G.R. No.

106011 June 17, 1993

TOWN SAVINGS AND LOAN BANK, INC., petitioner,

vs.
THE COURT OF APPEALS, SPOUSES MIGUELITO HIPOLITO AND ALICIA N.
HIPOLITO, respondents.

GRIÑO-AQUINO, J.:

This is a petition for review on certiorari to set aside the decision dated March 12, 1992,
of the Court of Appeals in CA-G.R. CV No. 29475 entitled, "Town Savings and Loan Bank,
Inc. vs. Spouses Miguel Hipolito and Alicia N. Hipolito" reversing the decision dated
September 14, 1990 of the Regional Trial Court of Bulacan which declared that the
Hipolitos were accommodation parties on the promissory note and holding them liable to
pay Town Savings And Loan Bank the sum of P1,392, 600.00.

On or about May 4, 1983, the Hipolitos applied for, and were granted, a loan in the amount
of P700,000.00 with interest of 24% per annum for which they executed and delivered to
Town Savings and Loan Bank (or TSLB) a promissory note with a maturity period of three
(3) years and an acceleration clause upon default in the payment of any amortization,
plus a penalty of 36% and 10% attorney's fees, if the note were referred to an attorney
for collection. For failure to keep current their monthly payments on the account, the
obligors were deemed to have defaulted on May 24, 1984. Notices of past due account
and demands for payment were sent but ignored. At the time of the institution of the
action on March 12, 1986, the unpaid obligation amounted to P1,114,983.40.

The Hipolitos denied being personally liable on the P700,000.00 promissory note which
they executed. The loan was allegedly for the account of Pilarita H. Reyes, the sister of
Miguel Hipolito. She was the real party-in-interest. The Hipolitos, not having received any
part of the loan, were mere guarantors for Pilarita. They allegedly signed the promissory
note because they were persuaded to do so by Joey Santos, President of TSLB. When they
received the demand letters, they confronted him but they were told that the Bank had to
observe the formality of sending notices and demand letters. The real purpose was only
to pressure Pilarita to comply with her undertaking.

Insisting that they were mere guarantors, the Hipolitos vehemently protested against
being dragged into the litigation as principal parties. As a result of the unfounded suit,
they allegedly incurred actual damages estimated at P200,000.00 and attorney's fees of
P30,000.00.

In a decision dated September 14, 1990, Judge Zotico A. Toleto of the RTC of Malolos,
Branch 18, held the respondents (then defendants) spouses Miguel and Alicia Hipolito,
liable as accommodation parties on the promissory note.

The spouses appealed to the Court of Appeals. In a decision dated March 12, 1992, the
Court of Appeals found that the Hipolitos did not accommodate Pilarita but the TSLB,
whose lending authority was restricted by the size of its loan portfolio. The Hipolitos were
relieved from any liability to TSLB.

Hence, this petition for review by TSLB.

The lone issue in this case is whether the Hipolitos are liable on the promissory note which
they executed in favor of the petitioner.

We hold for the petitioner.

An accommodation party is one who has signed the instrument as marker,

drawer, indorser, without receiving value therefor and for the purpose of
lending his name to some other person. Such person is liable on the
instrument to a holder for value, notwithstanding such holder, at the time of
the taking of the instrument knew him to be only an accommodation party. In
lending his name to the accommodated party, the accommodation party is in
effect a surety for the latter. He lends his name to enable the accommodated
party to obtain credit or to raise money. He receives no part of the
consideration for the instrument but assumes liability to the other parties
thereto because he wants to accommodate another. (The Phil. Bank of
Commerce vs. Aruego, 102 SCRA 530, 539, 540.)

In this case, there is no question that the private respondents signed the promissory note
in order to enable Pilarita H. Reyes, who is Miguel Hipolito's sister, to borrow the total sum
of P1.4 million from TSLB. As observed by both the trial court and the appellate court, the
actual beneficiary of the loan was Pilarita H. Reyes and no other. The Hipolitos
accommodated her by signing a promissory note for half of the loan that she applied for
because TSLB may not lend any single borrower more than the authorized limit of its loan
portfilio. Under Section 29 of the Negotiable Instruments Law, the Hipolitos are liable to
the bank on the promissory note that they signed to accommodate Pilarita.

Respondent appellate court erred in giving credence to Hipolito's allegation that it was the
bank's president who induced him to sign the promissory note so that the bank would not
violate the Central Bank's regulation limiting the amount that TSLB could lend out. Besides
being self-serving, Hipolito's testimony was uncorroborated by any other evidence on
record, therefore, it should have been received with extreme caution. The Court is
convinced that the intention of respondents Hipolitos in signing the promissory note was
not so much to enable the Bank to grant a loan to Pilarita but for the latter to be able to
obtain the full amount of the loan that she needed at the time.

It is not credible that a Bank would want so much to lend money to a borrower that it
would go out of its way to convince another person (respondent Miguel Hipolito) to
accommodate the borrower (Pilarita H. Reyes). In the ordinary course of things, the
borrower, Pilarita, not the Bank, would have requested her brother Miguel to
accommodate her so she could have the P1.4 million that she wanted to borrow from the
Bank.

The case of Maulini vs. Serrano (28 Phil. 640), relied upon by the appellate court in
reversing the decision of the trial court, is not applicable to this case. In that case, the
evidence showed that the indorser (the loan broker Serrano) in making the indorsement
to the lender, Maulini, was acting as agent for the latter or, as a mere vehicle for the
transference of the naked title from the borrower or maker of the note (Moreno).
Furthermore, his indorsement was wholly without consideration. We ruled that Serrano
was not an accommodation indorser; he was not liable on the note.

. . . Where, however, an indorsement is made as a favor to the indorsee, who

requests it, not the better to secure payment, but to relieve himself from a
distasteful situation, and where the only consideration for such indorsement
passes from the indorser to the indorsee, the situation does not present one
creating an accommodation indorsement, nor one where there is a
consideration sufficient to sustain an action on the indorsement. (p. 644.)

Unlike the Maulini case, there was no agreement here, written or verbal, that in signing
the promissory note, Miguel and Alicia Hipolito were acting as agents for the money lender
the Bank. The consideration of the note signed by the Hipolitos was received by them
through Pilarita. They acted as agents of Pilarita, not of the bank. They signed the
promissory note as favor to Pilarita, to help her raise the funds that she needed. It was
Pilarita whom they accommodated, not the bank, contrary to the erroneous finding of the
appellate court.

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

THE PHILIPPINE BANK OF COMMERCE, plaintiff-appellee,

vs.
JOSE M. ARUEGO, defendant-appellant.

FERNANDEZ, J.:

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

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

In a resolution promulgated on March 1, 1966, the Court of Appeals, First Division,

certified the consolidated appeal to the Supreme Court on the ground that only questions
of law are involved. 5

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

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

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

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

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

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

On March 15, 1960, the plaintiff filed an ex parte motion to declare the defendant in
default on the ground that the defendant should have filed his answer on March 11, 1960.
He contends that by filing his answer on March 12, 1960, defendant was one day
late. 17 On March 19, 1960 the trial court declared the defendant in default. 18 The
defendant learned of the order declaring him in default on March 21, 1960. On March 22,
1960 the defendant filed a motion to set aside the order of default alleging that although
the order of the court dated March 7, 1960 was received on March 11, 1960 at 5:00 in
the afternoon, it could not have been reasonably expected of the defendant to file his
answer on the last day of the reglementary period, March 11, 1960, within office hours,
especially because the order of the court dated March 7, 1960 was brought to the attention
of counsel only in the early hours of March 12, 1960. The defendant also alleged that he
has a good and substantial defense. Attached to the motion are the affidavits of deputy
sheriff Mamerto de la Cruz that he served the order of the court dated March 7, 1960 on
March 11, 1960, at 5:00 o'clock in the afternoon and the affidavit of the defendant Aruego
that he has a good and substantial defense. 19 The trial court denied the defendant's motio
on March 25, 1960. 20 On May 6, 1960, the trial court rendered judgment sentencing the
defendant to pay to the plaintiff the sum of P35,444.35 representing the total amount of
his obligation to the said plaintiff under the twenty-two (22) causes of action alleged in
the complaint as of November 15, 1957 and the sum of P10,000.00 as attorney's fees. 21
On May 9, 1960 the defendant filed a notice of appeal from the order dated March 25,
1961 denying his motion to set aside the order declaring him in default, an appeal bond
in the amount of P60.00, and his record on appeal. The plaintiff filed his opposition to the
approval of defendant's record on appeal on May 13, 1960. The following day, May 14,
1960, the lower court dismissed defendant's appeal from the order dated March 25, 1960
denying his motion to set aside the order of default. 22 On May 19, 1960, the defendant
filed a motion for reconsideration of the trial court's order dismissing his appeal. 23 The
plaintiff, on May 20, 1960, opposed the defendant's motion for reconsideration of the order
dismissing appeal. 24 On May 21, 1960, the trial court reconsidered its previous order
dismissing the appeal and approved the defendant's record on appeal. 25 On May 30,
1960, the defendant received a copy of a notice from the Clerk of Court dated May 26,
1960, informing the defendant that the record on appeal filed ed by the defendant was
forwarded to the Clerk of Court of Appeals. 26

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

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

THE LOWER COURT ERRED IN HOLDING THAT THE DEFENDANT WAS IN

DEFAULT.

II

THE LOWER COURT ERRED IN ENTERTAINING THE MOTION TO DECLARE

DEFENDANT IN DEFAULT ALTHOUGH AT THE TIME THERE WAS ALREADY ON
FILE AN ANSWER BY HIM WITHOUT FIRST DISPOSING OF SAID ANSWER IN
AN APPROPRIATE ACTION.

III

THE LOWER COURT ERRED IN DENYING DEFENDANT'S PETITION FOR RELIEF

OF ORDER OF DEFAULT AND FROM JUDGMENT BY DEFAULT AGAINST
DEFENDANT. 31

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

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

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

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

Defendant Aruego's defenses consist of the following:

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

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

The first defense of the defendant is that he signed the supposed bills of exchange as an
agent of the Philippine Education Foundation Company where he is president. Section 20
of the Negotiable Instruments Law provides that "Where the instrument contains or a
person adds to his signature words indicating that he signs for or on behalf of a principal
or in a representative capacity, he is not liable on the instrument if he was duly authorized;
but the mere addition of words describing him as an agent or as filing a representative
character, without disclosing his principal, does not exempt him from personal liability."
An inspection of the drafts accepted by the defendant shows that nowhere has he disclosed
that he was signing as a representative of the Philippine Education Foundation
Company. 34 He merely signed as follows: "JOSE ARUEGO (Acceptor) (SGD) JOSE
ARGUEGO For failure to disclose his principal, Aruego is personally liable for the drafts he
accepted.

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

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

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

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

WHEREFORE, the order appealed from in Civil Case No. 42066 of the Court of First
Instance of Manila denying the petition for relief from the judgment rendered in said case
is hereby affirmed, without pronouncement as to costs.
G.R. No. 185945 December 05, 2012

FIDELIZA J. AGLIBOT, Petitioner,

vs.
INGERSOL L. SANTIA, Respondent.

DECISION

REYES, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of
Civil Procedure seeking to annul and set aside the Decision1 dated March I 8, 2008 of the
Court of Appeals (CA) in CA-G.R. SP No. 100021, which reversed the Decision2 dated April
3, 2007 of the Regional Trial Court (RTC) of Dagupan City, Branch 40, in Criminal Case
Nos. 2006-0559-D to 2006-0569-D and entered a new judgment. The fallo reads as
follows:

WHEREFORE, the instant petition is GRANTED and the assailed Joint Decision dated
April 3, 2007 of the RTC of Dagupan City, Branch 40, and its Order dated June 12, 2007
are REVERSED AND SET ASIDE and a new one is entered ordering private respondent
Fideliza J. Aglibot to pay petitioner the total amount of ₱3,000,000.00 with 12% interest
per annum from the filing of the Informations until the finality of this Decision, the sum of
which, inclusive of interest, shall be subject thereafter to 12% annual interest until fully
paid.

SO ORDERED.3

On December 23, 2008, the appellate court denied herein petitioner’s motion for
reconsideration.

Antecedent Facts

Private respondent-complainant Engr. Ingersol L. Santia (Santia) loaned the amount of

₱2,500,000.00 to Pacific Lending & Capital Corporation (PLCC), through its Manager,
petitioner Fideliza J. Aglibot (Aglibot). The loan was evidenced by a Promissory Note dated
July 1, 2003, issued by Aglibot in behalf of PLCC, payable in one year subject to interest
at 24% per annum. Allegedly as a guaranty or security for the payment of the note, Aglibot
also issued and delivered to Santia eleven (11) post-dated personal checks drawn from
her own demand account maintained at Metrobank, Camiling Branch. Aglibot is a major
stockholder of PLCC, with headquarters at 27 Casimiro Townhouse, Casimiro Avenue,
Zapote, Las Piñas, Metro Manila, where most of the stockholders also reside.4

Upon presentment of the aforesaid checks for payment, they were dishonored by the bank
for having been drawn against insufficient funds or closed account. Santia thus demanded
payment from PLCC and Aglibot of the face value of the checks, but neither of them heeded
his demand. Consequently, eleven (11) Informations for violation of Batas Pambansa
Bilang 22 (B.P. 22), corresponding to the number of dishonored checks, were filed against
Aglibot before the Municipal Trial Court in Cities (MTCC), Dagupan City, Branch 3,
docketed as Criminal Case Nos. 47664 to 47674. Each Information, except as to the
amount, number and date of the checks, and the reason for the dishonor, uniformly
alleged, as follows:

That sometime in the month of September, 2003 in the City of Dagupan, Philippines and
within the jurisdiction of this Honorable Court, the above-named accused, FIDELIZA J.
AGLIBOT, did then and there, willfully, unlawfully and criminally, draw, issue and deliver
to one Engr. Ingersol L. Santia, a METROBANK Check No. 0006766, Camiling Tarlac
Branch, postdated November 1, 2003, in the amount of ₱50,000.00, Philippine Currency,
payable to and in payment of an obligation with the complainant, although the said
accused knew fully well that she did not have sufficient funds in or credit with the said
bank for the payment of such check in full upon its presentment, such that when the said
check was presented to the drawee bank for payment within ninety (90) days from the
date thereof, the same was dishonored for reason "DAIF", and returned to the
complainant, and despite notice of dishonor, accused failed and/or refused to pay and/or
make good the amount of said check within five (5) days banking days [sic], to the
damage and prejudice of one Engr. Ingersol L. Santia in the aforesaid amount of
₱50,000.00 and other consequential damages.5

Aglibot, in her counter-affidavit, admitted that she did obtain a loan from Santia, but
claimed that she did so in behalf of PLCC; that before granting the loan, Santia demanded
and obtained from her a security for the repayment thereof in the form of the aforesaid
checks, but with the understanding that upon remittance in cash of the face amount of
the checks, Santia would correspondingly return to her each check so paid; but despite
having already paid the said checks, Santia refused to return them to her, although he
gave her assurance that he would not deposit them; that in breach of his promise, Santia
deposited her checks, resulting in their dishonor; that she did not receive any notice of
dishonor of the checks; that for want of notice, she could not be held criminally liable
under B.P. 22 over the said checks; and that the reason Santia filed the criminal cases
against her was because she refused to agree to his demand for higher interest.

