CASE #1

On April 18, 1958 Enrique Montinola sought to purchase from the Manila
Post Office ten (10) money orders of P200.00 each payable to E.P.
Republic of the Philippines

Montinola with address at Lucena, Quezon. After the postal teller had made

SUPREME COURT

out money orders numbered 124685, 124687-124695, Montinola offered to

Manila

pay for them with a private check As private checks were not generally
accepted in payment of money orders, the teller advised him to see the

EN BANC
G.R. No. L-22405

Chief of the Money Order Division, but instead of doing so, Montinola
managed to leave building with his own check and the ten(10) money

June 30, 1971

orders without the knowledge of the teller.

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

On the same date, April 18, 1958, upon discovery of the disappearance of
the unpaid money orders, an urgent message was sent to all postmasters,

vs.

and the following day notice was likewise served upon all banks,
instructing them not to pay anyone of the money orders aforesaid if

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

presented for payment. The Bank of America received a copy of said notice
Marcial Esposo for plaintiff-appellant.

three days later.

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

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

Antonio

124688 was received by appellant as part of its sales receipts. The

G.

Ibarra

and

Attorney

Concepcion

Torrijos-Agapinan

for

following day it deposited the same with the Bank of America, and one day

defendants-appellees.

thereafter the latter cleared it with the Bureau of Posts and received from
the latter its face value of P200.00.
DECISION

On September 27, 1961, appellee Mauricio A. Soriano, Chief of the Money

Order Division of the Manila Post Office, acting for and in behalf of his co-

DIZON, J.:
An appeal from a decision of the Court of First Instance of Manila
dismissing the complaint filed by the Philippine Education Co., Inc. against
Mauricio A. Soriano, Enrico Palomar and Rafael Contreras.

appellee, Postmaster Enrico Palomar, notified the Bank of America that

money order No. 124688 attached to his letter had been found to have
been irregularly issued and that, in view thereof, the amount it represented
had been deducted from the banks clearing account. For its part, on

August 2 of the same year, the Bank of America debited appellants

exemplary damages in the amount of P1,000.00, attorneys fees of

account with the same amount and gave it advice thereof by means of a

P1,000.00, and the costs of action.

debit memo.
Plaintiff also prays for such other and further relief as may be deemed just
On October 12, 1961 appellant requested the Postmaster General to

and equitable.

reconsider the action taken by his office deducting the sum of P200.00
from the clearing account of the Bank of America, but his request was

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

denied. So was appellants subsequent request that the matter be referred

facts reproduced at pages 12 to 15 of the Record on Appeal, the above-

to the Secretary of Justice for advice. Thereafter, appellant elevated the

named court rendered judgment as follows:

matter to the Secretary of Public Works and Communications, but the latter
sustained the actions taken by the postal officers.

WHEREFORE, judgment is hereby rendered, ordering the defendants to

countermand the notice given to the Bank of America on September 27,

In connection with the events set forth above, Montinola was charged with

1961, deducting from said Banks clearing account the sum of P200.00

theft in the Court of First Instance of Manila (Criminal Case No. 43866) but

representing the amount of postal money order No. 124688, or in the

after trial he was acquitted on the ground of reasonable doubt.

alternative, to indemnify the plaintiff in the said sum of P200.00 with

interest thereon at the rate of 8-% per annum from September 27, 1961

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

until fully paid; without any pronouncement as to cost and attorneys fees.

Municipal Court of Manila praying for judgment as follows:

The case was appealed to the Court of First Instance of Manila where, after
WHEREFORE, plaintiff prays that after hearing defendants be ordered:

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

(a) To countermand the notice given to the Bank of America on September

27, 1961, deducting from the said Banks clearing account the sum of

The first, second and fifth assignments of error discussed in appellants

P200.00 represented by postal money order No. 124688, or in the

brief are related to the other and will therefore be discussed jointly. They

alternative indemnify the plaintiff in the same amount with interest at 8-

raise this main issue: that the postal money order in question is a

% per annum from September 27, 1961, which is the rate of interest being

negotiable instrument; that its nature as such is not in any way affected by

paid by plaintiff on its overdraft account;

the letter dated October 26, 1948 signed by the Director of Posts and
addressed to all banks with a clearing account with the Post Office, and

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

that money orders, once issued, create a contractual relationship of debtor

severally, actual and moral damages in the amount of P1,000.00 or in such

and creditor, respectively, between the government, on the one hand, and

amount as will be proved and/or determined by this Honorable Court:

the remitters payees or endorses, on the other.

It is not disputed that our postal statutes were patterned after statutes in

latter is therefore bound by them. That it is so is clearly referred from the

force in the United States. For this reason, ours are generally construed in

fact that, upon receiving advice that the amount represented by the

accordance with the construction given in the United States to their own

money order in question had been deducted from its clearing account with

postal statutes, in the absence of any special reason justifying a departure

the Manila Post Office, it did not file any protest against such action.

from this policy or practice. The weight of authority in the United States is
that postal money orders are not negotiable instruments (Bolognesi vs.

Moreover, not being a party to the understanding existing between the

U.S. 189 Fed. 395; U.S. vs. Stock Drawers National Bank, 30 Fed. 912), the

postal officers, on the one hand, and the Bank of America, on the other,

reason behind this rule being that, in establishing and operating a postal

appellant has no right to assail the terms and conditions thereof on the

money order system, the government is not engaging in commercial

ground that the letter setting forth the terms and conditions aforesaid is

transactions but merely exercises a governmental power for the public

void because it was not issued by a Department Head in accordance with

benefit.

Sec. 79 (B) of the Revised Administrative Code. In reality, however, said

legal provision does not apply to the letter in question because it does not

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

provide for a department regulation but merely sets down certain

upon money orders by postal laws and regulations are inconsistent with

conditions upon the privilege granted to the Bank of America to accept and

the character of negotiable instruments. For instance, such laws and

pay postal money orders presented for payment at the Manila Post Office.

regulations usually provide for not more than one endorsement; payment

Such being the case, it is clear that the Director of Posts had ample

of money orders may be withheld under a variety of circumstances (49 C.J.

authority to issue it pursuant to Sec. 1190 of the Revised Administrative

1153).

Code.

Of particular application to the postal money order in question are the

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

conditions laid down in the letter of the Director of Posts of October 26,

raised in the third and fourth assignments of error.

1948 (Exhibit 3) to the Bank of America for the redemption of postal

money orders received by it from its depositors. Among others, the

WHEREFORE, the appealed decision being in accordance with law, the

condition is imposed that in cases of adverse claim, the money order or

same is hereby affirmed with costs.

money orders involved will be returned to you (the bank) and the,
corresponding amount will have to be refunded to the Postmaster, Manila,
who reserves the right to deduct the value thereof from any amount due
you if such step is deemed necessary. The conditions thus imposed in
order to enable the bank to continue enjoying the facilities theretofore
enjoyed by its depositors, were accepted by the Bank of America. The

Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Fernando, Teehankee,

Barredo and Villamor, JJ., concur.
Castro and Makasiar, JJ., took no part.

Whether or not the postal money order in question is a negotiable

instrument
Held:

Philippine Education Co. vs. Soriano

L-22405

June 30, 1971

No. It is not disputed that the Philippine postal statutes were patterned
after similar statutes in force in United States. The Weight of authority in
the United States is that postal money orders are not negotiable
instruments, the reason being that in establishing and operating a postal
money order system, the government is not engaged in commercial
transactions but merely exercises a governmental power for the public
benefit. Moreover, some of the restrictions imposed upon money orders by
postal laws and regulations are inconsistent with the character of
negotiable instruments. For instance, such laws and regulations usually
provide for not more than one endorsement; payment of money orders
may be withheld under a variety of circumstances.

Dizon, J.:
CASE #2
Facts:
Enrique Montinola sought to purchase from Manila Post Office ten
money orders of 200php each payable to E. P. Montinola. Montinola offered
to pay with the money orders with a private check. Private check were not
generally accepted in payment of money orders, the teller advised him to
see the Chief of the Money Order Division, but instead of doing so,
Montinola managed to leave the building without the knowledge of the
teller. Upon the disappearance of the unpaid money order, a message was
sent to instruct all banks that it must not pay for the money order stolen
upon presentment. The Bank of America received a copy of said notice.
However, The Bank of America received the money order and deposited it
to the appellants account upon clearance. Mauricio Soriano, Chief of the
Money Order Division notified the Bank of America that the money order
deposited had been found to have been irregularly issued and that, the
amount it represented had been deducted from the banks clearing
account. The Bank of America debited appellants account with the same
account and give notice by mean of debit memo.
Issue:

Tibajia, Jr. vs. Court of Appeals, 223 SCRA 163, G.R. No. 100290,
June 04, 1993
G.R. No. 100290 June 4, 1993

NORBERTO TIBAJIA, JR. and CARMEN TIBAJIA, petitioners,

vs.
THE HONORABLE COURT OF APPEALS and EDEN TAN, respondents.

PADILLA, J.:
Petitioners, spouses Norberto Tibajia, Jr. and Carmen Tibajia, are before this
Court assailing the decision * of respondent appellate court dated 24 April
1991 in CA-G.R. SP No. 24164 denying their petition for certiorari

prohibition, and injunction which sought to annul the order of Judge

Eutropio Migrio of the Regional Trial Court, Branch 151, Pasig, Metro
Manila in Civil Case No. 54863 entitled "Eden Tan vs. Sps. Norberto and
Carmen Tibajia."
Stated briefly, the relevant facts are as follows:

reconsideration was denied on 8 February 1991. Thereafter, the spouses

Tibajia filed a petition for certiorari, prohibition and injunction in the Court
of Appeals. The appellate court dismissed the petition on 24 April 1991
holding that payment by cashier's check is not payment in legal tender as
required by Republic Act No. 529. The motion for reconsideration was
denied on 27 May 1991.

Case No. 54863 was a suit for collection of a sum of money filed by Eden
Tan against the Tibajia spouses. A writ of attachment was issued by the
trial court on 17 August 1987 and on 17 September 1987, the Deputy
Sheriff filed a return stating that a deposit made by the Tibajia spouses in
the Regional Trial Court of Kalookan City in the amount of Four Hundred
Forty Two Thousand Seven Hundred and Fifty Pesos (P442,750.00) in
another case, had been garnished by him. On 10 March 1988, the Regional
Trial Court, Branch 151 of Pasig, Metro Manila rendered its decision in Civil
Case No. 54863 in favor of the plaintiff Eden Tan, ordering the Tibajia
spouses to pay her an amount in excess of Three Hundred Thousand Pesos
(P300,000.00). On appeal, the Court of Appeals modified the decision by
reducing the award of moral and exemplary damages. The decision having
become final, Eden Tan filed the corresponding motion for execution and
thereafter, the garnished funds which by then were on deposit with the
cashier of the Regional Trial Court of Pasig, Metro Manila, were levied upon.

In this petition for review, the Tibajia spouses raise the following issues:

On 14 December 1990, the Tibajia spouses delivered to Deputy Sheriff

Eduardo Bolima the total money judgment in the following form:

It is contended by the petitioners that the check, which was a cashier's

check of the Bank of the Philippine Islands, undoubtedly a bank of good
standing and reputation, and which was a crossed check marked "For
Payee's Account Only" and payable to private respondent Eden Tan, is
considered legal tender, payment with which operates to discharge their
monetary obligation. 2 Petitioners, to support their contention, cite the
case of New Pacific Timber and Supply Co., Inc. v. Seeris 3 where this
Court held through Mr. Justice Hermogenes Concepcion, Jr. that "It is a wellknown and accepted practice in the business sector that a cashier's check
is deemed as cash".

Cashier's Check P262,750.00

Cash 135,733.70

Total P398,483.70
Private respondent, Eden Tan, refused to accept the payment made by the
Tibajia spouses and instead insisted that the garnished funds deposited
with the cashier of the Regional Trial Court of Pasig, Metro Manila be
withdrawn to satisfy the judgment obligation. On 15 January 1991,
defendant spouses (petitioners) filed a motion to lift the writ of execution
on the ground that the judgment debt had already been paid. On 29
January 1991, the motion was denied by the trial court on the ground that
payment in cashier's check is not payment in legal tender and that
payment was made by a third party other than the defendant. A motion for

I WHETHER OR NOT THE BPI CASHIER'S CHECK NO. 014021 IN THE

AMOUNT OF P262,750.00 TENDERED BY PETITIONERS FOR PAYMENT OF
THE JUDGMENT DEBT, IS "LEGAL TENDER".
II WHETHER OR NOT THE PRIVATE RESPONDENT MAY VALIDLY REFUSE THE
TENDER OF PAYMENT PARTLY IN CHECK AND PARTLY IN CASH MADE BY
PETITIONERS, THRU AURORA VITO AND COUNSEL, FOR THE SATISFACTION
OF THE MONETARY OBLIGATION OF PETITIONERS-SPOUSES. 1
The only issue to be resolved in this case is whether or not payment by
means of check (even by cashier's check) is considered payment in legal
tender as required by the Civil Code, Republic Act No. 529, and the Central
Bank Act.

The provisions of law applicable to the case at bar are the following:
a. Article 1249 of the Civil Code which 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 when through the fault of the creditor they have
been impaired.

The ruling in these two (2) cases merely applies the statutory provisions
which lay down the rule that a check is not legal tender and that a creditor
may validly refuse payment by check, whether it be a manager's, cashier's
or personal check.

In the meantime, the action derived from the original obligation shall be
held in abeyance.;

Petitioners erroneously rely on one of the dissenting opinions in the

Philippine Airlines case 6 to support their cause. The dissenting opinion
however does not in any way support the contention that a check is legal
tender but, on the contrary, states that "If the PAL checks in question had
not been encashed by Sheriff Reyes, there would be no payment by PAL
and, consequently, no discharge or satisfaction of its judgment obligation."
7 Moreover, the circumstances in the Philippine Airlines case are quite
different from those in the case at bar for in that case the checks issued by
the judgment debtor were made payable to the sheriff, Emilio Z. Reyes,
who encashed the checks but failed to deliver the proceeds of said
encashment to the judgment creditor.

b. Section 1 of Republic Act No. 529, as amended, which provides:

Sec. 1. Every provision contained in, or made with respect to, any
obligation which purports to give the obligee the right to require payment
in gold or in any particular kind of coin or currency other than Philippine
currency or in an amount of money of the Philippines measured thereby,
shall be as it is hereby declared against public policy null and void, and of
no effect, and no such provision shall be contained in, or made with
respect to, any obligation thereafter incurred. Every obligation heretofore
and hereafter incurred, whether or not any such provision as to payment is
contained therein or made with respect thereto, shall be discharged upon
payment in any coin or currency which at the time of payment is legal
tender for public and private debts.
c. Section 63 of Republic Act No. 265, as amended (Central Bank Act)
which provides:
Sec. 63. Legal character Checks representing deposit money do not
have legal tender power and their acceptance in the payment of debts,
both public and private, is at the option of the creditor: Provided, however,
that a check which has been cleared and credited to the account of the
creditor shall be equivalent to a delivery to the creditor of cash in an
amount equal to the amount credited to his account.

In the more recent case of Fortunado vs. Court of Appeals, 8 this Court
stressed that, "We are not, by this decision, sanctioning the use of a check
for the payment of obligations over the objection of the creditor."
WHEREFORE, the petition is DENIED. The appealed decision is hereby
AFFIRMED, with costs against the petitioners.
SO ORDERED.

From the aforequoted provisions of law, it is clear that this petition must
fail.
In the recent cases of Philippine Airlines, Inc. vs. Court of Appeals 4 and
Roman Catholic Bishop of Malolos, Inc. vs. Intermediate Appellate Court, 5
this Court held that
A check, whether a manager's check or ordinary check, is not legal tender,
and an offer of a check in payment of a debt is not a valid tender of
payment and may be refused receipt by the obligee or creditor.

CASE #3
Republic of the Philippines
SUPREME COURT
Manila

EN BANC
G.R. No. L-49188

January 30, 1990

PHILIPPINE AIRLINES, INC., petitioner,

vs.
HON. COURT OF APPEALS, HON. JUDGE RICARDO D. GALANO, Court of First
Instance of Manila, Branch XIII, JAIME K. DEL ROSARIO, Deputy Sheriff,
Court of First Instance, Manila, and AMELIA TAN, respondents.

GUTIERREZ, JR., J.:

Behind the simple issue of validity of an alias writ of execution in this case
is a more fundamental question. Should the Court allow a too literal
interpretation of the Rules with an open invitation to knavery to prevail
over a more discerning and just approach? Should we not apply the ancient
rule of statutory construction that laws are to be interpreted by the spirit
which vivifies and not by the letter which killeth?
This is a petition to review on certiorari the decision of the Court of Appeals
in CA-G.R. No. 07695 entitled "Philippine Airlines, Inc. v. Hon. Judge Ricardo
D. Galano, et al.", dismissing the petition for certiorari against the order of
the Court of First Instance of Manila which issued an alias writ of execution
against the petitioner.
The petition involving the alias writ of execution had its beginnings on
November 8, 1967, when respondent Amelia Tan, under the name and
style of Able Printing Press commenced a complaint for damages before
the Court of First Instance of Manila. The case was docketed as Civil Case
No. 71307, entitled Amelia Tan, et al. v. Philippine Airlines, Inc.
After trial, the Court of First Instance of Manila, Branch 13, then presided
over by the late Judge Jesus P. Morfe rendered judgment on June 29, 1972,
in favor of private respondent Amelia Tan and against petitioner Philippine
Airlines, Inc. (PAL) as follows:

WHEREFORE, judgment is hereby rendered, ordering the defendant

Philippine Air Lines:
1.
On the first cause of action, to pay to the plaintiff the amount of
P75,000.00 as actual damages, with legal interest thereon from plaintiffs
extra-judicial demand made by the letter of July 20, 1967;
2.
On the third cause of action, to pay to the plaintiff the amount of
P18,200.00, representing the unrealized profit of 10% included in the
contract price of P200,000.00 plus legal interest thereon from July 20,1967;
3.
On the fourth cause of action, to pay to the plaintiff the amount of
P20,000.00 as and for moral damages, with legal interest thereon from July
20, 1 967;
4.
On the sixth cause of action, to pay to the plaintiff the amount of
P5,000.00 damages as and for attorney's fee.
Plaintiffs second and fifth causes of action, and defendant's counterclaim,
are dismissed.
With costs against the defendant. (CA Rollo, p. 18)
On July 28, 1972, the petitioner filed its appeal with the Court of Appeals.
The case was docketed as CA-G.R. No. 51079-R.
On February 3, 1977, the appellate court rendered its decision, the
dispositive portion of which reads:
IN VIEW WHEREOF, with the modification that PAL is condemned to pay
plaintiff the sum of P25,000.00 as damages and P5,000.00 as attorney's
fee, judgment is affirmed, with costs. (CA Rollo, p. 29)
Notice of judgment was sent by the Court of Appeals to the trial court and
on dates subsequent thereto, a motion for reconsideration was filed by
respondent Amelia Tan, duly opposed by petitioner PAL.
On May 23,1977, the Court of Appeals rendered its resolution denying the
respondent's motion for reconsideration for lack of merit.
No further appeal having been taken by the parties, the judgment became
final and executory and on May 31, 1977, judgment was correspondingly
entered in the case.

The case was remanded to the trial court for execution and on September
2,1977, respondent Amelia Tan filed a motion praying for the issuance of a
writ of execution of the judgment rendered by the Court of Appeals. On
October 11, 1977, the trial court, presided over by Judge Galano, issued its
order of execution with the corresponding writ in favor of the respondent.
The writ was duly referred to Deputy Sheriff Emilio Z. Reyes of Branch 13 of
the Court of First Instance of Manila for enforcement.
Four months later, on February 11, 1978, respondent Amelia Tan moved for
the issuance of an alias writ of execution stating that the judgment
rendered by the lower court, and affirmed with modification by the Court of
Appeals, remained unsatisfied.
On March 1, 1978, the petitioner filed an opposition to the motion for the
issuance of an alias writ of execution stating that it had already fully paid
its obligation to plaintiff through the deputy sheriff of the respondent court,
Emilio Z. Reyes, as evidenced by cash vouchers properly signed and
receipted by said Emilio Z. Reyes.
On March 3,1978, the Court of Appeals denied the issuance of the alias writ
for being premature, ordering the executing sheriff Emilio Z. Reyes to
appear with his return and explain the reason for his failure to surrender
the amounts paid to him by petitioner PAL. However, the order could not
be served upon Deputy Sheriff Reyes who had absconded or disappeared.
On March 28, 1978, motion for the issuance of a partial alias writ of
execution was filed by respondent Amelia Tan.

On May 18, 1978, the petitioner received a copy of the first alias writ of
execution issued on the same day directing Special Sheriff Jaime K. del
Rosario to levy on execution in the sum of P25,000.00 with legal interest
thereon from July 20,1967 when respondent Amelia Tan made an extrajudicial demand through a letter. Levy was also ordered for the further sum
of P5,000.00 awarded as attorney's fees.
On May 23, 1978, the petitioner filed an urgent motion to quash the alias
writ of execution stating that no return of the writ had as yet been made by
Deputy Sheriff Emilio Z. Reyes and that the judgment debt had already
been fully satisfied by the petitioner as evidenced by the cash vouchers
signed and receipted by the server of the writ of execution, Deputy Sheriff
Emilio Z. Reyes.
On May 26,1978, the respondent Jaime K. del Rosario served a notice of
garnishment on the depository bank of petitioner, Far East Bank and Trust
Company, Rosario Branch, Binondo, Manila, through its manager and
garnished the petitioner's deposit in the said bank in the total amount of
P64,408.00 as of May 16, 1978. Hence, this petition for certiorari filed by
the Philippine Airlines, Inc., on the grounds that:
I
AN ALIAS WRIT OF EXECUTION CANNOT BE ISSUED WITHOUT PRIOR
RETURN OF THE ORIGINAL WRIT BY THE IMPLEMENTING OFFICER.
II

On April 19, 1978, respondent Amelia Tan filed a motion to withdraw

"Motion for Partial Alias Writ of Execution" with Substitute Motion for Alias
Writ of Execution. On May 1, 1978, the respondent Judge issued an order
which reads:

PAYMENT OF JUDGMENT TO THE IMPLEMENTING OFFICER AS DIRECTED IN

THE WRIT OF EXECUTION CONSTITUTES SATISFACTION OF JUDGMENT.

