Negotiable Instruments

G.R. No.
187769, June 04, 2014
ALVIN PATRIMONIO, Petitioner, v. NAPOLEON GUTIERREZ AND OCTAVIO MARASIGAN

III, Respondents.
DECISION
BRION, J.:
Assailed in this petition for review on certiorari1 under Rule 45 of the Revised Rules of Court is the
decision2 dated September 24, 2008 and the resolution3 dated April 30, 2009 of the Court of Appeals (CA) in
CA-G.R. CV No. 82301. The appellate court affirmed the decision of the Regional Trial Court (RTC)of Quezon
City, Branch 77, dismissing the complaint for declaration of nullity of loan filed by petitioner Alvin
Patrimonio and ordering him to pay respondent Octavio 1arasigan III (Marasigan) the sum of P200,000.00.
The Factual Background
The facts of the case, as shown by the records, are briefly summarized below.
The petitioner and the respondent Napoleon Gutierrez (Gutierrez) entered into a business venture under the
name of Slam Dunk Corporation (Slum Dunk), a production outfit that produced mini-concerts and shows
related to basketball. Petitioner was already then a decorated professional basketball player while Gutierrez
was a well-known sports columnist.
In the course of their business, the petitioner pre-signed several checks to answer for the expenses of Slam
Dunk. Although signed, these checks had no payee’s name, date or amount. The blank checks were
entrusted to Gutierrez with the specific instruction not to fill them out without previous notification to and
approval by the petitioner. According to petitioner, the arrangement was made so that he could verify the
validity of the payment and make the proper arrangements to fund the account.
In the middle of 1993, without the petitioner’s knowledge and consent, Gutierrez went to Marasigan (the
petitioner’s former teammate), to secure a loan in the amount of P200,000.00 on the excuse that the
petitioner needed the money for the construction of his house. In addition to the payment of the principal,
Gutierrez assured Marasigan that he would be paid an interest of 5% per month from March to May 1994.
After much contemplation and taking into account his relationship with the petitioner and Gutierrez,
Marasigan acceded to Gutierrez’ request and gave him P200,000.00 sometime in February 1994. Gutierrez
simultaneously delivered to Marasigan one of the blank checks the petitioner pre-signed with Pilipinas Bank,
Greenhills Branch, Check No. 21001764 with the blank portions filled out with the words “Cash” “Two
Hundred Thousand Pesos Only”, and the amount of “P200,000.00”. The upper right portion of the check
corresponding to the date was also filled out with the words “May 23, 1994” but the petitioner contended
that the same was not written by Gutierrez.
On May 24, 1994, Marasigan deposited the check but it was dishonored for the reason “ACCOUNT
CLOSED.” It was later revealed that petitioner’s account with the bank had been closed since May 28, 1993.
Marasigan sought recovery from Gutierrez, to no avail. He thereafter sent several demand letters to the
petitioner asking for the payment of P200,000.00, but his demands likewise went unheeded. Consequently,
he filed a criminal case for violation of B.P. 22 against the petitioner, docketed as Criminal Case No. 42816.
On September 10, 1997, the petitioner filed before the Regional Trial Court (RTC) a Complaint for
Declaration of Nullity of Loan and Recovery of Damages against Gutierrez and co-respondent Marasigan. He
completely denied authorizing the loan or the check’s negotiation, and asserted that he was not privy to the
parties’ loan agreement.
Only Marasigan filed his answer to the complaint. In the RTC’s order dated December 22, 1997, Gutierrez
was declared in default.
The Ruling of the RTC

The RTC ruled on February 3, 2003 in favor of Marasigan.4 It found that the petitioner, in issuing the pre-
signed blank checks, had the intention of issuing a negotiable instrument, albeit with specific instructions to
Gutierrez not to negotiate or issue the check without his approval. While under Section 14 of the Negotiable
Instruments Law Gutierrez had the prima facie authority to complete the checks by filling up the blanks
therein, the RTC ruled that he deliberately violated petitioner’s specific instructions and took advantage of
the trust reposed in him by the latter.
Nonetheless, the RTC declared Marasigan as a holder in due course and accordingly dismissed the
petitioner’s complaint for declaration of nullity of the loan. It ordered the petitioner to pay Marasigan the
face value of the check with a right to claim reimbursement from Gutierrez.
The petitioner elevated the case to the Court of Appeals (CA), insisting that Marasigan is not a holder in due
course. He contended that when Marasigan received the check, he knew that the same was without a date,
and hence, incomplete. He also alleged that the loan was actually between Marasigan and Gutierrez with his
check being used only as a security.
The Ruling of the CA
On September 24, 2008, the CA affirmed the RTC ruling, although premised on different factual findings.
After careful analysis, the CA agreed with the petitioner that Marasigan is not a holder in due course as he
did not receive the check in good faith.
The CA also concluded that the check had been strictly filled out by Gutierrez in accordance with the
petitioner’s authority. It held that the loan may not be nullified since it is grounded on an obligation arising
from law and ruled that the petitioner is still liable to pay Marasigan the sum of P200,000.00.
After the CA denied the subsequent motion for reconsideration that followed, the petitioner filed the present
petition for review on certiorari under Rule 45 of the Revised Rules of Court.
The Petition
The petitioner argues that: (1) there was no loan between him and Marasigan since he never authorized the
borrowing of money nor the check’s negotiation to the latter; (2) under Article 1878 of the Civil Code, a
special power of attorney is necessary for an individual to make a loan or borrow money in behalf of
another; (3) the loan transaction was between Gutierrez and Marasigan, with his check being used only as a
security; (4) the check had not been completely and strictly filled out in accordance with his authority since
the condition that the subject check can only be used provided there is prior approval from him, was not
complied with; (5) even if the check was strictly filled up as instructed by the petitioner, Marasigan is still
not entitled to claim the check’s value as he was not a holder in due course; and (6) by reason of the bad
faith in the dealings between the respondents, he is entitled to claim for damages.
The Issues
Reduced to its basics, the case presents to us the following issues: ChanRobles Vi rtua lawlib rary
1. Whether the contract of loan in the amount of P200,000.00 granted by respondent

Marasigan to petitioner, through respondent Gutierrez, may be nullified for being void;
2. Whether there is basis to hold the petitioner liable for the payment of the P200,000.00
loan;
3. Whether respondent Gutierrez has completely filled out the subject check strictly under the
authority given by the petitioner; and
4. Whether Marasigan is a holder in due course.
The Court’s Ruling

The petition is impressed with merit.
We note at the outset that the issues raised in this petition are essentially factual in nature. The main point
of inquiry of whether the contract of loan may be nullified, hinges on the very existence of the contract of
loan – a question that, as presented, is essentially, one of fact. Whether the petitioner authorized the
borrowing; whether Gutierrez completely filled out the subject check strictly under the petitioner’s authority;
and whether Marasigan is a holder in due course are also questions of fact, that, as a general rule, are
beyond the scope of a Rule 45 petition.
The rule that questions of fact are not the proper subject of an appeal by certiorari, as a petition for review
under Rule 45 is limited only to questions of law, is not an absolute rule that admits of no exceptions. One
notable exception is when the findings of fact of both the trial court and the CA are conflicting, making their
review necessary.5 In the present case, the tribunals below arrived at two conflicting factual findings, albeit
with the same conclusion, i.e., dismissal of the complaint for nullity of the loan. Accordingly, we will examine
the parties’ evidence presented.
I. Liability Under the Contract of Loan
The petitioner seeks to nullify the contract of loan on the ground that he never authorized the borrowing of
money. He points to Article 1878, paragraph 7 of the Civil Code, which explicitly requires a written authority
when the loan is contracted through an agent. The petitioner contends that absent such authority in writing,
he should not be held liable for the face value of the check because he was not a party or privy to the
agreement.
Contracts of Agency May be Oral Unless

The Law Requires a Specific Form
Article 1868 of the Civil Code defines a contract of agency as a contract whereby a person "binds himself to
render some service or to do something in representation or on behalf of another, with the consent or
authority of the latter." Agency may be express, or implied from the acts of the principal, from his silence or
lack of action, or his failure to repudiate the agency, knowing that another person is acting on his behalf
without authority.
As a general rule, a contract of agency may be oral.6 However, it must be written when the law requires a
specific form, for example, in a sale of a piece of land or any interest therein through an agent.
Article 1878 paragraph 7 of the Civil Code expressly requires a special power of authority before an agent
can loan or borrow money in behalf of the principal, to wit: ChanRoble sVi rt ualawlib ra ry
Art. 1878. Special powers of attorney are necessary in the following cases:
xxxx
(7) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the
things which are under administration. (emphasis supplied)
Article 1878 does not state that the authority be in writing. As long as the mandate is express, such
authority may be either oral or written. We unequivocably declared in Lim Pin v. Liao Tian, et al.,7 that the
requirement under Article 1878 of the Civil Code refers to the nature of the authorization and not to its
form. Be that as it may, the authority must be duly established by competent and convincing evidence other
than the self serving assertion of the party claiming that such authority was verbally given, thus: ChanRoblesVirtualawl ibra ry
The requirements of a special power of attorney in Article 1878 of the Civil Code and of a special
authority in Rule 138 of the Rules of Court refer to the nature of the authorization and not its
form. The requirements are met if there is a clear mandate from the principal specifically authorizing the
performance of the act. As early as 1906, this Court in Strong v. Gutierrez-Repide (6 Phil. 680) stated
that such a mandate may be either oral or written, the one vital thing being that it shall be
express. And more recently, We stated that, if the special authority is not written, then it must be duly
established by evidence:
x x x the Rules require, for attorneys to compromise the litigation of their clients, a special authority. And
while the same does not state that the special authority be in writing the Court has every reason to expect
that, if not in writing, the same be duly established by evidence other than the self-serving
assertion of counsel himself that such authority was verbally given him. (Home Insurance Company
vs. United States lines Company, et al., 21 SCRA 863; 866: Vicente vs. Geraldez, 52 SCRA 210; 225).
(emphasis supplied).
The Contract of Loan Entered Into by Gutierrez in Behalf

of the Petitioner Should be Nullified for Being Void;
Petitioner is Not Bound by the Contract of Loan.
A review of the records reveals that Gutierrez did not have any authority to borrow money in behalf of the
petitioner. Records do not show that the petitioner executed any special power of attorney (SPA) in favor of
Gutierrez. In fact, the petitioner’s testimony confirmed that he never authorized Gutierrez (or anyone for
that matter), whether verbally or in writing, to borrow money in his behalf, nor was he aware of any such
transaction:ChanRoblesVi rtua lawlib rary
ALVIN PATRIMONIO (witness)
ATTY. DE VERA: Did you give Nap Gutierrez any Special Power of
Attorney in writing authorizing him to borrow using your
money?
WITNESS: No, sir. (T.S.N., Alvin Patrimonio, Nov. 11, 1999, p.

105)8
xxxx
Marasigan however submits that the petitioner’s acts of pre-signing the blank checks and releasing them to
Gutierrez suffice to establish that the petitioner had authorized Gutierrez to fill them out and contract the
loan in his behalf.
Marasigan’s submission fails to persuade us.
In the absence of any authorization, Gutierrez could not enter into a contract of loan in behalf of the
petitioner. As held in Yasuma v. Heirs of De Villa,9 involving a loan contracted by de Villa secured by real
estate mortgages in the name of East Cordillera Mining Corporation, in the absence of an SPA conferring
authority on de Villa, there is no basis to hold the corporation liable, to wit:
ChanRob les Virtualawl ibra ry
The power to borrow money is one of those cases where corporate officers as agents of the corporation need
a special power of attorney. In the case at bar, no special power of attorney conferring authority on
de Villa was ever presented. x x x There was no showing that respondent corporation ever authorized de
Villa to obtain the loans on its behalf.
xxxx
Therefore, on the first issue, the loan was personal to de Villa. There was no basis to hold the
corporation liable since there was no authority, express, implied or apparent, given to de Villa to
borrow money from petitioner. Neither was there any subsequent ratification of his act.
xxxx
The liability arising from the loan was the sole indebtedness of de Villa (or of his estate after his death).
(citations omitted; emphasis supplied).
This principle was also reiterated in the case of Gozun v. Mercado,10 where this court held: ChanRoble sVirtualawli bra ry
Petitioner submits that his following testimony suffices to establish that respondent had authorized Lilian to
obtain a loan from him.
xxxx
Petitioner’s testimony failed to categorically state, however, whether the loan was made on behalf of
respondent or of his wife. While petitioner claims that Lilian was authorized by respondent, the statement of
account marked as Exhibit "A" states that the amount was received by Lilian "in behalf of Mrs. Annie
Mercado.
It bears noting that Lilian signed in the receipt in her name alone, without indicating therein that she was
acting for and in behalf of respondent. She thus bound herself in her personal capacity and not as an
agent of respondent or anyone for that matter.
It is a general rule in the law of agency that, in order to bind the principal by a mortgage on real
property executed by an agent, it must upon its face purport to be made, signed and sealed in
the name of the principal, otherwise, it will bind the agent only. It is not enough merely that the
agent was in fact authorized to make the mortgage, if he has not acted in the name of the
principal. x x x (emphasis supplied).
In the absence of any showing of any agency relations or special authority to act for and in behalf of the
petitioner, the loan agreement Gutierrez entered into with Marasigan is null and void. Thus, the petitioner is
not bound by the parties’ loan agreement.
Furthermore, that the petitioner entrusted the blank pre-signed checks to Gutierrez is not legally sufficient
because the authority to enter into a loan can never be presumed. The contract of agency and the special
fiduciary relationship inherent in this contract must exist as a matter of fact. The person alleging it has the
burden of proof to show, not only the fact of agency, but also its nature and extent.11As we held in People v.
Yabut:12cralawred
Modesto Yambao's receipt of the bad checks from Cecilia Que Yabut or Geminiano Yabut, Jr., in Caloocan
City cannot, contrary to the holding of the respondent Judges, be licitly taken as delivery of the checks to
the complainant Alicia P. Andan at Caloocan City to fix the venue there. He did not take delivery of the
checks as holder, i.e., as "payee" or "indorsee." And there appears to be no contract of agency between
Yambao and Andan so as to bind the latter for the acts of the former. Alicia P. Andan declared in that sworn
testimony before the investigating fiscal that Yambao is but her "messenger" or "part-time
employee." There was no special fiduciary relationship that permeated their dealings. For a
contract of agency to exist, the consent of both parties is essential, the principal consents that
the other party, the agent, shall act on his behalf, and the agent consents so to act. It must exist
as a fact. The law makes no presumption thereof. The person alleging it has the burden of proof
to show, not only the fact of its existence, but also its nature and extent. This is more imperative
when it is considered that the transaction dealt with involves checks, which are not legal tender,
and the creditor may validly refuse the same as payment of obligation. (at p. 630). (emphasis
supplied)
The records show that Marasigan merely relied on the words of Gutierrez without securing a copy of the SPA
in favor of the latter and without verifying from the petitioner whether he had authorized the borrowing of
money or release of the check. He was thus bound by the risk accompanying his trust on the mere
assurances of Gutierrez.
No Contract of Loan Was Perfected Between

Marasigan And Petitioner, as The Latter’s
Consent Was Not Obtained.
Another significant point that the lower courts failed to consider is that a contract of loan, like any other
contract, is subject to the rules governing the requisites and validity of contracts in general.13 Article 1318 of
the Civil Code14 enumerates the essential requisites for a valid contract, namely:
1. consent of the contracting parties;
2. object certain which is the subject matter of the contract; and
3. cause of the obligation which is established.
In this case, the petitioner denied liability on the ground that the contract lacked the essential element of
consent. We agree with the petitioner. As we explained above, Gutierrez did not have the petitioner’s
written/verbal authority to enter into a contract of loan. While there may be a meeting of the minds between
Gutierrez and Marasigan, such agreement cannot bind the petitioner whose consent was not obtained and
who was not privy to the loan agreement. Hence, only Gutierrez is bound by the contract of loan.
True, the petitioner had issued several pre-signed checks to Gutierrez, one of which fell into the hands of
Marasigan. This act, however, does not constitute sufficient authority to borrow money in his behalf and
neither should it be construed as petitioner’s grant of consent to the parties’ loan agreement. Without any
evidence to prove Gutierrez’ authority, the petitioner’s signature in the check cannot be taken, even
remotely, as sufficient authorization, much less, consent to the contract of loan. Without the consent given
by one party in a purported contract, such contract could not have been perfected; there simply was no
contract to speak of.15 cralawred
With the loan issue out of the way, we now proceed to determine whether the petitioner can be made liable
under the check he signed.
II. Liability Under the Instrument
The answer is supplied by the applicable statutory provision found in
Section 14 of the Negotiable Instruments Law (NIL) which states: ChanRoblesVi rtua lawlib rary
Sec. 14. Blanks; when may be filled. - Where the instrument is wanting in any material particular, the
person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a
signature on a blank paper delivered by the person making the signature in order that the paper may be
converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any
amount. In order, however, that any such instrument when completed may be enforced against any person
who became a party thereto prior to its completion, it must be filled up strictly in accordance with the
authority given and within a reasonable time. But if any such instrument, after completion,
is negotiated to a holder in due course, it is valid and effectual for all purposes in his hands, and he may
enforce it as if it had been filled up strictly in accordance with the authority given and within a reasonable
time.
This provision applies to an incomplete but delivered instrument. Under this rule, if the maker or drawer
delivers a pre-signed blank paper to another person for the purpose of converting it into a negotiable
instrument, that person is deemed to have prima facie authority to fill it up. It merely requires that the
instrument be in the possession of a person other than the drawer or maker and from such possession,
together with the fact that the instrument is wanting in a material particular, the law presumes agency to fill
up the blanks.16cralawred
In order however that one who is not a holder in due course can enforce the instrument against a party prior
to the instrument’s completion, two requisites must exist: (1) that the blank must be filled strictly in
accordance with the authority given; and (2) it must be filled up within a reasonable time. If it was proven
that the instrument had not been filled up strictly in accordance with the authority given and within a
reasonable time, the maker can set this up as a personal defense and avoid liability. However, if the holder
is a holder in due course, there is a conclusive presumption that authority to fill it up had been given and
that the same was not in excess of authority.17 cralawred
In the present case, the petitioner contends that there is no legal basis to hold him liable both under the
contract and loan and under the check because: first, the subject check was not completely filled out
strictly under the authority he has given and second, Marasigan was not a holder in due course.
Marasigan is Not a Holder in Due Course
The Negotiable Instruments Law (NIL) defines a holder in due course, thus: ChanRoblesVi rtua lawlib rary
Sec. 52 — A holder in due course is a holder who has taken the instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it had been previously
dishonored, if such was the fact;
(c) That he took it in good faith and for value;

(d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument
or defect in the title of the person negotiating it. (emphasis supplied)
Section 52(c) of the NIL states that a holder in due course is one who takes the instrument “in good faith
and for value.” It also provides in Section 52(d) that in order that one may be a holder in due course, it is
necessary that at the time it was negotiated to him he had no notice of any infirmity in the instrument or
defect in the title of the person negotiating it.
Acquisition in good faith means taking without knowledge or notice of equities of any sort which could be set
up against a prior holder of the instrument.18 It means that he does not have any knowledge of fact which
would render it dishonest for him to take a negotiable paper. The absence of the defense, when the
instrument was taken, is the essential element of good faith.19 cralawre d
As held in De Ocampo v. Gatchalian:20 cralawre d
In order to show that the defendant had “knowledge of such facts that his action in taking the instrument
amounted to bad faith,” it is not necessary to prove that the defendant knew the exact fraud that
was practiced upon the plaintiff by the defendant's assignor, it being sufficient to show that the
defendant had notice that there was something wrong about his assignor's acquisition of title,
although he did not have notice of the particular wrong that was committed.
It is sufficient that the buyer of a note had notice or knowledge that the note was in some way tainted with
fraud. It is not necessary that he should know the particulars or even the nature of the fraud,
since all that is required is knowledge of such facts that his action in taking the note amounted bad faith.
The term ‘bad faith’ does not necessarily involve furtive motives, but means bad faith in a commercial
sense. The manner in which the defendants conducted their Liberty Loan department provided an easy way
for thieves to dispose of their plunder. It was a case of “no questions asked.” Although gross negligence
does not of itself constitute bad faith, it is evidence from which bad faith may be inferred. The circumstances
thrust the duty upon the defendants to make further inquiries and they had no right to shut their eyes
deliberately to obvious facts. (emphasis supplied).
In the present case, Marasigan’s knowledge that the petitioner is not a party or a privy to the contract of
loan, and correspondingly had no obligation or liability to him, renders him dishonest, hence, in bad faith.
The following exchange is significant on this point:ChanRobles Vi rtualaw lib rary
WITNESS: AMBET NABUS
Q: Now, I refer to the second call… after your birthday. Tell us what
you talked about?
A: Since I celebrated my birthday in that place where Nap and I live
together with the other crew, there were several visitors that
included Danny Espiritu. So a week after my birthday, Bong
Marasigan called me up again and he was fuming mad.
Nagmumura na siya. Hinahanap niya si… hinahanap niya si Nap,
dahil pinagtataguan na siya at sinabi na niya na kailangan I-settle
na niya yung utang ni Nap, dahil…
xxxx
WITNESS:Yes. Sinabi niya sa akin na kailangan ayusin na bago pa mauwi sa
kung saan ang tsekeng tumalbog… (He told me that we have to fix
it up before it…) mauwi pa kung saan…
xxxx
Q: What was your reply, if any?
A: I actually asked him. Kanino ba ang tseke na sinasabi mo?
(Whose check is it that you are referring to or talking about?)
Q: What was his answer?
A: It was Alvin’s check.
Q: What was your reply, if any?
A: I told him do you know that it is not really Alvin who
borrowed money from you or what you want to appear…
xxxx
Q: What was his reply?
A: Yes, it was Nap, pero tseke pa rin ni Alvin ang hawak ko at
si Alvin ang maiipit dito. (T.S.N., Ambet Nabus, July 27, 2000;
pp.65-71; emphasis supplied)21
Since he knew that the underlying obligation was not actually for the petitioner, the rule that a possessor of
the instrument is prima facie a holder in due course is inapplicable. As correctly noted by the CA, his
inaction and failure to verify, despite knowledge of that the petitioner was not a party to the loan, may be
construed as gross negligence amounting to bad faith.
Yet, it does not follow that simply because he is not a holder in due course, Marasigan is already totally
barred from recovery. The NIL does not provide that a holder who is not a holder in due course may not in
any case recover on the instrument.22 The only disadvantage of a holder who is not in due course is that the
negotiable instrument is subject to defenses as if it were non-negotiable.23 Among such defenses is the
filling up blank not within the authority.
On this point, the petitioner argues that the subject check was not filled up strictly on the basis of the
authority he gave. He points to his instruction not to use the check without his prior approval and argues
that the check was filled up in violation of said instruction.
Check Was Not Completed Strictly Under

The Authority Given by The Petitioner
Our own examination of the records tells us that Gutierrez has exceeded the authority to fill up the blanks
and use the check. To repeat, petitioner gave Gutierrez pre-signed checks to be used in their business
provided that he could only use them upon his approval. His instruction could not be any clearer as
Gutierrez’ authority was limited to the use of the checks for the operation of their business, and on the
condition that the petitioner’s prior approval be first secured.
While under the law, Gutierrez had a prima facie authority to complete the check, such prima
facieauthority does not extend to its use (i.e., subsequent transfer or negotiation) once the check is
completed. In other words, only the authority to complete the check is presumed. Further, the law used the
term "prima facie" to underscore the fact that the authority which the law accords to a holder is a
presumption juris tantum only; hence, subject to subject to contrary proof. Thus, evidence that there was
no authority or that the authority granted has been exceeded may be presented by the maker in order to
avoid liability under the instrument.
In the present case, no evidence is on record that Gutierrez ever secured prior approval from the petitioner
to fill up the blank or to use the check. In his testimony, petitioner asserted that he never authorized nor
approved the filling up of the blank checks, thus:ChanRoblesVirtualawl ibra ry
ATTY. DE Did you authorize anyone including Nap Gutierrez to write

VERA: the date, May 23, 1994? WITNESS: No, sir.
Q: Did you authorize anyone including Nap Gutierrez to put the
word cash? In the check?
A: No, sir.
Q: Did you authorize anyone including Nap Gutierrez to write
the figure P200,000 in this check?
A: No, sir.
Q: And lastly, did you authorize anyone including Nap Gutierrez
to write the words P200,000 only xx in this check?
A: No, sir. (T.S.N., Alvin Patrimonio, November 11, 1999).24
Notably, Gutierrez was only authorized to use the check for business expenses; thus, he exceeded the
authority when he used the check to pay the loan he supposedly contracted for the construction of
petitioner's house. This is a clear violation of the petitioner's instruction to use the checks for the expenses
of Slam Dunk. It cannot therefore be validly concluded that the check was completed strictly in accordance
with the authority given by the petitioner.
Considering that Marasigan is not a holder in due course, the petitioner can validly set up the personal
defense that the blanks were not filled up in accordance with the authority he gave. Consequently,
Marasigan has no right to enforce payment against the petitioner and the latter cannot be obliged to pay the
face value of the check.
WHEREFORE, in view of the foregoing, judgment is hereby rendered GRANTING the petitioner Alvin
Patrimonio's petition for review on certiorari. The appealed Decision dated September 24, 2008 and the
Resolution dated April 30, 2009 of the Court of Appeals are consequently ANNULLED AND SET
ASIDE.Costs against the respondents.
SO ORDERED.
Carpio, (Chairperson), Del Castillo, Perez, and Perlas-Bernabe, JJ., concur.
RIZAL COMMERCIAL BANKING CORPORATION, petitioner, vs. HI-TRI

DEVELOPMENT CORPORATION and LUZ R. BAKUNAWA, respondents.
Escheat Proceedings; Banks and Banking; Words and Phrases; Escheat proceedings refer
to the judicial process in which the state, by virtue of its sovereignty, steps in and claims
abandoned, left vacant, or unclaimed property, without there being an interested person
having a legal claim thereto; Escheat is not a proceeding to penalize depositors for failing to
deposit to or withdraw from their accounts.—Escheat proceedings refer to the judicial process
in which the state, by virtue of its sovereignty, steps in and claims abandoned, left vacant, or
unclaimed property, without there being an interested person having a legal claim thereto.
In the case of dormant accounts, the state inquires into the status, custody, and ownership
of the unclaimed balance to determine whether the inactivity was brought about by the fact
of death or absence of or abandonment by the depositor. If after the proceedings the property
remains without a lawful owner interested to claim it, the property shall be reverted to the
state “to forestall an open invitation to self-service by the first comers.” However, if interested
parties have come forward and lain claim to the property, the courts shall determine whether
the credit or deposit should pass to the claimants or be forfeited in favor of the state. We
emphasize that escheat is not a proceeding to penalize depositors for failing to deposit to or
withdraw from their accounts. It is a proceeding whereby the state compels the surrender to
it of unclaimed deposit balances when there is substantial ground for a belief that they have
been abandoned, forgotten, or without an owner.
Same; Same; In case the bank complies with the provisions of the law and the unclaimed
balances are eventually escheated to the Republic, the bank shall not thereafter be liable to
any person for the same and any action which may be brought by any person against any bank
for unclaimed balances so deposited shall be defended by the Solicitor General without cost to
such bank.—In case the bank
_______________
* SECOND DIVISION.
515
VOL. 672, JUNE 13, 2012 515

Rizal Commercial Banking Corporation vs. Hi-Tri
Development Corporation
complies with the provisions of the law and the unclaimed balances are eventually
escheated to the Republic, the bank “shall not thereafter be liable to any person for the same
and any action which may be brought by any person against in any bank xxx for unclaimed
balances so deposited xxx shall be defended by the Solicitor General without cost to such
bank.” Otherwise, should it fail to comply with the legally outlined procedure to the prejudice
of the depositor, the bank may not raise the defense provided under Section 5 of Act No. 3936,
as amended.
Negotiable Instruments Law; Checks; The issuance of the check does not of itself operate
as an assignment of any part of the funds in the bank to the credit of the drawer.—
An ordinary check refers to a bill of exchange drawn by a depositor (drawer) on a bank
(drawee), requesting the latter to pay a person named therein (payee) or to the order of the
payee or to the bearer, a named sum of money. The issuance of the check does not of itself
operate as an assignment of any part of the funds in the bank to the credit of the drawer.
Here, the bank becomes liable only after it accepts or certifies the check. After the check is
accepted for payment, the bank would then debit the amount to be paid to the holder of the
check from the account of the depositor-drawer.
Same; Same; Manager’s Checks; Cashier’s Checks; There are checks of a special type
called manager’s or cashier’s checks. These are bills of exchange drawn by the bank’s manager
or cashier, in the name of the bank, against the bank itself. Typically, a manager’s or a
cashier’s check is procured from the bank by allocating a particular amount of funds to be
debited from the depositor’s account or by directly paying or depositing to the bank the value
of the check to be drawn.—There are checks of a special type called manager’s or cashier’s
checks. These are bills of exchange drawn by the bank’s manager or cashier, in the name of
the bank, against the bank itself. Typically, a manager’s or a cashier’s check is procured from
the bank by allocating a particular amount of funds to be debited from the depositor’s account
or by directly paying or depositing to the bank the value of the check to be drawn. Since the
bank issues the check in its name, with itself as the drawee, the check is deemed accepted in
advance. Ordinarily, the check becomes the primary obligation of the issuing bank and
constitutes its written promise to pay upon demand.
516
516 SUPREME COURT REPORTS ANNOTATED
PETITION for review on certiorari of the decision and resolution of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Ramos, Zantua, Arches, Cruz, Manlangit and Rogero for petitioner.
Francisco T. Ignalaga, Jr. for respondents.
SERENO, J.:
Before the Court is a Rule 45 Petition for Review on Certiorarifiled by petitioner
Rizal Commercial Banking Corporation (RCBC) against respondents Hi-Tri
Development Corporation (Hi-Tri) and Luz R. Bakunawa (Bakunawa). Petitioner
seeks to appeal from the 26 November 2009 Decision and 27 May 2010 Resolution of
the Court of Appeals (CA),1 which reversed and set aside the 19 May 2008 Decision
and 3 November 2008 Order of the Makati City Regional Trial Court (RTC) in Civil
Case No. 06-244.2 The case before the RTC involved the Complaint for Escheat filed
by the Republic of the Philippines (Republic) pursuant to Act No. 3936, as amended
by Presidential Decree No. 679 (P.D. 679), against certain deposits, credits, and
unclaimed balances held by the branches of various banks in the Philippines. The
trial court declared the amounts, subject of the special proceedings, escheated to the
Republic and ordered them deposited with the Treasurer of the Philippines
(Treasurer) and credited in favor of the Republic.3 The assailed RTC judgments
included
_______________
1 The Decision and Resolution in CA-G.R. SP No. 107261 were penned by CA Associate Justice Vicente
S.E. Veloso and concurred in by Associate Justices Andres B. Reyes, Jr. and Marlene Gonzales-Sison.
2 The Decision and Order in Civil Case No. 06-244 (for Escheat) was penned by Judge Elmo M. Alameda.
3 CA Decision at pp. 1-2 (Hi-Tri Development Corporation v. Republic of the Philippines, CA-G.R. SP No.
107261, 26 November
517
VOL. 672, JUNE 13, 2012 517
an unclaimed balance in the amount of P1,019,514.29, maintained by RCBC in its
Ermita Business Center branch.
We quote the narration of facts of the CA4 as follows:
“x x x Luz [R.] Bakunawa and her husband Manuel, now deceased (“Spouses
Bakunawa”) are registered owners of six (6) parcels of land covered by TCT Nos.
324985 and 324986 of the Quezon City Register of Deeds, and TCT Nos. 103724,
98827, 98828 and 98829 of the Marikina Register of Deeds. These lots were
sequestered by the Presidential Commission on Good Government [(PCGG)].
Sometime in 1990, a certain Teresita Millan (“Millan”), through her
representative, Jerry Montemayor, offered to buy said lots for “P6,724,085.71,” with
the promise that she will take care of clearing whatever preliminary obstacles there
may[]be to effect a “completion of the sale.” The Spouses Bakunawa gave to Millan
the Owner’s Copies of said TCTs and in turn, Millan made a down[]payment of
“P1,019,514.29” for the intended purchase. However, for one reason or another,
Millan was not able to clear said obstacles. As a result, the Spouses Bakunawa
rescinded the sale and offered to return to Millan her down[]payment of
P1,019,514.29. However, Millan refused to accept back the P1,019,514.29
down[]payment. Consequently, the Spouses Bakunawa, through their company, the
Hi-Tri Development Corporation (“Hi-Tri”) took out on October 28, 1991, a Manager’s
Check from RCBC-Ermita in the amount of P1,019,514.29, payable to Millan’s
company Rosmil Realty and Development Corporation (“Rosmil”) c/o Teresita Millan
and used this as one of their basis for a complaint against Millan and Montemayor
which they filed with the Regional Trial Court of Quezon City, Branch 99, docketed
as Civil Case No. Q-91-10719 [in 1991], praying that:
1. That the defendants Teresita Mil[l]an and Jerry Montemayor may be ordered
to return to plaintiffs spouses the Owners’ Copies of Transfer Certificates of
Title Nos. 324985, 324986, 103724, 98827, 98828 and 98829;
_______________
2009), Rollo, pp. 61-62; RTC Decision at the 18th to the 19th pp. (unpaged)
(Republic of the Philippines v. Allied Banking Corporation, Civil Case No. 06-244, 19
May 2008), Rollo, pp. 210-211.
4 CA Decision at 2-7, supra, Rollo, pp. 62-67.
518

2. That the defendant Teresita Mil[l]an be correspondingly ordered to receive the
amount of One Million Nineteen Thousand Five Hundred Fourteen Pesos and
Twenty Nine Centavos (P1,019,514.29);
3. That the defendants be ordered to pay to plaintiffs spouses moral damages in
the amount of P2,000,000.00; and
4. That the defendants be ordered to pay plaintiffs attorney’s fees in the amount
of P50,000.00.
Being part and parcel of said complaint, and consistent with their prayer in Civil
Case No. Q-91-10719 that “Teresita Mil[l]an be correspondingly ordered to receive
the amount of One Million Nineteen Thousand Five Hundred Fourteen Pesos and
Twenty Nine [Centavos] (“P1,019,514.29”)[”], the Spouses Bakunawa, upon advice of
their counsel, retained custody of RCBC Manager’s Check No. ER 034469 and
refrained from canceling or negotiating it.
All throughout the proceedings in Civil Case No. Q-91-10719, especially during
negotiations for a possible settlement of the case, Millan was informed that the
Manager’s Check was available for her withdrawal, she being the payee.
On January 31, 2003, during the pendency of the abovementioned case and
without the knowledge of [Hi-Tri and Spouses Bakunawa], x x x RCBC reported the
“P1,019,514.29-credit existing in favor of Rosmil” to the Bureau of Treasury as among
its “unclaimed balances” as of January 31, 2003. Allegedly, a copy of the Sworn
Statement executed by Florentino N. Mendoza, Manager and Head of RCBC’s Asset
Management, Disbursement & Sundry Department (“AMDSD”) was posted within
the premises of RCBC-Ermita.
On December 14, 2006, x x x Republic, through the [Office of the Solicitor General
(OSG)], filed with the RTC the action below for Escheat [(Civil Case No. 06-244)].
On April 30, 2008, [Spouses Bakunawa] settled amicably their dispute with Rosmil
and Millan. Instead of only the amount of “P1,019,514.29,” [Spouses Bakunawa]
agreed to pay Rosmil and Millan the amount of “P3,000,000.00,” [which is] inclusive
[of] the amount of [“]P1,019,514.29.” But during negotiations and evidently prior to
said settlement, [Manuel Bakunawa, through Hi-Tri] inquired from RCBC-Ermita
the availability of the P1,019,514.29 under RCBC Manager’s Check No. ER 034469.
[Hi-Tri and Spouses
519
VOL. 672, JUNE 13, 2012 519

Bakunawa] were however dismayed when they were informed that the amount was
already subject of the escheat proceedings before the RTC.
On April 17, 2008, [Manuel Bakunawa, through Hi-Tri] wrote x x x RCBC, viz.:
“We understand that the deposit corresponding to the amount of Php
1,019,514.29 stated in the Manager’s Check is currently the subject of escheat
proceedings pending before Branch 150 of the Makati Regional Trial Court.
Please note that it was our impression that the deposit would be taken from [Hi-
Tri’s] RCBC bank account once an order to debit is issued upon the payee’s
presentation of the Manager’s Check. Since the payee rejected the negotiated
Manager’s Check, presentation of the Manager’s Check was never made.
Consequently, the deposit that was supposed to be allocated for the payment of
the Manager’s Check was supposed to remain part of the Corporation[’s] RCBC
bank account, which, thereafter, continued to be actively maintained and
operated. For this reason, We hereby demand your confirmation that the
amount of Php 1,019,514.29 continues to form part of the funds in the
Corporation’s RCBC bank account, since pay-out of said amount was never
ordered. We wish to point out that if there was any attempt on the part of RCBC
to consider the amount indicated in the Manager’s Check separate from the
Corporation’s bank account, RCBC would have issued a statement to that effect,
and repeatedly reminded the Corporation that the deposit would be considered
dormant absent any fund movement. Since the Corporation never received any
statements of account from RCBC to that effect, and more importantly, never
received any single letter from RCBC noting the absence of fund movement and
advising the Corporation that the deposit would be treated as dormant.”
On April 28, 2008, [Manuel Bakunawa] sent another letter to x x x RCBC
reiterating their position as above-quoted.
In a letter dated May 19, 2008, x x x RCBC replied and informed [Hi-Tri and
Spouses Bakunawa] that:
“The Bank’s Ermita BC informed Hi-Tri and/or its principals regarding the
inclusion of Manager’s Check No. ER034469 in
520

the escheat proceedings docketed as Civil Case No. 06-244, as well as the status
thereof, between 28 January 2008 and 1 February 2008.
xxx xxx xxx
Contrary to what Hi-Tri hopes for, the funds covered by the Manager’s Check
No. ER034469 does not form part of the Bank’s own account. By simple
operation of law, the funds covered by the manager’s check in issue became a
deposit/credit susceptible for inclusion in the escheat case initiated by the OSG
and/or Bureau of Treasury.
xxx xxx xxx
Granting arguendo that the Bank was duty-bound to make good the check, the
Bank’s obligation to do so prescribed as early as October 2001.”
(Emphases, citations, and annotations were omitted.)
The RTC Ruling
The escheat proceedings before the Makati City RTC continued. On 19 May 2008,
the trial court rendered its assailed Decision declaring the deposits, credits, and
unclaimed balances subject of Civil Case No. 06-244 escheated to the Republic.
Among those included in the order of forfeiture was the amount of P1,019,514.29 held
by RCBC as allocated funds intended for the payment of the Manager’s Check issued
in favor of Rosmil. The trial court ordered the deposit of the escheated balances with
the Treasurer and credited in favor of the Republic. Respondents claim that they were
not able to participate in the trial, as they were not informed of the ongoing escheat
proceedings.
Consequently, respondents filed an Omnibus Motion dated 11 June 2008, seeking
the partial reconsideration of the RTC Decision insofar as it escheated the fund
allocated for the payment of the Manager’s Check. They asked that they be included
as party-defendants or, in the alternative, allowed to intervene in the case and their
motion considered as an answer-in-intervention. Respondents argued that they had
521
VOL. 672, JUNE 13, 2012 521
meritorious grounds to ask reconsideration of the Decision or, alternatively, to seek
intervention in the case. They alleged that the deposit was subject of an ongoing
dispute (Civil Case No. Q-91-10719) between them and Rosmil since 1991, and that
they were interested parties to that case.5
On 3 November 2008, the RTC issued an Order denying the motion of respondents.
The trial court explained that the Republic had proven compliance with the
requirements of publication and notice, which served as notice to all those who may
be affected and prejudiced by the Complaint for Escheat. The RTC also found that
the motion failed to point out the findings and conclusions that were not supported
by the law or the evidence presented, as required by Rule 37 of the Rules of Court.
Finally, it ruled that the alternative prayer to intervene was filed out of time.
The CA Ruling
On 26 November 2009, the CA issued its assailed Decision reversing the 19 May
2008 Decision and 3 November 2008 Order of the RTC. According to the appellate
court,6 RCBC failed to prove that the latter had communicated with the purchaser of
the Manager’s Check (Hi-Tri and/or Spouses Bakunawa) or the designated payee
(Rosmil) immediately before the bank filed its Sworn Statement on the dormant
accounts held therein. The CA ruled that the bank’s failure to notify respondents
deprived them of an opportunity to intervene in the escheat proceedings and to
present evidence to substantiate their claim, in violation of their right to due process.
Furthermore, the CA pronounced that the Makati City RTC Clerk of Court failed to
issue individual notices
_______________
5 Omnibus Motion at 3-7 (Republic of the Philippines v. Allied Banking Corporation, Civil Case No. 06-
244, decided on 19 May 2008), Rollo, pp. 217-221. See also RTC Judgment (Bakunawa v. Milan, Civil Case
No. Q-91-10719, 17 June 2008), Rollo, pp. 287-289.
6 CA Decision at pp. 14-16, supra note Error: Reference source not found, Rollo, pp. 74-76.
522
directed to all persons claiming interest in the unclaimed balances, as well as to
require them to appear after publication and show cause why the unclaimed balances
should not be deposited with the Treasurer of the Philippines. It explained that the
jurisdictional requirement of individual notice by personal service was distinct from
the requirement of notice by publication. Consequently, the CA held that the Decision
and Order of the RTC were void for want of jurisdiction.
Issue
After a perusal of the arguments presented by the parties, we cull the main issues
as follows:
I. Whether the Decision and Order of the RTC were void for failure to send
separate notices to respondents by personal service
II. Whether petitioner had the obligation to notify respondents immediately
before it filed its Sworn Statement with the Treasurer
III. Whether or not the allocated funds may be escheated in favor of the Republic
Discussion
Petitioner bank assails7 the CA judgments insofar as they ruled that notice by
personal service upon respondents is a jurisdictional requirement in escheat
proceedings. Petitioner contends that respondents were not the owners of the
unclaimed balances and were thus not entitled to notice from the RTC Clerk of Court.
It hinges its claim on the theory that the funds represented by the Manager’s Check
were deemed
_______________
7 Petition for Review on Certiorari of RCBC at 41-49, Rollo, pp. 43-51.
523
VOL. 672, JUNE 13, 2012 523
transferred to the credit of the payee or holder upon its issuance.
We quote the pertinent provision of Act No. 3936, as amended, on the rule on
service of processes, to wit:
“Sec. 3. Whenever the Solicitor General shall be informed of such unclaimed balances,
he shall commence an action or actions in the name of the People of the Republic
of the Philippines in the Court of First Instance of the province or city where the bank,
building and loan association or trust corporation is located, in which shall be joined as
parties the bank, building and loan association or trust corporation and all such
creditors or depositors. All or any of such creditors or depositors or banks, building and
loan association or trust corporations may be included in one action. Service of process in
such action or actions shall be made by delivery of a copy of the complaint and
summons to the president, cashier, or managing officer of each defendant bank,
building and loan association or trust corporation and by publication of a copy of such
summons in a newspaper of general circulation, either in English, in Filipino, or in a local
dialect, published in the locality where the bank, building and loan association or trust
corporation is situated, if there be any, and in case there is none, in the City of Manila, at
such time as the court may order. Upon the trial, the court must hear all parties who
have appeared therein, and if it be determined that such unclaimed balances in any
defendant bank, building and loan association or trust corporation are unclaimed as
hereinbefore stated, then the court shall render judgment in favor of the
Government of the Republic of the Philippines, declaring that said unclaimed balances
have escheated to the Government of the Republic of the Philippines and commanding said
bank, building and loan association or trust corporation to forthwith deposit the same with
the Treasurer of the Philippines to credit of the Government of the Republic of the Philippines
to be used as the National Assembly may direct.
At the time of issuing summons in the action above provided for, the clerk of court shall
also issue a notice signed by him, giving the title and number of said action, and referring
to the complaint therein, and directed to all persons, other than those named as
524

defendants therein, claiming any interest in any unclaimed balance mentioned in
said complaint, and requiring them to appear within sixty days after the
publication or first publication, if there are several, of such summons, and show cause, if
they have any, why the unclaimed balances involved in said action should not be
deposited with the Treasurer of the Philippines as in this Act provided and notifying
them that if they do not appear and show cause, the Government of the Republic
of the Philippines will apply to the court for the relief demanded in the complaint.
A copy of said notice shall be attached to, and published with the copy of, said summons
required to be published as above, and at the end of the copy of such notice so published,
there shall be a statement of the date of publication, or first publication, if there are several,
of said summons and notice. Any person interested may appear in said action and
become a party thereto. Upon the publication or the completion of the publication,
if there are several, of the summons and notice, and the service of the summons on the
defendant banks, building and loan associations or trust corporations, the court shall have
full and complete jurisdiction in the Republic of the Philippines over the said
unclaimed balances and over the persons having or claiming any interest in the
said unclaimed balances, or any of them, and shall have full and complete
jurisdiction to hear and determine the issues herein, and render the appropriate
judgment thereon.” (Emphasis supplied.)
Hence, insofar as banks are concerned, service of processes is made by delivery of
a copy of the complaint and summons upon the president, cashier, or managing officer
of the defendant bank.8 On the other hand, as to depositors or other claimants of
the unclaimed balances, service is made by publication of a copy of the summons
in a newspaper of general circulation in the locality where the institution is
situated.9 A notice about the forthcoming escheat proceedings
_______________
8 Act No. 3936, as amended by P.D. 679, Sec. 3; see also Security Savings Bank v. State of California,
263 U.S. 282 (1923).
9 Id.
525
VOL. 672, JUNE 13, 2012 525
must also be issued and published, directing and requiring all persons who may claim
any interest in the unclaimed balances to appear before the court and show cause
why the dormant accounts should not be deposited with the Treasurer.
Accordingly, the CA committed reversible error when it ruled that the issuance of
individual notices upon respondents was a jurisdictional requirement, and that
failure to effect personal service on them rendered the Decision and the Order of the
RTC void for want of jurisdiction. Escheat proceedings are actions in rem,10whereby
an action is brought against the thing itself instead of the person.11 Thus, an action
may be instituted and carried to judgment without personal service upon the
depositors or other claimants.12Jurisdiction is secured by the power of the court over
the res.13Consequently, a judgment of escheat is conclusive upon persons notified by
advertisement, as publication is considered a general and constructive notice to all
persons interested.14
Nevertheless, we find sufficient grounds to affirm the CA on the exclusion of the
funds allocated for the payment of the Manager’s Check in the escheat proceedings.
Escheat proceedings refer to the judicial process in which the state, by virtue of its
sovereignty, steps in and claims abandoned, left vacant, or unclaimed property,
without there being an interested person having a legal claim thereto.15 In the case of
dormant accounts, the state inquires into the
_______________
10 Republic v. Court of First Instance of Manila, Branch XIII, 247-A Phil. 85; 165 SCRA 11 (1988).
11 See Ramos v. Ramos, G.R. No. 144294, 11 March 2003, 399 SCRA 43.
12 See Grey v. De la Cruz, 17 Phil. 49 (1910).
13 Id.
14 Id. (citing Hamilton v. Brown, 161 U.S. 256 (1896).
15 BLACK’S LAW DICTIONARY 545 (6th ed. 1990); Act No. 3936, as amended by P.D. 679, Secs. 1 and 3.
See generally Republic v. Court of Appeals, 426 Phil. 177; 375 SCRA 484 (2002) and Roth v. Delano, 338
U.S. 226 (1949).
526
status, custody, and ownership of the unclaimed balance to determine whether the
inactivity was brought about by the fact of death or absence of or abandonment by
the depositor.16 If after the proceedings the property remains without a lawful owner
interested to claim it, the property shall be reverted to the state “to forestall an open
invitation to self-service by the first comers.”17 However, if interested parties have
come forward and lain claim to the property, the courts shall determine whether the
credit or deposit should pass to the claimants or be forfeited in favor of the state.18 We
emphasize that escheat is not a proceeding to penalize depositors for failing to deposit
to or withdraw from their accounts. It is a proceeding whereby the state compels the
surrender to it of unclaimed deposit balances when there is substantial ground for a
belief that they have been abandoned, forgotten, or without an owner.19
Act No. 3936, as amended, outlines the proper procedure to be followed by banks
and other similar institutions in filing a sworn statement with the Treasurer
concerning dormant accounts:
“Sec. 2. Immediately after the taking effect of this Act and within the month of
January of every odd year, all banks, building and loan associations, and trust
corporations shall forward to the Treasurer of the Philippines a statement,
under oath, of their respective managing officers, of all credits and deposits held
by them in favor of persons known to be dead, or who have not made further
deposits or withdrawals during the preceding
_______________
16 See Act No. 3936, as amended by P.D. 679, Sec. 1 and Security Savings Bank v. State of
California, supra note 8. See generally Roth v. Delano, supra.
17 Republic v. Court of Appeals, supra note 15, at pp. 183-184; p. 488.
18 See generally Roth v. Delano, supra note 15.
19 See also Anderson National Bank v. Luckett, 321 U.S. 233 (1944), cited inAmerican Express Travel
Related Services Co., Inc. v. Kentucky, 641 F.3d 685 (6th Circ. 2011) (U.S.).
527
VOL. 672, JUNE 13, 2012 527

ten years or more, arranged in alphabetical order according to the names of
creditors and depositors, and showing:
(a) The names and last known place of residence or post office addresses of the
persons in whose favor such unclaimed balances stand;
(b) The amount and the date of the outstanding unclaimed balance and whether
the same is in money or in security, and if the latter, the nature of the same;
(c) The date when the person in whose favor the unclaimed balance stands died,
if known, or the date when he made his last deposit or withdrawal; and
(d) The interest due on such unclaimed balance, if any, and the amount thereof.
A copy of the above sworn statement shall be posted in a conspicuous place
in the premises of the bank, building and loan association, or trust corporation
concerned for at least sixty days from the date of filing thereof: Provided,
That immediately before filing the above sworn statement, the bank, building
and loan association, and trust corporation shall communicate with the person
in whose favor the unclaimed balance stands at his last known place of
residence or post office address.
It shall be the duty of the Treasurer of the Philippines to inform the Solicitor General
from time to time the existence of unclaimed balances held by banks, building and
loan associations, and trust corporations.” (Emphasis supplied.)
As seen in the afore-quoted provision, the law sets a detailed system for notifying
depositors of unclaimed balances. This notification is meant to inform them that their
deposit could be escheated if left unclaimed. Accordingly, before filing a sworn
statement, banks and other similar institutions are under obligation to communicate
with owners of dormant accounts. The purpose of this initial notice is for a bank to
determine whether an inactive account has indeed been unclaimed, abandoned,
forgotten, or left without an owner. If the depositor simply does not wish to touch the
funds in the meantime, but still asserts ownership and dominion over the
528
dormant account, then the bank is no longer obligated to include the account in its
sworn statement.20 It is not the intent of the law to force depositors into unnecessary
litigation and defense of their rights, as the state is only interested in escheating
balances that have been abandoned and left without an owner.
In case the bank complies with the provisions of the law and the unclaimed
balances are eventually escheated to the Republic, the bank “shall not thereafter be
liable to any person for the same and any action which may be brought by any person
against in any bank xxx for unclaimed balances so deposited xxx shall be defended
by the Solicitor General without cost to such bank.”21 Otherwise, should it fail to
comply with the legally outlined procedure to the prejudice of the depositor, the bank
may not raise the defense provided under Section 5 of Act No. 3936, as amended.
Petitioner asserts22 that the CA committed a reversible error when it required
RCBC to send prior notices to respondents about the forthcoming escheat proceedings
involving the funds allocated for the payment of the Manager’s Check. It explains
that, pursuant to the law, only those “whose favor such unclaimed balances stand”
are entitled to receive notices. Petitioner argues that, since the funds represented by
the Manager’s Check were deemed transferred to the credit of the payee upon
issuance of the check, the proper party entitled to the notices was the payee—
Rosmil—and not respondents. Petitioner then contends that, in any event, it is not
liable for failing to send a separate notice to the payee, because it did not have the
address of Rosmil. Petitioner avers that it was not under any obligation to record the
address of the payee of a Manager’s Check.
_______________
20 See generally Security Savings Bank v. State of California, supra note 8.
21 Act No. 3936, as amended by P.D. 679 (1975), Sec. 5.
22 Petition for Review on Certiorari of RCBC at pp. 41-49, Rollo, pp. 43-51.
529
VOL. 672, JUNE 13, 2012 529
In contrast, respondents Hi-Tri and Bakunawa allege23 that they have a legal
interest in the fund allocated for the payment of the Manager’s Check. They reason
that, since the funds were part of the Compromise Agreement between respondents
and Rosmil in a separate civil case, the approval and eventual execution of the
agreement effectively reverted the fund to the credit of respondents. Respondents
further posit that their ownership of the funds was evidenced by their continued
custody of the Manager’s Check.
An ordinary check refers to a bill of exchange drawn by a depositor (drawer) on a
bank (drawee),24 requesting the latter to pay a person named therein (payee) or to the
order of the payee or to the bearer, a named sum of money.25 The issuance of the check
does not of itself operate as an assignment of any part of the funds in the bank to the
credit of the drawer.26 Here, the bank becomes liable only after it accepts or certifies
the check.27 After the check is accepted for payment, the bank would then debit the
amount to be paid to the holder of the check from the account of the depositor-drawer.
There are checks of a special type called manager’s or cashier’s checks. These are
bills of exchange drawn by the bank’s manager or cashier, in the name of the bank,
against the bank itself.28 Typically, a manager’s or a cashier’s check is procured from
the bank by allocating a particular amount of funds to be debited from the depositor’s
account or by directly
_______________
23 Comment of Respondents at 7-8, Rollo, pp. 651-652.
24 Act No. 2031 (1911), otherwise known as the Negotiable Instruments Law, Sec. 185.
25 Moran v. Court of Appeals, G.R. No. 105836, 7 March 1994, 230 SCRA 799.
26 Act No. 2031 (1911), otherwise known as the Negotiable Instruments Law, Sec. 189.
27 Id., at Sec. 127.
28 Bank of the Philippine Islands v. Roxas, G.R. No. 157833, 15 October 2007, 536 SCRA
168; International Corporate Bank v. Gueco, 404 Phil. 353; 351 SCRA 516 (2001).
530
paying or depositing to the bank the value of the check to be drawn. Since the bank
issues the check in its name, with itself as the drawee, the check is deemed accepted
in advance.29 Ordinarily, the check becomes the primary obligation of the issuing bank
and constitutes its written promise to pay upon demand.30
Nevertheless, the mere issuance of a manager’s check does not ipso facto work as
an automatic transfer of funds to the account of the payee. In case the procurer of the
manager’s or cashier’s check retains custody of the instrument, does not tender it to
the intended payee, or fails to make an effective delivery, we find the following
provision on undelivered instruments under the Negotiable Instruments Law
applicable:31
“Sec. 16. Delivery; when effectual; when presumed.—Every contracton a negotiable
instrument is incomplete and revocable until delivery of the instrument for the
purpose of giving effect thereto. As between immediate parties and as regards a
_______________
29 International Corporate Bank v. Gueco, supra.
30 Id.; Republic v. Philippine National Bank, 113 Phil. 828; 1 SCRA 957 (1961). A manager’s or a cashier’s
check may be treated as a promissory note and is the substantial equivalent of a certified check (Id.; Equitable
PCI Bank v. Ong, 533 Phil. 415; 502 SCRA 119 (2006); New Pacific Timber & Supply Co., Inc. v. Seneris, 189 Phil.
517; 101 SCRA 686 (1980). Certification signifies that the instrument was drawn upon sufficient funds; that funds
have been set apart or assigned for the satisfaction of the check in favor of the payee; and that the funds shall be
so applied when the check is presented for payment (Id.). Here, the deposit represented by the check is transferred
from the credit of the maker to that of the payee or holder (Id.). Thus, to all intents and purposes, the payee or
holder becomes the depositor of the drawee bank, with rights and duties of one in that situation (Id.).
31 Act No. 2031 (1911). See also Malloy v. Smith, 265 Md. 460, 290 A.2d 486, 57 A.L.R.3d 1076 (Md. Ct. App.
1972)(U.S.) citing Pikeville Nat. Bank & Trust Co. v. Shirley, 281 Ky. 150, 135 S.W.2d 426 (Ky Ct. App.
1939)(U.S.).
531
VOL. 672, JUNE 13, 2012 531