On August 18, 2006, the MTCC in its Joint Decision decreed as follows:

WHEREFORE, in view of the foregoing, the accused, FIDELIZA J. AGLIBOT, is

hereby ACQUITTED of all counts of the crime of violation of the bouncing checks law on
reasonable doubt. However, the said accused is ordered to pay the private complainant
the sum of ₱3,000,000.00 representing the total face value of the eleven checks plus
interest of 12% per annum from the filing of the cases on November 2, 2004 until fully
paid, attorney’s fees of ₱30,000.00 as well as the cost of suit.

SO ORDERED.6

On appeal, the RTC rendered a Decision dated April 3, 2007 in Criminal Case Nos. 2006-
0559-D to 2006-0569-D, which further absolved Aglibot of any civil liability towards
Santia, to wit:

WHEREFORE, premises considered, the Joint Decision of the court a quo regarding the
civil aspect of these cases is reversed and set aside and a new one is entered dismissing
the said civil aspect on the ground of failure to fulfill, a condition precedent of exhausting
all means to collect from the principal debtor.
SO ORDERED.7

Santia’s motion for reconsideration was denied in the RTC’s Order dated June 12,
2007.8 On petition for review to the CA docketed as CA-G.R. SP No. 100021, Santia
interposed the following assignment of errors, to wit:

"In brushing aside the law and jurisprudence on the matter, the Regional Trial Court
seriously erred:

1. In reversing the joint decision of the trial court by dismissing the civil aspect of
these cases;

2. In concluding that it is the Pacific Lending and Capital Corporation and not the
private respondent which is principally responsible for the amount of the checks
being claimed by the petitioner;

3. In finding that the petitioner failed to exhaust all available legal remedies against
the principal debtor Pacific Lending and Capital Corporation;

4. In finding that the private respondent is a mere guarantor and not an

accommodation party, and thus, cannot be compelled to pay the petitioner unless
all legal remedies against the Pacific Lending and Capital Corporation have been
exhausted by the petitioner;

5. In denying the motion for reconsideration filed by the petitioner."9

In its now assailed decision, the appellate court rejected the RTC’s dismissal of the civil
aspect of the aforesaid B.P. 22 cases based on the ground it cited, which is that the "failure
to fulfill a condition precedent of exhausting all means to collect from the principal debtor."
The appellate court held that since Aglibot’s acquittal by the MTCC in Criminal Case Nos.
47664 to 47674 was upon a reasonable doubt10 on whether the prosecution was able to
satisfactorily establish that she did receive a notice of dishonor, a requisite to hold her
criminally liable under B.P. 22, her acquittal did not operate to bar Santia’s recovery of
civil indemnity.

It is axiomatic that the "extinction of penal action does not carry with it the eradication of
civil liability, unless the extinction proceeds from a declaration in the final judgment that
the fact from which the civil liability might arise did not exist. Acquittal will not bar a civil
action in the following cases: (1) where the acquittal is based on reasonable doubt as only
preponderance of evidence is required in civil cases; (2) where the court declared the
accused’s liability is not criminal but only civil in nature[;] and (3) where the civil liability
does not arise from or is not based upon the criminal act of which the accused was
acquitted."11 (Citation omitted)

The CA therefore ordered Aglibot to personally pay Santia ₱3,000,000.00 with interest at
12% per annum, from the filing of the Informations until the finality of its decision.
Thereafter, the sum due, to be compounded with the accrued interest, will in turn be
subject to annual interest of 12% from the finality of its judgment until full payment. It
thus modified the MTCC judgment, which simply imposed a straight interest of 12% per
annum from the filing of the cases on November 2, 2004 until the ₱3,000,000.00 due is
fully paid, plus attorney’s fees of ₱30,000.00 and the costs of the suit.

Issue

Now before the Court, Aglibot maintains that it was error for the appellate court to adjudge
her personally liable for issuing her own eleven (11) post-dated checks to Santia, since
she did so in behalf of her employer, PLCC, the true borrower and beneficiary of the loan.
Still maintaining that she was a mere guarantor of the said debt of PLCC when she agreed
to issue her own checks, Aglibot insists that Santia failed to exhaust all means to collect
the debt from PLCC, the principal debtor, and therefore he cannot now be permitted to go
after her subsidiary liability.

Ruling of the Court

The petition is bereft of merit.

Aglibot cannot invoke the benefit of excussion

The RTC in its decision held that, "It is obvious, from the face of the Promissory Note x x
x that the accused-appellant signed the same on behalf of PLCC as Manager thereof and
nowhere does it appear therein that she signed as an accommodation party." 12 The RTC
further ruled that what Aglibot agreed to do by issuing her personal checks was merely to
guarantee the indebtedness of PLCC. So now petitioner Aglibot reasserts that as a
guarantor she must be accorded the benefit of excussion – prior exhaustion of the property
of the debtor – as provided under Article 2058 of the Civil Code, to wit:

Art. 2058. The guarantor cannot be compelled to pay the creditor unless the latter has
exhausted all the property of the debtor, and has resorted to all the legal remedies against
the debtor.

It is settled that the liability of the guarantor is only subsidiary, and all the properties of
the principal debtor, the PLCC in this case, must first be exhausted before the guarantor
may be held answerable for the debt.13 Thus, the creditor may hold the guarantor liable
only after judgment has been obtained against the principal debtor and the latter is unable
to pay, "for obviously the ‘exhaustion of the principal’s property’ — the benefit of which
the guarantor claims — cannot even begin to take place before judgment has been
obtained."14 This rule is contained in Article 206215 of the Civil Code, which provides that
the action brought by the creditor must be filed against the principal debtor alone, except
in some instances mentioned in Article 205916 when the action may be brought against
both the guarantor and the principal debtor.

The Court must, however, reject Aglibot’s claim as a mere guarantor of the indebtedness
of PLCC to Santia for want of proof, in view of Article 1403(2) of the Civil Code, embodying
the Statute of Frauds, which provides:

Art. 1403. The following contracts are unenforceable, unless they are ratified:

xxxx
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In
the following cases an agreement hereafter made shall be unenforceable by action, unless
the same, or some note or memorandum thereof, be in writing, and subscribed by the
party charged, or by his agent; evidence, therefore, of the agreement cannot be received
without the writing, or a secondary evidence of its contents:

a) An agreement that by its terms is not to be performed within a year from the
making thereof;

b) A special promise to answer for the debt, default, or miscarriage of another;

c) An agreement made in consideration of marriage, other than a mutual promise

to marry;

d) An agreement for the sale of goods, chattels or things in action, at a price not
less than five hundred pesos, unless the buyer accept and receive part of such goods
and chattels, or the evidences, or some of them, or such things in action, or pay at
the time some part of the purchase money; but when a sale is made by auction and
entry is made by the auctioneer in his sales book, at the time of the sale, of the
amount and kind of property sold, terms of sale, price, names of purchasers and
person on whose account the sale is made, it is a sufficient memorandum;

e) An agreement for the leasing of a longer period than one year, or for the sale of
real property or of an interest therein;

f) A representation to the credit of a third person. (Italics ours)

Under the above provision, concerning a guaranty agreement, which is a promise to

answer for the debt or default of another,17 the law clearly requires that it, or some note
or memorandum thereof, be in writing. Otherwise, it would be unenforceable unless
ratified,18 although under Article 135819 of the Civil Code, a contract of guaranty does not
have to appear in a public document.20 Contracts are generally obligatory in whatever
form they may have been entered into, provided all the essential requisites for their
validity are present, and the Statute of Frauds simply provides the method by which the
contracts enumerated in Article 1403(2) may be proved, but it does not declare them
invalid just because they are not reduced to writing. Thus, the form required under the
Statute is for convenience or evidentiary purposes only.21

On the other hand, Article 2055 of the Civil Code also provides that a guaranty is not
presumed, but must be express, and cannot extend to more than what is stipulated
therein. This is the obvious rationale why a contract of guarantee is unenforceable unless
made in writing or evidenced by some writing. For as pointed out by Santia, Aglibot has
not shown any proof, such as a contract, a secretary’s certificate or a board resolution,
nor even a note or memorandum thereof, whereby it was agreed that she would issue her
personal checks in behalf of the company to guarantee the payment of its debt to Santia.
Certainly, there is nothing shown in the Promissory Note signed by Aglibot herself remotely
containing an agreement between her and PLCC resembling her guaranteeing its debt to
Santia. And neither is there a showing that PLCC thereafter ratified her act of
"guaranteeing" its indebtedness by issuing her own checks to Santia.
Thus did the CA reject the RTC’s ruling that Aglibot was a mere guarantor of the
indebtedness of PLCC, and as such could not "be compelled to pay [Santia], unless the
latter has exhausted all the property of PLCC, and has resorted to all the legal remedies
against PLCC x x x."22

Aglibot is an accommodation party and therefore liable to Santia

Section 185 of the Negotiable Instruments Law defines a check as "a bill of exchange
drawn on a bank payable on demand," while Section 126 of the said law defines a bill of
exchange as "an unconditional order in writing addressed by one person to another, signed
by the person giving it, requiring the person to whom it is addressed to pay on demand
or at a fixed or determinable future time a sum certain in money to order or to bearer."

The appellate court ruled that by issuing her own post-dated checks, Aglibot thereby
bound herself personally and solidarily to pay Santia, and dismissed her claim that she
issued her said checks in her official capacity as PLCC’s manager merely to guarantee the
investment of Santia. It noted that she could have issued PLCC’s checks, but instead she
chose to issue her own checks, drawn against her personal account with Metrobank. It
concluded that Aglibot intended to personally assume the repayment of the loan, pointing
out that in her Counter-Affidavit, she even admitted that she was personally indebted to
Santia, and only raised payment as her defense, a clear admission of her liability for the
said loan.

The appellate court refused to give credence to Aglibot’s claim that she had an
understanding with Santia that the checks would not be presented to the bank for
payment, but were to be returned to her once she had made cash payments for their face
values on maturity. It noted that Aglibot failed to present any proof that she had indeed
paid cash on the above checks as she claimed. This is precisely why Santia decided to
deposit the checks in order to obtain payment of his loan.

The facts below present a clear situation where Aglibot, as the manager of PLCC, agreed
to accommodate its loan to Santia by issuing her own post-dated checks in payment
thereof. She is what the Negotiable Instruments Law calls an accommodation
party.23 Concerning the liability of an accommodation party, Section 29 of the said law
provides:

Sec. 29. Liability of an accommodation party. — An accommodation party is one who has
signed the instrument as maker, drawer, acceptor, or indorser, without receiving value
therefor, and for the purpose of lending his name to some other person. Such a person is
liable on the instrument to a holder for value notwithstanding such holder at the time of
taking the instrument knew him to be only an accommodation party.

As elaborated in The Phil. Bank of Commerce v. Aruego:24

An accommodation party is one who has signed the instrument as maker, drawer,
indorser, without receiving value therefor and for the purpose of lending his name to some
other person. Such person is liable on the instrument to a holder for value,
notwithstanding such holder, at the time of the taking of the instrument knew him to be
only an accommodation party. In lending his name to the accommodated party, the
accommodation party is in effect a surety for the latter. He lends his name to enable the
accommodated party to obtain credit or to raise money. He receives no part of the
consideration for the instrument but assumes liability to the other parties thereto because
he wants to accommodate another. x x x.25 (Citation omitted)

The relation between an accommodation party and the party accommodated is, in effect,
one of principal and surety — the accommodation party being the surety. It is a settled
rule that a surety is bound equally and absolutely with the principal and is deemed an
original promisor and debtor from the beginning. The liability is immediate and direct.26 It
is not a valid defense that the accommodation party did not receive any valuable
consideration when he executed the instrument; nor is it correct to say that the holder for
value is not a holder in due course merely because at the time he acquired the instrument,
he knew that the indorser was only an accommodation party.27 1âwphi1

Moreover, it was held in Aruego that unlike in a contract of suretyship, the liability of the
accommodation party remains not only primary but also unconditional to a holder for
value, such that even if the accommodated party receives an extension of the period for
payment without the consent of the accommodation party, the latter is still liable for the
whole obligation and such extension does not release him because as far as a holder for
value is concerned, he is a solidary co-debtor.

The mere fact, then, that Aglibot issued her own checks to Santia made her personally
liable to the latter on her checks without the need for Santia to first go after PLCC for the
payment of its loan.28 It would have been otherwise had it been shown that Aglibot was a
mere guarantor, except that since checks were issued ostensibly in payment for the loan,
the provisions of the Negotiable Instruments Law must take primacy in application.

WHEREFORE, premises considered, the Petition for Review on Certiorari is DENIED and
the Decision dated March 18, 2008 of the Court of Appeals in CA-G.R. SP No. I 00021 is
hereby AFFIRMED.

SO ORDERED.

SECURITY BANK AND TRUST G.R. No. 170984

COMPANY,
Petitioner, Present:

QUISUMBING, Acting C.J.,

- versus - Chairperson,
CORONA,*
CARPIO MORALES,
RIZAL COMMERCIAL BANKING TINGA, and
CORPORATION, LEONARDO-DE CASTRO,** JJ.
Respondent.
x----------------------
---x
 G.R. No. 170987
RIZAL COMMERCIAL BANKING
CORPORATION,
Petitioner,

- versus - Promulgated:

January 30, 2009

SECURITY BANK AND TRUST
COMPANY,
Respondent.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

QUISUMBING, Acting C.J.:

Before us are opposing parties petitions for review of the Decision[1] dated March
29, 2005 and Resolution[2] dated December 12, 2005 of the Court of Appeals in CA-G.R.
CV No. 67387. The two petitions are herein consolidated as they stem from the same set
of factual circumstances.

The facts, as found by the trial and appellate courts, are as follows:

On January 9, 1981, Security Bank and Trust Company (SBTC) issued a managers
check for P8 million, payable to CASH, as proceeds of the loan granted to Guidon Construction
and Development Corporation (GCDC). On the same day, the P8-million check, along with
other checks, was deposited by Continental Manufacturing Corporation (CMC) in its Current
Account No. 0109-022888 with Rizal Commercial Banking Corporation (RCBC). Immediately,
RCBC honored the P8-million check and allowed CMC to withdraw the same.[3]

On the next banking day, January 12, 1981, GCDC issued a Stop Payment Order to
SBTC, claiming that the P8-million check was released to a third party by
mistake.Consequently, SBTC dishonored and returned the managers check to
RCBC. Thereafter, the check was returned back and forth between the two banks,
resulting in automatic debits and credits in each banks clearing balance.[4]

On February 13, 1981, RCBC filed a complaint[5] for damages against SBTC with the
then Court of First Instance of Rizal, Branch XXII. Said case was docketed as Civil Case
No. 1081 and later transferred to the Regional Trial Court (RTC) of Makati City, Branch
143.

Meanwhile, following the rules of the Philippine Clearing House, RCBC and SBTC
stopped returning the checks to each other. By way of a temporary arrangement pending
resolution of the case, the P8-million check was equally divided between, and credited to,
RCBC and SBTC.[6]
 On May 9, 2000, the RTC of Makati City, Branch 143, rendered a Decision[7] in favor
of RCBC. The dispositive portion of the decision reads:

PREMISES CONSIDERED, the Court renders judgment in favor of plaintiff

[RCBC] and finds defendant SBTC justly liable to [RCBC] and sentences
[SBTC] to pay [RCBC] the amount of:
1. PhP4,000,000.00 as and for actual damages;
2. PhP100,000.00 as and for attorneys fees; and,
3. the costs.
SO ORDERED.[8]

On appeal, the Court of Appeals affirmed with modification the above Decision, to wit:
WHEREFORE, the appealed Decision
is AFFIRMED with MODIFICATION. Appellant Security Bank and Trust Co.
shall pay appellee Rizal Commercial Banking Corporation not only the principal
amount of P4,000,000.00 but also interest thereon at (6%) per annum covering
appellees unearned income on interest computed from the time of filing of the
complaint on February 13, 1981 to the date of finality of this Decision. For lack
of factual and legal basis, the award of attorneys fees is DELETED.