As prayed for by counsel for the plaintiff, the Motion to Withdraw 'Motion
for Partial Alias Writ of Execution with Substitute Motion for Alias Writ of
Execution is hereby granted, and the motion for partial alias writ of
execution is considered withdrawn.

INTEREST IS NOT PAYABLE WHEN THE DECISION IS SILENT AS TO THE

PAYMENT THEREOF.

Let an Alias Writ of Execution issue against the defendant for the fall
satisfaction of the judgment rendered. Deputy Sheriff Jaime K. del Rosario
is hereby appointed Special Sheriff for the enforcement thereof. (CA Rollo,
p. 34)

III

IV
SECTION 5, RULE 39, PARTICULARLY REFERS TO LEVY OF PROPERTY OF
JUDGMENT DEBTOR AND DISPOSAL OR SALE THEREOF TO SATISFY
JUDGMENT.

Can an alias writ of execution be issued without a prior return of the

original writ by the implementing officer?
We rule in the affirmative and we quote the respondent court's decision
with approval:

The issuance of the questioned alias writ of execution under the

circumstances here obtaining is justified because even with the absence of
a Sheriffs return on the original writ, the unalterable fact remains that such
a return is incapable of being obtained (sic) because the officer who is to
make the said return has absconded and cannot be brought to the Court
despite the earlier order of the court for him to appear for this purpose.
(Order of Feb. 21, 1978, Annex C, Petition). Obviously, taking cognizance of
this circumstance, the order of May 11, 1978 directing the issuance of an
alias writ was therefore issued. (Annex D. Petition). The need for such a
return as a condition precedent for the issuance of an alias writ was
justifiably dispensed with by the court below and its action in this regard
meets with our concurrence. A contrary view will produce an abhorent
situation whereby the mischief of an erring officer of the court could be
utilized to impede indefinitely the undisputed and awarded rights which a
prevailing party rightfully deserves to obtain and with dispatch. The final
judgment in this case should not indeed be permitted to become illusory or
incapable of execution for an indefinite and over extended period, as had
already transpired. (Rollo, pp. 35-36)
Judicium non debet esse illusorium; suum effectum habere debet (A
judgment ought not to be illusory it ought to have its proper effect).
Indeed, technicality cannot be countenanced to defeat the execution of a
judgment for execution is the fruit and end of the suit and is very aptly
called the life of the law (Ipekdjian Merchandising Co. v. Court of Tax
Appeals, 8 SCRA 59 [1963]; Commissioner of Internal Revenue v. Visayan
Electric Co., 19 SCRA 697, 698 [1967]). A judgment cannot be rendered
nugatory by the unreasonable application of a strict rule of procedure.
Vested rights were never intended to rest on the requirement of a return,
the office of which is merely to inform the court and the parties, of any and
all actions taken under the writ of execution. Where such information can
be established in some other manner, the absence of an executing officer's
return will not preclude a judgment from being treated as discharged or
being executed through an alias writ of execution as the case may be.

More so, as in the case at bar. Where the return cannot be expected to be
forthcoming, to require the same would be to compel the enforcement of
rights under a judgment to rest on an impossibility, thereby allowing the
total avoidance of judgment debts. So long as a judgment is not satisfied, a
plaintiff is entitled to other writs of execution (Government of the
Philippines v. Echaus and Gonzales, 71 Phil. 318). It is a well known legal
maxim that he who cannot prosecute his judgment with effect, sues his
case vainly.
More important in the determination of the propriety of the trial court's
issuance of an alias writ of execution is the issue of satisfaction of
judgment.

Under the peculiar circumstances surrounding this case, did the payment
made to the absconding sheriff by check in his name operate to satisfy the
judgment debt? The Court rules that the plaintiff who has won her case
should not be adjudged as having sued in vain. To decide otherwise would
not only give her an empty but a pyrrhic victory.
It should be emphasized that under the initial judgment, Amelia Tan was
found to have been wronged by PAL.
She filed her complaint in 1967.
After ten (10) years of protracted litigation in the Court of First Instance
and the Court of Appeals, Ms. Tan won her case.
It is now 1990.
Almost twenty-two (22) years later, Ms. Tan has not seen a centavo of what
the courts have solemnly declared as rightfully hers. Through absolutely no
fault of her own, Ms. Tan has been deprived of what, technically, she
should have been paid from the start, before 1967, without need of her
going to court to enforce her rights. And all because PAL did not issue the
checks intended for her, in her name.
Under the peculiar circumstances of this case, the payment to the
absconding sheriff by check in his name did not operate as a satisfaction of
the judgment debt.

In general, a payment, in order to be effective to discharge an obligation,

must be made to the proper person. Article 1240 of the Civil Code
provides:
Payment shall be made to the person in whose favor the obligation has
been constituted, or his successor in interest, or any person authorized to
receive it. (Emphasis supplied)
Thus, payment must be made to the obligee himself or to an agent having
authority, express or implied, to receive the particular payment (Ulen v.
Knecttle 50 Wyo 94, 58 [2d] 446, 111 ALR 65). Payment made to one
having apparent authority to receive the money will, as a rule, be treated
as though actual authority had been given for its receipt. Likewise, if
payment is made to one who by law is authorized to act for the creditor, it
will work a discharge (Hendry v. Benlisa 37 Fla. 609, 20 SO 800,34 LRA
283). The receipt of money due on ajudgment by an officer authorized by
law to accept it will, therefore, satisfy the debt (See 40 Am Jm 729, 25;
Hendry v. Benlisa supra; Seattle v. Stirrat 55 Wash. 104 p. 834,24 LRA [NS]
1275).

The theory is where payment is made to a person authorized and

recognized by the creditor, the payment to such a person so authorized is
deemed payment to the creditor. Under ordinary circumstances, payment
by the judgment debtor in the case at bar, to the sheriff should be valid
payment to extinguish the judgment debt.
There are circumstances in this case, however, which compel a different
conclusion.
The payment made by the petitioner to the absconding sheriff was not in
cash or legal tender but in checks. The checks were not payable to Amelia
Tan or Able Printing Press but to the absconding sheriff.
Did such payments extinguish the judgment debt?
Article 1249 of the Civil Code provides:
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 when through the fault of the creditor they have
been impaired.
In the meantime, the action derived from the original obligation shall be
held in abeyance.
In the absence of an agreement, either express or implied, payment means
the discharge of a debt or obligation in money (US v. Robertson, 5 Pet. [US]
641, 8 L. ed. 257) and unless the parties so agree, a debtor has no rights,
except at his own peril, to substitute something in lieu of cash as medium
of payment of his debt (Anderson v. Gill, 79 Md.. 312, 29 A 527, 25 LRA
200,47 Am. St. Rep. 402). Consequently, unless authorized to do so by law
or by consent of the obligee a public officer has no authority to accept
anything other than money in payment of an obligation under a judgment
being executed. Strictly speaking, the acceptance by the sheriff of the
petitioner's checks, in the case at bar, does not, per se, operate as a
discharge of the judgment debt.
Since a negotiable instrument is only a substitute for money and not
money, the delivery of such an instrument does not, by itself, operate as
payment (See. 189, Act 2031 on Negs. Insts.; Art. 1249, Civil Code; Bryan
Landon Co. v. American Bank, 7 Phil. 255; Tan Sunco v. Santos, 9 Phil. 44;
21 R.C.L. 60, 61). A check, whether a manager's check or ordinary cheek,
is not legal tender, and an offer of a check in payment of a debt is not a
valid tender of payment and may be refused receipt by the obligee or
creditor. Mere delivery of checks does not discharge the obligation under a
judgment. The obligation is not extinguished and remains suspended until
the payment by commercial document is actually realized (Art. 1249, Civil
Code, par. 3).
If bouncing checks had been issued in the name of Amelia Tan and not the
Sheriff's, there would have been no payment. After dishonor of the checks,
Ms. Tan could have run after other properties of PAL. The theory is that she
has received no value for what had been awarded her. Because the checks
were drawn in the name of Emilio Z. Reyes, neither has she received
anything. The same rule should apply.
It is argued that if PAL had paid in cash to Sheriff Reyes, there would have
been payment in full legal contemplation. The reasoning is logical but is it
valid and proper? Logic has its limits in decision making. We should not

follow rulings to their logical extremes if in doing so we arrive at unjust or

absurd results.
In the first place, PAL did not pay in cash. It paid in cheeks.
And second, payment in cash always carries with it certain cautions.
Nobody hands over big amounts of cash in a careless and inane manner.
Mature thought is given to the possibility of the cash being lost, of the
bearer being waylaid or running off with what he is carrying for another.
Payment in checks is precisely intended to avoid the possibility of the
money going to the wrong party. The situation is entirely different where a
Sheriff seizes a car, a tractor, or a piece of land. Logic often has to give
way to experience and to reality. Having paid with checks, PAL should have
done so properly.
Payment in money or cash to the implementing officer may be deemed
absolute payment of the judgment debt but the Court has never, in the
least bit, suggested that judgment debtors should settle their obligations
by turning over huge amounts of cash or legal tender to sheriffs and other
executing officers. Payment in cash would result in damage or interminable
litigations each time a sheriff with huge amounts of cash in his hands
decides to abscond.
As a protective measure, therefore, the courts encourage the practice of
payments by cheek provided adequate controls are instituted to prevent
wrongful payment and illegal withdrawal or disbursement of funds. If
particularly big amounts are involved, escrow arrangements with a bank
and carefully supervised by the court would be the safer procedure. Actual
transfer of funds takes place within the safety of bank premises. These
practices are perfectly legal. The object is always the safe and incorrupt
execution of the judgment.

It is, indeed, out of the ordinary that checks intended for a particular payee
are made out in the name of another. Making the checks payable to the
judgment creditor would have prevented the encashment or the taking of
undue advantage by the sheriff, or any person into whose hands the
checks may have fallen, whether wrongfully or in behalf of the creditor. The
issuance of the checks in the name of the sheriff clearly made possible the
misappropriation of the funds that were withdrawn.
As explained and held by the respondent court:

... [K]nowing as it does that the intended payment was for the private
party respondent Amelia Tan, the petitioner corporation, utilizing the
services of its personnel who are or should be knowledgeable about the
accepted procedures and resulting consequences of the checks drawn,
nevertheless, in this instance, without prudence, departed from what is
generally observed and done, and placed as payee in the checks the name
of the errant Sheriff and not the name of the rightful payee. Petitioner
thereby created a situation which permitted the said Sheriff to personally
encash said checks and misappropriate the proceeds thereof to his
exclusive personal benefit. For the prejudice that resulted, the petitioner
himself must bear the fault. The judicial guideline which we take note of
states as follows:
As between two innocent persons, one of whom must suffer the
consequence of a breach of trust, the one who made it possible by his act
of confidence must bear the loss. (Blondeau, et al. v. Nano, et al., L-41377,
July 26, 1935, 61 Phil. 625)
Having failed to employ the proper safeguards to protect itself, the
judgment debtor whose act made possible the loss had but itself to blame.
The attention of this Court has been called to the bad practice of a number
of executing officers, of requiring checks in satisfaction of judgment debts
to be made out in their own names. If a sheriff directs a judgment debtor to
issue the checks in the sheriff's name, claiming he must get his
commission or fees, the debtor must report the sheriff immediately to the
court which ordered the execution or to the Supreme Court for appropriate
disciplinary action. Fees, commissions, and salaries are paid through
regular channels. This improper procedure also allows such officers, who
have sixty (60) days within which to make a return, to treat the moneys as
their personal finds and to deposit the same in their private accounts to
earn sixty (60) days interest, before said finds are turned over to the court
or judgment creditor (See Balgos v. Velasco, 108 SCRA 525 [1981]). Quite
as easily, such officers could put up the defense that said checks had been
issued to them in their private or personal capacity. Without a receipt
evidencing payment of the judgment debt, the misappropriation of finds by
such officers becomes clean and complete. The practice is ingenious but
evil as it unjustly enriches court personnel at the expense of litigants and
the proper administration of justice. The temptation could be far greater,
as proved to be in this case of the absconding sheriff. The correct and
prudent thing for the petitioner was to have issued the checks in the
intended payee's name.

The pernicious effects of issuing checks in the name of a person other than
the intended payee, without the latter's agreement or consent, are as
many as the ways that an artful mind could concoct to get around the
safeguards provided by the law on negotiable instruments. An angry
litigant who loses a case, as a rule, would not want the winning party to
get what he won in the judgment. He would think of ways to delay the
winning party's getting what has been adjudged in his favor. We cannot
condone that practice especially in cases where the courts and their
officers are involved. We rule against the petitioner.
Anent the applicability of Section 15, Rule 39, as follows:
Section 15. Execution of money judgments. The officer must enforce an
execution of a money judgment by levying on all the property, real and
personal of every name and nature whatsoever, and which may be
disposed of for value, of the judgment debtor not exempt from execution,
or on a sufficient amount of such property, if they be sufficient, and selling
the same, and paying to the judgment creditor, or his attorney, so much of
the proceeds as will satisfy the judgment. ...
the respondent court held:
We are obliged to rule that the judgment debt cannot be considered
satisfied and therefore the orders of the respondent judge granting the
alias writ of execution may not be pronounced as a nullity.
xxx

xxx

xxx

It is clear and manifest that after levy or garnishment, for a judgment to be

executed there is the requisite of payment by the officer to the judgment
creditor, or his attorney, so much of the proceeds as will satisfy the
judgment and none such payment had been concededly made yet by the
absconding Sheriff to the private respondent Amelia Tan. The ultimate and
essential step to complete the execution of the judgment not having been
performed by the City Sheriff, the judgment debt legally and factually
remains unsatisfied.
Strictly speaking execution cannot be equated with satisfaction of a
judgment. Under unusual circumstances as those obtaining in this petition,
the distinction comes out clearly.
Execution is the process which carries into effect a decree or judgment
(Painter v. Berglund, 31 Cal. App. 2d. 63, 87 P 2d 360, 363; Miller v.

London, 294 Mass 300, 1 NE 2d 198, 200; Black's Law Dictionary), whereas
the satisfaction of a judgment is the payment of the amount of the writ, or
a lawful tender thereof, or the conversion by sale of the debtor's property
into an amount equal to that due, and, it may be done otherwise than upon
an execution (Section 47, Rule 39). Levy and delivery by an execution
officer are not prerequisites to the satisfaction of a judgment when the
same has already been realized in fact (Section 47, Rule 39). Execution is
for the sheriff to accomplish while satisfaction of the judgment is for the
creditor to achieve. Section 15, Rule 39 merely provides the sheriff with his
duties as executing officer including delivery of the proceeds of his levy on
the debtor's property to satisfy the judgment debt. It is but to stress that
the implementing officer's duty should not stop at his receipt of payments
but must continue until payment is delivered to the obligor or creditor.
Finally, we find no error in the respondent court's pronouncement on the
inclusion of interests to be recovered under the alias writ of execution. This
logically follows from our ruling that PAL is liable for both the lost checks
and interest. The respondent court's decision in CA-G.R. No. 51079-R does
not totally supersede the trial court's judgment in Civil Case No. 71307. It
merely modified the same as to the principal amount awarded as actual
damages.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby
DISMISSED. The judgment of the respondent Court of Appeals is AFFIRMED
and the trial court's issuance of the alias writ of execution against the
petitioner is upheld without prejudice to any action it should take against
the errant sheriff Emilio Z. Reyes. The Court Administrator is ordered to
follow up the actions taken against Emilio Z. Reyes.
SO ORDERED.

Fernan, C.J., Cruz, Paras, Bidin, Grio-Aquino, Medialdea and Regalado, JJ.,
concur.

Philippines from the time of the organization of the judiciary .. . (J.

Fernando's concurring opinion in Bagatsing v. Herrera, 65 SCRA 434)

Separate Opinions
NARVASA, J., dissenting:
The execution of final judgments and orders is a function of the sheriff, an
officer of the court whose authority is by and large statutorily determined
to meet the particular exigencies arising from or connected with the
performance of the multifarious duties of the office. It is the
acknowledgment of the many dimensions of this authority, defined by
statute and chiselled by practice, which compels me to disagree with the
decision reached by the majority.
A consideration of the wide latitude of discretion allowed the sheriff as the
officer of the court most directly involved with the implementation and
execution of final judgments and orders persuades me that PAL's payment
to the sheriff of its judgment debt to Amelia Tan, though made by check
issued in said officer's name, lawfully satisfied said obligation and
foreclosed further recourse therefor against PAL, notwithstanding the
sheriffs failure to deliver to Tan the proceeds of the check.
It is a matter of history that the judiciary .. is an inherit or of the AngloAmerican tradition. While the common law as such .. "is not in force" in this
jurisdiction, "to breathe the breath of life into many of the institutions,
introduced [here] under American sovereignty, recourse must be had to
the rules, principles and doctrines of the common law under whose
protecting aegis the prototypes of these institutions had their birth" A
sheriff is "an officer of great antiquity," and was also called the shire reeve.
A shire in English law is a Saxon word signifying a division later called a
county. A reeve is an ancient English officer of justice inferior in rank to an
alderman .. appointed to process, keep the King's peace, and put the laws
in execution. From a very remote period in English constitutional history ..
the shire had another officer, namely the shire reeve or as we say, the
sheriff. .. The Sheriff was the special representative of the legal or central
authority, and as such usually nominated by the King. .. Since the earliest
times, both in England and the United States, a sheriff has continued his
status as an adjunct of the court .. . As it was there, so it has been in the

One of a sheriff s principal functions is to execute final judgments and

orders. The Rules of Court require the writs of execution to issue to him,
directing him to enforce such judgments and orders in the manner therein
provided (Rule 39). The mode of enforcement varies according to the
nature of the judgment to be carried out: whether it be against property of
the judgment debtor in his hands or in the hands of a third person i e.
money judgment), or for the sale of property, real or personal (i.e.
foreclosure of mortgage) or the delivery thereof, etc. (sec. 8, Rule 39).
Under sec. 15 of the same Rule, the sheriff is empowered to levy on so
much of the judgment debtor's property as may be sufficient to enforce the
money judgment and sell these properties at public auction after due
notice to satisfy the adjudged amount. It is the sheriff who, after the
auction sale, conveys to the purchaser the property thus sold (secs. 25, 26,
27, Rule 39), and pays the judgment creditor so much of the proceeds as
will satisfy the judgment. When the property sold by him on execution is an
immovable which consequently gives rise to a light of redemption on the
part of the judgment debtor and others (secs. 29, 30, Rule 39), it is to him
(or to the purchaser or redemptioner that the payments may be made by
those declared by law as entitled to redeem (sec. 31, Rule 39); and in this
situation, it becomes his duty to accept payment and execute the
certificate of redemption (Enage v. Vda. y Hijos de Escano, 38 Phil. 657,
cited in Moran, Comments on the Rules of Court, 1979 ed., vol. 2, pp. 326327). It is also to the sheriff that "written notice of any redemption must be
given and a duplicate filed with the registrar of deeds of the province, and
if any assessments or taxes are paid by the redemptioner or if he has or
acquires any lien other than that upon which the redemption was made,
notice thereof must in like manner be given to the officer and filed with the
registrar of deeds," the effect of failure to file such notice being that
redemption may be made without paying such assessments, taxes, or liens
(sec. 30, Rule 39).
The sheriff may likewise be appointed a receiver of the property of the
judgment debtor where the appointment of the receiver is deemed
necessary for the execution of the judgment (sec. 32, Rule 39).
At any time before the sale of property on execution, the judgment debtor
may prevent the sale by paying the sheriff the amount required by the
execution and the costs that have been incurred therein (sec. 20, Rule 39).

The sheriff is also authorized to receive payments on account of the

judgment debt tendered by "a person indebted to the judgment debtor,"
and his "receipt shall be a sufficient discharge for the amount so paid or
directed to be credited by the judgment creditor on the execution" (sec.
41, Rule 39).
Now, obviously, the sheriff s sale extinguishes the liability of the judgment
debtor either in fun, if the price paid by the highest bidder is equal to, or
more than the amount of the judgment or pro tanto if the price fetched at
the sale be less. Such extinction is not in any way dependent upon the
judgment creditor's receiving the amount realized, so that the conversion
or embezzlement of the proceeds of the sale by the sheriff does not revive
the judgment debt or render the judgment creditor liable anew therefor.

So, also, the taking by the sheriff of, say, personal property from the
judgment debtor for delivery to the judgment creditor, in fulfillment of the
verdict against him, extinguishes the debtor's liability; and the conversion
of said property by the sheriff, does not make said debtor responsible for
replacing the property or paying the value thereof.
In the instances where the Rules allow or direct payments to be made to
the sheriff, the payments may be made by check, but it goes without
saying that if the sheriff so desires, he may require payment to be made in
lawful money. If he accepts the check, he places himself in a position
where he would be liable to the judgment creditor if any damages are
suffered by the latter as a result of the medium in which payment was
made (Javellana v. Mirasol, et al., 40 Phil. 761). The validity of the payment
made by the judgment debtor, however, is in no wise affected and the
latter is discharged from his obligation to the judgment creditor as of the
moment the check issued to the sheriff is encashed and the proceeds are
received by Id. office. The issuance of the check to a person authorized to
receive it (Art. 1240, Civil Code; See. 46 of the Code of Civil Procedure;
Enage v. Vda y Hijos de Escano, 38 Phil. 657, cited in Javellana v. Mirasol,
40 Phil. 761) operates to release the judgment debtor from any further
obligations on the judgment.
The sheriff is an adjunct of the court; a court functionary whose
competence involves both discretion and personal liability (concurring
opinion of J. Fernando, citing Uy Piaoco v. Osmena, 9 Phil. 299, in Bagatsing
v. Herrera, 65 SCRA 434). Being an officer of the court and acting within

the scope of his authorized functions, the sheriff s receipt of the checks in
payment of the judgment execution, may be deemed, in legal
contemplation, as received by the court itself (Lara v. Bayona, 10 May
1955, No. L- 10919).
That the sheriff functions as a conduit of the court is further underscored
by the fact that one of the requisites for appointment to the office is the
execution of a bond, "conditioned (upon) the faithful performance of his
(the appointee's) duties .. for the delivery or payment to Government, or
the person entitled thereto, of all properties or sums of money that shall
officially come into his hands" (sec. 330, Revised Administrative Code).
There is no question that the checks came into the sheriffs possession in
his official capacity. The court may require of the judgment debtor, in
complying with the judgment, no further burden than his vigilance in
ensuring that the person he is paying money or delivering property to is a
person authorized by the court to receive it. Beyond this, further
expectations become unreasonable. To my mind, a proposal that would
make the judgment debtor unqualifiedly the insurer of the judgment
creditor's entitlement to the judgment amount which is really what this
case is all about begs the question.