remote party other than a holder in due course, the delivery, in order to be effectual,
must be made either by or under the authority of the party making, drawing,
accepting, or indorsing, as the case may be; and, in such case, the delivery may be shown
to have been conditional, or for a special purpose only, and not for the purpose of transferring
the property in the instrument. But where the instrument is in the hands of a holder in due
course, a valid delivery thereof by all parties prior to him so as to make them liable to him is
conclusively presumed. And where the instrument is no longer in the possession of a party
whose signature appears thereon, a valid and intentional delivery by him is presumed until
the contrary is proved.” (Emphasis supplied.)
Petitioner acknowledges that the Manager’s Check was procured by respondents,

and that the amount to be paid for the check would be sourced from the deposit
account of Hi-Tri.32 When Rosmil did not accept the Manager’s Check offered by
respondents, the latter retained custody of the instrument instead of cancelling it. As
the Manager’s Check neither went to the hands of Rosmil nor was it further
negotiated to other persons, the instrument remained undelivered. Petitioner does
not dispute the fact that respondents retained custody of the instrument.33
Since there was no delivery, presentment of the check to the bank for payment did
not occur. An order to debit the account of respondents was never made. In fact,
petitioner confirms that the Manager’s Check was never negotiated or presented for
payment to its Ermita Branch, and that the allocated fund is still held by the
bank.34 As a result, the assigned fund is deemed to remain part of the account of Hi-
Tri, which procured the Manager’s Check. The doctrine that the deposit represented
by a manager’s check automatically
_______________
32 Petition for Review on Certiorari of RCBC at 27-29, Rollo, pp. 29-31.
33 Id., at p. 53, Rollo, p. 55.
34 Letter of RCBC to Hi-Tri at 2, Petition for Review on Certiorari of RCBC, Annex “N,” Rollo, p. 180.
532
passes to the payee is inapplicable, because the instrument—although accepted in
advance—remains undelivered. Hence, respondents should have been informed that
the deposit had been left inactive for more than 10 years, and that it may be subjected
to escheat proceedings if left unclaimed.
After a careful review of the RTC records, we find that it is no longer necessary to
remand the case for hearing to determine whether the claim of respondents was valid.
There was no contention that they were the procurers of the Manager’s Check. It is
undisputed that there was no effective delivery of the check, rendering the
instrument incomplete. In addition, we have already settled that respondents
retained ownership of the funds. As it is obvious from their foregoing actions that
they have not abandoned their claim over the fund, we rule that the allocated deposit,
subject of the Manager’s Check, should be excluded from the escheat proceedings. We
reiterate our pronouncement that the objective of escheat proceedings is state
forfeiture of unclaimed balances. We further note that there is nothing in the records
that would show that the OSG appealed the assailed CA judgments. We take this
failure to appeal as an indication of disinterest in pursuing the escheat proceedings
in favor of the Republic.
WHEREFORE the Petition is DENIED. The 26 November 2009 Decision and 27
May 2010 Resolution of the Court of Appeals in CA-G.R. SP No. 107261 are hereby
AFFIRMED.
SO ORDERED.
Carpio (Chairperson), Brion, Perez and Reyes, JJ., concur.
Petition denied, judgment and resolution affirmed.
Notes.—Although the law does not categorically state that only the Government,
through the Solicitor General, may attack the title of an alien transferee of land, it is
nonetheless correct to hold that only the Government, through the Solici-
533
VOL. 672, JUNE 13, 2012 533

tor General, has the personality to file a case challenging the capacity of a person to
acquire or to own land based on non-citizenship. (Balais-Mabanag vs. The Register of
Deeds of Quezon City, 617 SCRA 1 [2010])
Upon issuance of a check, in the absence of evidence to the contrary, it is presumed
that the same was issued for valuable consideration which may consist either in some
right, interest, profit or benefit accruing to the party who makes the contract, or some
forbearance, detriment, loss or some responsibility, to act, or labor, or service given,
suffered or undertaken by the other side. (Cayanan vs. North Star International
Travel, Inc., 658 SCRA 644 [2011])
It is highly inconceivable that an experienced businessman would issue various
checks in sizeable amounts to a payee if these are without consideration. (Id.)
MANUEL C. UBAS, SR. petitioner, vs. WILSON CHAN, respondent.
Remedial Law; Civil Procedure; Cause of Action; Words and Phrases; Cause of action is
defined as the act or omission by which a party violates a right of another.—Cause of action
is defined as the act or omission by which a party violates a right of another. It is well-settled
that the existence of a cause of action is determined by the allegations in the complaint. In
this case, petitioner’s cause of action is anchored on his claim that respondent personally
entered into a contract with him for the delivery of construction materials amounting to
P1,500,000.00, which was, however, left unpaid. He also avers that respondent is guilty of
fraud in the performance of said obligation because the subject checks issued to him by
respondent were dishonored on the ground of stop payment. As proof, petitioner offered in
evidence, among others, the demand letter he sent to respondent detailing the serial numbers
of the checks that were issued by the latter, including the dates and amounts thereof. He also
offered the dishonored checks which were in his possession.
Same; Evidence; Burden of Proof; Where the plaintiff-creditor possesses and submits in
evidence an instrument showing the indebtedness, a presumption that the credit has not been
satisfied arises in [his] favor.—Jurisprudence holds that “in a suit for a recovery of sum of
money, as here, the plaintiff-creditor [(petitioner in this case)] has the burden of proof to show
that defendant [(respondent in this case)] had not paid [him] the amount of the contracted
loan. However, it has also been long established that where the plaintiff-creditor possesses
and submits in evidence an instrument showing the indebtedness, a presumption that the
credit has not been satisfied arises in [his] favor. Thus, the defendant is, in appropriate
instances, required to overcome the said presumption and present evidence to prove the fact
of payment so that no judgment will be entered against him.” This presumption stems from
Section 24 of the NIL, which provides that: Section 24. Presumption of Considera-
_______________
* FIRST DIVISION.
660
CASE Ubas, Sr. vs. Chan
tion.—Every negotiable instrument is deemed prima facie to have been issued for a valuable
consideration; and every person whose signature appears thereon to have become a party
thereto for value.
Mercantile Law; Negotiable Instruments Law; Complete and Delivered Instruments;
Section 16 of the Negotiable Instruments Law (NIL) provides that when an instrument is no
longer in the possession of the person who signed it and it is complete in its terms, “a valid
and intentional delivery by him is presumed until the contrary is proved.”—Respondent’s
defense that the subject checks were lost and, thus, were not actually issued to petitioner is
a factual matter already passed upon by the RTC. As aptly pointed out by the trial court, it
would have been contrary to human nature and experience for petitioner to send respondent
a demand letter detailing the particulars of the said checks if he indeed unlawfully obtained
the same. In fact, it is glaring that respondent did not present Engr. Merelos, the project
engineer who had purportedly lost the checks, to personally testify on the circumstances
surrounding the checks’ loss. Further, Unimasters’ comptroller, Murillo, testified during trial
that “she came to know that the lost checks were deposited in the account of [petitioner as]
she was informed by the [o]ffice[r]-in-charge of the drawee bank, the Far East Bank of
Tacloban, City Branch.” However, there was no showing that Unimasters and/or respondent
commenced any action against petitioner to assert its interest over a significant sum of
P1,500,000.00 relative to the checks that were supposedly lost/stolen. Clearly, this paucity of
action under said circumstances is again, inconsistent with ordinary human nature and
experience. Thus, absent any cogent reason to the contrary, the Court defers to the RTC’s
findings of fact on this matter. In Madrigal v. CA, 456 SCRA 247 (2005), it was explained
that: The Supreme Court’s jurisdiction is limited to reviewing errors of law that may have
been committed by the lower court. The Supreme Court is not a trier of facts. It leaves these
matters to the lower court, which [has] more opportunity and facilities to examine these
matters. This same Court has declared that it is the policy of the Court to defer to the factual
findings of the trial judge, who has the advantage of directly observing the witnesses on the
stand and to determine their demeanor whether they are telling or distorting the truth.
Besides, Section 16 of the NIL provides that when an instrument is no longer in the
possession of the person who signed it and it is complete in its
661
VOL. 816, FEBRUARY 6, 2017 661
terms, “a valid and intentional delivery by him is presumed until the contrary is proved,”
as in this case.
PETITION for review on certiorari of a decision of the Court of Appeals.

Marion Fritz Broto for petitioner.
Vicente A. Espina, Jr. for respondent.
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 is the Decision2dated October 28,
2014 of the Court of Appeals (CA) in C.A.-G.R. CV No. 04024 dismissing the complaint
filed by petitioner Manuel C. Ubas, Sr. (petitioner) for lack of cause of action.
The Facts
This case stemmed from a Complaint for Sum of Money with Application for Writ
of Attachment3 (Complaint) filed by petitioner against respondent Wilson Chan
(respondent) before the Regional Trial Court of Catarman, Northern Samar, Branch
19 (RTC), docketed as Civil Case No. C-1071. In his Complaint, petitioner alleged
that respondent, “doing business under the name and style of UNIMASTER,” was
indebted to him in the amount of P1,500,000.00, representing the price of boulders,
sand, gravel, and other construction materials allegedly purchased by respondent
from him for the construction of the Macagtas Dam in BarangayMacagtas,
_______________
1 Rollo, pp. 3-26.

2 Id., at pp. 28-45. Penned by Associate Justice Ma. Luisa C. Quijano-Padilla, with Associate Justices
Ramon Paul L. Hernando and Marie Christine Azcarraga-Jacob, concurring.
3 Dated December 14, 2001. Records, pp. 1-5.
662
Catarman, Northern Samar (Macagtas Dam project). He claimed that the said
obligation has long become due and demandable and yet, respondent unjustly refused
to pay the same despite repeated demands.4 Further, he averred that respondent had
issued three (3) bank checks, payable to “CASH” in the amount of P500,000.00 each,
on January 31, 1998, March 13, 1998, and April 3, 1998, respectively (subject
checks),5 but when petitioner presented the subject checks for encashment on June
29, 1998, the same were dishonored due to a stop payment order. As such, respondent
was guilty of fraud in incurring the obligation.6
Respondent filed an Answer with Motion to Dismiss,7 seeking the dismissal of the
case on the following grounds: (a) the complaint states no cause of action, considering
that the checks do not belong to him but to Unimasters Conglomeration, Inc.
(Unimasters); (b) there is no contract that ever existed between him and petitioner;
and (c) if petitioner even had a right of action at all, the complaint should not have
been filed against him but against Unimasters, a duly registered construction
company which has a separate juridical personality from him.8
During trial, petitioner testified that on January 1, 1998, he entered into a verbal
agreement with respondent for the supply of gravel, sand, and boulders for the
Macagtas Dam project.9 He presented as the only proof of their business transaction
the subject checks issued to him by respondent and delivered to his office by
respondent’s worker on different
_______________
4 Petitioner’s last demand was through a Demand Letter received by respondent on December 5, 2001
per Registry Return Receipt (id., at p. 6).
5 Id., at p. 7.
6 See Records, pp. 1-2 and Rollo, pp. 15-16.
7 Dated May 10, 2002. Id., at pp. 23-30.
8 Id., at pp. 26-27.
9 See TSN, November 24, 2004, pp. 14-16 and TSN, January 31, 2005, p. 6.
663
VOL. 816, FEBRUARY 6, 2017 663
occasions.10 He alleged that, at the behest of respondent, he only deposited the checks
to his bank account on June 29, 1998.11 When the checks were dishonored, petitioner
demanded from respondent the value of the dishonored checks, but to no avail.12 Apart
from his own testimony, petitioner presented Jose Chie Ubas, the company operations
manager of Ubas Construction, Inc., who testified that in 1998, he accompanied
several deliveries of gravel, sand, and boulders to a certain project engineer named
Paking dela Cruz at the Macagtas Dam project site, and that respondent issued
checks for their payment; thus, he came to know that there was a transaction between
them.13 Petitioner also presented Francisco Barrelo, the former employee of Far East
Bank, who testified that the subject checks were dishonored upon presentment
because of a stop payment order by the bank.14
On the other hand, respondent presented Unimasters’ comptroller, Belma Murillo
(Murillo), who testified that Unimasters was contracted by the Department of Public
Works and Highways for the Macagtas Dam project; that Engineer Ereberto Merelos
(Engr. Merelos) was hired as project engineer tasked to supervise the work, the hiring
of laborers, the delivery and payment of aggregates, and the payroll, and was likewise
in charge of negotiating the supply of aggregates and the revolving fund for its
payments; that the subject checks were issued for the replenishment of the revolving
fund,15 but Engr. Merelos lost the same sometime in January 1998; and that upon
being informed about the loss of the checks, respondent, as President of Unimasters,
instructed Murillo to issue a Stop Payment Order on April 10, 1998.16 Murillo be-
_______________
10 Id., at pp. 16-17.

11 Id., at pp. 17-18.
12 Id., at pp. 22-24.
13 See TSN, August 13, 2004, pp. 7-8 and 21-22.
14 See TSN, November 24, 2004, pp. 3-4 and 9.
15 See TSN, March 3, 2006, pp. 2, 9-15, and 22.
16 Id., at pp. 15-16 and 17-18.
664
lied petitioner’s claim that the subject checks were given to the latter in payment of
the aggregates and materials that he allegedly delivered for the Macagtas Dam
project, considering that their office did not process any delivery receipt or proof of
delivery of such aggregates by petitioner.17
For his part, respondent admitted to having issued the subject checks. However,
he claimed that they were not issued to petitioner, but to Engr. Merelos for purposes
of replenishing the project’s revolving fund.18 Respondent also described the
procedure in the delivery of aggregates to their project sites, asserting that petitioner
was not among their suppliers of aggregates for the Macagtas Dam project as, in fact,
the latter never submitted any bill attaching purchase orders and delivery receipts
for payments as other suppliers did.19
The RTC’s Ruling
In a Decision20 dated January 30, 2008, the RTC ruled that petitioner had a cause
of action against respondent. At the outset, it observed that petitioner’s demand letter
— which clearly stated the serial numbers of the checks, including the dates and
amounts thereof — was not disputed by respondent. Also, it did not lend credence to
respondent’s claim that the subject checks were lost and only came into the possession
of petitioner, considering the fact that petitioner mentioned the details of the subject
checks in the said demand letter and, thus, would have incriminated himself had he
actually stolen them.21 It also took note that respondent did not file a case for theft in
relation to the lost checks found in possession of petitioner.22 Thus, finding that
respondent failed to over-
_______________
17 Id., at pp. 17-18.

18 See TSN, December 4, 2006, pp. 13-16.
19 Id., at pp. 7-9, 12, and 17-18.
20 Rollo, pp. 46-59. Penned by Judge Norma Megenio Cardenas.
21 Id., at p. 57.
22 Id.
665
VOL. 816, FEBRUARY 6, 2017 665
come the disputable presumption that every party to an instrument acquired the
same for a valuable consideration under Section 24 of Act No. 2031, 23 or the
Negotiable Instruments Law (NIL), the RTC ordered him to pay petitioner the
amount of P1,500,000.00 representing the principal obligation plus legal interests
from June 1998 until fully paid, P40,000 as litigation expenses, P50,000 as attorney’s
fees, and cost of the suit.24
With the subsequent denial25 of his motion for reconsideration,26respondent filed a
notice of appeal.27
The CA’s Ruling
In a Decision28 dated October 28, 2014, the CA reversed and set aside the RTC’s
ruling, dismissing petitioner’s complaint on the ground of lack of cause of action.
It held that respondent was not the proper party-defendant in the case,
considering that the drawer of the subject checks was Unimasters, which, as a
corporate entity, has a separate and distinct personality from respondent. It observed
that the subject checks cannot be validly used as proof of the alleged transactions
between petitioner and respondent, since from the face of these checks alone, it is
readily apparent that they are not personal checks of the former. Thus, if at all, the
said checks can only serve as evidence of transactions between Unimasters and
petitioner.29 Accordingly, Unimasters is an indispensable party, and since it was not
impleaded, the court had no jurisdiction over the case.30
_______________
23 Enacted on February 3, 1911.

24 Rollo, p. 58.
25 See Resolution dated August 19, 2008; Records, pp. 347-348.
26 Dated February 26, 2008; id., at pp. 322-330.
27 Dated September 19, 2008; id., at pp. 351-353.
28 Rollo, pp. 28-45.
29 Id., at pp. 41-42.
30 Id., at p. 42.
666
In any event, the CA found that petitioner’s claim of unpaid deliveries had no
merit, given that not a single delivery receipt, trip ticket or similar document was
presented to establish the delivery of construction materials to respondent.31 Further,
the CA gave scant consideration to petitioner’s argument that respondent and
Unimasters should be treated as one and the same under the doctrine of piercing the
veil of corporate fiction because not only was the issue raised for the first time on
appeal, but that the records bear no evidence that would establish the factual
conditions for the application of the doctrine.32
Hence, the instant petition.
The Issue Before the Court
The sole issue in this case is whether or not the CA erred in dismissing petitioner’s
complaint for lack of cause of action.
The petition is meritorious.

Cause of action is defined as the act or omission by which a party violates a right
of another. It is well-settled that the existence of a cause of action is determined by
the allegations in the complaint.33
In this case, petitioner’s cause of action is anchored on his claim that respondent
personally entered into a contract with him for the delivery of construction materials
amounting to P1,500,000.00, which was, however, left unpaid. He also avers that
respondent is guilty of fraud in the performance of said obligation because the subject
checks issued to him by re-
_______________
31 Id., at p. 43.
32 Id., at pp. 43-44.
33 Heirs of Magdaleno Ypon v. Ricaforte, 713 Phil. 570, 574-575; 700 SCRA 778, 783 (2013).
667
VOL. 816, FEBRUARY 6, 2017 667
spondent were dishonored on the ground of stop payment. As proof, petitioner offered
in evidence, among others, the demand letter he sent to respondent detailing the
serial numbers of the checks that were issued by the latter, including the dates and
amounts thereof. He also offered the dishonored checks which were in his possession.
Respondent neither disputes the fact that he had indeed signed the subject checks
nor denies the demand letter sent to him by petitioner. Nevertheless, he claims that
the checks were not issued to petitioner but to the project engineer of Unimasters
who, however, lost the same. He also disclaims any personal transaction with
petitioner, stating that the subject checks were in fact, issued by Unimasters and not
him. Besides, petitioner failed to present any documentary proof that he or his firm
delivered construction materials for the Macagtas Dam project.
The Court finds for petitioner.
Jurisprudence holds that “in a suit for a recovery of sum of money, as here, the
plaintiff-creditor [(petitioner in this case)] has the burden of proof to show that
defendant [(respondent in this case)] had not paid [him] the amount of the contracted
loan. However, it has also been long established that where the plaintiff-creditor
possesses and submits in evidence an instrument showing the indebtedness, a
presumption that the credit has not been satisfied arises in [his] favor. Thus, the
defendant is, in appropriate instances, required to overcome the said presumption
and present evidence to prove the fact of payment so that no judgment will be entered
against him.”34 This presumption stems from Section 24 of the NIL, which provides
that:
Section 24. Presumption of Consideration.—Every negotiable instrument is
deemed prima facie to have
_______________
34 Pua v. Lo Bun Tiong, 720 Phil. 511, 524; 708 SCRA 571, 584 (2013).
668
been issued for a valuable consideration; and every person whose signature appears thereon
to have become a party thereto for value.
As mentioned, petitioner had presented in evidence the three (3) dishonored checks
which were undeniably signed by respondent. During trial, respondent admitted to
the following:
[Atty. Arturo Villarin] Q: Showing to you this check dated January 31, 1998 x x x, please go
over this check and tell the Honorable Court if that is the same check that you issued as
replenishment for the revolving fund?
xxxx
[Respondent] A: Yes, this is the check I signed.
Q: At the right bottom portion of this check is a signature, whose signature is this?
A: That is my signature.
Q: Likewise, for the month of March 13, 1998[,] there is a check in the amount of
[P500,000.00]. Is this also the check that you issued as replenishment for the project?
A: Yes, Sir.35 (Emphases supplied)
Hence, as the RTC correctly ruled, it is presumed that the subject checks were
issued for a valid consideration, which therefore, dispensed with the necessity of any
documentary evidence to support petitioner’s monetary claim. Unless otherwise
rebutted, the legal presumption of consideration under Section 24 of the NIL stands.
Verily, “the vital function of legal presumption is to dispense with the need for
proof.”36
_______________
35 TSN, December 4, 2006, pp. 14-15.

36 Malic v. Workmen’s Compensation Commission, 182 Phil. 5, 8; 93 SCRA 386, 390 (1979).
669
VOL. 816, FEBRUARY 6, 2017 669
Respondent’s defense that the subject checks were lost and, thus, were not actually
issued to petitioner is a factual matter already passed upon by the RTC. As aptly
pointed out by the trial court, it would have been contrary to human nature and
experience for petitioner to send respondent a demand letter detailing the particulars
of the said checks if he indeed unlawfully obtained the same. In fact, it is glaring that
respondent did not present Engr. Merelos, the project engineer who had purportedly
lost the checks, to personally testify on the circumstances surrounding the checks’
loss. Further, Unimasters’ comptroller, Murillo, testified during trial that “she came
to know that the lost checks were deposited in the account of [petitioner as] she was
informed by the [o]ffice[r]-in-charge of the drawee bank, the Far East Bank of
Tacloban, City Branch.”37 However, there was no showing that Unimasters and/or
respondent commenced any action against petitioner to assert its interest over a
significant sum of P1,500,000.00 relative to the checks that were supposedly
lost/stolen. Clearly, this paucity of action under said circumstances is again,
inconsistent with ordinary human nature and experience. Thus, absent any cogent
reason to the contrary, the Court defers to the RTC’s findings of fact on this matter.
In Madrigal v. CA,38 it was explained that:
The Supreme Court’s jurisdiction is limited to reviewing errors of law that may have been
committed by the lower court. The Supreme Court is not a trier of facts. It leaves these
matters to the lower court, which [has] more opportunity and facilities to examine these
matters. This same Court has declared that it is the policy of the Court to defer to the factual
findings of the trial judge, who has the advantage of directly observing the witnesses on the
_______________
37 Rollo, p. 54.
38 496 Phil. 149; 456 SCRA 247 (2005).
670
stand and to determine their demeanor whether they are telling or distorting the truth.39
Besides, Section 16 of the NIL provides that when an instrument is no longer in

the possession of the person who signed it and it is complete in its terms, “a valid and
intentional delivery by him is presumed until the contrary is proved,” as in this case.
In Pacheco v. CA,40 the Court has expressly recognized that a check “constitutes an
evidence of indebtedness” and is a veritable “proof of an obligation.” Hence, petitioner
may rely on the same as proof of respondent’s personal obligation to him.
Although the checks were under the account name of Unimasters, it should be
emphasized that the manner or mode of payment does not alter the nature of the
obligation. The source of obligation, as claimed by petitioner in this case, stems from
his contract with respondent. When they agreed upon the purchase of the
construction materials on credit for the amount of P1,500,000.00, the contract
between them was perfected.41 Therefore, even if corporate checks were issued for the
payment of the obligation, the fact remains that the juridical tie between the two (2)
parties was already established
_______________
39 Id., at p. 156; p. 255, citing Bernardo v. Court of Appeals, G.R. No. 101680, December 7, 1992, 216
SCRA 224, 232.
40 377 Phil. 627; 319 SCRA 595 (1999).
41 “An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The obligation
is constituted upon the concurrence of the essential elements thereof, viz.: (a) The vinculum juris or juridical
tie which is the efficient cause established by the various sources of obligations (law, contracts, quasi-
contracts, delicts and quasi-delicts); (b) the object which is the prestation or conduct, required to be observed
(to give, to do or not to do); and (c) the subject-persons who, viewed from the demandability of the obligation,
are the active (obligee) and the passive (obligor) subjects.” (Ang Yu Asuncion v. Court of Appeals, G.R. No.
109125, December 2, 1994, 238 SCRA 602, 610)
671
VOL. 816, FEBRUARY 6, 2017 671
during the contract’s perfection stage and, thus, does not preclude the creditor from
proceeding against the debtor during the contract’s consummation stage.
That a privity of contract exists between petitioner and respondent is a conclusion
amply supported by the averments and evidence on record in this case.
First, the Court observes that petitioner was consistent in his account that he
directly dealt with respondent in his personal and not merely his representative
capacity. In his Complaint, petitioner alleged that “[Chan, doing business under the
name and style of Unimaster] is indebted to [him] in the amount [P1,500,000.00]
x x x.”42
Moreover, the demand letter, which was admitted by respondent, was personally
addressed to respondent and not to Unimasters as represented by the latter.43
Also, it deserves mentioning that in his testimony before the RTC, petitioner
explained that he delivered the construction materials to respondent absent any
written agreement due to his trust on the latter, viz.:
[Atty. Daniel Arnold Añover] Q: So, when you delivered the aggregates, did you agree to
deliver the aggregates to Mr. Chan the defendant in this case, you did not put the terms into
writing? Am I correct?
[Petitioner] A: None, because it is verbal only, because I trusted him being a contractor.
xxxx
Q: Now, Mr. Witness you said that you trusted Mr. Chan, am I correct?
A: Yes, Sir.
Q: And that he promised you several times that he would pay you?
_______________
42 Records, p. 1.
43 Id., at p. 6. See also Rollo, p. 57.
672
A: Yes, he promised me many times.
Q: And yet you still hold all these checks for security? Correct?
A: Yes Sir.
Q: Now, Mr. Witness, you said that you trusted Mr. Chan, then why did you not just handed
[sic] over the checks to him, because you said you trusted him?
A: How many times I gone to Tacloban and I went to Unimaster Office but they referred me
to the Leyte Park Hotel, since they are no longer in good terms with Mr. Wilson Chan so
they referred me to Leyte Park Hotel and then I went to Mr. Chan he promised that he
will pay me and after several months again, the same will be paid next month because
there will be final inspection I even let him borrow my equipment for free and hoping that
the checks will be funded but again he lied.44
This squares with respondent’s own testimony, wherein he stated that every time
he wanted to have supplies delivered for the Macagtas Dam project, he would not
enter into any written contract:
[Atty. Marlonfritz Broto] Q: [Okay], now having read this particular statement Mr. Witness
would you agree with this representation that every time you want to have supplies in
Macagtas dam you do not enter into contract as you testified here a while ago?
[Respondent] A: Yes, Sir.45 (Emphasis supplied)
Petitioner further testified that he personally demanded the value of the subject
checks from respondent in his office, viz.:
_______________
44 TSN, January 31, 2005, pp. 6-7.

45 TSN, December 4, 2006, p. 24.
673
VOL. 816, FEBRUARY 6, 2017 673
[Atty. Daniel Arnold Añover] Q: Now, Mr. Witness you said that you visited Leyte Park Hotel
several times, am I correct?
[Petitioner] A: I think once or twice to demand from Mr. Wilson Chan.
Q: And of course, you were able to see Mr. Chan personally?
A: Yes, we had the conversation.
xxxx
Q: So you are saying you are talking to him in his office?
A: Yes, apparently, it was his Office.
xxxx
Q: You said that when you were there you were just talking each other [sic] and you were
taking coffee and made promises, right?
A: Yes, sir.46
Notably, these statements were considered undisputed. Hence, the same are
binding on the parties.
In fine, the Court holds that the CA erred in dismissing petitioner’s complaint
against respondent on the ground of lack of cause of action. Respondent was not able
to overcome the presumption of consideration under Section 24 of the NIL and
establish any of his affirmative defenses. On the other hand, as the holder of the
subject checks which are presumed to have been issued for a valuable consideration,
and having established his privity of contract with respondent, petitioner has
substantiated his cause of action by a preponderance of evidence. “‘Preponderance of
evidences is a phrase that, in the last analysis, means probability of the truth. It is
evidence that is more convincing to the court as worthy of belief than
_______________
46 TSN, January 31, 2005, p. 17.
674
that which is offered in opposition thereto.”47 Consequently, petitioner’s Complaint
should be granted.
WHEREFORE, the petition is GRANTED. The Decision dated October 28, 2014
of the Court of Appeals in C.A.-G.R. CV No. 04024 is hereby SET ASIDE. The
Decision dated January 30, 2008 of the Regional Trial Court of Catarman, Northern
Samar, Branch 19 in Civil Case No. C-1071 is REINSTATED.
SO ORDERED.
Sereno (CJ., Chairperson), Leonardo-De Castro, Del Castillo and Caguioa, JJ.,
concur.
Petition granted, judgment set aside.
Notes.—It has long been established that where the plaintiff-creditor possesses
and submits in evidence an instrument showing the indebtedness, a presumption
that the credit has not been satisfied arises in her favor. (Pua vs. Lo Bun Tiong, 708
SCRA 571 [2013])
In order that one who is not a holder in due course can enforce the instrument
against a party prior to the instrument’s completion, two requisites must exist: (1)
that the blank must be filled strictly in accordance with the authority given; and (2)
it must be filled up within a reasonable time. (Patrimonio vs. Gutierrez, 724
SCRA 636 [2014])
METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM,
petitioner, vs. COURT OF APPEALS (Now INTERMEDIATE APPELLATE COURT)
and THE PHILIPPINE NATIONAL BANK, respondents.
Negotiable Instruments Law; Evidence; There is no clear evidence in this case that the
signatures on the checks are forgeries. The NBI reports indicate that the anomalous
encashment of the checks were an “inside job” or due to negligence of MWSS.—We have
carefully reviewed the documents cited by the petitioner. There is no express and categorical
finding in these documents that the twenty-three (23) questioned checks were indeed signed
by persons other than the authorized MWSS signatories. On the contrary, the findings of the
National Bureau of Investigation in its Report dated November 2, 1970 show that the MWSS
fraud was an “inside job”
__________________
* SECOND DIVISION.
21
VOL. 143, JULY 14, 1986 21

Metropolitan Waterworks and Sewerage System vs.
Court of Appeals
and that the petitioner’s delay in the reconciliation of bank statements and the laxity
and loose records control in the printing of its personalized checks facilitated the fraud.
Likewise, the questioned Documents Report No, 159-1074 dated November 21, 1974 of the
National Bureau of Investigation does not declare or prove that the signatures appearing on
the questioned checks are forgeries. The report merely mentions the alleged differences in
the typeface, checkwriting, and printing characteristics appearing in the standard or
submitted models and the questioned typewritings. The NBI Chemistry Report No. C-74-891
merely describes the inks and pens used in writing the alleged forged signatures. It is clear
that these three (3) NBI Reports relied upon by the petitioner are inadequate to sustain its
allegations of forgery. These reports did not touch on the inherent qualities of the signatures
which are indispensable in the determination of the existence of forgery. There must be
conclusive findings that there is a variance in the inherent characteristics of the signatures
and that they were written by two or more different persons.
Same; Same; MWSS officials admitted that the checks in question can be easily passed
on as genuine.—Considering the absence of sufficient security in the printing of the checks
coupled with the very close similarities between the genuine signatures and the alleged
forgeries, the twenty-three (23) checks in question could have been presented to the
petitioner’s signatories without their knowing that they were bogus checks. Indeed, the
cashier of the petitioner whose signatures were allegedly forged was unable to tell the
difference between the allegedly forged signature and his own genuine signature. On the
other hand, the MWSS officials admitted that these checks could easily be passed on as
genuine. The memorandum of Mr. A. T. Tolentino, Assistant Chief Accountant of the drawee
Philippine National Bank to Mr. E. Villatuya, Executive Vice-President of the petitioner
dated June 9, 1969 cites an instance where even the concerned NWSA officials could not tell
the differences between the genuine checks and the alleged forged checks.
Same; Where a depositor is using its own personalized checks, its failure to provide
adequate security measures to prevent forgeries of its checks constitutes gross negligence and
bars it from setting up the defense of forgery.—The records show that at the time the twenty-
three (23) checks were prepared, negotiated, and encashed, the petitioner was using its own
personalized checks, instead of the official
22

Metropolitan Waterworks and Sewerage System vs.
Court of Appeals
PNB Commercial blank checks. In the exercise of this special privilege, however, the
petitioner failed to provide the needed security measures. That there was gross negligence in
the printing of its personalized checks is shown by the following uncontroverted facts, to wit:
(1) The petitioner failed to give its printer, Mesina Enterprises, specific instructions relative
to the safekeeping and disposition of excess forms, check vouchers, and safety papers; (2) The
petitioner failed to retrieve from its printer all spoiled check forms; (3) The petitioner failed
to provide any control regarding the paper used in the printing of said checks; x xxx.
Same; Failure of depositor to make prompt reconciliation of the monthly bank statements
furnished by the bank constitutes negligence for which the bank cannot be blamed in case
depositor’s checks are forged.—It is accepted banking procedure for the depository bank to
furnish its depositors bank statements and debt and credit memos through the mail. The
records show that the petitioner requested the respondent drawee bank to discontinue the
practice of mailing the bank statements, but instead to deliver the same to a certain Mr.
Emiliano Zaporteza. For reasons known only to Mr. Zaporteza however, he was unreasonably
delayed in taking prompt deliveries of the said bank statements and credit and debit memos.
As a consequence, Mr. Zaporteza failed to reconcile the bank statements with the petitioner’s
records. If Mr. Zaporteza had not been remiss in his duty of taking the bank statements and
reconciling them with the petitioner’s records, the fraudulent encashments of the first checks
should have been discovered, and further frauds prevented. This negligence was, therefore,
the proximate cause of the failure to discover the fraud.
Same; Depository bank cannot be blamed for not detecting fraudulent encashment of
checks where depositor uses its own personalized checks.—We cannot fault the respondent
drawee Bank for not having detected the fraudulent encashment of the checks because the
printing of the petitioner’s personalized checks was not done under the supervision and
control of the Bank. There is no evidence on record indicating that because of this private
printing, the petitioner furnished the respondent Bank with samples of checks, pens, and
inks or took other precautionary measures with the PNB to safeguard its interests. Under
the circumstances, therefore, the petitioner was in a better position to detect and prevent the
fraudulent encashment of its checks.
23
VOL. 143, JULY 14, 1986 23
Metropolitan Waterworks and Sewerage System vs. Court of
Appeals
PETITION for certiorari to review the decision of the Intermediate Appellate Court.
The facts are stated in the opinion of the Court

Juan J. Diaz and Cesar T. Basa for respondent PNB.
San Juan, Africa, Gonzales & San Agustin Law Offices for respondent PC IB.
GUTIERREZ, JR., J .:
This petition for review asks us to set aside the October 29, 1982 decision of the
respondent Court of Appeals, now Intermediate Appellate Court which reversed the
decision of the Court of First Instance of Manila, Branch XL, and dismissed the
plaintiff’s complaint, the third party complaint, as well as the defendant’s
counterclaim.
The background facts which led to the filing of the instant petition are summarized
in the decision of the respondent Court of Appeals:
“Metropolitan Waterworks and Sewerage System (hereinafter referred to as MWSS) is a
government owned and controlled corporation created under Republic Act No. 6234 as the
successor-in-interest of the defunct NWSA. The Philippine National Bank (PNB for short),
on the other hand, is the depository bank of MWSS and its predecessor-in-interest NWSA.
Among the several accounts of NWSA with PNB is NWSA Account No. 6, otherwise known
as Account No. 381-777 and which is presently allocated No. 010-500281. The authorized
signature for said Account No. 6 were those of MWSS treasurer Jose Sanchez, its auditor
Pedro Aguilar, and its acting General Manager Victor L. Recio. Their respective specimen
signatures were submitted by the MWSS to and on file with the PNB. By special arrangement
with the PNB, the MWSS used personalized checks in drawing from this account. These
checks were printed for MWSS by its printer, F. Mesina Enterprises, located at 1775 Rizal
Extension, Caloocan City.
“During the months of March, April and May 1969, twenty-three (23) checks were
prepared, processed, issued and released by NWSA, all of which were paid and cleared by
PNB and debited by PNB against NWSA Account No. 6, to wit:
24
Appeals
Check Date Payee Amount Date Paid
No. By PNB
1. 59546 8-21- Deogracias P3,187.79 4-2-69
69 Estrella
2. 59548 3-31- Natividad 2,848.86 4-23-69
69 Rosario
3. 59547 3-31- Pangilinan 195.00 Unreleased
69 Enterprises
4. 59549 3-31- Natividad 3,239.88 4-23-69
69 Rosario
5. 59552 4-1-69 Villarama 987.59 5-6-69
&Sons
6. 59554 4-1-69 Gascom 6,057.60 4-16-69
Engineering
7. 59558 4-2-69 The Evening 112.00 Unreleased
News
8. 59544 3-27- Progressive 18,391.20 4-18-69
69 Const.
9. 59564 4-2-69 Ind. Insp. 594.06 4-18-69
Int. Inc.
10. 59568 4-7-69 Roberto 800.00 4-22-69
Marsan
11. 59570 4-7-69 Paz Andres 200.00 4-22-69
12. 59574 4-8-69 Florentino 100,000.00 4-11-69
Santos
13. 59578 4-8-69 Mia. Daily 95.00 Unreleased
Bulletin
14. 59580 4-8-69 Phil. Herald 100.00 5-9-69
15. 59582 4-8-69 Galauran 7,729.09 5-6-69
&Pilar
16. 59581 4-8-69 Manila 110.00 5-12-69
Chronicle
17. 59588 4-8-69 Treago 21,583. 00 4-11-69
Tunnel
18. 59587 4-8-69 Del fin 120,000.00 4-11-69
Santiago
19. 59589 4-10- Deogracias 1,257.49 4-16-69
69 Estrella
20. 59594 4-14- Philam Ac 33.03 4-29-69
69 cident Inc.
21. 59577 4-8-69 Esla 9,429.78 4-29-69
25
VOL. 143, JULY 14, 1986 25
Appeals
22. 59601 4-16-69
Justine 20,000.00 4-18-69
23. 59595 4-14-69 Torres
Neris Phil 4,274.00 5-20-69
Inc.
P320,636.26”
“During the same months of March, April and May 1969, twenty-three (23) checks bearing
the same numbers as the aforementioned NWSA checks were likewise paid and cleared by
PNB and debited against NWSA Account No. 6, to wit:
“Check Date Payee Amount Date

No. Issued Paid
By PNB
1. 59546 3-6-69 Raul Dizon P 84,401.00 3-16-69
2. 59548 3-41-69 Raul Dizon 104,790.00 4-1-69
3. 59547 3-14-69 Arturo Sison 56,903.00 4-11-69
4. 59549 3-20-69 Arturo Sison 48,903.00 4-15-69
5. 59552 3-24-69 Arturo Sison 63,845.00 4-16-89
6. 59544 3-26-69 Arturo Sison 98,450.00 4-17- 69
7. 59558 3-28-89 Arturo Sison 114,840.00 4-21-69
8. 59544 3-16-69 Antonio 38,490.00 4-22-69
Mendoza
9. 59564 3-31-69 Arturo Sison 180,900.00 4-23-69
10. 4-2-69 Arturo Sison 134,940.00 4-25-69
59568
11. 4-1-69 Arturo Sison 64,550.00 4-28-69
59570
12. 4-2-69 Arturo Sison 148,610.00 4-29-89
59574
13. 4-10-69 Antonio 93,950.00 4-29-69
59578 Mendoza
14. 4-8-69 Arturo Sison 160,000.00 5-2-69
59580
15. 4-10-69 Arturo Sison 155,400.00 5-5-69
59582
16. 4-8-69 Antonio 176,580.00 5-6-69
59581 Mendoza
17. 4-16-69 Arturo Sison 176,000.00 5-8-69
59588
18. 4-16-69 Arturo Sison 300,000.00 5-12-69
59587
19. 4-18-69 Arturo Sison 280,000.00 5-15 -6 9
59589
20. 4-18-69 Arturo Sison 122,000.00 5-14-69
59594
21. 4 -14- Antonio 260,000.00 5-16-69
59577 69 Mendoza
22. 4-18-69 Arturo Sison 400,000.00 5-19-69
59601
23. 4-28-69 Arturo Sison 190,800.00 5-21-69
59595
P3,457,903.00
26
Appeals
“The foregoing checks were deposited by the payees Raul Dizon, Arturo Sison and Antonio
Mendoza in their respective current accounts with the Philippine Commercial and Industrial
Bank (PCIB) and Philippine Bank of Commerce (PBC) in the months of March, April and
May 1969. Thru the Central Bank Clearing, these checks were presented for payment by
PBC and PCIB to the defendant PNB, and paid, also in the months of March, April and May
1969. At the time of their presentation to PNB these checks bear the standard indorsement
which reads ‘all prior indorsement and/or lack of endorsement guaranteed.’
“Subsequent investigation however, conducted by the NBI showed that Raul Dizon, Arturo
Sison and Antonio Mendoza were all fictitious persons. The respective balances in their
current account with the PBC and/or PCIB stood as follows: Raul Dizon P3,455.00 as of April
30, 1969; Antonio Mendoza P18,182.00 as of May 23, 1969; and Arturo Sison P1,398.92 as of
June 30, 1969.
“On June 11, 1969, NWSA addressed a letter to PNB requesting the immediate restoration
to its Account No. 6, of the total sum of P3,457,903.00 corresponding to the total amount of
these twenty-three (23) checks claimed by NWSA to be forged and/or spurious checks.
“In view of the refusal of PNB to credit back to Account No. 6 the said total sum of
P3,457,903.00 MWSS filed the instant complaint on November 10, 1972 before the Court of
First Instance of Manila and docketed thereat as Civil Case No. 88950.
“In its answer, PNB contended among others, that the checks in question were regular on
its face in all respects, including the genuineness of the signatures of authorized NWSA
signing officers and there was nothing on its face that could have aroused any suspicion as
to its genuineness and due execution and; that NWSA was guilty of negligence which was the
proximate cause of the loss. “PNB also filed a third party complaint against the negotiating
banks PBC and PCIB on the ground that they failed to ascertain the identity of the payees
and their title to the checks which were deposited in the respective new accounts of the payees
with them.”
xxx xxx
On February 6, 1976, the Court of First Instance of Manila rendered judgment in

favor of the MWSS. The dispositive portion of the decision reads:
27
VOL, 143, JULY 14, 1986 27
Appeals
“WHEREFORE, on the COMPLAINT by a clear preponderance of evidence and in accordance
with Section 23 of the Negotiable Instruments Law, the Court hereby renders judgment in
favor of the plaintiff Metropolitan Waterworks and Sewerage System (MWSS) by ordering
the defendant Philippine National Bank (PNB) to restore the total sum of THREE MILLION
FOUR HUNDRED FIFTY SEVEN THOUSAND NINE HUNDRED THREE PESOS
(P3,457,903.00) to plaintiff’s Account No. 6, otherwise known as Account No. 010-50030-3,
with legal interest thereon computed from the date of the filing of the complaint and until
restored in the said Account No. 6.
“On the THIRD PARTY COMPLAINT, the Court, for lack of evidence, hereby renders
judgment in favor of the third party defendants Philippine Bank of Commerce (PBC) and
Philippine Commercial and Industrial Bank (PCIB) by dismissing the Third Party
Complaint.
“The counterclaims of the third party defendants are likewise dismissed for lack of
evidence.
“ N o pronouncement as to costs.”
As earlier stated, the respondent court reversed the decision of the Court of First
Instance of Manila and rendered judgment in favor of the respondent Philippine
National Bank.
A motion for reconsideration filed by the petitioner MWSS was denied by the
respondent court in a resolution dated January 3, 1983.
The petitioner now raises the following assignments of errors for the grant of this
petition:
1. I.IN NOT HOLDING THAT AS THE SIGNATURES ON THE CHECKS
WERE FORGED, THE DRAWEE BANK WAS LIABLE FOR THE LOSS
UNDER SECTION 23 OF THE NEGOTIABLE INSTRUMENTS LAW.
2. II.IN FAILING TO CONSIDER THE PROXIMATE NEGLIGENCE OF PNB
IN ACCEPTING THE SPURIOUS CHECKS DESPITE THE OBVIOUS
IRREGULARITY OF TWO SETS OF CHECKS BEARING IDENTICAL
NUMBER BEING ENCASHED WITHIN DAYS OF EACH OTHER.
3. III.IN NOT HOLDING THAT THE SIGNATURES OF
28
Appeals
1. THE DRAWEE MWSS BEING CLEARLY FORGED, AND THE CHECKS

SPURIOUS, SAME ARE INOPERATIVE AS AGAINST THE ALLEGED
DRAWEE.
The appellate court applied Section 24 of the Negotiable Instruments Law which
provides:
“Every negotiable instrument is deemed prima facie to have been issued for valuable
consideration and every person whose signature appears thereon to have become a party
thereto for value.”
The petitioner submits that the above provision does not apply to the facts of the
instant case because the questioned checks were not those of the MWSS and neither
were they drawn by its authorized signatories. The petitioner states that granting
that Section 24 of the Negotiable Instruments Law is applicable, the same creates
only a prima facie presumption which was overcome by the following documents, to
wit: (1) the NBI Report of November 2, 1970; (2) the NBI Report of November 21,
1974; (3) the NBI Chemistry Report No. C-74-891; (4) the Memorandum of Mr. Juan
Dino, 3rd Assistant Auditor of the respondent drawee bank addressed to the Chief
Auditor of the petitioner; (5) the admission of the respondent bank’s counsel in open
court that the National Bureau of Investigation found the signature on the twenty-
three (23) checks in question to be forgeries; and (6) the admission of the respondent
bank’s witness, Mr. Faustino Mesina, Jr. that the checks in question were not printed
by his printing press. The petitioner contends that since the signatures of the checks
were forgeries, the respondent drawee bank must bear the loss under the rulings of
this Court.
“A bank is bound to know the signatures of its customers; and if it pays a forged check it must
be considered as making the payment out of its own funds, and cannot ordinarily charge the
amount so paid to the account of the depositor whose name was forged.”
xxx xxx xxx
“The signatures to the checks being forged, under Section 23 of the Negotiable
Instruments Law they are not a charge against plain-
29
VOL, 143, JULY 14, 1986 29
Appeals
tiff nor are the checks of any value to the defendant.
“It must therefore be held that the proximate cause of loss was due to the negligence of
the Bank of the Philippine Islands in honoring and cashing the two forged checks.” (San
Carlos Milling Co. v. Bank of the P. I., 59 Phil. 59)
“It is admitted that the Philippine National Bank cashed the check upon a forged
signature, and placed the money to the credit of Maasim, who was the forger. That the
Philippine National Bank then endorsed the check and forwarded it to the Shanghai Bank
by whom it was paid. The Philippine National Bank had no license or authority to pay the
money to Maasim or anyone else upon a forged signature. It was its legal duty to know that
Malicor’s endorsement was genuine before cashing the check. Its remedy is against Maasim
to whom it paid the money.” (Great Eastern Life Ins. Co. v. Hongkong & Shanghai Bank, 43
Phil. 678).
We have carefully reviewed the documents cited by the petitioner. There is no express
and categorical finding in these documents that the twenty-three (23) questioned
checks were indeed signed by persons other than the authorized MWSS signatories.
On the contrary, the findings of the National Bureau of Investigation in its Report
dated November 2, 1970 show that the MWSS fraud was an “inside job” and that the
petitioner’s delay in the reconciliation of bank statements and the laxity and loose
records control in the printing of its personalized checks facilitated the fraud.
Likewise, the questioned Documents Report No. 159-1074 dated November 21, 1974
of the National Bureau of Investigation does not declare or prove that the signatures
appearing on the questioned checks are forgeries. The report merely mentions the
alleged differences in the typeface, checkwriting, and printing characteristics
appearing in the standard or submitted models and the questioned typewritings. The
NBI Chemistry Report No. C-74-891 merely describes the inks and pens used in
writing the alleged forged signatures.
It is clear that these three (3) NBI Reports relied upon by the petitioner are
inadequate to sustain its allegations of forgery. These reports did not touch on the
inherent qualities
30
Appeals
of the signatures which are indispensable in the determination of the existence of
forgery. There must be conclusive findings that there is a variance in the inherent
characteristics of the signatures and that they were written by two or more different
persons.
Forgery cannot be presumed (Siasat, et al. v. Intermediate Appellate Court, et
al, 139 SCRA 238). It must be established by clear, positive, and convincing evidence.
This was not done in the present case.
The cases of San Carlos Milling Co, Ltd. v. Bank of the Philippine Islands, et al. (59
Phil, 59) and Great Eastern Life Ins., Co. v. Hongkong and Shanghai Bank (43 Phil.
678) relied upon by the petitioner are inapplicable in this case because the forgeries
in those cases were either clearly established or admitted while in the instant case,
the allegations of forgery were not clearly established during trial.
Considering the absence of sufficient security in the printing of the checks coupled
with the very close similarities between the genuine signatures and the alleged
forgeries, the twenty-three (23) checks in question could have been presented to the
petitioner’s signatories without their knowing that they were bogus checks. Indeed,
the cashier of the petitioner whose signatures were allegedly forged was unable to
tell the difference between the allegedly forged signature and his own genuine
signature. On the other hand, the MWSS officials admitted that these checks could
easily be passed on as genuine,
The memorandum of Mr. A. T. Tolentino, Assistant Chief Accountant of the drawee
Philippine National Bank to Mr. E. Villatuya, Executive Vice-President of the
petitioner dated June 9, 1969 cites an instance where even the concerned NWSA
officials could not tell the differences between the genuine checks and the alleged
forged checks.
“At about 12:00 o’clock on June 6, 1960, VP Maramag requested me to see him in his office
at the Cashier’s Dept. where Messrs. Jose M. Sanchez, treasurer of NAWASA and Romeo
Oliva of the same office were present. Upon my arrival I observed the NAWASA officials
questioning the issue of the NAWASA checks
31
VOL, 143, JULY 14, 1988 31
Appeals
appearing in their own list, xerox copy attached.
“For verification purposes, therefore, the checks were taken from our file. To everybody
there present namely VIP Maramag, the two abovementioned NAWASA officials, AVP,
Buhain, Asst. Cashier Castelo, Asst. Cashiet Tejada and Messrs. A. Lopez and L. Lechuga,
both C/A bookkeepers, no one was able to point out any difference on the signatures of the
NAWASA officials appearing on the checks compared to their official signatures on file. In
fact 3 checks, one of those under question, were presented to the NAWASA treasurer for
verification but he could not point out which was his genuine signature. After intent
comparison, he pointed on the questioned check as bearing his correct signature.”
xxx xxx xxx
Moreover, the petitioner is barred from setting up the defense of forgery under
Section 23 of the Negotiable Instruments Law which provides that:
“SEC. 23. FORGED SIGNATURE; EFFECT OF.—When the signature is forged or made
without authority of the person whose signature it purports to be, it is wholly inoperative,
and no right to retain the instrument, or to give a discharge therefor, or to enforce payment
thereof against any party thereto can be acquired through or under such signature unless
the party against whom it is sought to enforce such right is precluded from setting up the
forgery or want of authority.”
because it was guilty of negligence not only before the questioned checks were
negotiated but even after the same had already been negotiated. (See Republic v.
Equitable Banking Corporation. 10 SCRA 8)
The records show that at the time the twenty-three (23) checks were prepared,
negotiated, and encashed, the petitioner was using its own personalized checks,
instead of the official PNB Commercial blank checks. In the exercise of this special
privilege, however, the petitioner failed to provide the needed security measures.
That there was gross negligence in the printing of its personalized checks is shown
by the following uncontroverted facts, to wit:
32
Appeals
1. (1)The petitioner failed to give its printer, Mesina Enterprises, specific

instructions relative to the safekeeping and disposition of excess forms, check
vouchers, and safety papers;
2. (2)The petitioner failed to retrieve from its printer all spoiled check forms;
3. (3)The petitioner failed to provide any control regarding the paper used in the
printing of said checks;
4. (4)The petitioner failed to furnish the respondent drawee bank with samples
of “typewriting, check writing, and print used by its printer in the printing of
its checks and of the inks and pens used in signing the same; and
5. (5)The petitioner failed to send a representative to the printing office during
the printing of said checks. This gross negligence of the petitioner is very
evident from the sworn statement dated June 19, 1969 of Faustino Mesina,
Jr., the owner of the printing press which printed the petitioner’s personalized
checks:
xxx xxx xxx