SO ORDERED.[9]

Now for our resolution are the opposing parties petitions for review on certiorari of
the abovecited decision. On its part, SBTC alleges the following to support its petition:
I.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN REFUSING TO
APPLY THE LAW BECAUSE, IN ITS OPINION, TO DO SO WOULD RESULT IN AN
INJUSTICE.
II.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT TO
DETERMINE WHETHER OR NOT A BANK IS A HOLDER IN DUE COURSE, ONLY
THE NEGOTIABLE INSTRUMENTS LAW NEED BE APPLIED TO THE EXCLUSION
OF CENTRAL BANK RULES AND REGULATIONS.
III.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING TO NOTE
THAT THE MANAGERS CHECK IN QUESTION WAS ACCEPTED FOR DEPOSIT BY
THE RCBC AND WAS NOT ENCASHED BY THE PAYEE.
IV.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING TO
CONSIDER THAT PRIOR TO THE DEPOSIT OF THE CHECKS WORTH PhP53
MILLION, RCBC WAS HOLDING 43 CHECKS TOTALING P49,017,669.66
DRAWN BY CONTINENTAL MANUFACTURING CORPORATION AGAINST ITS
CURRENT ACCOUNT WHEN THE BALANCE OF THAT ACCOUNT WAS A
MERE P573.62.
V.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING TO
CONSIDER THAT THE CHECKS DEPOSITED WITH RCBC THE PROCEEDS OF
WHICH WERE IMMEDIATELY WITHDRAWN TO HONOR THE 43 CHECKS
TOTALING P49,017,669.66 DRAWN BY CONTINENTAL MANUFACTURING
CORPORATION ON ITS CURRENT ACCOUNT WERE NOT ALL MANAGERS
CHECK[S] BUT INCLUDED ORDINARY CHECKS IN THE TOTAL AMOUNT OF
PhP15,436,140.81.
VI.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING TO
CONSIDER THAT EACH OF THE 43 CHECKS DRAWN BY THE CONTINENTAL
MANUFACTURING CORPORATION WERE ALL HONORED BY RCBC ON THE
BASIS OF A MIXTURE OF ALL THE MANAGERS AND ORDINARY CHECKS
DEPOSITED ON THAT DAY OF 9 JANUARY 1981.
VII.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT
THE RCBC IS A HOLDER IN DUE COURSE.
VIII.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT
SBTC WAITED FOR THREE (3) DAYS TO NOTIFY THE RCBC OF THE STOP
PAYMENT ORDER.
IX.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT
SBTC SHOULD HAVE FIRST ACQUIRED PERSONAL KNOWLEDGE OF THE
FACTS WHICH GAVE RISE TO THE REQUEST FOR THE STOP PAYMENT ORDER
BEFORE HONORING SUCH REQUEST.
X.
THE HONORABLE COURT OF APPEALS RULED CORRECTLY IN REFUSING TO
HOLD SBTC LIABLE FOR DAMAGE CLAIMS BASED SOLELY ON SPECULATION,
CONJECTURE AND GUESSWORK.
XI.
THE HONORABLE COURT OF APPEALS RULED CORRECTLY IN HOLDING THAT
RCBC IS NOT ENTITLED TO EXEMPLARY DAMAGES.

XII.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING SBTC
LIABLE FOR THE ATTORNEYS FEES OF RCBC [SIC].[10]
On RCBCs part, the following issues are submitted for resolution:
I.
WHETHER OR NOT SBTC IS LIABLE FOR THE MANAGERS CHECK IT ISSUED.

II.
WHETHER OR NOT RCBC IS ENTITLED TO COMPENSATORY DAMAGES
EQUIVALENT TO THE INTEREST INCOME LOST AS A RESULT OF THE ILLEGAL
REFUSAL OF SBTC TO HONOR ITS OWN MANAGERS CHECK, AS WELL AS FOR
EXEMPLARY DAMAGES AND ATTORNEYS FEES.[11]

Simply stated, we find that in these consolidated petitions, the legal issues for our
resolution are: (1) Is SBTC liable to RCBC for the remaining P4 million? and (2) Is SBTC
liable to pay for lost interest income on the remaining P4 million, exemplary damages and
attorneys fees?

RCBC avers that the managers check issued by SBTC is substantially as good as the
money it represents because by its peculiar character, its issuance has the effect of an
advance acceptance. RCBC claims that it is a holder in due course when it credited the P8-
million managers check to CMCs account. Accordingly, RCBC asserts that SBTCs refusal
to honor its obligation justifies RCBC claim for lost interest income, exemplary damages
and attorneys fees.

On the other hand, SBTC contends that RCBC violated Monetary Board Resolution
No. 2202 of the Central Bank of the Philippines mandating all banks to verify the
genuineness and validity of all checks before allowing drawings of the same. SBTC insists
that RCBC should bear the consequences of allowing CMC to withdraw the amount of the
check before it was cleared.[12]

We shall rule on the issues seriatim.

At the outset, it must be noted that the questioned check issued by SBTC is not just
an ordinary check but a managers check. A managers check is one drawn by a banks
manager upon the bank itself. It stands on the same footing as a certified check,[13] which is
deemed to have been accepted by the bank that certified it.[14] As the banks own check, a
managers check becomes the primary obligation of the bank and is accepted in advance by
the act of its issuance.[15]

In this case, RCBC, in immediately crediting the amount of P8 million to CMCs account,
relied on the integrity and honor of the check as it is regarded in commercial
transactions. Where the questioned check, which was payable to Cash, appeared regular on
its face, and the bank found nothing unusual in the transaction, as the drawer usually issued
checks in big amounts made payable to cash, RCBC cannot be faulted in paying the value of
the questioned check.[16]
 In our considered view, SBTC cannot escape liability by invoking Monetary Board
Resolution No. 2202 dated December 21, 1979, prohibiting drawings against uncollected
deposits. For we must point out that the Central Bank at that time issued a Memorandum
dated July 9, 1980, which interpreted said Monetary Board Resolution No. 2202. In its
pertinent portion, said Memorandum reads:

MEMORANDUM TO ALL BANKS

July 9, 1980

For the guidance of all concerned, Monetary Board Resolution No. 2202 dated
December 31, 1979 prohibiting, as a matter of policy, drawing against
uncollected deposit effective July 1, 1980,uncollected deposits
representing managers cashiers/ treasurers checks, treasury warrants, postal
money orders and duly funded on us checks which may be permitted at the
discretion of each bank, covers drawings against demand deposits as well as
withdrawals from savings deposits.[17]

Thus, it is clear from the July 9, 1980 Memorandum that banks were given the
discretion to allow immediate drawings on uncollected deposits of managers checks,
among others. Consequently, RCBC, in allowing the immediate withdrawal against the
subject managers check, only exercised a prerogative expressly granted to it by the
Monetary Board.

Moreover, neither Monetary Board Resolution No. 2202 nor the July 9,
1980 Memorandum alters the extraordinary nature of the managers check and the relative
rights of the parties thereto. SBTCs liability as drawer remains the same − by drawing the
instrument, it admits the existence of the payee and his then capacity to indorse; and
engages that on due presentment, the instrument will be accepted, or paid, or both,
according to its tenor.[18]

Concerning RCBCs claim for lost interest income on the remaining P4 million, this is
already covered by the amount of damages in the form of legal interest of 6%, based on
Article 2200[19] and 2209[20] of the Civil Code of the Philippines, as awarded by the Court
of Appeals in its decision.

In addition to the above-mentioned award of compensatory damages, we also find

merit in the need to award exemplary damages in order to set an example for the public
good. The banking system has become an indispensable institution in the modern world
and plays a vital role in the economic life of every civilized society. Whether as mere
passive entities for the safe-keeping and saving of money or as active instruments of
business and commerce, banks have attained an ubiquitous presence among the people,
who have come to regard them with respect and even gratitude and, above all, trust and
confidence. In this connection, it is important that banks should guard against injury
attributable to negligence or bad faith on its part. As repeatedly emphasized, since the
banking business is impressed with public interest, the trust and confidence of the public
in it is of paramount importance. Consequently, the highest degree of diligence is
expected, and high standards of integrity and performance are required of it. SBTC having
failed in this respect, the award of exemplary damages to RCBC in the
amountof P50,000.00 is warranted.[21]

Pursuant to current jurisprudence, with the finding of liability for exemplary

damages, attorneys fees in the amount of P25,000.00[22] must also be awarded against
SBTC and in favor of RCBC.

WHEREFORE, the assailed Decision dated March 29, 2005 and Resolution
dated December 12, 2005 of the Court of Appeals in CA-G.R. CV No. 67387 is
hereby AFFIRMED with MODIFICATION. Security Bank and Trust Company is
orderedto pay Rizal Commercial Banking Corporation: (1) the remaining P4,000,000.00,
with legal interest thereon at six percent (6%) per annum from the time of filing of the
complaint on February 13, 1981 to the date of finality of this Decision; (2) exemplary
damages of P50,000.00; and (3) attorneys fees of P25,000.00.

No pronouncement as to costs.

SO ORDERED.

ALLIED BANKING G.R. No. 133179

CORPORATION,
Petitioner, Present:
QUISUMBING, J., Chairperson,
- versus - CARPIO MORALES,
TINGA,
VELASCO, JR., and
CHICO-NAZARIO,* JJ.
LIM SIO WAN, METROPOLITAN
BANK AND TRUST CO., and Promulgated:
PRODUCERS BANK,
Respondents. March 27, 2008
x-----------------------------------------------------------------------------------------x

DECISION

VELASCO, JR., J.:

To ingratiate themselves to their valued depositors, some banks at times bend over
backwards that they unwittingly expose themselves to great risks.
The Case

This Petition for Review on Certiorari under Rule 45 seeks to reverse the Court of
Appeals (CAs) Decision promulgated on March 18, 1998[1] in CA-G.R. CV No. 46290
entitled Lim Sio Wan v. Allied Banking Corporation, et al. The CA Decision modified the
Decision dated November 15, 1993[2] of the Regional Trial Court (RTC), Branch 63
in Makati City rendered in Civil Case No. 6757.
The Facts

The facts as found by the RTC and affirmed by the CA are as follows:

On November 14, 1983, respondent Lim Sio Wan deposited with petitioner Allied Banking
Corporation (Allied) at its Quintin Paredes Branch in Manila a money market placement of
PhP 1,152,597.35 for a term of 31 days to mature on December 15, 1983,[3] as evidenced
by Provisional Receipt No. 1356 dated November 14, 1983.[4]

On December 5, 1983, a person claiming to be Lim Sio Wan called up Cristina So, an
officer of Allied, and instructed the latter to pre-terminate Lim Sio Wans money market
placement, to issue a managers check representing the proceeds of the placement, and
to give the check to one Deborah Dee Santos who would pick up the check. [5] Lim Sio Wan
described the appearance of Santos so that So could easily identify her.[6]

Later, Santos arrived at the bank and signed the application form for a managers check
to be issued.[7] The bank issued Managers Check No. 035669 for PhP 1,158,648.49,
representing the proceeds of Lim Sio Wans money market placement in the name of Lim
Sio Wan, as payee.[8] The check was cross-checked For Payees Account Only and given
to Santos.[9]

Thereafter, the managers check was deposited in the account of Filipinas Cement
Corporation (FCC) at respondent Metropolitan Bank and Trust Co. (Metrobank), [10] with
the forged signature of Lim Sio Wan as indorser.[11]

Earlier, on September 21, 1983, FCC had deposited a money market placement for PhP 2
million with respondent Producers Bank. Santos was the money market trader assigned
to handle FCCs account.[12] Such deposit is evidenced by Official Receipt No.
317568[13] and a Letter dated September 21, 1983 of Santos addressed to Angie Lazo of
FCC, acknowledging receipt of the placement.[14] The placement matured on October 25,
1983 and was rolled-over until December 5, 1983 as evidenced by a Letter dated October
25, 1983.[15] When the placement matured, FCC demanded the payment of the proceeds
of the placement.[16] On December 5, 1983, the same date that So received the phone
call instructing her to pre-terminate Lim Sio Wans placement, the managers check in the
name of Lim Sio Wan was deposited in the account of FCC, purportedly representing the
proceeds of FCCs money market placement with Producers Bank.[17] In other words, the
Allied check was deposited with Metrobank in the account of FCC as Producers Banks
payment of its obligation to FCC.
To clear the check and in compliance with the requirements of the Philippine Clearing
House Corporation (PCHC) Rules and Regulations, Metrobank stamped a guaranty on the
check, which reads: All prior endorsements and/or lack of endorsement guaranteed.[18]

The check was sent to Allied through the PCHC. Upon the presentment of the check, Allied
funded the check even without checking the authenticity of Lim Sio Wans purported
indorsement. Thus, the amount on the face of the check was credited to the account of
FCC.[19]

On December 9, 1983, Lim Sio Wan deposited with Allied a second money market
placement to mature on January 9, 1984.[20]

On December 14, 1983, upon the maturity date of the first money market placement, Lim
Sio Wan went to Allied to withdraw it.[21] She was then informed that the placement had
been pre-terminated upon her instructions. She denied giving any instructions and
receiving the proceeds thereof. She desisted from further complaints when she was
assured by the banks manager that her money would be recovered.[22]

When Lim Sio Wans second placement matured on January 9, 1984, So called Lim Sio
Wan to ask for the latters instructions on the second placement. Lim Sio Wan instructed
So to roll-over the placement for another 30 days.[23] On January 24, 1984, Lim Sio Wan,
realizing that the promise that her money would be recovered would not materialize, sent
a demand letter to Allied asking for the payment of the first placement. [24] Allied refused
to pay Lim Sio Wan, claiming that the latter had authorized the pre-termination of the
placement and its subsequent release to Santos.[25]

Consequently, Lim Sio Wan filed with the RTC a Complaint dated February 13,
1984[26] docketed as Civil Case No. 6757 against Allied to recover the proceeds of her first
money market placement. Sometime in February 1984, she withdrew her second
placement from Allied.

Allied filed a third party complaint[27] against Metrobank and Santos. In turn, Metrobank
filed a fourth party complaint[28] against FCC. FCC for its part filed a fifth party
complaint[29] against Producers Bank. Summonses were duly served upon all the parties
except for Santos, who was no longer connected with Producers Bank.[30]

On May 15, 1984, or more than six (6) months after funding the check, Allied informed
Metrobank that the signature on the check was forged.[31] Thus, Metrobank withheld the
amount represented by the check from FCC. Later on, Metrobank agreed to release the
amount to FCC after the latter executed an Undertaking, promising to indemnify
Metrobank in case it was made to reimburse the amount.[32]

Lim Sio Wan thereafter filed an amended complaint to include Metrobank as a party-
defendant, along with Allied.[33] The RTC admitted the amended complaint despite the
opposition of Metrobank.[34] Consequently, Allieds third party complaint against Metrobank
was converted into a cross-claim and the latters fourth party complaint against FCC was
converted into a third party complaint.[35]

After trial, the RTC issued its Decision, holding as follows:

WHEREFORE, judgment is hereby rendered as follows:

1. Ordering defendant Allied Banking Corporation to pay plaintiff the amount

of P1,158,648.49 plus 12% interest per annum from March 16, 1984 until fully
paid;
2. Ordering defendant Allied Bank to pay plaintiff the amount of P100,000.00
by way of moral damages;
3. Ordering defendant Allied Bank to pay plaintiff the amount of P173,792.20
by way of attorneys fees; and,
4. Ordering defendant Allied Bank to pay the costs of suit.