That the checks were made out in the sheriffs name (a practice, by the
way, of long and common acceptance) is of little consequence if
juxtaposed with the extent of the authority explicitly granted him by law as
the officer entrusted with the power to execute and implement court
judgments. The sheriffs requirement that the checks in payment of the
judgment debt be issued in his name was simply an assertion of that
authority; and PAL's compliance cannot in the premises be faulted merely
because of the sheriffs subsequent malfeasance in absconding with the
payment instead of turning it over to the judgment creditor.
If payment had been in cash, no question about its validity or of the
authority and duty of the sheriff to accept it in settlement of PAL's
judgment obligation would even have arisen. Simply because it was made
by checks issued in the sheriff s name does not warrant reaching any
different conclusion.
As payment to the court discharges the judgment debtor from his
responsibility on the judgment, so too must payment to the person

designated by such court and authorized to act in its behalf, operate to

produce the same effect.

and comes too close to an abdication of duty on the part of the Court itself.
This Court should have no part in that.

It is unfortunate and deserving of commiseration that Amelia Tan was

deprived of what was adjudged to her when the sheriff misappropriated the
payment made to him by PAL in dereliction of his sworn duties. But I
submit that her remedy lies, not here and in reviving liability under a
judgment already lawfully satisfied, but elsewhere.

2.
I also feel compelled to comment on the majority opinion written
by Gutierrez, J. with all his customary and special way with words. My
learned and eloquent brother in the Court apparently accepts the
proposition that payment by a judgment debtor of cash to a sheriff
produces the legal effects of payment, the sheriff being authorized to
accept such payment. Thus, in page 10 of his ponencia, Gutierrez, J. writes:

ACCORDINGLY, I vote to grant the petition.

Melencio-Herrera, Gancayco, J., concurs.
FELICIANO, J., dissenting:
I concur in the able dissenting opinions of Narvasa and Padilla, JJ. and
would merely wish to add a few footnotes to their lucid opinions.
1.
Narvasa, J. has demonstrated in detail that a sheriff is authorized
by the Rules of Court and our case law to receive either legal tender or
checks from the judgment debtor in satisfaction of the judgment debt. In
addition, Padilla, J. has underscored the obligation of the sheriff, imposed
upon him by the nature of his office and the law, to turn over such legal
tender, checks and proceeds of execution sales to the judgment creditor.
The failure of a sheriff to effect such turnover and his conversion of the
funds (or goods) held by him to his own uses, do not have the effect of
frustrating payment by and consequent discharge of the judgment debtor.
To hold otherwise would be to throw the risk of the sheriff faithfully
performing his duty as a public officer upon those members of the general
public who are compelled to deal with him. It seems to me that a judgment
debtor who turns over funds or property to the sheriff can not reasonably
be made an insurer of the honesty and integrity of the sheriff and that the
risk of the sheriff carrying out his duties honestly and faithfully is properly
lodged in the State itself The sheriff, like all other officers of the court, is
appointed and paid and controlled and disciplined by the Government,
more specifically by this Court. The public surely has a duty to report
possible wrongdoing by a sheriff or similar officer to the proper authorities
and, if necessary, to testify in the appropriate judicial and administrative
disciplinary proceedings. But to make the individual members of the
general community insurers of the honest performance of duty of a sheriff,
or other officer of the court, over whom they have no control, is not only
deeply unfair to the former. It is also a confession of comprehensive failure

The receipt of money due on a judgment by an officer authorized by law to

accept it will satisfy the debt. (Citations omitted)
The theory is where payment is made to a person authorized and
recognized by the creditor, the payment to such a person so authorized is
deemed payment to the creditor. Under ordinary circumstances, payment
by the judgment debtor in the case at bar, to the sheriff would be valid
payment to extinguish the judgment debt.
Shortly thereafter, however, Gutierrez, J. backs off from the above position
and strongly implies that payment in cash to the sheriff is sheer
imprudence on the part of the judgment debtor and that therefore, should
the sheriff abscond with the cash, the judgment debtor has not validly
discharged the judgment debt:
It is argued that if PAL had paid in cash to Sheriff Reyes, there would have
been payment in full legal contemplation. The reasoning is logical but is it
valid and proper?
In the first place, PAL did not pay in cash. It paid in checks.

And second, payment in cash always carries with it certain cautions.

Nobody hands over big amounts of cash in a careless and inane manner.
Mature thought is given to the possibility of the cash being lost, of the
bearer being waylaid or running off with what he is carrying for another.
Payment in checks is precisely intended to avoid the possibility of the
money going to the wrong party....
Payment in money or cash to the implementing officer may be deemed
absolute payment of the judgment debt but the court has never, in the
least bit, suggested that judgment debtors should settle their obligations

by turning over huge amounts of cash or legal tender to sheriffs and other
executing officers. ... (Emphasis in the original) (Majority opinion, pp. 1213)
There is no dispute with the suggestion apparently made that maximum
safety is secured where the judgment debtor delivers to the sheriff not
cash but a check made out, not in the name of the sheriff, but in the
judgment creditor's name. The fundamental point that must be made,
however, is that under our law only cash is legal tender and that the sheriff
can be compelled to accept only cash and not checks, even if made out to
the name of the judgment creditor. 1 The sheriff could have quite lawfully
required PAL to deliver to him only cash, i.e., Philippine currency. If the
sheriff had done so, and if PAL had complied with such a requirement, as it
would have had to, one would have to agree that legal payment must be
deemed to have been effected. It requires no particularly acute mind to
note that a dishonest sheriff could easily convert the money and abscond.
The fact that the sheriff in the instant case required, not cash to be
delivered to him, but rather a check made out in his name, does not
change the legal situation. PAL did not thereby become negligent; it did not
make the loss anymore possible or probable than if it had instead delivered
plain cash to the sheriffs.
It seems to me that the majority opinion's real premise is the unspoken
one that the judgment debtor should bear the risk of the fragility of the
sheriff s virtue until the money or property parted with by the judgment
debtor actually reaches the hands of the judgment creditor. This brings me
back to my earlier point that risk is most appropriately borne not by the
judgment debtor, nor indeed by the judgment creditor, but by the State
itself. The Court requires all sheriffs to post good and adequate fidelity
bonds before entering upon the performance of their duties and,
presumably, to maintain such bonds in force and effect throughout their
stay in office. 2 The judgment creditor, in circumstances like those of the
instant case, could be allowed to execute upon the absconding sheriff s
bond. 3
I believe the Petition should be granted and I vote accordingly.

PADILLA, J., Dissenting Opinion

From the facts that appear to be undisputed, I reach a conclusion different

from that of the majority. Sheriff Emilio Z. Reyes, the trial court's
authorized sheriff, armed with a writ of execution to enforce a final money
judgment against the petitioner Philippine Airlines (PAL) in favor of private
respondent Amelia Tan, proceeded to petitioner PAL's office to implement
the writ.
There is no question that Sheriff Reyes, in enforcing the writ of execution,
was acting with full authority as an officer of the law and not in his
personal capacity. Stated differently, PAL had every right to assume that,
as an officer of the law, Sheriff Reyes would perform his duties as enjoined
by law. It would be grossly unfair to now charge PAL with advanced or
constructive notice that Mr. Reyes would abscond and not deliver to the
judgment creditor the proceeds of the writ of execution. If a judgment
debtor cannot rely on and trust an officer of the law, as the Sheriff, whom
else can he trust?
Pursued to its logical extreme, if PAL had delivered to Sheriff Reyes the
amount of the judgment in CASH, i.e. Philippine currency, with the
corresponding receipt signed by Sheriff Reyes, this would have been
payment by PAL in full legal contemplation, because under Article 1240 of
the Civil Code, "payment shall be made to the person in whose favor the
obligation has been constituted or his successor in interest or any person
authorized to receive it." And said payment if made by PAL in cash, i.e.,
Philippine currency, to Sheriff Reyes would have satisfied PAL's judgment
obligation, as payment is a legally recognized mode for extinguishing one's
obligation. (Article 1231, Civil Code).
Under Sec. 15, Rule 39, Rules of Court which provides thatSec. 15. Execution of money judgments. The officer must enforce an
execution of a money judgment by levying on all the property, real and
personal of every name and nature whatsoever, and which may be
disposed of for value, of the judgment debtor not exempt from execution,
or on a sufficient amount of such property, if there be sufficient, and selling
the same, and paying to the judgment creditor, or his attorney, so much of
the proceeds as will satisfy the judgment. ... .(emphasis supplied)
it would be the duty of Sheriff Reyes to pay to the judgment creditor the
proceeds of the execution i.e., the cash received from PAL (under the
above assumption). But, the duty of the sheriff to pay the cash to the
judgment creditor would be a matter separate the distinct from the fact

that PAL would have satisfied its judgment obligation to Amelia Tan, the
judgment creditor, by delivering the cash amount due under the judgment
to Sheriff Reyes.

Did the situation change by PAL's delivery of its two (2) checks totalling
P30,000.00 drawn against its bank account, payable to Sheriff Reyes, for
account of the judgment rendered against PAL? I do not think so, because
when Sheriff Reyes encashed the checks, the encashment was in fact a
payment by PAL to Amelia Tan through Sheriff Reyes, an officer of the law
authorized to receive payment, and such payment discharged PAL'S
obligation under the executed judgment.
If the PAL cheeks in question had not been encashed by Sheriff Reyes,
there would be no payment by PAL and, consequently no discharge or
satisfaction of its judgment obligation. But the checks had been encashed
by Sheriff Reyes giving rise to a situation as if PAL had paid Sheriff Reyes in
cash, i.e., Philippine currency. This, we repeat, is payment, in legal
contemplation, on the part of PAL and this payment legally discharged PAL
from its judgment obligation to the judgment creditor. To be sure, the same
encashment by Sheriff Reyes of PAL's checks delivered to him in his official
capacity as Sheriff, imposed an obligation on Sheriff Reyes to pay and
deliver the proceeds of the encashment to Amelia Tan who is deemed to
have acquired a cause of action against Sheriff Reyes for his failure to
deliver to her the proceeds of the encashment. As held:
Payment of a judgment, to operate as a release or satisfaction, even pro
tanto must be made to the plaintiff or to some person authorized by him,
or by law, to receive it. The payment of money to the sheriff having an
execution satisfies it, and, if the plaintiff fails to receive it, his only remedy
is against the officer (Henderson v. Planters' and Merchants Bank, 59 SO
493, 178 Ala. 420).

Payment of an execution satisfies it without regard to whether the officer

pays it over to the creditor or misapplies it (340, 33 C.J.S. 644, citing Elliot
v. Higgins, 83 N.C. 459). If defendant consents to the Sheriff s
misapplication of the money, however, defendant is estopped to claim that
the debt is satisfied (340, 33 C.J.S. 644, citing Heptinstall v. Medlin 83 N.C.
16).

The above rulings find even more cogent application in the case at bar
because, as contended by petitioner PAL (not denied by private
respondent), when Sheriff Reyes served the writ of execution on PAL, he
(Reyes) was accompanied by private respondent's counsel. Prudence
dictated that when PAL delivered to Sheriff Reyes the two (2) questioned
checks (payable to Sheriff Reyes), private respondent's counsel should
have insisted on their immediate encashment by the Sheriff with the
drawee bank in order to promptly get hold of the amount belonging to his
client, the judgment creditor.
ACCORDINGLY, I vote to grant the petition and to quash the court a quo's
alias writ of execution.
Melencio-Herrera, Gancayco, Sarmiento, Cortes, JJ., concurs.

Philippine Airlines, Inc. vs Court of Appeals, 181 SCRA 557, GR No.

49188, January 30, 1990
(Civil Procedure Alias Writ of Execution; Civil Law Payment; Commercial
Law Check)
THE FACTS:
Amelia Tan commenced a complaint for damages before the Court of First
Instance against Philippine Airlines, Inc. (PAL). The Court rendered a
judgment in favor of the former and against the latter.
PAL filed its appeal with the Court of Appeals (CA), and the appellate court
affirmed the judgment of the lower court with the modification that PAL is
condemned to pay the latter the sum of P25, 000.00 as damages and P5,
000.00 as attorneys fee.
Judgment became final and executory and was correspondingly entered in
the case, which was remanded to the trial court for execution. The trial
court upon the motion of Amelia Tan issued an order of execution with the
corresponding writ in favor of the respondent. Said writ was duly referred
to Deputy Sheriff Reyes for enforcement.

Four months later, Amelia Tan moved for the issuance of an alias writ of
execution, stating that the judgment rendered by the lower court, and
affirmed with modification by the CA, remained unsatisfied. PAL opposed
the motion, stating that it had already fully paid its obligation to plaintiff
through the issuance of checks payable to the deputy sheriff who later did
not appear with his return and instead absconded.

as judgment is not satisfied, a plaintiff is entitled to other writs of

execution.

The CA denied the issuance of the alias writ for being premature. After two
months the CA granted her an alias writ of execution for the full
satisfaction of the judgment rendered, when she filed another motion.
Deputy Sheriff del Rosario is appointed special sheriff for enforcement
thereof.

Payment made to the person in whose favor the obligation has been
constituted, or his successor in interest, or any person authorized to
receive it.

PAL filed an urgent motion to quash the alias writ of execution stating that
no return of the writ had as yet been made by Deputy Sheriff Reyes and
that judgment debt had already been fully satisfied by the former as
evidenced by the cash vouchers signed and received by the executing
sheriff.
Deputy Sheriff del Rosario served a notice of garnishment on the
depository bank of PAL, through its manager and garnished the latters
deposit. Hence, PAL brought the case to the Supreme Court and filed a
petition for certiorari.
THE ISSUES:
WON an alias writ of execution can be issued without prior return of the
original writ by the implementing officer.
WON payment of judgment to the implementing officer as directed in the
writ of execution constitutes satisfaction of judgment.
WON payment made in checks to the sheriff and under his name is a valid
payment to extinguish judgment of debt.
THE RULING:
1. Affirmative. Technicality cannot be countenanced to defeat the
execution of a judgment for execution is the fruit and end of the suit and is
very aptly called the life of the law. A judgment cannot be rendered
nugatory by unreasonable application of a strict rule of procedure. Vested
right were never intended to rest on the requirement of a return. So long

2. Negative. In general, a payment, in order to be effective to discharge an

obligation, must be made to the proper person. Article 1240 of the Civil
Code provides:

Under ordinary circumstances, payment by the judgment debtor in the

case at bar, to the sheriff should be valid payment to extinguish judgment
of debt.
However, under the peculiar circumstances of this case, the payment to
the absconding sheriff by check in his name did not operate as a
satisfaction of the judgment debt.
3. Negative. Article 1249 of the Civil Code provides:
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.
Unless authorized to do so by law or by consent of the obligee, a public
officer has no authority to accept anything other than money in payment
of an obligation under a judgment being executed. Strictly speaking, the
acceptance by the sheriff of the petitioners checks does not, per se,
operate as a discharge of the judgment of debt.
A check, whether managers check or ordinary check, is not legal tender,
and an offer of a check in payment of a debt is not a valid tender or
payment and may be refused receipt by the oblige or creditor. Hence, the
obligation is not extinguished.
THE TWIST: Payment in cash is logical, but it was not proper.
Payment in cash to the implementing officer may be deemed absolute
payment of judgment debt but the Court has never, in the least bit,
suggested that judgment debtors should settle their obligations by turning
over huge amounts of cash or legal tender to the executing officers.

Payment in cash would result in damage or endless litigations each time a

sheriff with huge amounts of cash in his hands decides to abscond.

THE AUDITOR GENERAL, respondent.

As a protective measure, the courts encourage the practice of payment of

check provided adequate controls are instituted to prevent wrongful
payment and illegal withdrawal or disbursement of funds.

Viray and Viola Viray for petitioner.

However, in the case at bar, it is out of the ordinary that checks intended
for a particular payee are made out in the name of another. The issuance
of the checks in the name of the sheriff clearly made possible the
misappropriation of the funds that were withdrawn.

Knowing as it does that the intended payment was for the respondent
Amelia Tan, the petitioner corporation, utilizing the services of its personnel
who are or should be knowledgeable about the accepted procedure and
resulting consequences of the checks drawn, nevertheless, in this instance,
without prudence, departed from what is generally observed and done,
and placed as payee in the checks the name of the errant Sheriff and not
the name of the rightful payee. Petitioner thereby created a situation which
permitted the said Sheriff to personally encash said checks and
misappropriate the proceeds thereof to his exclusive benefit. For the
prejudice that resulted, the petitioner himself must bear the fault
Having failed to employ the proper safeguards to protect itself, the
judgment debtor whose act made possible the loss had but itself to blame.

CASE #4
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
July 31, 1948

BENJAMIN ABUBAKAR, petitioner,

vs.

DECISION
BENGZON, J.:

The Court of Appeals explained:

G.R. No. L-1405

First Assistant Solicitor General Roberto A. Gianzon and Solicitor Manuel

Tomacruz for respondent.

We are asked to overrule the decision of the Auditor General refusing to

authorize the payment of Treasury Warrant No. A-2867376 for P1,000
which was issued in favor of Placido S. Urbanes on December 10, 1941, but
is now in the hands of herein petitioner Benjamin Abubakar.
For his refusal the respondent gave two reasons: first, because the money
available for the redemption of treasury warrants issued before January 2,
1942, is appropriated by Republic Act No. 80 (Item F-IV-8) and this warrant
does not come within the purview of said appropriation; and second,
because one of the requirements of his office had not been complied with,
namely, that it must be shown that the holders of warrants covering
payment or replenishment of cash advances for official expenditures (as
this warrant is) received them in payment of definite government
obligations.

Finding the first reason to be sufficiently valid we shall not discuss, nor
pass upon the second.
There is no doubt as to the authenticity and date of the treasury warrant.
There is no question that it was regularly indorsed by the payee and is now
in the custody of the herein petitioner who is a private individual. On the
other hand, it is admitted that the warrant was originally made payable to
Placido S. Urbanes in his capacity as disbursing officer of the Food
Administration for additional cash advance for Food Production Campaign
in La Union (Annex A). It is thus apparent that this is a treasury warrant
issued in favor of a public officer or employee and held in possession by a
private individual. Such being the case, the Auditor General can hardly be

blamed for not authorizing its redemption out of an appropriation

specifically for treasury warrants issued in favor of and held in
possession by private individuals. (Republic Act No. 80, Item F-IV-8.) This
warrant was not issued in favor of a private individual. It was issued in
favor of a government employee.
The distinction is not without a difference. Outstanding treasury warrants
issued prior to January 2, 1942, amount to more than four million pesos.
The appropriation herein mentioned is only for P1,750,000. Obviously
Congress wished to provide for redemption of one class of warrants
those issued to private individuals as distinguished from those issued in
favor of government officials. Basis for the discrimination is not lacking.
Probably the Government is not so sure that those warrants to officials
have all been properly used by the latter during the Japanese occupation
or maybe it wants to conduct further inquiries as to the equities of the
present holders thereof.
The petitioner argues that he is a holder in good faith and for value of a
negotiable instrument and is entitled to the rights and privileges of a
holder in due course, free from defenses. But this treasury warrant is not
within the scope of the negotiable instruments law. For one thing, the
document bearing on its face the words payable from the appropriation
for food administration, is actually an order for payment out of a
particular fund, and is not unconditional, and does not fulfill one of the
essential requirements of a negotiable instrument. (Section 3 last
sentenced and section 1[b] of the Negotiable Instruments Law.) In the
United States, government warrants for the payment of money are not
negotiable instruments nor commercial paper1
Anyway the question here is not whether the Government should
eventually pay this warrant, or is ultimately responsible for it, but whether
the Auditor General erred in refusing to permit payment out of the
particular appropriation in Item F-IV-8 of Republic Act No. 80. We think that
he did not. Petition dismissed, with costs.

Paras, Actg. C.J., Feria, Pablo, Perfecto, Briones, and Padilla, JJ., concur.
81 Phil. 359 Commercial Law Negotiable Instruments Law
Treasury Warrants

In 1941, a treasury warrant was issued in favor of Placido Urbanes, a

government employee in the province of La Union. The said treasury
warrant was meant to augment the Food Production Campaign in the said
province. It was then negotiated by Urbanes to Benjamin Abubakar, a
private individual. When Abubakar sought to have the treasury warrant
encashed, the Auditor General denied payment because first of, it is
against the appropriating law (Republic Act 80) to authorize payments to
private individuals when it comes to treasury warrants. Abubakar then
contends that he is entitled to encash as he was a holder in good faith.

ISSUE: Whether or not a treasury warrant is a negotiable instrument.

HELD: No. A treasury warrant is not a negotiable instrument. One of the

requirements of a negotiable instrument is that it must be unconditional. In
Section 3 of the Negotiable Instruments Law, an order or promise to pay
out of a particular fund makes the instrument conditional. A treasury
warrant, like the one in this case, comes from a particular fund, a particular
appropriation. In this case, it was written on the face of the treasury
warrant that it is payable from the appropriation for food administration.
Thus, it is not negotiable for being conditional.

NOTE the difference: However, an instrument is negotiable if it merely

mentions/indicates a particular fund out of which reimbursement is to be
made. This does not make the instrument conditional because it does not
say that such particular fund is the source of payment. It is only a notice to
the drawee that he can reimburse himself out of that particular fund after
paying the payee. As to the source of payment to the payee, there is no
mention of it.

103 Phil. 40 Mercantile Law Negotiable Instruments Law

Negotiable Instruments in General Unconditional Promise To Pay

CASE #5
Republic of the Philippines
SUPREME COURT
Manila

During the Japanese occupation, Pacita Young issued three promissory

notes to Pacifica Jimenez. The total sum of the notes was P21k. All three
promissory notes were couched in this manner:
Received from Miss Pacifica Jimenez the total amount of ___________
payable six months after the war, without interest.
When the promissory notes became due, Jimenez presented the notes for
payment. Pacita and her husband died and so the notes were presented to
the administrator of the estate of the spouses (Dr. Jose Bucoy). Bucoy
manifested his willingness to pay but he said that since the loan was
contracted during the Japanee occupation the amount should be deducted
and the Ballantyne Schedule should be used, that is peso-for-yen (which
would lower the amount due from P21k). Bucoy also pointed out that
nowhere in the not can be seen an express promise to pay because of
the absence of the words I promise to pay

EN BANC
G.R. No. L-10221

February 28, 1958

IN RE: Intestate of Luther Young and Pacita Young, spouses.