“7. Do you have any business transaction with the National
Q: Waterworks and Sewerage Authority (NAWASA)?
A: Yes, sir. I have a contract with the NAWASA in
printing NAWASA Forms such as NAWASA Check
Vouchers and Office Forms.
xxx xxx xxx
“15. Were you given any instruction by the NAWASA in
Q: connection with the printing of these check vouchers?
A: There is none, sir. No instruction whatsoever was given
to me.
“16. Were you not advised as to what kind of paper would
Q: be used in the check vouchers?
A: Only as per sample, sir.
x xx xxx xx x
“20. Where did you buy this Hammermill Safety check
Q: paper?
A: From Tan Chiong, a paper dealer with store located at
33
VOL. 33
143,
JULY 14,
1986
Appeals
Juan Luna, Binondo, Manila. (In front of the
Metropolitan Bank).
xxx xxx xxx
“24. Q: Were all these check vouchers printed by you
submitted to NAWASA?
A: Not all, sir. Because we have to make reservations
or allowances for spoilage.
“25. Q: Out of these vouchers printed by you, how many
were spoiled and how many were the excess
printed check vouchers?
A: Approximately four hundred (400) sheets, sir. I
cannot determine the proporti on of the excess and
spoiled because the final act of perforating these
check vouchers has not yet been done and
spoilage can only be determined after this final act
of printing.
“26. Q: What did you do with these excess check
vouchers?
A: I keep it under lock and key in my filing cabinet.
xxx xxx xxx
“28. Q: Were you not instructed by the NAWASA
authorities to burn these excess check vouchers?
A: No, sir. I was not instructed.
“29. Q: What do you intend to do with these excess
printed check vouchers?
A: I intend to use them for future orders from the
NAWASA.
xxx xxx xxx
“32. Q: In the process of printing the check vouchers
ordered by the NAWASA, how many sheets were
actually spoiled?
A: I cannot approximate, sir. But there are spoilage in
the process of printing and perforating.
“33. Q: What did you do with these spoilages?
A: Spoiled printed materials are usually thrown out,
in the garbage can.
“34. Q: Was there any representative of the NAWASA to
supervise the printing or watch the printing of
these check vouchers?
A: None, sir.
xxx xxx xxx
“39. Q: During the period of printing after the days work,
what measures do you undertake to safeguard the
mold and other paraphernalia used in the printing
of
34
Appeals
these particular orders of NAWASA?
A: Inasmuch as I have an employee who sleeps in the
printing shop and at the same time do the guarding, we
just leave the mold attached to the machine and the other
finished or unfinished work check vouchers are left in the
rack so that the work could be continued thefollowing
day.”
The National Bureau of Investigation Report dated November 2, 1970 is even more
explicit, Thus—
xxx xxx xxx
“60. We observed also that there is some laxity and loose control in the printing of
NAWASA checks. We gathered from MESINA ENTERPRISES, the printing firm that
undertook the printing of the check vouchers of NAWASA that NAWASA had no
representative at the printing press during the process of the printing and no particular
security measure instructions adopted to safeguard the interest of the government in
connection with printing of this accountable form.”
Another factor which facilitated the fraudulent encashment of the twenty-three (23)
checks in question was the failure of the petitioner to reconcile the bank statements
with its own records.
It is accepted banking procedure for the depository bank to furnish its depositors
bank statements and debt and credit memos through the mail The records show that
the petitioner requested the respondent drawee bank to discontinue the practice of
mailing the bank statements, but instead to deliver the same to a certain Mr.
Emiliano Zaporteza. For reasons known only to Mr. Zaporteza however, he was
unreasonably delayed in taking prompt deliveries of the said bank statements and
credit and debit memos. As a consequence, Mr. Zaporteza failed to reconcile the bank
statements with the petitioner’s records. If Mr. Zaporteza had not been remiss in his
duty of taking the bank statements and reconciling them with the petitioner’s
records, the fraudulent encashments of the first checks should have been discovered,
and further frauds prevented. This negligence was, therefore, the proximate cause
35
VOL. 143, JULY 14, 1986 35
Appeals
of the failure to discover the fraud. Thus,
“When a person opens a checking account with a bank, he is given blank checks which he
may fill out and use whenever he wishes. Each time he issues a check, he should also fill out
the check stub to which the check is usually attached. This stub, if properly kept, will contain
the number of the check, the date of its issue, the name of the payee and the amount thereof.
The drawer would therefore have a complete record of the checks he issues. It is the custom
of banks to send to its depositors a monthly statement of the status of their accounts, together
with all the cancelled checks which have been cashed by their respective holders. If the
depositor has filled out his check stubs properly, a comparison between them and the
cancelled checks will reveal any forged check not taken from his checkbook. It is the duty of
a depositor to carefully examine the bank’s statement, his cancelled checks, his check stubs
and other pertinent records within a reasonable time, and to report any errors without
unreasonable delay. If his negligence should cause the bank to honor a forged check or
prevent it from recovering the amount it may have already paid on such check, he cannot
later complain should the bank refuse to recredit his account with the amount of such check.
(First Nat. Bank of Richmond v. Richmond Electric Co., 106 Va. 347, 56 SE 152, 7 LRA, NS
744 [1907]. See also Leather Manufacturers’ Bank v. Morgan, 117 US 96, 6 S. Ct. 657
[1886]; Deer Island Fish and Oyster Co. v. First Nat. Bank of Biloxi, 166 Miss. 162, 146 So.
116 [1933]). Campos and Campos, Notes and Selected Cases on Negotiable Instruments Law,
1971, pp. 267-268).
This failure of the petitioner to reconcile the bank statements with its cancelled
checks was noted by the National Bureau of Investigation in its report dated
November 2, 1970:
“58. One factor which facilitated this fraud was the delay in the reconciliation of bank (PNB)
statements with the NAWASA bank accounts, xxx. Had the NAWASA representative come
to the PNB early for the statements and had the bank been advised promptly of the reported
bogus check, the negotiation of practically all of the remaining checks on May, 1969, totalling
P2,224,736.00 could have been prevented.”
36
Appeals
The records likewise show that the petitioner failed to provide appropriate security
measures over its own records thereby laying confidential records open to
unauthorized persons. The petitioner’s own Fact Finding Committee, in its report
submitted to their General Manager underscored this laxity of records control. It
observed that the “office of Mr. Ongtengco (Cashier No. VI of the Treasury
Department at the NAWASA) is quite open to any person known to him or his staff
members and that the check writer is merely on top of his table.”
When confronted with this report at the Anti-Fraud Action Section of the National
Bureau of Investigation, Mr. Ongtengco could only state that:
“A. Generally my order is not to allow anybody to enter my
office. Only authorized persons are allowed to enter my
office. There are some cases, however, where some pers
ons enter my office because they are following up their
checks. Maybe, these persons may have been
authorizedby Mr. Pantig. Most of the people entering my
office are changing checks as allowed by the Resolution
of the Board of Directors of the NAWASA and the
Treasurer. The check writer was never placed on my
table. There is a place for the checkwriter which is also
under lock and key.
“Q. Is Mr. Pantig authorized to allow unauthorized persons to
enter your office?
“A. No, sir.
“Q. Why are you tolerating Mr. Pantig admitting
unauthorized persons in your office?
“A, I do not want to embarrass Mr. Pantig. Most of the
people following up checks are employees of the
NAWASA.
“Q. Was the authority given by the Board of Directors and
the approval by the Treasurer for employees, and other
persons to encash their checks carry with it their
authority to enter your office?
“A. No, sir.
xxx xxx xxx
“Q. From the answers that you have given to us we observed
that actually there is laxity and poor control on your part
with regards to the preparations of check payments in-
37
VOL. 37
143,
JULY
14,
1986
Appeals
asmuch as you allow unauthorized persons to
follow-up their vouchers inside your office which
may leakout confidential informations or your
books of account. After being apprised of all the
shortcomings in your office, as head of the
Cashiers’ Office of the Treasury Department what
remedial measures do you intend to undertake?
“A. Time and again the Treasurer has been calling our
attention not to allow interested persons to hand
carry their voucher checks and we are trying our
best and if I can do it to follow the instructions to
the letter, I will do it but unfortunately the persons
who are allowed to enter my office are my co-
employees and persons who have connections with
our higher ups and I can not possibly antagonize
them. Rest assured that even though that everybody
will get hurt, I will do my best not to allow
unauthorized persons to enter my office.
xxx xxx xxx
“Q. Is it not possible inasmuch as your office is in
charge of the posting of check payments in your
books that leakage of payments to the banks came
from your office?
“A. I am not aware of it but it only takes us a couple of
minutes to process the checks. And there are cases
wherein every information about the checks may be
obtained from the Accounting Department, Auditing
Department, or the Office of the General Manager.”
Relying on the foregoing statement of Mr. Ongtengco, the National Bureau of
Investigation concluded in its Report dated November 2, 1970 that the fraudulent
encashment of the twenty-three (23) checks in question was an “inside job”. Thus—
“We have all the reasons to believe that this fraudulent act was an inside job or one pulled
with inside connivance at NAWASA. As pointed earlier in this report, the serial numbers of
these checks in question conform with the numbers in current use of NAWASA, aside from
the fact that these fraudulent checks were found to be of the same kind and design as that of
NAWASA’s own checks. While knowledge as to such facts may be obtained through the
possession of a NAWASA check of current issue, an outsider without information from the
inside can not possibly pinpoint which of NAWASA’s
38
Appeals
various accounts has sufficient balance to cover all these fraudulent checks. None of these
checks, it should be noted, was dishonored for insufficiency of funds. . .”
Even if the twenty-three (23) checks in question are considered forgeries, considering
the petitioner’s gross negligence, it is barred from setting up the defense of forgery
under Section 23 of the Negotiable Instruments Law.
Nonetheless, the petitioner claims that it was the negligence of the respondent
Philippine National Bank that was the proximate cause of the loss. The petitioner
relies on our ruling in Philippine National Bank v. Court of Appeals (25 SCRA 693)
that.
“Thus, by not returning the check to the PCIB, by thereby indicating that the PNB had found
nothing wrong with the check and would honor the same, and by actually paying its amount
to the PCIB, the PNB induced the latter, not only to believe that the check was genuine and
good in every respect, but, also, to pay its amount to Augusto Lim. In other words, the PNB
was the primary or proximate cause of the loss, and, hence, may not recover from the PCIB.”
The argument has no merit. The records show that th e respondent drawee bank, had
taken the necessary measures in the detection of forged checks and the prevention of
their fraudulent encashment. In fact, long before the encashment of the twenty-three
(23) checks in question, the respondent Bank had issued constant reminders to all
Current Account Bookkeepers informing them of the activities of forgery syndicates.
The Memorandum of the Assistant Vice-President and Chief Accountant of the
Philippine National Bank dated February 17, 1966 reads in part:
“SUBJECT: ACTIVITIES OF FORGERY SYNDICATE
“From reliable information we have gathered that personalized checks of current account
depositors are now the target of the forgery syndicate. To protect the interest of the bank,
you are hereby enjoined to be more careful in examining said checks especially those
39
VOL. 143, JULY 14, 1986 39
Appeals
coming from the clearing, mails and window transactions. As a reminder please be guided
with the following:
1. “1.Signatures of drawers should be properly scrutinized and compared with those we

have on file.
2. “2.The serial numbers of the checks should be compared with the serial numbers
registered with the Cashier’s Dept.
3. “3.The texture of the paper used and the printing of the checks should be compared
with the sample we have on file with the Cashier’s Dept.
4. “4.Checks bearing several indorsements should be given special attention.
5. “5.Alteration in amount both in figures and words should be carefully examined even
if signed by the drawer.
6. “6.Checks issued in substantial amounts particularly by depositors who do not usually
issue checks in big amounts should be brought to the attention of the drawer by
telephone or any fastest means of communication for purposes of confirmation.
and your attention is also invited to keep abreast of previous circulars and memo
instructions issued to bookkeepers.”
We cannot fault the respondent drawee Bank for not having detected the fraudulent
encashment of the checks because the printing of the petitioner’s personalized checks
was not done under the supervision and control of the Bank. There is no evidence on
record indicating that because of this private printing, the petitioner furnished the
respondent Bank with samples of checks, pens, and inks or took other precautionary
measures with the PNB to safeguard its interests.
Under the circumstances, therefore, the petitioner was in a better position to
detect and prevent the fraudulent encashment of its checks.
WHEREFORE, the petition for review on certiorari is hereby DISMISSED for lack
of merit. The decision of the respondent Court of Appeals dated October 29, 1982 is
AFFIRMED. No pronouncement as to costs.
40
Arsenal vs. Intermediate Appellate Court
SO ORDERED.
Feria (Chairman), Fernan, Alampay and Cruz, JJ., concur.
Paras , J., took no part.
**
Petition dismissed Decision affirmed.

SAMSUNG CONSTRUCTION COMPANY PHILIPPINES, INC., petitioner, vs. FAR
EAST BANK AND TRUST COMPANY AND COURT OF APPEALS, respondents.
Negotiable Instruments Law; Checks; A forged signature is “wholly inoperative” and
payment made “through or under such signature” is ineffectual or does not discharge the
instrument.—The general rule is to the effect that a forged signature is “wholly inoperative,”
and payment made “through or under such signature” is ineffectual or does not discharge the
instrument. If payment is made, the drawee cannot charge it to the drawer’s account. The
traditional justification for the result is that the drawee is in a superior position to detect a
forgery because he has the maker’s signature and is expected to know and compare it. The
rule has a healthy cautionary effect on banks by encouraging care in the comparison of the
signatures against those on the signature cards they have on file. Moreover, the very
opportunity of the drawee to insure and to distribute the cost among its customers who use
checks makes the drawee an ideal party to spread the risk to insurance.
_______________
*SECOND DIVISION.
403
VOL. 436, AUGUST 13, 2004 403
Samsung Construction Company Philippines, Inc. vs. Far
East Bank and Trust Company
Same; Same; Forgery; Forgery is a real or absolute defense by the party whose signature
is forged.—Under Section 23 of the Negotiable Instruments Law, forgery is a real or absolute
defense by the party whose signature is forged. On the premise that Jong’s signature was
indeed forged, FEBTC is liable for the loss since it authorized the discharge of the forged
check. Such liability attaches even if the bank exerts due diligence and care in preventing
such faulty discharge. Forgeries often deceive the eye of the most cautious experts; and when
a bank has been so deceived, it is a harsh rule which compels it to suffer although no one has
suffered by its being deceived. The forgery may be so near like the genuine as to defy detection
by the depositor himself, and yet the bank is liable to the depositor if it pays the check.
Same; Same; Same; A document formally presented is presumed to be genuine until it is
proved to be fraudulent.—Thus, the first matter of inquiry is into whether the check was
indeed forged. A document formally presented is presumed to be genuine until it is proved to
be fraudulent. In a forgery trial, this presumption must be overcome but this can only be
done by convincing testimony and effective illustrations.
Same; Same; Same; Bare fact that the forgery was committed by an employee of the party
whose signature was forged cannot necessarily imply that such party’s negligence was the
cause for the forgery.—The bare fact that the forgery was committed by an employee of the
party whose signature was forged cannot necessarily imply that such party’s negligence was
the cause for the forgery. Employers do not possess the preternatural gift of cognition as to
the evil that may lurk within the hearts and minds of their employees.
Same; Same; Same; If a bank pays a forged check, it must be considered as paying out of
its funds and cannot charge the amount so paid to the account of the depositor.—Still, even if
the bank performed with utmost diligence, the drawer whose signature was forged may still
recover from the bank as long as he or she is not precluded from setting up the defense of
forgery. After all, Section 23 of the Negotiable Instruments Law plainly states that no right
to enforce the payment of a check can arise out of a forged signature. Since the drawer,
Samsung Construction, is not precluded by negligence from setting up the forgery, the
general rule should apply. Consequently, if a bank pays a forged check, it must be considered
as paying out of its funds and cannot charge the amount so paid to the account of the
depositor. A bank is liable, irrespective of its good faith, in paying a forged check.
Same; Same; Same; Negligence; The presumption remains that every person takes
ordinary care of his concerns, and that the ordinary course of business has been followed;
Negligence is not presumed but must be proven
404

by him who alleges it.—Still, in the absence of evidence to the contrary, we can conclude
that there was no negligence on Samsung Construction’s part. The presumption remains that
every person takes ordinary care of his concerns, and that the ordinary course of business
has been followed. Negligence is not presumed, but must be proven by him who alleges it.
While the complaint was lodged at the instance of Samsung Construction, the matter it had
to prove was the claim it had alleged—whether the check was forged. It cannot be required
as well to prove that it was not negligent, because the legal presumption remains that
ordinary care was employed.

Alan A. Leynes for petitioner.
Angara, Abello, Concepcion, Regala & Cruz for respondent.
TINGA, J.:
Called to fore in the present petition is a classic textbook question—if a bank pays
out on a forged check, is it liable to reimburse the drawer from whose account the
funds were paid out? The Court of Appeals, in reversing a trial court decision adverse
to the bank, invoked tenuous reasoning to acquit the bank of liability. We reverse,
applying time-honored principles of law.
The salient facts follow.
Plaintiff Samsung Construction Company Philippines, Inc. (“Samsung
Construction”), while based in Biñan, Laguna, maintained a current account with
defendant Far East Bank and Trust Company (“FEBTC”) at the latter’s Bel-Air,
1
Makati branch. The sole signatory to Samsung Construction’s account was Jong Kyu
2
Lee (“Jong”), its Project Manager, while the checks remained in the custody of the
3
company’s accountant, Kyu Yong Lee (“Kyu”). 4
_______________
1 Later acquired by or merged with the Bank of the Philippine Islands.

2 Rollo, p. 35.
3 Ibid.
4 Id., at p. 28.
405
VOL. 436, AUGUST 13, 2004 405
On 19 March 1992, a certain Roberto Gonzaga presented for payment FEBTC

Check No. 432100 to the bank’s branch in BelAir, Makati. The check, payable to cash
and drawn against Samsung Construction’s current account, was in the amount of
Nine Hundred Ninety Nine Thousand Five Hundred Pesos (P999,500.00). The bank
teller, Cleofe Justiani, first checked the balance of Samsung Construction’s account.
After ascertaining there were enough funds to cover the check, she compared the
5
signature appearing on the check with the specimen signature of Jong as contained
in the specimen signature card with the bank. After comparing the two signatures,
Justiani was satisfied as to the authenticity of the signature appearing on the check.
She then asked Gonzaga to submit proof of his identity, and the latter presented three
(3) identification cards. 6
At the same time, Justiani forwarded the check to the branch Senior Assistant
Cashier Gemma Velez, as it was bank policy that two bank branch officers approve
checks exceeding One Hundred Thousand Pesos, for payment or encashment. Velez
likewise counterchecked the signature on the check as against that on the signature
card. He too concluded that the check was indeed signed by Jong. Velez then
forwarded the check and signature card to Shirley Syfu, another bank officer, for
approval. Syfu then noticed that Jose Sempio III (“Sempio”), the assistant accountant
of Samsung Construction, was also in the bank. Sempio was well-known to Syfu and
the other bank officers, he being the assistant accountant of Samsung Construction.
Syfu showed the check to Sempio, who vouched for the genuineness of Jong’s
signature. Confirming the identity of Gonzaga, Sempio said that the check was for
the purchase of equipment for Samsung Construction. Satisfied with the genuineness
of the signature of Jong, Syfu authorized the bank’s encashment of the check to
Gonzaga.
The following day, the accountant of Samsung Construction, Kyu, examined the
balance of the bank account and discovered that a check in the amount of Nine
Hundred Ninety Nine Thousand Five Hundred Pesos (P999,500.00) had been
encashed. Aware that he had not prepared such a check for Jong’s signature, Kyu
perused the checkbook and found that the last blank check was
_______________
5Ibid.
6Ibid.
406
missing. He reported the matter to Jong, who then proceeded to the bank. Jong
7
learned of the encashment of the check, and realized that his signature had been
forged. The Bank Manager reputedly told Jong that he would be reimbursed for the
amount of the check. Jong proceeded to the police station and consulted with his
8
lawyers. Subsequently, a criminal case for qualified theft was filed against Sempio
9
before the Laguna court. 10
In a letter dated 6 May 1992, Samsung Construction, through counsel, demanded

that FEBTC credit to it the amount of Nine Hundred Ninety Nine Thousand Five
Hundred Pesos (P999,500.00), with interest. In response, FEBTC said that it was
11
still conducting an investigation on the matter. Unsatisfied, Samsung Construction

filed a Complaint on 10 June 1992 for violation of Section 23 of the Negotiable
Instruments Law, and prayed for the payment of the amount debited as a result of
the questioned check plus interest, and attorney’s fees. The case was docketed as
12
Civil Case No. 92-61506 before the Regional Trial Court (“RTC”) of Manila, Branch
9.13
During the trial, both sides presented their respective expert witnesses to testify
on the claim that Jong’s signature was forged. Samsung Corporation, which had
referred the check for investigation to the NBI, presented Senior NBI Document
Examiner Roda B. Flores. She testified that based on her examination, she concluded
that Jong’s signature had been forged on the check. On the other hand, FEBTC, which
had sought the assistance of the Philippine National Police (PNP), presented Rosario
14
C. Perez, a document examiner from the PNP Crime Laboratory. She testified that
her findings showed that Jong’s signature on the check was genuine. 15
_______________
7 Rollo, p. 35.
8 See TSN dated 25 June 1993, p. 10.
9 Id., at p. 9.
10 See TSN dated 15 June 1993, p. 26.
11 Ibid.
12 Act No. 2031.
13 Presided by Judge E.G. Sandoval, now Justice of the Sandiganbayan.
14 TSN dated 8 October 1993, p. 8.
15 Rollo, p. 24.
407
VOL. 436, AUGUST 13, 2004 407
Confronted with conflicting expert testimony, the RTC chose to believe the findings
of the NBI expert. In a Decision dated 25 April 1994, the RTC held that Jong’s
signature on the check was forged and accordingly directed the bank to pay or credit
back to Samsung Construction’s account the amount of Nine Hundred Ninety Nine
Thousand Five Hundred Pesos (P999,500.00), together with interest tolled from the
time the complaint was filed, and attorney’s fees in the amount of Fifteen Thousand
Pesos (P15,000.00). FEBTC timely appealed to the Court of Appeals. On 28 November
1996, the Special Fourteenth Division of the Court of Appeals rendered
a Decision, reversing the RTC Decision and absolving
16
FEBTC from any liability. The Court of Appeals held that the contradictory
findings of the NBI and the PNP created doubt as to whether there was
forgery. Moreover, the appellate court also held that assuming there was forgery, it
17
occurred due to the negligence of Samsung Construction, imputing blame on the

accountant Kyu for lack of care and prudence in keeping the checks, which if observed
would have prevented Sempio from gaining access thereto. The Court of Appeals
18
invoked the ruling in PNB v. National City Bank of New York that, if a loss, which
19
must be borne by one or two innocent persons, can be traced to the neglect or fault of
either, such loss would be borne by the negligent party, even if innocent of intentional
fraud. 20
Samsung Construction now argues that the Court of Appeals had seriously
misapprehended the facts when it overturned the RTC’s finding of forgery. It also
contends that the appellate court erred in finding that it had been negligent in
safekeeping the check, and in applying the equity principle enunciated in PNB v.
National City Bank of New York.
Since the trial court and the Court of Appeals arrived at contrary findings on
questions of fact, the Court is obliged to examine the record to draw out the correct
conclusions. Upon examination of the record, and based on the applicable laws and
jurisprudence, we reverse the Court of Appeals.
_______________
16 Penned by Justice S. Montoya, concurred in by Justices G. Jacinto and A. Tuquero.

17 Rollo, p. 38.
18 Ibid.
19 63 Phil. 711 (1936).
20 Rollo, p. 38.
408
Section 23 of the Negotiable Instruments Law states:

When a signature is forged or made without the authority of the person whose signature
it purports to be, it is wholly inoperative, and no right to retain the instrument, or to
give a discharge therefor, or to enforce payment thereof against any party thereto, can be
acquired through or under such signature, unless the party against whom it is sought
to enforce such right is precluded from setting up the forgery or want of authority. (Emphasis
supplied)
The general rule is to the effect that a forged signature is “wholly inoperative,” and
payment made “through or under such signature” is ineffectual or does not discharge
the instrument. If payment is made, the drawee cannot charge it to the drawer’s
21
account. The traditional justification for the result is that the drawee is in a superior
position to detect a forgery because he has the maker’s signature and is expected to
know and compare it. The rule has a healthy cautionary effect on banks by
22
encouraging care in the comparison of the signatures against those on the signature
cards they have on file. Moreover, the very opportunity of the drawee to insure and
to distribute the cost among its customers who use checks makes the drawee an ideal
party to spread the risk to insurance. 23
Brady, in his treatise The Law of Forged and Altered Checks, elucidates:
When a person deposits money in a general account in a bank, against which he has the
privilege of drawing checks in the ordinary course of business, the relationship between the
bank and the depositor is that of debtor and creditor. So far as the legal relationship between
the two is concerned, the situation is the same as though the bank had borrowed money from
the depositor, agreeing to repay it on demand, or had bought goods from the depositor,
agreeing to pay for them on demand. The bank owes the depositor money in the same sense
that any debtor owes money to his creditor. Added to this, in the case of bank and depositor,
there is, of course, the bank’s obligation to pay checks drawn by the depositor in proper form
and presented in due course. When the bank re-
_______________
21 Bank of Philippine Islands v. Court of Appeals, G.R. No. 102383, 26 November 1992, 216 SCRA 51, 65.
22 FARNSWORTH, E.A., NEGOTIABLE INSTRUMENTS: Cases and Materials, 2nd ed. (1959), at p.
173.
Id., at p. 174.
23
409
VOL. 436, AUGUST 13, 2004 409
ceives the deposit, it impliedly agrees to pay only upon the depositor’s order. When the bank
pays a check, on which the depositor’s signature is a forgery, it has failed to comply with its
contract in this respect. Therefore, the bank is held liable.
The fact that the forgery is a clever one is immaterial. The forged signature may so closely
resemble the genuine as to defy detection by the depositor himself. And yet, if a bank pays
the check, it is paying out its own money and not the depositor’s.
The forgery may be committed by a trusted employee or confidential agent. The bank still
must bear the loss. Even in a case where the forged check was drawn by the depositor’s
partner, the loss was placed upon the bank. The case referred to is Robinson v. Security Bank,
Ark., 216 S. W. Rep. 717. In this case, the plaintiff brought suit against the defendant bank
for money which had been deposited to the plaintiff’s credit and which the bank had paid out
on checks bearing forgeries of the plaintiff’s signature.
xxx
It was held that the bank was liable. It was further held that the fact that the plaintiff
waited eight or nine months after discovering the forgery, before notifying the bank, did not,
as a matter of law, constitute a ratification of the payment, so as to preclude the plaintiff
from holding the bank liable. x x x
This rule of liability can be stated briefly in these words: “A bank is bound to know its
depositors’ signature.” The rule is variously expressed in the many decisions in which the
question has been considered. But they all sum up to the proposition that a bank must know
the signatures of those whose general deposits it carries. 24
By no means is the principle rendered obsolete with the advent of modern

commercial transactions. Contemporary texts still affirm this well-entrenched
standard. Nickles, in his book Negotiable Instruments and Other Related Commercial
Paper wrote, thus:
The deposit contract between a payor bank and its customer determines who can draw
against the customer’s account by specifying whose signature is necessary on checks that are
chargeable against the customer’s account. Therefore, a check drawn against the account of
an individual customer that is signed by someone other than the customer, and without
authority from her, is not properly payable and is not chargeable to the customer’s account,
inasmuch as any “unauthorized signature on an
_______________
Brady, J.E., The Law of Forged and Altered Checks (1925), at pp. 6-7. Case citations omitted.
24
410
instrument is ineffective” as the signature of the person whose name is signed. 25
Under Section 23 of the Negotiable Instruments Law, forgery is a real or absolute

defense by the party whose signature is forged. On the premise that Jong’s signature
26
was indeed forged, FEBTC is liable for the loss since it authorized the discharge of
the forged check. Such liability attaches even if the bank exerts due diligence and
care in preventing such faulty discharge. Forgeries often deceive the eye of the most
cautious experts; and when a bank has been so deceived, it is a harsh rule which
compels it to suffer although no one has suffered by its being deceived. The forgery 27
may be so near like the genuine as to defy detection by the depositor himself, and yet
the bank is liable to the depositor if it pays the check. 28
Thus, the first matter of inquiry is into whether the check was indeed forged. A
document formally presented is presumed to be genuine until it is proved to be
fraudulent. In a forgery trial, this presumption must be overcome but this can only
be done by convincing testimony and effective illustrations. 29
In ruling that forgery was not duly proven, the Court of Appeals held:
[There] is ground to doubt the findings of the trial court sustaining the alleged forgery in
view of the conflicting conclusions made by handwriting experts from the NBI and the PNP,
both agencies of the government.
xxx
These contradictory findings create doubt on whether there was indeed a forgery. In the
case of Tenio-Obsequio v. Court of Appeals, 230
_______________
25 Nickles, S.H., Negotiable Instruments and Other Related Commercial Paper, 2nd ed. (1993), at p. 415.
26 Gempesaw v. Court of Appeals, G.R. No. 92244, 9 February 1993, 218 SCRA 682, 689.
27 Philippine National Bank v. National City Bank of New York, 63 Phil. 711, 743-744 (1936); citing 17
A. L. R., 891; 5 R. C. L., 559.

28 BRADY, H.J., BRADY ON BANK CHECKS, 3rd ed. (1962), at p. 475; citing Hardy v. Chesapeake
Bank (1879) 51Md. 562, 34 Am. Rep. 325.

29 OSBORN, A., QUESTIONED DOCUMENT PROBLEMS, 2nd ed. (1946), at pp. 181-182.
411
VOL. 436, AUGUST 13, 2004 411
SCRA 550, the Supreme Court held that forgery cannot be presumed; it must be proved by
clear, positive and convincing evidence.
This reasoning is pure sophistry. Any litigator worth his or her salt would never
allow an opponent’s expert witness to stand uncontradicted, thus the spectacle of
competing expert witnesses is not unusual. The trier of fact will have to decide which
version to believe, and explain why or why not such version is more credible than the
other. Reliance therefore cannot be placed merely on the fact that there are colliding
opinions of two experts, both clothed with the presumption of official duty, in order
to draw a conclusion, especially one which is extremely crucial. Doing so is
tantamount to a jurisprudential cop-out.
Much is expected from the Court of Appeals as it occupies the penultimate tier in
the judicial hierarchy. This Court has long deferred to the appellate court as to its
findings of fact in the understanding that it has the appropriate skill and competence
to plough through the minutiae that scatters the factual field. In failing to thoroughly
evaluate the evidence before it, and relying instead on presumptions haphazardly
drawn, the Court of Appeals was sadly remiss. Of course, courts, like humans, are
fallible, and not every error deserves a stern rebuke. Yet, the appellate court’s error
in this case warrants special attention, as it is absurd and even dangerous as a
precedent. If this rationale were adopted as a governing standard by every court in
the land, barely any actionable claim would prosper, defeated as it would be by the
mere invocation of the existence of a contrary “expert” opinion.
On the other hand, the RTC did adjudge the testimony of the NBI expert as more
credible than that of the PNP, and explained its reason behind the conclusion:
After subjecting the evidence of both parties to a crucible of analysis, the court arrived at
the conclusion that the testimony of the NBI document examiner is more credible because
the testimony of the PNP Crime Laboratory Services document examiner reveals that there
are a lot of differences in the questioned signature as compared to the standard specimen
signature. Furthermore, as testified to by Ms. Rhoda Flores, NBI expert, the manner of
execution of the standard signatures used reveals that it is a free rapid continuous execution
or stroke as shown by the tampering terminal stroke of the signatures whereas the
questioned signature is a hesitating slow drawn execution stroke. Clearly, the person who
exe-
412
cuted the questioned signature was hesitant when the signature was made. 30
During the testimony of PNP expert Rosario Perez, the RTC bluntly noted that
“apparently, there [are] differences on that questioned signature and the standard
signatures.” This Court, in examining the signatures, makes a similar finding. The
31
PNP expert excused the noted “differences” by asserting that they were mere
“variations,” which are normal deviations found in writing. Yet the RTC, which had
32
the opportunity to examine the relevant documents and to personally observe the
expert witness, clearly disbelieved the PNP expert. The Court similarly finds the
testimony of the PNP expert as unconvincing. During the trial, she was confronted
several times with apparent differences between strokes in the questioned signature
and the genuine samples. Each time, she would just blandly assert that these
differences were just “variations,” as if the mere conjuration of the word would
33
sufficiently disquiet whatever doubts about the deviations. Such conclusion, standing
alone, would be of little or no value unless supported by sufficiently cogent reasons
which might amount almost to a demonstration. 34
The most telling difference between the questioned and genuine signatures
examined by the PNP is in the final upward stroke in the signature, or “the point to
the short stroke of the terminal in the capital letter ‘L,’ ” as referred to by the PNP
examiner who had marked it in her comparison chart as “point no. 6.” To the plain
eye, such upward final stroke consists of a vertical line which forms a ninety degree
(90°) angle with the previous stroke. Of the twenty one (21) other genuine samples
examined by the PNP, at least nine (9) ended with an upward stroke. However, 35
unlike the questioned signature, the upward strokes of eight (8) of these signatures
are looped, while the upward stroke of the seventh 36
_______________
30 Rollo, p. 31.
32 Id., at pp. 15 and 19.
33 See TSN dated 8 October 1993, pp. 15, 17, 19, 34, 36 and 38.
34 Venuto v. Lizzo, 148 App. Div. 164, 132 N.Y. Supp. 1066 (1911), as cited in A. Osborn, supra, note 29.
35 Defendant’s Exhibits Nos. “S-1”, “S-7”, “S-8”, “S-9”, “S-10”, “S-12”, “S-14”, “S-15”, and “S-16”.
36 Defendant’s Exhibit No. “S-9”.
413
VOL. 436, AUGUST 13, 2004 413
forms a severe forty-five degree (45°) with the previous stroke. The difference is
glaring, and indeed, the PNP examiner was confronted with the inconsistency in point
no. 6.
Q: Now, in this questioned document point no. 6, the “s”
stroke is directly upwards.
A: Yes, sir.
Q: Now, can you look at all these standard signature (sic) were
(sic) point 6 is repeated or the last stroke “s” is pointing
directly upwards?
A: There is none in the standard signature, sir. 37
Again, the PNP examiner downplayed the uniqueness of the final stroke in the
questioned signature as a mere variation, the same excuse she proffered for the other
38
marked differences noted by the Court and the counsel for petitioner. 39
There is no reason to doubt why the RTC gave credence to the testimony of the
NBI examiner, and not the PNP expert’s. The NBI expert, Rhoda Flores, clearly
qualifies as an expert witness. A document examiner for fifteen years, she had been
promoted to the rank of Senior Document Examiner with the NBI, and had held that
rank for twelve years prior to her testimony. She had placed among the top five
examinees in the Competitive Seminar in Question Document Examination,
conducted by the NBI Academy, which qualified her as a document examiner. She 40
had trained with the Royal Hongkong Police Laboratory and is a member of the
International Association for Identification. As of the time she testified, she had
41
examined more than fifty to fifty-five thousand questioned documents, on an average

of fifteen to twenty documents a day. In comparison, PNP document examiner Perez
42
admitted to having examined only around five hundred documents as of her

testimony. 43
_______________

38 Id., at pp. 19 and 36.
39 Supra, note 26.
40 TSN dated 27 April 1993, p. 5.
41 Id., at p. 7.
42 Id., at pp. 7-8.
414
In analyzing the signatures, NBI Examiner Flores utilized the scientific

comparative examination method consisting of analysis, recognition, comparison and
evaluation of the writing habits with the use of instruments such as a magnifying
lense, a stereoscopic microscope, and varied lighting substances. She also prepared
enlarged photographs of the signatures in order to facilitate the necessary
comparisons. She compared the questioned signature as against ten (10) other
44
sample signatures of Jong. Five of these signatures were executed on checks

previously issued by Jong, while the other five contained in business letters Jong had
signed. The NBI found that there were significant differences in the handwriting
45
characteristics existing between the questioned and the sample signatures, as to

manner of execution, link/connecting strokes, proportion characteristics, and other
identifying details. 46
The RTC was sufficiently convinced by the NBI examiner’s testimony, and
explained her reasons in its Decisions. While the Court of Appeals disagreed and
upheld the findings of the PNP, it failed to convincingly demonstrate why such
findings were more credible than those of the NBI expert. As a throwaway, the
assailed Decision noted that the PNP, not the NBI, had the opportunity to examine
the specimen signature card signed by Jong, which was relied upon by the employees
of FEBTC in authenticating Jong’s signature. The distinction is irrelevant in
establishing forgery. Forgery can be established comparing the contested signatures
as against those of any sample signature duly established as that of the persons
whose signature was forged.
FEBTC lays undue emphasis on the fact that the PNP examiner did compare the
questioned signature against the bank signature cards. The crucial fact in question
is whether or not the check was forged, not whether the bank could have detected the
forgery. The latter issue becomes relevant only if there is need to weigh the comparative
negligence between the bank and the party whose signature was forged.
_______________
44 TSN dated 27 April 1993, pp. 18-19.

45 Id., at p. 14.
46 Per NBI Questioned Documents Report No. 244-492, Plaintiff’s Exhibit “D”.
415
VOL. 436, AUGUST 13, 2004 415
At the same time, the Court of Appeals failed to assess the effect of Jong’s
testimony that the signature on the check was not his. The assertion may seem self-
47
serving at first blush, yet it cannot be ignored that Jong was in the best position to
know whether or not the signature on the check was his. While his claim should not
be taken at face value, any averments he would have on the matter, if adjudged as
truthful, deserve primacy in consideration. Jong’s testimony is supported by the
findings of the NBI examiner. They are also backed by factual circumstances that
support the conclusion that the assailed check was indeed forged. Judicial notice can
be taken that is highly unusual in practice for a business establishment to draw a
check for close to a million pesos and make it payable to cash or bearer, and not to
order. Jong immediately reported the forgery upon its discovery. He filed the
appropriate criminal charges against Sempio, the putative forger. 48
Now for determination is whether Samsung Construction was precluded from

setting up the defense of forgery under Section 23 of the Negotiable Instruments Law.
The Court of Appeals concluded that Samsung Construction was negligent, and
invoked the doctrines that “where a loss must be borne by one of two innocent person,
can be traced to the neglect or fault of either, it is reasonable that it would be borne
by him, even if innocent of any intentional fraud, through whose means it has
succeeded or who put into the power of the third person to perpetuate the
49
wrong.” Applying these rules, the Court of Appeals determined that it was the
50
negligence of Samsung Construction that allowed the encashment of the forged check.
In the case at bar, the forgery appears to have been made possible through the acts of one
Jose Sempio III, an assistant accountant employed by the plaintiff Samsung [Construction]
Co. Philippines, Inc. who suppos-
_______________
47 See TSN dated 25 January 1993, p. 7.

48 See note 10.
49 Rollo, p. 38, citing PNB v. National City Bank of New York, 63 Phil. 711, 733 (1936), which in turn
cites Gloucester Bank v. Salem Bank, 17 Mass., 33; First Nat. Bank of Danvers vs. First National Bank of
Salem, 151 Mass., 280; and B.B. Ford & Co. v. People’s Bank of Orangeburg, 74 S.C., 180.
50 Ibid., citing PNB v. Court of Appeals, 134 Phil. 829, 834; 25 SCRA 693, 699 (1968), which in turn
cites Blondeau v. Nano, 61 Phil. 625, 631, 632 (1935).

416
edly stole the blank check and who presumably is responsible for its encashment through a
forged signature of Jong Kyu Lee. Sempio was assistant to the Korean accountant who was
in possession of the blank checks and who through negligence, enabled Sempio to have access
to the same. Had the Korean accountant been more careful and prudent in keeping the blank
checks Sempio would not have had the chance to steal a page thereof and to effect the forgery.
Besides, Sempio was an employee who appears to have had dealings with the defendant Bank
in behalf of the plaintiff corporation and on the date the check was encashed, he was there to
certify that it was a genuine check issued to purchase equipment for the company. 51
We recognize that Section 23 of the Negotiable Instruments Law bars a party from
setting up the defense of forgery if it is guilty of negligence. Yet, we are unable to
52
conclude that Samsung Construction was guilty of negligence in this case. The
appellate court failed to explain precisely how the Korean accountant was negligent
or how more care and prudence on his part would have prevented the forgery. We
cannot sustain this “tar and feathering” resorted to without any basis.
The bare fact that the forgery was committed by an employee of the party whose
signature was forged cannot necessarily imply that such party’s negligence was the
cause for the forgery. Employers do not possess the preternatural gift of cognition as
to the evil that may lurk within the hearts and minds of their employees. The Court’s
pronouncement in PCI Bank v. Court of Appeals applies in this case, to wit:
53
[T]he mere fact that the forgery was committed by a drawer-payor’s confidential employee or
agent, who by virtue of his position had unusual facilities for perpetrating the fraud and
imposing the forged paper upon the bank, does not entitle the bank to shift the loss to the
drawer-payor, in the absence of some circumstance raising estoppel against the drawer. 54
Admittedly, the record does not clearly establish what measures Samsung
Construction employed to safeguard its blank checks.
_______________
51 Rollo, p. 38.
52 MWSS v. Court of Appeals, G.R. No. L-62943, 14 July 1986, 143 SCRA 20, 31.
53 G.R. Nos. 121413, 121479 and 128604, 29 January 2001, 350 SCRA 446.
54 Ibid., at p. 465.
417
VOL. 436, AUGUST 13, 2004 417
Jong did testify that his accountant, Kyu, kept the checks inside a “safety box,” and55
no contrary version was presented by FEBTC. However, such testimony cannot prove
that the checks were indeed kept in a safety box, as Jong’s testimony on that point is
hearsay, since Kyu, and not Jong, would have the personal knowledge as to how the
checks were kept.
Still, in the absence of evidence to the contrary, we can conclude that there was no
negligence on Samsung Construction’s part. The presumption remains that every
person takes ordinary care of his concerns, and that the ordinary course of business
56
has been followed. Negligence is not presumed, but must be proven by him who
57
alleges it. While the complaint was lodged at the instance of Samsung Construction,
58
the matter it had to prove was the claim it had alleged—whether the check was
forged. It cannot be required as well to prove that it was not negligent, because the
legal presumption remains that ordinary care was employed.
Thus, it was incumbent upon FEBTC, in defense, to prove the negative fact that
Samsung Construction was negligent. While the payee, as in this case, may not have
the personal knowledge as to the standard procedures observed by the drawer, it well
has the means of disputing the presumption of regularity. Proving a negative fact
may be “a difficult office,” but necessarily so, as it seeks to overcome a presumption
59
in law. FEBTC was unable to dispute the presumption of ordinary care exercised by
Samsung Construction, hence we cannot agree with the Court of Appeals’ finding of
negligence.
The assailed Decision replicated the extensive efforts which FEBTC devoted to
establish that there was no negligence on the part of the bank in its acceptance and
payment of the forged check. However, the degree of diligence exercised by the bank
would be irrelevant if the drawer is not precluded from setting up the defense of
forgery under Section 23 by his own negligence. The rule of
_______________
55 TSN dated 25 January 1993, pp. 19, 31.

56 See Section 3(d), Rule 131, Rules of Court.
57 See Section 3(q), Rule 131, Rules of Court.
58 Taylor v. Manila Electric Railroad, 16 Phil. 8, 28 (1910), citing Scaevola, Jurisprudencia del Codigo
Civil, vol. 6, 551, 552.

59 US v. Tria, 17 Phil. 303, 307 (1910).
418
equity enunciated in PNB v. National City Bank of New York, as relied upon by the 60
Court of Appeals, deserves careful examination.

The point in issue has sometimes been said to be that of negligence. The drawee who
has paid upon the forged signature is held to bear the loss, because he has been
negligent in failing to recognize that the handwriting is not that of his
customer. But it follows obviously that if the payee, holder, or presenter of the forged paper
has himself been in default, if he has himself been guilty of a negligence prior to that of the
banker, or if by any act of his own he has at all contributed to induce the banker’s negligence,
then he may lose his right to cast the loss upon the banker. (Emphasis supplied)
61
Quite palpably, the general rule remains that the drawee who has paid upon the
forged signature bears the loss. The exception to this rule arises only when negligence
can be traced on the part of the drawer whose signature was forged, and the need
arises to weigh the comparative negligence between the drawer and the drawee to
determine who should bear the burden of loss. The Court finds no basis to conclude
that Samsung Construction was negligent in the safekeeping of its checks. For one,
the settled rule is that the mere fact that the depositor leaves his check book lying
around does not constitute such negligence as will free the bank from liability to him,
where a clerk of the depositor or other persons, taking advantage of the opportunity,
abstract some of the check blanks, forges the depositor’s signature and collect on the
checks from the bank. And for another, in point of fact Samsung Construction was
62
not negligent at all since it reported the forgery almost immediately upon discovery. 63
_______________
60 63 Phil. 711 (1936).

61 Id., at p. 740; citing 2 Morse on Banks and Banking, 5th ed., secs. 464 and 466, pp. 82-85 and 86, 87.
62 BRADY, J.E., THE LAW OF FORGED AND ALTERED CHECKS, supra, note 24, at 24-27;
citing MacIntosh v. Bank, 123 Mass. 393; East St. Louis Cotton Oil Co. v. Bank of Steele, Mo., 205 S.W. Rep.
96.
63 “For his failure or negligence either to discover or to report promptly the fact of such forgery to the
drawee, the drawer loses his right against the drawee who has debited his account under the forged indorse-
ment.” Gempesaw v. Court of Appeals, G.R. No. 92244, 9 February 1993, 218 SCRA 682,
690; citing American jurisprudence. “A bank may escape liability where the depositor’s negligence consists
of failure to properly examine his bank statements and cancelled checks and failure to notify
419
VOL. 436, AUGUST 13, 2004 419
It is also worth noting that the forged signatures in PNB v. National City Bank of
New York were not of the drawer, but of indorsers. The same circumstance
attends PNB v. Court of Appeals, which was also cited by the Court of Appeals. It is
64
accepted that a forged signature of the drawer differs in treatment than a forged
signature of the indorser.
The justification for the distinction between forgery of the signature of the drawer and
forgery of an indorsement is that the drawee is in a position to verify the drawer’s signature
by comparison with one in his hands, but has ordinarily no opportunity to verify an
indorsement. 65
Thus, a drawee bank is generally liable to its depositor in paying a check which bears
either a forgery of the drawer’s signature or a forged indorsement. But the bank may, as a
general rule, recover back the money which it has paid on a check bearing a forged
indorsement, whereas it has not this right to the same extent with reference to a check
bearing a forgery of the drawer’s signature. 66
The general rule imputing liability on the drawee who paid out on the forgery holds
in this case.
Since FEBTC puts into issue the degree of care it exercised before paying out on
the forged check, we might as well comment on the bank’s performance of its duty. It
might be so that the bank complied with its own internal rules prior to paying out on
the questionable check. Yet, there are several troubling circumstances that lead us to
believe that the bank itself was remiss in its duty.
The fact that the check was made out in the amount of nearly one million pesos is
unusual enough to require a higher degree of caution on the part of the bank. Indeed,
FEBTC confirms this through its own internal procedures. Checks below twenty-five
thousand pesos require only the approval of the teller; those between twenty-five
thousand to one hundred thousand pesos necessitate the approval of one bank officer;
and should the amount exceed one hundred thousand pesos, the concurrence of two
bank officers is required. 67
_______________
the bank of forgery within a reasonable time.” H. Bailey, supra, note 28, at p. 477. But see note 24.
64 G.R. No. L-26001, 29 October 1968, 25 SCRA 693.
65 Farnsworth, E.A., supra note 22, at p. 173.

Brady, J.E., supra, note 24, at p. 5.
66
See TSN dated 12 July 1993, p. 8.