Defendant Allied Banks cross-claim against defendant Metrobank is

DISMISSED.

Likewise defendant Metrobanks third-party complaint as against Filipinas

Cement Corporation is DISMISSED.

Filipinas Cement Corporations fourth-party complaint against Producers Bank

is also DISMISSED.

SO ORDERED.[36]
The Decision of the Court of Appeals

Allied appealed to the CA, which in turn issued the assailed Decision on March 18, 1998,
modifying the RTC Decision, as follows:

WHEREFORE, premises considered, the decision appealed from is MODIFIED.

Judgment is rendered ordering and sentencing defendant-appellant Allied
Banking Corporation to pay sixty (60%) percent and defendant-appellee
Metropolitan Bank and Trust Company forty (40%) of the amount of
P1,158,648.49 plus 12% interest per annum from March 16, 1984 until fully
paid. The moral damages, attorneys fees and costs of suit adjudged shall
likewise be paid by defendant-appellant Allied Banking Corporation and
defendant-appellee Metropolitan Bank and Trust Company in the same
 proportion of 60-40. Except as thus modified, the decision appealed from is
AFFIRMED.

SO ORDERED.[37]

Hence, Allied filed the instant petition.

The Issues

Allied raises the following issues for our consideration:

The Honorable Court of Appeals erred in holding that Lim Sio Wan did
not authorize [Allied] to pre-terminate the initial placement and to deliver the
check to Deborah Santos.

The Honorable Court of Appeals erred in absolving Producers Bank of

any liability for the reimbursement of amount adjudged demandable.

The Honorable Court of Appeals erred in holding [Allied] liable to the

extent of 60% of amount adjudged demandable in clear disregard to the
ultimate liability of Metrobank as guarantor of all endorsement on the check,
it being the collecting bank.[38]

The petition is partly meritorious.

A Question of Fact

Allied questions the finding of both the trial and appellate courts that Allied was not
authorized to release the proceeds of Lim Sio Wans money market placement
to Santos.Allied clearly raises a question of fact. When the CA affirms the findings of fact
of the RTC, the factual findings of both courts are binding on this Court.[39]

We also agree with the CA when it said that it could not disturb the trial courts findings
on the credibility of witness So inasmuch as it was the trial court that heard the witness
and had the opportunity to observe closely her deportment and manner of
testifying. Unless the trial court had plainly overlooked facts of substance or value, which,
if considered, might affect the result of the case,[40] we find it best to defer to the trial
court on matters pertaining to credibility of witnesses.
Additionally, this Court has held that the matter of negligence is also a factual
question.[41] Thus, the finding of the RTC, affirmed by the CA, that the respective parties
were negligent in the exercise of their obligations is also conclusive upon this Court.
The Liability of the Parties

As to the liability of the parties, we find that Allied is liable to Lim Sio Wan. Fundamental
and familiar is the doctrine that the relationship between a bank and a client is one of
debtor-creditor.

Articles 1953 and 1980 of the Civil Code provide:

Art. 1953. A person who receives a loan of money or any other fungible thing
acquires the ownership thereof, and is bound to pay to the creditor an equal
amount of the same kind and quality.

Art. 1980. Fixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loan.

Thus, we have ruled in a line of cases that a bank deposit is in the nature of a simple
loan or mutuum.[42] More succinctly, in Citibank, N.A. (Formerly First National City Bank)
v. Sabeniano, this Court ruled that a money market placement is a simple loan or
mutuum.[43] Further, we defined a money market in Cebu International Finance
Corporation v. Court of Appeals, as follows:

[A] 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 man or dealer in open
market. In a money market transaction, the investor is a lender who loans his
money to a borrower through a middleman or dealer.

In the case at bar, the money market transaction between the petitioner
and the private respondent is in the nature of a loan.[44]

Lim Sio Wan, as creditor of the bank for her money market placement, is entitled to
payment upon her request, or upon maturity of the placement, or until the bank is released
from its obligation as debtor. Until any such event, the obligation of Allied to Lim Sio Wan
remains unextinguished.

Art. 1231 of the Civil Code enumerates the instances when obligations are
considered extinguished, thus:

Art. 1231. Obligations are extinguished:

(1) By payment or performance;

(2) By the loss of the thing due;
(3) By the condonation or remission of the debt;
 (4) By the confusion or merger of the rights of creditor
and debtor;
(5) By compensation;
(6) By novation.

Other causes of extinguishment of obligations, such as annulment,

rescission, fulfillment of a resolutory condition, and prescription, are governed
elsewhere in this Code. (Emphasis supplied.)

From the factual findings of the trial and appellate courts that Lim Sio Wan did not
authorize the release of her money market placement to Santos and the bank had been
negligent in so doing, there is no question that the obligation of Allied to pay Lim Sio Wan
had not been extinguished. Art. 1240 of the Code states that payment shall be made to
the person in whose favor the obligation has been constituted, or his successor in interest,
or any person authorized to receive it. As commented by Arturo Tolentino:

Payment made by the debtor to a wrong party does not extinguish the
obligation as to the creditor, if there is no fault or negligence which can be
imputed to the latter. Even when the debtor acted in utmost good faith and
by mistake as to the person of his creditor, or through error induced by the
fraud of a third person, the payment to one who is not in fact his creditor, or
authorized to receive such payment, is void, except as provided in Article
1241. Such payment does not prejudice the creditor, and accrual of
interest is not suspended by it.[45](Emphasis supplied.)

Since there was no effective payment of Lim Sio Wans money market placement, the bank
still has an obligation to pay her at six percent (6%) interest from March 16, 1984 until
the payment thereof.

We cannot, however, say outright that Allied is solely liable to Lim Sio Wan.

Allied claims that Metrobank is the proximate cause of the loss of Lim Sio Wans money. It
points out that Metrobank guaranteed all prior indorsements inscribed on the managers
check, and without Metrobanks guarantee, the present controversy would never have
occurred. According to Allied:

Failure on the part of the collecting bank to ensure that the proceeds of the
check is paid to the proper party is, aside from being an efficient intervening
cause, also the last negligent act, x x x contributory to the injury caused in
the present case, which thereby leads to the conclusion that it is the collecting
bank, Metrobank that is the proximate cause of the alleged loss of the plaintiff
in the instant case.[46]

We are not persuaded.

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.[47] Thus, there is an efficient supervening event if the event breaks the
sequence leading from the cause to the ultimate result. To determine the proximate cause
of a controversy, the question that needs to be asked is: If the event did not happen,
would the injury have resulted? If the answer is NO, then the event is the proximate cause.

In the instant case, Allied avers that even if it had not issued the check payment, the
money represented by the check would still be lost because of Metrobanks negligence in
indorsing the check without verifying the genuineness of the indorsement thereon.

Section 66 in relation to Sec. 65 of the Negotiable Instruments Law provides:

Section 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. Warranty where negotiation by delivery, so forth.Every

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

a) That the instrument is genuine and in all respects what

it purports to be;
b) That he has a good title of it;
c) That all prior parties had capacity to contract;
d) That he has no knowledge of any fact which would impair the
validity of the instrument or render it valueless.

But when the negotiation is by delivery only, the warranty extends in

favor of no holder other than the immediate transferee.
 The provisions of subdivision (c) of this section do not apply to persons
negotiating public or corporation securities, other than bills and
notes. (Emphasis supplied.)

The warranty that the instrument is genuine and in all respects what it purports to be
covers all the defects in the instrument affecting the validity thereof, including a forged
indorsement. Thus, the last indorser will be liable for the amount indicated in the
negotiable instrument even if a previous indorsement was forged. We held in a line of
cases that a collecting bank which indorses a check bearing a forged indorsement and
presents it to the drawee bank guarantees all prior indorsements, including the forged
indorsement itself, and ultimately should be held liable therefor.[48]

However, this general rule is subject to exceptions. One such exception is when the
issuance of the check itself was attended with negligence. Thus, in the cases cited above
where the collecting bank is generally held liable, in two of the cases where the checks
were negligently issued, this Court held the institution issuing the check just as liable as
or more liable than the collecting bank.

In isolated cases where the checks were deposited in an account other than that of the
payees on the strength of forged indorsements, we held the collecting bank solely liable
for the whole amount of the checks involved for having indorsed the same. In Republic
Bank v. Ebrada,[49] the check was properly issued by the Bureau of Treasury. While
in Banco de Oro Savings and Mortgage Bank (Banco de Oro) v. Equitable Banking
Corporation,[50] Banco de Oro admittedly issued the checks in the name of the correct
payees.And in Traders Royal Bank v. Radio Philippines Network, Inc.,[51] the checks were
issued at the request of Radio Philippines Network, Inc. from Traders Royal Bank.
However, in Bank of the Philippine Islands v. Court of Appeals, we said that the drawee
bank is liable for 60% of the amount on the face of the negotiable instrument and the
collecting bank is liable for 40%. We also noted the relative negligence exhibited by two
banks, to wit:

Both banks were negligent in the selection and supervision of their

employees resulting in the encashment of the forged checks by an impostor.
Both banks were not able to overcome the presumption of negligence in the
selection and supervision of their employees. It was the gross negligence of
the employees of both banks which resulted in the fraud and the subsequent
loss. While it is true that petitioner BPIs negligence may have been the
proximate cause of the loss, respondent CBCs negligence contributed equally
to the success of the impostor in encashing the proceeds of the forged checks.
Under these circumstances, we apply Article 2179 of the Civil Code to the
effect that while respondent CBC may recover its losses, such losses are
 subject to mitigation by the courts. (See Phoenix Construction Inc. v.
Intermediate Appellate Courts, 148 SCRA 353 [1987]).

Considering the comparative negligence of the two (2) banks, we rule

that the demands of substantial justice are satisfied by allocating the loss of
P2,413,215.16 and the costs of the arbitration proceeding in the amount of
P7,250.00 and the cost of litigation on a 60-40 ratio.[52]

Similarly, we ruled in Associated Bank v. Court of Appeals that the issuing institution and
the collecting bank should equally share the liability for the loss of amount represented
by the checks concerned due to the negligence of both parties:

The Court finds as reasonable, the proportionate sharing of fifty percent-fifty

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

The collecting bank, Associated Bank, shall be liable to PNB for fifty
(50%) percent of P203,300.00. It is liable on its warranties as indorser of the
checks which were deposited by Fausto Pangilinan, having guaranteed the
genuineness of all prior indorsements, including that of the chief of the payee
hospital, Dr. Adena Canlas. Associated Bank was also remiss in its duty to
ascertain the genuineness of the payees indorsement.[53]

A reading of the facts of the two immediately preceding cases would reveal that the reason
why the bank or institution which issued the check was held partially liable for the amount
of the check was because of the negligence of these parties which resulted in the issuance
of the checks.
In the instant case, the trial court correctly found Allied negligent in issuing the managers
check and in transmitting it to Santos without even a written authorization.[54] In fact,
Allied did not even ask for the certificate evidencing the money market placement or call
up Lim Sio Wan at her residence or office to confirm her instructions. Both actions could
have prevented the whole fraudulent transaction from unfolding. Allieds negligence must
be considered as the proximate cause of the resulting loss.
To reiterate, had Allied exercised the diligence due from a financial institution, the check
would not have been issued and no loss of funds would have resulted. In fact, there would
have been no issuance of indorsement had there been no check in the first place.

The liability of Allied, however, is concurrent with that of Metrobank as the last indorser
of the check. When Metrobank indorsed the check in compliance with the PCHC Rules and
Regulations[55] without verifying the authenticity of Lim Sio Wans indorsement and when
it accepted the check despite the fact that it was cross-checked payable to payees account
only,[56] its negligent and cavalier indorsement contributed to the easier release of Lim Sio
Wans money and perpetuation of the fraud. Given the relative participation of Allied and
Metrobank to the instant case, both banks cannot be adjudged as equally liable. Hence,
the 60:40 ratio of the liabilities of Allied and Metrobank, as ruled by the CA, must be
upheld.

FCC, having no participation in the negotiation of the check and in the forgery of Lim Sio
Wans indorsement, can raise the real defense of forgery as against both banks.[57]

As to Producers Bank, Allied Banks argument that Producers Bank must be held
liable as employer of Santos under Art. 2180 of the Civil Code is erroneous. Art. 2180
pertains to the vicarious liability of an employer for quasi-delicts that an employee has
committed. Such provision of law does not apply to civil liability arising from delict.

One also cannot apply the principle of subsidiary liability in Art. 103 of the Revised
Penal Code in the instant case. Such liability on the part of the employer for the civil aspect
of the criminal act of the employee is based on the conviction of the employee for a crime.
Here, there has been no conviction for any crime.

As to the claim that there was unjust enrichment on the part of Producers Bank, the
same is correct. Allied correctly claims in its petition that Producers Bank should reimburse
Allied for whatever judgment that may be rendered against it pursuant to Art. 22 of the
Civil Code, which provides: Every person who through an act of performance by another,
or any other means, acquires or comes into possession of something at the expense of
the latter without just cause or legal ground, shall return the same to him.

The above provision of law was clarified in Reyes v. Lim, where we ruled that [t]here
is unjust enrichment when a person unjustly retains a benefit to the loss of another, or
when a person retains money or property of another against the fundamental principles
of justice, equity and good conscience.[58]
 In Tamio v. Ticson, we further clarified the principle of unjust enrichment, thus:
Under Article 22 of the Civil Code, there is unjust enrichment when (1) a person is unjustly
benefited, and (2) such benefit is derived at the expense of or with damages to another.[59]

In the instant case, Lim Sio Wans money market placement in Allied Bank was pre-
terminated and withdrawn without her consent. Moreover, the proceeds of the placement
were deposited in Producers Banks account in Metrobank without any justification. In other
words, there is no reason that the proceeds of Lim Sio Wans placement should be
deposited in FCCs account purportedly as payment for FCCs money market placement and
interest in Producers Bank. With such payment, Producers Banks indebtedness to FCC was
extinguished, thereby benefitting the former. Clearly, Producers Bank was unjustly
enriched at the expense of Lim Sio Wan. Based on the facts and circumstances of the
case, Producers Bank should reimburse Allied and Metrobank for the amounts the two
latter banks are ordered to pay Lim Sio Wan.

It cannot be validly claimed that FCC, and not Producers Bank, should be considered
as hving been unjustly enriched. It must be remembered that FCCs money market
placement with Producers Bank was already due and demandable; thus, Producers Banks
payment thereof was justified. FCC was entitled to such payment. As earlier stated, the
fact that the indorsement on the check was forged cannot be raised against FCC which was
not a part in any stage of the negotiation of the check. FCC was not unjustly enriched.

From the facts of the instant case, we see that Santos could be the architect of the
entire controversy. Unfortunately, since summons had not been served on Santos, the
courts have not acquired jurisdiction over her.[60] We, therefore, cannot ascribe to her
liability in the instant case.

Clearly, Producers Bank must be held liable to Allied and Metrobank for the amount
of the check plus 12% interest per annum, moral damages, attorneys fees, and costs of
suit which Allied and Metrobank are adjudged to pay Lim Sio Wan based on a proportion
of 60:40.

WHEREFORE, the petition is PARTLY GRANTED. The March 18, 1998 CA Decision
in CA-G.R. CV No. 46290 and the November 15, 1993 RTC Decision in Civil Case No. 6757
are AFFIRMED with MODIFICATION.