PACIFICA JIMENEZ, petitioner-appellee,
vs.
DR. JOSE BUCOY, administrator-appellant.
Frank W. Brady and Pablo C. de Guia, Jr. for appellee.
E. A. Beltran for appellant.
DECISION
BENGZON, J.:

ISSUE: Whether or not Bucoy is correct.

HELD: No. The Ballantyne schedule may not be used here because the
debt is not payable during the Japanese occupation. It is expressly stated
in the notes that the amounts stated therein are payable six months after
the war. Therefore, no reduction could be effected, and peso-for-peso
payment shall be ordered in Philippine currency.
The notes also amounted in effect to a promise to pay the amounts
indicated therein. An acknowledgment may become a promise by the
addition of words by which a promise of payment is naturally implied, such
as, payable, payable on a given day, payable on demand, paid . . .
when called for, . . . To constitute a good promissory note, no precise
words of contract are necessary, provided they amount, in legal effect, to a
promise to pay. In other words, if over and above the mere
acknowledgment of the debt there may be collected from the words used a
promise to pay it, the instrument may be regarded as a promissory note.

In this intestate of Luther Young and Pacita Young who died in 1954 and
1952 respectively, Pacifica Jimenez presented for payment four promissory
notes signed by Pacita for different amounts totalling twenty-one thousand
pesos (P21,000).
Acknowledging receipt by Pacita during the Japanese occupation, in the
currency then prevailing, the administrator manifested willingness to pay
provided adjustment of the sums be made in line with the Ballantyne
schedule.
The claimant objected to the adjustment insisting on full payment in
accordance with the notes.
Applying doctrines of this Court on the matter, the Hon. Primitive L.
Gonzales, Judge, held that the notes should be paid in the currency
prevailing after the war, and that consequently plaintiff was entitled to
recover P21,000 plus attorneys fees for the sum of P2,000.
Hence this appeal.

Executed in the month of August 1944, the first promissory note read as
follows:

therefore have been made during January 1945. The notes here in question
were payable only after the war.

Received from Miss Pacifica Jimenez the total amount of P10,000) ten
thousand pesos payable six months after the war, without interest.

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

The other three notes were couched in the same terms, except as to
amounts and dates.
There can be no serious question that the notes were promises to pay six
months after the war, the amounts mentioned.
But the important question, which obviously compelled the administrator
to appeal, is whether the amounts should be paid, peso for peso, or
whether a reduction should be made in accordance with the well-known
Ballantyne schedule.
This matter of payment of loans contracted during the Japanese occupation
has received our attention in many litigations after the liberation. The gist
of our adjudications, in so far as material here, is that if the loan should be
paid during the Japanese occupation, the Ballantyne schedule should apply
with corresponding reduction of the amount.1 However, if the loan was
expressly agreed to be payable only after the war or after liberation, or
became payable after those dates, no reduction could be effected, and
peso-for-peso payment shall be ordered in Philippine currency.2
The Ballantyne Conversion Table does not apply where the monetary
obligation, under the contract, was not payable during the Japanese
occupation but until after one year counted for the date of ratification of
the Treaty of Peace concluding the Greater East Asia War. (Arellano vs. De
Domingo, 101 Phil., 902.)
When a monetary obligation is contracted during the Japanese occupation,
to be discharged after the war, the payment should be made in Philippine
Currency. (Kare et al. vs. Imperial et al., 102 Phil., 173.)
Now then, as in the case before us, the debtor undertook to pay six
months after the war, peso for peso payment is indicated.
The Ang Lam3 case cited by appellant is not controlling, because the loan
therein given could have been repaid during the Japanese occupation.
Dated December 26, 1944, it was payable within one year. Payment could

An acknowledgment may become a promise by the addition of words by

which a promise of payment is naturally implied, such as, payable,
payable on a given day, payable on demand, paid . . . when called
for, . . . (10 Corpus Juris Secundum p. 523.)
To constitute a good promissory note, no precise words of contract are
necessary, provided they amount, in legal effect, to a promise to pay. In
other words, if over and above the mere acknowledgment of the debt there
may be collected from the words used a promise to pay it, the instrument
may be regarded as a promissory note. 1 Daniel, Neg. Inst. sec. 36 et seq.;
Byles, Bills, 10, 11, and cases cited . . . Due A. B. $325, payable on
demand, or, I acknowledge myself to be indebted to A in $109, to be
paid on demand, for value received, or, I O. U. $85 to be paid on May
5th, are held to be promissory notes, significance being given to words of
payment as indicating a promise to pay. 1 Daniel Neg. Inst. see. 39, and
cases cited. (Cowan vs. Hallack, (Colo.) 13 Pacific Reporter 700, 703.)
Another argument of appellant is that as the deceased Luther Young did
not sign these notes, his estate is not liable for the same. This defense,
however, was not interposed in the lower court. There the only issue
related to the amount to be amount, considering that the money had been
received in Japanese money. It is now unfair to put up this new defense,
because had it been raised in the court below, appellees could have
proved, what they now alleged that Pacita contracted the obligation to
support and maintain herself, her son and her husband (then concentrated
at Santo Tomas University) during the hard days of the occupation.
It is now settled practice that on appeal a change of theory is not
permitted.
In order that a question may be raised on appeal, it is essential that it be
within the issues made by the parties in their pleadings. Consequently,

when a party deliberately adopts a certain theory, and the case is tried and
decided upon that theory in the court below, he will not be permitted to
change his theory on appeal because, to permit him to do so, would be
unfair to the adverse party. (Rules of Court by Moran-1957 Ed. Vol. I p. 715
citing Agoncillo vs. Javier, 38 Phil., 424; American Express Company vs.
Natividad, 46 Phil., 207; San Agustin vs. Barrios, 68 Phil., 475, 480; Toribio
vs. Dacasa, 55 Phil., 461.)

there is a point raised by defendant, which so far as we are informed, has

not been directly passed upon in this jurisdiction: the notes contained no
express promise to pay a definite amount.

Appellants last assignment of error concerns attorneys fees. He says there

was no reason for making this and exception to the general rule that
attorneys fees are not recoverable in the absence of stipulation.

WHEREFORE, in view of the foregoing considerations, the appealed

decision is AFFIRMED, except as to the attorneys fees which are hereby
DISAPPROVED. SO ORDERED.

Under the new Civil Code, attorneys fees and expenses of litigation new
be awarded in this case if defendant acted in gross and evident bad faith in
refusing to satisfy plaintiffs plainly valid, just and demandable claim or
where the court deems it just and equitable that attorneys fees be
recovered (Article 2208 Civil Code). These are if applicable some of
the exceptions to the general rule that in the absence of stipulation no
attorneys fees shall be awarded.
The trial court did not explain why it ordered payment of counsel fees.
Needless to say, it is desirable that the decision should state the reason
why such award is made bearing in mind that it must necessarily rest on
an exceptional situation. Unless of course the text of the decision plainly
shows the case to fall into one of the exceptions, for instance in actions
for legal support, when exemplary damages are awarded, etc. In the
case at bar, defendant could not obviously be held to have acted in gross
and evident bad faith. He did not deny the debt, and merely pleaded for
adjustment, invoking decisions he thought to be controlling. If the trial
judge considered it just and equitable to require payment of attorneys
fees because the defense adjustment under Ballantyne schedule
proved to be untenable in view of this Courts applicable rulings, it would
be error to uphold his view. Otherwise, every time a defendant loses,
attorneys fees would follow as a matter of course. Under the article above
cited, even a clearly untenable defense would be no ground for awarding
attorneys fees unless it amounted to gross and evident bad faith.
Plaintiffs attorneys attempt to sustain the award on the ground of
defendants refusal to accept her offer, before the suit, to take P5,000 in
full settlement of her claim. We do not think this is tenable, defendants
attitude being merely a consequence of his line of defense, which though
erroneous does not amount to gross and evident bad faith. For one thing,

There being no circumstance making it reasonable and just to require

defendant to pay attorneys fees, the last assignment of error must be
upheld.

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

J.B.L. Endencia and Felix, JJ., concur.

CASE #6
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 96405

June 26, 1996

BALDOMERO INCIONG, JR., petitioner,

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

DECISION
ROMERO, J.:p

This is a petition for review on certiorari of the decision of the Court of

Appeals affirming that of the Regional Trial Court of Misamis Oriental,
Branch 18, 1 which disposed of Civil Case No. 10507 for collection of a sum
of money and damages, as follows:
WHEREFORE, defendant BALDOMERO L. INCIONG, JR. is adjudged solidarily
liable and ordered to pay to the plaintiff Philippine Bank of
Communications, Cagayan de Oro City, the amount of FIFTY THOUSAND
PESOS (P50,000.00), with interest thereon from May 5, 1983 at 16% per
annum until fully paid; and 6% per annum on the total amount due, as
liquidated damages or penalty from May 5, 1983 until fully paid; plus 10%
of the total amount due for expenses of litigation and attorneys fees; and
to pay the costs.
The counterclaim, as well as the cross claim, are dismissed for lack of
merit.
SO ORDERED.
Petitioners liability resulted from the promissory note in the amount of
P50,000.00 which he signed with Rene C. Naybe and Gregorio D.
Pantanosas on February 3, 1983, holding themselves jointly and severally
liable to private respondent Philippine Bank of Communications, Cagayan
de Oro City branch. The promissory note was due on May 5, 1983.

Said due date expired without the promissors having paid their obligation.
Consequently, on November 14, 1983 and on June 8, 1984, private
respondent sent petitioner telegrams demanding payment thereof. 2 On
December 11, 1984 private respondent also sent by registered mail a final
letter of demand to Rene C. Naybe. Since both obligors did not respond to
the demands made, private respondent filed on January 24, 1986 a
complaint for collection of the sum of P50,000.00 against the three
obligors.
On November 25, 1986, the complaint was dismissed for failure of the
plaintiff to prosecute the case. However, on January 9, 1987, the lower
court reconsidered the dismissal order and required the sheriff to serve the
summonses. On January 27, 1987, the lower court dismissed the case
against defendant Pantanosas as prayed for by the private respondent
herein. Meanwhile, only the summons addressed to petitioner was served
as the sheriff learned that defendant Naybe had gone to Saudi Arabia.

In his answer, petitioner alleged that sometime in January 1983, he was

approached by his friend, Rudy Campos, who told him that he was a
partner of Pio Tio, the branch manager of private respondent in Cagayan
de Oro City, in the falcata logs operation business. Campos also intimated
to him that Rene C. Naybe was interested in the business and would
contribute a chainsaw to the venture. He added that, although Naybe had
no money to buy the equipment, Pio Tio had assured Naybe of the approval
of a loan he would make with private respondent. Campos then persuaded
petitioner to act as a co-maker in the said loan. Petitioner allegedly
acceded but with the understanding that he would only be a co-maker for
the loan of P50,000.00.
Petitioner alleged further that five (5) copies of a blank promissory note
were brought to him by Campos at his office. He affixed his signature
thereto but in one copy, he indicated that he bound himself only for the
amount of P5,000.00. Thus, it was by trickery, fraud and misrepresentation
that he was made liable for the amount of P50,000.00.
In the aforementioned decision of the lower court, it noted that the
typewritten figure 50,000 clearly appears directly below the admitted
signature of the petitioner in the promissory note. 3 Hence, the latters
uncorroborated testimony on his limited liability cannot prevail over the
presumed regularity and fairness of the transaction, under Sec. 5 (q) of
Rule 131. The lower court added that it was rather odd for petitioner to
have indicated in a copy and not in the original, of the promissory note, his
supposed obligation in the amount of P5,000.00 only. Finally, the lower
court held that, even granting that said limited amount had actually been
agreed upon, the same would have been merely collateral between him
and Naybe and, therefore, not binding upon the private respondent as
creditor-bank.
The lower court also noted that petitioner was a holder of a Bachelor of
Laws degree and a labor consultant who was supposed to take due care of
his concerns, and that, on the witness stand, Pio Tio denied having
participated in the alleged business venture although he knew for a fact
that the falcata logs operation was encouraged by the bank for its export
potential.
Petitioner appealed the said decision to the Court of Appeals which, in its
decision of August 31, 1990, affirmed that of the lower court. His motion
for reconsideration of the said decision having been denied, he filed the
instant petition for review on certiorari.

On February 6, 1991, the Court denied the petition for failure of petitioner
to comply with the Rules of Court and paragraph 2 of Circular No. 1-88, and
to sufficiently show that respondent court had committed any reversible
error in its questioned decision. 4 His motion for the reconsideration of the
denial of his petition was likewise denied with finality in the Resolution of
April 24, 1991. 5 Thereafter, petitioner filed a motion for leave to file a
second motion for reconsideration which, in the Resolution of May 27,
1991, the Court denied. In the same Resolution, the Court ordered the
entry of judgment in this case.6
Unfazed, petitioner filed a notion for leave to file a motion for clarification.
In the latter motion, he asserted that he had attached Registry Receipt No.
3268 to page 14 of the petition in compliance with Circular No. 1-88. Thus,
on August 7, 1991, the Court granted his prayer that his petition be given
due course and reinstated the same. 7
Nonetheless, we find the petition unmeritorious.
Annexed to the petition is a copy of an affidavit executed on May 3, 1988,
or after the rendition of the decision of the lower court, by Gregorio
Pantanosas, Jr., an MTCC judge and petitioners co-maker in the promissory
note. It supports petitioners allegation that they were induced to sign the
promissory note on the belief that it was only for P5,000.00, adding that it
was Campos who caused the amount of the loan to be increased to
P50,000.00.
The affidavit is clearly intended to buttress petitioners contention in the
instant petition that the Court of Appeals should have declared the
promissory note null and void on the following grounds: (a) the promissory
note was signed in the office of Judge Pantanosas, outside the premises of
the bank; (b) the loan was incurred for the purpose of buying a secondhand chainsaw which cost only P5,000.00; (c) even a new chainsaw would
cost only P27,500.00; (d) the loan was not approved by the board or credit
committee which was the practice, as it exceeded P5,000.00; (e) the loan
had no collateral; (f) petitioner and Judge Pantanosas were not present at
the time the loan was released in contravention of the bank practice, and
(g) notices of default are sent simultaneously and separately but no notice
was validly sent to him. 8 Finally, petitioner contends that in signing the
promissory note, his consent was vitiated by fraud as, contrary to their
agreement that the loan was only for the amount of P5,000.00, the
promissory note stated the amount of P50,000.00.

The above-stated points are clearly factual. Petitioner is to be reminded of

the basic rule that this Court is not a trier of facts. Having lost the chance
to fully ventilate his factual claims below, petitioner may no longer be
accorded the same opportunity in the absence of grave abuse of discretion
on the part of the court below. Had he presented Judge Pantanosas
affidavit before the lower court, it would have strengthened his claim that
the promissory note did not reflect the correct amount of the loan.
Nor is there merit in petitioners assertion that since the promissory note
is not a public deed with the formalities prescribed by law but . . . a mere
commercial paper which does not bear the signature of . . . attesting
witnesses, parol evidence may overcome the contents of the promissory
note. 9 The first paragraph of the parol evidence rule10 states:
When the terms of an agreement have been reduced to writing, it is
considered as containing all the terms agreed upon and there can be,
between the parties and their successors in interest, no evidence of such
terms other than the contents of the written agreement.
Clearly, the rule does not specify that the written agreement be a public
document.
What is required is that the agreement be in writing as the rule is in fact
founded on long experience that written evidence is so much more certain
and accurate than that which rests in fleeting memory only, that it would
be unsafe, when parties have expressed the terms of their contract in
writing, to admit weaker evidence to control and vary the stronger and to
show that the parties intended a different contract from that expressed in
the writing signed by them. 11 Thus, for the parol evidence rule to apply,
a written contract need not be in any particular form, or be signed by both
parties. 12 As a general rule, bills, notes and other instruments of a similar
nature are not subject to be varied or contradicted by parol or extrinsic
evidence. 13
By alleging fraud in his answer, 14 petitioner was actually in the right
direction towards proving that he and his co-makers agreed to a loan of
P5,000.00 only considering that, where a parol contemporaneous
agreement was the inducing and moving cause of the written contract, it
may be shown by parol evidence. 15 However, fraud must be established
by clear and convincing evidence, mere preponderance of evidence, not
even being adequate. 16 Petitioners attempt to prove fraud must,

therefore, fail as it was evidenced only by his own uncorroborated and,

expectedly, self-serving testimony.

Petitioner also argues that the dismissal of the complaint against Naybe,
the principal debtor, and against Pantanosas, his co-maker, 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 some 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 . . . at the rate of SIXTEEN (16) per cent 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. 17 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 observed. In such a
case the contract is called a suretyship. (Emphasis 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 codebtor to all intents and purposes. There is a difference between a solidary
co-debtor and a fiador in solidum (surety). The latter, 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 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. 18
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
the obligation is joint so that each of the debtors is liable only for a
proportionate part of the debt. There is a solidary liability only when the
obligation expressly so states, when the law so provides or when the
nature of the obligation so requires. 19
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. 20 The
choice is left to the solidary creditor to determine against whom he will
enforce collection. 21 Consequently, the dismissal of the case against
Judge Pontanosas may not be deemed as having discharged petitioner
from liability as well. As regards Naybe, suffice it to say that the court
never acquired jurisdiction over him. Petitioner, therefore, may only have
recourse against his co-makers, as provided by law.
WHEREFORE, the instant petition for review on certiorari is hereby DENIED
and the questioned decision of the Court of Appeals is AFFIRMED. Costs
against petitioner.

SO ORDERED.

Regalado, Puno, Mendoza and Torres, Jr., JJ., concur.

A guarantor who binds himself in solidum with the principal debtor 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 latter, 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 the fiansa;
while a solidary co-debtor has no other rights than those bestowed upon
him.

257 SCRA 578 Mercantile Law Negotiable Instruments in General

Signature of Makers Guaranty

In February 1983, Rene Naybe took out a loan from Philippine Bank of
Communications (PBC) in the amount of P50k. For that he executed a
promissory note in the same amount. Naybe was able to convince
Baldomero Inciong, Jr. and Gregorio Pantanosas to co-sign with him as comakers. The promissory note went due and it was left unpaid. PBC
demanded payment from the three but still no payment was made. PBC
then sue the three but PBC later released Pantanosas from its obligations.
Naybe left for Saudi Arabia hence cant be issued summons and the
complaint against him was subsequently dropped. Inciong was left to face
the suit. He argued that that since the complaint against Naybe was
dropped, and that Pantanosas was released from his obligations, he too
should have been released.

ISSUE: Whether or not Inciong should be held liable.

HELD: Yes. Inciong is considering himself as a guarantor in the promissory

note. And he was basing his argument based on Article 2080 of the Civil
Code which provides that guarantors are released from their obligations if
the creditors shall release their debtors. It is to be noted however that
Inciong did not sign the promissory note as a guarantor. He signed it as a
solidary co-maker.

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 (PBC) to determine against whom he will
enforce collection. Consequently, the dismissal of the case against
Pontanosas may not be deemed as having discharged Inciong from liability
as well. As regards Naybe, suffice it to say that the court never acquired
jurisdiction over him. Inciong, therefore, may only have recourse against
his co-makers, as provided by law.

another deed of mortgage, dated April 14, 1958, in connection with two
loans granted by the latter in the sums of P 11,500.00 and P 3,000.00,
respectively. 1 A parcel of land covered by Transfer Certificate of Title No.
38989 of the Register of Deed of Quezon City, co-owned by said mortgagor
spouses, was given as security under the aforesaid two deeds. 2 They also
executed a 'promissory note" which states in part:
... for value received, we the undersigned ... JOINTLY, SEVERALLY and
SOLIDARILY, promise to pay the GOVERNMENT SERVICE INSURANCE
SYSTEM the sum of . . . (P 11,500.00) Philippine Currency, with interest at
the rate of six (6%) per centum compounded monthly payable in . . .
(120)equal monthly installments of . . . (P 127.65) each. 3

CASE #7
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-40824

February 23, 1989

GOVERNMENT SERVICE INSURANCE SYSTEM, petitioner,

vs.
COURT OF APPEALS and MR. & MRS. ISABELO R. RACHO, respondents.
The Government Corporate Counsel for petitioner.
Lorenzo A. Sales for private respondents.

REGALADO , J.:
Private respondents, Mr. and Mrs. Isabelo R. Racho, together with the
spouses Mr. and Mrs Flaviano Lagasca, executed a deed of mortgage,
dated November 13, 1957, in favor of petitioner Government Service
Insurance System (hereinafter referred to as GSIS) and subsequently,

On July 11, 1961, the Lagasca spouses executed an instrument

denominated "Assumption of Mortgage" under which they obligated
themselves to assume the aforesaid obligation to the GSIS and to secure
the release of the mortgage covering that portion of the land belonging to
herein private respondents and which was mortgaged to the GSIS. 4 This
undertaking was not fulfilled. 5

Upon failure of the mortgagors to comply with the conditions of the

mortgage, particularly the payment of the amortizations due, GSIS
extrajudicially foreclosed the mortgage and caused the mortgaged
property to be sold at public auction on December 3, 1962. 6
More than two years thereafter, or on August 23, 1965, herein private
respondents filed a complaint against the petitioner and the Lagasca
spouses in the former Court of
First Instance of Quezon City, 7 praying that the extrajudicial foreclosure
"made on, their property and all other documents executed in relation
thereto in favor of the Government Service Insurance System" be declared
null and void. It was further prayed that they be allowed to recover said
property, and/or the GSIS be ordered to pay them the value thereof, and/or
they be allowed to repurchase the land. Additionally, they asked for actual
and moral damages and attorney's fees.
In their aforesaid complaint, private respondents alleged that they signed
the mortgage contracts not as sureties or guarantors for the Lagasca
spouses but they merely gave their common property to the said coowners who were solely benefited by the loans from the GSIS.