67
420
In this case, not only did the amount in the check nearly total one million pesos, it
was also payable to cash. That latter circumstance should have aroused the suspicion
of the bank, as it is not ordinary business practice for a check for such large amount
to be made payable to cash or to bearer, instead of to the order of a specified
person. Moreover, the check was presented for payment by one Roberto Gonzaga,
68
who was not designated as the payee of the check, and who did not carry with him
any written proof that he was authorized by Samsung Construction to encash the
check. Gonzaga, a stranger to FEBTC, was not even an employee of Samsung
Construction. These circumstances are already suspicious if taken independently,
69
much more so if they are evaluated in concurrence. Given the shadiness attending
Gonzaga’s presentment of the check, it was not sufficient for FEBTC to have merely
complied with its internal procedures, but mandatory that all earnest efforts be
undertaken to ensure the validity of the check, and of the authority of Gonzaga to
collect payment therefor.
According to FEBTC Senior Assistant Cashier Gemma Velez, the bank tried, but
failed, to contact Jong over the phone to verify the check. She added that calling the
70
issuer or drawer of the check to verify the same was not part of the standard
procedure of the bank, but an “extra effort.” Even assuming that such personal
71
verification is tantamount to extraordinary diligence, it cannot be denied that FEBTC

still paid out the check despite the absence of any proof of verification from the
drawer. Instead, the bank seems to have relied heavily on the say-so of Sempio, who
was present at the bank at the time the check was presented.
_______________
68 “When the instrument is payable to order the payee must be named or otherwise indicated therein
with reasonable certainty.” Sec. 8, Act No. 2031 (Negotiable Instruments Law). Worthy of note is the fact
that a check payable to bearer is more likely to be forged than one that is payable to order. The unofficial
essence of bearer check is that anyone who possesses or holds it can indorse or receive payment for it which
implies that payment is not limited to a particular person. See Nickles, S.H., Matheson, J.H., and Adams,
E.S., Modern Commercial Paper: The New Law of Negotiable Instruments and Related Commercial Paper
(1994), at p. 61.
69 See TSN dated 26 July 1993, p. 18.
70 See TSN dated 12 July 1993, p. 11.
71 Ibid.
421
VOL. 436, AUGUST 13, 2004 421
FEBTC alleges that Sempio was well-known to the bank officers, as he had
regularly transacted with the bank in behalf of Samsung Construction. It was even
claimed that everytime FEBTC would contact Jong about problems with his account,
Jong would hand the phone over to Sempio. However, the only proof of such
72
allegations is the testimony of Gemma Velez, who also testified that she did not know
Sempio personally, and had met Sempio for the first time only on the day the check
73
was encashed. In fact, Velez had to inquire with the other officers of the bank as to
74
whether Sempio was actually known to the employees of the bank. Obviously, Velez
75
had no personal knowledge as to the past relationship between FEBTC and Sempio,
and any averments of her to that effect should be deemed hearsay evidence.
Interestingly, FEBTC did not present as a witness any other employee of their Bel-
Air branch, including those who supposedly had transacted with Sempio before.
Even assuming that FEBTC had a standing habit of dealing with Sempio, acting
in behalf of Samsung Construction, the irregular circumstances attending the
presentment of the forged check should have put the bank on the highest degree of
alert. The Court recently emphasized that the highest degree of care and diligence is
required of banks.
Banks are engaged in a business impressed with public interest, and it is their duty to
protect in return their many clients and depositors who transact business with them. They
have the obligation to treat their client’s account meticulously and with the highest degree
of care, considering the fiduciary nature of their relationship. The diligence required of banks,
therefore, is more than that of a good father of a family. 76
Given the circumstances, extraordinary diligence dictates that FEBTC should

have ascertained from Jong personally that the signature in the questionable check
was his.
_______________
72 Id., at p. 17.
73 Id., at p. 18.
74 TSN dated 26 July 1993, p. 3.
75 Id., at p. 6.
76 Westmont Bank v. Ong, G.R. No. 132560, 30 January 2002, 375 SCRA 212, 220-221.
422
Still, even if the bank performed with utmost diligence, the drawer whose
signature was forged may still recover from the bank as long as he or she is not
precluded from setting up the defense of forgery. After all, Section 23 of the
Negotiable Instruments Law plainly states that no right to enforce the payment of a
check can arise out of a forged signature. Since the drawer, Samsung Construction,
is not precluded by negligence from setting up the forgery, the general rule should
apply. Consequently, if a bank pays a forged check, it must be considered as paying
out of its funds and cannot charge the amount so paid to the account of the
depositor. A bank is liable, irrespective of its good faith, in paying a forged check.
77 78
WHEREFORE, the Petition is GRANTED. The Decision of the Court of Appeals

dated 28 November 1996 is REVERSED, and the Decision of the Regional Trial Court
of Manila, Branch 9, dated 25 April 1994 is REINSTATED. Costs against respondent.
SO ORDERED.
Puno (Chairman), Austria-Martinez, Callejo, Sr. and Chico-Nazario,
JJ., concur.
Petition granted, judgment reversed. That of the court a quo reinstated.
Note.—Issue of whether a party is negligent is a question of fact. (Thermochem

Incorporated vs. Naval, 344 SCRA 76 [2000])
G.R. No. 107382. January 31, 1996. *
ASSOCIATED BANK, petitioner, vs. HON. COURT OF APPEALS, PROVINCE OF

TARLAC and PHILIPPINE NATIONAL BANK, respondents.
G.R. No. 107612. January 31, 1996. *
PHILIPPINE NATIONAL BANK, petitioner, vs. HONORABLE COURT OF

APPEALS, PROVINCE OF TARLAC, and ASSOCIATED BANK, respondents.
Commercial Law; Negotiable Instruments Law; Forgery; A person whose signature to an
instrument was forged was never a party and never consented to the contract which allegedly
gave rise to such instrument.—A forged signature, whether it be that of the drawer or the
payee, is wholly inoperative and no one can gain title to the instrument through it. A person
whose signature to an instrument was forged was never a party and never consented to the
contract which allegedly gave rise to such instrument. Section 23 does not avoid the
instrument but only the forged signature. Thus, a forged indorsement does not operate as the
payee’s indorsement.
Same; Same; Same; Parties who warrant or admit the genuineness of the signature in
question and those who, by their acts, silence or negligence are estopped from setting up the
defense of forgery, are precluded from using this defense.—The exception to the general rule
in Section 23 is where “a party against whom it is sought to enforce a right is precluded from
setting up the forgery or want of authority.” Parties who warrant or admit the genuineness
of the signature in question and those who, by their acts, silence or negligence are estopped
from setting up the defense of forgery, are precluded from using this defense. Indorsers,
persons negotiating by delivery and acceptors are warrantors of the genuineness of the
signatures on the instrument.
Same; Same; Same; When the indorsement is a forgery, only the person whose signature
is forged can raise the defense of forgery against a holder in due course.—In bearer
instruments, the signa-
____________________________
*SECOND DIVISION.
621
VOL. 252, JANUARY 31, 1996 621
Associated Bank vs. Court of Appeals
ture of the payee or holder is unnecessary to pass title to the instrument. Hence, when
the indorsement is a forgery, only the person whose signature is forged can raise the defense
of forgery against a holder in due course.
Same; Same; Same; When the holder’s indorsement is forged, all parties prior to the
forgery may raise the real defense of forgery against all parties subsequent thereto.—Where
the instrument is payable to order at the time of the forgery, such as the checks in this case,
the signature of its rightful holder (here, the payee hospital) is essential to transfer title to
the same instrument. When the holder’s indorsement is forged, all parties prior to the forgery
may raise the real defense of forgery against all parties subsequent thereto.
Same; Same; Same; Indorser cannot interpose the defense that signatures prior to him
are forged.—An indorser of an order instrument warrants “that the instrument is genuine
and in all respects what it purports to be; that he has a good title to it; that all prior parties
had capacity to contract; and that the instrument is at the time of his indorsement valid and
subsisting.” He cannot interpose the defense that signatures prior to him are forged.
Same; Same; Same; A collecting bank where a check is deposited and which indorses the
check upon presentment with the drawee bank is such an indorser.—A collecting bank where
a check is deposited and which indorses the check upon presentment with the drawee bank,
is such an indorser. So even if the indorsement on the check deposited by the bank’s client is
forged, the collecting bank is bound by his warranties as an indorser and cannot set up the
defense of forgery as against the drawee bank.
Same; Same; Same; Payment under a forged indorsement is not to the drawer’s order.—
The bank on which a check is drawn, known as the drawee bank, is under strict liability to
pay the check to the order of the payee. The drawer’s instructions are reflected on the face
and by the terms of the check. Payment under a forged indorsement is not to the drawer’s
order. When the drawee bank pays a person other than the payee, it does not comply with
the terms of the check and violates its duty to charge its customer’s (the drawer) account only
for properly payable items. Since the drawee bank did not pay a holder or other person
entitled to receive payment, it has no right to reimbursement from the drawer. The general
rule then is that the drawee bank may not debit the drawer’s account and is not
622
entitled to indemnification from the drawer. The risk of loss must perforce fall on the
drawee bank.
Same; Same; Same; Drawer is precluded from asserting forgery where the drawee bank
can prove a failure by the customer/drawer to exercise ordinary care that substantially
contributed to the making of the forged signature.—However, if the drawee bank can prove a
failure by the customer/drawer to exercise ordinary care that substantially contributed to the
making of the forged signature, the drawer is precluded from asserting the forgery.
Same; Same; Same; Drawee bank can seek reimbursement or a return of the amount it
paid from the presentor bank or person.—In cases involving checks with forged indorsements,
such as the present petition, the chain of liability does not end with the drawee bank. The
drawee bank may not debit the account of the drawer but may generally pass liability back
through the collection chain to the party who took from the forger and, of course, to the forger
himself, if available. In other words, the drawee bank can seek reimbursement or a return of
the amount it paid from the presentor bank or person. Theoretically, the latter can demand
reimbursement from the person who indorsed the check to it and so on. The loss falls on the
party who took the check from the forger, or on the forger himself.
Same; Same; Same; 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.—More importantly, by reason of the statutory warranty of a general
indorser in Section 66 of the Negotiable Instruments Law, a collecting bank which indorses
a check bearing a forged indorsement and presents it to the drawee bank guarantees all prior
indorsements, including the forged indorsement. It warrants that the instrument is genuine,
and that it is valid and subsisting at the time of his indorsement. Because the indorsement
is a forgery, the collecting bank commits a breach of this warranty and will be accountable to
the drawee bank.
Same; Same; Same; Drawee banks not similarly situated as the collecting bank.—The
drawee bank is not similarly situated as the collecting bank because the former makes no
warranty as to the genuineness of any indorsement. The drawee bank’s duty is but to
623
VOL. 252, JANUARY 31, 1996 623
verify the genuineness of the drawer’s signature and not of the indorsement because the
drawer is its client.
Same; Same; Same; Drawee bank has the duty to promptly inform the presentor of the
forgery upon discovery.—Hence, the drawee bank can recover the amount paid on the check
bearing a forged indorsement from the collecting bank. However, a drawee bank has the duty
to promptly inform the presentor of the forgery upon discovery. If the drawee bank delays in
informing the presentor of the forgery, thereby depriving said presentor of the right to recover
from the forger, the former is deemed negligent and can no longer recover from the presentor.
Same; Same; Same; Rule mandates that the checks be returned within twenty-four hours
after discovery of the forgery but in no event beyond the period fixed by law for filing a legal
action.—The rule mandates that the checks be returned within twenty-four hours after
discovery of the forgery but in no event beyond the period fixed by law for filing a legal action.
The rationale of the rule is to give the collecting bank (which indorsed the check) adequate
opportunity to proceed against the forger. If prompt notice is not given, the collecting bank
may be prejudiced and lose the opportunity to go after its depositor.
PETITIONS for review of a decision of the Court of Appeals.

Jose A. Soluta, Jr. and Associates for Associated Bank.
Santiago, Jr., Vidad, Corpus & Associates for Philippine National Bank.
ROMERO, J.:
Where thirty checks bearing forged endorsements are paid, who bears the loss, the
drawer, the drawee bank or the collecting bank?
This is the main issue in these consolidated petitions for review assailing the
decision of the Court of Appeals in “Province of Tarlac v. Philippine National Bank v.
Associated Bank v. Fausto Pangilinan, et al.” (CA-G.R. No. CV No.
624
17962). 1
The facts of the case are as follows:

The Province of Tarlac maintains a current account with the Philippine National
Bank (PNB) Tarlac Branch where the provincial funds are deposited. Checks issued
by the Province are signed by the Provincial Treasurer and countersigned by the
Provincial Auditor or the Secretary of the Sangguniang Bayan.
A portion of the funds of the province is allocated to the Concepcion Emergency
Hospital. The allotment checks for said government hospital are drawn to the order
2
of “Concepcion Emergency Hospital, Concepcion, Tarlac” or “The Chief, Concepcion

Emergency Hospital, Concepcion, Tarlac.” The checks are released by the Office of
the Provincial Treasurer and received for the hospital by its administrative officer
and cashier.
In January 1981, the books of account of the Provincial Treasurer were post-
audited by the Provincial Auditor. It was
____________________________
1 Penned by Justice Asaali S. Isnani, with Associate Justices Arturo S. Buena and Ricardo P. Galvez,
concurring, dated September 30, 1992. Rollo, p. 22.

2 Provincial aid was given irregularly. Hospital staff would often call the provincial treasurer’s office to
inquire whether there was an allotment check for the hospital. The hospital’s administrative officer and
cashier would then go to the provincial treasurer’s office to pick up the check.
Checks received by the hospital are deposited in the account of the National Treasury with the PNB. All
income of the hospital in excess of the amount which the National Government has directed it to raise, is
excess income. The latter is given back to the hospital after a supplemental budget is prepared. When the
latter is approved, an advice of allotment is made. Then the hospital requests a cash disbursement ceiling.
When approved, this is brought to the Ministry of Health. The regional office of said Ministry then prepares
a check for the hospital. The check will be deposited in the hospital’s current account at the PNB. (Culled
from the testimony of Dr. Adena Canlas, TSN, October 17, 1983, pp. 8-11; December 6, 1983, pp. 43-44.)
625
VOL. 252, JANUARY 31, 1996 625
then discovered that the hospital did not receive several allotment checks drawn by
the Province.
On February 19, 1981, the Provincial Treasurer requested the manager of the PNB
to return all of its cleared checks which were issued from 1977 to 1980 in order to
verify the regularity of their encashment. After the checks were examined, the
Provincial Treasurer learned that 30 checks amounting to P203,300.00 were
encashed by one Fausto Pangilinan, with the Associated Bank acting as collecting
bank.
It turned out that Fausto Pangilinan, who was the administrative officer and
cashier of payee hospital until his retirement on February 28, 1978, collected the
questioned checks from the office of the Provincial Treasurer. He claimed to be
assisting or helping the hospital follow up the release of the checks and had official
receipts. Pangilinan sought to encash the first check with Associated Bank.
3 4
However, the manager of Associated Bank refused and suggested that Pangilinan
deposit the check in his personal savings account with the same bank. Pangilinan
was able to withdraw the money when the check was cleared and paid by the drawee
bank, PNB.
After forging the signature of Dr. Adena Canlas who was chief of the payee
hospital, Pangilinan followed the same procedure for the second check, in the amount
of P5,000.00 and dated April 20, 1978, as well as for twenty-eight other checks of
5
various amounts and on various dates. The last check negotiated by Pangilinan was
for P8,000.00 and dated February 10, 1981. All the checks bore the stamp of
6
Associated Bank which reads “All prior endorsements guaranteed ASSOCIATED

BANK.”
Jesus David, the manager of Associated Bank testified that Pangilinan made it
appear that the checks were paid to him for certain projects with the hospital. He did 7
not find as
____________________________
3 TSN, March 13, 1984, pp. 51-60.

4 Check No. 530863 K, dated January 17, 1978 for P10,000.00.
5 Check No. 526788 K.
6 Check No. 391351 L.
7 TSN, July 10, 1985, pp. 14-15.
626
irregular the fact that the checks were not payable to Pangilinan but to the
Concepcion Emergency Hospital. While he admitted that his wife and Pangilinan’s
wife are first cousins, the manager denied having given Pangilinan preferential
treatment on this account. 8
On February 26, 1981, the Provincial Treasurer wrote the manager of the PNB
seeking the restoration of the various amounts debited from the current account of
the Province. In turn, the PNB manager demanded reimbursement from the
9
Associated Bank on May 15, 1981. 10
As both banks resisted payment, the Province of Tarlac brought suit against PNB
which, in turn, impleaded Associated Bank as third-party defendant. The latter then
filed a fourth-party complaint against Adena Canlas and Fausto Pangilinan. 11
After trial on the merits, the lower court rendered its decision on March 21, 1988,
disposing as follows:
“WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1. 1.On the basic complaint, in favor of plaintiff Province of Tarlac and against defendant
Philippine National Bank (PNB), ordering the latter to pay to the former, the sum of
Two Hundred
____________________________
8 TSN, July 10, 1985, pp. 20-21, 34-35; September 24, 1985.
9 Exhibit FF for Province of Tarlac. On March 20, 1981, the Province of Tarlac reiterated its request in another
letter to PNB. Associated Bank was allegedly furnished with a copy of this letter. (Records, pp. 246-247) PNB
requested the Province to return the checks in a letter dated March 31, 1981. The checks were returned to PNB
on April 22, 1981. (Exhibit GG) On April 24, 1981, PNB gave the checks to Associated Bank. (Exhibit 5) Associated
Bank returned the checks to PNB on April 28, 1981, along with a letter stating its refusal to return the money
paid by PNB. (Exhibit 6)
10 Exhibit “MM” for Province of Tarlac.
11 Civil Case No. 6227, “Province of Tarlac v. Philippine National Bank; Philippine National Bank v. Associated
Bank; Associated Bank v. Fausto Pangilinan and Adena G. Canlas,” Regional Trial Court Branch 64, Tarlac,
Tarlac.
627
VOL. 252, JANUARY 31, 1996 627
1. Three Thousand Three Hundred (P203,300.00) Pesos with legal interest thereon from
March 20, 1981 until fully paid;
2. 2.On the third-party complaint, in favor of defendant/third-party plaintiff Philippine
National Bank (PNB) and against third-party defendant/fourth-party plaintiff
Associated Bank ordering the latter to reimburse to the former the amount of Two
Hundred Three Thousand Three Hundred (P203,300.00) Pesos with legal interests
thereon from March 20, 1981 until fully paid;
3. 3.On the fourth-party complaint, the same is hereby ordered dismissed for lack of
cause of action as against fourth-party defendant Adena Canlas and lack of
jurisdiction over the person of fourth-party defendant Fausto Pangilinan as against
the latter.
4. 4.On the counterclaims on the complaint, third-party complaint and fourth-party
complaint, the same are hereby ordered dismissed for lack of merit.
SO ORDERED.” 12
PNB and Associated Bank appealed to the Court of Appeals. Respondent court 13
affirmed the trial court’s decision in toto on September 30, 1992.

Hence these consolidated petitions which seek a reversal of respondent appellate
court’s decision.
PNB assigned two errors. First, the bank contends that respondent court erred in
exempting the Province of Tarlac from liability when, in fact, the latter was negligent
because it delivered and released the questioned checks to Fausto Pangilinan who
was then already retired as the hospital’s cashier and administrative officer. PNB
also maintains its innocence and alleges that as between two innocent persons, the
one whose act was the cause of the loss, in this case the Province of Tarlac, bears the
loss.
Next, PNB asserts that it was error for the court to order it to pay the province
and then seek reimbursement from Associated Bank. According to petitioner bank,
respondent appellate court should have directed Associated Bank to pay the adjudged
liability directly to the Province of Tarlac to
____________________________
Penned by Judge Arturo U. Barias, Jr., Rollo, pp. 391-392.

12
CA-G.R. CV No. 17962.

13
628
avoid circuity. 14
Associated Bank, on the other hand, argues that the order of liability should be
totally reversed, with the drawee bank (PNB) solely and ultimately bearing the loss.
Respondent court allegedly erred in applying Section 23 of the Philippine Clearing
House Rules instead of Central Bank Circular No. 580, which, being an
administrative regulation issued pursuant to law, has the force and effect of law. The 15
PCHC Rules are merely contractual stipulations among and between member-banks.
As such, they cannot prevail over the aforesaid CB Circular.
It likewise contends that PNB, the drawee bank, is estopped from asserting the
defense of guarantee of prior indorsements against Associated Bank, the collecting
bank. In stamping the guarantee (for all prior indorsements), it merely followed a
mandatory requirement for clearing and had no choice but to place the stamp of
guarantee; otherwise, there would be no clearing. The bank will be in a “no-win”
situation and will always bear the loss as against the drawee bank. 16
Associated Bank also claims that since PNB already cleared and paid the value of
the forged checks in question, it is now estopped from asserting the defense that
Associated Bank guaranteed prior indorsements. The drawee bank allegedly has the
primary duty to verify the genuineness of payee’s indorsement before paying the
check. 17
While both banks are innocent of the forgery, Associated Bank claims that PNB
was at fault and should solely bear the loss because it cleared and paid the forged
checks.
***
The case at bench concerns checks payable to the order of Concepcion Emergency
Hospital or its Chief. They were prop-
____________________________
14 Petition, pp. 6-7; Rollo, pp. 13-14, G.R. No. 107612.

15 Citing Antique Sawmills, Inc. v. Zayco, 17 SCRA 316, et al., Petition, p. 9, Rollo, p. 10.
16 Associated Bank’s Petition, p. 13.
17 Id., at 12.
629
VOL. 252, JANUARY 31, 1996 629
erly issued and bear the genuine signatures of the drawer, the Province of Tarlac.
The infirmity in the questioned checks lies in the payee’s (Concepcion Emergency
Hospital) indorsements which are forgeries. At the time of their indorsement, the
checks were order instruments.
Checks having forged indorsements should be differentiated from forged checks or
checks bearing the forged signature of the drawer.
Section 23 of the Negotiable Instruments Law (NIL) provides:
Sec. 23. FORGED SIGNATURE, EFFECT OF.—When a signature is forged or made without
authority of the person whose signature it purports to be, it is wholly inoperative, and no
right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof
against any party thereto, can be acquired through or under such signature unless the party
against whom it is sought to enforce such right is precluded from setting up the forgery or
want of authority.
A forged signature, whether it be that of the drawer or the payee, is wholly
inoperative and no one can gain title to the instrument through it. A person whose
signature to an instrument was forged was never a party and never consented to the
contract which allegedly gave rise to such instrument. Section 23 does not avoid the
18
instrument but only the forged signature. Thus, a forged indorsement does not
19
operate as the payee’s indorsement.

The exception to the general rule in Section 23 is where “a party against whom it
is sought to enforce a right is precluded from setting up the forgery or want of
authority.” Parties who warrant or admit the genuineness of the signature in
question and those who, by their acts, silence or negligence are es-
____________________________
J. CAMPOS & M. LOPEZ-CAMPOS, NEGOTIABLE INSTRUMENTS LAW, 227-230 (4th ed., 1990).
18
I A. AGBAYANI, COMMENTARIES AND JURISPRUDENCE ON THE COMMERCIAL LAWS OF

19
THE PHILIPPINES 198 (1989 ed.).

630
topped from setting up the defense of forgery, are precluded from using this defense.
Indorsers, persons negotiating by delivery and acceptors are warrantors of the
genuineness of the signatures on the instrument. 20
In bearer instruments, the signature of the payee or holder is unnecessary to pass

title to the instrument. Hence, when the indorsement is a forgery, only the person
whose signature is forged can raise the defense of forgery against a holder in due
course. 21
The checks involved in this case are order instruments, hence, the following
discussion is made with reference to the effects of a forged indorsement on an
instrument payable to order.
Where the instrument is payable to order at the time of the forgery, such as the
checks in this case, the signature of its rightful holder (here, the payee hospital) is
essential to transfer title to the same instrument. When the holder’s indorsement is
forged, all parties prior to the forgery may raise the real defense of forgery against
all parties subsequent thereto. 22
An indorser of an order instrument warrants “that the instrument is genuine and

in all respects what it purports to be; that he has a good title to it; that all prior parties
had capacity to contract; and that the instrument is at the time of his indorsement
valid and subsisting.” He cannot interpose the defense that signatures prior to him
23
are forged.
A collecting bank where a check is deposited and which indorses the check upon
presentment with the drawee bank, is such an indorser. So even if the indorsement
on the check deposited by the bank’s client is forged, the collecting bank is
____________________________
20 Id., at 199.
21 J. VITUG, PANDECT OF COMMERCIAL LAW AND JURISPRUDENCE 51-53 (Rev. ed., 1990).
22 Id.
23 Section 66, Negotiable Instruments Law.
631
VOL. 252, JANUARY 31, 1996 631
bound by his warranties as an indorser and cannot set up the defense of forgery as
against the drawee bank.
The bank on which a check is drawn, known as the drawee bank, is under strict
liability to pay the check to the order of the payee. The drawer’s instructions are
reflected on the face and by the terms of the check. Payment under a forged
indorsement is not to the drawer’s order. When the drawee bank pays a person other
than the payee, it does not comply with the terms of the check and violates its duty
to charge its customer’s (the drawer) account only for properly payable items. Since
the drawee bank did not pay a holder or other person entitled to receive payment, it
has no right to reimbursement from the drawer. The general rule then is that the
24
drawee bank may not debit the drawer’s account and is not entitled to indemnification
from the drawer. The risk of loss must perforce fall on the drawee bank.
25
However, if the drawee bank can prove a failure by the customer/drawer to exercise
ordinary care that substantially contributed to the making of the forged signature,
the drawer is precluded from asserting the forgery.
If at the same time the drawee bank was also negligent to the point of substantially
contributing to the loss, then such loss from the forgery can be apportioned between
the negligent drawer and the negligent bank. 26
In cases involving a forged check, where the drawer’s signature is forged, the
drawer can recover from the drawee
____________________________
24 S. NICKLES, NEGOTIABLE INSTRUMENTS AND OTHER RELATED COMMERCIAL PAPER 416

(2nd ed., 1993).
25 Great Eastern Life Insurance Co. v. Hongkong and Shanghai Banking Corp., 43 Phil. 678; Banco de
Oro Savings and Mortgage Bank v. Equitable Banking Corporation, G.R. No. L-74917, January 20,
1988, 157 SCRA 188; CAMPOS & LOPEZ-CAMPOS, op. cit. note 18 at 283, citing La Fayette v. Merchants
Bank, 73 Ark 561; Wills v. Barney, 22 Cal 240; Wellington National Bank v. Robbins, 71 Kan 748.
26 R. JORDAN & W. WARREN, NEGOTIABLE INSTRUMENTS AND LETTERS OF CREDIT 216
(1992).
632
bank. No drawee bank has a right to pay a forged check. If it does, it shall have to
recredit the amount of the check to the account of the drawer. The liability chain ends
with the drawee bank whose responsibility it is to know the drawer’s signature since
the latter is its customer. 27
In cases involving checks with forged indorsements, such as the present petition,
the chain of liability does not end with the drawee bank. The drawee bank may not
debit the account of the drawer but may generally pass liability back through the
collection chain to the party who took from the forger and, of course, to the forger
himself, if available. In other words, the drawee bank can seek reimbursement or a
28
return of the amount it paid from the presentor bank or person. Theoretically, the 29
latter can demand reimbursement from the person who indorsed the check to it and
so on. The loss falls on the party who took the check from the forger, or on the forger
himself.
In this case, the checks were indorsed by the collecting bank (Associated Bank) to
the drawee bank (PNB). The former will necessarily be liable to the latter for the
checks bearing forged indorsements. If the forgery is that of the payee’s or holder’s
indorsement, the collecting bank is held liable, without prejudice to the latter
proceeding against the forger.
Since a forged indorsement is inoperative, the collecting bank had no right to be
paid by the drawee bank. The former must necessarily return the money paid by the
latter because it was paid wrongfully. 30
____________________________
27 Id.
28 Id., at 216-235; VITUG, op. cit. note 21 at 53.
29 Banco de Oro v. Equitable Banking Corp., supra; Great Eastern Life Insurance Co. v. HSBC, supra.
30 Article 2154 of the Civil Code provides: “If something is received when there is no right to demand it,
and it was unduly delivered through mistake, the obligation to return it arises.” Banco de Oro v. Equitable
Banking Corp., supra.
633
VOL. 252, JANUARY 31, 1996 633
More importantly, by reason of the statutory warranty of a general indorser in
Section 66 of the Negotiable Instruments Law, a collecting bank which indorses a
check bearing a forged indorsement and presents it to the drawee bank guarantees
all prior indorsements, including the forged indorsement. It warrants that the
instrument is genuine, and that it is valid and subsisting at the time of his
indorsement. Because the indorsement is a forgery, the collecting bank commits a
breach of this warranty and will be accountable to the drawee bank. This liability
scheme operates without regard to fault on the part of the collecting/presenting bank.
Even if the latter bank was not negligent, it would still be liable to the drawee bank
because of its indorsement.
The Court has consistently ruled that “the collecting bank or last endorser
generally suffers the loss because it has the duty to ascertain the genuineness of all
prior endorsements considering that the act of presenting the check for payment to
the drawee is an assertion that the party making the presentment had done its duty
to ascertain the genuineness of the endorsements.” 31
The drawee bank is not similarly situated as the collecting bank because the
former makes no warranty as to the genuineness of any indorsement. The drawee 32
bank’s duty is but to verify the genuineness of the drawer’s signature and not of the
indorsement because the drawer is its client.
Moreover, the collecting bank is made liable because it is privy to the depositor
who negotiated the check. The bank knows him, his address and history because he
is a client. It has taken a risk on his deposit. The bank is also in a better position to
detect forgery, fraud or irregularity in the indorsement.
____________________________
31 Bank of the Phil. Islands v. CA, G.R. No. 102383, November 26, 1992, 216 SCRA 51, 63 citing Banco
de Oro v. Equitable Banking Corp., supra; Great Eastern Life Insurance Co. v. HSBC, supra.
32 CAMPOS & LOPEZ-CAMPOS, op. cit. note 18 at 283 citing Inter-state Trust Co. v. U.S. National
Bank, 185 Pac. 260; Hongkong and Shanghai Banking Corp. v. People’s Bank and Trust Co., supra.
634
Hence, the drawee bank can recover the amount paid on the check bearing a forged
indorsement from the collecting bank. However, a drawee bank has the duty to
promptly inform the presentor of the forgery upon discovery. If the drawee bank
delays in informing the presentor of the forgery, thereby depriving said presentor of
the right to recover from the forger, the former is deemed negligent and can no longer
recover from the presentor. 33
Applying these rules to the case at bench, PNB, the drawee bank, cannot debit the
current account of the Province of Tarlac because it paid checks which bore forged
indorsements. However, if the Province of Tarlac as drawer was negligent to the point
of substantially contributing to the loss, then the drawee bank PNB can charge its
account. If both drawee bank-PNB and drawer-Province of Tarlac were negligent, the
loss should be properly apportioned between them.
The loss incurred by drawee bank-PNB can be passed on to the collecting bank-
Associated Bank which presented and indorsed the checks to it. Associated Bank can,
in turn, hold the forger, Fausto Pangilinan, liable.
If PNB negligently delayed in informing Associated Bank of the forgery, thus
depriving the latter of the opportunity to recover from the forger, it forfeits its right
to reimbursement and will be made to bear the loss.
After careful examination of the records, the Court finds that the Province of
Tarlac was equally negligent and should, therefore, share the burden of loss from the
checks bearing a forged indorsement.
The Province of Tarlac permitted Fausto Pangilinan to collect the checks when the
latter, having already retired from government service, was no longer connected with
the hospital. With the exception of the first check (dated January 17, 1978), all the
checks were issued and released after Pangilinan’s retirement on February 28, 1978.
After nearly three
____________________________
JORDAN & WARREN, op. cit. note 26 at 217; CAMPOS & LOPEZ-CAMPOS, op. cit. note 18 at 283.
33
635
VOL. 252, JANUARY 31, 1996 635
years, the Treasurer’s office was still releasing the checks to the retired cashier. In
addition, some of the aid allotment checks were released to Pangilinan and the others
to Elizabeth Juco, the new cashier. The fact that there were now two persons
collecting the checks for the hospital is an unmistakable sign of an irregularity which
should have alerted employees in the Treasurer’s office of the fraud being committed.
There is also evidence indicating that the provincial employees were aware of
Pangilinan’s retirement and consequent dissociation from the hospital. Jose Meru,
the Provincial Treasurer, testified:
“ATTY. MORGA:
Q: Now, is it true that for a given month there were two
releases of checks, one went to Mr. Pangilinan and one
went to Miss Juco?
JOSE MERU:
A: Yes, sir.
Q: Will you please tell us how at the time (sic) when the
authorized representative of Concepcion Emergency
Hospital is and was supposed to be Miss Juco?
A: Well, as far as my investigation show (sic) the assistant
cashier told me that Pangilinan represented himself as also
authorized to help in the release of these checks and we
were apparently misled because they accepted the
representation of Pangilinan that he was helping them in
the release of the checks and besides according to them
they were, Pangilinan, like the rest, was able to present an
official receipt to acknowledge these receipts and
according to them since this is a government check and
believed that it will eventually go to the hospital following
the standard procedure of negotiating government checks,
they released the checks to Pangilinan aside from Miss
Juco.”34
The failure of the Province of Tarlac to exercise due care contributed to a significant
degree to the loss tantamount to
____________________________
TSN, June 19, 1984, pp. 10-11.

34
636
negligence. Hence, the Province of Tarlac should be liable for part of the total amount
paid on the questioned checks.
The drawee bank PNB also breached its duty to pay only according to the terms of
the check. Hence, it cannot escape liability and should also bear part of the loss.
As earlier stated, PNB can recover from the collecting bank.
In the case of Associated Bank v. CA, six crossed checks with forged indorsements
35
were deposited in the forger’s account with the collecting bank and were later paid by
four different drawee banks. The Court found the collecting bank (Associated) to be
negligent and held:
“The Bank should have first verified his right to endorse the crossed checks, of which he was
not the payee, and to deposit the proceeds of the checks to his own account. The Bank was by
reason of the nature of the checks put upon notice that they were issued for deposit only to
the private respondent’s account. x x x”
The situation in the case at bench is analogous to the above case, for it was not the
payee who deposited the checks with the collecting bank. Here, the checks were all
payable to Concepcion Emergency Hospital but it was Fausto Pangilinan who
deposited the checks in his personal savings account.
Although Associated Bank claims that the guarantee stamped on the checks (All
prior and/or lack of endorsements guaranteed) is merely a requirement forced upon
it by clearing house rules, it cannot but remain liable. The stamp guaranteeing prior
indorsements is not an empty rubric which a bank must fulfill for the sake of
convenience. A bank is not required to accept all the checks negotiated to it. It is
within the bank’s discretion to receive a check for no banking institution would
consciously or deliberately accept a check bearing a forged indorsement. When a
check is deposited with the collecting bank, it takes a risk on its depositor. It is only
logi-
____________________________
G.R. No. 89802, May 7, 1992, 208 SCRA 465.

35
637
VOL. 252, JANUARY 31, 1996 637
cal that this bank be held accountable for checks deposited by its customers.
A delay in informing the collecting bank (Associated Bank) of the forgery, which
deprives it of the opportunity to go after the forger, signifies negligence on the part of
the drawee bank (PNB) and will preclude it from claiming reimbursement.
It is here that Associated Bank’s assignment of error concerning C.B. Circular No.
580 and Section 23 of the Philippine Clearing House Corporation Rules comes to fore.
Under Section 4 (c) of CB Circular No. 580, items bearing a forged endorsement shall
be returned within twenty-four (24) hours after discovery of the forgery but in no
event beyond the period fixed or provided by law for filing of a legal action by the
returning bank. Section 23 of the PCHC Rules deleted the requirement that items
bearing a forged endorsement should be returned within twenty-four hours.
Associated Bank now argues that the aforementioned Central Bank Circular is
applicable. Since PNB did not return the questioned checks within twenty-four hours,
but several days later, Associated Bank alleges that PNB should be considered
negligent and not entitled to reimbursement of the amount it paid on the checks.
The Court deems it unnecessary to discuss Associated Bank’s assertions that CB
Circular No. 580 is an administrative regulation issued pursuant to law and as such,
must prevail over the PCHC rule. The Central Bank circular was in force for all banks
until June 1980 when the Philippine Clearing House Corporation (PCHC) was set up
and commenced operations. Banks in Metro Manila were covered by the PCHC while
banks located elsewhere still had to go through Central Bank Clearing. In any event,
the twenty-four-hour return rule was adopted by the PCHC until it was changed in
1982. The contending banks herein, which are both branches in Tarlac province, are
therefore not covered by PCHC Rules but by CB Circular No. 580. Clearly then, the
CB circular was applicable when the forgery of the checks was discovered in 1981.
638
The rule mandates that the checks be returned within twenty-four hours after
discovery of the forgery but in no event beyond the period fixed by law for filing a
legal action. The rationale of the rule is to give the collecting bank (which indorsed
the check) adequate opportunity to proceed against the forger. If prompt notice is not
given, the collecting bank may be prejudiced and lose the opportunity to go after its
depositor.
The Court finds that even if PNB did not return the questioned checks to
Associated Bank within twenty-four hours, as mandated by the rule, PNB did not
commit negligent delay. Under the circumstances, PNB gave prompt notice to
Associated Bank and the latter bank was not prejudiced in going after Fausto
Pangilinan. After the Province of Tarlac informed PNB of the forgeries, PNB
necessarily had to inspect the checks and conduct its own investigation. Thereafter,
it requested the Provincial Treasurer’s office on March 31, 1981 to return the checks
for verification. The Province of Tarlac returned the checks only on April 22, 1981.
Two days later, Associated Bank received the checks from PNB. 36
Associated Bank was also furnished a copy of the Province’s letter of demand to
PNB dated March 20, 1981, thus giving it notice of the forgeries. At this time,
however, Pangilinan’s account with Associated had only P24.63 in it. Had Associated
37
Bank decided to debit Pangilinan’s account, it could not have recovered the amounts
paid on the questioned checks. In addition, while Associated Bank filed a fourth-party
complaint against Fausto Pangilinan, it did not present evidence against Pangilinan
and even presented him as its rebuttal witness. Hence, Associated Bank was not
38
prejudiced by PNB’s failure to comply with the twenty-four-hour return rule.

Next, Associated Bank contends that PNB is estopped from requiring
reimbursement because the latter paid and cleared
____________________________
36 See footnote 9.
37 Exhibit “3-G” for Associated Bank.
38 TSN, January 8, 1987.
639
VOL. 252, JANUARY 31, 1996 639
the checks. The Court finds this contention unmeritorious. Even if PNB cleared and
paid the checks, it can still recover from Associated Bank. This is true even if the
payee’s Chief Officer who was supposed to have indorsed the checks is also a customer
of the drawee bank. PNB’s duty was to verify the genuineness of the drawer’s
39
signature and not the genuineness of payee’s indorsement. Associated Bank, as the
collecting bank, is the entity with the duty to verify the genuineness of the payee’s
indorsement.
PNB also avers that respondent court erred in adjudging circuitous liability by
directing PNB to return to the Province of Tarlac the amount of the checks and then
directing Associated Bank to reimburse PNB. The Court finds nothing wrong with
the mode of the award. The drawer, Province of Tarlac, is a client or customer of the
PNB, not of Associated Bank. There is no privity of contract between the drawer and
the collecting bank.
The trial court made PNB and Associated Bank liable with legal interest from
March 20, 1981, the date of extrajudicial demand made by the Province of Tarlac on
PNB. The payments to be made in this case stem from the deposits of the Province of
Tarlac in its current account with the PNB. Bank deposits are considered under the
law as loans. Central Bank Circular No. 416 prescribes a twelve percent (12%)
40
interest per annum for loans, forebearance of money, goods or credits in the absence
of express stipulation. Normally, current accounts are likewise interest-bearing, by
express contract, thus excluding them from the coverage of CB Circular No. 416. In
this case, however, the actual interest rate, if any, for the current account opened by
the Province of Tarlac with PNB was not given in evidence. Hence, the Court deems
it wise to affirm the trial court’s use of the legal interest rate, or six percent (6%) per
annum. The interest rate shall be com-
____________________________
39 San Carlos Milling Co. Ltd. v. BPI, 59 Phil. 59.

40 Article 1980 of the Civil Code reads: Fixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loan.
640
puted from the date of default, or the date of judicial or extrajudicial demand. The 41
trial court did not err in granting legal interest from March 20, 1981, the date of
extrajudicial demand.
The Court finds as reasonable, the proportionate sharing of fifty percent—fifty
percent (50%-50%). Due to the negligence of the Province of Tarlac in releasing the
checks to an unauthorized person (Fausto Pangilinan), in allowing the retired
hospital cashier to receive the checks for the payee hospital for a period close to three
years and in not properly ascertaining why the retired hospital cashier was collecting
checks for the payee hospital in addition to the hospital’s real cashier, respondent
Province contributed to the loss amounting to P203,300.00 and shall be liable to the
PNB for fifty (50%) percent thereof. In effect, the Province of Tarlac can only recover
fifty percent (50%) of P203,300.00 from PNB.
The collecting bank, Associated Bank, shall be liable to PNB for fifty (50%) percent
of P203,300.00. It is liable on its warranties as indorser of the checks which were
deposited by Fausto Pangilinan, having guaranteed the genuineness of all prior
indorsements, including that of the chief of the payee hospital, Dr. Adena Canlas.
Associated Bank was also remiss in its duty to ascertain the genuineness of the
payee’s indorsement.
IN VIEW OF THE FOREGOING, the petition for review filed by the Philippine
National Bank (G.R. No. 107612) is hereby PARTIALLY GRANTED. The petition for
review filed by the Associated Bank (G.R. No. 107382) is hereby DENIED. The
decision of the trial court is MODIFIED. The Philippine National Bank shall pay fifty
percent (50%) of P203,300.00 to the Province of Tarlac, with legal interest from March
20, 1981 until the payment thereof. Associated Bank shall pay fifty percent (50%) of
P203,300.00 to the Philippine National
____________________________
Eastern Shipping Lines, Inc. v. CA, G.R. No. 97412, July 12, 1994, 234 SCRA 78.
41
641
VOL. 252, JANUARY 31, 1996 641
Paredes, Jr. vs. Sandiganbayan, Second Division
Bank, likewise, with legal interest from March 20, 1981 until payment is made.
SO ORDERED.
Regalado (Chairman), Puno and Mendoza, JJ., concur.
Petition of PNB partially granted while that of Associated Bank denied. Judgment
of trial court modified.
Note.—Forgery cannot be presumed it must be proved by clear, positive and
convincing evidence. (Tenio-Obsequio vs. Court of Appeals, 230 SCRA 550 [1994])
G.R. No. 126568. April 30, 2003. *
QUIRINO GONZALES LOGGING CONCESSIONAIRE, QUIRINO GONZALES and

EUFEMIA GONZALES, petitioners, vs. THE COURT OF APPEALS (CA) and
REPUBLIC PLANTERS BANK, respondents.
Remedial Law; Actions; Prescription; Prescription of actions is interrupted when they are
filed before the court, when there is a written extrajudicial demand by the creditors, and when,
there is any written acknowledgment of the debt by the debtor.—The Civil Code provides that
an action upon a written contract, an obligation created by law, and a judgment must be
brought within ten years from the time the right of action accrues. x x x Prescription of actions
is interrupted when they are filed before the court, when there is a written extrajudicial
demand by the creditors, and when, there is any written acknowledgment of the debt by the
debtor.
_______________
TSN, Valero, February 6, 1991, pp. 12-14, supra.

36
*THIRD DIVISION.
182
182 SUPREME COURT REPORTS
ANNOTATED
Quirino Gonzales Logging Concessionaire vs. Court of
Appeals
Same; Same; Same; A mortgage action prescribes after ten years from the time the right
of action accrued.—With respect to the first to the fifth causes of action, as gleaned from the
complaint, the Bank seeks the recovery of the deficient amount of the obligation after the
foreclosure of the mortgage. Such suit is in the nature of a mortgage action because its
purpose is precisely to enforce the mortgage contract. A mortgage action prescribes after ten
years from the time the right of action accrued.

Mariano R. Riva for petitioners.
The Chief Legal Counsel for private respondent.
CARPIO-MORALES, J.:
In the expansion of its logging business, petitioner Quirino Gonzales Logging

Concessionaire (QGLC), through its proprietor, general manager—co-petitioner
Quirino Gonzales, applied on October 15, 1962 for credit accommodations with 1
respondent Republic Bank (the Bank), later known as Republic Planters Bank.
The Bank approved QGLC’s application on December 21, 1962, granting it a credit
line of P900,000.00 broken into an overdraft line of P500,000.00 which was later
2
reduced to P450,000.00 and a Letter of Credit (LC) line of P400,000.00. 3
Pursuant to the grant, the Bank and petitioners QGLC and the spouses Quirino
and Eufemia Gonzales executed ten documents: two denominated “Agreement for
Credit in Current Account,” four denominated “Application and Agreement for
4
Commercial Letter of Credit,”5 and four denominated “Trust Receipt.” 6
_______________
1 Records at p. 128.
2 Id., at p. 129.
3 Vide “Complaint,” Records at p. 100.
4 Dated December 26, 1962 (Records at p. 134) and February 10, 1964 (Records at p. 135).
5 Records at pp. 136, 143, 149 and 154.
6 Dated: January 15, 1963, Records at p. 141; January 15, 1963, Records at p. 148; February 13, 1963,
Records at p. 151; and March 14, 1963, Records at p. 159.

183
VOL. 402, APRIL 30, 2003 183
Appeals
Petitioners’ obligations under the credit line were secured by a real estate mortgage
on four parcels of land: two in Pandacan, Manila, one in Makati (then part of Rizal),
and another in Diliman, Quezon City. 7
In separate transactions, petitioners, to secure certain advances from the Bank in
connection with QGLC’s exportation of logs, executed a promissory note in 1964 in
favor of the Bank. They were to execute three more promissory notes in 1967.
In 1965, petitioners having long defaulted in the payment of their obligations
under the credit line, the Bank foreclosed the mortgage and bought the properties
covered thereby, it being the highest bidder in the auction sale held in the same year.
Ownership over the properties was later consolidated in the Bank on account of which
new titles thereto were issued to it.8
On January 27, 1977, alleging non-payment of the balance of QGLC’s obligation

after the proceeds of the foreclosure sale were applied thereto, and non-payment of
the promissory notes despite repeated demands, the Bank filed a complaint for “sum
of money” (Civil Case No. 106635) against petitioners before the Regional Trial Court
(RTC) of Manila.
The complaint listed ten causes of action. The first concerns the overdraft line
under which the Bank claimed that petitioners withdrew amounts (unspecified) at
twelve percent per annum which were unpaid at maturity and that after it applied
the proceeds of the foreclosure sale to the overdraft debt, there remained an unpaid
balance of P1,224,301.56.
The Bank’s second to fifth causes of action pertain to the LC line under which it
averred that on the strength of the LCs it issued, the beneficiaries thereof drew and
presented sight drafts to it which it all paid after petitioners’ acceptance; and that it
delivered the tractors and equipment subject of the LCs to petitioners who have not
paid either the full or part of the face value of the drafts.
Specifically with respect to its second cause of action, the Bank alleged that it
issued LC No. 63-0055D on January 15, 1963 in favor of Monark International
Incorporated covering the purchase
9
_______________
8 Id., at p. 103.
9 Id., at p. 104.
184
Appeals
of a tractor on which the latter allegedly drew a sight draft with a face value of
10
P71,500.00, which amount petitioners have not, however, paid in full.

11
Under its third cause of action, the Bank charged that it issued LC No. 61-1110D
on December 27, 1962 also in favor of Monark International covering the purchase of
another tractor and other equipment; and that Monark International drew a sight
12
draft with a face value of P80,350.00, and while payments for the value thereof had
13
been made by petitioners, a balance of P68,064.97 remained.

Under the fourth cause of action, the Bank maintained that it issued LC No. 63-
0182D on February 11, 1963 in favor of J.B.L. Enterprises, Inc. covering the
14
purchase of two tractors, and J.B.L. Enterprises drew on February 13, 1963 a sight
15
draft on said LC in the amount of P155,000.00 but petitioners have not paid said
amount.
On its fifth cause of action, the Bank alleged that it issued LC No. 63-0284D on
March 14, 1963 in favor of Super Master Auto Supply (SMAS) covering the purchase
of “Eight Units GMC (G.I.) Trucks”; that on March 14, 1963, SMAS drew a sight draft
with a face value of P64,000.00 on the basis of said LC; and that the payments made
16
by petitioners for the value of said draft were deficient by P45,504.74.

The Bank thus prayed for the settlement of the above-stated obligations at an
interest rate of eleven percent per annum, and for the award of trust receipt
commissions, attorney’s fees and other fees and costs of collection.
The sixth to ninth causes of action are anchored on the promissory notes issued by
petitioners allegedly to secure certain ad-
_______________
10 One unit of used caterpillar D7 tractor, Serial No. 3T10074.

11 Exhibits “H” and “H-1” (Records at p. 140).
12 One unit of used CAT D7 Tractor with Serial No. 3T13002 equipped with Hydraulic Angledozer and
D7N Hyster Winch; two pieces of Cat D8 Track Link Assembly; and two pieces of D8 Sprocket Rim (Records
at pp. 106-107).
13 Exhibits “M” and “M-1” (Records at p. 146).
14 Records at pp. 108-109.
15 Two Units D7 Crawler Tractors with Angledozer Blades Bearing Serial Nos. 5T179 and 4T2567.
185
VOL. 402, APRIL 30, 2003 185
Appeals
vances from the Bank in connection with the exportation of logs as reflected
above. The notes were payable 30 days after date and provided for the solidary
17
liability of petitioners as well as attorney’s fees at ten percent of the total amount
due in the event of their non-payment at maturity.
18
The note dated June 18, 1964, subject of the sixth cause of action, has a face value
of P55,000.00 with interest rate of twelve percent per annum; that dated July 7, 1967
19
subject of the seventh has a face value of P20,000.00; that dated July 18, 1967 subject
20
of the eighth has a face value of P38,000.00; and that dated August 23, 1967 subject
21
of the ninth has a face value of P11,000.00. The interest rate of the last three notes
22
is pegged at thirteen percent per annum. 23
On its tenth and final cause of action, the Bank claimed that it has accounts
receivable from petitioners in the amount of P120.48.
In their Answer of March 3, 1977, petitioners admit the following: having applied
24
for credit accommodations totaling P900,000.00 to secure which they mortgaged real
properties; opening of the LC/Trust Receipt Line; the issuance by the Bank of the
various LCs; and the foreclosure of the real estate mortgage and the consolidation of
ownership over the mortgaged properties in favor of the Bank. They deny, however,
having availed of the credit accommodations and having received the value of the
promissory notes, as they do deny having physically received the tractors and
equipment subject of the LCs.
As affirmative defenses, petitioners assert that the complaint states no cause of
action, and assuming that it does, the same is/are barred by prescription or null and
void for want of consideration.
_______________
17 The Bank acted as an intermediary or agent of petitioners in the export transactions.

18 Records at pp. 160, 161, 162 and 163.
19 Id., at p. 160.
20 Id., at p. 161.
21 Id., at p. 162.
22 Id., at p. 163.
23 Id., at pp. 161, 162 and 163.
24 Id., at p. 121.
186
Appeals
By Order of March 10, 1977, Branch 36 of the Manila RTC attached the preferred
shares of stocks of the spouses Quirino and Eufemia Gonzales with the Bank with a
total par value of P414,000.00.
Finding for petitioners, the trial court rendered its Decision of April 22, 1992 the
dispositive portion of which reads:
“WHEREFORE, judgment is rendered as follows:
1. 1.All the claims of plaintiff particularly those described in the first to the tenth causes
of action of its complaint are denied for the reasons earlier mentioned in the body of
this decision;
2. 2.As regards the claims of defendants pertaining to their counterclaim (Exhibits “1”,
“2” and “3”), they are hereby given ten (10) years from the date of issuance of the
torrens title to plaintiff and before the transfer thereof in good faith to a third party
buyer within which to ask for the reconveyance of the real properties foreclosed by
plaintiff;
3. 3.The order of attachment which was issued against the preferred shares of stocks of
defendants-spouses Quirino Gonzales and Eufemia Gonzales with the Republic Bank
now known as Republic Planters Bank dated March 21, 1977 is hereby dissolved
and/or lifted, and
4. 4.Plaintiff is likewise ordered to pay the sum of P20,000.00, as and for attorney’s fees,
with costs against plaintiff.
SO ORDERED.”
In finding for petitioners, the trial court ratiocinated: 25
Art. 1144 of the Civil Code states that an action upon a written contract prescribes in ten
(10) years from the time the right of action accrues. Art. 1150 states that prescription starts
to run from the day the action may be brought. The obligations allegedly created by the
written contracts or documents supporting plaintiffs’ first to the sixth causes of action were
demandable at the latest in 1964. Thus when the complaint was filed on January 27, 1977
more than ten (10) years from 1964 [when the causes of action accrued] had already
lapsed. The first to the sixth causes of action are thus barred by prescription . . . .
As regards the seventh and eight causes of action, the authenticity of which documents
were partly in doubt in the light of the categorical and uncontradicted statements that in
1965, defendant Quirino Gonzales logging concession was terminated based on the policy of
the government to terminate logging concessions covering less than 20,000 hectares. If this
_______________
25 Id., at pp. 323-324.

187
VOL. 402, APRIL 30, 2003 187
Appeals
is the case, the Court is in a quandary why there were log exports in 1967? Because of the
foregoing, the Court does not find any valid ground to sustain the seventh and eight causes of
action of plaintiff’s complaint.
As regards the ninth cause of action, the Court is baffled why plaintiff extended to
defendants another loan when defendants according to plaintiff’s records were defaulting
creditors? The above facts and circumstances has (sic) convinced this Court to give credit to
the testimony of defendants’ witnesses that the Gonzales spouses signed the documents in
question in blank and that the promised loan was never released to them.There is therefore a
total absence of consent since defendants did not give their consent to loans allegedly
procured, the proceeds of which were never received by the alleged debtors, defendants herein
....
Plaintiff did not present evidence to support its tenth cause of action. For this reason, it
must consequently be denied for lack of evidence.
On the matter of [the] counterclaims of defendants, they seek the return of the real and
personal properties which they have given in good faith to plaintiff. Again, prescription may
apply. The real properties of defendants acquired by plaintiff were foreclosed in 1965 and
consequently, defendants had one (1) year to redeem the property or ten (10) years from
issuance of title on the ground that the obligation foreclosed was fictitious.
xxx
On appeal, the Court of Appeals (CA) reversed the decision of the trial court by
26
Decision of June 28, 1996 which disposed as follows:

27 28
“WHEREFORE, premises considered, the appealed decision (dated April 22, 1992) of the
Regional Trial Court (Branch 36) in Manila in Civil Case No. 82-4141 is hereby
REVERSED—and let the case be remanded back to the court a quo for the determination of
the amount(s) to be awarded to the [the Bank]-appellant relative to its claims against the
appellees.
SO ORDERED.”
With regard to the first to sixth causes of action, the CA upheld the contention of the
Bank that the notices of foreclosure sale were
_______________
The Bank filed a notice of appeal on May 13, 1992 (Records at p. 326) while petitioners filed their own
26
on May 14, 1992 (Records at p. 328).

CA Rollo at pp. 84-98.
27
CA Rollo at p. 98.
28
188
Appeals
“tantamount” to demand letters upon the petitioners which interrupted the running
of the prescriptive period. 29
As regards the seventh to ninth causes of action, the CA also upheld the contention
of the Bank that the written agreements-promissory notes prevail over the oral
testimony of petitioner Quirino Gonzales that the cancellation of their logging
concession in 1967 made it unbelievable for them to secure in 1967 the advances
reflected in the promissory notes. 30
With respect to petitioners’ counterclaim, the CA agreed with the Bank that: 31
Certainly, failure on the part of the trial court to pass upon and determine the authenticity
and genuineness of [the Bank’s] documentary evidence [the trial court having ruled on the
basis of prescription of the Bank’s first to sixth causes of action] makes it impossible for the
trial court to eventually conclude that the obligation foreclosed (sic) was fictitious. Needless
to say, the trial court’s ruling averses (sic) the wellentrenched rule that ‘courts must render
verdict on their findings of facts.” (China Banking Co. vs. CA, 70 SCRA 398)
Furthermore, the defendants-appellees’ [herein petitioners’] counterclaim is basically an
action for the reconveyance of their properties, thus, the trial court’s earlier ruling that the
defendants-appellees’ counterclaim has prescribed is itself a ruling that the defendants-
appellees’ separate action for reconveyance has also prescribed.
The CA struck down the trial court’s award of attorney’s fees for lack of legal basis. 32
Hence, petitioners now press the following issues before this Court by the present
petition for review on certiorari:
1. 1.WHETHER OR NOT RESPONDENT COURT ERRED IN SO HOLDING THAT

RESPONDENT-APPELLEES (SIC) REPUBLIC PLANTERS BANK[‘S] FIRST,
SECOND, THIRD, FOURTH, FIFTH AND SIXTH CAUSES OF ACTION HAVE
NOT PRESCRIBED CONTRARY TO THE FINDINGS OF THE LOWER COURT,
RTC BRANCH 36 THAT THE SAID CAUSES OF ACTION HAVE ALREADY
PRESCRIBED.
_______________
29 Id., at p. 93.
30 Id., at pp. 94-95.
31 Id., at pp. 96-97.
32 Id., at p. 98.
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VOL. 402, APRIL 30, 2003 189
Appeals

RESPODNENT-APPELLEES (SIC) REPUBLIC PLANTERS BANK[’S] SEVENTH,
EIGHT AND NINTH CAUSES OF ACTION APPEARS (SIC) TO BE IMPRESSED
WITH MERIT CONTRARY TO THE FINDINGS OF THE LOWER COURT RTC
BRANCH 36 THAT THE SAID CAUSES HAVE NO VALID GROUND TO SUSTAIN
[THEM] AND FOR LACK OF EVIDENCE.
2. 3.WHETHER OR NOT RESPONDENT COURT [ERRED] IN REVERSING THE
FINDINGS OF THE REGIONAL TRIAL COURT BRANCH 36 OF MANILA THAT
PETITIONERS-APPELLANT (SIC) MAY SEEK THE RETURN OF THE REAL
AND PERSONAL PROPERTIES WHICH THEY MAY HAVE GIVEN IN GOOD
FAITH AS THE SAME IS BARRED BY PRESCRIPTION AND THAT
PETITIONERS-APPELLANT (SIC) HAD ONE (1) YEAR TO REDEEM THE
PROPERTY OR TEN (10) YEARS FROM ISSUANCE OF THE TITLE ON THE
GROUND THAT THE OBLIGATION FORECLOSED WAS FICTITIOUS.
PEITIONERS-APPELLANTS [SIC] ARE NOT ENTITLED TO AN AWARD OF
ATTORNEY’S FEES.
The petition is partly meritorious.