Thus, the CA Decision is AFFIRMED, the fallo of which is reproduced, as follows:

 WHEREFORE, premises considered, the decision appealed from is MODIFIED.
Judgment is rendered ordering and sentencing defendant-appellant Allied
Banking Corporation to pay sixty (60%) percent and defendant-appellee
Metropolitan Bank and Trust Company forty (40%) of the amount of
P1,158,648.49 plus 12% interest per annum from March 16, 1984 until fully
paid. The moral damages, attorneys fees and costs of suit adjudged shall
likewise be paid by defendant-appellant Allied Banking Corporation and
defendant-appellee Metropolitan Bank and Trust Company in the same
proportion of 60-40. Except as thus modified, the decision appealed from is
AFFIRMED.

SO ORDERED.

Additionally and by way of MODIFICATION, Producers Bank is hereby ordered to

pay Allied and Metrobank the aforementioned amounts. The liabilities of the parties are
concurrent and independent of each other.

SO ORDERED.

[G.R. No. 138569. September 11, 2003]

THE CONSOLIDATED BANK and TRUST CORPORATION, petitioner, vs. COURT OF

APPEALS and L.C. DIAZ and COMPANY, CPAs, respondents.

DECISION
CARPIO, J.:

The Case

Before us is a petition for review of the Decision[1] of the Court of Appeals dated 27
October 1998 and its Resolution dated 11 May 1999. The assailed decision reversed the
Decision[2]of the Regional Trial Court of Manila, Branch 8, absolving petitioner
Consolidated Bank and Trust Corporation, now known as Solidbank Corporation
(Solidbank), of any liability. The questioned resolution of the appellate court denied the
motion for reconsideration of Solidbank but modified the decision by deleting the award
of exemplary damages, attorneys fees, expenses of litigation and cost of suit.

The Facts
 Solidbank is a domestic banking corporation organized and existing under Philippine
laws. Private respondent L.C. Diaz and Company, CPAs (L.C. Diaz), is a professional
partnership engaged in the practice of accounting.
Sometime in March 1976, L.C. Diaz opened a savings account with Solidbank,
designated as Savings Account No. S/A 200-16872-6.
On 14 August 1991, L.C. Diaz through its cashier, Mercedes Macaraya (Macaraya),
filled up a savings (cash) deposit slip for P990 and a savings (checks) deposit slip
for P50.Macaraya instructed the messenger of L.C. Diaz, Ismael Calapre (Calapre), to
deposit the money with Solidbank. Macaraya also gave Calapre the Solidbank passbook.
Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips and the
passbook. The teller acknowledged receipt of the deposit by returning to Calapre the
duplicate copies of the two deposit slips. Teller No. 6 stamped the deposit slips with the
words DUPLICATE and SAVING TELLER 6 SOLIDBANK HEAD OFFICE. Since the transaction
took time and Calapre had to make another deposit for L.C. Diaz with Allied Bank, he left
the passbook with Solidbank. Calapre then went to Allied Bank. When Calapre returned to
Solidbank to retrieve the passbook, Teller No. 6 informed him that somebody got the
passbook.[3] Calapre went back to L.C. Diaz and reported the incident to Macaraya.
Macaraya immediately prepared a deposit slip in duplicate copies with a check
of P200,000. Macaraya, together with Calapre, went to Solidbank and presented to Teller
No. 6 the deposit slip and check. The teller stamped the words DUPLICATE and SAVING
TELLER 6 SOLIDBANK HEAD OFFICE on the duplicate copy of the deposit slip. When
Macaraya asked for the passbook, Teller No. 6 told Macaraya that someone got the
passbook but she could not remember to whom she gave the passbook. When Macaraya
asked Teller No. 6 if Calapre got the passbook, Teller No. 6 answered that someone shorter
than Calapre got the passbook. Calapre was then standing beside Macaraya.
Teller No. 6 handed to Macaraya a deposit slip dated 14 August 1991 for the deposit
of a check for P90,000 drawn on Philippine Banking Corporation (PBC). This PBC check of
L.C. Diaz was a check that it had long closed.[4] PBC subsequently dishonored the check
because of insufficient funds and because the signature in the check differed from PBCs
specimen signature. Failing to get back the passbook, Macaraya went back to her office
and reported the matter to the Personnel Manager of L.C. Diaz, Emmanuel Alvarez.
The following day, 15 August 1991, L.C. Diaz through its Chief Executive Officer, Luis
C. Diaz (Diaz), called up Solidbank to stop any transaction using the same passbook until
L.C. Diaz could open a new account.[5] On the same day, Diaz formally wrote Solidbank to
make the same request. It was also on the same day that L.C. Diaz learned of the
unauthorized withdrawal the day before, 14 August 1991, of P300,000 from its savings
account. The withdrawal slip for the P300,000 bore the signatures of the authorized
signatories of L.C. Diaz, namely Diaz and Rustico L. Murillo. The signatories, however,
denied signing the withdrawal slip. A certain Noel Tamayo received the P300,000.
In an Information[6] dated 5 September 1991, L.C. Diaz charged its messenger,
Emerano Ilagan (Ilagan) and one Roscon Verdazola with Estafa through Falsification of
Commercial Document. The Regional Trial Court of Manila dismissed the criminal case
after the City Prosecutor filed a Motion to Dismiss on 4 August 1992.
On 24 August 1992, L.C. Diaz through its counsel demanded from Solidbank the return
of its money. Solidbank refused.
 On 25 August 1992, L.C. Diaz filed a Complaint[7] for Recovery of a Sum of Money
against Solidbank with the Regional Trial Court of Manila, Branch 8. After trial, the trial
court rendered on 28 December 1994 a decision absolving Solidbank and dismissing the
complaint.
L.C. Diaz then appealed[8] to the Court of Appeals. On 27 October 1998, the Court of
Appeals issued its Decision reversing the decision of the trial court.
On 11 May 1999, the Court of Appeals issued its Resolution denying the motion for
reconsideration of Solidbank. The appellate court, however, modified its decision by
deleting the award of exemplary damages and attorneys fees.

The Ruling of the Trial Court

In absolving Solidbank, the trial court applied the rules on savings account written on
the passbook. The rules state that possession of this book shall raise the presumption of
ownership and any payment or payments made by the bank upon the production of the
said book and entry therein of the withdrawal shall have the same effect as if made to the
depositor personally.[9]
At the time of the withdrawal, a certain Noel Tamayo was not only in possession of the
passbook, he also presented a withdrawal slip with the signatures of the authorized
signatories of L.C. Diaz. The specimen signatures of these persons were in the signature
cards. The teller stamped the withdrawal slip with the words Saving Teller No. 5. The teller
then passed on the withdrawal slip to Genere Manuel (Manuel) for authentication. Manuel
verified the signatures on the withdrawal slip. The withdrawal slip was then given to
another officer who compared the signatures on the withdrawal slip with the specimen on
the signature cards. The trial court concluded that Solidbank acted with care and observed
the rules on savings account when it allowed the withdrawal of P300,000 from the savings
account of L.C. Diaz.
The trial court pointed out that the burden of proof now shifted to L.C. Diaz to prove
that the signatures on the withdrawal slip were forged. The trial court admonished L.C.
Diaz for not offering in evidence the National Bureau of Investigation (NBI) report on the
authenticity of the signatures on the withdrawal slip for P300,000. The trial court believed
that L.C. Diaz did not offer this evidence because it is derogatory to its action.
Another provision of the rules on savings account states that the depositor must keep
the passbook under lock and key.[10] When another person presents the passbook for
withdrawal prior to Solidbanks receipt of the notice of loss of the passbook, that person is
considered as the owner of the passbook. The trial court ruled that the passbook presented
during the questioned transaction was now out of the lock and key and presumptively
ready for a business transaction.[11]
Solidbank did not have any participation in the custody and care of the passbook. The
trial court believed that Solidbanks act of allowing the withdrawal of P300,000 was not
the direct and proximate cause of the loss. The trial court held that L.C. Diazs negligence
caused the unauthorized withdrawal. Three facts establish L.C. Diazs negligence: (1) the
possession of the passbook by a person other than the depositor L.C. Diaz; (2) the
presentation of a signed withdrawal receipt by an unauthorized person; and (3) the
possession by an unauthorized person of a PBC check long closed by L.C. Diaz, which
check was deposited on the day of the fraudulent withdrawal.
The trial court debunked L.C. Diazs contention that Solidbank did not follow the
precautionary procedures observed by the two parties whenever L.C. Diaz withdrew
significant amounts from its account. L.C. Diaz claimed that a letter must accompany
withdrawals of more than P20,000. The letter must request Solidbank to allow the
withdrawal and convert the amount to a managers check. The bearer must also have a
letter authorizing him to withdraw the same amount. Another person driving a car must
accompany the bearer so that he would not walk from Solidbank to the office in making
the withdrawal. The trial court pointed out that L.C. Diaz disregarded these precautions in
its past withdrawal. On 16 July 1991, L.C. Diaz withdrew P82,554 without any separate
letter of authorization or any communication with Solidbank that the money be converted
into a managers check.
The trial court further justified the dismissal of the complaint by holding that the case
was a last ditch effort of L.C. Diaz to recover P300,000 after the dismissal of the criminal
case against Ilagan.
The dispositive portion of the decision of the trial court reads:

IN VIEW OF THE FOREGOING, judgment is hereby rendered DISMISSING the complaint.

The Court further renders judgment in favor of defendant bank pursuant to its
counterclaim the amount of Thirty Thousand Pesos (P30,000.00) as attorneys fees.

With costs against plaintiff.

SO ORDERED.[12]

The Ruling of the Court of Appeals

The Court of Appeals ruled that Solidbanks negligence was the proximate cause of the
unauthorized withdrawal of P300,000 from the savings account of L.C. Diaz. The appellate
court reached this conclusion after applying the provision of the Civil Code on quasi-delict,
to wit:

Article 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no
pre-existing contractual relation between the parties, is called a quasi-delict and is
governed by the provisions of this chapter.

The appellate court held that the three elements of a quasi-delict are present in this case,
namely: (a) damages suffered by the plaintiff; (b) fault or negligence of the defendant, or
some other person for whose acts he must respond; and (c) the connection of cause and
effect between the fault or negligence of the defendant and the damage incurred by the
plaintiff.
The Court of Appeals pointed out that the teller of Solidbank who received the
withdrawal slip for P300,000 allowed the withdrawal without making the necessary
inquiry. The appellate court stated that the teller, who was not presented by Solidbank
during trial, should have called up the depositor because the money to be withdrawn was
a significant amount. Had the teller called up L.C. Diaz, Solidbank would have known that
the withdrawal was unauthorized. The teller did not even verify the identity of the impostor
who made the withdrawal. Thus, the appellate court found Solidbank liable for its
negligence in the selection and supervision of its employees.
The appellate court ruled that while L.C. Diaz was also negligent in entrusting its
deposits to its messenger and its messenger in leaving the passbook with the
teller, Solidbank could not escape liability because of the doctrine of last clear chance.
Solidbank could have averted the injury suffered by L.C. Diaz had it called up L.C. Diaz to
verify the withdrawal.
The appellate court ruled that the degree of diligence required from Solidbank is more
than that of a good father of a family. The business and functions of banks are affected
with public interest. Banks are obligated to treat the accounts of their depositors with
meticulous care, always having in mind the fiduciary nature of their relationship with their
clients. The Court of Appeals found Solidbank remiss in its duty, violating its fiduciary
relationship with L.C. Diaz.
The dispositive portion of the decision of the Court of Appeals reads:

WHEREFORE, premises considered, the decision appealed from is hereby REVERSED and
a new one entered.

1. Ordering defendant-appellee Consolidated Bank and Trust Corporation to pay

plaintiff-appellant the sum of Three Hundred Thousand Pesos (P300,000.00),
with interest thereon at the rate of 12% per annum from the date of filing of
the complaint until paid, the sum of P20,000.00 as exemplary damages,
and P20,000.00 as attorneys fees and expenses of litigation as well as the
cost of suit; and

2. Ordering the dismissal of defendant-appellees counterclaim in the amount

of P30,000.00 as attorneys fees.

SO ORDERED.[13]

Acting on the motion for reconsideration of Solidbank, the appellate court affirmed its
decision but modified the award of damages. The appellate court deleted the award of
exemplary damages and attorneys fees. Invoking Article 2231[14] of the Civil Code, the
appellate court ruled that exemplary damages could be granted if the defendant acted
with gross negligence. Since Solidbank was guilty of simple negligence only, the award of
exemplary damages was not justified. Consequently, the award of attorneys fees was also
disallowed pursuant to Article 2208 of the Civil Code. The expenses of litigation and cost
of suit were also not imposed on Solidbank.
The dispositive portion of the Resolution reads as follows:

WHEREFORE, foregoing considered, our decision dated October 27, 1998 is affirmed with
modification by deleting the award of exemplary damages and attorneys fees, expenses
of litigation and cost of suit.
SO ORDERED.[15]

Hence, this petition.

The Issues

Solidbank seeks the review of the decision and resolution of the Court of Appeals on
these grounds:

I. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER BANK SHOULD

SUFFER THE LOSS BECAUSE ITS TELLER SHOULD HAVE FIRST CALLED
PRIVATE RESPONDENT BY TELEPHONE BEFORE IT ALLOWED THE
WITHDRAWAL OF P300,000.00 TO RESPONDENTS MESSENGER EMERANO
ILAGAN, SINCE THERE IS NO AGREEMENT BETWEEN THE PARTIES IN THE
OPERATION OF THE SAVINGS ACCOUNT, NOR IS THERE ANY BANKING LAW,
WHICH MANDATES THAT A BANK TELLER SHOULD FIRST CALL UP THE
DEPOSITOR BEFORE ALLOWING A WITHDRAWAL OF A BIG AMOUNT IN A
SAVINGS ACCOUNT.

II. THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF LAST CLEAR
CHANCE AND IN HOLDING THAT PETITIONER BANKS TELLER HAD THE LAST
OPPORTUNITY TO WITHHOLD THE WITHDRAWAL WHEN IT IS UNDISPUTED
THAT THE TWO SIGNATURES OF RESPONDENT ON THE WITHDRAWAL SLIP
ARE GENUINE AND PRIVATE RESPONDENTS PASSBOOK WAS DULY
PRESENTED, AND CONTRARIWISE RESPONDENT WAS NEGLIGENT IN
THESELECTION AND SUPERVISION OF ITS MESSENGER EMERANO ILAGAN,
AND IN THE SAFEKEEPING OF ITS CHECKS AND OTHER FINANCIAL
DOCUMENTS.

III. THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE INSTANT CASE IS
A LAST DITCH EFFORT OF PRIVATE RESPONDENT TO RECOVER
ITS P300,000.00 AFTER FAILING IN ITS EFFORTS TO RECOVER THE SAME
FROM ITS EMPLOYEE EMERANO ILAGAN.

IV. THE COURT OF APPEALS ERRED IN NOT MITIGATING THE DAMAGES AWARDED
AGAINST PETITIONER UNDER ARTICLE 2197 OF THE CIVIL CODE,
NOTWITHSTANDING ITS FINDING THAT PETITIONER BANKS NEGLIGENCE
WAS ONLY CONTRIBUTORY.[16]

The Ruling of the Court

The petition is partly meritorious.