The trial court rendered judgment on February 25, 1968 dismissing the
complaint for failure to establish a cause of action. 8
Said decision was reversed by the respondent Court of Appeals 9 which
held that:
... although formally they are co-mortgagors, they are so only for
accomodation (sic) in that the GSIS required their consent to the mortgage
of the entire parcel of land which was covered with only one certificate of
title, with full knowledge that the loans secured thereby were solely for the
benefit of the appellant (sic) spouses who alone applied for the loan.
xx

xx

'It is, therefore, clear that as against the GSIS, appellants have a valid
cause for having foreclosed the mortgage without having given sufficient
notice to them as required either as to their delinquency in the payment of
amortization or as to the subsequent foreclosure of the mortgage by
reason of any default in such payment. The notice published in the
newspaper, 'Daily Record (Exh. 12) and posted pursuant to Sec 3 of Act
3135 is not the notice to which the mortgagor is entitled upon the
application being made for an extrajudicial foreclosure. ... 10

On the foregoing findings, the respondent court consequently decreed

thatIn view of all the foregoing, the judgment appealed from is hereby
reversed, and another one entered (1) declaring the foreclosure of the
mortgage void insofar as it affects the share of the appellants; (2) directing
the GSIS to reconvey to appellants their share of the mortgaged property,
or the value thereof if already sold to third party, in the sum of P
35,000.00, and (3) ordering the appellees Flaviano Lagasca and Esther
Lagasca to pay the appellants the sum of P 10,00.00 as moral damages, P
5,000.00 as attorney's fees, and costs. 11

The case is now before us in this petition for review.

In submitting their case to this Court, both parties relied on the provisions
of Section 29 of Act No. 2031, otherwise known as the Negotiable
Instruments Law, which provide that an accommodation party is one who
has signed an instrument as maker, drawer, acceptor of indorser without
receiving value therefor, but is held liable on the instrument to a holder for
value although the latter knew him to be only an accommodation party.
This approach of both parties appears to be misdirected and their reliance
misplaced. The promissory note hereinbefore quoted, as well as the
mortgage deeds subject of this case, are clearly not negotiable
instruments. These documents do not comply with the fourth requisite to
be considered as such under Section 1 of Act No. 2031 because they are
neither payable to order nor to bearer. The note is payable to a specified
party, the GSIS. Absent the aforesaid requisite, the provisions of Act No.
2031 would not apply; governance shall be afforded, instead, by the
provisions of the Civil Code and special laws on mortgages.
As earlier indicated, the factual findings of respondent court are that
private respondents signed the documents "only to give their consent to
the mortgage as required by GSIS", with the latter having full knowledge
that the loans secured thereby were solely for the benefit of the Lagasca
spouses. 12 This appears to be duly supported by sufficient evidence on
record. Indeed, it would be unusual for the GSIS to arrange for and deduct
the monthly amortizations on the loans from the salary as an army officer
of Flaviano Lagasca without likewise affecting deductions from the salary
of Isabelo Racho who was also an army sergeant. Then there is also the
undisputed fact, as already stated, that the Lagasca spouses executed a
so-called "Assumption of Mortgage" promising to exclude private
respondents and their share of the mortgaged property from liability to the
mortgagee. There is no intimation that the former executed such
instrument for a consideration, thus confirming that they did so pursuant
to their original agreement.
The parol evidence rule 13 cannot be used by petitioner as a shield in this
case for it is clear that there was no objection in the court below regarding
the admissibility of the testimony and documents that were presented to
prove that the private respondents signed the mortgage papers just to
accommodate their co-owners, the Lagasca spouses. Besides, the
introduction of such evidence falls under the exception to said rule, there
being allegations in the complaint of private respondents in the court
below regarding the failure of the mortgage contracts to express the true
agreement of the parties. 14

However, contrary to the holding of the respondent court, it cannot be said

that private respondents are without liability under the aforesaid mortgage
contracts. The factual context of this case is precisely what is
contemplated in the last paragraph of Article 2085 of the Civil Code to the
effect that third persons who are not parties to the principal obligation may
secure the latter by pledging or mortgaging their own property
So long as valid consent was given, the fact that the loans were solely for
the benefit of the Lagasca spouses would not invalidate the mortgage with
respect to private respondents' share in the property. In consenting
thereto, even assuming that private respondents may not be assuming
personal liability for the debt, their share in the property shall nevertheless
secure and respond for the performance of the principal obligation. The
parties to the mortgage could not have intended that the same would
apply only to the aliquot portion of the Lagasca spouses in the property,
otherwise the consent of the private respondents would not have been
required.
The supposed requirement of prior demand on the private respondents
would not be in point here since the mortgage contracts created
obligations with specific terms for the compliance thereof. The facts further
show that the private respondents expressly bound themselves as solidary
debtors in the promissory note hereinbefore quoted.
Coming now to the extrajudicial foreclosure effected by GSIS, We cannot
agree with the ruling of respondent court that lack of notice to the private
respondents of the extrajudicial foreclosure sale impairs the validity
thereof. In Bonnevie, et al. vs. Court of appeals, et al., 15 the Court ruled
that Act No. 3135, as amended, does not require personal notice on the
mortgagor, quoting the requirement on notice in such cases as follows:
Section 3. Notice shall be given by posting notices of sale for not less than
twenty days in at least three public places of the municipality where the
property is situated, and if such property is worth more than four hundred
pesos, such notice shall also be published once a week for at least three
consecutive weeks in a newspaper of general circulation in the municipality
or city.

There is no showing that the foregoing requirement on notice was not

complied with in the foreclosure sale complained of .

The respondent court, therefore, erred in annulling the mortgage insofar as

it affected the share of private respondents or in directing reconveyance of
their property or the payment of the value thereof Indubitably, whether or
not private respondents herein benefited from the loan, the mortgage and
the extrajudicial foreclosure proceedings were valid.
WHEREFORE, judgment is hereby rendered REVERSING the decision of the
respondent Court of Appeals and REINSTATING the decision of the court a
quo in Civil Case No. Q-9418 thereof.

SO ORDERED.

G.R. Nos. L-25836-37

January 31, 1981

THE PHILIPPINE BANK OF COMMERCE, plaintiff-appellee,

vs.
JOSE M. ARUEGO, defendant-appellant.

FERNANDEZ, J.:
The defendant, Jose M. Aruego, appealed to the Court of Appeals from the
order of the Court of First Instance of Manila, Branch XIII, in Civil Case No.
42066 denying his motion to set aside the order declaring him in default, 1
and from the order of said court in the same case denying his motion to set
aside the judgment rendered after he was declared in default. 2 These two
appeals of the defendant were docketed as CA-G.R. NO. 27734-R and CAG.R. NO. 27940-R, respectively.
Upon motion of the defendant on July 25, 1960, 3 he was allowed by the
Court of Appeals to file one consolidated record on appeal of CA-G.R. NO.
27734-R and CA-G.R. NO. 27940-R. 4
In a resolution promulgated on March 1, 1966, the Court of Appeals, First
Division, certified the consolidated appeal to the Supreme Court on the
ground that only questions of law are involved. 5

CASE #8
Republic of the Philippines
SUPREME COURT
Manila

On December 1, 1959, the Philippine Bank of Commerce instituted against

Jose M. Aruego Civil Case No. 42066 for the recovery of the total sum of
about P35,000.00 with daily interest thereon from November 17, 1959 until
fully paid and commission equivalent to 3/8% for every thirty (30) days or
fraction thereof plus attorney's fees equivalent to 10% of the total amount
due and costs. 6 The complaint filed by the Philippine Bank of Commerce
contains twenty-two (22) causes of action referring to twenty-two (22)
transactions entered into by the said Bank and Aruego on different dates
covering the period from August 28, 1950 to March 14, 1951. 7 The sum
sought to be recovered represents the cost of the printing of "World
Current Events," a periodical published by the defendant. To facilitate the
payment of the printing the defendant obtained a credit accommodation
from the plaintiff. Thus, for every printing of the "World Current Events,"
the printer, Encal Press and Photo Engraving, collected the cost of printing
by drawing a draft against the plaintiff, said draft being sent later to the

defendant for acceptance. As an added security for the payment of the

amounts advanced to Encal Press and Photo-Engraving, the plaintiff bank
also required defendant Aruego to execute a trust receipt in favor of said
bank wherein said defendant undertook to hold in trust for plaintiff the
periodicals and to sell the same with the promise to turn over to the
plaintiff the proceeds of the sale of said publication to answer for the
payment of all obligations arising from the draft. 8
Aruego received a copy of the complaint together with the summons on
December 2, 1959. 9 On December 14, 1959 defendant filed an urgent
motion for extension of time to plead, and set the hearing on December
16, 1959. 10 At the hearing, the court denied defendant's motion for
extension. Whereupon, the defendant filed a motion to dismiss the
complaint on December 17, 1959 on the ground that the complaint states
no cause of action because:
a)
When the various bills of exchange were presented to the
defendant as drawee for acceptance, the amounts thereof had already
been paid by the plaintiff to the drawer (Encal Press and Photo Engraving),
without knowledge or consent of the defendant drawee.
b)
In the case of a bill of exchange, like those involved in the case at
bar, the defendant drawee is an accommodating party only for the drawer
(Encal Press and Photo-Engraving) and win be liable in the event that the
accommodating party (drawer) fails to pay its obligation to the plaintiff. 11
The complaint was dismissed in an order dated December 22, 1959, copy
of which was received by the defendant on December 24, 1959. 12
On January 13, 1960, the plaintiff filed a motion for reconsideration. 13 On
March 7, 1960, acting upon the motion for reconsideration filed by the
plaintiff, the trial court set aside its order dismissing the complaint and set
the case for hearing on March 15, 1960 at 8:00 in the morning. 14 A copy
of the order setting aside the order of dismissal was received by the
defendant on March 11, 1960 at 5:00 o'clock in the afternoon according to
the affidavit of the deputy sheriff of Manila, Mamerto de la Cruz. On the
following day, March 12, 1960, the defendant filed a motion to postpone
the trial of the case on the ground that there having been no answer as
yet, the issues had not yet been joined. 15 On the same date, the
defendant filed his answer to the complaint interposing the following
defenses: That he signed the document upon which the plaintiff sues in his
capacity as President of the Philippine Education Foundation; that his

liability is only secondary; and that he believed that he was signing only as
an accommodation party. 16

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

1960, the defendant received a copy of a notice from the Clerk of Court
dated May 26, 1960, informing the defendant that the record on appeal
filed ed by the defendant was forwarded to the Clerk of Court of Appeals.
26

other words, in order to set aside the order of default, the defendant must
not only show that his failure to answer was due to fraud, accident,
mistake or excusable negligence but also that he has a meritorious
defense.

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

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

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

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

The failure then of the defendant to file his answer on the last day for
pleading is excusable. The order setting aside the dismissal of the
complaint was received at 5:00 o'clock in the afternoon. It was therefore
impossible for him to have filed his answer on that same day because the
courts then held office only up to 5:00 o'clock in the afternoon. Moreover,
the defendant immediately filed his answer on the following day.
However, while the defendant successfully proved that his failure to
answer was due to excusable negligence, he has failed to show that he has
a meritorious defense. The defendant does not have a good and
substantial defense.
Defendant Aruego's defenses consist of the following:

THE LOWER COURT ERRED IN DENYING DEFENDANT'S PETITION FOR

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

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

It has been held that to entitle a party to relief from a judgment taken
against him through his mistake, inadvertence, surprise or excusable
neglect, he must show to the court that he has a meritorious defense. 32 In

b)
The defendant signed these bills of exchange not as principal
obligor, but as accommodation or additional party obligor, to add to the
security of said plaintiff bank. The reason for this statement is that unlike

III

real bills of exchange, where payment of the face value is advanced to the
drawer only upon acceptance of the same by the drawee, in the case in
question, payment for the supposed bills of exchange were made before
acceptance; so that in effect, although these documents are labelled bills
of exchange, legally they are not bills of exchange but mere instruments
evidencing indebtedness of the drawee who received the face value
thereof, with the defendant as only additional security of the same. 33
The first defense of the defendant is that he signed the supposed bills of
exchange as an agent of the Philippine Education Foundation Company
where he is president. Section 20 of the Negotiable Instruments Law
provides that "Where the instrument contains or a person adds to his
signature words indicating that he signs for or on behalf of a principal or in
a representative capacity, he is not liable on the instrument if he was duly
authorized; but the mere addition of words describing him as an agent or
as filing a representative character, without disclosing his principal, does
not exempt him from personal liability."
An inspection of the drafts accepted by the defendant shows that nowhere
has he disclosed that he was signing as a representative of the Philippine
Education Foundation Company. 34 He merely signed as follows: "JOSE
ARUEGO (Acceptor) (SGD) JOSE ARGUEGO For failure to disclose his
principal, Aruego is personally liable for the drafts he accepted.

The defendant also contends that he signed the drafts only as an

accommodation party and as such, should be made liable only after a
showing that the drawer is incapable of paying. This contention is also
without merit.
An accommodation party is one who has signed the instrument as maker,
drawer, indorser, without receiving value therefor and for the purpose of
lending his name to some other person. Such person is liable on the
instrument to a holder for value, notwithstanding such holder, at the time
of the taking of the instrument knew him to be only an accommodation
party. 35 In lending his name to the accommodated party, the
accommodation party is in effect a surety for the latter. He lends his name
to enable the accommodated party to obtain credit or to raise money. He
receives no part of the consideration for the instrument but assumes
liability to the other parties thereto because he wants to accommodate
another. In the instant case, the defendant signed as a drawee/acceptor.

Under the Negotiable Instrument Law, a drawee is primarily liable. Thus, if

the defendant who is a lawyer, he should not have signed as an
acceptor/drawee. In doing so, he became primarily and personally liable for
the drafts.
The defendant also contends that the drafts signed by him were not really
bills of exchange but mere pieces of evidence of indebtedness because
payments were made before acceptance. This is also without merit. Under
the Negotiable Instruments Law, a bill of exchange is an unconditional
order in writting addressed by one person to another, signed by the person
giving it, requiring the person to whom it is addressed to pay on demand or
at a fixed or determinable future time a sum certain in money to order or
to bearer. 36 As long as a commercial paper conforms with the definition of
a bill of exchange, that paper is considered a bill of exchange. The nature
of acceptance is important only in the determination of the kind of
liabilities of the parties involved, but not in the determination of whether a
commercial paper is a bill of exchange or not.
It is evident then that the defendant's appeal can not prosper. To grant the
defendant's prayer will result in a new trial which will serve no purpose and
will just waste the time of the courts as well as of the parties because the
defense is nil or ineffective. 37
WHEREFORE, the order appealed from in Civil Case No. 42066 of the Court
of First Instance of Manila denying the petition for relief from the judgment
rendered in said case is hereby affirmed, without pronouncement as to
costs.

SO ORDERED.

CASE #9
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 74917 January 20, 1988

BANCO DE ORO SAVINGS AND MORTGAGE BANK, petitioner,

vs.

Thereafter, plaintiff discovered that the endorsements appearing at the

back of the Checks and purporting to be that of the payees were forged
and/or unauthorized or otherwise belong to persons other than the payees.

EQUITABLE BANKING CORPORATION, PHILIPPINE CLEARING HOUSE

CORPORATION, AND REGIONAL TRIAL COURT OF QUEZON CITY, BRANCH
XCII (92), respondents.

Pursuant to the PCHC Clearing Rules and Regulations, plaintiff presented

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

GANCAYCO, J.:

In its Complaint, plaintiff prays for judgment to require the defendant to

pay the plaintiff the sum of P45,982.23 with interest at the rate of 12% per
annum from the date of the complaint plus attorney's fees in the amount of
P10,000.00 as well as the cost of the suit.

This is a petition for review on certiorari of a decision of the Regional Trial

Court of Quezon City promulgated on March 24, 1986 in Civil Case No. Q46517 entitled Banco de Oro Savings and Mortgage Bank versus Equitable
Banking Corporation and the Philippine Clearing House Corporation after a
review of the Decision of the Board of Directors of the Philippine Clearing
House Corporation (PCHC) in the case of Equitable Banking Corporation
(EBC) vs. Banco de Oro Savings and Mortgage (BCO), ARBICOM Case No.
84033.

The undisputed facts are as follows:

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

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

In accordance with Section 38 of the Clearing House Rules and Regulations,

the dispute was presented for Arbitration; and Atty. Ceasar Querubin was
designated as the Arbitrator.
After an exhaustive investigation and hearing the Arbiter rendered a
decision in favor of the plaintiff and against the defendant ordering the
PCHC to debit the clearing account of the defendant, and to credit the
clearing account of the plaintiff of the amount of P45,982.23 with interest
at the rate of 12% per annum from date of the complaint and Attorney's
fee in the amount of P5,000.00. No pronouncement as to cost was made. 1
In a motion for reconsideration filed by the petitioner, the Board of
Directors of the PCHC affirmed the decision of the said Arbiter in this wise:
In view of all the foregoing, the decision of the Arbiter is confirmed; and
the Philippine Clearing House Corporation is hereby ordered to debit the
clearing account of the defendant and credit the clearing account of
plaintiff the amount of Forty Five Thousand Nine Hundred Eighty Two &
23/100 (P45,982.23) Pesos with interest at the rate of 12% per annum from
date of the complaint, and the Attorney's fee in the amount of Five
Thousand (P5,000.00) Pesos.

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

Hence this petition.

The petition is focused on the following issues:

1.
Did the PCHC have any jurisdiction to give due course to and
adjudicate Arbicom Case No. 84033?
2.
Were the subject checks non-negotiable and if not, does it fall
under the ambit of the power of the PCHC?
3.
Is the Negotiable Instrument Law, Act No. 2031 applicable in
deciding controversies of this nature by the PCHC?
4.

What law should govern in resolving controversies of this nature?

5.
Was the petitioner bank negligent and thus responsible for any
undue payment?
Petitioner maintains that the PCHC is not clothed with jurisdiction because
the Clearing House Rules and Regulations of PCHC cover and apply only to
checks that are genuinely negotiable. Emphasis is laid on the primary
purpose of the PCHC in the Articles of Incorporation, which states:
To provide, maintain and render an effective, convenient, efficient,
economical and relevant exchange and facilitate service limited to check
processing and sorting by way of assisting member banks, entities in
clearing checks and other clearing items as defined in existing and in
future Central Bank of the Philippines circulars, memoranda, circular
letters, rules and regulations and policies in pursuance to the provisions of
Section 107 of R.A. 265. ...
and Section 107 of R.A. 265 which provides:

xxx

xxx

xxx

The deposit reserves maintained by the banks in the Central Bank, in

accordance with the provisions of Section 1000 shall serve as a basis for
the clearing of checks, and the settlement of interbank balances ...
Petitioner argues that by law and common sense, the term check should be
interpreted as one that fits the articles of incorporation of the PCHC, the
Central Bank and the Clearing House Rules stating that it is a negotiable
instrument citing the definition of a "check" as basically a "bill of
exchange" under Section 185 of the NIL and that it should be payable to
"order" or to "bearer" under Section 126 of game law. Petitioner alleges
that with the cancellation of the printed words "or bearer from the face of
the check, it becomes non-negotiable so the PCHC has no jurisdiction over
the case.
The Regional Trial Court took exception to this stand and conclusion put
forth by the herein petitioner as it held:
Petitioner's theory cannot be maintained. As will be noted, the PCHC makes
no distinction as to the character or nature of the checks subject of its
jurisdiction. The pertinent provisions quoted in petitioners memorandum
simply refer to check(s). Where the law does not distinguish, we shall not
distinguish.
In the case of Reyes vs. Chuanico (CA-G.R. No. 20813 R, Feb. 5, 1962) the
Appellate Court categorically stated that there are four kinds of checks in
this jurisdiction; the regular check; the cashier's check; the traveller's
check; and the crossed check. The Court, further elucidated, that while the
Negotiable Instruments Law does not contain any provision on crossed
checks, it is coon practice in commercial and banking operations to issue
checks of this character, obviously in accordance with Article 541 of the
Code of Commerce. Attention is likewise called to Section 185 of the
Negotiable Instruments Law:
Sec. 185. Check defined. A check is a bill of exchange drawn on a bank
payable on demand. Except as herein otherwise provided, the provisions of
this act applicable to a bill of exchange payable on demand apply to a
check
and the provisions of Section 61 (supra) that the drawer may insert in the
instrument an express stipulation negating or limiting his own liability to
the holder. Consequently, it appears that the use of the term "check" in the
Articles of Incorporation of PCHC is to be perceived as not limited to

negotiable checks only, but to checks as is generally known in use in

commercial or business transactions.

There should be no distinction in the application of a statute where none is

indicated for courts are not authorized to distinguish where the law makes
no distinction. They should instead administer the law not as they think it
ought to be but as they find it and without regard to consequences. 3

Anent Petitioner's liability on said instruments, this court is in full accord

with the ruling of the PCHC Board of Directors that:

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

In presenting the Checks for clearing and for payment, the defendant
made an express guarantee on the validity of "all prior endorsements."
Thus, stamped at the back of the checks are the defendant's clear
warranty; ALL PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS
GUARANTEED. With. out such warranty, plaintiff would not have paid on the
checks.
No amount of legal jargon can reverse the clear meaning of defendant's
warranty. As the warranty has proven to be false and inaccurate, the
defendant is liable for any damage arising out of the falsity of its
representation.
The principle of estoppel, effectively prevents the defendant from denying
liability for any damage sustained by the plaintiff which, relying upon an
action or declaration of the defendant, paid on the Checks. The same
principle of estoppel effectively prevents the defendant from denying the
existence of the Checks. (Pp. 1011 Decision; pp. 4344, Rollo)
We agree.
As provided in the aforecited articles of incorporation of PCHC its operation
extend to "clearing checks and other clearing items." No doubt
transactions on non-negotiable checks are within the ambit of its
jurisdiction.
In a previous case, this Court had occasion to rule: "Ubi lex non distinguish
nec nos distinguere debemos." 2 It was enunciated in Loc Cham v.
Ocampo, 77 Phil. 636 (1946):
The rule, founded on logic is a corollary of the principle that general words
and phrases in a statute should ordinarily be accorded their natural and
general significance. In other words, there should be no distinction in the
application of a statute where none is indicated.

Checks are used between banks and bankers and their customers, and are
designed to facilitate banking operations. It is of the essence to be payable
on demand, because the contract between the banker and the customer is
that the money is needed on demand. 4
The participation of the two banks, petitioner and private respondent, in
the clearing operations of PCHC is a manifestation of their submission to its
jurisdiction. Sec. 3 and 36.6 of the PCHC-CHRR clearing rules and
regulations provide:
SEC. 3. AGREEMENT TO THESE RULES. It is the general agreement and
understanding that any participant in the Philippine Clearing House
Corporation, MICR clearing operations by the mere fact of their
participation, thereby manifests its agreement to these Rules and
Regulations and its subsequent amendments."
Sec 36.6. (ARBITRATION) The fact that a bank participates in the clearing
operations of the PCHC shall be deemed its written and subscribed consent
to the binding effect of this arbitration agreement as if it had done so in
accordance with section 4 of the Republic Act No. 876, otherwise known as
the Arbitration Law.
Further Section 2 of the Arbitration Law mandates:
Two or more persons or parties may submit to the arbitration of one or
more arbitrators any controversy existing between them at the time of the
submission and which may be the subject of an action, or the parties of
any contract may in such contract agree to settle by arbitration a
controversy thereafter arising between them. Such submission or contract
shall be valid and irrevocable, save upon grounds as exist at law for the
revocation of any contract.