On the first issue. The Civil Code provides that an action upon a written contract,
an obligation created by law, and a judgment must be brought within ten years from
the time the right of action accrues.
33
The finding of the trial court that more than ten years had elapsed since the right
to bring an action on the Bank’s first to sixth causes had arisen is not disputed. The
34
Bank contends, however, that “the notices of foreclosure sale in the foreclosure
proceedings of 1965 are tantamount to formal demands upon petitioners for the
payment of their past due loan obligations with the Bank, hence, said notices of
foreclosure sale interrupted/forestalled the running of the prescriptive period.”
35
The Bank’s contention does not impress. Prescription of actions is interrupted

when they are filed before the court, when there is a written extrajudicial demand by
the creditors, and when, there is any written acknowledgment of the debt by the
debtor. 36
_______________
33 Civil Code, Art. 1144.

35 Rollo at p. 95.
190
Appeals
The law specifically requires a written extrajudicial demand by the creditors which is
absent in the case at bar. The contention that the notices of foreclosure are
“tantamount” to a written extrajudicial demand cannot be appreciated, the contents
of said notices not having been brought to light.
But even assuming arguendo that the notices interrupted the running of the
prescriptive period, the argument would still not lie for the following reasons:
With respect to the first to the fifth causes of action, as gleaned from the complaint,
the Bank seeks the recovery of the deficient amount of the obligation after the
foreclosure of the mortgage. Such suit is in the nature of a mortgage action because
its purpose is precisely to enforce the mortgage contract. A mortgage action 37
prescribes after ten years from the time the right of action accrued. 38
The law gives the mortgagee the right to claim for the deficiency resulting from
the price obtained in the sale of the property at public auction and the outstanding
obligation at the time of the foreclosure proceedings. In the present case, the Bank,
39
as mortgagee, had the right to claim payment of the deficiency after it had foreclosed
the mortgage in 1965. In other words, the prescriptive period started to run against
40
the Bank in 1965. As it filed the complaint only on January 27, 1977, more than ten
years had already elapsed, hence, the action on its first to fifth causes had by then
prescribed. No other conclusion can be reached even if the suit is considered as one
upon a written contract or upon an obligation to
_______________
37 Caltex Philippines, Inc. v. Intermediate Appellate Court, 176 SCRA 741, 754 (1989).
38 Civil Code, Article 1142. The right of action accrues when there exists a cause of action, which consists
of 3 elements, namely: a) a right in favor of the plaintiff by whatever means and under whatever law it
arises or is created; b) an obligation on the part of defendant to respect such right; and c) an act or omission
on the part of such defendant violative of the right of the plaintiff (Parañaque Kings Enterprises, Inc. v.
Court of Appeals, 268 SCRA 727, 739 [1997]; Español v. Chairman, Philippine Veterans Administration, 137
SCRA 314, 318 [1985] [citations omitted]).
39 DBP v. Tomeldan, 101 SCRA 171, 174 (1980) (citations omitted); See also Development Bank of the
Philippines v. Mirang, 66 SCRA 141, 144-145 [1975], citing Philippine Bank of Commerce v. Tomas de
Vera, 6 SCRA 1026 (1962).
40 See id.
191
VOL. 402, APRIL 30, 2003 191
Appeals
pay the deficiency which is created by law, the prescriptive period of both being also
41
ten years. 42
As regards the promissory note subject of the sixth cause of action, its period of
prescription could not have been interrupted by the notices of foreclosure sale not
only because, as earlier discussed, petitioners’ contention that the notices of
foreclosure are tantamount to written extrajudicial demand cannot be considered
absent any showing of the contents thereof, but also because it does not appear from
the records that the said note is covered by the mortgage contract.
Coming now to the second issue, petitioners seek to evade liability under the
Bank’s seventh to ninth causes of action by claiming that petitioners Quirino and
Eufemia Gonzales signed the promissory notes in blank; that they had not received
the value of said notes, and that the credit line thereon was unnecessary in view of
their money deposits, they citing “Exhibits 2 to 2-B,” in, and unremitted proceeds on
43
log exports from, the Bank. In support of their claim, they also urge this Court to look
at Exhibits “B” (the Bank’s recommendation for approval of petitioners’ application
for credit accommodations), “P” (the “Application and Agreement for Commercial
Letter of Credit” dated January 16, 1963) and “T” (the “Application and Agreement
for Commercial Letter of Credit” dated February 14, 1963).
The genuineness and due execution of the notes had, however, been deemed
admitted by petitioners, they having failed to deny the same under oath. Their claim 44
that they signed the notes in blank does not thus lie.
Petitioners’ admission of the genuineness and due execution of the promissory
notes notwithstanding, they raise want of consideration thereof. The promissory
45
notes, however, appear to be negotiable as they meet the requirements of Section 1 of 46
the Ne-
_______________
41 Id.
43 Vide, Petition, Rollo at p. 10.
44 Rules of Court, Rule 8, Section 8.
45 Republic v. Court of Appeals, 296 SCRA 171, 181-182 (1998) (citations omitted).
46 SECTION 1. Form of negotiable instruments.—An instrument to be negotiable must conform to the
following requirements:
192
Appeals
gotiable Instruments Law. Such being the case, the notes are prima facie deemed to
have been issued for consideration. It bears noting that no sufficient evidence was
47
adduced by petitioners to show otherwise.

Exhibits “2” to “2-B” to which petitioners advert in support of their claim that the
credit line on the notes was unnecessary because they had deposits in, and
remittances due from, the Bank deserve scant consideration. Said exhibits are merely
claims by petitioners under their then proposals for a possible settlement of the case
dated February 3, 1978. Parenthetically, the proposals were not even signed by
petitioners but by certain Attorneys Osmundo R. Victoriano and Rogelio P. Madriaga.
In any case, it is no defense that the promissory notes were signed in blank as
Section 14 of the Negotiable Instruments Law concedes the prima facie authority of
48
the person in possession of negotiable instruments, such as the notes herein, to fill in
the blanks.
_______________
1. (a)It must be in writing and signed by the maker or drawer;

2. (b)Must contain an unconditional promise or order to pay a sum certain in money;
3. (c)Must be payable on demand, or at a fixed or determinable future time;
4. (d)Must be payable to order or to bearer; and
5. (e)Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein
with reasonable certainty.
47 Negotiable Instruments Law, Section 24.0.

48 Blanks; when may be filled.—Where the instrument is wanting in any material particular, the person
in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a
signature on a blank paper delivered by the person making the signature in order that the paper may be
converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any
amount. In order, however, that any such instrument when completed may be enforced against a person
who became a party thereto prior to its completion, it must be filled up strictly in accordance with the
authority given and within a reasonable time. But if any such instrument, after completion, is negotiated
to a holder in due course, it is valid and effectual for all purposes in his hands, and he may enforce it as if
it had been filled up strictly in accordance with the authority given and within a reasonable time.
193
VOL. 402, APRIL 30, 2003 193
Appeals
As for petitioners’ reliance on Exhibits “B”, “P” and “T,” they have failed to show the
relevance thereof to the seventh up to the ninth causes of action of the Bank.
On the third issue, petitioners asseverate that with the trial court’s dismissal of
the Bank’s complaint and the denial of its first to sixth causes of action, it is but fair
and just that the real properties which were mortgaged and foreclosed be returned to
them. Such, however, does not lie. It is not disputed that the properties were
49
foreclosed under Act No. 3135 (An Act to Regulate the Sale of Property under Special
Powers Inserted in or Annexed to Real Estate Mortgages), as amended. Though the
Bank’s action for deficiency is barred by prescription, nothing irregular attended the
foreclosure proceedings to warrant the reconveyance of the properties covered
thereby.
As for petitioners’ prayer for moral and exemplary damages, it not having been
raised as issue before the courts below, it can not now be considered. Neither can the
award attorney’s fees for lack of legal basis.
WHEREFORE, the CA Decision is hereby AFFIRMED with MODIFICATION.
Republic Bank’s Complaint with respect to its first to sixth causes of action is
hereby DISMISSED. Its complaint with respect to its seventh to ninth causes of
action is REMANDED to the court of origin, the Manila Regional Trial Court, Branch
36, for it to determine the amounts due the Bank thereunder.
SO ORDERED.
Puno (Chairman), Panganiban, Sandoval-Gutierrez and Corona, JJ., concur.
Judgment affirmed with modification.
Note.—Rights and actions can be lost by the fact of delay and by the effect of delay.
(Ochagabia vs. Court of Appeals, 304 SCRA 587[1999])
——o0o——
CARMELA BROBIO MANGAHAS, petitioner, vs. EUFROCINA A. BROBIO,

respondent.
Contracts; Voidable Contracts; Contracts are voidable where consent thereto is given
through mistake, violence, intimidation, undue influence, or fraud.—Contracts are voidable
where consent thereto is given through mistake, violence, intimidation, undue influence, or
fraud. In determining whether consent is vitiated by any of these circumstances, courts are
given a wide latitude in weighing the facts or circumstances in a given case and in deciding
in favor of what they believe actually occurred, considering the age, physical infirmity,
intelligence, relationship, and conduct of the parties at the time of the execution of the
contract and subsequent thereto, irrespective of whether the contract is in a public or private
writing.
Same; Same; Being forced into a situation does not amount to vitiated consent where it is
not shown that the party is deprived of free will and choice.—There is undue influence when
a person takes improper advantage of his power over the will of another, depriving the latter
of a reasonable freedom of choice. For undue influence to be present, the influence exerted
must have so overpowered or subjugated the mind of a contracting party as to destroy his
free agency, making him express the will of another rather than his own. Respondent may
have desperately needed petitioner’s signature on the Deed, but there is no showing that she
was deprived of free agency when she signed the promissory note. Being forced into a
situation does not amount to vitiated consent where it is not shown that the party is deprived
of free will and choice. Respondent still had a choice: she could have refused to execute the
promissory note and resorted to judicial means to obtain petitioner’s signature. Instead,
respondent chose to execute the promissory note to obtain petitioner’s signature, thereby
agreeing to pay the amount demanded by petitioner.
_______________
* SECOND DIVISION.
351
VOL. 634, OCTOBER 20, 2010 351
Mangahas vs. Brobio
Same; Same; There is intimidation when one of the contracting parties is compelled to
give his consent by a reasonable and well-grounded fear of an imminent and grave evil upon
his person or property, or upon the person or property of his spouse, descendants, or
ascendants—the payment of penalties for delayed payment of taxes would not qualify as a
“reasonable and well-grounded fear of an imminent and grave evil.”—Contrary to the CA’s
findings, the situation did not amount to intimidation that vitiated consent. There is
intimidation when one of the contracting parties is compelled to give his consent by a
reasonable and well-grounded fear of an imminent and grave evil upon his person or
property, or upon the person or property of his spouse, descendants, or ascendants. Certainly,
the payment of penalties for delayed payment of taxes would not qualify as a “reasonable and
well-grounded fear of an imminent and grave evil.”
Same; Same; Influence obtained by persuasion or argument or by appeal to affection is
not prohibited either in law or morals and is not obnoxious even in courts of equity.—We join
the RTC in holding that courts will not set aside contracts merely because solicitation,
importunity, argument, persuasion, or appeal to affection was used to obtain the consent of
the other party. Influence obtained by persuasion or argument or by appeal to affection is not
prohibited either in law or morals and is not obnoxious even in courts of equity.
Same; Same; Presumptions; The presumption that a contract has sufficient consideration
cannot be overthrown by a mere assertion that it has no consideration.—A contract is
presumed to be supported by cause or consideration. The presumption that a contract has
sufficient consideration cannot be overthrown by a mere assertion that it has no
consideration. To overcome the presumption, the alleged lack of consideration must be shown
by preponderance of evidence. The burden to prove lack of consideration rests upon whoever
alleges it, which, in the present case, is respondent.
Partition; Co-ownership; An action for partition implies that the property is still owned
in common.—The foregoing discussion renders the final issue insignificant. Be that as it may,
we would like to state that the remedy suggested by the CA is not the proper one under the
circumstances. An action for partition implies that the property is still owned in common.
Considering that the heirs had already executed a deed of extrajudicial settlement and
waived their
353
VOL. 634, OCTOBER 20, 2010 353
Mangahas vs. Brobio
shares in favor of respondent, the properties are no longer under a state of co-ownership;
there is nothing more to be partitioned, as ownership had already been merged in one person.
Appeals.
Gina L. Lorenzana for petitioner.
Egmedio J. Castillon, Jr. for respondent.
RESOLUTION
NACHURA, J.:
This petition for review on certiorari seeks to set aside the Court of Appeals (CA)
Decision1 dated February 21, 2008, which dismissed petitioner’s action to enforce
payment of a promissory note issued by respondent, and Resolution2 dated July 9,
2008, which denied petitioner’s motion for reconsideration.
The case arose from the following facts:
On January 10, 2002, Pacifico S. Brobio (Pacifico) died intestate, leaving three
parcels of land. He was survived by his wife, respondent Eufrocina A. Brobio, and
four legitimate and three illegitimate children; petitioner Carmela Brobio Mangahas
is one of the illegitimate children.
On May 12, 2002, the heirs of the deceased executed a Deed of Extrajudicial
Settlement of Estate of the Late Pacifico Brobio with Waiver. In the Deed, petitioner
and Pacifico’s other children, in consideration of their love and affection for
respondent and the sum of P150,000.00, waived and ceded
_______________
1 Penned by Associate Justice Normandie B. Pizarro, with Associate Justices Edgardo P. Cruz and
Fernanda Lampas-Peralta, concurring; Rollo, pp. 30-42.
2 Id., at pp. 43-44.
354
Mangahas vs. Brobio
their respective shares over the three parcels of land in favor of respondent. According
to petitioner, respondent promised to give her an additional amount for her share in
her father’s estate. Thus, after the signing of the Deed, petitioner demanded from
respondent the promised additional amount, but respondent refused to pay, claiming
that she had no more money.3
A year later, while processing her tax obligations with the Bureau of Internal
Revenue (BIR), respondent was required to submit an original copy of the Deed. Left
with no more original copy of the Deed, respondent summoned petitioner to her office
on May 31, 2003 and asked her to countersign a copy of the Deed. Petitioner refused
to countersign the document, demanding that respondent first give her the additional
amount that she promised. Considering the value of the three parcels of land (which
she claimed to be worth P20M), petitioner asked for P1M, but respondent begged her
to lower the amount. Petitioner agreed to lower it to P600,000.00. Because respondent
did not have the money at that time and petitioner refused to countersign the Deed
without any assurance that the amount would be paid, respondent executed a
promissory note. Petitioner agreed to sign the Deed when respondent signed the
promissory note which read —
31 May 2003
This is to promise that I will give a Financial Assistance to CARMELA B. MANGAHAS the
amount of P600,000.00 Six Hundred Thousand only on June 15, 2003.
(SGD)
EUFROCINA A. BROBIO 4
_______________
3 TSN, August 17, 2005, pp. 4-5.

4 The promissory note is a non-negotiable instrument as it does not conform to the requirements under
Sec. 1 of the Negotiable Instruments Law; Records, p. 57.
355
VOL. 634, OCTOBER 20, 2010 355
Mangahas vs. Brobio
When the promissory note fell due, respondent failed and refused to pay despite
demand. Petitioner made several more demands upon respondent but the latter kept
on insisting that she had no money.
On January 28, 2004, petitioner filed a Complaint for Specific Performance with
Damages5 against respondent, alleging in part —
2. That plaintiff and defendant are legal heirs of the deceased, Pacifico S.
Brobio[,] who died intestate and leaving without a will, on January 10, 2002,
but leaving several real and personal properties (bank deposits), and some of
which were the subject of the extra-judicial settlement among them, compulsory
heirs of the deceased, Pacifico Brobio. x x x.
3. That in consideration of the said waiver of the plaintiff over the listed
properties in the extra-judicial settlement, plaintiff received the sum of
P150,000.00, and the defendant executed a “Promissory Note” on June 15, 2003,
further committing herself to give plaintiff a financial assistance in the amount
of P600,000.00. x x x.
4. That on its due date, June 15, 2003, defendant failed to make good of her
promise of delivering to the plaintiff the sum of P600,000.00 pursuant to her
“Promissory Note” dated May 31, 2003, and despite repeated demands,
defendant had maliciously and capriciously refused to deliver to the plaintiff the
amount [of] P600,000.00, and the last of which demands was on October 29,
2003. x x x.6
In her Answer with Compulsory Counterclaim,7 respondent admitted that she
signed the promissory note but claimed that she was forced to do so. She also claimed
that the undertaking was not supported by any consideration. More specifically, she
contended that—
_______________
5 Id., at pp. 5-6.

6 Id.
7 Id., at pp. 25-29.
356
Mangahas vs. Brobio
“10. Defendant was practically held “hostage” by the demand of the plaintiff. At that
time, defendant was so much pressured and was in [a] hurry to submit the documents to the
Bureau of Internal Revenue because of the deadline set and for fear of possible penalty if not
complied with. Defendant pleaded understanding but plaintiff was adamant. Her hand could
only move in exchange for 1 million pesos.
11. Defendant, out of pressure and confused disposition, was constrained to make a
promissory note in a reduced amount in favor of the plaintiff. The circumstances in the
execution of the promissory note were obviously attended by involuntariness and the same
was issued without consideration at all or for illegal consideration.”8
On May 15, 2006, the Regional Trial Court (RTC) rendered a decision in favor of
petitioner. The RTC found that the alleged “pressure and confused disposition”
experienced by respondent and the circumstances that led to the execution of the
promissory note do not constitute undue influence as would vitiate respondent’s
consent thereto. On the contrary, the RTC observed that—
“It is clear from all the foregoing that it is the defendant who took improper advantage of
the plaintiff’s trust and confidence in her by resorting to a worthless written promise, which
she was intent on reneging. On the other hand, plaintiff did not perform an unlawful conduct
when she insisted on a written commitment from the defendant, as embodied in the
promissory note in question, before affixing her signature that was asked of her by the
defendant because, as already mentioned, that was the only opportunity available to her or
which suddenly and unexpectedly presented itself to her in order to press her demand upon
the defendant to satisfy the correct amount of consideration due to her. In other words, as
the defendant had repeatedly rebuffed her plea for additional consideration by claiming lack
of money, it is only natural for the plaintiff to seize the unexpected opportunity that suddenly
presented itself in order to compel the defendant to give to her [what is] due [her]. And by
executing the promissory note which the defendant had no intention of honoring, as testified
to by her, the defendant clearly acted in bad faith and
_______________
8 Id., at pp. 26-27.

357
VOL. 634, OCTOBER 20, 2010 357
Mangahas vs. Brobio
took advantage of the trust and confidence that plaintiff had reposed in her.”9
The RTC also brushed aside respondent’s claim that the promissory note was not
supported by valuable consideration. The court maintained that the promissory note
was an additional consideration for the waiver of petitioner’s share in the three
properties in favor of respondent. Its conclusion was bolstered by the fact that the
promissory note was executed after negotiation and haggling between the parties.
The dispositive portion of the RTC decision reads:
“WHEREFORE, judgment is hereby rendered as follows:
1. Ordering the defendant to pay to plaintiff the sum of Six Hundred Thousand
Pesos (P600,000.00) which she committed to pay to plaintiff under the
promissory note in question, plus interest thereon at the rate of 12% per
annum computed from the date of the filing of the complaint;
2. Ordering the defendant to pay to plaintiff the sum of P50,000.00 as attorney’s
fees; and
3. Ordering the defendant to pay to plaintiff the costs of this suit.
SO ORDERED.”10
On February 21, 2008, the CA reversed the RTC decision and dismissed the
complaint.11 The CA found that there was a complete absence of consideration in the
execution of the promissory note, which made it inexistent and without any legal force
and effect. The court noted that “financial assistance” was not the real reason why
respondent executed the promissory note, but only to secure petitioner’s signature.
The CA held that the waiver of petitioner’s share in the three properties, as expressed
in the deed of extrajudicial settle-
_______________
9 Id., at pp. 102-103.

10 Id., at p. 104.
11 Rollo, p. 41.
358
Mangahas vs. Brobio
ment, may not be considered as the consideration of the promissory note, considering
that petitioner signed the Deed way back in 2002 and she had already received the
consideration of P150,000.00 for signing the same. The CA went on to hold that if
petitioner disagreed with the amount she received, then she should have filed an
action for partition.
Further, the CA found that intimidation attended the signing of the promissory
note. Respondent needed the Deed countersigned by petitioner in order to comply
with a BIR requirement; and, with petitioner’s refusal to sign the said document,
respondent was forced to sign the promissory note to assure petitioner that the money
promised to her would be paid.
Petitioner moved for the reconsideration of the CA Decision. In a Resolution dated
July 9, 2008, the CA denied petitioner’s motion.12
In this petition for review, petitioner raises the following issues:
1. The Honorable Court of Appeals erred in the appreciation of the facts of this
case when it found that intimidation attended the execution of the promissory
note subject of this case.
2. The Honorable Court of Appeals erred when it found that the promissory note
was without consideration.
3. The Honorable Court of Appeals erred when it stated that petitioner should
have filed [an action] for partition instead of a case for specific performance.13
The petition is meritorious.
Contracts are voidable where consent thereto is given through mistake, violence,
intimidation, undue influence, or fraud. In determining whether consent is vitiated
by any of
_______________
12 Id., at p. 44.
13 Id., at pp. 17-18.
359
VOL. 634, OCTOBER 20, 2010 359
Mangahas vs. Brobio
these circumstances, courts are given a wide latitude in weighing the facts or
circumstances in a given case and in deciding in favor of what they believe actually
occurred, considering the age, physical infirmity, intelligence, relationship, and
conduct of the parties at the time of the execution of the contract and subsequent
thereto, irrespective of whether the contract is in a public or private writing.14
Nowhere is it alleged that mistake, violence, fraud, or intimidation attended the
execution of the promissory note. Still, respondent insists that she was “forced” into
signing the promissory note because petitioner would not sign the document required
by the BIR. In one case, the Court—in characterizing a similar argument by
respondents therein—held that such allegation is tantamount to saying that the
other party exerted undue influence upon them. However, the Court said that the
fact that respondents were “forced” to sign the documents does not amount to vitiated
consent.15
There is undue influence when a person takes improper advantage of his power
over the will of another, depriving the latter of a reasonable freedom of choice. 16 For
undue influence to be present, the influence exerted must have so overpowered or
subjugated the mind of a contracting party as to destroy his free agency, making him
express the will of another rather than his own.17
Respondent may have desperately needed petitioner’s signature on the Deed, but
there is no showing that she was deprived of free agency when she signed the
promissory note. Being forced into a situation does not amount to vitiated con-
_______________
14 Leonardo v. Court of Appeals, 481 Phil. 520, 532; 438 SCRA 201, 208 (2004).
15 Development Bank of the Philippines v. Court of Appeals, G.R. No. 138703, June 30, 2006, 494 SCRA
25, 42-43.
16 Civil Code of the Philippines, Art. 1337.
17 Carpo v. Chua, G.R. Nos. 150773 and 153599, September 30, 2005, 471 SCRA 471, 482.
360
Mangahas vs. Brobio
sent where it is not shown that the party is deprived of free will and choice.
Respondent still had a choice: she could have refused to execute the promissory note
and resorted to judicial means to obtain petitioner’s signature. Instead, respondent
chose to execute the promissory note to obtain petitioner’s signature, thereby
agreeing to pay the amount demanded by petitioner.
The fact that respondent may have felt compelled, under the circumstances, to
execute the promissory note will not negate the voluntariness of the act. As rightly
observed by the trial court, the execution of the promissory note in the amount of
P600,000.00 was, in fact, the product of a negotiation between the parties.
Respondent herself testified that she bargained with petitioner to lower the amount:
ATTY. VILLEGAS:
Q And is it not that there was even a bargaining from P1-M to P600,000.00 before you prepare[d] and [sign[ed]
that promissory note marked as Exhibit “C”?
A Yes, sir.
Q And in fact, you were the one [who] personally wrote the amount of P600,000.00 only as indicated in the said
promissory note?
A Yes, sir.
COURT:
Q So, just to clarify. Carmela was asking an additional amount of P1-M for her to sign this document but you
negotiated with her and asked that it be lowered to P600,000.00 to which she agreed, is that correct?
A Yes, Your Honor. Napilitan na po ako.
Q But you negotiated and asked for its reduction from
P1-M to P600,000.00?
A Yes, Your Honor.18
_______________
18 TSN, August 17, 2005, p. 11.

361
VOL. 634, OCTOBER 20, 2010 361
Mangahas vs. Brobio
Contrary to the CA’s findings, the situation did not amount to intimidation that
vitiated consent. There is intimidation when one of the contracting parties is
compelled to give his consent by a reasonable and well-grounded fear of an imminent
and grave evil upon his person or property, or upon the person or property of his
spouse, descendants, or ascendants.19 Certainly, the payment of penalties for delayed
payment of taxes would not qualify as a “reasonable and well-grounded fear of an
imminent and grave evil.”
We join the RTC in holding that courts will not set aside contracts merely because
solicitation, importunity, argument, persuasion, or appeal to affection was used to
obtain the consent of the other party. Influence obtained by persuasion or argument
or by appeal to affection is not prohibited either in law or morals and is not obnoxious
even in courts of equity.20
On the issue that the promissory note is void for not being supported by a
consideration, we likewise disagree with the CA.
A contract is presumed to be supported by cause or consideration.21 The
presumption that a contract has sufficient consideration cannot be overthrown by a
mere assertion that it has no consideration. To overcome the presumption, the alleged
lack of consideration must be shown by preponderance of evidence.22 The burden to
prove lack of consideration rests upon whoever alleges it, which, in the present case,
is respondent.
Respondent failed to prove that the promissory note was not supported by any
consideration. From her testimony and her assertions in the pleadings, it is clear that
the promissory
_______________

20 Martinez v. Hongkong & Shanghai Bank, 15 Phil. 252, 270 (1910).
22 Saguid v. Security Finance, Inc., G.R. No. 159467, December 9, 2005, 477 SCRA 256, 270-271.
362
Mangahas vs. Brobio
note was issued for a cause or consideration, which, at the very least, was petitioner’s
signature on the document.
It may very well be argued that if such was the consideration, it was inadequate.
Nonetheless, even if the consideration is inadequate, the contract would not be
invalidated, unless there has been fraud, mistake, or undue influence.23 As previously
stated, none of these grounds had been proven present in this case.
The foregoing discussion renders the final issue insignificant. Be that as it may,
we would like to state that the remedy suggested by the CA is not the proper one
under the circumstances. An action for partition implies that the property is still
owned in common.24Considering that the heirs had already executed a deed of
extrajudicial settlement and waived their shares in favor of respondent, the
properties are no longer under a state of co-ownership; there is nothing more to be
partitioned, as ownership had already been merged in one person.
WHEREFORE, premises considered, the CA Decision dated February 21, 2008
and its Resolution dated July 9, 2008 are REVERSED and SET ASIDE. The RTC
decision dated May 15, 2006 is REINSTATED.
SO ORDERED.
Corona (C.J.),** Carpio (Chairperson), Leonardo-De Castro***and Mendoza, JJ.,
concur.
Judgment and resolution reversed and set aside.
G.R. No. 172954. October 5, 2011.*
ENGR. JOSE E. CAYANAN, petitioner, vs. NORTH STAR INTERNATIONAL
TRAVEL, INC., respondent.
Negotiable Instruments Law; Checks; Upon issuance of a check, in the absence of evidence
to the contrary, it is presumed that the same was issued for valuable consideration which may
consist either in some right, interest, profit or benefit accruing to the party who makes the
contract, or some forbearance, detriment, loss or some responsibility, to act, or labor, or service
given, suffered or undertaken by the other side.—We have held that upon issuance of a check,
in the absence of evidence to the contrary, it is presumed that the same was issued for
valuable consideration which may consist either in some right, interest, profit or benefit
accruing to the party who makes the contract, or some forbearance, detriment, loss or some
responsibility, to act, or labor, or service given, suffered or undertaken by the other side.
Under the Negotiable Instruments Law, it is presumed that every party to an instrument
acquires the same for a consideration or for value. As petitioner alleged that there was no
consideration for the issuance of the subject checks, it devolved upon him to present
convincing evidence to overthrow the presumption and prove that the checks were in fact
issued without valuable consideration. Sadly, however, petitioner has not presented any
credible evidence to rebut the presumption, as well as North Star’s assertion, that the checks
were issued as payment for the US$85,000 petitioner owed.
Same; Same; It is highly inconceivable that an experienced businessman would issue
various checks in sizeable amounts to a payee if these are without consideration.—Petitioner
claims that North Star did not give any valuable consideration for the checks since the
US$85,000 was taken from the personal dollar account of Virginia and not the corporate
funds of North Star. The contention, however, deserves scant consideration. The subject
checks, bearing petitioner’s signature, speak for themselves. The fact that petitioner himself
specifically named North Star as the payee of the checks is an admission of his liability to
North Star and not to Virginia Balag-
_______________
* FIRST DIVISION.
645
VOL. 658, OCTOBER 5, 2011 645
Cayanan vs. North Star International Travel, Inc.
tas, who as manager merely facilitated the transfer of funds. Indeed, it is highly
inconceivable that an experienced businessman like petitioner would issue various checks in
sizeable amounts to a payee if these are without consideration. Moreover, we note that
Virginia Balagtas averred in her Affidavit that North Star caused the payment of the
US$60,000 and US$25,000 to View Sea Ventures to accommodate petitioner, which
statement petitioner failed to refute. In addition, petitioner did not question the Statement
of Account No. 8639 dated August 31, 1994 issued by North Star which contained itemized
amounts including the US$60,000 and US$25,000 sent through telegraphic transfer to View
Sea Ventures per his instruction. Thus, the inevitable conclusion is that when petitioner
issued the subject checks to North Star as payee, he did so to settle his obligation with North
Star for the US$85,000.
Napoleon M. Marapao for petitioner.
Alexandre John Andrada Villanueva for respondent.
VILLARAMA, JR., J.:
Petitioner Engr. Jose E. Cayanan appeals the May 31, 2006 Decision1 of the Court
of Appeals (CA) in CA-G.R. SP No. 65538 finding him civilly liable for the value of the
five checks which are the subject of Criminal Case Nos. 166549-53.
The antecedent facts are as follows:
North Star International Travel Incorporated (North Star) is a corporation
engaged in the travel agency business while petitioner is the owner/general manager
of JEAC International Management and Contractor Services, a recruitment agency.
_______________
1 Rollo, pp. 35-45. Penned by Associate Justice Roberto A. Barrios with Associate Justices Mario L.
Guariña III and Santiago Javier Ranada concurring.
646
On March 17,2 1994, Virginia Balagtas, the General Manager of North Star, in
accommodation and upon the instruction of its client, petitioner herein, sent the
amount of US$60,0003 to View Sea Ventures Ltd., in Nigeria from her personal
account in Citibank Makati. On March 29, 1994, Virginia again sent US$40,000 to
View Sea Ventures by telegraphic transfer,4 with US$15,000 coming from petitioner.
Likewise, on various dates, North Star extended credit to petitioner for the airplane
tickets of his clients, with the total amount of such indebtedness under the credit
extensions eventually reaching P510,035.47.5
To cover payment of the foregoing obligations, petitioner issued the following five
checks to North Star:
Check No : 246822
Drawn Against : Republic Planters Bank
Amount : P695,000.00
Dated/Postdated : May 15, 1994
Payable to : North Star International Travel, Inc.
Check No. : 246823
Amount : P278,000.00
Check No. : 246824
Amount : P22,703.00
Check No. : 687803
Drawn Against : PCIB
_______________
2 March 15 in some parts of the records but the date appearing on the telegraphic transfer receipt/money
transfer slip is March 17.
3 Exh. “8”, records, p. 262.
4 Exh. “9”, id., at p. 263.
5 Id., at p. 35.
647
VOL. 658, OCTOBER 5, 2011 647
Amount : P1,500,000.00
Dated/Postdated : April 14, 1994
Check No. : 687804
Drawn Against : PCIB
Amount : P35,000.00
Dated/Postdated : April 14, 1994
Payable to : North Star International Travel,
Inc.6
When presented for payment, the checks in the amount of P1,500,000 and P35,000
were dishonored for insufficiency of funds while the other three checks were
dishonored because of a stop payment order from petitioner.7 North Star, through its
counsel, wrote petitioner on September 14, 19948 informing him that the checks he
issued had been dishonored. North Star demanded payment, but petitioner failed to
settle his obligations. Hence, North Star instituted Criminal Case Nos. 166549-53
charging petitioner with violation of Batas Pambansa Blg. 22, or the Bouncing
Checks Law, before the Metropolitan Trial Court (MeTC) of Makati City.
The Informations,9 which were similarly worded except as to the check numbers,
the dates and amounts of the checks, alleged:
“That on or about and during the month of March 1994 in the Municipality of Makati,
Metro Manila, Philippines, a place within the jurisdiction of this Honorable Court, the above-
named accused, being the authorized signatory of [JEAC] Int’l Mgt & Cont. Serv. did then
and there willfully, unlawfully and feloniously make out[,] draw and issue to North Star Int’l.
Travel Inc. herein rep. by Virginia D. Balagtas to apply on account or for value the checks
described below:
xxxx
_______________
6 Id., at pp. 36, 53-54.
7 Id., at p. 56.
8 Exh. “R”, id., at p. 291.
9 Id., at pp. 1-10.
648
said accused well knowing that at the time of issue thereof, did not have sufficient funds in
or credit with the drawee bank for the payment in full of the face amount of such check upon
its presentment, which check when presented for payment within ninety (90) days from the
date thereof was subsequently dishonored by the drawee bank for the reason PAYMENT
STOPPED/DAIF and despite receipt of notice of such dishonor the accused failed to pay the
payee the face amount of said check or to make arrangement for full payment thereof within
five (5) banking days after receiving notice.
Contrary to law.”
Upon arraignment, petitioner pleaded not guilty to the charges.
After trial, the MeTC found petitioner guilty beyond reasonable doubt of violation
of B.P. 22. Thus:
“WHEREFORE, finding the accused, ENGR. JOSE E. CAYANAN GUILTY beyond
reasonable doubt of Violation of Batas Pambansa Blg. 22 he is hereby sentenced to suffer
imprisonment of one (1) year for each of the offense committed.
Accused is likewise ordered to indemnify the complainant North Star International
Travel, Inc. represented in this case by Virginia Balagtas, the sum of TWO MILLION FIVE
HUNDRED THIRTY THOUSAND AND SEVEN HUNDRED THREE PESOS
(P2,530,703.00) representing the total value of the checks in [question] plus FOUR
HUNDRED EIGHTY[-]FOUR THOUSAND SEVENTY[-]EIGHT PESOS AND FORTY[-
]TWO CENTAVOS (P484,078.42) as interest of the value of the checks subject matter of the
instant case, deducting therefrom the amount of TWO HUNDRED TWENTY THOUSAND
PESOS (P220,000.00) paid by the accused as interest on the value of the checks duly receipted
by the complainant and marked as Exhibit “FF” of the record.
xxxx
SO ORDERED.”10
On appeal, the Regional Trial Court (RTC) acquitted petitioner of the criminal
charges. The RTC also held that there is
_______________
10 Rollo, pp. 57-58.
649
VOL. 658, OCTOBER 5, 2011 649
no basis for the imposition of the civil liability on petitioner. The RTC ratiocinated
that:
“In the instant cases, the checks issued by the accused were presented beyond the period
of NINETY (90) DAYS and therefore, there is no violation of the provision of Batas Pambansa
Blg. 22 and the accused is not considered to have committed the offense. There being no
offense committed, accused is not criminally liable and there would be no basis for the
imposition of the civil liability arising from the offense.”11
Aggrieved, North Star elevated the case to the CA. On May 31, 2006, the CA
reversed the decision of the RTC insofar as the civil aspect is concerned and held
petitioner civilly liable for the value of the subject checks. The fallo of the CA decision
reads:
“WHEREFORE, the petition is GRANTED. The assailed Decision of the RTC insofar as
Cayanan's civil liability is concerned, is NULLIFIED and SET ASIDE. The indemnity
awarded by the MeTC in its September 1, 1999 Decision is REINSTATED.
SO ORDERED.”12
The CA ruled that although Cayanan was acquitted of the criminal charges, he
may still be held civilly liable for the checks he issued since he never denied having
issued the five postdated checks which were dishonored.
Petitioner now assails the CA decision raising the lone issue of whether the CA
erred in holding him civilly liable to North Star for the value of the checks.13
Petitioner argues that the CA erred in holding him civilly liable to North Star for
the value of the checks since North Star did not give any valuable consideration for
the checks. He insists that the US$85,000 sent to View Sea Ventures was
_______________
11 Id., at p. 61.
12 Id., at p. 44.
13 Id., at p. 26.
650
not sent for the account of North Star but for the account of Virginia as her
investment. He points out that said amount was taken from Virginia’s personal dollar
account in Citibank and not from North Star’s corporate account.
Respondent North Star, for its part, counters that petitioner is liable for the value
of the five subject checks as they were issued for value. Respondent insists that
petitioner owes North Star P2,530,703 plus interest of P264,078.45, and that the
P220,000 petitioner paid to North Star is conclusive proof that the checks were issued
for value.
The petition is bereft of merit.
We have held that upon issuance of a check, in the absence of evidence to the
contrary, it is presumed that the same was issued for valuable consideration which
may consist either in some right, interest, profit or benefit accruing to the party who
makes the contract, or some forbearance, detriment, loss or some responsibility, to
act, or labor, or service given, suffered or undertaken by the other side.14 Under
the Negotiable Instruments Law, it is presumed that every party to an instrument
acquires the same for a consideration or for value.15 As petitioner alleged that there
was no consideration for the issuance of the subject checks, it devolved upon him to
present convincing evidence to overthrow the presumption and prove that the checks
were in fact issued without valuable consideration.16Sadly, however, petitioner has
not presented any credible evidence to rebut the presumption, as well as
_______________
14 Palana v. People, G.R. No. 149995, September 28, 2007, 534 SCRA 296, 305.
15 Section 24, Negotiable Instruments Law.
Sec. 24. Presumption of consideration.—Every negotiable instrument is deemed prima facie to have
been issued for a valuable consideration; and every person whose signature appears thereon to have become
a party thereto for value.
16 See Bayani v. People, G.R. No. 155619, August 14, 2007, 530 SCRA 84, 95.
651
VOL. 658, OCTOBER 5, 2011 651
North Star’s assertion, that the checks were issued as payment for the US$85,000
petitioner owed.
Notably, petitioner anchors his defense of lack of consideration on the fact that he
did not personally receive the US$85,000 from Virginia. However, we note that in his
pleadings, he never denied having instructed Virginia to remit the US$85,000 to View
Sea Ventures. Evidently, Virginia sent the money upon the agreement that petitioner
will give to North Star the peso equivalent of the amount remitted plus interest. As
testified to by Virginia, Check No. 246822 dated May 15, 1994 in the amount of
P695,000.00 is equivalent to US$25,000; Check No. 246823 dated May 15, 1994 in the
amount of P278,000 is equivalent to US$10,000; Check No. 246824 in the amount of
P22,703 represents the one month interest for P695,000 and P278,000 at the rate of
twenty-eight (28%) percent per annum;17 Check No. 687803 dated April 14, 1994 in
the amount of P1,500,000 is equivalent to US$50,000 and Check No. 687804dated 14
April 1994 in the amount of P35,000 represents the one month interest for P1,500,000
at the rate of twenty-eight (28%) percent per annum.18 Petitioner has not
substantially refuted these averments.
Concomitantly, petitioner’s assertion that the dollars sent to Nigeria was for the
account of Virginia Balagtas and as her own investment with View Sea Ventures
deserves no credence. Virginia has not been shown to have any business transactions
with View Sea Ventures and from all indications, she only remitted the money upon
the request and in accordance with petitioner’s instructions. The evidence shows that
it was petitioner who had a contract with View Sea Ventures as he was sending
contract workers to Nigeria; Virginia Balagtas’s participation was merely to send the
money through telegraphic transfer in exchange for the checks issued by petitioner
to North Star. Indeed, the transaction
_______________
17 TSN, July 31, 1996, p. 4; records, p. 429.
18 See Exh. “DD”, records, p. 307; see also TSN, July 27, 1998, p. 4; records, p. 544; TSN, August 17,
1998, p. 8; records, p. 563.
652
between petitioner and North Star is actually in the nature of a loan and the checks
were issued as payment of the principal and the interest.
As aptly found by the trial court:
“It is to be noted that the checks subject matter of the instant case were issued in the
name of North Star International Inc., represented by private complainant Virginia Balagtas
in replacement of the amount of dollars remitted by the latter to Vie[w] Sea Ventures in
Nigeria. x x x But Virginia Balagtas has no business transaction with Vie[w] Sea Ventures
where accused has been sending his contract workers and the North Star provided the trip
tickets for said workers sent by the accused. North Star International has no participation at
all in the transaction between accused and the Vie[w] Sea Ventures except in providing plane
ticket used by the contract workers of the accused upon its understanding with the latter.
The contention of the accused that the dollars were sent by Virginia Balagtas to Nigeria as
business investment has not been shown by any proof to set aside the foregoing negative
presumptions, thus negates accused contentions regarding the absence of consideration for
the issuance of checks. x x x”19
Petitioner claims that North Star did not give any valuable consideration for the
checks since the US$85,000 was taken from the personal dollar account of Virginia
and not the corporate funds of North Star. The contention, however, deserves scant
consideration. The subject checks, bearing petitioner’s signature, speak for
themselves. The fact that petitioner himself specifically named North Star as the
payee of the checks is an admission of his liability to North Star and not to Virginia
Balagtas, who as manager merely facilitated the transfer of funds. Indeed, it is highly
inconceivable that an experienced businessman like petitioner would issue various
checks in sizeable amounts to a payee if these are without consideration. Moreover,
we note that Virginia Balagtas averred in her Affidavit20 that North Star caused the
payment of the
_______________
19 Rollo, pp. 54-55.
20 Records, pp. 62-65.
653
VOL. 658, OCTOBER 5, 2011 653
US$60,000 and US$25,000 to View Sea Ventures to accommodate petitioner, which
statement petitioner failed to refute. In addition, petitioner did not question the
Statement of Account No. 863921dated August 31, 1994 issued by North Star which
contained itemized amounts including the US$60,000 and US$25,000 sent through
telegraphic transfer to View Sea Ventures per his instruction. Thus, the inevitable
conclusion is that when petitioner issued the subject checks to North Star as payee,
he did so to settle his obligation with North Star for the US$85,000. And since the
only payment petitioner made to North Star was in the amount of P220,000.00, which
was applied to interest due, his liability is not extinguished. Having failed to fully
settle his obligation under the checks, the appellate court was correct in holding
petitioner liable to pay the value of the five checks he issued in favor of North Star.
WHEREFORE, the present appeal by way of a petition for review on certiorari is
DENIED for lack of merit. The Decision dated May 31, 2006 of the Court of Appeals
in CA-G.R. SP No. 65538 is AFFIRMED.
With costs against petitioner.
SO ORDERED.
Corona (C.J., Chairperson), Leonardo-De Castro, Bersamin and Del Castillo,
JJ., concur.
Petition denied, judgment affirmed.
Note.—A check, the entries of which are no doubt in writing, could prove a loan
transaction. (Tan vs. Villapaz, 475 SCRA 720 [2005])
——o0o——
FIDELIZA J. AGLIBOT, petitioner, vs. INGERSOL L. SANTIA, respondent.
Civil Law; Contracts; Guaranty; The liability of the guarantor is only subsidiary, and all
the properties of the principal debtor must first be exhausted before the guarantor may be held
answerable for the debt. 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.—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. 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.” This rule is contained
in Article 2062 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
2059 when the action may be brought against both the guarantor and the principal debtor.
_______________
* FIRST DIVISION.
284

Aglibot vs. Santia
Same; Same; Same; A guaranty agreement is a promise to answer for the debt or default
of another, the law clearly requires that it, or some note or memorandum thereof, be in writing.
Otherwise, it would be unenforceable unless ratified, although it does not have to appear in a
public document.—Concerning a guaranty agreement, which is a promise to answer for the
debt or default of another, the law clearly requires that it, or some note or memorandum
thereof, be in writing. Otherwise, it would be unenforceable unless ratified, although under
Article 1358 of the Civil Code, a contract of guaranty does not have to appear in a public
document. 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.
Same; Same; Same; Article 2055 of the Civil Code provides that a guaranty is not
presumed, but must be express, and cannot extend to more than what is stipulated therein.—
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.
Mercantile Law; Negotiable Instruments Law; “Checks,” Defined; “Bills of Exchange,”
Defined; Words and Phrases.—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
285
VOL. 687, DECEMBER 5, 2012 285

Aglibot vs. Santia
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.”
Same; Same; Accommodation Party; Suretyship; 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.—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. 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.
Same; Same; Same; 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.—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. It would have been otherwise had it been
shown that Aglibot was a
286

Aglibot vs. Santia
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.

Regino, Palma, Raagas, Esguerra & Associates Law
Office for petitioner.
Villamor A. Tolete for respondent.
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 18,
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 [P]3,000,000.00 with 12% interest per
annumfrom 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.
_______________
1 Penned by Associate Justice Estela M. Perlas-Bernabe (now a member of this Court), with Associate Justices
Portia Aliño-Hormachuelos and Lucas P. Bersamin (now also a member of this Court), concurring: Rollo, pp. 88-
94.
2 Id., at pp. 40-44.
287
VOL. 687, DECEMBER 5, 2012 287

Aglibot vs. Santia
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 P2,500,000.00 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:
_______________
3 Id., at p. 93.
4 Id., at pp. 75-80.
288
Aglibot vs. Santia
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 [P]50,000.00, Philippine Currency,
payable to and in payment of an obligation with the complainant, although the said accused
knew full[y] 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 [t]hat 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 [P]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.
_______________
5 Id., at pp. 10-11.
289
VOL. 687, DECEMBER 5, 2012 289
Aglibot vs. Santia
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 [P]3,000,000.00representing 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 [P]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;
_______________
6 Id., at p. 26.
7 Id., at p. 44.
8 Id., at p. 90.
290

Aglibot vs. Santia
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
_______________
9 Id., at p. 91.
10 Id.
291
VOL. 687, DECEMBER 5, 2012 291

Aglibot vs. Santia
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 P3,000,000.00 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
P3,000,000.00 due is fully paid, plus attorney’s fees of P30,000.00 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
_______________
11 Id.
292
Aglibot vs. Santia
signed the same on behalf of PLCC as Manager thereof and nowhere does it appear
therein that she signed as an accommodation party.”12The 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
_______________
12 Id., at p. 43.
13 Baylon v. Court of Appeals, 371 Phil. 435, 443; 312 SCRA 502, 510 (1999), citing World Wide
Insurance and Surety Co., Inc. v. Jose, 96 Phil. 45 (1954); Visayan Surety and Insurance Corp. v. De Laperal,
69 Phil. 688 (1940).
14 Id., at pp. 443-444, citing Viuda de Syquia v. Jacinto, 60 Phil. 861, 868 (1934).
15 Art. 2062. In every action by the creditor, which must be against the principal debtor alone, except
in the cases mentioned in Article 2059, the former shall ask the court to notify the guarantor of the action.
The guarantor may appear so that he may, if he so desire, set up such defenses as are granted him by law.
The benefit of excussion mentioned in Article 2058 shall always be unimpaired, even
293
VOL. 687, DECEMBER 5, 2012 293
Aglibot vs. Santia
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;
_______________
if judgment should be rendered against the principal debtor and the guarantor in
case of appearance by the latter.
16 Art. 2059. This excussion shall not take place:
(1) If the guarantor has expressly renounced it;
(2) If he has bound himself solidarily with the debtor;
(3) In case of insolvency of the debtor;
(4) When he has absconded, or cannot be sued within the Philippines unless he has left manager or
representative;
(5) If it may be presumed that an execution on the property of the principal debtor would not result
in the satisfaction of the obligation.
294

Aglibot vs. Santia
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,18although under Article 135819
_______________
17 Article 2047 of the Civil Code defines it as follows:
By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the
principal debtor in case the latter should fail to do so.
18 Prudential Bank v. Intermediate Appellate Court, G.R. No. 74886, December 8, 1992, 216 SCRA 257,
275-276.
19 Art. 1358. The following must appear in a public document:
(1) Acts and contracts which have for their object the creation, transmission, modification or
extinguishment of real rights over immovable property; sales of real property or of an interest therein are
governed by Articles 1403, No. 2 and 1405;
(2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership
of gains;
(3) The power to administer property, or any other power which has for its object an act appearing or
which should appear in a public document, or should prejudice a third person; and
295
VOL. 687, DECEMBER 5, 2012 295
Aglibot vs. Santia
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
_______________
(4) The cession of actions or rights proceeding from an act appearing in a public document. All other
contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private
one. But sales of goods, chattels or things in action are governed by Articles 1403, No. 2 and 1405.
20 Supra note 18.
21 Orduña v. Fuentebella, G.R. No. 176841, June 29, 2010, 622 SCRA 146, 158; Municipality of Hagonoy,
Bulacan v. Dumdum, Jr., G.R. No. 168289, March 22, 2010, 616 SCRA 315.
296
Aglibot vs. Santia
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
_______________
22 Rollo, p. 92.
297
VOL. 687, DECEMBER 5, 2012 297
Aglibot vs. 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.23Concerning 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
_______________
23 See Stelco Marketing Corporation v. Court of Appeals, G.R. No. 96160, June 17, 1992, 210 SCRA 51,
57 citing Agbayani, Commercial Laws of the Philippines, 1975 ed., Vol. I.
24 102 SCRA 530 (1981).
25 Id., at pp. 539-540.
298
Aglibot vs. Santia
—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
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.28It 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
_______________
26 Garcia v. Llamas, 462 Phil. 779, 794; 417 SCRA 292, 305 (2003), citing Spouses Gardose v. Tarroza,
352 Phil. 797; 290 SCRA 186 (1998), Palmares v. Court of Appeals, 351 Phil. 664; 288 SCRA 422 (1998).
27 Ang Tiong v. Ting, 130 Phil. 741, 744; 22 SCRA 713, 716 (1968).
28 Sps. Gardose v. Tarroza, 352 Phil. 797; 290 SCRA 186 (1998).
299
VOL. 687, DECEMBER 5, 2012 299
Aglibot vs. Santia
18, 2008 of the Court of Appeals in CA-G.R. SP No. 100021 is hereby AFFIRMED.
SO ORDERED.
Leonardo-De Castro (Acting Chairperson), Del Castillo,**Villarama,
Jr. and Perez,*** JJ., concur.
Petition denied, judgment affirmed.
Notes.—The extent of a surety’s liability is determined by the language of the
suretyship contract or bond itself. It cannot be extended by implication, beyond the
terms of the contract. (First Lepanto-Taisho Insurance Corporation vs. Chevron
Philippines, Inc., 663 SCRA 309 [2012])
The law is clear that a surety contract should be read and interpreted together
with the contract entered into between the creditor and the principal. A surety
contract is merely a collateral one, its basis is the principal contract or undertaking
which it secures. (Id.)
——o0o——
EUSEBIO GONZALES, petitioner, vs. PHILIPPINE COMMERCIAL AND
INTERNATIONAL BANK, EDNA OCAMPO, and ROBERTO NOCEDA,
respondents.
Negotiable Instruments Law; Accommodation Party; An accommodation party is a
person who has signed the instrument as maker, drawer, acceptor or indorser without
receiving value therefor and for the purpose of lending his name to some other person.—As an
accommodation party, Gonzales is solidarily liable with the spouses Panlilio for the loans.
In Ang v. Associated Bank, 532 SCRA 244 (2007), quoting the definition of an accommodation
party under Section 29 of the Negotiable Instruments Law, the Court cited that an
accommodation party is a person “who has signed the instrument as maker, drawer, acceptor,
or indorser, without receiving value therefor, and for the purpose of lending his name to some
other person.”
Same; Same; While not exonerating his solidary liability, Gonzales has right to be
properly apprised of the default or delinquency of the loan precisely because he is co-signatory
of the promissory notes and of his solidary liability.—There was no proper notice to Gonzales
of the default and delinquency of the PhP 1,800,000 loan. It must be borne in mind that while
solidarily liable with the spouses Panlilio on the PhP 1,800,000 loan covered by the three
promissory notes, Gonzales is only an accommodation party and as such only lent his name
and credit to the spouses Panlilio. While not exonerating his solidary liability, Gonzales has
a right to be properly apprised of the default or delinquency of the loan precisely because he
is a co-signatory of the promissory notes and of his solidary liability.
Same; Same; In business more so for banks, the amounts demanded from the debtor or
borrower have to be definite, clear and without ambiguity.—In business, more so for banks,
the amounts demanded from the debtor or borrower have to be definite, clear, and without
ambiguity. It is not sufficient simply to be informed that one
_______________
* FIRST DIVISION.
181
VOL. 644, FEBRUARY 23, 2011 181

Gonzales vs. Philippine Commercial and International
Bank
must pay over a hundred thousand aggregate outstanding interest dues without clear
and certain figures. Thus, We find PCIB negligent in not properly informing Gonzales, who
is an accommodation party, about the default and the exact outstanding periodic interest
dues. Without being properly apprised, Gonzales was not given the opportunity to properly
act on them.
Banks and Banking; Extraordinary Diligence; The business of banking is impressed with
public interest and great reliance is made on the bank’s sworn profession of diligence and
meticulousness in giving irreproachable service; Like a common carrier whose business is
imbued with public interest, a bank should exercise extraordinary diligence to negate its
liability to the depositors.—The business of banking is impressed with public interest and
great reliance is made on the bank’s sworn profession of diligence and meticulousness in
giving irreproachable service. Like a common carrier whose business is imbued with public
interest, a bank should exercise extraordinary diligence to negate its liability to the
depositors. In this instance, PCIB is sorely remiss in the diligence required in treating with
its client, Gonzales. It may not wantonly exercise its rights without respecting and honoring
the rights of its clients.
Same; Same; The law imposes on bank a high degree of obligation to treat the accounts
of its depositors with meticulous care always having in mind the fiduciary nature of
banking.—With banks, the degree of diligence required is more than that of a good father of
the family considering that the business of banking is imbued with public interest due to the
nature of their function. The law imposes on banks a high degree of obligation to treat the
accounts of its depositors with meticulous care, always having in mind the fiduciary nature
of banking. Had Gonzales been properly notified of the delinquencies of the PhP 1,800,000
loan and the process of terminating his credit line under the COHLA, he could have acted
accordingly and the dishonor of the check would have been avoided.
Actions; Abuse of Rights; The basis of the principle of abuse of right is Art. 19 of the new
Civil Code; Elements in Order for Art. 19 to be Actionable.—Art. 19 of the New Civil Code
clearly provides that “[e]very person must, in the exercise of his rights and in the performance
of his duties, act with justice, give everyone his due, and observe honesty and good faith.”
This is the basis of the principle of
182
182 SUPREME COURT REPORTS

ANNOTATED
Bank
abuse of right which, in turn, is based upon the maxim suum jus summa injuria (the
abuse of right is the greatest possible wrong). In order for Art. 19 to be actionable, the
following elements must be present: “(1) the existence of a legal right or duty, (2) which is
exercised in bad faith, and (3) for the sole intent of prejudicing or injuring another.” We find
that such elements are present in the instant case.
Same; Same; Malice or bad faith is at the core of Art.19; Malice or bad faith implies a
conscious and intentional design to do a wrongful act for a dishonest purpose or moral
obliquity.—Malice or bad faith is at the core of Art. 19. Malice or bad faith “implies a conscious
and intentional design to do a wrongful act for a dishonest purpose or moral obliquity.” In
the instant case, PCIB was able to send a letter advising Gonzales of the unpaid interest on
the loans but failed to mention anything about the termination of the COHLA. More
significantly, no letter was ever sent to him about the termination of the COHLA. The failure
to give prior notice on the part of PCIB is already prima facie evidence of bad faith. Therefore,
it is abundantly clear that this case falls squarely within the purview of the principle of abuse
of rights as embodied in Art. 19.
Damages; Nominal Damages.—This Court finds that such acts warrant the payment of
indemnity in the form of nominal damages. Nominal damages “are recoverable where a legal
right is technically violated and must be vindicated against an invasion that has produced
no actual present loss of any kind x x x.” We further explained the nature of nominal damages
in Almeda v. Cariño, 395 SCRA 144 (2003): “x x x Its award is thus not for the purpose of
indemnification for a loss but for the recognition and vindication of a right. Indeed, nominal
damages are damages in name only and not in fact. When granted by the courts, they are not
treated as an equivalent of a wrong inflicted but simply a recognition of the existence of a
technical injury. A violation of the plaintiff’s right, even if only technical, is sufficient to
support an award of nominal damages. Conversely, so long as there is a showing of a
violation of the right of the plaintiff, an award of nominal damages is proper.”
Same; Moral Damages; Moral damages may be recovered in acts referred to in Art. 21 of
the Code.—As We held in MERALCO v. CA, 157 SCRA 243 (1988), failure to give prior notice
when required,
183
VOL. 644, FEBRUARY 23, 2011 183

Bank
such as in the instant case, constitutes a breach of contract and is a clear violation of
Art. 21 of the Code. In cases such as this, Art. 2219 of the Code provides that moral damages
may be recovered in acts referred to in its Art. 21. Further, Art. 2220 of the Code provides
that “[w]illful injury to property may be a legal ground for awarding moral damages if the
court should find that, under the circumstances, such damages are justly due. The same rule
applies to breaches of contract where the defendant acted fraudulently or in bad faith.”
Similarly, “every person who, contrary to law, willfully or negligently causes damage to
another, shall indemnify the latter for the same.” Evidently, Gonzales is entitled to recover
moral damages.