Solidbanks Fiduciary Duty under the Law

 The rulings of the trial court and the Court of Appeals conflict on the application of the
law. The trial court pinned the liability on L.C. Diaz based on the provisions of the rules
on savings account, a recognition of the contractual relationship between Solidbank and
L.C. Diaz, the latter being a depositor of the former. On the other hand, the Court of
Appeals applied the law on quasi-delict to determine who between the two parties was
ultimately negligent. The law on quasi-delict or culpa aquiliana is generally applicable
when there is no pre-existing contractual relationship between the parties.
We hold that Solidbank is liable for breach of contract due to negligence, or culpa
contractual.
The contract between the bank and its depositor is governed by the provisions of the
Civil Code on simple loan.[17] Article 1980 of the Civil Code expressly provides that x x x
savings x x x deposits of money in banks and similar institutions shall be governed by the
provisions concerning simple loan. There is a debtor-creditor relationship between the
bank and its depositor.The bank is the debtor and the depositor is the creditor. The
depositor lends the bank money and the bank agrees to pay the depositor on demand. The
savings deposit agreement between the bank and the depositor is the contract that
determines the rights and obligations of the parties.
The law imposes on banks high standards in view of the fiduciary nature of
banking. Section 2 of Republic Act No. 8791 (RA 8791),[18] which took effect on 13 June
2000, declares that the State recognizes the fiduciary nature of banking that requires high
standards of integrity and performance.[19] This new provision in the general banking law,
introduced in 2000, is a statutory affirmation of Supreme Court decisions, starting with
the 1990 case of Simex International v. Court of Appeals,[20] holding that the bank is
under obligation to treat the accounts of its depositors with meticulous care, always having
in mind the fiduciary nature of their relationship.[21]
This fiduciary relationship means that the banks obligation to observe high standards
of integrity and performance is deemed written into every deposit agreement between a
bank and its depositor. The fiduciary nature of banking requires banks to assume a degree
of diligence higher than that of a good father of a family. Article 1172 of the Civil Code
states that the degree of diligence required of an obligor is that prescribed by law or
contract, and absent such stipulation then the diligence of a good father of a
family.[22] Section 2 of RA 8791 prescribes the statutory diligence required from banks
that banks must observe high standards of integrity and performance in servicing their
depositors. Although RA 8791 took effect almost nine years after the unauthorized
withdrawal of the P300,000 from L.C. Diazs savings account, jurisprudence[23] at the time
of the withdrawal already imposed on banks the same high standard of diligence required
under RA No. 8791.
However, the fiduciary nature of a bank-depositor relationship does not convert the
contract between the bank and its depositors from a simple loan to a trust agreement,
whether express or implied. Failure by the bank to pay the depositor is failure to pay a
simple loan, and not a breach of trust.[24] The law simply imposes on the bank a higher
standard of integrity and performance in complying with its obligations under the
contract of simple loan, beyond those required of non-bank debtors under a similar
contract of simple loan.
The fiduciary nature of banking does not convert a simple loan into a trust agreement
because banks do not accept deposits to enrich depositors but to earn money for
themselves. The law allows banks to offer the lowest possible interest rate to depositors
while charging the highest possible interest rate on their own borrowers. The interest
spread or differential belongs to the bank and not to the depositors who are not cestui
que trust of banks. If depositors are cestui que trust of banks, then the interest spread or
income belongs to the depositors, a situation that Congress certainly did not intend in
enacting Section 2 of RA 8791.

Solidbanks Breach of its Contractual Obligation

Article 1172 of the Civil Code provides that responsibility arising from negligence in
the performance of every kind of obligation is demandable. For breach of the savings
deposit agreement due to negligence, or culpa contractual, the bank is liable to its
depositor.
Calapre left the passbook with Solidbank because the transaction took time and he
had to go to Allied Bank for another transaction. The passbook was still in the hands of
the employees of Solidbank for the processing of the deposit when Calapre left
Solidbank. Solidbanks rules on savings account require that the deposit book should be
carefully guarded by the depositor and kept under lock and key, if possible. When the
passbook is in the possession of Solidbanks tellers during withdrawals, the law imposes
on Solidbank and its tellers an even higher degree of diligence in safeguarding the
passbook.
Likewise, Solidbanks tellers must exercise a high degree of diligence in insuring that
they return the passbook only to the depositor or his authorized representative. The tellers
know, or should know, that the rules on savings account provide that any person in
possession of te passbook is presumptively its owner. If the tellers give the passbook to
the wrong person, they would be clothing that person presumptive ownership of the
passbook, facilitating unauthorized withdrawals by that person. For failing to return the
passbook to Calapre, the authorized representative of L.C. Diaz, Solidbank and Teller No.
6 presumptively failed to observe such high degree of diligence in safeguarding the
passbook, and in insuring its return to the party authorized to receive the same.
In culpa contractual, once the plaintiff proves a breach of contract, there is a
presumption that the defendant was at fault or negligent. The burden is on the defendant
to prove that he was not at fault or negligent. In contrast, in culpa aquiliana the plaintiff
has the burden of proving that the defendant was negligent. In the present case, L.C. Diaz
has established that Solidbank breached its contractual obligation to return the passbook
only to the authorized representative of L.C. Diaz. There is thus a presumption that
Solidbank was at fault and its teller was negligent in not returning the passbook to
Calapre. The burden was on Solidbank to prove that there was no negligence on its part
or its employees.
Solidbank failed to discharge its burden. Solidbank did not present to the trial court
Teller No. 6, the teller with whom Calapre left the passbook and who was supposed to
return the passbook to him. The record does not indicate that Teller No. 6 verified the
identity of the person who retrieved the passbook. Solidbank also failed to adduce in
evidence its standard procedure in verifying the identity of the person retrieving the
passbook, if there is such a procedure, and that Teller No. 6 implemented this procedure
in the present case.
Solidbank is bound by the negligence of its employees under the principle
of respondeat superior or command responsibility. The defense of exercising the required
diligence in the selection and supervision of employees is not a complete defense in culpa
contractual, unlike in culpa aquiliana.[25]
The bank must not only exercise high standards of integrity and performance, it must
also insure that its employees do likewise because this is the only way to insure that the
bank will comply with its fiduciary duty. Solidbank failed to present the teller who had the
duty to return to Calapre the passbook, and thus failed to prove that this teller exercised
the high standards of integrity and performance required of Solidbanks employees.

Proximate Cause of the Unauthorized Withdrawal

Another point of disagreement between the trial and appellate courts is the proximate
cause of the unauthorized withdrawal. The trial court believed that L.C. Diazs negligence
in not securing its passbook under lock and key was the proximate cause that allowed the
impostor to withdraw the P300,000. For the appellate court, the proximate cause was the
tellers negligence in processing the withdrawal without first verifying with L.C. Diaz. We
do not agree with either court.
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.[26] Proximate cause is determined by the facts of each case upon mixed
considerationsof logic, common sense, policy and precedent.[27]
L.C. Diaz was not at fault that the passbook landed in the hands of the
impostor. Solidbank was in possession of the passbook while it was processing the
deposit. After completion of the transaction, Solidbank had the contractual obligation to
return the passbook only to Calapre, the authorized representative of L.C. Diaz. Solidbank
failed to fulfill its contractual obligation because it gave the passbook to another person.
Solidbanks failure to return the passbook to Calapre made possible the withdrawal of
the P300,000 by the impostor who took possession of the passbook. Under Solidbanks
rules on savings account, mere possession of the passbook raises the presumption of
ownership. It was the negligent act of Solidbanks Teller No. 6 that gave the impostor
presumptive ownership of the passbook. Had the passbook not fallen into the hands of
the impostor, the loss of P300,000 would not have happened. Thus, the proximate cause
of the unauthorized withdrawal was Solidbanks negligence in not returning the passbook
to Calapre.
We do not subscribe to the appellate courts theory that the proximate cause of the
unauthorized withdrawal was the tellers failure to call up L.C. Diaz to verify the withdrawal.
Solidbank did not have the duty to call up L.C. Diaz to confirm the withdrawal. There is no
arrangement between Solidbank and L.C. Diaz to this effect. Even the agreement between
Solidbank and L.C. Diaz pertaining to measures that the parties must observe whenever
withdrawals of large amounts are made does not direct Solidbank to call up L.C. Diaz.
 There is no law mandating banks to call up their clients whenever their representatives
withdraw significant amounts from their accounts. L.C. Diaz therefore had the burden to
prove that it is the usual practice of Solidbank to call up its clients to verify a withdrawal
of a large amount of money. L.C. Diaz failed to do so.
Teller No. 5 who processed the withdrawal could not have been put on guard to verify
the withdrawal. Prior to the withdrawal of P300,000, the impostor deposited with Teller
No. 6 theP90,000 PBC check, which later bounced. The impostor apparently deposited a
large amount of money to deflect suspicion from the withdrawal of a much bigger amount
of money. The appellate court thus erred when it imposed on Solidbank the duty to call
up L.C. Diaz to confirm the withdrawal when no law requires this from banks and when
the teller had no reason to be suspicious of the transaction.
Solidbank continues to foist the defense that Ilagan made the withdrawal. Solidbank
claims that since Ilagan was also a messenger of L.C. Diaz, he was familiar with its teller
so that there was no more need for the teller to verify the withdrawal. Solidbank relies on
the following statements in the Booking and Information Sheet of Emerano Ilagan:

xxx Ilagan also had with him (before the withdrawal) a forged check of PBC and indicated
the amount of P90,000 which he deposited in favor of L.C. Diaz and Company. After
successfully withdrawing this large sum of money, accused Ilagan gave alias Rey (Noel
Tamayo) his share of the loot. Ilagan then hired a taxicab in the amount of P1,000 to
transport him (Ilagan) to his home province at Bauan, Batangas.Ilagan extravagantly and
lavishly spent his money but a big part of his loot was wasted in cockfight and horse
racing. Ilagan was apprehended and meekly admitted his guilt.[28] (Emphasis supplied.)

L.C. Diaz refutes Solidbanks contention by pointing out that the person who withdrew
the P300,000was a certain Noel Tamayo. Both the trial and appellate courts stated that
this Noel Tamayo presented the passbook with the withdrawal slip.
We uphold the finding of the trial and appellate courts that a certain Noel Tamayo
withdrew the P300,000. The Court is not a trier of facts. We find no justifiable reason to
reverse the factual finding of the trial court and the Court of Appeals. The tellers who
processed the deposit of the P90,000 check and the withdrawal of the P300,000 were not
presented during trial to substantiate Solidbanks claim that Ilagan deposited the check
and made the questioned withdrawal. Moreover, the entry quoted by Solidbank does not
categorically state that Ilagan presented the withdrawal slip and the passbook.

Doctrine of Last Clear Chance

The doctrine of last clear chance states that where both parties are negligent but the
negligent act of one is appreciably later than that of the other, or where it is impossible
to determine whose fault or negligence caused the loss, the one who had the last clear
opportunity to avoid the loss but failed to do so, is chargeable with the loss. [29] Stated
differently, the antecedent negligence of the plaintiff does not preclude him from
recovering damages caused by the supervening negligence of the defendant, who had the
last fair chance to prevent the impending harm by the exercise of due diligence.[30]
We do not apply the doctrine of last clear chance to the present case. Solidbank is
liable for breach of contract due to negligence in the performance of its contractual
obligation to L.C. Diaz. This is a case of culpa contractual, where neither the contributory
negligence of the plaintiff nor his last clear chance to avoid the loss, would exonerate the
defendant from liability.[31]Such contributory negligence or last clear chance by the
plaintiff merely serves to reduce the recovery of damages by the plaintiff but does not
exculpate the defendant from his breach of contract.[32]

Mitigated Damages

Under Article 1172, liability (for culpa contractual) may be regulated by the courts,
according to the circumstances. This means that if the defendant exercised the proper
diligence in the selection and supervision of its employee, or if the plaintiff was guilty of
contributory negligence, then the courts may reduce the award of damages. In this case,
L.C. Diaz was guilty of contributory negligence in allowing a withdrawal slip signed by its
authorized signatories to fall into the hands of an impostor. Thus, the liability of Solidbank
should be reduced.
In Philippine Bank of Commerce v. Court of Appeals,[33] where the Court held the
depositor guilty of contributory negligence, we allocated the damages between the
depositor and the bank on a 40-60 ratio. Applying the same ruling to this case, we hold
that L.C. Diaz must shoulder 40% of the actual damages awarded by the appellate court.
Solidbank must pay the other 60% of the actual damages.
WHEREFORE, the decision of the Court of Appeals
is AFFIRMED with MODIFICATION. Petitioner Solidbank Corporation shall pay private
respondent L.C. Diaz and Company, CPAs only 60% of the actual damages awarded by
the Court of ppeals. The remaining 40% of the actual damages shall be borne by private
respondent L.C. Diaz and Company, CPAs.Proportionate costs.
SO ORDERED.

G.R. No. 97626 March 14, 1997

PHILIPPINE BANK OF COMMERCE, now absorbed by PHILIPPINE COMMERCIAL

INTERNATIONAL BANK, ROGELIO LACSON, DIGNA DE LEON, MARIA ANGELITA
PASCUAL, et al., petitioners,
vs.
THE COURT OF APPEALS, ROMMEL'S MARKETING CORP., represented by ROMEO
LIPANA, its President & General Manager, respondents.

HERMOSISIMA, JR., J.:

Challenged in this petition for review is the Decision dated February 28, 1991 1 rendered
by public respondent Court of Appeals which affirmed the Decision dated November 15,
1985 of the Regional Trial Court, National Capital Judicial Region, Branch CLX (160), Pasig
City, in Civil Case No. 27288 entitled "Rommel's Marketing Corporation, etc. v. Philippine
Bank of Commerce, now absorbed by Philippine Commercial and Industrial Bank."
The case stemmed from a complaint filed by the private respondent Rommel's Marketing
Corporation (RMC for brevity), represented by its President and General Manager Romeo
Lipana, to recover from the former Philippine Bank of Commerce (PBC for brevity), now
absorbed by the Philippine Commercial International Bank, the sum of P304,979.74
representing various deposits it had made in its current account with said bank but which
were not credited to its account, and were instead deposited to the account of one
Bienvenido Cotas, allegedly due to the gross and inexcusable negligence of the petitioner
bank.

RMC maintained two (2) separate current accounts, Current Account Nos. 53-01980-3 and
53-01748-7, with the Pasig Branch of PBC in connection with its business of selling
appliances.

In the ordinary and usual course of banking operations, current account deposits are
accepted by the bank on the basis of deposit slips prepared and signed by the depositor,
or the latter's agent or representative, who indicates therein the current account number
to which the deposit is to be credited, the name of the depositor or current account holder,
the date of the deposit, and the amount of the deposit either in cash or checks. The deposit
slip has an upper portion or stub, which is detached and given to the depositor or his
agent; the lower portion is retained by the bank. In some instances, however, the deposit
slips are prepared in duplicate by the depositor. The original of the deposit slip is retained
by the bank, while the duplicate copy is returned or given to the depositor.

From May 5, 1975 to July 16, 1976, petitioner Romeo Lipana claims to have entrusted
RMC funds in the form of cash totalling P304,979.74 to his secretary, Irene Yabut, for the
purpose of depositing said funds in the current accounts of RMC with PBC. It turned out,
however, that these deposits, on all occasions, were not credited to RMC's account but
were instead deposited to Account No. 53-01734-7 of Yabut's husband, Bienvenido Cotas
who likewise maintains an account with the same bank. During this period, petitioner bank
had, however, been regularly furnishing private respondent with monthly statements
showing its current accounts balances. Unfortunately, it had never been the practice of
Romeo Lipana to check these monthly statements of account reposing complete trust and
confidence on petitioner bank.

