambiguity and could have also avoided it by the
exercise of a little more care. Thus, Article 1377 of the Civil Code,
provides:

Art. 1377. The interpretation of obscure words or

stipulations in a contract shall not favor the party who
caused the obscurity.

2) Contrary to the finding of respondent Appellate Court, the

subject check was, initially, not non-negotiable. Neither was it a
crossed check. The rubber-stamping transversall on the face of
the subject check of the words "Non-negotiable for Payee's
Account Only" between two (2) parallel lines, and "Non-negotiable,
Teller- No. 4, August 17, 1976," separately boxed, was made only
by the Bank teller in accordance with customary bank practice,
and not by NELL as the drawer of the check, and simply meant
that thereafter the same check could no longer be negotiated.
3) NELL's own acts and omissions in connection with the drawing,
issuance and delivery of the 16 August 1976 check, Exhibit "E-l,"
and its implicit trust in Casals, were the proximate cause of its
own defraudation: (a) The original check of 5 August 1976, Exhibit
"2," was payable to the order solely of "Equitable Banking
Corporation." NELL changed the payee in the subject check,
Exhibit "E", however, to "Equitable Banking Corporation, A/C of
Casville Enterprises Inc.," upon Casals request. NELL also
eliminated both the cash disbursement voucher accompanying the
check which read:

Payment for marginal deposit and other expense re

opening of L/C for account of Casville Enterprises.

and the memorandum:

a/c of Casville Enterprises Inc. for Marginal deposit and

payment of balance on Estrada Property to be used as
security for trust receipt for opening L/C of Garrett
Skidders in favor of the Edward Ashville J Nell Co.

Evidencing the real nature of the transaction was merely a

separate covering letter, dated 16 August 1976, which Casals,
sinisterly enough, suppressed from the Bank officials and teller.

(b) NELL entrusted the subject check and its covering letter,
Exhibit "E," to Casals who, obviously, had his own antagonistic
interests to promote. Thus it was that Casals did not purposely
present the subject check to the Executive Vice-President of the
Bank, who was aware of the negotiations regarding the Letter of
Credit, and who had rejected the previous check, Exhibit "2,"
including its three documents because the terms and conditions
required by the Bank for the opening of the Letter of Credit had
not yet been agreed on.

(c) NELL was extremely accommodating to Casals. Thus, to

facilitate the sales transaction, NELL even advanced the marginal
deposit for the garrett skidder. It is, indeed, abnormal for the
seller of goods, the price of which is to be covered by a letter of
credit, to advance the marginal deposit for the same.

(d) NELL had received three (3) postdated checks all dated 16
November, 1976 from Casvine to secure the subject check and
had accepted the deposit with it of two (2) titles of real properties
as collateral for said postdated checks. Thus, NELL was
erroneously confident that its interests were sufficiently protected.
Never had it suspected that those postdated checks would be
dishonored, nor that the subject check would be utilized by Casals
for a purpose other than for opening the letter of credit.

In the last analysis, it was NELL's own acts, which put it into the
power of Casals and Casville Enterprises to perpetuate the fraud
against it and, consequently, it must bear the loss (Blondeau, et
al., vs. Nano, et al., 61 Phil. 625 [1935]; Sta. Maria vs. Hongkong
and Shanghai Banking Corporation, 89 Phil. 780 [1951]; Republic
of the Philippines vs. Equitable Banking Corporation, L-15895,
January 30,1964, 10 SCRA 8).

... As between two innocent persons, one of whom must

suffer the consequence of a breach of trust, the one who
made it possible by his act of confidence must bear the
loss.

WHEREFORE, the Petition is granted and the Decision of

respondent Appellate Court, dated 4 October 1985, and its
majority Resolution, dated 28 April 1986, denying petitioner's
Motion for Reconsideration, are hereby SET ASIDE. The Decision
of the then Court of First Instance of Rizal, Branch XI. is modified
in that petitioner Equitable Banking Corporation is absolved from
any and all liabilities to the private respondent, Edward J. Nell
Company, and the Amended Complaint against petitioner bank is
hereby ordered dismissed. No costs.

SO ORDERED.
Negotiable Instruments Law – Negotiable Instruments in General
– 58 OG 5886 – Unconditional Promise To Pay
Biñan Transportation Company bought two motor vehicles. They
signed a promissory note and to secure payment, they mortgaged
the motor vehicles. The promissory notes were negotiated and
were not paid. So Elizalde who was holding the promissory note
sued. Biñan’s defense was that the promissory note was not
negotiable because it was mentioned that it was subject to chattel
mortgage.
ISSUE: Whether the note was negotiable.
HELD: Yes. For reference to mortgage to destroy negotiability,
the promise to pay must be burdened with the terms and
conditions of the chattel mortgage. Since the reference to the
chattel mortgage did not make the promise to pay burdened with
the terms and conditions of the chattel mortgage, the promissory
note was still negotiable.
NOTE: Digest courtesy of Jimenez Transcripts (Negotiable
Instruments Law). [Can’t find the full text of the case]