De Jesus & Associates for petitioner.
Siguion Reyna, Montecillo & Ongsiako for respondents.
VELASCO, JR., J.:
The Case
This is an appeal via a Petition for Review on Certiorari under Rule 45 from the
Decision1 dated October 22, 2007 of the Court of Appeals (CA) in CA-G.R. CV No.
74466, which denied petitioner’s appeal from the December 10, 2001 Decision2 in Civil
Case No. 99-1324 of the Regional Trial Court (RTC), Branch 138 in Makati City. The
RTC found justification for respondents’ dishonor of petitioner’s check and found
petitioner solidarily liable with the spouses Jose and Jocelyn Panlilio (spouses
Panlilio) for the three promissory notes they
_______________
1 Rollo, pp. 28-44. Penned by Associate Justice Arturo G. Tayag and concurred in by Associate Justices
Rodrigo V. Cosico and Hakim S. Abdulwahid.
2 Records, pp. 751-764. Penned by Judge Sixto Marella, Jr.
184
Gonzales vs. Philippine Commercial and International Bank
executed in favor of respondent Philippine Commercial and International Bank
(PCIB).
The Facts
Petitioner Eusebio Gonzales (Gonzales) was a client of PCIB for a good 15 years
before he filed the instant case. His account with PCIB was handled by respondent
Edna Ocampo (Ocampo) until she was replaced by respondent Roberto Noceda
(Noceda).
In October 1992, PCIB granted a credit line to Gonzales through the execution of
a Credit-On-Hand Loan Agreement3 (COHLA), in which the aggregate amount of the
accounts of Gonzales with PCIB served as collateral for and his availment limit under
the credit line. Gonzales drew from said credit line through the issuance of check. At
the institution of the instant case, Gonzales had a Foreign Currency Deposit (FCD)
of USD 8,715.72 with PCIB.
On October 30, 1995, Gonzales and his wife obtained a loan for PhP 500,000.
Subsequently, on December 26, 1995 and January 3, 1999, the spouses Panlilio and
Gonzales obtained two additional loans from PCIB in the amounts of PhP 1,000,000
and PhP 300,000, respectively. These three loans amounting to PhP 1,800,000 were
covered by three promissory notes.4 To secure the loans, a real estate mortgage (REM)
over a parcel of land covered by Transfer Certificate of Title (TCT) No. 38012 was
executed by Gonzales and the spouses Panlilio. Notably, the promissory notes
specified, among others, the solidary liability of Gonzales and the spouses Panlilio for
the payment of the loans. However, it was the spouses Panlilio who received the loan
proceeds of PhP 1,800,000.
The monthly interest dues of the loans were paid by the spouses Panlilio through
the automatic debiting of their ac-
_______________
3 Id., at pp. 157, 159.

4 Id., at pp. 10-15.
185
VOL. 644, FEBRUARY 23, 2011 185
count with PCIB. But the spouses Panlilio, from the month of July 1998, defaulted in
the payment of the periodic interest dues from their PCIB account which apparently
was not maintained with enough deposits. PCIB allegedly called the attention of
Gonzales regarding the July 1998 defaults and the subsequent accumulating periodic
interest dues which were left still left unpaid.
In the meantime, Gonzales issued a check dated September 30, 1998 in favor of
Rene Unson (Unson) for PhP 250,000 drawn against the credit line (COHLA).
However, on October 13, 1998, upon presentment for payment by Unson of said check,
it was dishonored by PCIB due to the termination by PCIB of the credit line under
COHLA on October 7, 1998 for the unpaid periodic interest dues from the loans of
Gonzales and the spouses Panlilio. PCIB likewise froze the FCD account of Gonzales.
Consequently, Gonzales had a falling out with Unson due to the dishonor of the
check. They had a heated argument in the premises of the Philippine Columbian
Association (PCA) where they are both members, which caused great embarrassment
and humiliation to Gonzales. Thereafter, on November 5, 1998, Unson sent a demand
letter5 to Gonzales for the PhP 250,000. And on December 3, 1998, the counsel of
Unson sent a second demand letter6 to Gonzales with the threat of legal action. With
his FCD account that PCIB froze, Gonzales was forced to source out and pay the PhP
250,000 he owed to Unson in cash.
On January 28, 1999, Gonzales, through counsel, wrote PCIB insisting that the
check he issued had been fully funded, and demanded the return of the proceeds of
his FCD as well as damages for the unjust dishonor of the check.7 PCIB replied on
March 22, 1999 and stood its ground in freez-
_______________
5 Id., at p. 38.
6 Id., at p. 39.
7 Id., at pp. 40-41.
186
ing Gonzales’ accounts due to the outstanding dues of the loans.8 On May 26, 1999,
Gonzales reiterated his demand, reminding PCIB that it knew well that the actual
borrowers were the spouses Panlilio and he never benefited from the proceeds of the
loans, which were serviced by the PCIB account of the spouses Panlilio.9
PCIB’s refusal to heed his demands compelled Gonzales to file the instant case for
damages with the RTC, on account of the alleged unjust dishonor of the check issued
in favor of Unson.
The Ruling of the RTC
After due trial, on December 10, 2001, the RTC rendered a Decision in favor of
PCIB. The decretal portion reads:
“WHEREFORE, judgment is rendered as follows—
(a) on the first issue, plaintiff is liable to pay defendant Bank as principal under the
promissory notes, Exhibits A, B and C;
(b) on the second issue, the Court finds that there is justification on part of the defendant
Bank to dishonor the check, Exhibit H;
(c) on the third issue, plaintiff and defendants are not entitled to damages from each
other.
No pronouncement as to costs.
SO ORDERED.”10
The RTC found Gonzales solidarily liable with the spouses Panlilio on the three
promissory notes relative to the outstanding REM loan. The trial court found no fault
in the termination by PCIB of the COHLA with Gonzales and in freezing the latter’s
accounts to answer for the past due PhP 1,800,000 loan. The trial court ruled that the
dishonor of the check issued by Gonzales in favor of Unson was proper con-
_______________
8 Id., at p. 42.
9 Id., at pp. 43-44.
10 Id., at p. 760.
187
VOL. 644, FEBRUARY 23, 2011 187
sidering that the credit line under the COHLA had already been terminated or
revoked before the presentment of the check.
Aggrieved, Gonzales appealed the RTC Decision before the CA.
The Ruling of the CA
On September 26, 2007, the appellate court rendered its Decision dismissing
Gonzales’ appeal and affirming in toto the RTC Decision. The fallo reads:
“WHEREFORE, in view of the foregoing, the decision, dated December 10, 2001, in Civil
Case No. 99-1324 is hereby AFFIRMED in toto.
SO ORDERED.”11
In dismissing Gonzales’ appeal, the CA, first, confirmed the RTC’s findings that
Gonzales was indeed solidarily liable with the spouses Panlilio for the three
promissory notes executed for the REM loan; second, it likewise found neither fault
nor negligence on the part of PCIB in dishonoring the check issued by Gonzales in
favor of Unson, ratiocinating that PCIB was merely exercising its rights under the
contractual stipulations in the COHLA brought about by the outstanding past dues
of the REM loan and interests for which Gonzales was solidarily liable with the
spouses Panlilio to pay under the promissory notes.
Thus, we have this petition.
The Issues
Gonzales, as before the CA, raises again the following assignment of errors:
_______________
11 Rollo, p. 43.
188
I – IN NOT CONSIDERING THAT THE LIABILITY ARISING FROM PROMISSORY
NOTES (EXHIBITS “A”, “B” AND “C”, PETITIONER; EXHIBITS “1”, “2” AND “3”,
RESPONDENT) PERTAINED TO BORROWER JOSE MA. PANLILIO AND NOT TO
APPELLANT AS RECOGNIZED AND ACKNOWLEDGE[D] BY RESPONDENT
PHILIPPINE COMMERCIAL & INDUSTRIAL BANK (RESPONDENT BANK).
II – IN FINDING THAT THE RESPONDENTS WERE NOT AT FAULT NOR GUILTY OF
GROSS NEGLIGENCE IN DISHONORING PETITIONER’S CHECK DATED 30
SEPTEMBER 1998 IN THE AMOUNT OF P250,000.00 FOR THE REASON “ACCOUNT
CLOSED”, INSTEAD OF MERELY “REFER TO DRAWER” GIVEN THE FACT THAT
EVEN AFTER DISHONOR, RESPONDENT SIGNED A CERTIFICATION DATED 7
DECEMBER 1998 THAT CREDIT ON HAND (COH) LOAN AGREEMENT WAS STILL
VALID WITH A COLLATERAL OF FOREIGN CURRENCY DEPOSIT (FCD) OF [USD]
48,715.72.
III – IN NOT AWARDING DAMAGES AGAINST RESPONDENTS DESPITE
PRESENTATION OF CLEAR PROOF TO SUPPORT ACTION FOR DAMAGES.12

The core issues can be summarized, as follows: first, whether Gonzales is liable for
the three promissory notes covering the PhP 1,800,000 loan he made with the spouses
Panlilio where a REM over a parcel of land covered by TCT No. 38012 was constituted
as security; and second, whether PCIB properly dishonored the check of Gonzales
drawn against the COHLA he had with the bank.
The petition is partly meritorious.
_______________
12 Id., at p. 12.
189
VOL. 644, FEBRUARY 23, 2011 189
First Issue: Solidarily Liability on Promissory Notes
A close perusal of the records shows that the courts a quocorrectly found Gonzales
solidarily liable with the spouses Panlilio for the three promissory notes.
The promissory notes covering the PhP 1,800,000 loan show the following:
(1) Promissory Note BD-090-1766-95,13 dated October 30, 1995, for PhP 500,000
was signed by Gonzales and his wife, Jessica Gonzales;
(2) Promissory Note BD-090-2122-95,14 dated December 26, 1995, for PhP
1,000,000 was signed by Gonzales and the spouses Panlilio; and
(3) Promissory Note BD-090-011-96,15 dated January 3, 1996, for PhP 300,000
was signed by Gonzales and the spouses Panlilio.
Clearly, Gonzales is liable for the loans covered by the above promissory
notes. First, Gonzales admitted that he is an accommodation party which PCIB did
not dispute. In his testimony, Gonzales admitted that he merely accommodated the
spouses Panlilio at the suggestion of Ocampo, who was then handling his accounts,
in order to facilitate the fast release of the loan. Gonzales testified:
ATTY. DE JESUS:
Now in this case you filed against the bank you mentioned there was a loan also
applied for by the Panlilio’s in the sum of P1.8 Million Pesos. Will you please
tell this Court how this came about?
_______________
13 Records, pp. 10-11.

14 Id., at pp. 12-13.
15 Id., at pp. 14-15.
190

GONZALES:
Mr. Panlilio requested his account officer . . . . at that time it is a P42.0 Million
loan and if he secures another P1.8 Million loan the release will be longer
because it has to pass to XO.
Q: After that what happened?
A: So as per suggestion since Mr. Panlilio is a good friend of mine and we co-
owned the property I agreed initially to use my name so that the loan can be
utilized immediately by Mr. Panlilio.
Q: Who is actually the borrower of this P1.8 Million Pesos?
A: Well, in paper me and Mr. Panlilio.
Q: Who received the proceeds of said loan?
A: Mr. Panlilio.
Q: Do you have any proof that it was Mr. Panlilio who actually received the
proceeds of this P1.8 Million Pesos loan?
A: A check was deposited in the account of Mr. Panlilio.16
xxxx
Q: By the way upon whose suggestion was the loan of Mr. Panlilio also placed
under your name initially?
A: Well it was actually suggested by the account officer at that time Edna
Ocampo.
Q: How about this Mr. Rodolfo Noceda?
A: As you look at the authorization aspect of the loan Mr. Noceda is the boss
of Edna so he has been familiar with my account ever since its inception.
Q: So these two officers Ocampo and Noceda knew that this was actually the
account of Mr. Panlilio and not your account?
A: Yes, sir. In fact even if there is a change of account officer they are always
informing me that the account will be debited to Mr. Panlilio’s account.17
Moreover, the first note for PhP 500,000 was signed by Gonzales and his wife as
borrowers, while the two subsequent
_______________
16 Id., at pp. 222-224, TSN, January 13, 2000, pp. 12-14.
17 Id., at pp. 247-248, TSN, January 13, 2000, pp. 37-38.
191
VOL. 644, FEBRUARY 23, 2011 191
notes showed the spouses Panlilio sign as borrowers with Gonzales. It is, thus,
evident that Gonzales signed, as borrower, the promissory notes covering the PhP
1,800,000 loan despite not receiving any of the proceeds.
Second, the records of PCIB indeed bear out, and was admitted by Noceda, that
the PhP 1,800,000 loan proceeds went to the spouses Panlilio, thus:
ATTY. DE JESUS: [on Cross-Examination]
Is it not a fact that as far as the records of the bank [are] concerned the proceeds of the 1.8 million
loan was received by Mr. Panlilio?
NOCEDA:
Yes sir.18
The fact that the loans were undertaken by Gonzales when he signed as borrower
or co-borrower for the benefit of the spouses Panlilio—as shown by the fact that the
proceeds went to the spouses Panlilio who were servicing or paying the monthly
dues—is beside the point. For signing as borrower and co-borrower on the promissory
notes with the proceeds of the loans going to the spouses Panlilio, Gonzales has
extended an accommodation to said spouses.
Third, as an accommodation party, Gonzales is solidarily liable with the spouses
Panlilio for the loans. In Ang v. Associated Bank,19quoting the definition of an
accommodation party under Section 29 of the Negotiable Instruments Law, the Court
cited that an accommodation party is a person “who has signed the instrument as
maker, drawer, acceptor, or indorser, without receiving value therefor, and for the
purpose of lending his name to some other person.”20 The Court further explained:
_______________
18 Id., at p. 377, TSN, July 6, 2000, p. 4.

19 G.R. No. 146511, September 5, 2007, 532 SCRA 244.
20 Id., at pp. 272-273.
192
“[A]n accommodation party is one who meets all the three requisites, viz.: (1) he must be
a party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not
receive value therefor; and (3) he must sign for the purpose of lending his name or credit to
some other person. An accommodation party 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 party/ies thereto. The accommodation party is
liable on the instrument to a holder for value even though the holder, at the time of taking
the instrument, knew him or her to be merely an accommodation party, as if the contract was
not for accommodation.
As petitioner acknowledged it to be, the relation between an accommodation party and
the accommodated party is one of principal and surety—the accommodation party being the
surety. As such, he is deemed an original promisor and debtor from the beginning; he is
considered in law as the same party as the debtor in relation to whatever is adjudged touching
the obligation of the latter since their liabilities are interwoven as to be inseparable. Although
a contract of suretyship is in essence accessory or collateral to a valid principal obligation,
the surety’s liability to the creditor is immediate, primary and absolute; he
is directly and equally bound with the principal. As an equivalent of a regular party to the
undertaking, a surety becomes liable to the debt and duty of the principal obligor even
without possessing a direct or personal interest in the obligations nor does he receive any
benefit therefrom.”21
Thus, the knowledge, acquiescence, or even demand by Ocampo for an

accommodation by Gonzales in order to extend the credit or loan of PhP 1,800,000 to
the spouses Panlilio does not exonerate Gonzales from liability on the three
promissory notes.
Fourth, the solidary liability of Gonzales is clearly stipulated in the promissory
notes which uniformly begin, “For value received, the undersigned (the
“BORROWER”) jointly and severally promise to pay x x x.” Solidary liability
cannot
_______________
21 Id., at pp. 273-274; citations omitted.
193
VOL. 644, FEBRUARY 23, 2011 193
be presumed but must be established by law or contract.22 Article 1207 of the Civil
Code pertinently states that “there is solidary liability only when the obligation
expressly so states, or when the obligation requires solidarity.” This is true in the
instant case where Gonzales, as accommodation party, is immediately, equally, and
absolutely bound with the spouses Panlilio on the promissory notes which indubitably
stipulated solidary liability for all the borrowers. Moreover, the three promissory
notes serve as the contract between the parties. Contracts have the force of law
between the parties and must be complied with in good faith.23
Second Issue: Improper Dishonor of Check
Having ruled that Gonzales is solidarily liable for the three promissory notes, We
shall now touch upon the question of whether it was proper for PCIB to dishonor the
check issued by Gonzales against the credit line under the COHLA.
We answer in the negative.
As a rule, an appeal by certiorari under Rule 45 of the Rules of Court is limited to
review of errors of law.24 The factual findings of the trial court, especially when
affirmed by the appellate court, are generally binding on us unless there was a
misapprehension of facts or when the inference drawn from the facts was manifestly
mistaken.25 The instant case falls within the exception.
The courts a quo found and held that there was a proper dishonor of the PhP
250,000 check issued by Gonzales against
_______________
22 Hi-Cement Corporation v. Insular Bank of Asia and America, G.R. No. 132403, September 28, 2007,
534 SCRA 269, 283.
23 Panlilio v. Citibank, N.A., G.R. No. 156335, November 28, 2007, 539 SCRA 69, 82-83; citing Civil
Code, Art. 1159.
24 Usero v. Court of Appeals, G.R. No. 152115, January 26, 2005, 449 SCRA 352, 358.
25 Casol v. Purefoods Corporation, G.R. No. 166550, September 22, 2005, 470 SCRA 585, 589.
194
the credit line, because the credit line was already closed prior to the presentment of
the check by Unson; and the closing of the credit line was likewise proper pursuant
to the stipulations in the promissory notes on the bank’s right to set off or apply all
moneys of the debtor in PCIB’s hand and the stipulations in the COHLA on the
PCIB’s right to terminate the credit line on grounds of default by Gonzales.
Gonzales argues otherwise, pointing out that he was not informed about the
default of the spouses Panlilio and that the September 21, 1998 account statement of
the credit line shows a balance of PhP 270,000 which was likewise borne out by the
December 7, 1998 PCIB’s certification that he has USD 8,715.72 in his FCD account
which is more than sufficient collateral to guarantee the PhP 250,000 check, dated
September 30, 1998, he issued against the credit line.
A careful scrutiny of the records shows that the courts a quocommitted reversible
error in not finding negligence by PCIB in the dishonor of the PhP 250,000 check.
First. There was no proper notice to Gonzales of the default and delinquency of
the PhP 1,800,000 loan. It must be borne in mind that while solidarily liable with the
spouses Panlilio on the PhP 1,800,000 loan covered by the three promissory notes,
Gonzales is only an accommodation party and as such only lent his name and credit
to the spouses Panlilio. While not exonerating his solidary liability, Gonzales has a
right to be properly apprised of the default or delinquency of the loan precisely
because he is a co-signatory of the promissory notes and of his solidary liability.
We note that it is indeed understandable for Gonzales to push the spouses Panlilio
to pay the outstanding dues of the PhP 1,800,000 loan, since he was only an
accommodation party and was not personally interested in the loan. Thus, a meeting
was set by Gonzales with the spouses Panlilio and the PCIB officers, Noceda and
Ocampo, in the spouses Panlilio’s jewelry shop in SM Megamall on October 5, 1998.
195
VOL. 644, FEBRUARY 23, 2011 195
Unfortunately, the meeting did not push through due to the heavy traffic Noceda and
Ocampo encountered.
Such knowledge of the default by Gonzales was, however, not enough to properly
apprise Gonzales about the default and the outstanding dues. Verily, it is not enough
to be merely informed to pay over a hundred thousand without being formally
apprised of the exact aggregate amount and the corresponding dues pertaining to
specific loans and the dates they became due.
Gonzales testified that he was not duly notified about the outstanding interest
dues of the loan:
ATTY. DE JESUS:
Now when Mr. Panlilio’s was encountering problems with the bank did the defendant bank [advise]
you of any problem with the same account?
GONZALES:
They never [advised] me in writing.
Q: How did you come to know that there was a problem?
A: When my check bounced sir.26
On the other hand, the PCIB contends otherwise, as Corazon Nepomuceno

testified:
ATTY. PADILLA:
Can you tell this Honorable Court what is it that you told
Mr. Gonzales when you spoke to him at the celphone?
NEPOMUCENO:
I just told him to update the interest so that we would not have to cancel the
COH Line and he could withdraw the money that was in the deposit because
technically, if an account is past due we are not allowed to let the client
withdraw funds because they are allowed to offset funds so, just to help him get
his money, just to update the interest so that we could allow him to withdraw.
_______________
26 Records, pp. 384-A-386, TSN, January 13, 2000, pp. 35-36.
196

Q Withdraw what?
A: His money on the COH, whatever deposit he has with us.
Q: Did you inform him that if he did not update the interest he would not be able
to withdraw his money?
A: Yes sir, we will be forced to hold on to any assets that he has with us so that’s
why we suggested just to update the interest because at the end of everything,
he would be able to withdraw more funds than the interest that the money he
would be needed to update the interest.27
From the foregoing testimonies, between the denial of Gonzales and the assertion
by PCIB that Gonzales was properly apprised, we find for Gonzales. We find the
testimonies of the former PCIB employees to be self-serving and tenuous at best, for
there was no proper written notice given by the bank. The record is bereft of any
document showing that, indeed, Gonzales was formally informed by PCIB about the
past due periodic interests.
PCIB is well aware and did not dispute the fact that Gonzales is an accommodation
party. It also acted in accordance with such fact by releasing the proceeds of the loan
to the spouses Panlilio and likewise only informed the spouses Panlilio of the interest
dues. The spouses Panlilio, through their account28 with PCIB, were paying the
periodic interest dues and were the ones periodically informed by the bank of the
debiting of the amounts for the periodic interest payments. Gonzales never paid any
of the periodic interest dues. PCIB’s Noceda admitted as much in his cross-
examination:
And there was no instance that Mr. Gonzales ever made even interest for this
loan, is it not, it’s always Mr. Panlilio who was paying the interest for this loan?
_______________
27 Id., at pp. 612-614, TSN, July 20, 2000, pp. 9-11.

28 Id., at pp. 26-37, Account No. 00-1423-01005-3 in the name of the spouses Panlilio with the PCIBank
Forbes-Edsa Branch (issued in lieu of Passbook 142-868324).
197
VOL. 644, FEBRUARY 23, 2011 197

NOCEDA:
Yes sir.29
Indeed, no evidence was presented tending to show that Gonzales was periodically
sent notices or notified of the various periodic interest dues covering the three
promissory notes. Neither do the records show that Gonzales was aware of amounts
for the periodic interests and the payment for them. Such were serviced by the
spouses Panlilio.
Thus, PCIB ought to have notified Gonzales about the status of the default or
delinquency of the interest dues that were not paid starting July 1998. And such
notification must be formal or in written form considering that the outstanding
periodic interests became due at various dates, i.e., on July 8, 17, and 28, 1998, and
the various amounts have to be certain so that Gonzales is not only properly apprised
but is given the opportunity to pay them being solidarily liable for the loans covered
by the promissory notes.
It is the bank which computes these periodic interests and such dues must be put
into writing and formally served to Gonzales if he were asked to pay them, more so
when the payments by the spouses Panlilio were charged through the account of the
spouses Panlilio where the interest dues were simply debited. Such arrangement did
not cover Gonzales’ bank account with PCIB, since he is only an accommodation party
who has no personal interest in the PhP 1,800,000 loan. Without a clear and
determinate demand through a formal written notice for the exact periodic interest
dues for the loans, Gonzales cannot be expected to pay for them.
In business, more so for banks, the amounts demanded from the debtor or borrower
have to be definite, clear, and without ambiguity. It is not sufficient simply to be
informed that one must pay over a hundred thousand aggregate outstanding interest
dues without clear and certain figures.
_______________
29 Id., at p. 384-A, TSN, July 6, 2000, p. 13.
198
Thus, We find PCIB negligent in not properly informing Gonzales, who is an
accommodation party, about the default and the exact outstanding periodic interest
dues. Without being properly apprised, Gonzales was not given the opportunity to
properly act on them.
It was only through a letter30 sent by PCIB dated October 2, 1998 but
incongruously showing the delinquencies of the PhP 1,800,000 loan at a much later
date, i.e., as of October 31, 1998, when Gonzales was formally apprised by PCIB. In
it, the interest due was PhP 106,1616.71 and penalties for the unpaid interest due of
PhP 64,766.66, or a total aggregate due of PhP 171,383.37. But it is not certain and
the records do not show when the letter was sent and when Gonzales received it.
What is clear is that such letter was belatedly sent by PCIB and received by Gonzales
after the fact that the latter’s FCD was already frozen, his credit line under the
COHLA was terminated or suspended, and his PhP 250,000 check in favor of Unson
was dishonored.
And way much later, or on May 4, 1999, was a demand letter from the counsel of
PCIB sent to Gonzales demanding payment of the PhP 1,800,000 loan. Obviously,
these formal written notices sent to Gonzales were too late in the day for Gonzales to
act properly on the delinquency and he already suffered the humiliation and
embarrassment from the dishonor of his check drawn against the credit line.
To reiterate, a written notice on the default and deficiency of the PhP 1,800,000
loan covered by the three promissory notes was required to apprise Gonzales, an
accommodation party. PCIB is obliged to formally inform and apprise Gonzales of the
defaults and the outstanding obligations, more so when PCIB was invoking the
solidary liability of Gonzales. This PCIB failed to do.
_______________
30 Id., at p. 160.
199
VOL. 644, FEBRUARY 23, 2011 199
Second. PCIB was grossly negligent in not giving prior notice to Gonzales about
its course of action to suspend, terminate, or revoke the credit line, thereby violating
the clear stipulation in the COHLA.
The COHLA, in its effectivity clause, clearly provides:
“4. EFFECTIVITY — The COH shall be effective for a period of one (1) year commencing
from the receipt by the CLIENT of the COH checkbook issued by the BANK, subject to
automatic renewals for same periods unless terminated by the BANK upon prior notice
served on CLIENT.”31 (Emphasis ours.)
It is undisputed that the bank unilaterally revoked, suspended, and terminated

the COHLA without giving Gonzales prior notice as required by the above stipulation
in the COHLA. Noceda testified on cross-examination on the Offering
Ticket32 recommending the termination of the credit line, thus:
This Exhibit 8, you have not furnished at anytime a copy to
the plaintiff Mr. Gonzales is it not?
NOCEDA:
No sir but verbally it was relayed to him.
Q: But you have no proof that Mr. Gonzales came to know about this Exhibit 8?
A: It was relayed to him verbally.
Q: But there is no written proof?
A: No sir.
Q: And it is only now that you claim that it was verbally relayed to him, it’s only
now when you testified in Court?
A: Before . . .
Q: To whom did you relay this information?
_______________
31 Id., at p. 157.
32 Id., at p. 162.
200

A: It was during the time that we were going to Megamall, it was relayed by Liza
that he has to pay his obligations or else it will adversely affect the status of the
account.33
On the other hand, the testimony of Corazon Nepomuceno shows:
Now we go to the other credit facility which is the credit on
hand extended solely of course to Mr. Eusebio Gonzales who
is the plaintiff here, Mr. Panlilio is not included in this credit
on hand facility. Did I gather from you as per your Exhibit 7
as of October 2, 1998 you were the one who recommended the
cancellation of this credit on hand facility?
NEPOMUCENO:
It was recommended by the account officer and I supported it.
Q: And you approved it?
A: Yes sir.
Q: Did you inform Mr. Gonzales that you have already cancelled his credit on
hand facility?
A: As far as I know, it is the account officer who will inform him.
Q: But you have no record that he was informed?
A: I don’t recall and we have to look at the folder to determine if they were
informed.
Q: If you will notice, this letter . . . what do you call this letter of yours?
A: That is our letter advising them or reminding them of their unpaid interest
and that if he is able to update his interest he can extend the promissory note
or restructure the outstanding.
Q: Now, I call your attention madam witness, there is nothing in this letter to the
clients advising them or Mr. Gonzales that his credit on hand facility was
already cancelled?
_______________
33 Id., at p. 377, TSN, July 6, 2000, pp. 13-16.
201
VOL. 644, FEBRUARY 23, 2011 201

A: I don’t know if there are other letters aside from this.
Q: So in this letter there is nothing to inform or to make Mr. Eusebio aware that
his credit on hand facility was already cancelled?
A: No actually he can understand it from the last sentence. “If you will be able to
update your outstanding interest, we can apply the extention of your promissory
note” so in other words we are saying that if you don’t, you cannot extend the
promissory note.
Q: You will notice that the subject matter of this October 2, 1998 letter is only
the loan of 1.8 million is it not, as you can see from the letter? Okay?
A: Ah . . .
Q: Okay. There is nothing there that will show that that also refers to the credit
on hand facility which was being utilized by Mr. Gonzales is it not?
A: But I don’t know if there are other letters that are not presented to me now.34
The foregoing testimonies of PCIB officers clearly show that not only did PCIB fail
to give prior notice to Gonzales about the Offering Ticket for the process of
termination, suspension, or revocation of the credit line under the COHLA, but PCIB
likewise failed to inform Gonzales of the fact that his credit line has been terminated.
Thus, we find PCIB grossly negligent in the termination, revocation, or suspension of
the credit line under the COHLA. While PCIB invokes its right on the so-called “cross
default provisions,” it may not with impunity ignore the rights of Gonzales under the
COHLA.
Indeed, the business of banking is impressed with public interest and great
reliance is made on the bank’s sworn profession of diligence and meticulousness in
giving irreproachable service. Like a common carrier whose business is imbued with
public interest, a bank should exercise extraordinary
_______________
34 Id., at pp. 695-700, TSN, October 26, 2000, pp. 18-23.
202
diligence to negate its liability to the depositors.35 In this instance, PCIB is sorely
remiss in the diligence required in treating with its client, Gonzales. It may not
wantonly exercise its rights without respecting and honoring the rights of its clients.
Art. 19 of the New Civil Code clearly provides that “[e]very person must, in the
exercise of his rights and in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith.” This is the basis of the
principle of abuse of right which, in turn, is based upon the maxim suum jus summa
injuria (the abuse of right is the greatest possible wrong).36
In order for Art. 19 to be actionable, the following elements must be present: “(1)
the existence of a legal right or duty, (2) which is exercised in bad faith, and (3) for
the sole intent of prejudicing or injuring another.”37 We find that such elements are
present in the instant case. The effectivity clause of the COHLA is crystal clear that
termination of the COH should be done only upon prior notice served on the
CLIENT. This is the legal duty of PCIB––to inform Gonzales of the termination.
However, as shown by the above testimonies, PCIB failed to give prior notice to
Gonzales.
Malice or bad faith is at the core of Art. 19. Malice or bad faith “implies a conscious
and intentional design to do a wrongful act for a dishonest purpose or moral
obliquity.”38 In the instant case, PCIB was able to send a letter advising Gonzales of
the unpaid interest on the loans39 but failed to
_______________
35 Solidbank Corporation/Metropolitan Bank and Trust Company v. Tan, G.R. No. 167346, April 2,
2007, 520 SCRA 123, 129-130; citations omitted.
36 Arlegui v. Court of Appeals, G.R. No. 126437, March 6, 2002, 378 SCRA 322, 337.
37 ABS-CBN Broadcasting Corporation v. CA, G.R. No. 128690, January 21, 1999, 301 SCRA 572, 603.
38 Id., at p. 604.
39 Records, p. 160.
203
VOL. 644, FEBRUARY 23, 2011 203
mention anything about the termination of the COHLA. More significantly, no letter
was ever sent to him about the termination of the COHLA. The failure to give prior
notice on the part of PCIB is already prima facie evidence of bad faith.40 Therefore, it
is abundantly clear that this case falls squarely within the purview of the principle
of abuse of rights as embodied in Art. 19.
Third. There is no dispute on the right of PCIB to suspend, terminate, or revoke
the COHLA under the “cross default provisions” of both the promissory notes and the
COHLA. However, these cross default provisions do not confer absolute unilateral
right to PCIB, as they are qualified by the other stipulations in the contracts or
specific circumstances, like in the instant case of an accommodation party.
The promissory notes uniformly provide:
“The lender is hereby authorized, at its option and without notice, to set off or
apply to the payment of this Note any and all moneys which may be in its hands on
deposit or otherwise belonging to the Borrower.The Borrower irrevocably appoint/s the
Lender, effective upon the nonpayment of this Note on demand/at maturity or upon the
happening of any of the events of default, but without any obligation on the Lender’s part
should it choose not to perform this mandate, as the attorney-in-fact of the Borrower, to sell
and dispose of any property of the Borrower, which may be in the Lender’s possession by
public or private sale, and to apply the proceeds thereof to the payment of this Note; the
Borrower, however, shall remain liable for any deficiency.”41 (Emphasis ours.)
The above provisos are indeed qualified with the specific circumstance of an
accommodation party who, as such, has not been servicing the payment of the dues
of the loans, and
_______________
40 Manila Electric Company v. Hon. Navarro-Domingo, G.R. No. 161893, June 27, 2006, 493 SCRA 363,
371.
41 Records, p. 10.
204
must first be properly apprised in writing of the outstanding dues in order to answer
for his solidary obligation.
The same is true for the COHLA, which in its default clause provides:
16. DEFAULT — The CLIENT shall be considered in default under the COH if any
of the following events shall occur:
1. x x x
2. Violation of the terms and conditions of this Agreement or any contract of the
CLIENT with the BANK or any bank, persons, corporations or entities for the
payment of borrowed money, or any other event of default in such contracts.42
The above pertinent default clause must be read in conjunction with the effectivity
clause (No. 4 of the COHLA, quoted above), which expressly provides for the right of
client to prior notice. The rationale is simple: in cases where the bank has the right
to terminate, revoke, or suspend the credit line, the client must be notified of such
intent in order for the latter to act accordingly—whether to correct any ground giving
rise to the right of the bank to terminate the credit line and to dishonor any check
issued or to act in accord with such termination, i.e., not to issue any check drawn
from the credit line or to replace any checks that had been issued. This, the bank—
with gross negligence—failed to accord Gonzales, a valued client for more than 15
years.
Fourth. We find the testimony43 of Ocampo incredible on the point that the
principal borrower of the PhP 1,800,000 loan covered by the three promissory notes
is Gonzales for which the bank officers had special instructions to grant and that it
was through the instructions of Gonzales that the
_______________
42 Id., at p. 159.
43 Id., at pp. 470-482, TSN, July 7, 2000, pp. 9-21.
205
VOL. 644, FEBRUARY 23, 2011 205
payment of the periodic interest dues were debited from the account of the spouses
Panlilio.
For one, while the first promissory note dated October 30, 1995 indeed shows
Gonzales as the principal borrower, the other promissory notes dated December 26,
1995 and January 3, 1996 evidently show that it was Jose Panlilio who was the
principal borrower with Gonzales as co-borrower. For another, Ocampo cannot feign
ignorance on the arrangement of the payments by the spouses Panlilio through the
debiting of their bank account. It is incredulous that the payment arrangement is
merely at the behest of Gonzales and at a mere verbal directive to do so. The fact that
the spouses Panlilio not only received the proceeds of the loan but were servicing the
periodic interest dues reinforces the fact that Gonzales was only an accommodation
party.
Thus, due to PCIB’s negligence in not giving Gonzales—an accommodation party—
proper notice relative to the delinquencies in the PhP 1,800,000 loan covered by the
three promissory notes, the unjust termination, revocation, or suspension of the
credit line under the COHLA from PCIB’s gross negligence in not honoring its
obligation to give prior notice to Gonzales about such termination and in not
informing Gonzales of the fact of such termination, treating Gonzales’ account as
closed and dishonoring his PhP 250,000 check, was certainly a reckless act by PCIB.
This resulted in the actual injury of PhP 250,000 to Gonzales whose FCD account was
frozen and had to look elsewhere for money to pay Unson.
With banks, the degree of diligence required is more than that of a good father of
the family considering that the business of banking is imbued with public interest
due to the nature of their function. The law imposes on banks a high degree of
obligation to treat the accounts of its depositors with meticulous care, always having
in mind the fiduciary nature
206
of banking.44 Had Gonzales been properly notified of the delinquencies of the PhP
1,800,000 loan and the process of terminating his credit line under the COHLA, he
could have acted accordingly and the dishonor of the check would have been avoided.
Third Issue: Award of Damages
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—banks have
attained a ubiquitous presence among the people, who have come to regard them with
respect and even gratitude and most of all, confidence, and it is for this reason, banks
should guard against injury attributable to negligence or bad faith on its part. 45
In the instant case, Gonzales suffered from the negligence and bad faith of PCIB.
From the testimonies of Gonzales’ witnesses, particularly those of Dominador
Santos46 and Freddy Gomez,47 the embarrassment and humiliation Gonzales has to
endure not only before his former close friend Unson but more from the members and
families of his friends and associates in the PCA, which he continues to experience
considering the confrontation he had with Unson and the consequent loss of standing
and credibility among them from the fact of the apparent bouncing check he issued.
Credit is very important to businessmen and its loss or impairment needs to be
recognized and compensated.48
_______________
44 Philippine National Bank v. Pike, G.R. No. 157845, September 20, 2005, 470 SCRA 328, 347.
45 Sandejas v. Ignacio, Jr., G.R. No. 155033, December 19, 2007, 541 SCRA 61, 82.
46 Records, pp. 274-286, TSN, March 9, 2000, pp. 2-13.
47 Id., at pp. 287-298, TSN, March 9, 2000, pp. 13-25.
48 Prudential Bank v. Lim, G.R. No. 136371, November 11, 2005, 474 SCRA 485, 497; citing Samson v.
Bank of the Philippine Islands, G.R. No. 154087, July 10, 2003, 405 SCRA 607.
207
VOL. 644, FEBRUARY 23, 2011 207
The termination of the COHLA by PCIB without prior notice and the subsequent
dishonor of the check issued by Gonzales constitute acts of contra bonus mores. Art.
21 of the Civil Code refers to such acts when it says, “Any person who willfully causes
loss or injury to another in a manner that is contrary to morals, good customs or
public policy shall compensate the latter for damage.”
Accordingly, this Court finds that such acts warrant the payment of indemnity in
the form of nominal damages. Nominal damages “are recoverable where a legal right
is technically violated and must be vindicated against an invasion that has produced
no actual present loss of any kind x x x.”49 We further explained the nature of nominal
damages in Almeda v. Cariño:
“x x x Its award is thus not for the purpose of indemnification for a loss but for the
recognition and vindication of a right. Indeed, nominal damages are damages in name only
and not in fact. When granted by the courts, they are not treated as an equivalent of a wrong
inflicted but simply a recognition of the existence of a technical injury. A violation of the
plaintiff’s right, even if only technical, is sufficient to support an award of nominal
damages. Conversely, so long as there is a showing of a violation of the right of the
plaintiff, an award of nominal damages is proper.”50 (Emphasis Ours.)
In the present case, Gonzales had the right to be informed of the accrued interest
and most especially, for the suspension of his COHLA. For failure to do so, the bank
is liable to pay nominal damages. The amount of such damages is addressed to the
sound discretion of the court, taking into account the
_______________
49 Francisco v. Ferrer, Jr., G.R. No. 142029, February 28, 2001, 353 SCRA 261, 267.
50 G.R. No. 152143, January 13, 2003, 395 SCRA 144, 150.
208
relevant circumstances.51 In this case, the Court finds that the grant of PhP 50,000 as
nominal damages is proper.
Moreover, as We held in MERALCO v. CA,52 failure to give prior notice when
required, such as in the instant case, constitutes a breach of contract and is a clear
violation of Art. 21 of the Code. In cases such as this, Art. 2219 of the Code provides
that moral damages may be recovered in acts referred to in its Art. 21. Further, Art.
2220 of the Code provides that “[w]illful injury to property may be a legal ground for
awarding moral damages if the court should find that, under the circumstances, such
damages are justly due. The same rule applies to breaches of contract where the
defendant acted fraudulently or in bad faith.” Similarly, “every person who, contrary
to law, willfully or negligently causes damage to another, shall indemnify the latter
for the same.”53 Evidently, Gonzales is entitled to recover moral damages.
Even in the absence of malice or bad faith, a depositor still has the right to recover
reasonable moral damages, if the depositor suffered mental anguish, serious anxiety,
embarrassment, and humiliation.54 Although incapable of pecuniary estimation,
moral damages are certainly recoverable if they are the proximate result of the
defendant’s wrongful act or omission. The factual antecedents bolstered by
undisputed testimonies likewise show the mental anguish and anxiety Gonzales had
to endure with the threat of Unson to file a suit. Gonzales had to pay Unson PhP
250,000, while his FCD account in PCIB was frozen, prompting Gonzales to demand
from PCIB and to file the instant suit.
_______________
51 Ancheta v. Destiny Financial Plans, Inc., G.R. No. 179702, February 16, 2010, 612 SCRA 648, 664;
citing Agabon v. NLRC, G.R. No. 158693, November 17, 2004, 442 SCRA 616.
52 No. L-39019, January 22, 1988, 157 SCRA 243, 248.
54 Bank of Philippine Islands v. Court of Appeals, G.R. No. 136202, January 25, 2007, 512 SCRA 620,
641.
209
VOL. 644, FEBRUARY 23, 2011 209
The award of moral damages is aimed at a restoration within the limits of the
possible, of the spiritual status quo ante—it must always reasonably approximate the
extent of injury and be proportional to the wrong committed.55 Thus, an award of PhP
50,000 is reasonable moral damages for the unjust dishonor of the PhP 250,000 which
was the proximate cause of the consequent humiliation, embarrassment, anxiety, and
mental anguish suffered by Gonzales from his loss of credibility among his friends,
colleagues and peers.
Furthermore, the initial carelessness of the bank’s omission in not properly
informing Gonzales of the outstanding interest dues––aggravated by its gross neglect
in omitting to give prior notice as stipulated under the COHLA and in not giving
actual notice of the termination of the credit line––justifies the grant of exemplary
damages of PhP 10,000. Such an award is imposed by way of example or correction
for the public good.
Finally, an award for attorney’s fees is likewise called for from PCIB’s negligence
which compelled Gonzales to litigate to protect his interest. In accordance with Art.
2208(1) of the Code, attorney’s fees may be recovered when exemplary damages are
awarded. We find that the amount of PhP 50,000 as attorney’s fees is reasonable.
WHEREFORE, this petition is PARTLY GRANTED. Accordingly, the CA Decision
dated October 22, 2007 in CA-G.R. CV No. 74466 is hereby REVERSED and SET
ASIDE. The Philippine Commercial and International Bank (now Banco De Oro) is
ORDERED to pay Eusebio Gonzales PhP 50,000 as nominal damages, PhP 50,000 as
moral damages, PhP 10,000 as exemplary damages, and PhP 50,000 as attorney’s
fees.
_______________
55 Solidbank Corporation v. Arrieta, G.R. No. 152727, February 17, 2005, 451 SCRA 711, 721-722;
citations omitted.
210
SO ORDERED.
Corona (C.J., Chairperson), Nachura,** Del Castillo and Perez, JJ., concur.
Petition partly granted, judgment reversed and set aside.
Note.—A bank is “under obligation to treat the accounts of its depositors with
meticulous care.” (Philippine Savings Bank vs. Chowking Food Corporation, 557
SCRA 318 [2008])
TOMAS ANG, petitioner, vs. ASSOCIATED BANK AND ANTONIO ANG ENG
LIONG, respondents.
Appeals; Assignment of Errors; Pleadings and Practice; It is well within the authority of
the Court of Appeals to raise, if it deems proper under the circumstances obtaining, error/s not
assigned on an appealed case—an appellate court has the broad discretionary power to waive
the lack of proper assignment of errors and to consider errors not assigned.—Procedurally, it
is well within the authority of the Court of Appeals to raise, if it deems proper under the
circumstances obtaining, error/s not assigned on an appealed case. In Mendoza v. Bautista,
453 SCRA 691 (2005), this Court recognized the broad discretionary power of an appellate
court to waive the lack of proper assignment of errors and to consider errors not assigned,
thus: As a rule, no issue may be raised on appeal unless it has been brought before the lower
tribunal for its consideration. Higher courts are precluded from entertaining matters neither
alleged in the pleadings nor raised during the proceedings below, but ventilated for the first
time only in a motion for reconsideration or on appeal. However, as with most procedural
rules, this maxim is subject to exceptions. Indeed, our rules recognize the broad discretionary
power of an appellate court to waive the lack of proper assignment of errors and to consider
errors not assigned. Section 8 of Rule 51 of the Rules of Court provides: SEC. 8. Questions
that may be decided.—No error which does not affect the jurisdiction over the subject matter
or the validity of the judgment appealed from or the proceedings therein will be considered,
unless stated in the assignment of errors, or closely related to or dependent on an assigned
error and properly argued in the brief, save as the court may pass upon plain errors and
clerical errors. Thus, an appellate court is clothed with ample authority to review rulings
even if they are not assigned as errors in the appeal in these instances: (a) grounds not
assigned as errors but affecting jurisdiction over the subject matter; (b) matters not assigned
as errors on appeal but are evidently plain or clerical errors within contemplation of law; (c)
matters not assigned as errors on appeal but consideration of which is necessary in arriving
at a just
_______________
*FIRST DIVISION.
245
VOL. 532, SEPTEMBER 5, 2007 245
Ang vs. Associated Bank
decision and complete resolution of the case or to serve the interests of justice or to avoid
dispensing piecemeal justice; (d) matters not specifically assigned as errors on appeal but
raised in the trial court and are matters of record having some bearing on the issue submitted
which the parties failed to raise or which the lower court ignored; (e) matters not assigned as
errors on appeal but closely related to an error assigned; and (f) matters not assigned as
errors on appeal but upon which the determination of a question properly assigned is
dependent.
Asset Privatization Trust; History.—Taking into account the imperative need of formally
launching a program for the rationalization of the government corporate sector, then
President Corazon C. Aquino issued Proclamation No. 50 on December 8, 1986. As one of the
twin cornerstones of the program was to establish the privatization of a good number of
government corporations, the proclamation created the Asset Privatization Trust, which
would, for the benefit of the National Government, take title to and possession of, conserve,
provisionally manage and dispose of transferred assets that were identified for privatization
or disposition. In accordance with the provisions of Section 23 of the proclamation, then
President Aquino subsequently issued Administrative Order No. 14 on February 3, 1987,
which approved the identification of and transfer to the National Government of certain
assets (consisting of loans, equity investments, accrued interest receivables, acquired assets
and other assets) and liabilities (consisting of deposits, borrowings, other liabilities and
contingent guarantees) of the Development Bank of the Philippines (DBP) and the Philippine
National Bank (PNB). The transfer of assets was implemented through a Deed of Transfer
executed on February 27, 1987 between the National Government, on one hand, and the DBP
and PNB, on the other. In turn, the National Government designated the Asset Privatization
Trust to act as its trustee through a Trust Agreement, whereby the non-performing accounts
of DBP and PNB, including, among others, the DBP’s equity with respondent Bank, were
entrusted to the Asset Privatization Trust. As provided for in the Agreement, among the
powers and duties of the Asset Privatization Trust with respect to the trust properties
consisting of receivables was to handle their administration and collection by bringing suit
to enforce payment of the obligations or any installment thereof or settling or compromising
any of such obligations or any other claim or demand which the Govern-
246
ment may have against any person or persons, and to do all acts, institute all
proceedings, and to exercise all other rights, powers, and privileges of ownership that an
absolute owner of the properties would otherwise have the right to do.
Same; Actions; Parties; While a bank held by the Asset Privatization Trust may not
appear to be the real party in interest at the time the action for collection was instituted, the
issue had been rendered moot with the occurrence of a supervening event—the reacquisition of
the bank by its former owner when the case was still pending in the lower court, thus
reclaiming its real and actual interest over the unpaid promissory notes.—Based on the above
backdrop, respondent Bank does not appear to be the real party in interest when it instituted
the collection suit on August 28, 1990 against Antonio Ang Eng Liong and petitioner Tomas
Ang. At the time the complaint was filed in the trial court, it was the Asset Privatization
Trust which had the authority to enforce its claims against both debtors. In fact, during the
pre-trial conference, Atty. Roderick Orallo, counsel for the bank, openly admitted that it was
under the trusteeship of the Asset Privatization Trust. The Asset Privatization Trust, which
should have been represented by the Office of the Government Corporate Counsel, had the
authority to file and prosecute the case. The foregoing notwithstanding, this Court can not,
at present, readily subscribe to petitioner’s insistence that the case must be dismissed.
Significantly, it stands without refute, both in the pleadings as well as in the evidence
presented during the trial and up to the time this case reached the Court, that the issue had
been rendered moot with the occurrence of a supervening event—the “buy-back” of the bank
by its former owner, Leonardo Ty, sometime in October 1993. By such re-acquisition from the
Asset Privatization Trust when the case was still pending in the lower court, the bank
reclaimed its real and actual interest over the unpaid promissory notes; hence, it could
rightfully qualify as a “holder” thereof under the NIL.
Negotiable Instruments Law; Accommodation Party; Requisites; Words and Phrases; An
accommodation party is a person “who has signed the instrument as maker, drawer, acceptor,
or indorser, without receiving value therefor, and for the purpose of lending his name to some
other person.”—Notably, Section 29 of the NIL defines an accommodation party as a person
“who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving
value there-
247
VOL. 532, SEPTEMBER 5, 2007 247
for, and for the purpose of lending his name to some other person.” As gleaned from the
text, an accommodation party is one who meets all the three requisites, viz.: (1) he must be a
party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not
receive value therefor; and (3) he must sign for the purpose of lending his name or credit to
some other person. An accommodation party 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 party/ies thereto. The accommodation party is
liable on the instrument to a holder for value even though the holder, at the time of taking
the instrument, knew him or her to be merely an accommodation party, as if the contract was
not for accommodation.
Same; Same; Suretyship; The relation between an accommodation party and the
accommodated party is one of principal and surety—the accommodation party being the
surety; Although a contract of suretyship is in essence accessory or collateral to a valid
principal obligation, the surety’s liability to the creditor is immediate, primary and absolute—
he is directly and equally bound with the principal.—As petitioner acknowledged it to be, the
relation between an accommodation party and the accommodated party is one of principal
and surety—the accommodation party being the surety. As such, he is deemed an original
promisor and debtor from the beginning; he is considered in law as the same party as the
debtor in relation to whatever is adjudged touching the obligation of the latter since their
liabilities are interwoven as to be inseparable. Although a contract of suretyship is in essence
accessory or collateral to a valid principal obligation, the surety’s liability to the creditor
is immediate, primary and absolute; he is directly and equally bound with the principal. As
an equivalent of a regular party to the undertaking, a surety becomes liable to the debt and
duty of the principal obligor even without possessing a direct or personal interest in the
obligations nor does he receive any benefit therefrom.
Obligations and Contracts; Suretyship; Article 2080 of the Civil Code does not apply in a
contract of suretyship—Articles 1207 up to 1222 of the Code (on joint and solidary obligations)
govern the relationship.—Contrary to petitioner’s adamant stand, however, Article 2080 of
the Civil Code does not apply in a contract of suretyship. Art. 2047 of the Civil Code states
that if a person binds himself solidarily
248
with the principal debtor, the provisions of Section 4, Chapter 3, Title I, Book IV of the
Civil Code must be observed. Accordingly, Articles 1207 up to 1222 of the Code (on joint and
solidary obligations) shall govern the relationship of petitioner with the bank.
Negotiable Instruments Law; Accommodation Party; Words and Phrases; The phrase
“without receiving value therefor” used in Sec. 29 of the Negotiable Instruments Law (NIL)
means “without receiving value by virtue of the instrument” and not as it is apparently
supposed to mean, “without receiving payment for lending his name”—when a third person
advances the face value of the note to the accommodated party at the time of its creation, the
consideration for the note as regards its maker is the money advanced to the accommodated
party.—In issuing the two promissory notes, petitioner as accommodating party warranted
to the holder in due course that he would pay the same according to its tenor. It is no defense
to state on his part that he did not receive any value therefor because the phrase “without
receiving value therefore” used in Sec. 29 of the NIL means “without receiving value by virtue
of the instrument” and not as it is apparently supposed to mean, “without receiving payment
for lending his name.” Stated differently, when a third person advances the face value of the
note to the accommodated party at the time of its creation, the consideration for the note as
regards its maker is the money advanced to the accommodated party. It is enough that value
was given for the note at the time of its creation. As in the instant case, a sum of money was
received by virtue of the notes, hence, it is immaterial so far as the bank is concerned whether
one of the signers, particularly petitioner, has or has not received anything in payment of the
use of his name.
Same; Same; Upon the maturity of the note, a surety may pay the debt, demand the
collateral security, if there be any, and dispose of it to his benefit, or, if applicable, subrogate
himself in the place of the creditor with the right to enforce the guaranty against the other
signers of the note for the reimbursement of what he is entitled to recover from them.—Under
the law, upon the maturity of the note, a surety may pay the debt, demand the collateral
security, if there be any, and dispose of it to his benefit, or, if applicable, subrogate himself
in the place of the creditor with the right to enforce the guaranty against the other signers of
the note for the reimbursement of what he is entitled to recover from them. Regrettably, none
of these were
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VOL. 532, SEPTEMBER 5, 2007 249
prudently done by petitioner. When he was first notified by the bank sometime in 1982
regarding his accountabilities under the promissory notes, he lackadaisically relied on
Antonio Ang Eng Liong, who represented that he would take care of the matter, instead of
directly communicating with the bank for its settlement. Thus, petitioner cannot now claim
that he was prejudiced by the supposed “extension of time” given by the bank to his co-debtor.
Same; Same; Since the liability of an accommodation party remains not only primary but
also unconditional to a holder for value, 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; It is a recognized doctrine in the
matter of suretyship that with respect to the surety, the creditor is under no obligation to
display any diligence in the enforcement of his rights as a creditor.—Since the liability of an
accommodation party remains not only primary but also unconditional to a holder for value,
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. In Clark v. Sellner, 42 Phil. 384 (1921), this Court held: x x x The mere
delay of the creditor in enforcing the guaranty has not by any means impaired his action
against the defendant. It should not be lost sight of that the defendant’s signature on the note
is an assurance to the creditor that the collateral guaranty will remain good, and that
otherwise, he, the defendant, will be personally responsible for the payment. True, that if the
creditor had done any act whereby the guaranty was impaired in its value, or discharged,
such an act would have wholly or partially released the surety; but it must be born in mind
that it is a recognized doctrine in the matter of suretyship that with respect to the surety,
the creditor is under no obligation to display any diligence in the enforcement of his rights as
a creditor. His mere inaction indulgence, passiveness, or delay in proceeding against the
principal debtor, or the fact that he did not enforce the guaranty or apply on the payment of
such funds as were available, constitute no defense at all for the surety, unless the contract
expressly requires diligence and promptness on the part of the creditor, which is not the case
in the present action.
250
There is in some decisions a tendency toward holding that the creditor’s laches may
discharge the surety, meaning by laches a negligent forbearance. This theory, however, is not
generally accepted and the courts almost universally consider it essentially inconsistent with
the relation of the parties to the note. (21 R.C.L., 1032-1034)
Appeals.
Breva and Breva Law Firm for petitioner.
Hildegardo F. Iñigo for Associated Bank.
Bernardino Bolcan, Jr. for Ang Eng Liong.
AZCUNA, J.:
This petition for certiorari under Rule 45 of the Rules on Civil Procedure seeks to
review the October 9, 2000 Decision and December 26, 2000 Resolution of the Court
1 2
of Appeals in CA-G.R. CV No. 53413 which reversed and set aside the January 5,
1996 Decision of the Regional Trial Court, Branch 16, Davao City, in Civil Case No.
3
20,299-90, dismissing the complaint filed by respondents for collection of a sum of

money.
On August 28, 1990, respondent Associated Bank (formerly Associated Banking
Corporation and now known as United Overseas Bank Philippines) filed a collection
suit against Antonio Ang Eng Liong and petitioner Tomas Ang for the two (2)
promissory notes that they executed as principal debtor and co-maker, respectively.
_______________
1 Penned by Associate Justice Martin S. Villarama, Jr., with Associate Justices Romeo J. Callejo, Sr.
(now retired Supreme Court Associate Justice) and Juan Q. Enriquez, Jr. concurring.
2 CA Rollo, p. 137.
3 Penned by Judge Romeo D. Marasigan.
251
VOL. 532, SEPTEMBER 5, 2007 251
In the Complaint, respondent Bank alleged that on October 3 and 9, 1978, the
4
defendants obtained a loan of P50,000, evidenced by a promissory note bearing PN-

No. DVO-78-382, and P30,000, evidenced by a promissory note bearing PN-No. DVO-
78-390. As agreed, the loan would be payable, jointly and severally, on January 31,
1979 and December 8, 1978, respectively. In addition, subsequent amendments to 5
the promissory notes as well as the disclosure statements stipulated that the loan
6
would earn 14% interest rate per annum, 2% service charge per annum, 1% penalty
charge per month from due date until fully paid, and attorney’s fees equivalent to
20% of the outstanding obligation.
Despite repeated demands for payment, the latest of which were on September 13,
1988 and September 9, 1986, on Antonio Ang Eng Liong and Tomas Ang, respectively,
respondent Bank claimed that the defendants failed and refused to settle their
obligation, resulting in a total indebtedness of P539,638.96 as of July 31, 1990, broken
down as follows:
PN-No. DVO-78-382 PN-No. DVO-78-390
Outstanding P50,000.00 P30,000.00
Balance
Add Past due charges for Past due charges for
4,199 days (from 01- 4,253 days (from 12-
31-79 to 07-31-90) 8-78 to 07-31-90)
14% Interest P203,538.98 P125,334.41
2% Service P11,663.89 P7,088.34
Charge
12% Overdue P69,983.34 P42,530.00
Charge
Total P285,186.21 P174,952.75
Less: Charges P500.00 None
paid
PN-No. DVO-78-382 PN-No. DVO-78-390
Amount Due P334,686.21 P204,952.75
_______________
4 Records, pp. 1-5.