Such submission or contract may include question arising out of valuations,

appraisals or other controversies which may be collateral, incidental,
precedent or subsequent to any issue between the parties. ...
Sec. 21 of the same rules, says:
Items which have been the subject of material alteration or items bearing
forged endorsement when such endorsement is necessary for negotiation
shall be returned by direct presentation or demand to the Presenting Bank
and not through the regular clearing house facilities within the period
prescribed by law for the filing of a legal action by the returning
bank/branch, institution or entity sending the same. (Emphasis supplied)
Viewing these provisions the conclusion is clear that the PCHC Rules and
Regulations should not be interpreted to be applicable only to checks
which are negotiable instruments but also to non-negotiable instruments
and that the PCHC has jurisdiction over this case even as the checks
subject of this litigation are admittedly non-negotiable.
Moreover, petitioner is estopped from raising the defense of nonnegotiability of the checks in question. It stamped its guarantee on the
back of the checks and subsequently presented these checks for clearing
and it was on the basis of these endorsements by the petitioner that the
proceeds were credited in its clearing account.
The petitioner by its own acts and representation can not now deny liability
because it assumed the liabilities of an endorser by stamping its guarantee
at the back of the checks.
The petitioner having stamped its guarantee of "all prior endorsements
and/or lack of endorsements" (Exh. A-2 to F-2) is now estopped from
claiming that the checks under consideration are not negotiable
instruments. The checks were accepted for deposit by the petitioner
stamping thereon its guarantee, in order that it can clear the said checks
with the respondent bank. By such deliberate and positive attitude of the
petitioner it has for all legal intents and purposes treated the said cheeks
as negotiable instruments and accordingly assumed the warranty of the
endorser when it stamped its guarantee of prior endorsements at the back
of the checks. It led the said respondent to believe that it was acting as
endorser of the checks and on the strength of this guarantee said
respondent cleared the checks in question and credited the account of the

petitioner. Petitioner is now barred from taking an opposite posture by

claiming that the disputed checks are not negotiable instrument.
This Court enunciated in Philippine National Bank vs. Court of Appeals 5 a
point relevant to the issue when it stated the doctrine of estoppel is based
upon the grounds of public policy, fair dealing, good faith and justice and
its purpose is to forbid one to speak against his own act, representations or
commitments to the injury of one to whom they were directed and who
reasonably relied thereon.
A commercial bank cannot escape the liability of an endorser of a check
and which may turn out to be a forged endorsement. Whenever any bank
treats the signature at the back of the checks as endorsements and thus
logically guarantees the same as such there can be no doubt said bank has
considered the checks as negotiable.
Apropos the matter of forgery in endorsements, this Court has succinctly
emphasized that the collecting bank or last endorser generally suffers the
loss because it has the duty to ascertain the genuineness of all prior
endorsements considering that the act of presenting the check for
payment to the drawee is an assertion that the party making the
presentment has done its duty to ascertain the genuineness of the
endorsements. This is laid down in the case of PNB vs. National City Bank.
6 In another case, this court held that if the drawee-bank discovers that
the signature of the payee was forged after it has paid the amount of the
check to the holder thereof, it can recover the amount paid from the
collecting bank. 7
A truism stated by this Court is that "The doctrine of estoppel precludes
a party from repudiating an obligation voluntarily assumed after having
accepted benefits therefrom. To countenance such repudiation would be
contrary to equity and put premium on fraud or misrepresentation". 8
We made clear in Our decision in Philippine National Bank vs. The National
City Bank of NY & Motor Service Co. that:
Where a check is accepted or certified by the bank on which it is drawn,
the bank is estopped to deny the genuineness of the drawers signature
and his capacity to issue the instrument.
If a drawee bank pays a forged check which was previously accepted or
certified by the said bank, it can not recover from a holder who did not
participate in the forgery and did not have actual notice thereof.

The payment of a check does not include or imply its acceptance in the
sense that this word is used in Section 62 of the Negotiable Instruments
Act. 9
The point that comes uppermost is whether the drawee bank was
negligent in failing to discover the alteration or the forgery. Very akin to the
case at bar is one which involves a suit filed by the drawer of checks
against the collecting bank and this came about in Farmers State Bank 10
where it was held:
A cause of action against the (collecting bank) in favor of the appellee (the
drawer) accrued as a result of the bank breaching its implied warranty of
the genuineness of the indorsements of the name of the payee by bringing
about the presentation of the checks (to the drawee bank) and collecting
the amounts thereof, the right to enforce that cause of action was not
destroyed by the circumstance that another cause of action for the
recovery of the amounts paid on the checks would have accrued in favor of
the appellee against another or to others than the bank if when the checks
were paid they have been indorsed by the payee. (United States vs.
National Exchange Bank, 214 US, 302, 29 S CT665, 53 L. Ed 1006, 16 Am.
Cas. 11 84; Onondaga County Savings Bank vs. United States (E.C.A.) 64 F
703)
Section 66 of the Negotiable Instruments ordains that:
Every indorser who indorsee without qualification, warrants to all
subsequent holders in due course' (a) that the instrument is genuine and in
all respects what it purports to be; (b) that he has good title to it; (c) that
all prior parties have capacity to contract; and (d) that the instrument is at
the time of his indorsement valid and subsisting. 11
It has been enunciated in an American case particularly in American
Exchange National Bank vs. Yorkville Bank 12 that: "the drawer owes no
duty of diligence to the collecting bank (one who had accepted an altered
check and had paid over the proceeds to the depositor) except of
seasonably discovering the alteration by a comparison of its returned
checks and check stubs or other equivalent record, and to inform the
drawee thereof." In this case it was further held that:
The real and underlying reasons why negligence of the drawer constitutes
no defense to the collecting bank are that there is no privity between the
drawer and the collecting bank (Corn Exchange Bank vs. Nassau Bank, 204

N.Y.S. 80) and the drawer owe to that bank no duty of vigilance (New York
Produce Exchange Bank vs. Twelfth Ward Bank, 204 N.Y.S. 54) and no act of
the collecting bank is induced by any act or representation or admission of
the drawer (Seaboard National Bank vs. Bank of America (supra) and it
follows that negligence on the part of the drawer cannot create any liability
from it to the collecting bank, and the drawer thus is neither a necessary
nor a proper party to an action by the drawee bank against such bank. It is
quite true that depositors in banks are under the obligation of examining
their passbooks and returned vouchers as a protection against the
payment by the depository bank against forged checks, and negligence in
the performance of that obligation may relieve that bank of liability for the
repayment of amounts paid out on forged checks, which but for such
negligence it would be bound to repay. A leading case on that subject is
Morgan vs. United States Mortgage and Trust Col. 208 N.Y. 218, 101 N.E.
871 Amn. Cas. 1914D, 462, L.R.A. 1915D, 74.
Thus We hold that while the drawer generally owes no duty of diligence to
the collecting bank, the law imposes a duty of diligence on the collecting
bank to scrutinize checks deposited with it for the purpose of determining
their genuineness and regularity. The collecting bank being primarily
engaged in banking holds itself out to the public as the expert and the law
holds it to a high standard of conduct.
And although the subject checks are non-negotiable the responsibility of
petitioner as indorser thereof remains.
To countenance a repudiation by the petitioner of its obligation would be
contrary to equity and would deal a negative blow to the whole banking
system of this country.
The court reproduces with approval the following disquisition of the PCHC
in its decision

II.

Payments To Persons Other

Than The Payees Are Not Valid
And Give Rise To An Obligation
To Return Amounts Received

Nothing is more clear than that neither the defendant's depositor nor the
defendant is entitled to receive payment payable for the Checks. As the
checks are not payable to defendant's depositor, payments to persons
other than payees named therein, their successor-in-interest or any person
authorized to receive payment are not valid. Article 1240, New Civil Code
of the Philippines unequivocably provides that:
"Art. 1240.
Payment shall be made to the person in whose favor the
obligation has been constituted, or his successo-in-interest, or any person
authorized to receive it. "
Considering that neither the defendant's depositor nor the defendant is
entitled to receive payments for the Checks, payments to any of them give
rise to an obligation to return the amounts received. Section 2154 of the
New Civil Code mandates that:
Article 2154.
If something is received when there is no right to demand
it, and it was unduly delivered through mistake, the obligation to return it
arises.
It is contended that plaintiff should be held responsible for issuing the
Checks notwithstanding that the underlying transactions were fictitious
This contention has no basis in our jurisprudence.
The nullity of the underlying transactions does not diminish, but in fact
strengthens, plaintiffs right to recover from the defendant. Such nullity
clearly emphasizes the obligation of the payees to return the proceeds of
the Checks. If a failure of consideration is sufficient to warrant a finding
that a payee is not entitled to payment or must return payment already
made, with more reason the defendant, who is neither the payee nor the
person authorized by the payee, should be compelled to surrender the
proceeds of the Checks received by it. Defendant does not have any title to
the Checks; neither can it claim any derivative title to them.

III.

Having Violated Its Warranty

On Validity Of All Endorsements,

Collecting Bank Cannot Deny

liability To Those Who Relied
On Its Warranty
In presenting the Checks for clearing and for payment, the defendant
made an express guarantee on the validity of "all prior endorsements."
Thus, stamped at the bank of the checks are the defendant's clear
warranty: ALL PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS
GUARANTEED. Without such warranty, plaintiff would not have paid on the
checks.
No amount of legal jargon can reverse the clear meaning of defendant's
warranty. As the warranty has proven to be false and inaccurate, the
defendant is liable for any damage arising out of the falsity of its
representation.
The principle of estoppel effectively prevents the defendant from denying
liability for any damages sustained by the plaintiff which, relying upon an
action or declaration of the defendant, paid on the Checks. The same
principle of estoppel effectively prevents the defendant from denying the
existence of the Checks.
Whether the Checks have been issued for valuable considerations or not is
of no serious moment to this case. These Checks have been made the
subject of contracts of endorsement wherein the defendant made
expressed warranties to induce payment by the drawer of the Checks; and
the defendant cannot now refuse liability for breach of warranty as a
consequence of such forged endorsements. The defendant has falsely
warranted in favor of plaintiff the validity of all endorsements and the
genuineness of the cheeks in all respects what they purport to be.
The damage that will result if judgment is not rendered for the plaintiff is
irreparable. The collecting bank has privity with the depositor who is the
principal culprit in this case. The defendant knows the depositor; her
address and her history, Depositor is defendant's client. It has taken a risk
on its depositor when it allowed her to collect on the crossed-checks.
Having accepted the crossed checks from persons other than the payees,
the defendant is guilty of negligence; the risk of wrongful payment has to
be assumed by the defendant.

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

CASE #10
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-10221

WHEREFORE, the petition is DISMISSED for lack of merit without

pronouncement as to costs. The decision of the respondent court of 24
March 1986 and its order of 3 June 1986 are hereby declared to be
immediately executory.

February 28, 1958

Intestate of Luther Young and Pacita Young, spouses. PACIFICA JIMENEZ,

petitioner-appellee,
vs.
DR. JOSE BUCOY, administrator-appellant.
Frank W. Brady and Pablo C. de Guia, Jr. for appellee.
E. A. Beltran for appellant.

SO ORDERED.
BENGZON, J.:
In this intestate of Luther Young and Pacita Young who died in 1954 and
1952 respectively, Pacifica Jimenez presented for payment four promissory
notes signed by Pacita for different amounts totalling twenty-one thousand
pesos (P21,000).
Acknowledging receipt by Pacita during the Japanese occupation, in the
currency then prevailing, the administrator manifested willingness to pay
provided adjustment of the sums be made in line with the Ballantyne
schedule.
The claimant objected to the adjustment insisting on full payment in
accordance with the notes.
Applying doctrines of this Court on the matter, the Hon. Primitive L.
Gonzales, Judge, held that the notes should be paid in the currency
prevailing after the war, and that consequently plaintiff was entitled to
recover P21,000 plus attorneys fees for the sum of P2,000.
Hence this appeal.

Executed in the month of August 1944, the first promissory note read as
follows:

therefore have been made during January 1945. The notes here in question
were payable only after the war.

Received from Miss Pacifica Jimenez the total amount of P10,000) ten
thousand pesos payable six months after the war, without interest.

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

The other three notes were couched in the same terms, except as to
amounts and dates.
There can be no serious question that the notes were promises to pay "six
months after the war," the amounts mentioned.
But the important question, which obviously compelled the administrator
to appeal, is whether the amounts should be paid, peso for peso, or
whether a reduction should be made in accordance with the well-known
Ballantyne schedule.
This matter of payment of loans contracted during the Japanese occupation
has received our attention in many litigations after the liberation. The gist
of our adjudications, in so far as material here, is that if the loan should be
paid during the Japanese occupation, the Ballantyne schedule should apply
with corresponding reduction of the amount.1 However, if the loan was
expressly agreed to be payable only after the war or after liberation, or
became payable after those dates, no reduction could be effected, and
peso-for-peso payment shall be ordered in Philippine currency.2
The Ballantyne Conversion Table does not apply where the monetary
obligation, under the contract, was not payable during the Japanese
occupation but until after one year counted for the date of ratification of
the Treaty of Peace concluding the Greater East Asia War. (Arellano vs. De
Domingo, 101 Phil., 902.)
When a monetary obligation is contracted during the Japanese occupation,
to be discharged after the war, the payment should be made in Philippine
Currency. (Kare et al. vs. Imperial et al., 102 Phil., 173.)
Now then, as in the case before us, the debtor undertook to pay "six
months after the war," peso for peso payment is indicated.
The Ang Lam3 case cited by appellant is not controlling, because the loan
therein given could have been repaid during the Japanese occupation.
Dated December 26, 1944, it was payable within one year. Payment could

"An acknowledgment may become a promise by the addition of words by

which a promise of payment is naturally implied, such as, "payable,"
"payable" on a given day, "payable on demand," "paid . . . when called
for," . . . (10 Corpus Juris Secundum p. 523.)
"To constitute a good promissory note, no precise words of contract are
necessary, provided they amount, in legal effect, to a promise to pay. In
other words, if over and above the mere acknowledgment of the debt there
may be collected from the words used a promise to pay it, the instrument
may be regarded as a promissory note. 1 Daniel, Neg. Inst. sec. 36 et seq.;
Byles, Bills, 10, 11, and cases cited . . . "Due A. B. $325, payable on
demand," or, "I acknowledge myself to be indebted to A in $109, to be paid
on demand, for value received," or, "I O. U. $85 to be paid on May 5th," are
held to be promissory notes, significance being given to words of payment
as indicating a promise to pay." 1 Daniel Neg. Inst. see. 39, and cases
cited. (Cowan vs. Hallack, (Colo.) 13 Pacific Reporter 700, 703.)
Another argument of appellant is that as the deceased Luther Young did
not sign these notes, his estate is not liable for the same. This defense,
however, was not interposed in the lower court. There the only issue
related to the amount to be amount, considering that the money had been
received in Japanese money. It is now unfair to put up this new defense,
because had it been raised in the court below, appellees could have
proved, what they now alleged that Pacita contracted the obligation to
support and maintain herself, her son and her husband (then concentrated
at Santo Tomas University) during the hard days of the occupation.
It is now settled practice that on appeal a change of theory is not
permitted.
In order that a question may be raised on appeal, it is essential that it be
within the issues made by the parties in their pleadings. Consequently,

when a party deliberately adopts a certain theory, and the case is tried and
decided upon that theory in the court below, he will not be permitted to
change his theory on appeal because, to permit him to do so, would be
unfair to the adverse party. (Rules of Court by Moran-1957 Ed. Vol. I p. 715
citing Agoncillo vs. Javier, 38 Phil., 424; American Express Company vs.
Natividad, 46 Phil., 207; San Agustin vs. Barrios, 68 Phil., 475, 480; Toribio
vs. Dacasa, 55 Phil., 461.)

there is a point raised by defendant, which so far as we are informed, has

not been directly passed upon in this jurisdiction: the notes contained no
express promise to pay a definite amount.

Appellant's last assignment of error concerns attorneys fees. He says there

was no reason for making this and exception to the general rule that
attorney's fees are not recoverable in the absence of stipulation.

Wherefore, in view of the foregoing considerations, the appealed decision

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

Under the new Civil Code, attorney's fees and expenses of litigation new be
awarded in this case if defendant acted in gross and evident bad faith in
refusing to satisfy plaintiff's plainly valid, just and demandable claim" or
"where the court deems it just and equitable that attorney's fees be
recovered" (Article 2208 Civil Code). These are if applicable some of
the exceptions to the general rule that in the absence of stipulation no
attorney's fees shall be awarded.
The trial court did not explain why it ordered payment of counsel fees.
Needless to say, it is desirable that the decision should state the reason
why such award is made bearing in mind that it must necessarily rest on
an exceptional situation. Unless of course the text of the decision plainly
shows the case to fall into one of the exceptions, for instance "in actions
for legal support," when exemplary damages are awarded," etc. In the case
at bar, defendant could not obviously be held to have acted in gross and
evident bad faith." He did not deny the debt, and merely pleaded for
adjustment, invoking decisions he thought to be controlling. If the trial
judge considered it "just and equitable" to require payment of attorney's
fees because the defense adjustment under Ballantyne schedule
proved to be untenable in view of this Court's applicable rulings, it would
be error to uphold his view. Otherwise, every time a defendant loses,
attorney's fees would follow as a matter of course. Under the article above
cited, even a clearly untenable defense would be no ground for awarding
attorney's fees unless it amounted to "gross and evident bad faith."
Plaintiff's attorneys attempt to sustain the award on the ground of
defendant's refusal to accept her offer, before the suit, to take P5,000 in
full settlement of her claim. We do not think this is tenable, defendant's
attitude being merely a consequence of his line of defense, which though
erroneous does not amount to "gross and evident bad faith." For one thing,

There being no circumstance making it reasonable and just to require

defendant to pay attorney's fees, the last assignment of error must be
upheld.

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

J.B.L. Endencia and Felix, JJ., concur.

CASE #11
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 113236

March 5, 2001

FIRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES, petitioner,

vs.
COURT OF APPEALS and LUZON DEVELOPMENT BANK, respondents.
QUISUMBING, J.:
This petition assails the decision 1 dated December 29, 1993 of the Court
of Appeals in CA-G.R. CV No. 29546, which affirmed the judgment 2 of the
Regional Trial Court of Pasay City, Branch 113 in Civil Case No. PQ-7854-P,
dismissing Firestone's complaint for damages.

The facts of this case, adopted by the CA and based on findings by the trial
court, are as follows:
. . . [D]efendant is a banking corporation. It operates under a certificate of
authority issued by the Central Bank of the Philippines, and among its
activities, accepts savings and time deposits. Said defendant had as one of
its client-depositors the Fojas-Arca Enterprises Company ("Fojas-Arca" for
brevity). Fojas-Arca maintaining a special savings account with the
defendant, the latter authorized and allowed withdrawals of funds
therefrom through the medium of special withdrawal slips. These are
supplied by the defendant to Fojas-Arca.
In January 1978, plaintiff and Fojas-Arca entered into a "Franchised
Dealership Agreement" (Exh. B) whereby Fojas-Arca has the privilege to
purchase on credit and sell plaintiff's products.
On January 14, 1978 up to May 15, 1978. Pursuant to the aforesaid
Agreement, Fojas-Arca purchased on credit Firestone products from plaintiff
with a total amount of P4,896,000.00. In payment of these purchases,
Fojas-Arca delivered to plaintiff six (6) special withdrawal slips drawn upon
the defendant. In turn, these were deposited by the plaintiff with its current
account with the Citibank. All of them were honored and paid by the
defendant. This singular circumstance made plaintiff believe [sic] and
relied [sic] on the fact that the succeeding special withdrawal slips drawn
upon the defendant would be equally sufficiently funded. Relying on such
confidence and belief and as a direct consequence thereof, plaintiff
extended to Fojas-Arca other purchases on credit of its products.
On the following dates Fojas-Arca purchased Firestone products on credit
(Exh. M, I, J, K) and delivered to plaintiff the corresponding special
withdrawal slips in payment thereof drawn upon the defendant, to wit:
DATE

WITHDRAWAL
SLIP NO.