Irene Yabut's modus operandi is far from complicated. She would accomplish two (2)
copies of the deposit slip, an original and a duplicate. The original showed the name of
her husband as depositor and his current account number. On the duplicate copy was
written the account number of her husband but the name of the account holder was left
blank. PBC's teller, Azucena Mabayad, would, however, validate and stamp both the
original and the duplicate of these deposit slips retaining only the original copy despite
the lack of information on the duplicate slip. The second copy was kept by Irene Yabut
allegedly for record purposes. After validation, Yabut would then fill up the name of RMC
in the space left blank in the duplicate copy and change the account number written
thereon, which is that of her husband's, and make it appear to be RMC's account
number, i.e., C.A. No. 53-01980-3. With the daily remittance records also prepared by
Ms. Yabut and submitted to private respondent RMC together with the validated duplicate
slips with the latter's name and account number, she made her company believe that all
the while the amounts she deposited were being credited to its account when, in truth and
in fact, they were being deposited by her and credited by the petitioner bank in the account
of Cotas. This went on in a span of more than one (1) year without private respondent's
knowledge.

Upon discovery of the loss of its funds, RMC demanded from petitioner bank the return of
its money, but as its demand went unheeded, it filed a collection suit before the Regional
Trial Court of Pasig, Branch 160. The trial court found petitioner bank negligent and ruled
as follows:

WHEREFORE, judgment is hereby rendered sentencing defendant Philippine

Bank of Commerce, now absorbed by defendant Philippine Commercial &
Industrial Bank, and defendant Azucena Mabayad to pay the plaintiff, jointly
and severally, and without prejudice to any criminal action which may
binstituted if found warranted:

1. The sum of P304,979.72, representing plaintiffs lost deposit, plus interest

thereon at the legal rate from the filing of the complaint;

2. A sum equivalent to 14% thereof, as exemplary damages;

3. A sum equivalent to 25% of the total amount due, as and for attorney's
fees; and

4. Costs.

Defendants' counterclaim is hereby dismissed for lack of merit.2

On appeal, the appellate court affirmed the foregoing decision with modifications, viz:

WHEREFORE, the decision appealed from herein is MODIFIED in the sense that
the awards of exemplary damages and attorney's fees specified therein are
eliminated and instead, appellants are ordered to pay plaintiff, in addition to
the principal sum of P304,979.74 representing plaintiff's lost deposit plus legal
interest thereon from the filing of the complaint, P25,000.00 attorney's fees
and costs in the lower court as well as in this Court.3

Hence, this petition anchored on the following grounds:

1) The proximate cause of the loss is the negligence of respondent Rommel

Marketing Corporation and Romeo Lipana in entrusting cash to a dishonest
employee.

2) The failure of respondent Rommel Marketing Corporation to cross-check

the bank's statements of account with its own records during the entire period
of more than one (1) year is the proximate cause of the commission of
subsequent frauds and misappropriation committed by Ms. Irene Yabut.

3) The duplicate copies of the deposit slips presented by respondent Rommel

Marketing Corporation are falsified and are not proof that the amounts
 appearing thereon were deposited to respondent Rommel Marketing
Corporation's account with the bank,

4) The duplicate copies of the deposit slips were used by Ms. Irene Yabut to
cover up her fraudulent acts against respondent Rommel Marketing
Corporation, and not as records of deposits she made with the bank.4

The petition has no merit.

Simply put, the main issue posited before us is: What is the proximate cause of the loss,
to the tune of P304,979.74, suffered by the private respondent RMC — petitioner bank's
negligence or that of private respondent's?

Petitioners bmit that the proximate cause of the loss is the negligence of respondent RMC
and Romeo Lipana in entrusting cash to a dishonest employee in the person of Ms. Irene
Yabut.5 According to them, it was impossible for the bank to know that the money
deposited by Ms. Irene Yabut belong to RMC; neither was the bank forewarned by RMC
that Yabut will be depositing cash to its account. Thus, it was impossible for the bank to
know the fraudulent design of Yabut considering that her husband, Bienvenido Cotas, also
maintained an account with the bank. For the bank to inquire into the ownership of the
cash deposited by Ms. Irene Yabut would be irregular. Otherwise stated, it was RMC's
negligence in entrusting cash to a dishonest employee which provided Ms. Irene Yabut the
opportunity to defraud RMC.6

Private respondent, on the other hand, maintains that the proximate cause of the loss was
the negligent act of the bank, thru its teller Ms. Azucena Mabayad, in validating the deposit
slips, both original and duplicate, presented by Ms. Yabut to Ms. Mabayad, notwithstanding
the fact that one of the deposit slips was not completely accomplished.

We sustain the private respondent.

Our law on quasi-delicts states:

Art. 2176. Whoever by act or omission causes damage to another, there being
fault or negligence, is obliged to pay for the damage done. Such fault or
negligence, if there is no pre-existing contractual relation between the parties,
is called a quasi-delict and is governed by the provisions of this Chapter.

There are three elements of a quasi-delict: (a) damages suffered by the plaintiff; (b) fault
or negligence of the defendant, or some other person for whose acts he must respond;
and (c) the connection of cause and effect between the fault or negligence of the defendant
and the damages incurred by the plaintiff.7

In the case at bench, there is no dispute as to the damage suffered by the private
respondent (plaintiff in the trial court) RMC in the amount of P304,979.74. It is in ascribing
fault or negligence which caused the damage where the parties point to each other as the
culprit.
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,8 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 paterfamilias 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
determin liability by that.

Applying the above test, it appears that the bank's teller, Ms. Azucena Mabayad, was
negligent in validating, officially stamping and signing all the deposit slips prepared and
presented by Ms. Yabut, despite the glaring fact that the duplicate copy was not completely
accomplished contrary to the self-imposed procedure of the bank with respect to the
proper validation of deposit slips, original or duplicate, as testified to by Ms. Mabayad
herself, thus:

Q: Now, as teller of PCIB, Pasig Branch, will you please tell us Mrs.
Mabayad your important duties and functions?

A: I accept current and savings deposits from depositors and

encashments.

Q: Now in the handling of current account deposits of bank clients,

could you tell us the procedure you follow?

A: The client or depositor or the authorized representative

prepares a deposit slip by filling up the deposit slip with the name,
the account number, the date, the cash breakdown, if it is
deposited for cash, and the check number, the amount and then
he signs the deposit slip.

Q: Now, how many deposit slips do you normally require in

accomplishing current account deposit, Mrs. Mabayad?

A: The bank requires only one copy of the deposit although some
of our clients prepare the deposit slip in duplicate.

Q: Now in accomplishing current account deposits from your

clients, what do you issue to the depositor to evidence the deposit
made?

A: We issue or we give to the clients the depositor's stub as a

receipt of the deposit.
 Q: And who prepares the deposit slip?

A: The depositor or the authorized representative sir?

Q: Where does the depositor's stub comes (sic) from Mrs.

Mabayad, is it with the deposit slip?

A: The depositor's stub is connected with the deposit slip or the

bank's copy. In a deposit slip, the upper portion is the depositor's
stub and the lower portion is the bank's copy, and you can detach
the bank's copy from the depositor's stub by tearing it sir.

Q: Now what do you do upon presentment of the deposit slip bthe

depositor or the depositor's authorized representative?

A: We see to it that the deposit slip9 is properly accomplished and

then we count the money and then we tally it with the deposit slip
sir.

Q: Now is the depositor's stub which you issued to your clients

validated?

A: Yes, sir. 10 [Emphasis ours]

Clearly, Ms. Mabayad failed to observe this very important procedure. The fact that
the duplicate slip was not compulsorily required by the bank in accepting deposits
should not relieve the petitioner bank of responsibility. The odd circumstance alone
that such duplicate copy lacked one vital information — that of the name of the
account holder — should have already put Ms. Mabayad on guard. Rather than
readily validating the incomplete duplicate copy, she should have proceeded more
cautiously by being more probing as to the true reason why the name of the account
holder in the duplicate slip was left blank while that in the original was filled up. She
should not have been so naive in accepting hook, line and sinker the too shallow
excuse of Ms. Irene Yabut to the effect that since the duplicate copy was only for
her personal record, she would simply fill up the blank space later on. 11 A
"reasonable man of ordinary prudence" 12 would not have given credence to such
explanation and would have insisted that the space left blank be filled up as a
condition for validation. Unfortunately, this was not how bank teller Mabayad
proceeded thus resulting in huge losses to the private respondent.

Negligence here lies not only on the part of Ms. Mabayad but also on the part of the bank
itself in its lackadaisical selection and supervision of Ms. Mabayad. This was exemplified
in the testimony of Mr. Romeo Bonifacio, then Manager of the Pasig Branch of the
petitioner bank and now its Vice-President, to the effect that, while he ordered the
investigation of the incident, he never came to know that blank deposit slips were
validated in total disregard of the bank's validation procedures, viz:

Q: Did he ever tell you that one of your cashiers affixed the stamp
mark of the bank on the deposit slips and they validated the same
 with the machine, the fact that those deposit slips were unfilled
up, is there any report similar to that?

A: No, it was not the cashier but the teller.

Q: The teller validated the blank deposit slip?

A: No it was not reported.

Q: You did not know that any one in the bank tellers or cashiers
validated the blank deposit slip?

A: I am not aware of that

Q: It is only now that you are aware of that?

A: Yes, sir. 13

Prescinding from the above, public respondent Court of Appeals aptly observed:

xxx xxx xxx

It was in fact only when he testified in this case in February, 1983, or after
the lapse of more than seven (7) years counted from the period when the
funds in question were deposited in plaintiff's accounts (May, 1975 to July,
1976) that bank manager Bonifacio admittedly became aware of the practice
of his teller Mabayad of validating blank deposit slips. Undoubtedly, this is
gross, wanton, and inexcusable negligence in the appellant bank's supervision
of its employees. 14

It was this negligence of Ms. Azucena Mabayad, coupled by the negligence of the petitioner
bank in the selection and supervision of its bank teller, which was the proximate cause of
the loss suffered by the private respondent, and not the latter's act of entrusting cash to
a dishonest employee, as insisted by the petitioners.

Proximate cause is determined on the facts of each case upon mixed considerations of
logic, common sense, policy and precedent. 15 Vda. de Bataclan v. Medina, 16 reiterated
in the case of Bank of the Phil. Islands v. Court of Appeals, 17 defines proximate cause as
"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. . . ." In this case, absent the act of Ms. Mabayad in negligently validating the
incomplete duplicate copy of the deposit slip, Ms. Irene Yabut would not have the facility
with which to perpetrate her fraudulent scheme with impunity. Apropos, once again, is
the pronouncement made by the respondent appellate court, to wit:

. . . . Even if Yabut had the fraudulent intention to misappropriate the funds

entrusted to her by plaintiff, she would not have been able to deposit those
funds in her husband's current account, and then make plaintiff believe that
it was in the latter's accounts wherein she had deposited them, had it not been
 for bank teller Mabayad's aforesaid gross and reckless negligence. The latter's
negligence was thus the proximate, immediate and efficient cause that
brought about the loss claimed by plaintiff in this case, and the failure of
plaintiff to discover the same soon enough by failing to scrutinize the monthly
statements of account being sent to it by appellant bank could not have
prevented the fraud and misappropriation which Irene Yabut had already
completed when she deposited plaintiff's money to the account of her husband
instead of to the latter's accounts. 18

Furthermore, under the doctrine of "last clear chance" (also referred to, at times as
"supervening negligence" or as "discovered peril"), petitioner bank was indeed the
culpable party. This doctrine, in essence, states that where both parties are negligent, but
the negligent act of one is appreciably later in tme than that of the other, or when it is
impossible to determine whose fault or negligence should be attributed to the incident,
the one who had the last clear opportunity to avoid the impending harm and failed to do
so is chargeable with the consequences thereof. 19Stated differently, the rule would also
mean that an antecedent negligence of a person does not preclude the recovery of
damages for the supervening negligence of, or bar a defense against liability sought by
another, if the latter, who had the last fair chance, could have avoided the impending
harm by the exercise of due diligence. 20Here, assuming that private respondent RMC was
negligent in entrusting cash to a dishonest employee, thus providing the latter with the
opportunity to defraud the company, as advanced by the petitioner, yet it cannot be
denied that the petitioner bank, thru its teller, had the last clear opportunity to avert the
injury incurred by its client, simply by faithfully observing their self-imposed validation
procedure.

At this juncture, it is worth to discuss the degree of diligence ought to be exercised by

banks in dealing with their clients.

The New Civil Code provides:

Art. 1173. The fault or negligence of the obligor consists in the omission of
that diligence which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of the time and of the
place. When negligence shows bad faith, the provisions of articles 1171 and
2201, paragraph 2, shall apply.

If the law or contract does not state the diligence which is to be observed in
the performance, that which is expected of a good father of a family shall be
required. (1104a)

In the case of banks, however, the degree of diligence required is more than that of a good
father of a family. Considering the fiduciary nature of their relationship with their
depositors, banks are duty bound to treat the accounts of their clients with the highest
degree of care. 21

As elucidated in Simex International (Manila), Inc. v. Court of Appeals, 22 in every case,

the depositor expects the bank to treat his account with the utmost fidelity, whether such
account consists only of a few hundred pesos or of millions. The bank must record every
single transaction accurately, down to the last centavo, and as promptly as possible. This
has to be done if the account is to reflect at any given time the amount of money the
depositor can dispose as he sees fit, confident that the bank will deliver it as and to
whomever he directs. A blunder on the part of the bank, such as the failure to duly credit
him his deposits as soon as they are made, can cause the depositor not a little
embarrassment if not financial loss and perhaps even civil and criminal litigation.

The point is that as a business affected with public interest and because of the nature of
its functions, the bank is under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of their relationship. In the
case before us, it is apparent that the petitioner bank was remiss in that duty and violated
that relationshi

Petitioners nevertheless aver that the failure of respondent RMC to cross-check the bank's
statements of account with its own records during the entire period of more than one (1)
year is the proximate cause of the commission of subsequent frauds and misappropriation
committed by Ms. Irene Yabut.

We do not agree.

While it is true that had private respondent checked the monthly statements of account
sent by the petitioner bank to RMC, the latter would have discovered the loss early on,
such cannot be used by the petitioners to escape liability. This omission on the part of the
private respondent does not change the fact that were it not for the wanton and reckless
negligence of the petitioners' employee in validating the incomplete duplicate deposit slips
presented by Ms. Irene Yabut, the loss would not have occurred. Considering, however,
that the fraud was committed in a span of more than one (1) year covering various
deposits, common human experience dictates that the same would not have been possible
without any form of collusion between Ms. Yabut and bank teller Mabayad. Ms. Mabayad
was negligent in the performance of her duties as bank teller nonetheless. Thus, the
petitioners are entitled to claim reimbursement from her for whatever they shall be
ordered to pay in this case.

The foregoing notwithstanding, it cannot be denied that, indeed, private respondent was
likewise negligent in not checking its monthly statements of account. Had it done so, the
company would have been alerted to the series of frauds being committed against RMC
by its secretary. The damage would definitely not have ballooned to such an amount if
only RMC, particularly Romeo Lipana, had exercised even a little vigilance in their financial
affairs. This omission by RMC amounts to contributory negligence which shall mitigate the
damages that may be awarded to the private respondent 23 under Article 2179 of the New
Civil Code, to wit:

. . . When the plaintiff's own negligence was the immediate and proximate
cause of his injury, he cannot recover damages. But if his negligence was only
contributory, the immediate and proximate cause of the injury being the
defendant's lack of due care, the plaintiff may recover damages, but the courts
shall mitigate the damages to be awarded.
 In view of this, we believe that the demands of substantial justice are satisfied by
allocating the damage on a 60-40 ratio. Thus, 40% of the damage awarded by the
respondent appellate court, except the award of P25,000.00 attorney's fees, shall
be borne by private respondent RMC; only the balance of 60% needs to be paid by
the petitioners. The award of attorney's fees shall be borne exclusively by the
petitioners.