5 Id., at pp. 500, 563.
6 Id., at pp. 501, 564.
252
In his Answer, Antonio Ang Eng Liong only admitted to have secured a loan
7
amounting to P80,000. He pleaded though that the bank “be ordered to submit a more
reasonable computation” considering that there had been “no correct and reasonable
statement of account” sent to him by the bank, which was allegedly collecting
excessive interest, penalty charges, and attorney’s fees despite knowledge that his
business was destroyed by fire, hence, he had no source of income for several years.
For his part, petitioner Tomas Ang filed an Answer with Counterclaim and Cross-
claim. He interposed the affirmative defenses that: the bank is not the real party in
8
interest as it is not the holder of the promissory notes, much less a holder for value
or a holder in due course; the bank knew that he did not receive any valuable
consideration for affixing his signatures on the notes but merely lent his name as an
accommodation party; he accepted the promissory notes in blank, with only the
printed provisions and the signature of Antonio Ang Eng Liong appearing therein; it
was the bank which completed the notes upon the orders, instructions, or
representations of his co-defendant; PN-No. DVO-78-382 was completed in excess of
or contrary to the authority given by him to his co-defendant who represented that
he would only borrow P30,000 from the bank; his signature in PN-No. DVO-78-390
was procured through fraudulent means when his co-defendant claimed that his first
loan did not push through; the promissory notes did not indicate in what capacity he
was intended to be bound; the bank granted his co-defendant successive extensions
of time within which to pay, without his (Tomas Ang) knowledge and consent; the
bank imposed new and additional stipulations on interest, penalties, services charges
and attorney’s fees more onerous than the terms of the notes, without his knowledge
and consent, in the absence of legal and factual basis and in violation of the Usury
Law; the bank caused the
_______________
7Id., at pp. 14-16.

8Id., at pp. 20-26.
253
VOL. 532, SEPTEMBER 5, 2007 253
inclusion in the promissory notes of stipulations such as waiver of presentment for
payment and notice of dishonor which are against public policy; and the notes had
been impaired since they were never presented for payment and demands were made
only several years after they fell due when his co-defendant could no longer pay them.
Regarding his counterclaim, Tomas Ang argued that by reason of the bank’s acts
or omissions, it should be held liable for the amount of P50,000 for attorney’s fees and
expenses of litigation. Furthermore, on his cross-claim against Antonio Ang Eng
Liong, he averred that he should be reimbursed by his co-defendant any and all sums
that he may be adjudged liable to pay, plus P30,000, P20,000 and P50,000 for moral
and exemplary damages, and attorney’s fees, respectively.
In its Reply, respondent Bank countered that it is the real party in interest and is
9
the holder of the notes since the Associated Banking Corporation and Associated
Citizens Bank are its predecessors-in-interest. The fact that Tomas Ang never
received any moneys in consideration of the two (2) loans and that such was known
to the bank are immaterial because, as an accommodation maker, he is considered as
a solidary debtor who is primarily liable for the payment of the promissory notes.
Citing Section 29 of the Negotiable Instruments Law (NIL), the bank posited that
absence or failure of consideration is not a matter of defense; neither is the fact that
the holder knew him to be only an accommodation party.
Respondent Bank likewise retorted that the promissory notes were completely
filled up at the time of their delivery. Assuming that such was not the case, Sec. 14
of the NIL provides that the bank has the prima facie authority to complete the blank
form. Moreover, it is presumed that one who has signed as a maker acted with care
and had signed the document with full knowledge of its content. The bank noted that
Tomas Ang is a prominent businessman in Davao City who
_______________
9Id., at pp. 32-46.

254
has been engaged in the auto parts business for several years, hence, certainly he is
not so naïve as to sign the notes without knowing or bothering to verify the amounts
of the loans covered by them. Further, he is already in estoppel since despite receipt
of several demand letters there was not a single protest raised by him that he signed
for only one note in the amount of P30,000.
It was denied by the bank that there were extensions of time for payment accorded
to Antonio Ang Eng Liong. Granting that such were the case, it said that the same
would not relieve Tomas Ang from liability as he would still be liable for the whole
obligation less the share of his co-debtor who received the extended term.
The bank also asserted that there were no additional or new stipulations imposed
other than those agreed upon. The penalty charge, service charge, and attorney’s fees
were reflected in the amendments to the promissory notes and disclosure statements.
Reference to the Usury Law was misplaced as usury is legally non-existent; at
present, interest can be charged depending on the agreement of the lender and the
borrower.
Lastly, the bank contended that the provisions on presentment for payment and
notice of dishonor were expressly waived by Tomas Ang and that such waiver is not
against public policy pursuant to Sections 82 (c) and 109 of the NIL. In fact, there is
even no necessity therefor since being a solidary debtor he is absolutely required to
pay and primarily liable on both promissory notes.
On October 19, 1990, the trial court issued a preliminary pre-trial order directing
the parties to submit their respective pre-trial guide. When Antonio Ang Eng Liong
10
failed to submit his brief, the bank filed an ex parte motion to declare him in
default. Per Order of November 23, 1990, the court
11
_______________
Id., at pp. 27-28.

10
Id., at pp. 59-60.

11
255
VOL. 532, SEPTEMBER 5, 2007 255
granted the motion and set the ex parte hearing for the presentation of the bank’s
evidence. Despite Tomas Ang’s motion to modify the Order so as to exclude or cancel
12 13
the ex parte hearing based on then Sec. 4, Rule 18 of the old Rules of Court (now Sec.
3[c.], Rule 9 of the Revised Rules on Civil Procedure), the hearing nonetheless
proceeded. 14
Eventually, a decision was rendered by the trial court on February 21, 1991. For
15
his supposed bad faith and obstinate refusal despite several demands from the bank,
Antonio Ang Eng Liong was ordered to pay the principal amount of P80,000 plus 14%
interest per annum and 2% service charge per annum. The overdue penalty charge
and attorney’s fees were, however, reduced for being excessive, thus:
“WHEREFORE, judgment is rendered against defendant Antonio Ang Eng Liong and in favor
of plaintiff, ordering the former to pay the latter:
On the first cause of action:
1. 1)the amount of P50,000.00 representing the principal obligation with 14%

interest per annum from June 27, 1983 with 2% service charge and 6% overdue
penalty charges per annum until fully paid;
2. 2)P11,663.89 as accrued service charge; and
3. 3)P34,991.67 as accrued overdue penalty charge.
On the second cause of action:
1. 1)the amount of P50,000.00 (sic) representing the principal account with 14% interest
from June 27, 1983 with 2% service charge and 6% overdue penalty charges per
annum until fully paid;
2. 2)P7,088.34 representing accrued service charge;
3. 3)P21,265.00 as accrued overdue penalty charge;
4. 4)the amount of P10,000.00 as attorney’s fees; and
_______________
12 Id., at p. 62.
13 Id., at pp. 64-66.
14 Id., at pp. 72-73.
15 Id., at pp. 84-86.
256
5) the amount of P620.00 as litigation expenses and to pay the costs.
SO ORDERED.” 16
The decision became final and executory as no appeal was taken therefrom. Upon the
bank’s ex parte motion, the court accordingly issued a writ of execution on April 5,
1991. 17
Thereafter, on June 3, 1991, the court set the pre-trial conference between the
bank and Tomas Ang, who, in turn, filed a Motion to Dismiss on the ground of lack
18 19
of jurisdiction over the case in view of the alleged finality of the February 21, 1991
Decision. He contended that Sec. 4, Rule 18 of the old Rules sanctions only one
judgment in case of several defendants, one of whom is declared in default. Moreover,
in his Supplemental Motion to Dismiss, Tomas Ang maintained that he is released
20
from his obligation as a solidary guarantor and accommodation party because, by the
bank’s actions, he is now precluded from asserting his cross-claim against Antonio
Ang Eng Liong, upon whom a final and executory judgment had already been issued.
The court denied the motion as well as the motion for reconsideration
thereon. Tomas Ang subsequently filed a petition for certiorari and prohibition
21
before this Court, which, however, resolved to refer the same to the Court of
Appeals. In accordance with the prayer of Tomas Ang, the appellate court
22
promulgated its Decision on January 29, 1992 in CA-G.R. SP No. 26332, which
annulled and set aside the portion of the Order dated November 23, 1990 setting
the ex parte presentation of the bank’s evidence against Antonio Ang Eng
_______________
16 Id., at p. 86.
17 Id., at pp. 88-90, 144.
18 Id., at p. 91.
19 Id., at pp. 92-94.
20 Id., at pp. 95-96.
21 Id., at pp. 119-120, 123-127, 140.
22 Id., at p. 152.
257
VOL. 532, SEPTEMBER 5, 2007 257
Liong, the Decision dated February 21, 1991 rendered against him based on such
evidence, and the Writ of Execution issued on April 5, 1991. 23
Trial then ensued between the bank and Tomas Ang. Upon the latter’s motion
during the pre-trial conference, Antonio Ang Eng Liong was again declared in default
for his failure to answer the cross-claim within the reglementary period. 24
When Tomas Ang was about to present evidence in his behalf, he filed a Motion
for Production of Documents, reasoning:
25
“x x x
2. That corroborative to, and/or preparatory or incident to his testimony[,] there is [a] need
for him to examine original records in the custody and possession of plaintiff, viz.:
1. a.original Promissory Note (PN for brevity) # DVO-78-382 dated October 3, 1978[;]
2. b.original of Disclosure Statement in reference to PN # DVO-78-382;
3. c.original of PN # DVO-78-390 dated October 9, 1978;
4. d.original of Disclosure Statement in reference to PN # DVO-78-390;
5. e.Statement or Record of Account with the Associated Banking Corporation or its
successor, of Antonio Ang in CA No. 470 (cf. Exh. “O”) including bank records,
withdrawal slips, notices, other papers and relevant dates relative to the overdraft
of Antonio Eng Liong in CA No. 470;
6. f.Loan Applications of Antonio Ang Eng Liong or borrower relative to PN Nos. DVO-
78-382 and DVO-78-390 (supra);
7. g.Other supporting papers and documents submitted by Antonio Ang Eng Liong
relative to his loan application vis-à-vis PN. Nos. DVO-78-382 and DVO-78-390 such
as financial
_______________
23 Id., at pp. 164-170.

24 TSN, January 18, 1993, p. 2.
25 Records, pp. 223-226.
258
1. statements, income tax returns, etc. as required by the Central Bank or bank rules
and regulations.
3. That the above matters are very material to the defenses of defendant Tomas Ang, viz.:
– the bank is not a holder in due course when it
accepted the [PNs] in blank.
– The real borrower is Antonio Ang Eng Liong
which fact is known to the bank.
– That the PAYEE not being a holder in due
course and knowing that defendant Tomas Ang is
merely an accommodation party, the latter may
raise against such payee or holder or successor-
in-interest (of the notes) PERSONAL and
EQUITABLE DEFENSES such as FRAUD in
INDUCEMENT, DISCHARGE ON NOTE,
Application of [Articles] 2079, 2080 and 1249 of
the Civil Code, NEGLIGENCE in delaying
collection despite Eng Liong’s OVERDRAFT in
C.A. No. 470, etc.” 26
In its Order dated May 16, 1994, the court denied the motion stating that the
27
promissory notes and the disclosure statements have already been shown to and
inspected by Tomas Ang during the trial, as in fact he has already copies of the same;
the Statements or Records of Account of Antonio Ang Eng Liong in CA No. 470,
relative to his overdraft, are immaterial since, pursuant to the previous ruling of the
court, he is being sued for the notes and not for the overdraft which is personal to
Antonio Ang Eng Liong; and besides its nonexistence in the bank’s records, there
would be legal obstacle for the production and inspection of the income tax return of
Antonio Ang Eng Liong if done without his consent.
When the motion for reconsideration of the aforesaid Order was denied, Tomas
Ang filed a petition for certiorari and prohibition with application for preliminary
injunction and restraining order before the Court of Appeals docketed as CA-G.R. SP
No. 34840. On August 17, 1994, however, the Court
28
_______________
26 Id., at pp. 223-224.

27 Id., at pp. 234-235.
28 Id., at pp. 236-240, 247, 250-275.
259
VOL. 532, SEPTEMBER 5, 2007 259
of Appeals denied the issuance of a Temporary Restraining Order. 29
Meanwhile, notwithstanding its initial rulings that Tomas Ang was deemed to
have waived his right to present evidence for failure to appear during the pendency
of his petition before the Court of Appeals, the trial court decided to continue with
the hearing of the case. 30
After the trial, Tomas Ang offered in evidence several documents, which included
a copy of the Trust Agreement between the Republic of the Philippines and the Asset
Privatization Trust, as certified by the notary public, and news clippings from the
Manila Bulletin dated May 18, 1994 and May 30, 1994. All the documentary exhibits
31
were admitted for failure of the bank to submit its comment to the formal
offer. Thereafter, Tomas Ang elected to withdraw his petition in CA-G.R. SP No.
32
34840 before the Court of Appeals, which was then granted. 33
On January 5, 1996, the trial court rendered judgment against the bank,
dismissing the complaint for lack of cause of action. It held that:
34
“Exh. “9” and its [sub-markings], the Trust Agreement dated 27 February 1987 for the
defense shows that: the Associated Bank as of June 30, 1986 is one of DBP’s or Development
Bank of the [Philippines’] non-performing accounts for transfer; on February 27, 1987
through Deeds of Transfer executed by and between the Philippine National Bank and
Development Bank of the Philippines and the National Government, both financial
institutions assigned, transferred and conveyed their non-performing assets to the National
Government; the National Government in turn and as TRUSTOR,
_______________
29 Id., at p. 350.
30 Id., at pp. 358, 395, 401-402.
31 Id., at pp. 450, 529-542, 560-561; Exhibit “9” and its submarkings.
32 Id., at p. 487.
33 Rollo, p. 182.
34 Records, pp. 490-493.
260
transferred, conveyed and assigned by way of trust unto the Asset Privatization Trust said
non-performing assets, [which] took title to and possession of, [to] conserve, provisionally
manage and dispose[,] of said assets identified for privatization or disposition; one of the
powers and duties of the APT with respect to trust properties consisting of receivables is to
handle the administration, collection and enforcement of the receivables; to bring suit to
enforce payment of the obligations or any installment thereof or to settle or compromise any
of such obligations, or any other claim or demand which the government may have against
any person or persons[.]
The Manila Bulletin news clippings dated May 18, 1994 and May 30, 1994, Exh. “9-A,” “9-
B, “9-C,” and “9-D,” show that the Monetary Board of the Bangko Sentral ng Pilipinas
approved the rehabilitation plan of the Associated Bank. One main feature of the
rehabilitation plan included the financial assistance for the bank by the Philippine Deposit
Insurance Corporation (PDIC) by way of the purchase of AB Assets worth P1.3945 billion
subject to a buy-back arrangement over a 10 year period. The PDIC had approved of the
rehab scheme, which included the purchase of AB’s bad loans worth P1.86 at 25% discount.
This will then be paid by AB within a 10-year period plus a yield comparable to the prevailing
market rates x x x.
Based then on the evidence presented by the defendant Tomas Ang, it would readily
appear that at the time this suit for Sum of Money was filed which was on August [28], 1990,
the notes were held by the Asset Privatization Trust by virtue of the Deeds of Transfer and
Trust Agreement, which was empowered to bring suit to enforce payment of the obligations.
Consequently, defendant Tomas Ang has sufficiently established that plaintiff at the time
this suit was filed was not the holder of the notes to warrant the dismissal of the complaint.”
35
Respondent Bank then elevated the case to the Court of Appeals. In the appellant’s
brief captioned, “ASSOCIATED BANK, Plaintiff-Appellant versus ANTONIO ANG
ENG LIONG and TOMAS ANG, Defendants, TOMAS ANG, Defendant-Appellee,” the
following errors were alleged:
_______________
Id., at pp. 492-493.

35
261
VOL. 532, SEPTEMBER 5, 2007 261
I.
THE LOWER COURT ERRED IN NOT HOLDING DEFENDANT ANTONIO ANG ENG
LIONG AND DEFENDANT-APPELLEE TOMAS ANG LIABLE TO PLAINTIFF-
APPELLANT ON THEIR UNPAID LOANS DESPITE THE LATTER’S DOCUMENTARY
EXHIBITS PROVING THE SAID OBLIGATIONS.
II.
THE LOWER COURT ERRED IN DISMISSING PLAINTIFF-APPELLANT’S

COMPLAINT ON THE BASIS OF NEWSPAPER CLIPPINGS WHICH WERE
COMPLETELY HEARSAY IN CHARACTER AND IMPROPER FOR JUDICIAL NOTICE. 36
The bank stressed that it has established the causes of action outlined in its
Complaint by a preponderance of evidence. As regards the Deed of Transfer and Trust
Agreement, it contended that the same were never authenticated by any witness in
the course of the trial; the Agreement, which was not even legible, did not mention
the promissory notes subject of the Complaint; the bank is not a party to the
Agreement, which showed that it was between the Government of the Philippines,
acting through the Committee on Privatization represented by the Secretary of
Finance as trustor and the Asset Privatization Trust, which was created by virtue of
Proclamation No. 50; and the Agreement did not reflect the signatures of the
contracting parties. Lastly, the bank averred that the news items appearing in the
Manila Bulletin could not be the subject of judicial notice since they were completely
hearsay in character. 37
On October 9, 2000, the Court of Appeals reversed and set aside the trial court’s
ruling. The dispositive portion of the Decision reads:
38
_______________
36 CA Rollo, p. 23.
37 Id., at pp. 27-30.
38 Id., at pp. 79-84.
262
“WHEREFORE, premises considered, the Decision of the Regional Trial Court of Davao City,
Branch 16, in Civil Case No. 20,299-90 is hereby REVERSED AND SET ASIDE and another
one entered ordering defendant-appellee Tomas Ang to pay plaintiff-appellant Associated
Bank the following:
1. 1.P50,000.00 representing the principal amount of the loan under PN-No. DVO-78-
382 plus 14% interest thereon per annum computed from January 31, 1979 until the
full amount thereof is paid;
2. 2.P30,000.00 representing the principal amount of the loan under PN-No. DVO-78-
390 plus 14% interest thereon per annum computed from December 8, 1978 until the
full amount thereof is paid;
All other claims of the plaintiff-appellant are DISMISSED for lack of legal basis.
Defendant-appellee’s counterclaim is likewise DISMISSED for lack of legal and factual bases.
SO ORDERED.” 39
The appellate court disregarded the bank’s first assigned error for being “irrelevant
in the final determination of the case” and found its second assigned error as “not
meritorious.” Instead, it posed for resolution the issue of whether the trial court erred
in dismissing the complaint for collection of sum of money for lack of cause of action
as the bank was said to be not the “holder” of the notes at the time the collection case
was filed.
In answering the lone issue, the Court of Appeals held that the bank is a “holder”
under Sec. 191 of the NIL. It concluded that despite the execution of the Deeds of
Transfer and Trust Agreement, the Asset Privatization Trust cannot be declared as
the “holder” of the subject promissory notes for the reason that it is neither the payee
or indorsee of the notes in possession thereof nor is it the bearer of said notes. The
Court of Appeals observed that the bank, as the payee, did not indorse
_______________
Id., at p. 83.
39
263
VOL. 532, SEPTEMBER 5, 2007 263
the notes to the Asset Privatization Trust despite the execution of the Deeds of
Transfer and Trust Agreement and that the notes continued to remain with the bank
until the institution of the collection suit.
With the bank as the “holder” of the promissory notes, the Court of Appeals held
that Tomas Ang is accountable therefor in his capacity as an accommodation party.
Citing Sec. 29 of the NIL, he is liable to the bank in spite of the latter’s knowledge, at
the time of taking the notes, that he is only an accommodation party. Moreover, as a
co-maker who agreed to be jointly and severally liable on the promissory notes, Tomas
Ang cannot validly set up the defense that he did not receive any consideration
therefor as the fact that the loan was granted to the principal debtor already
constitutes a sufficient consideration.
Further, the Court of Appeals agreed with the bank that the experience of Tomas
Ang in business rendered it implausible that he would just sign the promissory notes
as a comaker without even checking the real amount of the debt to be incurred, or
that he merely acted on the belief that the first loan application was cancelled.
According to the appellate court, it is apparent that he was negligent in falling for
the alibi of Antonio Ang Eng Liong and such fact would not serve to exonerate him
from his responsibility under the notes.
Nonetheless, the Court of Appeals denied the claims of the bank for service,
penalty and overdue charges as well as attorney’s fees on the ground that the
promissory notes made no mention of such charges/fees.
In his motion for reconsideration, Tomas Ang raised for the first time the assigned
40
errors as follows:
“x x x
2) Related to the above jurisdictional issues, defendant-appellee Tomas Ang has recently
discovered that upon the filing of
_______________
40 Id., at pp. 89-133.

264
the complaint on August 28, 1990, under the jurisdictional rule laid down in BP Blg. 129,
appellant bank fraudulently failed to specify the amount of compounded interest at 14% per
annum, service charges at 2% per annumand overdue penalty charges at 12% per annum in
the prayer of the complaint as of the time of its filing, paying a total of only P640.00(!!!) as
filing and court docket fees although the total sum involved as of that time was P647,566.75
including 20% attorney’s fees. In fact, the stated interest in the body of the complaint alone
amount to P328,373.39 (which is actually compounded and capitalized) in both causes of
action and the total service and overdue penalties and charges and attorney’s fees further
amount to P239,193.36 in both causes of action, as of July 31, 1990, the time of filing of the
complaint. Significantly, appellant fraudulently misled the Court, describing the 14%
imposition as interest, when in fact the same was capitalized as principal by appellant bank
every month to earn more interest, as stated in the notes. In view thereof, the trial court
never acquired jurisdiction over the case and the same may not be now corrected by the filing
of deficiency fees because the causes of action had already prescribed and more importantly,
the jurisdiction of the Municipal Trial Court had been increased to P100,000.00 in principal
claims last March 20, 1999, pursuant to SC Circular No. 21-99, section 5 of RA No. 7691, and
section 31, Book I of the 1987 Administrative Code. In other words, as of today, jurisdiction
over the subject falls within the exclusive jurisdiction of the MTC, particularly if the bank
foregoes capitalization of the stipulated interest.
3) BY FAILING TO GIVE NOTICE OF ITS APPEAL AND APPEAL BRIEF TO
APPELLEE ANG ENG LIONG, THE APPEALED JUDGMENT OF THE TRIAL COURT
WHICH LEFT OUT TOMAS ANG’S CROSS-CLAIM AGAINST ENG LIONG (BECAUSE IT
DISMISSED THE MAIN CLAIM), HAD LONG BECOME FINAL AND EXECUTORY, AS
AGAINST ENG LIONG. Accordingly, Tomas Ang’s right of subrogation against Ang Eng
Liong, expressed in his cross-claim, is now SEVERAL TIMES foreclosed because of the fault
or negligence of appellant bank since 1979 up to its insistence of an ex parte trial, and now
when it failed to serve notice of appeal and appellant’s brief upon him. Accordingly, appellee
Tomas Ang should be released from his suretyship obligation pursuant to Art. 2080 of the
Civil Code. The above is related to the issues abovestated.
265
VOL. 532, SEPTEMBER 5, 2007 265
4) This Court may have erred in ADDING or ASSIGNING its own bill of error for the benefit
of appellant bank which defrauded the judiciary by the payment of deficient docket fees.” 41
Finding no cogent or compelling reason to disturb the Decision, the Court of Appeals
denied the motion in its Resolution dated December 26, 2000. 42
Petitioner now submits the following issues for resolution:
1. “1.Is [A]rticle 2080 of the Civil Code applicable to discharge petitioner Tomas Ang as
accommodation maker or surety because of the failure of [private] respondent bank
to serve its notice of appeal upon the principal debtor, respondent Eng Liong?
2. 2.Did the trial court have jurisdiction over the case at all?
3. 3.Did the Court of Appeals [commit] error in assigning its own error and raising its
own issue?
4. 4.Are petitioner’s other real and personal defenses such as successive extensions
coupled with fraudulent collusion to hide Eng Liong’s default, the payee’s grant of
additional burdens, coupled with the insolvency of the principal debtor, and the
defense of incomplete but delivered instrument, meritorious?”43
Petitioner allegedly learned after the promulgation of the Court of Appeals’ decision
that, pursuant to the parties’ agreement on the compounding of interest with the
principal amount (per month in case of default), the interest on the promissory notes
as of July 31, 1990 should have been only P81,647.22 for PN No. DVO-78-382 (instead
of P203,538.98) and P49,618.33 for PN No. DVO-78-390 (instead of P125,334.41)
while the principal debt as of said date should increase to P647,566.75 (instead of
P539,638.96). He submits that the bank carefully and shrewdly hid the fact by
describing the amounts as interest instead of being part of either the principal or
penalty in order to pay a lesser amount of docket
_______________
41 Id., at pp. 90-91.

42 Id., at p. 137.
43 Rollo, pp. 33-34.
266
fees. According to him, the total fees that should have been paid at the time of the
filing of the complaint on August 28, 1990 was P2,216.30 and not P614.00 or a
shortage of 71%. Petitioner contends that the bank may not now pay the deficiency
because the last demand letter sent to him was dated September 9, 1986, or more
than twenty years have elapsed such that prescription had already set in.
Consequently, the bank’s claim must be dismissed as the trial court loses jurisdiction
over the case.
Petitioner also argues that the Court of Appeals should not have assigned its own
error and raised it as an issue of the case, contending that no question should be
entertained on appeal unless it has been advanced in the court below or is within the
issues made by the parties in the pleadings. At any rate, he opines that the appellate
court’s decision that the bank is the real party in interest because it is the payee
named in the note or the holder thereof is too simplistic since: (1) the power and
control of Asset Privatization Trust over the bank are clear from the explicit terms of
the duly certified trust documents and deeds of transfer and are confirmed by the
newspaper clippings; (2) even under P.D. No. 902-A or the General Banking Act,
where a corporation or a bank is under receivership, conservation or rehabilitation,
it is only the representative (liquidator, receiver, trustee or conservator) who may
properly act for said entity, and, in this case, the bank was held by Asset Privatization
Trust as trustee; and (3) it is not entirely accurate to say that the payee who has not
indorsed the notes in all cases is the real party in interest because the rights of the
payee may be subject of an assignment of incorporeal rights under Articles 1624 and
1625 of the Civil Code.
Lastly, petitioner maintains that when respondent Bank served its notice of appeal
and appellant’s brief only on him, it rendered the judgment of the trial court final and
executory with respect to Antonio Ang Eng Liong, which, in effect, released him
(Antonio Ang Eng Liong) from any and all liability under the promissory notes and,
thereby, foreclosed peti-
267
VOL. 532, SEPTEMBER 5, 2007 267
tioner’s cross-claims. By such act, the bank, even if it be the “holder” of the promissory
notes, allegedly discharged a simple contract for the payment of money (Sections 119
[d] and 122, NIL [Act No. 2031]), prevented a surety like petitioner from being
subrogated in the shoes of his principal (Article 2080, Civil Code), and impaired the
notes, producing the effect of payment (Article 1249, Civil Code).
The petition is unmeritorious.
Procedurally, it is well within the authority of the Court of Appeals to raise, if it
deems proper under the circumstances obtaining, error/s not assigned on an appealed
case. In Mendoza v. Bautista, this Court recognized the broad discretionary power of
44
an appellate court to waive the lack of proper assignment of errors and to consider
errors not assigned, thus:
“As a rule, no issue may be raised on appeal unless it has been brought before the lower
tribunal for its consideration. Higher courts are precluded from entertaining matters neither
alleged in the pleadings nor raised during the proceedings below, but ventilated for the first
time only in a motion for reconsideration or on appeal.
However, as with most procedural rules, this maxim is subject to exceptions. Indeed, our
rules recognize the broad discretionary power of an appellate court to waive the lack of proper
assignment of errors and to consider errors not assigned. Section 8 of Rule 51 of the Rules of
Court provides:
SEC. 8. Questions that may be decided.—No error which does not affect the jurisdiction
over the subject matter or the validity of the judgment appealed from or the proceedings
therein will be considered, unless stated in the assignment of errors, or closely related to or
dependent on an assigned error and properly argued in the brief, save as the court may pass
upon plain errors and clerical errors.
Thus, an appellate court is clothed with ample authority to review rulings even if they are
not assigned as errors in the appeal in these instances: (a) grounds not assigned as errors but
affecting
_______________
44 G.R. No. 143666, March 18, 2005, 453 SCRA 691.

268
jurisdiction over the subject matter; (b) matters not assigned as errors on appeal but are
evidently plain or clerical errors within contemplation of law; (c) matters not assigned as
errors on appeal but consideration of which is necessary in arriving at a just decision and
complete resolution of the case or to serve the interests of justice or to avoid dispensing
piecemeal justice; (d) matters not specifically assigned as errors on appeal but raised in the
trial court and are matters of record having some bearing on the issue submitted which the
parties failed to raise or which the lower court ignored; (e) matters not assigned as errors on
appeal but closely related to an error assigned; and (f) matters not assigned as errors on
appeal but upon which the determination of a question properly assigned is dependent.
(Citations omitted)” 45
To the Court’s mind, even if the Court of Appeals regarded petitioner’s two assigned
errors as “irrelevant” and “not meritorious,” the issue of whether the trial court erred
in dismissing the complaint for collection of sum of money for lack of cause of action
(on the ground that the bank was not the “holder” of the notes at the time of the filing
of the action) is in reality closely related toand determinant of the resolution of
whether the lower court correctly ruled in not holding Antonio Ang Eng Liong and
petitioner Tomas Ang liable to the bank on their unpaid loans despite documentary
exhibits allegedly proving their obligations and in dismissing the complaint based on
newspaper clippings. Hence, no error could be ascribed to the Court of Appeals on
this point.
Now, the more relevant question is: who is the real party in interest at the time of
the institution of the complaint, is it the bank or the Asset Privatization Trust?
To answer the query, a brief history on the creation of the Asset Privatization
Trust is proper.
Taking into account the imperative need of formally launching a program for the
rationalization of the government corporate sector, then President Corazon C. Aquino
_______________
Id., at pp. 702-703.

45
269
VOL. 532, SEPTEMBER 5, 2007 269
issued Proclamation No. 50 on December 8, 1986. As one of the twin cornerstones of
46
the program was to establish the privatization of a good number of government

corporations, the proclamation created the Asset Privatization Trust, which would,
for the benefit of the National Government, take title to and possession of, conserve,
provisionally manage and dispose of transferred assets that were identified for
privatization or disposition. 47
In accordance with the provisions of Section 23 of the proclamation, then

48
President Aquino subsequently issued Administrative Order No. 14 on February 3,

1987, which
_______________
46 PROCLAIMING AND LAUNCHING APROGRAM FOR THE EXPEDITIOUS DISPOSITION AND
PRIVATIZATION OF CERTAIN GOVERNMENT CORPORATIONS AND/OR THE ASSETS THEREOF

AND CREATING THE COMMITTEE ON PRIVATIZATION AND THE ASSET PRIVATIZATION TRUST.
47 Sec. 3, Art. II and Sec. 9, Art. III of Proclamation No. 50. In addition, the term “assets” is defined under
Sec. 2 (1) of the Proclamation as:

1) Assets shall include (i) receivables and other obligations due to government institutions under credit, lease, indemnity
and other agreements together with all collateral security and other rights (including but not limited to rights in relation
to shares of stock in corporations such as voting rights as well as rights to appoint directors of corporations or otherwise
engage in the management thereof) granted to such institutions by contract or operation of law to secure or enforce the
right of payment of such obligations; (ii) real and personal property of any kind owned or held by the government
institutions, including shares of stock in corporations, obtained by such government institutions, whether directly or
indirectly, through foreclosure or other means, in settlement of such obligations; (iii) shares of stock and other
investments held by government institutions; and (iv) the government institutions themselves, whether as parent or
subsidiary corporations.
48 Sec. 23 of the Proclamation reads:
SEC. 23. Mechanics of Transfer of Assets.—As soon as practicable, but not later than six months from the date of the
issuance of this Proclamation, the President, acting through
270
approved the identification of and transfer to the National Government of certain
assets (consisting of loans, equity investments, accrued interest receivables, acquired
assets and other assets) and liabilities (consisting of deposits, borrowings, other
liabilities and contingent guarantees) of the De-
_______________
the Committee on Privatization, shall identify such assets of government institutions as appropriate for privatization
and divestment in an appropriate instrument describing such assets or identifying the loan or other transactions giving
rise to the receivables, obligations and other property constituting assets to be transferred.
The Committee shall, from the list of assets deemed appropriate for divestment, identify assets to be transferred to
the Trust or to be referred to the government institutions in an appropriate instrument, which upon execution by the
Committee shall constitute as the operative act of transfer or referral of the assets described therein, and the Trust or
the government institution may thereupon proceed with the divestment in accordance with the provisions of this
Proclamation and guidelines issued by the Committee.
Nothing in this Proclamation shall:
1. (1)Affect the rights of the National Government to pursue the enforcement of any claim of a government
institution in respect of or in relation to any asset transferred hereunder;
2. (2)In relation to any debt hereby assigned and transferred to the National Government of which a government
institution is the original creditor, give rise to any novation or requirement to obtain the consent of the debtor;
and
3. (3)In relation to any share of stock or any interest therein, give rise to any claim by any other stockholder for
enforcement of rights of pre-emption or of first refusal or other similar rights, the provision of any law to the
contrary notwithstanding.
Where the contractual rights of creditors of any of the government institutions involved may be affected by the
exercise of the Committee or the Trust of the powers granted herein, the Committee or the Trust shall see to it that such
rights are not impaired.
271
VOL. 532, SEPTEMBER 5, 2007 271
velopment Bank of the Philippines (DBP) and the Philippine National Bank (PNB).
The transfer of assets was implemented through a Deed of Transfer executed on
February 27, 1987 between the National Government, on one hand, and the DBP and
PNB, on the other. In turn, the National Government designated the Asset
Privatization Trust to act as its trustee through a Trust Agreement, whereby the
nonperforming accounts of DBP and PNB, including, among others, the DBP’s equity
with respondent Bank, were entrusted to the Asset Privatization Trust. As provided 49
for in the Agreement, among the powers and duties of the Asset Privatization Trust
with respect to the trust properties consisting of receivables was to handle their
administration and collection by bringing suit to enforce payment of the obligations
or any installment thereof or settling or compromising any of such obligations or any
other claim or demand which the Government may have against any person or
persons, and to do all acts, institute all proceedings, and to exercise all other rights,
powers, and privileges of ownership that an absolute owner of the properties would
otherwise have the right to do. Incidentally, the existence of the Asset Privatization
50
Trust would have expired five (5) years from the date of issuance of Proclamation No.
50. However, its original term was extended from December 8, 1991 up to August
51
31, 1992, and again from December 31, 1993 until June 30, 1995, and then from
52 53
July 1, 1995 up to December 31, 1999, and further from January 1, 2000 until
54
December 31, 2000. Thenceforth, the Privatization and Management Office was
55
established and
_______________
49 Records, pp. 529-533, 543.

50 Id., at p. 530.
51 Sec. 9, Art. III of Proclamation No. 50.
52 Sec. 1 of Republic Act (R.A.) No. 7181.
53 Sec. 1 of R.A. No. 7661.
54 Sec. 1 of R.A. No. 7886.
55 Sec. 1 of R.A. No. 8758.
272
took over, among others, the powers, duties and functions of the Asset Privatization
Trust under the proclamation. 56
Based on the above backdrop, respondent Bank does not appear to be the real party
in interest when it instituted the collection suit on August 28, 1990 against Antonio
Ang Eng Liong and petitioner Tomas Ang. At the time the complaint was filed in the
trial court, it was the Asset Privatization Trust which had the authority to enforce its
claims against both debtors. In fact, during the pre-trial conference, Atty. Roderick
Orallo, counsel for the bank, openly admitted that it was under the trusteeship of the
Asset Privatization Trust. The Asset Privatization Trust, which should have been
57
represented by the Office of the Government Corporate Counsel, had the authority to
file and prosecute the case.
The foregoing notwithstanding, this Court can not, at present, readily subscribe to
petitioner’s insistence that the case must be dismissed. Significantly, it stands
without refute, both in the pleadings as well as in the evidence presented during the
trial and up to the time this case reached the Court, that the issue had been rendered
moot with the occurrence of a supervening event—the “buy-back” of the bank by its
former owner, Leonardo Ty, sometime in October 1993. By such re-acquisition from
the Asset Privatization Trust when the case was still pending in the lower court, the
bank reclaimed its real and actual interest over the unpaid promissory notes; hence,
it could rightfully qualify as a “holder” thereof under the NIL.
58
Notably, Section 29 of the NIL defines an accommodation party as a person “who

has signed the instrument as maker, drawer, acceptor, or indorser, without receiving
value there-
_______________
56 Sec. 2, Art. III of Executive Order No. 323, Series of 2000.

57 TSN, January 18, 1993, p. 7.
58 A “Holder” is defined under Sec. 191 of the NIL, as:
“Holder” means the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof.
273
VOL. 532, SEPTEMBER 5, 2007 273
for, and for the purpose of lending his name to some other person.” As gleaned from
the text, an accommodation party is one who meets all the three requisites, viz.: (1)
he must be a party to the instrument, signing as maker, drawer, acceptor, or indorser;
(2) he must not receive value therefor; and (3) he must sign for the purpose of lending
his name or credit to some other person. An accommodation party lends his name to
59
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 party/ies
thereto. The accommodation party is liable on the instrument to a holder for value
60
even though the holder, at the time of taking the instrument, knew him or her to be
merely an accommodation party, as if the contract was not for accommodation. 61
As petitioner acknowledged it to be, the relation between an accommodation party

and the accommodated party is one of principal and surety—the accommodation
party being the surety. As such, he is deemed an original promisor and
62
_______________
59 Lim v. Saban, G.R. No. 163720, December 16, 2004, 447 SCRA 232, 244 and Crisologo-Jose v. Court of
Appeals, G.R. No. 80599, September 15, 1989, 177 SCRA 594, 598.
60 Spouses Gardose v. Tarroza, 352 Phil. 797, 807; 290 SCRA 186, 195-196 (1998) citing Philippine Bank
of Commerce v. Aruego, G.R. Nos. L-25836-37, January 31, 1981, 102 SCRA 530, 539-540.
61 Lim v. Saban, supra at p. 244; Garcia v. Llamas, G.R. No. 154127, December 8, 2003, 417 SCRA 292,
304-305; Spouses Gardose v. Tarroza, supra at p. 807; p. 196; Travel-On, Inc. v. Court of Appeals, G.R. No.
56169, June 26, 1992, 210 SCRA 351, 357; and Ang Tiong v. Ting, 130 Phil. 741, 744; 22 SCRA 713, 716
(1968).
62 Garcia v. Llamas, supra at p. 305; Agro Conglomerates, Inc. v. Court of Appeals, 401 Phil. 644, 654-
655; 348 SCRA 450, 457-458 (2000); Spouses Gardose v. Tarroza, supra at p. 807; p. 196; Caneda, Jr. v.
Court of Appeals, G.R. No. 81322, February 5, 1990, 181 SCRA 762, 772; Crisologo-Jose v. Court of Appeals,
supra at p. 598; Prudencio v. Court of Appeals, 227 Phil. 7, 12; 143 SCRA 7, 14 (1986); and Philippine Bank
of Commerce v. Aruego, supra at p. 539.
274
debtor from the beginning; he is considered in law as the same party as the debtor
63
in relation to whatever is adjudged touching the obligation of the latter since their
liabilities are interwoven as to be inseparable. Although a contract of suretyship is
64
in essence accessory or collateral to a valid principal obligation, the surety’s liability

to the creditor is immediate, primary and absolute; he is directly and equally bound
with the principal. As an equivalent of a regular party to the undertaking, a surety
65
becomes liable to the debt and duty of the principal obligor even without possessing
a direct or personal interest in the obligations nor does he receive any benefit
therefrom. 66
Contrary to petitioner’s adamant stand, however, Article 2080 of the Civil Code 67
does not apply in a contract of suretyship. Art. 2047 of the Civil Code states that if a
68
person binds
_______________
63 Garcia v. Llamas, supra at p. 305.

64 Trade & Investment Development Corp. v. Roblett Industrial Construction Corp., G.R. No. 139290,
November 11, 2005, 474 SCRA 510, 531.
65 International Finance Corporation v. Imperial Textile Mills, Inc., G.R. No. 160324, November 15,
2005, 475 SCRA 149, 160; Trade & Investment Development Corp. v. Roblett Industrial Construction
Corp., Id., at p. 531; Garcia v. Llamas, supraat p. 305; Agro Conglomerates, Inc. v. Court of Appeals, supra at
p. 655; p. 458; and Philippine Bank of Commerce v. Aruego, supra at p. 540.
66 International Finance Corporation v. Imperial Textile Mills, Inc., Id., at pp. 160-161 and Trade &
Investment Development Corp. v. Roblett Industrial Construction Corp., Id., at p. 531.

67 Art. 2080 of the Civil Code provides:
Art. 2080. The guarantors, even though they be solidary, are released from their obligation whenever by some act of the
creditor they cannot be subrogated to the rights, mortgages, and preferences of the latter.
68 E. Zobel, Inc. v. Court of Appeals, 352 Phil. 608, 618; 290 SCRA 1, 10 (1998); Inciong, Jr. v. Court of
Appeals, 327 Phil. 364, 372-373; 257 SCRA 578, 586 (1996); and Bicol Savings & Loan Association v.
Guinhawa, G.R. No. 62415, August 20, 1990, 188 SCRA 642, 647.
275
VOL. 532, SEPTEMBER 5, 2007 275
himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3,
Title I, Book IV of the Civil Code must be observed. Accordingly, Articles 1207 up to
1222 of the Code (on joint and solidary obligations) shall govern the relationship of
petitioner with the bank.
The case of Inciong, Jr. v. CA is illuminating:
69
“Petitioner also argues that the dismissal of the complaint against Naybe, the principal
debtor, and against Pantanosas, his comaker, constituted a release of his obligation,
especially because the dismissal of the case against Pantanosas was upon the motion of
private respondent itself. He cites as basis for his argument, Article 2080 of the Civil Code
which provides that:
“The guarantors, even though they be solidary, are released from their obligation
whenever by come act of the creditor, they cannot be subrogated to the rights, mortgages,
and preferences of the latter.”
It is to be noted, however, that petitioner signed the promissory note as a solidary co-
maker and not as a guarantor. This is patent even from the first sentence of the promissory
note which states as follows:
“Ninety one (91) days after date, for value received, I/we, JOINTLY and SEVERALLY
promise to pay to the PHILIPPINE BANK OF COMMUNICATIONS at its office in the City
of Cagayan de Oro, Philippines the sum of FIFTY THOUSAND ONLY (P50,000.00) Pesos,
Philippine Currency, together with interest x x x at the rate of SIXTEEN (16) percent per
annum until fully paid.”
A solidary or joint and several obligation is one in which each debtor is liable for the entire
obligation, and each creditor is entitled to demand the whole obligation. On the other hand,
Article 2047 of the Civil Code states:
“By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to do so.
If a person binds himself solidarily with the principal debtor, the provisions of Section 4,
Chapter 3, Title I of this Book shall be
_______________
69 327 Phil. 364; 257 SCRA 578 (1996).

276
observed. In such a case the contract is called a suretyship.” (Italics supplied.)
While a guarantor may bind himself solidarily with the principal debtor, the liability of a
guarantor is different from that of a solidary debtor. Thus, Tolentino explains:
“A guarantor who binds himself in solidum with the principal debtor under the provisions
of the second paragraph does not become a solidary co-debtor to all intents and purposes.
There is a difference between a solidary co-debtor, and a fiador in solidum (surety). The later,
outside of the liability he assumes to pay the debt before the property of the principal debtor
has been exhausted, retains all the other rights, actions and benefits which pertain to him
by reason of rights of the fiansa; while a solidary co-debtor has no other rights than those
bestowed upon him in Section 4, Chapter 3, Title I, Book IV of the Civil Code.”
Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on joint and several
obligations. Under Art. 1207 thereof, when there are two or more debtors in one and the same
obligation, the presumption is that obligation is joint so that each of the debtors is liable only
for a proportionate part of the debt. There is a solidarily liability only when the obligation
expressly so states, when the law so provides or when the nature of the obligation so requires.
Because the promissory note involved in this case expressly states that the three
signatories therein are jointly and severally liable, any one, some or all of them may be
proceeded against for the entire obligation. The choice is left to the solidary creditor to
determine against whom he will enforce collection. (Citations omitted)” 70
In the instant case, petitioner agreed to be “jointly and severally” liable under the two
promissory notes that he cosigned with Antonio Ang Eng Liong as the principal
debtor. This being so, it is completely immaterial if the bank would opt to proceed
only against petitioner or Antonio Ang Eng Liong or both of them since the law
confers upon the creditor the prerogative to choose whether to enforce the entire
obligation against any one, some or all of the debtors. Nonetheless, petitioner, as an
accommodation party, may seek reimburse-
_______________
Id., at pp. 372-374; pp. 586-588.

70
277
VOL. 532, SEPTEMBER 5, 2007 277
ment from Antonio Ang Eng Liong, being the party accommodated. 71
It is plainly mistaken for petitioner to say that just because the bank failed to serve
the notice of appeal and appellant’s brief to Antonio Ang Eng Liong, the trial court’s
judgment, in effect, became final and executory as against the latter and, thereby,
bars his (petitioner’s) cross-claims against him: First, although no notice of appeal
and appellant’s brief were served to Antonio Ang Eng Liong, he was nonetheless
impleaded in the case since his name appeared in the caption of both the notice and
the brief as one of the defendants-appellees; Second, despite including in the caption
72
of the appellee’s brief his co-debtor as one of the defendants-appellees, petitioner did
not also serve him a copy thereof; Third, in the caption of the Court of Appeals’
73
decision, Antonio Ang Eng Liong was expressly named as one of the defendants-
appellees; and Fourth, it was only in his motion for reconsideration from the adverse
74
judgment of the Court of Appeals that petitioner belatedly chose to serve notice to the
counsel of his co-defendant-appellee. 75
Likewise, this Court rejects the contention of Antonio Ang Eng Liong, in his
“special appearance” through counsel, that the Court of Appeals, much less this
Court, already lacked jurisdiction over his person or over the subject matter relating
to him because he was not a party in CA-G.R. CV No. 53413. Stress must be laid of
the fact that he had twice put himself in default—one, in not filing a pre-trial brief
and another, in not filing his answer to petitioner’s cross-claims. As a matter of
course, Antonio Ang Eng Liong, being a party declared in
_______________
71 Lim v. Saban, supra at p. 244; Agro Conglomerates, Inc. v. Court of Appeals, supra at p. 654; p. 457;
and Caneda, Jr. v. Court of Appeals, supra at p. 772.