AMOUNT

June 15, 1978

42127

P1,198,092.80

July 15, 1978

42128

940,190.00

Aug. 15, 1978

42129

880,000.00

Sep. 15, 1978

42130

981,500.00

These were likewise deposited by plaintiff in its current account with

Citibank and in turn the Citibank forwarded it [sic] to the defendant for
payment and collection, as it had done in respect of the previous special
withdrawal slips. Out of these four (4) withdrawal slips only withdrawal slip
No. 42130 in the amount of P981,500.00 was honored and paid by the
defendant in October 1978. Because of the absence for a long period
coupled with the fact that defendant honored and paid withdrawal slips No.
42128 dated July 15, 1978, in the amount of P981,500.00 plaintiff's belief
was all the more strengthened that the other withdrawal slips were likewise
sufficiently funded, and that it had received full value and payment of
Fojas-Arca's credit purchased then outstanding at the time. On this basis,
plaintiff was induced to continue extending to Fojas-Arca further purchase
on credit of its products as per agreement (Exh. "B").
However, on December 14, 1978, plaintiff was informed by Citibank that
special withdrawal slips No. 42127 dated June 15, 1978 for P1,198,092.80
and No. 42129 dated August 15, 1978 for P880,000.00 were dishonored
and not paid for the reason 'NO ARRANGEMENT.' As a consequence, the
Citibank debited plaintiff's account for the total sum of P2,078,092.80
representing the aggregate amount of the above-two special withdrawal
slips. Under such situation, plaintiff averred that the pecuniary losses it
suffered is caused by and directly attributable to defendant's gross
negligence.
On September 25, 1979, counsel of plaintiff served a written demand upon
the defendant for the satisfaction of the damages suffered by it. And due
to defendant's refusal to pay plaintiff's claim, plaintiff has been constrained
to file this complaint, thereby compelling plaintiff to incur litigation
expenses and attorney's fees which amount are recoverable from the
defendant.
Controverting the foregoing asseverations of plaintiff, defendant asserted,
inter alia that the transactions mentioned by plaintiff are that of plaintiff

and Fojas-Arca only, [in] which defendant is not involved; Vehemently, it

was denied by defendant that the special withdrawal slips were honored
and treated as if it were checks, the truth being that when the special
withdrawal slips were received by defendant, it only verified whether or not
the signatures therein were authentic, and whether or not the deposit level
in the passbook concurred with the savings ledger, and whether or not the
deposit is sufficient to cover the withdrawal; if plaintiff treated the special
withdrawal slips paid by Fojas-Arca as checks then plaintiff has to blame
itself for being grossly negligent in treating the withdrawal slips as check
when it is clearly stated therein that the withdrawal slips are nonnegotiable; that defendant is not a privy to any of the transactions
between Fojas-Arca and plaintiff for which reason defendant is not duty
bound to notify nor give notice of anything to plaintiff. If at first defendant
had given notice to plaintiff it is merely an extension of usual bank
courtesy to a prospective client; that defendant is only dealing with its
depositor Fojas-Arca and not the plaintiff. In summation, defendant
categorically stated that plaintiff has no cause of action against it (pp. 1-3,
Dec.; pp. 368-370, id).3
Petitioner's complaint4 for a sum of money and damages with the Regional
Trial Court of Pasay City, Branch 113, docketed as Civil Case No. 29546,
was dismissed together with the counterclaim of defendant.
Petitioner appealed the decision to the Court of Appeals. It averred that
respondent Luzon Development Bank was liable for damages under Article
21765 in relation to Articles 196 and 207 of the Civil Code. As noted by the
CA, petitioner alleged the following tortious acts on the part of private
respondent: 1) the acceptance and payment of the special withdrawal slips
without the presentation of the depositor's passbook thereby giving the
impression that the withdrawal slips are instruments payable upon
presentment; 2) giving the special withdrawal slips the general appearance
of checks; and 3) the failure of respondent bank to seasonably warn
petitioner that it would not honor two of the four special withdrawal slips.
On December 29, 1993, the Court of Appeals promulgated its assailed
decision. It denied the appeal and affirmed the judgment of the trial court.
According to the appellate court, respondent bank notified the depositor to
present the passbook whenever it received a collection note from another
bank, belying petitioner's claim that respondent bank was negligent in not
requiring a passbook under the subject transaction. The appellate court
also found that the special withdrawal slips in question were not purposely
given the appearance of checks, contrary to petitioner's assertions, and

thus should not have been mistaken for checks. Lastly, the appellate court
ruled that the respondent bank was under no obligation to inform
petitioner of the dishonor of the special withdrawal slips, for to do so would
have been a violation of the law on the secrecy of bank deposits.
Hence, the instant petition, alleging the following assignment of error:

25.
The CA grievously erred in holding that the [Luzon Development]
Bank was free from any fault or negligence regarding the dishonor, or in
failing to give fair and timely advice of the dishonor, of the two
intermediate LDB Slips and in failing to award damages to Firestone
pursuant to Article 2176 of the New Civil Code.8
The issue for our consideration is whether or not respondent bank should
be held liable for damages suffered by petitioner, due to its allegedly
belated notice of non-payment of the subject withdrawal slips.
The initial transaction in this case was between petitioner and Fojas-Arca,
whereby the latter purchased tires from the former with special withdrawal
slips drawn upon Fojas-Arca's special savings account with respondent
bank. Petitioner in turn deposited these withdrawal slips with Citibank. The
latter credited the same to petitioner's current account, then presented the
slips for payment to respondent bank. It was at this point that the bone of
contention arose.
On December 14, 1978, Citibank informed petitioner that special
withdrawal slips Nos. 42127 and 42129 dated June 15, 1978 and August
15, 1978, respectively, were refused payment by respondent bank due to
insufficiency of Fojas-Arca's funds on deposit. That information came about
six months from the time Fojas-Arca purchased tires from petitioner using
the subject withdrawal slips. Citibank then debited the amount of these
withdrawal slips from petitioner's account, causing the alleged pecuniary
damage subject of petitioner's cause of action.
At the outset, we note that petitioner admits that the withdrawal slips in
question were non-negotiable.9 Hence, the rules governing the giving of
immediate notice of dishonor of negotiable instruments do not apply in this
case.10 Petitioner itself concedes this point.11 Thus, respondent bank was
under no obligation to give immediate notice that it would not make
payment on the subject withdrawal slips. Citibank should have known that
withdrawal slips were not negotiable instruments. It could not expect these

slips to be treated as checks by other entities. Payment or notice of

dishonor from respondent bank could not be expected immediately, in
contrast to the situation involving checks.
In the case at bar, it appears that Citibank, with the knowledge that
respondent Luzon Development Bank, had honored and paid the previous
withdrawal slips, automatically credited petitioner's current account with
the amount of the subject withdrawal slips, then merely waited for the
same to be honored and paid by respondent bank. It presumed that the
withdrawal slips were "good."
It bears stressing that Citibank could not have missed the non-negotiable
nature of the withdrawal slips. The essence of negotiability which
characterizes a negotiable paper as a credit instrument lies in its freedom
to circulate freely as a substitute for money.12 The withdrawal slips in
question lacked this character.
A bank is under obligation to treat the accounts of its depositors with
meticulous care, whether such account consists only of a few hundred
pesos or of millions of pesos.13 The fact that the other withdrawal slips
were honored and paid by respondent bank was no license for Citibank to
presume that subsequent slips would be honored and paid immediately. By
doing so, it failed in its fiduciary duty to treat the accounts of its clients
with the highest degree of care.14
In the ordinary and usual course of banking operations, current account
deposits are accepted by the bank on the basis of deposit slips prepared
and signed by the depositor, or the latter's agent or representative, who
indicates therein the current account number to which the deposit is to be
credited, the name of the depositor or current account holder, the date of
the deposit, and the amount of the deposit either in cash or in check.15
The withdrawal slips deposited with petitioner's current account with
Citibank were not checks, as petitioner admits. Citibank was not bound to
accept the withdrawal slips as a valid mode of deposit. But having
erroneously accepted them as such, Citibank and petitioner as accountholder must bear the risks attendant to the acceptance of these
instruments. Petitioner and Citibank could not now shift the risk and hold
private respondent liable for their admitted mistake.
WHEREFORE, the petition is DENIED and the decision of the Court of
Appeals in CA-G.R. CV No. 29546 is AFFIRMED. Costs against petitioner.

SO ORDERED.

In January 1979, a certain Eduardo Gomez opened an account with Golden

Savings and deposited over a period of two months 38 treasury warrants
with a total value of P1,755,228.37. They were all drawn by the Philippine
Fish Marketing Authority and purportedly signed by its General Manager
and countersigned by its Auditor. Six of these were directly payable to
Gomez while the others appeared to have been indorsed by their
respective payees, followed by Gomez as second indorser. 1

CASE #12
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 88866

February 18, 1991

METROPOLITAN BANK & TRUST COMPANY, petitioner,

vs.
COURT OF APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC.,
LUCIA CASTILLO, MAGNO CASTILLO and GLORIA
CASTILLO, respondents.
Angara, Abello, Concepcion, Regala & Cruz for petitioner.
Bengzon, Zarraga, Narciso, Cudala, Pecson & Bengson for Magno and Lucia
Castillo.
Agapito S. Fajardo and Jaime M. Cabiles for respondent Golden Savings &
Loan Association, Inc.

CRUZ, J.:
This case, for all its seeming complexity, turns on a simple question of
negligence. The facts, pruned of all non-essentials, are easily told.
The Metropolitan Bank and Trust Co. is a commercial bank with branches
throughout the Philippines and even abroad. Golden Savings and Loan
Association was, at the time these events happened, operating in Calapan,
Mindoro, with the other private respondents as its principal officers.

On various dates between June 25 and July 16, 1979, all these warrants
were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings
and deposited to its Savings Account No. 2498 in the Metrobank branch in
Calapan, Mindoro. They were then sent for clearing by the branch office to
the principal office of Metrobank, which forwarded them to the Bureau of
Treasury for special clearing. 2
More than two weeks after the deposits, Gloria Castillo went to the Calapan
branch several times to ask whether the warrants had been cleared. She
was told to wait. Accordingly, Gomez was meanwhile not allowed to
withdraw from his account. Later, however, "exasperated" over Gloria's
repeated inquiries and also as an accommodation for a "valued client," the
petitioner says it finally decided to allow Golden Savings to withdraw from
the proceeds of the
warrants. 3
The first withdrawal was made on July 9, 1979, in the amount of
P508,000.00, the second on July 13, 1979, in the amount of P310,000.00,
and the third on July 16, 1979, in the amount of P150,000.00. The total
withdrawal was P968.000.00. 4
In turn, Golden Savings subsequently allowed Gomez to make withdrawals
from his own account, eventually collecting the total amount of
P1,167,500.00 from the proceeds of the apparently cleared warrants. The
last withdrawal was made on July 16, 1979.
On July 21, 1979, Metrobank informed Golden Savings that 32 of the
warrants had been dishonored by the Bureau of Treasury on July 19, 1979,
and demanded the refund by Golden Savings of the amount it had
previously withdrawn, to make up the deficit in its account.
The demand was rejected. Metrobank then sued Golden Savings in the
Regional Trial Court of Mindoro. 5 After trial, judgment was rendered in
favor of Golden Savings, which, however, filed a motion for reconsideration
even as Metrobank filed its notice of appeal. On November 4, 1986, the
lower court modified its decision thus:

ACCORDINGLY, judgment is hereby rendered:

dishonored, thereby perpetuating the fraud committed by Eduardo

Gomez.

1. Dismissing the complaint with costs against the plaintiff;

2. Dissolving and lifting the writ of attachment of the properties of
defendant Golden Savings and Loan Association, Inc. and
defendant Spouses Magno Castillo and Lucia Castillo;
3. Directing the plaintiff to reverse its action of debiting Savings
Account No. 2498 of the sum of P1,754,089.00 and to reinstate and
credit to such account such amount existing before the debit was
made including the amount of P812,033.37 in favor of defendant
Golden Savings and Loan Association, Inc. and thereafter, to allow
defendant Golden Savings and Loan Association, Inc. to withdraw
the amount outstanding thereon before the debit;
4. Ordering the plaintiff to pay the defendant Golden Savings and
Loan Association, Inc. attorney's fees and expenses of litigation in
the amount of P200,000.00.
5. Ordering the plaintiff to pay the defendant Spouses Magno
Castillo and Lucia Castillo attorney's fees and expenses of litigation
in the amount of P100,000.00.
SO ORDERED.
On appeal to the respondent court, 6 the decision was affirmed, prompting
Metrobank to file this petition for review on the following grounds:
1. Respondent Court of Appeals erred in disregarding and failing to
apply the clear contractual terms and conditions on the deposit
slips allowing Metrobank to charge back any amount erroneously
credited.
(a) Metrobank's right to charge back is not limited to
instances where the checks or treasury warrants are forged
or unauthorized.
(b) Until such time as Metrobank is actually paid, its
obligation is that of a mere collecting agent which cannot
be held liable for its failure to collect on the warrants.
2. Under the lower court's decision, affirmed by respondent Court
of Appeals, Metrobank is made to pay for warrants already

3. Respondent Court of Appeals erred in not finding that as

between Metrobank and Golden Savings, the latter should bear the
loss.
4. Respondent Court of Appeals erred in holding that the treasury
warrants involved in this case are not negotiable instruments.
The petition has no merit.
From the above undisputed facts, it would appear to the Court that
Metrobank was indeed negligent in giving Golden Savings the impression
that the treasury warrants had been cleared and that, consequently, it was
safe to allow Gomez to withdraw the proceeds thereof from his account
with it. Without such assurance, Golden Savings would not have allowed
the withdrawals; with such assurance, there was no reason not to allow the
withdrawal. Indeed, Golden Savings might even have incurred liability for
its refusal to return the money that to all appearances belonged to the
depositor, who could therefore withdraw it any time and for any reason he
saw fit.
It was, in fact, to secure the clearance of the treasury warrants that Golden
Savings deposited them to its account with Metrobank. Golden Savings had
no clearing facilities of its own. It relied on Metrobank to determine the
validity of the warrants through its own services. The proceeds of the
warrants were withheld from Gomez until Metrobank allowed Golden
Savings itself to withdraw them from its own deposit. 7 It was only when
Metrobank gave the go-signal that Gomez was finally allowed by Golden
Savings to withdraw them from his own account.
The argument of Metrobank that Golden Savings should have exercised
more care in checking the personal circumstances of Gomez before
accepting his deposit does not hold water. It was Gomez who was
entrusting the warrants, not Golden Savings that was extending him a
loan; and moreover, the treasury warrants were subject to clearing,
pending which the depositor could not withdraw its proceeds. There was no
question of Gomez's identity or of the genuineness of his signature as
checked by Golden Savings. In fact, the treasury warrants were dishonored
allegedly because of the forgery of the signatures of the drawers, not of
Gomez as payee or indorser. Under the circumstances, it is clear that
Golden Savings acted with due care and diligence and cannot be faulted
for the withdrawals it allowed Gomez to make.

By contrast, Metrobank exhibited extraordinary carelessness. The amount

involved was not trifling more than one and a half million pesos (and this
was 1979). There was no reason why it should not have waited until the
treasury warrants had been cleared; it would not have lost a single centavo
by waiting. Yet, despite the lack of such clearance and notwithstanding
that it had not received a single centavo from the proceeds of the treasury
warrants, as it now repeatedly stresses it allowed Golden Savings to
withdraw not once, not twice, but thrice from the uncleared treasury
warrants in the total amount of P968,000.00
Its reason? It was "exasperated" over the persistent inquiries of Gloria
Castillo about the clearance and it also wanted to "accommodate" a valued
client. It "presumed" that the warrants had been cleared simply because of
"the lapse of one week." 8 For a bank with its long experience, this
explanation is unbelievably naive.
And now, to gloss over its carelessness, Metrobank would invoke the
conditions printed on the dorsal side of the deposit slips through which the
treasury warrants were deposited by Golden Savings with its Calapan
branch. The conditions read as follows:
Kindly note that in receiving items on deposit, the bank obligates
itself only as the depositor's collecting agent, assuming no
responsibility beyond care in selecting correspondents, and until
such time as actual payment shall have come into possession of
this bank, the right is reserved to charge back to the depositor's
account any amount previously credited, whether or not such item
is returned. This also applies to checks drawn on local banks and
bankers and their branches as well as on this bank, which are
unpaid due to insufficiency of funds, forgery, unauthorized
overdraft or any other reason. (Emphasis supplied.)
According to Metrobank, the said conditions clearly show that it was acting
only as a collecting agent for Golden Savings and give it the right to
"charge back to the depositor's account any amount previously credited,
whether or not such item is returned. This also applies to checks ". . . which
are unpaid due to insufficiency of funds, forgery, unauthorized overdraft of
any other reason." It is claimed that the said conditions are in the nature of
contractual stipulations and became binding on Golden Savings when
Gloria Castillo, as its Cashier, signed the deposit slips.
Doubt may be expressed about the binding force of the conditions,
considering that they have apparently been imposed by the bank
unilaterally, without the consent of the depositor. Indeed, it could be
argued that the depositor, in signing the deposit slip, does so only to
identify himself and not to agree to the conditions set forth in the given

permit at the back of the deposit slip. We do not have to rule on this
matter at this time. At any rate, the Court feels that even if the deposit slip
were considered a contract, the petitioner could still not validly disclaim
responsibility thereunder in the light of the circumstances of this case.
In stressing that it was acting only as a collecting agent for Golden
Savings, Metrobank seems to be suggesting that as a mere agent it cannot
be liable to the principal. This is not exactly true. On the contrary, Article
1909 of the Civil Code clearly provides that
Art. 1909. The agent is responsible not only for fraud, but also
for negligence, which shall be judged 'with more or less rigor by
the courts, according to whether the agency was or was not for a
compensation.
The negligence of Metrobank has been sufficiently established. To repeat
for emphasis, it was the clearance given by it that assured Golden Savings
it was already safe to allow Gomez to withdraw the proceeds of the
treasury warrants he had deposited Metrobank misled Golden Savings.
There may have been no express clearance, as Metrobank insists (although
this is refuted by Golden Savings) but in any case that clearance could be
implied from its allowing Golden Savings to withdraw from its account not
only once or even twice but three times. The total withdrawal was in
excess of its original balance before the treasury warrants were deposited,
which only added to its belief that the treasury warrants had indeed been
cleared.
Metrobank's argument that it may recover the disputed amount if the
warrants are not paid for any reason is not acceptable. Any reason does
not mean no reason at all. Otherwise, there would have been no need at all
for Golden Savings to deposit the treasury warrants with it for clearance.
There would have been no need for it to wait until the warrants had been
cleared before paying the proceeds thereof to Gomez. Such a condition, if
interpreted in the way the petitioner suggests, is not binding for being
arbitrary and unconscionable. And it becomes more so in the case at bar
when it is considered that the supposed dishonor of the warrants was not
communicated to Golden Savings before it made its own payment to
Gomez.
The belated notification aggravated the petitioner's earlier negligence in
giving express or at least implied clearance to the treasury warrants and
allowing payments therefrom to Golden Savings. But that is not all. On top
of this, the supposed reason for the dishonor, to wit, the forgery of the
signatures of the general manager and the auditor of the drawer
corporation, has not been established. 9 This was the finding of the lower

courts which we see no reason to disturb. And as we said in MWSS v. Court

of Appeals: 10
Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139 SCRA
238). It must be established by clear, positive and convincing
evidence. This was not done in the present case.
A no less important consideration is the circumstance that the treasury
warrants in question are not negotiable instruments. Clearly stamped on
their face is the word "non-negotiable." Moreover, and this is of equal
significance, it is indicated that they are payable from a particular fund, to
wit, Fund 501.
The following sections of the Negotiable Instruments Law, especially the
underscored parts, are pertinent:
Sec. 1. Form of negotiable instruments. An instrument to be
negotiable must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum
certain in money;
(c) Must be payable on demand, or at a fixed or determinable
future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be
named or otherwise indicated therein with reasonable certainty.
xxx

xxx

(b) A statement of the transaction which gives rise to the

instrument judgment.
But an order or promise to pay out of a particular fund is not
unconditional.
The indication of Fund 501 as the source of the payment to be made on the
treasury warrants makes the order or promise to pay "not unconditional"
and the warrants themselves non-negotiable. There should be no question
that the exception on Section 3 of the Negotiable Instruments Law is
applicable in the case at bar. This conclusion conforms to Abubakar vs.
Auditor General 11 where the Court held:
The petitioner argues that he is a holder in good faith and for value
of a negotiable instrument and is entitled to the rights and
privileges of a holder in due course, free from defenses. But this
treasury warrant is not within the scope of the negotiable
instrument law. For one thing, the document bearing on its face the
words "payable from the appropriation for food administration, is
actually an Order for payment out of "a particular fund," and is not
unconditional and does not fulfill one of the essential requirements
of a negotiable instrument (Sec. 3 last sentence and section [1(b)]
of the Negotiable Instruments Law).
Metrobank cannot contend that by indorsing the warrants in general,
Golden Savings assumed that they were "genuine and in all respects what
they purport to be," in accordance with Section 66 of the Negotiable
Instruments Law. The simple reason is that this law is not applicable to the
non-negotiable treasury warrants. The indorsement was made by Gloria
Castillo not for the purpose of guaranteeing the genuineness of the
warrants but merely to deposit them with Metrobank for clearing. It was in
fact Metrobank that made the guarantee when it stamped on the back of
the warrants: "All prior indorsement and/or lack of endorsements
guaranteed, Metropolitan Bank & Trust Co., Calapan Branch."

xxx

Sec. 3. When promise is unconditional. An unqualified order or

promise to pay is unconditional within the meaning of this Act
though coupled with
(a) An indication of a particular fund out of which reimbursement is
to be made or a particular account to be debited with the amount;
or

The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the
Philippine Islands, 12 but we feel this case is inapplicable to the present
controversy.1wphi1 That case involved checks whereas this case involves
treasury warrants. Golden Savings never represented that the warrants
were negotiable but signed them only for the purpose of depositing them
for clearance. Also, the fact of forgery was proved in that case but not in
the case before us. Finally, the Court found the Jai Alai Corporation
negligent in accepting the checks without question from one Antonio
Ramirez notwithstanding that the payee was the Inter-Island Gas Services,
Inc. and it did not appear that he was authorized to indorse it. No similar
negligence can be imputed to Golden Savings.

We find the challenged decision to be basically correct. However, we will

have to amend it insofar as it directs the petitioner to credit Golden
Savings with the full amount of the treasury checks deposited to its
account.
The total value of the 32 treasury warrants dishonored was P1,754,089.00,
from which Gomez was allowed to withdraw P1,167,500.00 before Golden
Savings was notified of the dishonor. The amount he has withdrawn must
be charged not to Golden Savings but to Metrobank, which must bear the
consequences of its own negligence. But the balance of P586,589.00
should be debited to Golden Savings, as obviously Gomez can no longer be
permitted to withdraw this amount from his deposit because of the
dishonor of the warrants. Gomez has in fact disappeared. To also credit the
balance to Golden Savings would unduly enrich it at the expense of
Metrobank, let alone the fact that it has already been informed of the
dishonor of the treasury warrants.
WHEREFORE, the challenged decision is AFFIRMED, with the modification
that Paragraph 3 of the dispositive portion of the judgment of the lower
court shall be reworded as follows:
3. Debiting Savings Account No. 2498 in the sum of P586,589.00
only and thereafter allowing defendant Golden Savings & Loan
Association, Inc. to withdraw the amount outstanding thereon, if
any, after the debit.

CASE #13
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 170325

September 26, 2008

PHILIPPINE NATIONAL BANK, Petitioner,

vs.
ERLANDO T. RODRIGUEZ and NORMA RODRIGUEZ, Respondents.
DECISION

SO ORDERED.
REYES, R.T., J.:

WHEN the payee of the check is not intended to be the true recipient of its
proceeds, is it payable to order or bearer? What is the fictitious-payee rule
and who is liable under it? Is there any exception?
These questions seek answers in this petition for review on certiorari of the
Amended Decision1 of the Court of Appeals (CA) which affirmed with
modification that of the Regional Trial Court (RTC).2
The Facts
The facts as borne by the records are as follows:

Respondents-Spouses Erlando and Norma Rodriguez were clients of

petitioner Philippine National Bank (PNB), Amelia Avenue Branch, Cebu
City. They maintained savings and demand/checking accounts, namely,
PNBig Demand Deposits (Checking/Current Account No. 810624-6 under
the account name Erlando and/or Norma Rodriguez), and PNBig Demand
Deposit (Checking/Current Account No. 810480-4 under the account name
Erlando T. Rodriguez).
The spouses were engaged in the informal lending business. In line with
their business, they had a discounting 3 arrangement with the Philnabank
Employees Savings and Loan Association (PEMSLA), an association of PNB
employees. Naturally, PEMSLA was likewise a client of PNB Amelia Avenue
Branch. The association maintained current and savings accounts with
petitioner bank.