WHEREFORE, the decision of the respondent Court of Appeals is modified by reducing the
amount of actual damages private respondent is entitled to by 40%. Petitioners may
recover from Ms. Azucena Mabayad the amount they would pay the private respondent.
Private respondent shall have recourse against Ms. Irene Yabut. In all other respects, the
appellate cours decision is AFFIRMED.

Proportionate costs.

SO ORDERED.

G.R. No. 171998 October 20, 2010

ANAMER SALAZAR, Petitioner,

vs.
J.Y. BROTHERS MARKETING CORPORATION, Respondent.

DECISION

PERALTA, J.:

Before us is a petition for review seeking to annul and set aside the Decision 1 dated
September 29, 2005 and the Resolution2 dated March 2, 2006 of the Court of Appeals
(CA) in CA-G.R. CV No. 83104.

The facts, as found by the Court of Appeals, are not disputed, thus:

J.Y. Brothers Marketing (J.Y. Bros., for short) is a corporation engaged in the business of
selling sugar, rice and other commodities. On October 15, 1996, Anamer Salazar, a
freelance sales agent, was approached by Isagani Calleja and Jess Kallos, if she knew a
supplier of rice. Answering in the positive, Salazar accompanied the two to J.Y. Bros. As a
consequence, Salazar with Calleja and Kallos procured from J. Y. Bros. 300 cavans of rice
worth ₱214,000.00. As payment, Salazar negotiated and indorsed to J.Y. Bros. Prudential
Bank Check No. 067481 dated October 15, 1996 issued by Nena Jaucian Timario in the
amount of ₱214,000.00 with the assurance that the check is good as cash. On that
assurance, J.Y. Bros. parted with 300 cavans of rice to Salazar. However, upon
presentment, the check was dishonored due to "closed account."

Informed of the dishonor of the check, Calleja, Kallos and Salazar delivered to J.Y. Bros.
a replacement cross Solid Bank Check No. PA365704 dated October 29, 1996 again issued
by Nena Jaucian Timario in the amount of ₱214,000.00 but which, just the same, bounced
due to insufficient funds. When despite the demand letter dated February 27, 1997,
Salazar failed to settle the amount due J.Y. Bros., the latter charged Salazar and Timario
with the crime of estafa before the Regional Trial Court of Legaspi City, docketed as
Criminal Case No. 7474.

After the prosecution rested its case and with prior leave of court, Salazar submitted a
demurrer to evidence. On November 19, 2001, the court a quo rendered an Order, the
dispositive portion of which reads:

WHEREFORE, premises considered, the accused Anamer D. Salazar is hereby ACQUITTED

of the crime charged but is hereby held liable for the value of the 300 bags of rice. Accused
Anamer D. Salazar is therefore ordered to pay J.Y. Brothers Marketing Corporation the
sum of ₱214,000.00. Costs against the accused.

SO ORDERED.

Aggrieved, accused attempted a reconsideration on the civil aspect of the order and to
allow her to present evidence thereon. The motion was denied. Accused went up to the
Supreme Court on a petition for review on certiorari under Rule 45 of the Rules of Court.
Docketed as G.R. 151931, in its Decision dated September 23, 2003, the High Court ruled:

IN LIGHT OF ALL THE FOREGOING, the Petition is GRANTED. The Orders dated November
19, 2001 and January 14, 2002 are SET ASIDE and NULLIFIED. The Regional Trial Court
of Legaspi City, Branch 5, is hereby DIRECTED to set Criminal Case No. 7474 for the
continuation of trial for the reception of the evidence-in-chief of the petitioner on the civil
aspect of the case and for the rebuttal evidence of the private complainant and the sur-
rebuttal evidence of the parties if they opt to adduce any.

SO ORDERED.3

The Regional Trial Court (RTC) of Legaspi City, Branch 5, then proceeded with the trial on
the civil aspect of the criminal case.

On April 1, 2004, the RTC rendered its Decision,4 the dispositive portion of which reads:

WHEREFORE, Premises Considered, judgment is rendered DISMISSING as against Anamer

D. Salazar the civil aspect of the above-entitled case. No pronouncement as to costs.

Place into the files (archive) the record of the above-entitled case as against the other
accused Nena Jaucian Timario. Let an alias (bench) warrant of arrest without expiry dated
issue for her apprehension, and fix the amount of the bail bond for her provisional liberty
at 59,000.00 pesos.

SO ORDERED.5

The RTC found that the Prudential Bank check drawn by Timario for the amount of
₱214,000.00 was payable to the order of respondent, and such check was a negotiable
order instrument; that petitioner was not the payee appearing in the check, but
respondent who had not endorsed the check, much less delivered it to petitioner. It then
found that petitioner’s liability should be limited to the allegation in the amended
information that "she endorsed and negotiated said check," and since she had never been
the holder of the check, petitioner's signing of her name on the face of the dorsal side of
the check did not produce the technical effect of an indorsement arising from negotiation.
The RTC ruled that after the Prudential Bank check was dishonored, it was replaced by a
Solid Bank check which, however, was also subsequently dishonored; that since the Solid
Bank check was a crossed check, which meant that such check was only for deposit in
payee’s account, a condition that rendered such check non-negotiable, the substitution of
a non-negotiable Solid Bank check for a negotiable Prudential Bank check was an essential
change which had the effect of discharging from the obligation whoever may be the
endorser of the negotiable check. The RTC concluded that the absence of negotiability
rendered nugatory the obligation arising from the technical act of indorsing a check and,
thus, had the effect of novation; and that the ultimate effect of such substitution was to
extinguish the obligation arising from the issuance of the Prudential Bank check.

Respondent filed an appeal with the CA on the sole assignment of error that:

IN BRIEF, THE LOWER COURT ERRED IN RULING THAT ACCUSED ANAMER SALAZAR BY
INDORSING THE CHECK (A) DID NOT BECOME A HOLDER OF THE CHECK, (B) DID NOT
PRODUCE THE TECHNICAL EFFECT OF AN INDORSEMENT ARISING FROM NEGOTIATION;
AND (C) DID NOT INCUR CIVIL LIABILITY.6

After petitioner filed her appellees' brief, the case was submitted for decision. On
September 29, 2005, the CA rendered its assailed Decision, the decretal portion of which
reads:

IN VIEW OF ALL THE FOREGOING, the instant appeal is GRANTED, the challenged Decision
is REVERSED and SET ASIDE, and a new one entered ordering the appellee to pay the
appellant the amount of ₱214,000.00, plus interest at the legal rate from the written
demand until full payment. Costs against the appellee.7

In so ruling, the CA found that petitioner indorsed the Prudential Bank check, which was
later replaced by a Solid Bank check issued by Timario, also indorsed by petitioner as
payment for the 300 cavans of rice bought from respondent. The CA, applying Sections
63,8 669 and 2910 of the Negotiable Instruments Law, found that petitioner was considered
an indorser of the checks paid to respondent and considered her as an accommodation
indorser, who was liable on the instrument to a holder for value, notwithstanding that
such holder at the time of the taking of the instrument knew her only to be an
accommodation party.

Respondent filed a motion for reconsideration, which the CA denied in a Resolution dated
March 2, 2006.

Hence this petition, wherein petitioner raises the following assignment of errors:

1. THE COURT OF APPEALS ERRED IN IGNORING THE RAMIFICATIONS OF THE

ISSUANCE OF THE SOLIDBANK CHECK IN REPLACEMENT OF THE PRUDENTIAL BANK
CHECK WHICH WOULD HAVE RESULTED TO THE NOVATION OF THE OBLIGATION
ARISING FROM THE ISSUANCE OF THE LATTER CHECK.
 2. THE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE REGIONAL
TRIAL COURT OF LEGASPI CITY, BRANCH 5, DISMISSING AS AGAINST THE
PETITINER THE CIVIL ASPECT OF THE CRIMINAL ACTION ON THE GROUND OF
NOVATION OF OBLIGATION ARISING FROM THE ISSUANCE OF THE PRUDENTIAL
BANK CHECK.

3. THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION

TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION WHEN IT DENIED THE
MOTION FOR RECONSIDERATION OF THE PETITIONER ON THE GROUND THAT THE
ISSUE RAISED THEREIN HAD ALREADY BEEN PASSED UPON AND CONSIDERED IN
THE DECISION SOUGHT TO BE RECONSIDERED WHEN IN TRUTH AND IN FACT
SUCH ISSUE HAD NOT BEEN RESOLVED AS YET.11

Petitioner contends that the issuance of the Solid Bank check and the acceptance thereof
by the respondent, in replacement of the dishonored Prudential Bank check, amounted to
novation that discharged the latter check; that respondent's acceptance of the Solid Bank
check, notwithstanding its eventual dishonor by the drawee bank, had the effect of erasing
whatever criminal responsibility, under Article 315 of the Revised Penal Code, the drawer
or indorser of the Prudential Bank check would have incurred in the issuance thereof in
the amount of ₱214,000.00; and that a check is a contract which is susceptible to a
novation just like any other contract.

Respondent filed its Comment, echoing the findings of the CA. Petitioner filed her Reply
thereto.

We find no merit in this petition.

Section 119 of the Negotiable Instrument Law provides, thus:

SECTION 119. Instrument; how discharged. – A negotiable instrument is discharged:

(a) By payment in due course by or on behalf of the principal debtor;

(b) By payment in due course by the party accommodated, where the instrument is
made or accepted for his accommodation;

(c) By the intentional cancellation thereof by the holder;

(d) By any other act which will discharge a simple contract for the payment
of money;

(e) When the principal debtor becomes the holder of the instrument at or after
maturity in his own right. (Emphasis ours)

And, under Article 1231 of the Civil Code, obligations are extinguished:

xxxx

(6) By novation.
Petitioner's claim that respondent's acceptance of the Solid Bank check which replaced the
dishonored Prudential bank check resulted to novation which discharged the latter check
is unmeritorious.

In Foundation Specialists, Inc. v. Betonval Ready Concrete, Inc. and Stronghold Insurance
Co., Inc.,12 we stated the concept of novation, thus:

x x x Novation is done by the substitution or change of the obligation by a subsequent one

which extinuishes the first, either by changing the object or principal conditions, or by
substituting the person of the debtor, or by subrogating a third person in the rights of the
creditor. Novation may:

[E]ither be extinctive or modificatory, much being dependent on the nature of the change
and the intention of the parties. Extinctive novation is never presumed; there must be an
express intention to novate; in cases where it is implied, the acts of the parties must
clearly demonstrate their intent to dissolve the old obligation as the moving consideration
for the emergence of the new one. Implied novation necessitates that the incompatibility
between the old and new obligation be total on every point such that the old obligation is
completely superceded by the new one. The test of incompatibility is whether they can
stand together, each one having an independent existence; if they cannot and are
irreconcilable, the subsequent obligation would also extinguish the first.

An extinctive novation would thus have the twin effects of, first, extinguishing an existing
obligation and, second, creating a new one in its stead. This kind of novation presupposes
a confluence of four essential requisites: (1) a previous valid obligation, (2) an agreement
of all parties concerned to a new contract, (3) the extinguishment of the old obligation,
and (4) the birth of a valid new obligation. Novation is merely modificatory where the
change brought about by any subsequent agreement is merely incidental to the main
obligation (e.g., a change in interest rates or an extension of time to pay; in this instance,
the new agreement will not have the effect of extinguishing the first but would merely
supplement it or supplant some but not all of its provisions.)

The obligation to pay a sum of money is not novated by an instrument that expressly
recognizes the old, changes only the terms of payment, adds other obligations not
incompatible with the old ones or the new contract merely supplements the old one.13

In Nyco Sales Corporation v. BA Finance Corporation,14 we found untenable petitioner

Nyco's claim that novation took place when the dishonored BPI check it endorsed to BA
Finance Corporation was subsequently replaced by a Security Bank check,15 and said:

There are only two ways which indicate the presence of novation and thereby produce the
effect of extinguishing an obligation by another which substitutes the same. First, novation
must be explicitly stated and declared in unequivocal terms as novation is never
presumed. Secondly, the old and the new obligations must be incompatible on every
point.1avvphi1 The test of incompatibility is whether or not the two obligations can stand
together, each one having its independent existence. If they cannot, they are incompatible
and the latter obligation novates the first. In the instant case, there was no express
agreement that BA Finance's acceptance of the SBTC check will discharge Nyco from
liability. Neither is there incompatibility because both checks were given precisely to
terminate a single obligation arising from Nyco's sale of credit to BA Finance. As novation
speaks of two distinct obligations, such is inapplicable to this case.16

In this case, respondent’s acceptance of the Solid Bank check, which replaced the
dishonored Prudential Bank check, did not result to novation as there was no express
agreement to establish that petitioner was already discharged from his liability to pay
respondent the amount of ₱214,000.00 as payment for the 300 bags of rice. As we said,
novation is never presumed, there must be an express intention to novate. In fact, when
the Solid Bank check was delivered to respondent, the same was also indorsed by
petitioner which shows petitioner’s recognition of the existing obligation to respondent to
pay ₱214,000.00 subject of the replaced Prudential Bank check.

Moreover, respondent’s acceptance of the Solid Bank check did not result to any
incompatibility, since the two checks − Prudential and Solid Bank checks − were precisely
for the purose of paying the amount of ₱214,000.00, i.e., the credit obtained from the
purchase of the 300 bags of rice from respondent. Indeed, there was no substantial
change in the object or principal condition of the obligation of petitioner as the indorser of
the check to pay the amount of ₱214,000.00. It would appear that respondent accepted
the Solid Bank check to give petitioner the chance to pay her obligation.

Petitioner also contends that the acceptance of the Solid Bank check, a non-negotiable
check being a crossed check, which replaced the dishonored Prudential Bank check, a
negotiable check, is a new obligation in lieu of the old obligation arising from the issuance
of the Prudential Bank check, since there was an essential change in the circumstance of
each check.

Such argument deserves scant consideration.

Among the different types of checks issued by a drawer is the crossed check. 17 The
Negotiable Instruments Law is silent with respect to crossed checks,18 although the Code
of Commerce makes reference to such instruments.19We have taken judicial cognizance
of the practice that a check with two parallel lines in the upper left hand corner means
that it could only be deposited and could not be converted into cash.20 Thus, the effect of
crossing a check relates to the mode of payment, meaning that the drawer had intended
the check for deposit only by the rightful person, i.e., the payee named therein.21 The
change in the mode of paying the obligation was not a change in any of the objects or
principal condition of the contract for novation to take place.22

Considering that when the Solid Bank check, which replaced the Prudential Bank check,
was presented for payment, the same was again dishonored; thus, the obligation which
was secured by the Prudential Bank check was not extinguished and the Prudential Bank
check was not discharged. Thus, we found no reversible error committed by the CA in
holding petitioner liable as an accommodation indorser for the payment of the dishonored
Prudential Bank check.

WHEREFORE, the petition is DENIED. The Decision dated September 29, 2005 and the
Resolution dated March 2, 2006, of the Court of Appeals in CA-G.R. CV No. 83104,
are AFFIRMED.