72 CA Rollo, p. 21.
73 Id., at pp. 40, 75.
74 Id., at p. 79.
75 Id., at p. 133.
278
default, already waived his right to take part in the trial proceedings and had to
contend with the judgment rendered by the court based on the evidence presented by
the bank and petitioner. Moreover, even without considering these default
judgments, Antonio Ang Eng Liong even categorically admitted having secured a loan
totaling P80,000. In his Answer to the complaint, he did not deny such liability but
merely pleaded that the bank “be ordered to submit a more reasonable computation”
instead of collecting excessive interest, penalty charges, and attorney’s fees. For
failing to tender an issue and in not denying the material allegations stated in the
complaint, a judgment on the pleadings would have also been proper since not a
76
single issue was generated by the Answer he filed.

As the promissory notes were not discharged or impaired through any act or
omission of the bank, Sections 119 (d) 77
_______________
76 Sec. 1, Rule 34 of the 1997 Revised Rules on Civil Procedure states:

Section 1. Judgment on the pleadings.—Where an answer fails to tender an issue, or otherwise admits the material
allegations of the adverse party’s pleading, the court may, on motion of that party, direct judgment on such pleading.
However, in actions for declaration of nullity or annulment of marriage or for legal separation, the material facts alleged
in the complaint shall always be proved.
77 Sec. 119 of the NIL provides:
SECTION 119. Instrument; how discharged.—A negotiable instrument is discharged:
1. (a.)By payment in due course by or on behalf of the principal debtor;

2. (b.)By payment in due course by the party accommodated, where the instrument is made or accepted for his
accommodation;
3. (c.)By the intentional cancellation thereof by the holder;
4. (d.)By any other act which will discharge a simple contract for the payment of money;
279
VOL. 532, SEPTEMBER 5, 2007 279
and 122 of the NIL as well as Art. 1249 of the Civil Code would necessarily find no
78 79
application. Again, neither was petitioner’s right of reimbursement barred nor was
the bank’s right to proceed against Antonio Ang Eng Liong expressly renounced by
the omission to serve notice of appeal and appellant’s brief to a party already declared
in default.
Consequently, in issuing the two promissory notes, petitioner as accommodating
party warranted to the holder in due course that he would pay the same according to
its tenor. It is no defense to state on his part that he did not receive any
80
_______________
1. (e.)When the principal debtor becomes the holder of the instrument at or after maturity in his own right.
(Emphasis ours)
78 Sec. 122 of the NIL states:

SECTION 122. Renunciation by holder.—The holder may expressly renounce his rights against any party to the
instrument before, at, or after its maturity. An absolute and unconditional renunciation of his rights against the
principal debtor made at or after the maturity of the instrument discharges the instrument. But a renunciation does not
affect the rights of a holder in due course without notice. A renunciation must be in writing unless the instrument is
delivered up to the person primarily liable thereon.
79 Art. 1249 of the Civil Code provides:
Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver
such currency, then in the currency which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce
the effect of payment only when they have been cashed, or whenthrough the fault of the creditor they have been
impaired. (Emphasis ours)
Travel-On, Inc. v. Court of Appeals, supra at p. 357.
80
280
value therefor because the phrase “without receiving value therefor” used in Sec. 29
81
of the NIL means “without receiving value by virtue of the instrument” and not as it
is apparently supposed to mean, “without receiving payment for lending his
name.” Stated differently, when a third person advances the face value of the note
82
to the accommodated party at the time of its creation, the consideration for the note
as regards its maker is the money advanced to the accommodated party. It is enough
that value was given for the note at the time of its creation. As in the instant case, a
83
sum of money was received by virtue of the notes, hence, it is immaterial so far as the
bank is concerned whether one of the signers, particularly petitioner, has or has not
received anything in payment of the use of his name. 84
Under the law, upon the maturity of the note, a surety may pay the debt, demand
the collateral security, if there be any, and dispose of it to his benefit, or, if applicable,
subrogate himself in the place of the creditor with the right to enforce the guaranty
against the other signers of the note for the reimbursement of what he is entitled to
recover from them. Regrettably, none of these were prudently done by petitioner.
85
When he was first notified by the bank sometime in 1982 regarding his
accountabilities under the promissory notes, he lackadaisically relied on Antonio Ang
Eng Liong, who represented that he would take care of the matter, instead of directly
communicating with the bank for its settlement. Thus, petitioner cannot now claim
86
that he was prejudiced by the
_______________
81 Caneda, Jr. v. Court of Appeals, supra at p. 772; Crisologo-Jose v. Court of Appeals, supra at p. 598;
and Ang Tiong v. Ting, supra at p. 744; p. 716.

82 Clark v. Sellner, 42 Phil. 384, 386 (1921).
83 Caneda, Jr. v. Court of Appeals, supra at p. 772.
84 Clark v. Sellner, supra at p. 386.
85 Id., at pp. 386-387.
86 TSN, February 21, 1995, p. 27 and TSN, April 4, 1995, p. 15.
281
VOL. 532, SEPTEMBER 5, 2007 281
supposed “extension of time” given by the bank to his co-debtor.
Furthermore, since the liability of an accommodation party remains not
only primary but also unconditional to a holder for value, 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. In Clark v. Sellner, this Court held:
87 88
“x x x The mere delay of the creditor in enforcing the guaranty has not by any means impaired
his action against the defendant. It should not be lost sight of that the defendant’s signature
on the note is an assurance to the creditor that the collateral guaranty will remain good, and
that otherwise, he, the defendant, will be personally responsible for the payment.
True, that if the creditor had done any act whereby the guaranty was impaired in its value,
or discharged, such an act would have wholly or partially released the surety; but it must be
born in mind that it is a recognized doctrine in the matter of suretyship that with respect to
the surety, the creditor is under no obligation to display any diligence in the enforcement of
his rights as a creditor. His mere inaction indulgence, passiveness, or delay in proceeding
against the principal debtor, or the fact that he did not enforce the guaranty or apply on the
payment of such funds as were available, constitute no defense at all for the surety, unless
the contract expressly requires diligence and promptness on the part of the creditor, which
is not the case in the present action. There is in some decisions a tendency toward holding
that the creditor’s laches may discharge the surety, meaning by laches a negligent
forbearance. This theory, however, is not generally accepted and the courts almost
universally consider it essentially inconsistent with the relation of the parties to the note. (21
R.C.L., 1032-1034)” 89
_______________
87 Prudencio v. Court of Appeals, supra at pp. 12-13; p. 14.

88 42 Phil. 384 (1921).
89 Id., at pp. 387-388.
282
Neither can petitioner benefit from the alleged “insolvency” of Antonio Ang Eng Liong
for want of clear and convincing evidence proving the same. Assuming it to be true,
he also did not exercise diligence in demanding security to protect himself from the
danger thereof in the event that he (petitioner) would eventually be sued by the bank.
Further, whether petitioner may or may not obtain security from Antonio Ang Eng
Liong cannot in any manner affect his liability to the bank; the said remedy is a
matter of concern exclusively between themselves as accommodation party and
accommodated party. The fact that petitioner stands only as a surety in relation to
Antonio Ang Eng Liong is immaterial to the claim of the bank and does not a whit
diminish nor defeat the rights of the latter as a holder for value. To sanction his
theory is to give unwarranted legal recognition to the patent absurdity of a situation
where a co-maker, when sued on an instrument by a holder in due course and for
value, can escape liability by the convenient expedient of interposing the defense that
he is a merely an accommodation party. 90
In sum, as regards the other issues and errors alleged in this petition, the Court
notes that these were the very same questions of fact raised on appeal before the
Court of Appeals, although at times couched in different terms and explained more
lengthily in the petition. Suffice it to say that the same, being factual, have been
satisfactorily passed upon and considered both by the trial and appellate courts. It is
doctrinal that only errors of law and not of fact are reviewable by this Court in
petitions for review on certiorariunder Rule 45 of the Rules of Court. Save for the
most cogent and compelling reason, it is not our function under the rule to examine,
evaluate or weigh the probative value of the evidence presented by the parties all
over again. 91
_______________
90Ang Tiong v. Ting, supra at p. 744; p. 716.

91Batangas State University v. Bonifacio, G.R. No. 167762, December 15, 2005, 478 SCRA 142, 147-148
and Local Superior of the Servants of Charity (Guanellians), Inc. v. Jody King Construction &
283
VOL. 532, SEPTEMBER 5, 2007 283
WHEREFORE, the October 9, 2000 Decision and December 26, 2000 Resolution of
the Court of Appeals in CA-G.R. CV No. 53413 are AFFIRMED. The petition is
DENIED for lack of merit.
No costs.
SO ORDERED.
Puno (C.J., Chairperson), Sandoval-Gutierrez, Corona and Garcia, JJ.,
concur.
Judgment and resolution affirmed, petition denied.
Notes.—Payment is a mode of extinguishing an obligation—it should 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. (Culaba vs. Court of Appeals, 427
SCRA 721 [2004])
Payment of the entire obligation by one or some of the solidary debtors results in
a corresponding obligation of the other debtors to reimburse the paying debtor.
(Republic Glass Corporation vs. Qua, 435 SCRA 480 [2004])
G.R. No. 166405. August 6, 2008.*
CLAUDE P. BAUTISTA, petitioner, vs. AUTO PLUS TRADERS, INCORPORATED
and COURT OF APPEALS (Twenty-First Division), respondents.
Corporation Law; Generally, the stockholders and officers are not personally liable for
the obligations of the corporation except only when the veil of corporate fiction is being used
as a cloak or cover for fraud or illegality, or to work injustice.—Juridical entities have
personalities separate and distinct from its officers and the persons composing it. Generally,
the stockholders and officers are not personally liable for the obligations of the corporation
except only when the veil of corporate fiction is being used as a cloak or cover for fraud or
illegality, or to work injustice. These situations, however, do not exist in this case. The
evidence shows that it is Cruiser Bus Lines and Transport Corporation that has obligations
to Auto Plus Traders, Inc. for tires. There is no agreement that petitioner shall be held liable
for the corporation’s obligations in his personal capacity. Hence, he cannot be held liable for
the value of the two checks issued
_______________
* SECOND DIVISION.
224
Bautista vs. Auto Plus Traders, Incorporated
in payment for the corporation’s obligation in the total amount of P248,700.
Negotiable Instruments Law; Words and Phrases; Accommodation Party; Section 29 of
the Negotiable Instruments Law defines an accommodation party as a person who has signed
the instrument as maker, drawer, acceptor, or endorser, without receiving value therefor, and
for the purpose of lending his name to some other person.—Contrary to private respondent’s
contentions, petitioner cannot be considered liable as an accommodation party for Check No.
58832. Section 29 of the Negotiable Instruments Law defines an accommodation party as a
person “who has signed the instrument as maker, drawer, acceptor, or indorser, without
receiving value therefor, and for the purpose of lending his name to some other person.” As
gleaned from the text, an accommodation party is one who meets all the three requisites, viz.:
(1) he must be a party to the instrument, signing as maker, drawer, acceptor, or indorser; (2)
he must not receive value therefor; and (3) he must sign for the purpose of lending his name
or credit to some other person. An accommodation party 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 party/ies thereto. The first
two elements are present here, however there is insufficient evidence presented in the instant
case to show the presence of the third requisite. All that the evidence shows is that petitioner
signed Check No. 58832, which is drawn against his personal account. The said check, dated
December 15, 2000, corresponds to the value of 24 sets of tires received by Cruiser Bus Lines
and Transport Corporation on August 29, 2000. There is no showing of when petitioner issued
the check and in what capacity. In the absence of concrete evidence it cannot just be assumed
that petitioner intended to lend his name to the corporation. Hence, petitioner cannot be
considered as an accommodation party.
Appeals.
Rodolfo B. Ta-asan, Jr. for petitioner.
Bansalan B. Metilla for respondent.
225
VOL. 561, AUGUST 6, 2008 225
QUISUMBING, J.:
This petition for review on certiorari assails the Decision1 dated August 10, 2004
of the Court of Appeals in CA-G.R. CR No. 28464 and the Resolution2 dated October
29, 2004, which denied petitioner’s motion for reconsideration. The Court of Appeals
affirmed the February 24, 2004 Decision and May 11, 2004 Order of the Regional
Trial Court (RTC), Davao City, Branch 16, in Criminal Case Nos. 52633-03 and
52634-03.
The antecedent facts are as follows:
Petitioner Claude P. Bautista, in his capacity as President and Presiding Officer
of Cruiser Bus Lines and Transport Corporation, purchased various spare parts from
private respondent Auto Plus Traders, Inc. and issued two postdated checks to cover
his purchases. The checks were subsequently dishonored. Private respondent then
executed an affidavit-complaint for violation of Batas Pambansa Blg. 223 against
petitioner. Consequently, two Informations for violation of BP Blg. 22 were filed with
the Municipal Trial Court in Cities (MTCC) of Davao City against the petitioner.
These were docketed as Criminal Case Nos. 102,004-B-2001 and 102,005-B-2001. The
Informations4 read:
Criminal Case No. 102,004-B-2001:
“The undersigned accuses the above-named accused for violation of Batas Pambansa
Bilang 22, committed as follows:
That on or about December 15, 2000, in the City of Davao, Philippines, and within the
jurisdiction of this Honorable Court, the
_______________
1 Rollo, pp. 36-40. Penned by Associate Justice Estela M. Perlas-Bernabe, with Associate Justices Arturo A.
Tayag and Edgardo G. Camello concurring.
2 Id., at p. 41.
3 AN ACT PENALIZING THE MAKING OR DRAWING AND ISSUANCE OF A CHECK WITHOUT
SUFFICIENT FUNDS OR CREDIT AND FOR OTHER PURPOSES.
4 Rollo, pp. 48-49.
226
above-mentioned accused, knowing fully well that he had no sufficient funds and/or credit
with the drawee bank, wilfully, unlawfully and feloniously issued and made out Rural Bank
of Digos, Inc. Check No. 058832, dated December 15, 2000, in the amount of P151,200.00, in
favor of Auto Plus Traders, Inc., but when said check was presented to the drawee bank for
encashment, the same was dishonored for the reason “DRAWN AGAINST INSUFFICIENT
FUNDS” and despite notice of dishonor and demands upon said accused to make good the
check, accused failed and refused to make payment to the damage and prejudice of herein
complainant.
CONTRARY TO LAW.”
Criminal Case No. 102,005-B-2001:
“The undersigned accuses the above-named accused for violation of Batas Pambansa
Bilang 22, committed as follows:
That on or about October 30, 2000, in the City of Davao, Philippines, and within the
jurisdiction of this Honorable Court, the above-mentioned accused, knowing fully well that
he had no sufficient funds and/or credit with the drawee bank, wilfully, unlawfully and
feloniously issued and made out Rural Bank of Digos, Inc. Check No. 059049, dated October
30, 2000, in the amount of P97,500.00, in favor of Auto Plus Traders, [Inc.], but when said
check was presented to the drawee bank for encashment, the same was dishonored for the
reason “DRAWN AGAINST INSUFFICIENT FUNDS” and despite notice of dishonor and
demands upon said accused to make good the check, accused failed and refused to make
payment, to the damage and prejudice of herein complainant.
CONTRARY TO LAW.”
Petitioner pleaded not guilty. Trial on the merits ensued. After the presentation of
the prosecution’s evidence, petitioner filed a demurrer to evidence. On April 21, 2003,
the MTCC granted the demurrer, thus:
“WHEREFORE, the demurrer to evidence is granted, premised on reasonable doubt as to the
guilt of the accused. Cruiser Bus Line[s] and Transport Corporation, through the accused is
directed to pay the complainant the sum of P248,700.00 representing the value of the two
checks, with interest at the rate of 12% per annum227
VOL. 561, AUGUST 6, 2008 227
to be computed from the time of the filing of these cases in Court, until the account is paid in
full; ordering further Cruiser Bus Line[s] and Transport Corporation, through the accused,
to reimburse complainant the expense representing filing fees amounting to P1,780.00 and
costs of litigation which this Court hereby fixed at P5,000.00.
SO ORDERED.”5
Petitioner moved for partial reconsideration but his motion was denied.
Thereafter, both parties appealed to the RTC. On February 24, 2004, the trial court
ruled:
“WHEREFORE, the assailed Order dated April 21, 2003 is hereby MODIFIED to read as
follows: Accused is directed to pay and/or reimburse the complainant the following sums: (1)
P248,700.00 representing the value of the two checks, with interest at the rate of 12% per
annum to be computed from the time of the filing of these cases in Court, until the account is
paid in full; (2) P1,780.00 for filing fees and P5,000.00 as cost of litigation.
SO ORDERED.”6
Petitioner moved for reconsideration, but his motion was denied on May 11, 2004.
Petitioner elevated the case to the Court of Appeals, which affirmed the February 24,
2004 Decision and May 11, 2004 Order of the RTC:
“WHEREFORE, premises considered, the instant petition is DENIED. The assailed
Decision of the Regional Trial Court, Branch 16, Davao City, dated February 24, 2004 and
its Order dated May 11, 2004 are AFFIRMED.
SO ORDERED.”7
Petitioner now comes before us, raising the sole issue of whether the Court of
Appeals erred in upholding the RTC’s ruling that petitioner, as an officer of the
corporation, is per-
_______________
5 Id., at pp. 87-88.

6 Id., at p. 107.
7 Id., at p. 40.
228
sonally and civilly liable to the private respondent for the value of the two checks.8
Petitioner asserts that BP Blg. 22 merely pertains to the criminal liability of the
accused and that the corporation, which has a separate personality from its officers,
is solely liable for the value of the two checks.
Private respondent counters that petitioner should be held personally liable for
both checks. Private respondent alleged that petitioner issued two postdated checks:
a personal check in his name for the amount of P151,200 and a corporation check
under the account of Cruiser Bus Lines and Transport Corporation for the amount of
P97,500. According to private respondent, petitioner, by issuing his check to cover the
obligation of the corporation, became an accommodation party. Under Section 299 of
the Negotiable Instruments Law, an accommodation party is liable on the instrument
to a holder for value. Private respondent adds that petitioner should also be liable for
the value of the corporation check because instituting another civil action against the
corporation would result in multiplicity of suits and delay.
At the outset, we note that private respondent’s allegation that petitioner issued
a personal check disputes the factual findings of the MTCC. The MTCC found that
the two checks belong to Cruiser Bus Lines and Transport Corporation while the RTC
found that one of the checks was a personal check of the petitioner. Generally this
Court, in a petition for review on certiorari under Rule 45 of the Rules of Court, has
no jurisdiction over questions of facts. But, considering that the
_______________
8 Id., at p. 29.
9 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.
229
VOL. 561, AUGUST 6, 2008 229
findings of the MTCC and the RTC are at variance,10 we are compelled to settle this
issue.
A perusal of the two check return slips11 in conjunction with the Current Account
Statements12 would show that the check for P151,200 was drawn against the current
account of Claude Bautista while the check for P97,500 was drawn against the
current account of Cruiser Bus Lines and Transport Corporation. Hence, we sustain
the factual finding of the RTC.
Nonetheless, we find the appellate court in error for affirming the decision of the
RTC holding petitioner liable for the value of the checks considering that petitioner
was acquitted of the crime charged and that the debts are clearly corporate debts for
which only Cruiser Bus Lines and Transport Corporation should be held liable.
Juridical entities have personalities separate and distinct from its officers and the
persons composing it.13 Generally, the stockholders and officers are not personally
liable for the obligations of the corporation except only when the veil of corporate
fiction is being used as a cloak or cover for fraud or illegality, or to work
injustice.14These situations, however, do not exist in this case. The evidence shows
that it is Cruiser Bus Lines and Transport Corporation that has obligations to Auto
Plus Traders, Inc. for tires. There is no agreement that petitioner shall be held liable
for the corporation’s obligations in his personal capacity. Hence, he cannot be held
liable for the value of the two checks issued in payment for the corporation’s
obligation in the total amount of P248,700.
_______________
10 See MEA Builders, Inc. v. Court of Appeals, G.R. No. 121484, January 31, 2005, 450 SCRA 155, 165.
11 Rollo, pp. 70, 71.
12 Id., at pp. 68, 72.
13 Construction & Development Corporation of the Philippines v. Cuenca, G.R. No. 163981, August 12,
2005, 466 SCRA 714, 727.
14 See Jardine Davies, Inc. v. JRB Realty, Inc., G.R. No. 151438, July 15, 2005, 463 SCRA 555, 563.
230
Likewise, contrary to private respondent’s contentions, petitioner cannot be
considered liable as an accommodation party for Check No. 58832. Section 29 of the
Negotiable Instruments Law defines an accommodation party as a person “who has
signed the instrument as maker, drawer, acceptor, or indorser, without receiving
value therefor, and for the purpose of lending his name to some other person.” As
gleaned from the text, an accommodation party is one who meets all the three
requisites, viz.: (1) he must be a party to the instrument, signing as maker, drawer,
acceptor, or indorser; (2) he must not receive value therefor; and (3) he must sign for
the purpose of lending his name or credit to some other person.15 An accommodation
party 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 party/ies thereto.16 The first two elements are present here,
however there is insufficient evidence presented in the instant case to show the
presence of the third requisite. All that the evidence shows is that petitioner signed
Check No. 58832, which is drawn against his personal account. The said check, dated
December 15, 2000, corresponds to the value of 24 sets of tires received by Cruiser
Bus Lines and Transport Corporation on August 29, 2000.17 There is no showing of
when petitioner issued the check and in what capacity. In the absence of concrete
evidence it cannot just be assumed that petitioner intended to lend his name to the
corporation. Hence, petitioner cannot be considered as an accommodation party.
Cruiser Bus Lines and Transport Corporation, however, remains liable for the
checks especially since there is no evi-
_______________
15 Ang v. Associated Bank, G.R. No. 146511, September 5, 2007, 532 SCRA 244, 272-273; Lim v. Saban,
G.R. No. 163720, December 16, 2004, 447 SCRA 232, 244; Crisologo-Jose v. Court of Appeals, G.R. No.
80599, September 15, 1989, 177 SCRA 594, 598.
16 Ang v. Associated Bank, supra at p. 273.
17 Exhibit “C,” Records, p. 114.
231
VOL. 561, AUGUST 6, 2008 231
dence that the debts covered by the subject checks have been paid.
WHEREFORE, the petition is GRANTED. The Decision dated August 10, 2004
and the Resolution dated October 29, 2004 of the Court of Appeals in CA-G.R. CR No.
28464 are REVERSED and SET ASIDE. Criminal Case Nos. 52633-03 and 52634-03
are DISMISSED, without prejudice to the right of private respondent Auto Plus
Traders, Inc., to file the proper civil action against Cruiser Bus Lines and Transport
Corporation for the value of the two checks.
SO ORDERED.
Puno (C.J.)** and Brion, J., concur.
Tinga, J., I join J. Velasco’s dissent.
Velasco, Jr., J., Please see dissenting opinion.
DISSENTING OPINION
VELASCO, JR., J.:

With due respect, I register my dissent to the ponencia of my esteemed colleague.
I submit that petitioner Bautista is civilly liable for the amounts of the two checks he
issued; hence, the Court of Appeals’ Decision affirming that of the Regional Trial
Court should be upheld and the instant petition be dismissed.
To support its position absolving petitioner from civil liability arising from the bad
checks, the ponencia made the following ratiocination, viz.:
“Juridical entities have personalities separate and distinct from its officers and the
persons composing it. Generally, the stock-
_______________
** In lieu of Associate Justice Conchita Carpio-Morales who inhibited herself.

232
holders and officers are not personally liable for the obligations of the corporation except only
when the veil of corporate fiction is being used as a cloak or cover for fraud or illegality, or to
work injustice. These situations, however, do not exist in this case. The evidence shows that
it is Cruiser Bus Lines and Transport Corporation that has obligations to Auto Plus Traders,
Inc. for tires. There is no agreement that petitioner shall be held liable for the corporation’s
obligations in his personal capacity. Hence, he cannot be held liable for the value of the two
checks issued in payment for the corporation’s obligation in the total amount of P248,700.”
I register the view, however, that the drawer of the bounced checks is civilly liable
for the amounts of the checks drawn to pay the said obligations of the corporations
for the following reasons:
1. Section 1 of B.P. Blg. 22 is quite unequivocal regarding the liability of the
signatory to the check drawn by a corporation, thus:
“x x x Where the check is drawn by a corporation, company or entity, the person who
actually signed the check in behalf of such drawer shall be liable under this Act.”
One can contend, however, that the aforequoted section does not clearly say the
signatory is both criminally and civilly liable for the dishonored checks.
This issue of the civil liability of the signatory was squarely resolved in the case
of Llamado v. Court of Appeals1 where it was held:
“Petitioner’s argument that he should not be held personally liable for the amount of the
check because it was a check of the Pan Asia Finance Corporation and he signed the same in
his capacity as Treasurer of the corporation, is also untenable. The third paragraph of Section
1 of BP Blg. 22 states:
_______________
1 G.R. No. 99032, March 26, 1997, 270 SCRA 423, 431.
233
VOL. 561, AUGUST 6, 2008 233
“Where the check is drawn by a corporation, company or entity, the person or persons who
actually signed the check in behalf of such drawer shall be liable under this Act.”
In the case of Lee v. Court of Appeals,2 Lee signed a check in the amount of Php
980,000.00 for the payment of the loan of a company owned by another. The check
was dishonored due to “account closed.” Lee was made civilly liable for the check even
though he issued the check in payment of the obligation of a company, thus:
“WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the following
MODIFICATIONS: The sentence of imprisonment is deleted. Instead, petitioner [Lee] is
ordered to pay a fine of P200,000.00, subject to subsidiary imprisonment in case of insolvency
pursuant to Article 39 of the Revised Penal Code; and petitioner is ordered to pay the private
complainant the amount of P980,000.00 with 12% legal interest per annum from the date of
finality of herein judgment.” (Emphasis supplied).
2. The civil aspect is deemed instituted with the criminal case. To require the
payee to institute a civil case against the corporation for the amount of the bad check
would lead to multiplicity of suits. In addition, this will unduly burden the offended
party since Rule 141 requires the payment of filing fees for a crime involving a breach
of BP Blg. 22. A second case, this time a civil case against the corporation, will expose
the offended party to the payment of filing fees for the second time.
Lastly, even assuming arguendo that the petitioner is not liable for the obligation
of the corporation, yet he should at least be made liable for the amount of Php 151,200
which was covered by his personal check according to the ponencia. Responsibility
under BP Blg. 22 is personal to the accused and Section 1 of said law is clear that the
person who actually signed the bad check is liable.
_______________
——o0o——
GENEVIEVE LIM, petitioner, vs. FLORENCIO SABAN, respondent.

Civil Law; Agency; The right of a broker to his commission for finding a suitable buyer
for the seller’s property even though the seller himself consummated the sale with the buyer
recognized by the Court.—In Macondray & Co. v. Sellner, the Court recognized the right of a
broker to his commission for finding a suitable buyer for the seller’s property even though
the seller himself consummated the sale with the buyer. The Court held that it would be in
the height of injustice to permit the principal to terminate the contract of agency to the
prejudice of the broker when he had already reaped the benefits of the broker’s efforts.
Same; Same; The seller’s withdrawal in bad faith of the broker’s authority cannot
unjustly deprive the brokers of their commission as the seller’s duly constituted agents.—
In Infante v. Cunanan, et al., the Court upheld the right of the brokers to their commissions
although the seller revoked their authority to act in his behalf after they had found a buyer
for his properties and negotiated the sale directly with the buyer whom he met through the
brokers’ efforts. The Court ruled that the seller’s withdrawal in bad faith of the brokers’
authority cannot unjustly deprive the brokers of their commissions as the seller’s duly
constituted agents.
Same; Same; Agency Coupled with an Interest; An agency is deemed as one coupled with
an interest where it is established for the mutual benefit of the principal and of the agent, or
for the interest of the principal and of third persons, and it cannot be revoked by the principal
so long as the interest of the agent or of a third person subsists.—Under Article 1927 of the
Civil Code, an agency cannot be revoked if a bilateral contract depends upon it, or if it is the
means of fulfilling an obligation already contracted, or if a partner is appointed manager of
a partnership in the contract of partnership and his removal from the management is
unjustifiable. Stated differently, an agency is deemed as one coupled with an interest where
it
_______________
*SECOND DIVISION.
233
VOL. 447, DECEMBER 16, 2004 233
Lim vs. Saban
is established for the mutual benefit of the principal and of the agent, or for the interest
of the principal and of third persons, and it cannot be revoked by the principal so long as the
interest of the agent or of a third person subsists. In an agency coupled with an interest, the
agent’s interest must be in the subject matter of the power conferred and not merely an
interest in the exercise of the power because it entitles him to compensation. When an agent’s
interest is confined to earning his agreed compensation, the agency is not one coupled with
an interest, since an agent’s interest in obtaining his compensation as such agent is an
ordinary incident of the agency relationship.
Commercial Law; Negotiable Instruments Law; Requisites of an Accommodation
Party.—As gleaned from the text of Section 29 of the Negotiable Instruments Law, the
accommodation party is one who meets all these three requisites, viz.: (1) he signed the
instrument as maker, drawer, acceptor, or indorser; (2) he did not receive value for the
signature; and (3) he signed for the purpose of lending his name to some other person. In the
case at bar, while Lim signed as drawer of the checks she did not satisfy the two other
remaining requisites.

Palermo C. Belciña, Jr. for petitioner.
Basilio E. Duaban for private respondent.
TINGA, J.:
Before the Court is a Petition for Review on Certiorari assailing the Decision dated 1
October 27, 2003 of the Court of Appeals, Seventh Division, in CA-G.R. V No. 60392. 2
_______________
1 Penned by Associate Justice Edgardo P. Cruz and concurred in by Associate Justices Ruben T. Reyes
and Noel G. Tijam.

2 Florencio Saban, Plaintiff-Appellant v. Eduardo Ybanez and Genevieve Lim, Defendants; Genevieve
Lim, Defendant-Appellee.
234
Lim vs. Saban
The late Eduardo Ybañez (Ybañez), the owner of a 1,000-square meter lot in Cebu
City (the “lot”), entered into an Agreement and Authority to Negotiate and
Sell (Agency Agreement) with respondent Florencio Saban (Saban) on February 8,
1994. Under the Agency Agreement, Ybañez authorized Saban to look for a buyer of
the lot for Two Hundred Thousand Pesos (P200,000.00) and to mark up the selling
price to include the amounts needed for payment of taxes, transfer of title and other
expenses incident to the sale, as well as Saban’s commission for the sale. 3
Through Saban’s efforts, Ybañez and his wife were able to sell the lot to the
petitioner Genevieve Lim (Lim) and the spouses Benjamin and Lourdes Lim (the
Spouses Lim) on March 10, 1994. The price of the lot as indicated in the Deed of
Absolute Sale is Two Hundred Thousand Pesos (P200,000.00). It appears, however, 4
that the vendees agreed to purchase the lot at the price of Six Hundred Thousand
Pesos (P600,000.00), inclusive of taxes and other incidental expenses of the sale. After
the sale, Lim remitted to Saban the amounts of One Hundred Thirteen Thousand
Two Hundred Fifty Seven Pesos (P113,257.00) for payment of taxes due on the
transaction as well as Fifty Thousand Pesos
_______________
3 The agency agreement between Ybañez and Saban provides:

. . . That I[,] Engr. Eduardo Ybañez . . . have agreed and allowed to (sic) Mr. Florencio Saban, Sr. and his associate to
look for a buyer, and further agreed to sell and dispose the above-mention (sic) lot, at the price of P200.00 per square
meters [sic] (equivalent to P200,000.00) net, and any amount over and above for the stated price resulting from the sale
shall belong to Mr. Florencio Saban, Sr. and his associate. Furthermore it is agreed and covenanted that the total
expenses covering the sale and transfer of the title such as, capital gain (sic) tax, documentary stamp, transfer tax and
other relative expenses, for the said sale shall be borne to the agent, and or to the buyer, except the payment of realty
taxes. (RTC Records, p. 5)
4RTC Records, p. 6.
235
VOL. 447, DECEMBER 16, 2004 235
Lim vs. Saban
(P50,000.00) as broker’s commission. Lim also issued in the name of Saban four
5
postdated checks in the aggregate amount of Two Hundred Thirty Six Thousand
Seven Hundred Forty Three Pesos (P236,743.00). These checks were Bank of the
Philippine Islands (BPI) Check No. 1112645 dated June 12, 1994 for P25,000.00; BPI
Check No. 1112647 dated June 19, 1994 for P18,743.00; BPI Check No. 1112646 dated
June 26, 1994 for P25,000.00; and Equitable PCI Bank Check No. 021491B dated
June 20, 1994 for P168,000.00.
Subsequently, Ybañez sent a letter dated June 10, 1994 addressed to Lim. In the
letter Ybañez asked Lim to cancel all the checks issued by her in Saban’s favor and
to “extend another partial payment” for the lot in his (Ybañez’s) favor. 6
After the four checks in his favor were dishonored upon presentment, Saban filed
a Complaint for collection of sum of money and damages against Ybañez and Lim
with the Regional Trial Court (RTC) of Cebu City on August 3, 1994. The case was 7
assigned to Branch 20 of the RTC.

In his Complaint, Saban alleged that Lim and the Spouses Lim agreed to purchase
the lot for P600,000.00, i.e., with a mark-up of Four Hundred Thousand Pesos
(P400,000.00) from the price set by Ybañez. Of the total purchase price of
P600,000.00, P200,000.00 went to Ybañez, P50,000.00 allegedly went to Lim’s agent,
and P113,257.00 was given to Saban to cover taxes and other expenses incidental to
the sale. Lim also issued four (4) postdated checks in favor of Saban for the remaining
8
P236,743.00. 9
_______________
5 Lim on direct examination, TSN, March 3, 1997, p. 8; Rose Villarosa (Lim’s broker) on direct
examination, TSN, October 22, 1996, p. 7.
6 RTC Records, p. 25.
7 Id., at p. 1.
8 Annexes “B” to “E”, RTC Records, pp. 32-35.
9 Id., at p. 2.
236
Lim vs. Saban
Saban alleged that Ybañez told Lim that he (Saban) was not entitled to any
commission for the sale since he concealed the actual selling price of the lot from
Ybañez and because he was not a licensed real estate broker. Ybañez was able to
convince Lim to cancel all four checks.
Saban further averred that Ybañez and Lim connived to deprive him of his sales
commission by withholding payment of the first three checks. He also claimed that
Lim failed to make good the fourth check which was dishonored because the account
against which it was drawn was closed.
In his Answer, Ybañez claimed that Saban was not entitled to any commission
because he concealed the actual selling price from him and because he was not a
licensed real estate broker.
Lim, for her part, argued that she was not privy to the agreement between Ybañez
and Saban, and that she issued stop payment orders for the three checks because
Ybañez requested her to pay the purchase price directly to him, instead of coursing it
through Saban. She also alleged that she agreed with Ybañez that the purchase price
of the lot was only P200,000.00.
Ybañez died during the pendency of the case before the RTC. Upon motion of his
counsel, the trial court dismissed the case only against him without any objection
from the other parties. 10
On May 14, 1997, the RTC rendered its Decision dismissing Saban’s complaint,
11
declaring the four (4) checks issued by Lim as stale and non-negotiable, and absolving
Lim from any liability towards Saban.
Saban appealed the trial court’s Decision to the Court of Appeals.
_______________
Order dated March 6, 1995, RTC Records, p. 48.

10
Rollo, pp. 29-39.

11
237
VOL. 447, DECEMBER 16, 2004 237
Lim vs. Saban
On October 27, 2003, the appellate court promulgated its Decision reversing the trial
12
court’s ruling. It held that Saban was entitled to his commission amounting to
P236,743.00. 13
The Court of Appeals ruled that Ybañez’s revocation of his contract of agency with
Saban was invalid because the agency was coupled with an interest and Ybañez
effected the revocation in bad faith in order to deprive Saban of his commission and
to keep the profits for himself. 14
The appellate court found that Ybañez and Lim connived to deprive Saban of his
commission. It declared that Lim is liable to pay Saban the amount of the purchase
price of the lot corresponding to his commission because she issued the four checks
knowing that the total amount thereof corresponded to Saban’s commission for the
sale, as the agent of Ybañez. The appellate court further ruled that, in issuing the
checks in payment of Saban’s commission, Lim acted as an accommodation party. She
signed the checks as drawer, without receiving value therefor, for the purpose of
lending her name to a third person. As such, she is liable to pay Saban as the holder
for value of the checks. 15
Lim filed a Motion for Reconsideration of the appellate court’s Decision, but
her Motion was denied by the Court of Appeals in a Resolution dated May 6, 2004. 16
Not satisfied with the decision of the Court of Appeals, Lim filed the present
petition.
Lim argues that the appellate court ignored the fact that after paying her agent
and remitting to Saban the amounts
_______________
12 Rollo, pp. 22-28.

13 The amount of the purchase price less the P200,000.00 payable to Ybañez and the incidental expenses
of the sale.
14 Rollo, pp. 25-26.
15 Id., at p. 27.
16 Rollo, p. 46.
238
Lim vs. Saban
due for taxes and transfer of title, she paid the balance of the purchase price directly
to Ybañez. 17
She further contends that she is not liable for Ybañez’s debt to Saban under the
Agency Agreement as she is not privy thereto, and that Saban has no one but himself
to blame for consenting to the dismissal of the case against Ybañez and not moving
for his substitution by his heirs. 18
Lim also assails the findings of the appellate court that she issued the checks as
an accommodation party for Ybañez and that she connived with the latter to deprive
Saban of his commission. 19
Lim prays that should she be found liable to pay Saban the amount of his
commission, she should only be held liable to the extent of one-third (1/3) of the
amount, since she had two co-vendees (the Spouses Lim) who should share such
liability.20
In his Comment, Saban maintains that Lim agreed to purchase the lot for
P600,000.00, which consisted of the P200,000.00 which would be paid to Ybañez, the
P50,000.00 due to her broker, the P113,257.00 earmarked for taxes and other
expenses incidental to the sale and Saban’s commission as broker for Ybañez.
According to Saban, Lim assumed the obligation to pay him his commission. He
insists that Lim and Ybañez connived to unjustly deprive him of his commission from
the negotiation of the sale. 21
The issues for the Court’s resolution are whether Saban is entitled to receive his
commission from the sale; and, assuming that Saban is entitled thereto, whether it
is Lim who is liable to pay Saban his sales commission.
_______________
17 Petition, Id., at p. 17.

18 Id., at pp. 14 and 16.
19 Id., at p. 18.
20 Id., at p. 17.
21 Id., at pp. 114-115.
239
VOL. 447, DECEMBER 16, 2004 239
Lim vs. Saban
The Court gives due course to the petition, but agrees with the result reached by the
Court of Appeals.
The Court affirms the appellate court’s finding that the agency was not revoked
since Ybañez requested that Lim make stop payment orders for the checks payable
to Saban only after the consummation of the sale on March 10, 1994. At that time,
Saban had already performed his obligation as Ybañez’s agent when, through his
(Saban’s) efforts, Ybañez executed the Deed of Absolute Sale of the lot with Lim and
the Spouses Lim.
To deprive Saban of his commission subsequent to the sale which was
consummated through his efforts would be a breach of his contract of agency with
Ybañez which expressly states that Saban would be entitled to any excess in the
purchase price after deducting the P200,000.00 due to Ybañez and the transfer taxes
and other incidental expenses of the sale. 22
In Macondray & Co. v. Sellner, the Court recognized the right of a broker to his
23
commission for finding a suitable buyer for the seller’s property even though the seller
himself consummated the sale with the buyer. The Court held that it would be in the
24
height of injustice to permit the principal to terminate the contract of agency to the
prejudice of the broker when he had already reaped the benefits of the broker’s efforts.
In Infante v. Cunanan, et al., the Court upheld the right of the brokers to their
25
commissions although the seller revoked their authority to act in his behalf after they
had found a buyer for his properties and negotiated the sale directly with the buyer
whom he met through the brokers’ efforts. The Court ruled that the seller’s
withdrawal in bad faith of the
_______________
22 Supranote 3.
23 33 Phil. 370 (1916).
24 Id., at p. 377.
25 93 Phil. 691 (1953).
240
Lim vs. Saban
brokers’ authority cannot unjustly deprive the brokers of their commissions as the
seller’s duly constituted agents.
The pronouncements of the Court in the aforecited cases are applicable to the
present case, especially considering that Saban had completely performed his
obligations under his contract of agency with Ybañez by finding a suitable buyer to
preparing the Deed of Absolute Sale between Ybañez and Lim and her co-vendees.
Moreover, the contract of agency very clearly states that Saban is entitled to the
excess of the markup of the price of the lot after deducting Ybañez’s share of
P200,000.00 and the taxes and other incidental expenses of the sale.
However, the Court does not agree with the appellate court’s pronouncement that
Saban’s agency was one coupled with an interest. Under Article 1927 of the Civil
Code, an agency cannot be revoked if a bilateral contract depends upon it, or if it is
the means of fulfilling an obligation already contracted, or if a partner is appointed
manager of a partnership in the contract of partnership and his removal from the
management is unjustifiable. Stated differently, an agency is deemed as one coupled
with an interest where it is established for the mutual benefit of the principal and of
the agent, or for the interest of the principal and of third persons, and it cannot be
revoked by the principal so long as the interest of the agent or of a third person
subsists. In an agency coupled with an interest, the agent’s interest must be in the
subject matter of the power conferred and not merely an interest in the exercise of
the power because it entitles him to compensation. When an agent’s interest is
confined to earning his agreed compensation, the agency is not one coupled with an
interest, since an agent’s interest in obtaining his compensation as such agent is an
ordinary incident of the agency relationship.26
_______________
See I RESTATEMENT OF THE LAW IN AGENCY 2d 340 (1957).

26
241
VOL. 447, DECEMBER 16, 2004 241
Lim vs. Saban
Saban’s entitlement to his commission having been settled, the Court must now
determine whether Lim is the proper party against whom Saban should address his
claim.
Saban’s right to receive compensation for negotiating as broker for Ybañez arises
from the Agency Agreement between them. Lim is not a party to the contract.
However, the record reveals that she had knowledge of the fact that Ybañez set the
price of the lot at P200,000.00 and that the P600,000.00—the price agreed upon by
her and Saban—was more than the amount set by Ybañez because it included the
amount for payment of taxes and for Saban’s commission as broker for Ybañez.
According to the trial court, Lim made the following payments for the lot:
P113,257.00 for taxes, P50,000.00 for her broker, and P400.000.00 directly to Ybañez,
or a total of Five Hundred Sixty Three Thousand Two Hundred Fifty Seven Pesos
(P563,257.00). Lim, on the other hand, claims that on March 10, 1994, the date of
27
execution of the Deed of Absolute Sale, she paid directly to Ybañez the amount of One
Hundred Thousand Pesos (P100,000.00) only, and gave to Saban P113,257.00 for
payment of taxes and P50,000.00 as his commission, and One Hundred Thirty
28
Thousand Pesos (P130,000.00) on June 28, 1994, or a total of Three Hundred Ninety
29
Three Thousand Two Hundred Fifty Seven Pesos (P393,257.00). Ybañez, for his part,
acknowledged that Lim and her co-vendees paid him P400,000.00 which he said was
the full amount for the sale of the lot. It thus appears that he received P100,000.00
30
on March 10, 1994, acknowledged receipt (through Saban) of the P113,257.00

earmarked for taxes and P50,000.00 for commission, and received the bal-
_______________
27 RTC Decision, Rollo, p. 33.

28 TSN, March 3, 1997, p. 8.
29 Id., see also, Acknowledgement Receipt issued by Ybañez in favor of Lim, RTC Records, p. 114.
30 See Acknowledgement Receipt dated June 28, 1994, Id., and Ybañez’s Affidavit dated June 28,
1994, Id., at p. 115.

242
Lim vs. Saban
ance of P130,000.00 on June 28, 1994. Thus, a total of P230,000.00 went directly to
Ybañez. Apparently, although the amount actually paid by Lim was P393,257.00,
Ybañez rounded off the amount to P400,000.00 and waived the difference.
Lim’s act of issuing the four checks amounting to P236,743.00 in Saban’s favor
belies her claim that she and her co-vendees did not agree to purchase the lot at
P600,000.00. If she did not agree thereto, there would be no reason for her to issue
those checks which is the balance of P600,000.00 less the amounts of P200,000.00
(due to Ybañez), P50,000.00 (commission), and the P113,257.00 (taxes). The only
logical conclusion is that Lim changed her mind about agreeing to purchase the lot at
P600,000.00 after talking to Ybañez and ultimately realizing that Saban’s
commission is even more than what Ybañez received as his share of the purchase
price as vendor. Obviously, this change of mind resulted to the prejudice of Saban
whose efforts led to the completion of the sale between the latter, and Lim and her
covendees. This the Court cannot countenance.
The ruling of the Court in Infante v. Cunanan, et al., cited earlier, is enlightening
for the facts therein are similar to the circumstances of the present case. In that case,
Consejo Infante asked Jose Cunanan and Juan Mijares to find a buyer for her two
lots and the house built thereon for Thirty Thousand Pesos (P30,000.00). She
promised to pay them five percent (5%) of the purchase price plus whatever overprice
they may obtain for the property. Cunanan and Mijares offered the properties to Pio
Noche who in turn expressed willingness to purchase the properties. Cunanan and
Mijares thereafter introduced Noche to Infante. However, the latter told Cunanan
and Mijares that she was no longer interested in selling the property and asked them
to sign a document stating that their written authority to act as her agents for the
sale of the properties was already cancelled. Subsequently, Infante sold the properties
directly to Noche for Thirty One
243
VOL. 447, DECEMBER 16, 2004 243
Lim vs. Saban
Thousand Pesos (P31,000.00). The Court upheld the right of Cunanan and Mijares to
their commission, explaining that—
. . . [Infante] had changed her mind even if respondent had found a buyer who was willing to
close the deal, is a matter that would not give rise to a legal consequence if [Cunanan and
Mijares] agreed to call off the transaction in deference to the request of [Infante]. But the
situation varies if one of the parties takes advantage of the benevolence of the other and acts
in a manner that would promote his own selfish interest. This act is unfair as would amount
to bad faith. This act cannot be sanctioned without according the party prejudiced the reward
which is due him. This is the situation in which [Cunanan and Mijares] were placed by
[Infante]. [Infante] took advantage of the services rendered by [Cunanan and Mijares], but
believing that she could evade payment of their commission, she made use of a ruse by
inducing them to sign the deed of cancellation . . . . This act of subversion cannot be sanctioned
and cannot serve as basis for [Infante] to escape payment of the commission agreed upon. 31
The appellate court therefore had sufficient basis for concluding that Ybañez and Lim
connived to deprive Saban of his commission by dealing with each other directly and
reducing the purchase price of the lot and leaving nothing to compensate Saban for
his efforts.
Considering the circumstances surrounding the case, and the undisputed fact that
Lim had not yet paid the balance of P200,000.00 of the purchase price of P600,000.00,
it is just and proper for her to pay Saban the balance of P200,000.00.
Furthermore, since Ybañez received a total of P230,000.00 from Lim, or an excess
of P30,000.00 from his asking price of P200,000.00, Saban may claim such excess
from Ybañez’s estate, if that remedy is still available, in view of the trial court’s
32
dismissal of Saban’s complaint as against Ybañez,
_______________
Supranote 25, at pp. 695-96.

31
Rule 86 (Claims Against Estate), Revised Rules of Court.

32
244
Lim vs. Saban
with Saban’s express consent, due to the latter’s demise on November 11, 1994. 33
The appellate court however erred in ruling that Lim is liable on the checks
because she issued them as an accommodation party. Section 29 of the Negotiable
Instruments Law defines an accommodation party as a person “who has signed the
negotiable instrument as maker, drawer, acceptor or in-dorser, without receiving
value therefor, for the purpose of lending his name to some other person.” The
accommodation party is liable on the instrument to a holder for value even though
the holder at the time of taking the instrument knew him or her to be merely an
accommodation party. The accommodation party may of course seek reimbursement
from the party accommodated. 34
As gleaned from the text of Section 29 of the Negotiable Instruments Law, the
accommodation party is one who meets all these three requisites, viz.: (1) he signed
the instrument as maker, drawer, acceptor, or indorser; (2) he did not receive value
for the signature; and (3) he signed for the purpose of lending his name to some other
person. In the case at bar, while Lim signed as drawer of the checks she did not satisfy
the two other remaining requisites.
The absence of the second requisite becomes pellucid when it is noted at the outset
that Lim issued the checks in question on account of her transaction, along with the
other purchasers, with Ybañez which was a sale and, therefore, a reciprocal contract.
Specifically, she drew the checks in payment of the balance of the purchase price of
the lot subject of the transaction. And she had to pay the agreed purchase price in
consideration for the sale of the lot to her and her co-vendees. In other words, the
amounts covered by the checks form part
_______________
33Order of the RTC dated March 6, 1995, RTC Records, p. 48.

34Agro Conglomerates, Inc. v. Court of Appeals, G.R. No. 117660, December 18, 2000, 348 SCRA
450; Bank of the Philippine Islands v. Court of Appeals, 383 Phil. 538; 326 SCRA 641 (2000).
245
VOL. 447, DECEMBER 16, 2004 245
Lim vs. Saban
of the cause or consideration from Ybañez’s end, as vendor, while the lot represented
the cause or consideration on the side of Lim, as vendee. Ergo, Lim received value
35
for her signature on the checks.

Neither is there any indication that Lim issued the checks for the purpose of
enabling Ybañez, or any other person for that matter, to obtain credit or to raise
money, thereby totally debunking the presence of the third requisite of an
accommodation party.
WHEREFORE, in view of the foregoing, the petition is DISMISSED.
SO ORDERED.
Puno (Chairman), Austria-Martinez and Chico-Nazario, JJ.,concur.
Callejo, Sr., J., On Leave.
Petition dismissed.
Note.—Agents working on commission basis will not normally pass up a
commission by not informing their principal of a referred buyer. (People vs.
Castillo, 333 SCRA 506 [2000])
——o0o——

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G.R. No.

187769, June 04, 2014

ALVIN PATRIMONIO, Petitioner, v. NAPOLEON GUTIERREZ AND OCTAVIO MARASIGAN

The Factual Background

The Ruling of the RTC

The Ruling of the CA

1. Whether the contract of loan in the amount of P200,000.00 granted by respondent

4. Whether Marasigan is a holder in due course.

The Court’s Ruling

I. Liability Under the Contract of Loan

Contracts of Agency May be Oral Unless

The Contract of Loan Entered Into by Gutierrez in Behalf

ALVIN PATRIMONIO (witness)

WITNESS: No, sir. (T.S.N., Alvin Patrimonio, Nov. 11, 1999, p.

Marasigan’s submission fails to persuade us.

No Contract of Loan Was Perfected Between

II. Liability Under the Instrument

The answer is supplied by the applicable statutory provision found in

Marasigan is Not a Holder in Due Course

(a) That it is complete and regular upon its face;

(c) That he took it in good faith and for value;

As held in De Ocampo v. Gatchalian:20 cralawre d

WITNESS: AMBET NABUS

Check Was Not Completed Strictly Under

ATTY. DE Did you authorize anyone including Nap Gutierrez to write

Carpio, (Chairperson), Del Castillo, Perez, and Perlas-Bernabe, JJ., concur.

RIZAL COMMERCIAL BANKING CORPORATION, petitioner, vs. HI-TRI

VOL. 672, JUNE 13, 2012 515

518 SUPREME COURT REPORTS ANNOTATED

VOL. 672, JUNE 13, 2012 519

520 SUPREME COURT REPORTS ANNOTATED

The RTC Ruling

524 SUPREME COURT REPORTS ANNOTATED

VOL. 672, JUNE 13, 2012 527

VOL. 672, JUNE 13, 2012 531

Petitioner acknowledges that the Manager’s Check was procured by respondents,

VOL. 672, JUNE 13, 2012 533

PETITION for review on certiorari of a decision of the Court of Appeals.

1 Rollo, pp. 3-26.

10 Id., at pp. 16-17.

The RTC’s Ruling

17 Id., at pp. 17-18.

The CA’s Ruling

23 Enacted on February 3, 1911.

The Issue Before the Court

The Court’s Ruling

The petition is meritorious.

35 TSN, December 4, 2006, pp. 14-15.

Besides, Section 16 of the NIL provides that when an instrument is no longer in

44 TSN, January 31, 2005, pp. 6-7.

46 TSN, January 31, 2005, p. 17.

VOL. 143, JULY 14, 1986 21

22 SUPREME COURT REPORTS ANNOTATED

The facts are stated in the opinion of the Court

“Check Date Payee Amount Date

On February 6, 1976, the Court of First Instance of Manila rendered judgment in

1. THE DRAWEE MWSS BEING CLEARLY FORGED, AND THE CHECKS

1. (1)The petitioner failed to give its printer, Mesina Enterprises, specific

xxx xxx xxx

1. “1.Signatures of drawers should be properly scrutinized and compared with those we

Petition dismissed Decision affirmed.

404 SUPREME COURT REPORTS ANNOTATED