For the period November 1998 to February 1999, the spouses issued sixty
nine (69) checks, in the total amount of P2,345,804.00. These were
payable to forty seven (47) individual payees who were all members of
PEMSLA.4
Petitioner PNB eventually found out about these fraudulent acts. To put a
stop to this scheme, PNB closed the current account of PEMSLA. As a
result, the PEMSLA checks deposited by the spouses were returned or
dishonored for the reason "Account Closed." The corresponding Rodriguez
checks, however, were deposited as usual to the PEMSLA savings account.
The amounts were duly debited from the Rodriguez account. Thus, because
the PEMSLA checks given as payment were returned, spouses Rodriguez
incurred losses from the rediscounting transactions.
RTC Disposition

PEMSLA regularly granted loans to its members. Spouses Rodriguez would

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

Alarmed over the unexpected turn of events, the spouses Rodriguez filed a
civil complaint for damages against PEMSLA, the Multi-Purpose Cooperative
of Philnabankers (MCP), and petitioner PNB. They sought to recover the
value of their checks that were deposited to the PEMSLA savings account
amounting to P2,345,804.00. The spouses contended that because PNB
credited the checks to the PEMSLA account even without indorsements,
PNB violated its contractual obligation to them as depositors. PNB paid the
wrong payees, hence, it should bear the loss.
PNB moved to dismiss the complaint on the ground of lack of cause of
action. PNB argued that the claim for damages should come from the
payees of the checks, and not from spouses Rodriguez. Since there was no
demand from the said payees, the obligation should be considered as
discharged.

In return, the spouses issued their personal checks (Rodriguez checks) in

the name of the members and delivered the checks to an officer of
PEMSLA. The PEMSLA checks, on the other hand, were deposited by the
spouses to their account.

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

Meanwhile, the Rodriguez checks were deposited directly by PEMSLA to its

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

In its Answer,5 PNB claimed it is not liable for the checks which it paid to
the PEMSLA account without any indorsement from the payees. The bank
contended that spouses Rodriguez, the makers, actually did not intend for
the named payees to receive the proceeds of the checks. Consequently,
the payees were considered as "fictitious payees" as defined under the
Negotiable Instruments Law (NIL). Being checks made to fictitious payees

which are bearer instruments, the checks were negotiable by mere

delivery. PNBs Answer included its cross-claim against its co-defendants
PEMSLA and the MCP, praying that in the event that judgment is rendered
against the bank, the cross-defendants should be ordered to reimburse
PNB the amount it shall pay.
After trial, the RTC rendered judgment in favor of spouses Rodriguez
(plaintiffs). It ruled that PNB (defendant) is liable to return the value of the
checks. All counterclaims and cross-claims were dismissed. The dispositive
portion of the RTC decision reads:
WHEREFORE, in view of the foregoing, the Court hereby renders judgment,
as follows:
1. Defendant is hereby ordered to pay the plaintiffs the total
amount of P2,345,804.00 or reinstate or restore the amount
of P775,337.00 in the PNBig Demand Deposit Checking/Current
Account No. 810480-4 of Erlando T. Rodriguez, and the amount
of P1,570,467.00 in the PNBig Demand Deposit, Checking/Current
Account No. 810624-6 of Erlando T. Rodriguez and/or Norma
Rodriguez, plus legal rate of interest thereon to be computed from
the filing of this complaint until fully paid;
2. The defendant PNB is hereby ordered to pay the plaintiffs the
following reasonable amount of damages suffered by them taking
into consideration the standing of the plaintiffs being sugarcane
planters, realtors, residential subdivision owners, and other
businesses:
(a) Consequential damages, unearned income in the
amount of P4,000,000.00, as a result of their having
incurred great dificulty (sic) especially in the residential
subdivision business, which was not pushed through and
the contractor even threatened to file a case against the
plaintiffs;

(d) Attorneys fees in the amount of P150,000.00

considering that this case does not involve very
complicated issues; and for the
(e) Costs of suit.
3. Other claims and counterclaims are hereby dismissed. 6
CA Disposition
PNB appealed the decision of the trial court to the CA on the principal
ground that the disputed checks should be considered as payable to bearer
and not to order.
In a Decision7 dated July 22, 2004, the CA reversed and set aside the RTC
disposition. The CA concluded that the checks were obviously meant by the
spouses to be really paid to PEMSLA. The court a quo declared:
We are not swayed by the contention of the plaintiffs-appellees (Spouses
Rodriguez) that their cause of action arose from the alleged breach of
contract by the defendant-appellant (PNB) when it paid the value of the
checks to PEMSLA despite the checks being payable to order. Rather, we
are more convinced by the strong and credible evidence for the defendantappellant with regard to the plaintiffs-appellees and PEMSLAs business
arrangement that the value of the rediscounted checks of the plaintiffsappellees would be deposited in PEMSLAs account for payment of the
loans it has approved in exchange for PEMSLAs checks with the full value
of the said loans. This is the only obvious explanation as to why all the
disputed sixty-nine (69) checks were in the possession of PEMSLAs errand
boy for presentment to the defendant-appellant that led to this present
controversy. It also appears that the teller who accepted the said checks
was PEMSLAs officer, and that such was a regular practice by the parties
until the defendant-appellant discovered the scam. The logical conclusion,
therefore, is that the checks were never meant to be paid to order, but
instead, to PEMSLA. We thus find no breach of contract on the part of the
defendant-appellant.

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

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

According to plaintiff-appellee Erlando Rodriguez testimony, PEMSLA

allegedly issued post-dated checks to its qualified members who had
applied for loans. However, because of PEMSLAs insufficiency of funds,

PEMSLA approached the plaintiffs-appellees for the latter to issue

rediscounted checks in favor of said applicant members. Based on the
investigation of the defendant-appellant, meanwhile, this arrangement
allowed the plaintiffs-appellees to make a profit by issuing rediscounted
checks, while the officers of PEMSLA and other members would be able to
claim their loans, despite the fact that they were disqualified for one
reason or another. They were able to achieve this conspiracy by using
other members who had loaned lesser amounts of money or had not
applied at all. x x x.8 (Emphasis added)
The CA found that the checks were bearer instruments, thus they do not
require indorsement for negotiation; and that spouses Rodriguez and
PEMSLA conspired with each other to accomplish this money-making
scheme. The payees in the checks were "fictitious payees" because they
were not the intended payees at all.
The spouses Rodriguez moved for reconsideration. They argued, inter alia,
that the checks on their faces were unquestionably payable to order; and
that PNB committed a breach of contract when it paid the value of the
checks to PEMSLA without indorsement from the payees. They also argued
that their cause of action is not only against PEMSLA but also against PNB
to recover the value of the checks.
On October 11, 2005, the CA reversed itself via an Amended Decision, the
last paragraph and fallo of which read:
In sum, we rule that the defendant-appellant PNB is liable to the plaintiffsappellees Sps. Rodriguez for the following:
1. Actual damages in the amount of P2,345,804 with interest at 6%
per annum from 14 May 1999 until fully paid;
2. Moral damages in the amount of P200,000;
3. Attorneys fees in the amount of P100,000; and
4. Costs of suit.
WHEREFORE, in view of the foregoing premises, judgment is hereby
rendered by Us AFFIRMING WITH MODIFICATION the assailed decision

rendered in Civil Case No. 99-10892, as set forth in the immediately next
preceding paragraph hereof, and SETTING ASIDE Our original decision
promulgated in this case on 22 July 2004.
SO ORDERED.9
The CA ruled that the checks were payable to order. According to the
appellate court, PNB failed to present sufficient proof to defeat the claim of
the spouses Rodriguez that they really intended the checks to be received
by the specified payees. Thus, PNB is liable for the value of the checks
which it paid to PEMSLA without indorsements from the named payees.
The award for damages was deemed appropriate in view of the failure of
PNB to treat the Rodriguez account with the highest degree of care
considering the fiduciary nature of their relationship, which constrained
respondents to seek legal action.
Hence, the present recourse under Rule 45.
Issues
The issues may be compressed to whether the subject checks are payable
to order or to bearer and who bears the loss?
PNB argues anew that when the spouses Rodriguez issued the disputed
checks, they did not intend for the named payees to receive the proceeds.
Thus, they are bearer instruments that could be validly negotiated by mere
delivery. Further, testimonial and documentary evidence presented during
trial amply proved that spouses Rodriguez and the officers of PEMSLA
conspired with each other to defraud the bank.
Our Ruling
Prefatorily, amendment of decisions is more acceptable than an erroneous
judgment attaining finality to the prejudice of innocent parties. A court
discovering an erroneous judgment before it becomes final may, motu
proprio or upon motion of the parties, correct its judgment with the
singular objective of achieving justice for the litigants. 10
However, a word of caution to lower courts, the CA in Cebu in this
particular case, is in order. The Court does not sanction careless disposition

of cases by courts of justice. The highest degree of diligence must go into

the study of every controversy submitted for decision by litigants. Every
issue and factual detail must be closely scrutinized and analyzed, and all
the applicable laws judiciously studied, before the promulgation of every
judgment by the court. Only in this manner will errors in judgments be
avoided.

(c) When it is payable to the order of a fictitious or non-existing

person, and such fact is known to the person making it so payable;
or

Now to the core of the petition.

(e) Where the only or last indorsement is an indorsement in

blank.12 (Underscoring supplied)

As a rule, when the payee is fictitious or not intended to be the true

recipient of the proceeds, the check is considered as a bearer instrument.
A check is "a bill of exchange drawn on a bank payable on demand." 11 It is
either an order or a bearer instrument. Sections 8 and 9 of the NIL states:
SEC. 8. When payable to order. The instrument is payable to order where
it is drawn payable to the order of a specified person or to him or his order.
It may be drawn payable to the order of
(a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or
(e) One or some of several payees; or
(f) The holder of an office for the time being.
Where the instrument is payable to order, the payee must be named or
otherwise indicated therein with reasonable certainty.
SEC. 9. When payable to bearer. The instrument is payable to bearer
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein or bearer; or

(d) When the name of the payee does not purport to be the name
of any person; or

The distinction between bearer and order instruments lies in their manner
of negotiation. Under Section 30 of the NIL, an order instrument requires
an indorsement from the payee or holder before it may be validly
negotiated. A bearer instrument, on the other hand, does not require an
indorsement to be validly negotiated. It is negotiable by mere delivery. The
provision reads:
SEC. 30. What constitutes negotiation. An instrument is negotiated when
it is transferred from one person to another in such manner as to constitute
the transferee the holder thereof. If payable to bearer, it is negotiated by
delivery; if payable to order, it is negotiated by the indorsement of the
holder completed by delivery.
A check that is payable to a specified payee is an order instrument.
However, under Section 9(c) of the NIL, a check payable to a specified
payee may nevertheless be considered as a bearer instrument if it is
payable to the order of a fictitious or non-existing person, and such fact is
known to the person making it so payable. Thus, checks issued to "Prinsipe
Abante" or "Si Malakas at si Maganda," who are well-known characters in
Philippine mythology, are bearer instruments because the named payees
are fictitious and non-existent.
We have yet to discuss a broader meaning of the term "fictitious" as used
in the NIL. It is for this reason that We look elsewhere for guidance. Court
rulings in the United States are a logical starting point since our law on
negotiable instruments was directly lifted from the Uniform Negotiable
Instruments Law of the United States.13
A review of US jurisprudence yields that an actual, existing, and living
payee may also be "fictitious" if the maker of the check did not intend for

the payee to in fact receive the proceeds of the check. This usually occurs
when the maker places a name of an existing payee on the check for
convenience or to cover up an illegal activity.14 Thus, a check made
expressly payable to a non-fictitious and existing person is not necessarily
an order instrument. If the payee is not the intended recipient of the
proceeds of the check, the payee is considered a "fictitious" payee and the
check is a bearer instrument.
In a fictitious-payee situation, the drawee bank is absolved from liability
and the drawer bears the loss. When faced with a check payable to a
fictitious payee, it is treated as a bearer instrument that can be negotiated
by delivery. The underlying theory is that one cannot expect a fictitious
payee to negotiate the check by placing his indorsement thereon. And
since the maker knew this limitation, he must have intended for the
instrument to be negotiated by mere delivery. Thus, in case of controversy,
the drawer of the check will bear the loss. This rule is justified for
otherwise, it will be most convenient for the maker who desires to escape
payment of the check to always deny the validity of the indorsement. This
despite the fact that the fictitious payee was purposely named without any
intention that the payee should receive the proceeds of the check. 15
The fictitious-payee rule is best illustrated in Mueller & Martin v. Liberty
Insurance Bank.16 In the said case, the corporation Mueller & Martin was
defrauded by George L. Martin, one of its authorized signatories. Martin
drew seven checks payable to the German Savings Fund Company Building
Association (GSFCBA) amounting to $2,972.50 against the account of the
corporation without authority from the latter. Martin was also an officer of
the GSFCBA but did not have signing authority. At the back of the checks,
Martin placed the rubber stamp of the GSFCBA and signed his own name
as indorsement. He then successfully drew the funds from Liberty
Insurance Bank for his own personal profit. When the corporation filed an
action against the bank to recover the amount of the checks, the claim was
denied.
The US Supreme Court held in Mueller that when the person making the
check so payable did not intend for the specified payee to have any part in
the transactions, the payee is considered as a fictitious payee. The check is
then considered as a bearer instrument to be validly negotiated by mere
delivery. Thus, the US Supreme Court held that Liberty Insurance Bank, as
drawee, was authorized to make payment to the bearer of the check,
regardless of whether prior indorsements were genuine or not. 17

The more recent Getty Petroleum Corp. v. American Express Travel Related
Services Company, Inc.18 upheld the fictitious-payee rule. The rule protects
the depositary bank and assigns the loss to the drawer of the check who
was in a better position to prevent the loss in the first place. Due care is
not even required from the drawee or depositary bank in accepting and
paying the checks. The effect is that a showing of negligence on the part of
the depositary bank will not defeat the protection that is derived from this
rule.
However, there is a commercial bad faith exception to the fictitious-payee
rule. A showing of commercial bad faith on the part of the drawee bank, or
any transferee of the check for that matter, will work to strip it of this
defense. The exception will cause it to bear the loss. Commercial bad faith
is present if the transferee of the check acts dishonestly, and is a party to
the fraudulent scheme. Said the US Supreme Court in Getty:
Consequently, a transferees lapse of wary vigilance, disregard of
suspicious circumstances which might have well induced a prudent banker
to investigate and other permutations of negligence are not relevant
considerations under Section 3-405 x x x. Rather, there is a "commercial
bad faith" exception to UCC 3-405, applicable when the transferee "acts
dishonestly where it has actual knowledge of facts and circumstances
that amount to bad faith, thus itself becoming a participant in a fraudulent
scheme. x x x Such a test finds support in the text of the Code, which
omits a standard of care requirement from UCC 3-405 but imposes on all
parties an obligation to act with "honesty in fact." x x x19 (Emphasis added)
Getty also laid the principle that the fictitious-payee rule extends
protection even to non-bank transferees of the checks.
In the case under review, the Rodriguez checks were payable to specified
payees. It is unrefuted that the 69 checks were payable to specific persons.
Likewise, it is uncontroverted that the payees were actual, existing, and
living persons who were members of PEMSLA that had a rediscounting
arrangement with spouses Rodriguez.
What remains to be determined is if the payees, though existing persons,
were "fictitious" in its broader context.

For the fictitious-payee rule to be available as a defense, PNB must show

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

instructions of the drawer and it shall be liable for the amount charged to
the drawers account.24

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

The checks were presented to PNB for deposit by a representative of

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

Because of a failure to show that the payees were "fictitious" in its broader
sense, the fictitious-payee rule does not apply. Thus, the checks are to be
deemed payable to order. Consequently, the drawee bank bears the loss. 20
PNB was remiss in its duty as the drawee bank. It does not dispute the fact
that its teller or tellers accepted the 69 checks for deposit to the PEMSLA
account even without any indorsement from the named payees. It bears
stressing that order instruments can only be negotiated with a valid
indorsement.
A bank that regularly processes checks that are neither payable to the
customer nor duly indorsed by the payee is apparently grossly negligent in
its operations.21 This Court has recognized the unique public interest
possessed by the banking industry and the need for the people to have full
trust and confidence in their banks.22 For this reason, banks are minded to
treat their customers accounts with utmost care, confidence, and
honesty.23
In a checking transaction, the drawee bank has the duty to verify the
genuineness of the signature of the drawer and to pay the check strictly in
accordance with the drawers instructions, i.e., to the named payee in the
check. It should charge to the drawers accounts only the payables
authorized by the latter. Otherwise, the drawee will be violating the

In the case at bar, respondents-spouses were the banks depositors. The

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

Moreover, PNB was negligent in the selection and supervision of its

employees. The trustworthiness of bank employees is indispensable to
maintain the stability of the banking industry. Thus, banks are enjoined to
be extra vigilant in the management and supervision of their employees. In
Bank of the Philippine Islands v. Court of Appeals, 25 this Court cautioned
thus:
Banks handle daily transactions involving millions of pesos. By the very
nature of their work the degree of responsibility, care and trustworthiness
expected of their employees and officials is far greater than those of
ordinary clerks and employees. For obvious reasons, the banks are
expected to exercise the highest degree of diligence in the selection and
supervision of their employees.26
PNBs tellers and officers, in violation of banking rules of procedure,
permitted the invalid deposits of checks to the PEMSLA account. Indeed,
when it is the gross negligence of the bank employees that caused the
loss, the bank should be held liable.27
PNBs argument that there is no loss to compensate since no demand for
payment has been made by the payees must also fail. Damage was caused

to respondents-spouses when the PEMSLA checks they deposited were

returned for the reason "Account Closed." These PEMSLA checks were the
corresponding payments to the Rodriguez checks. Since they could not
encash the PEMSLA checks, respondents-spouses were unable to collect
payments for the amounts they had advanced.
A bank that has been remiss in its duty must suffer the consequences of its
negligence. Being issued to named payees, PNB was duty-bound by law
and by banking rules and procedure to require that the checks be properly
indorsed before accepting them for deposit and payment. In fine, PNB
should be held liable for the amounts of the checks.
One Last Note
We note that the RTC failed to thresh out the merits of PNBs cross-claim
against its co-defendants PEMSLA and MPC. The records are bereft of any
pleading filed by these two defendants in answer to the complaint of
respondents-spouses and cross-claim of PNB. The Rules expressly provide
that failure to file an answer is a ground for a declaration that defendant is
in default.28 Yet, the RTC failed to sanction the failure of both PEMSLA and
MPC to file responsive pleadings. Verily, the RTC dismissal of PNBs crossclaim has no basis. Thus, this judgment shall be without prejudice to
whatever action the bank might take against its co-defendants in the trial
court.
To PNBs credit, it became involved in the controversial transaction not of
its own volition but due to the actions of some of its employees.
Considering that moral damages must be understood to be in concept of
grants, not punitive or corrective in nature, We resolve to reduce the award
of moral damages to P50,000.00.29
WHEREFORE, the appealed Amended Decision is AFFIRMED with the
MODIFICATION that the award for moral damages is reduced
to P50,000.00, and that this is without prejudice to whatever civil, criminal,
or administrative action PNB might take against PEMSLA, MPC, and the
employees involved.
SO ORDERED.

CASE #14
Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 97753 August 10, 1992

CALTEX (PHILIPPINES), INC., petitioner,
vs.
COURT OF APPEALS and SECURITY BANK AND TRUST
COMPANY, respondents.
Bito, Lozada, Ortega & Castillo for petitioners.
Nepomuceno, Hofilea & Guingona for private.

22 Feb. 82 90101 to 90120 20 P80,000

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

Total 280 P1,120,000
===== ========
2. Angel dela Cruz delivered the said certificates of time
(CTDs) to herein plaintiff in connection with his purchased
of fuel products from the latter (Original Record, p. 208).

REGALADO, J.:
This petition for review on certiorari impugns and seeks the reversal of the
decision promulgated by respondent court on March 8, 1991 in CA-G.R. CV
No. 23615 1 affirming with modifications, the earlier decision of the
Regional Trial Court of Manila, Branch XLII, 2 which dismissed the complaint
filed therein by herein petitioner against respondent bank.
The undisputed background of this case, as found by the court a quo and
adopted by respondent court, appears of record:
1. On various dates, defendant, a commercial banking
institution, through its Sucat Branch issued 280 certificates
of time deposit (CTDs) in favor of one Angel dela Cruz who
deposited with herein defendant the aggregate amount of
P1,120,000.00, as follows: (Joint Partial Stipulation of Facts
and Statement of Issues, Original Records, p. 207;
Defendant's Exhibits 1 to 280);
CTD CTD
Dates Serial Nos. Quantity Amount

3. Sometime in March 1982, Angel dela Cruz informed Mr.

Timoteo Tiangco, the Sucat Branch Manger, that he lost all
the certificates of time deposit in dispute. Mr. Tiangco
advised said depositor to execute and submit a notarized
Affidavit of Loss, as required by defendant bank's
procedure, if he desired replacement of said lost CTDs
(TSN, February 9, 1987, pp. 48-50).
4. On March 18, 1982, Angel dela Cruz executed and
delivered to defendant bank the required Affidavit of Loss
(Defendant's Exhibit 281). On the basis of said affidavit of
loss, 280 replacement CTDs were issued in favor of said
depositor (Defendant's Exhibits 282-561).
5. On March 25, 1982, Angel dela Cruz negotiated and
obtained a loan from defendant bank in the amount of
Eight Hundred Seventy Five Thousand Pesos (P875,000.00).
On the same date, said depositor executed a notarized
Deed of Assignment of Time Deposit (Exhibit 562) which
stated, among others, that he (de la Cruz) surrenders to
defendant bank "full control of the indicated time deposits
from and after date" of the assignment and further

authorizes said bank to pre-terminate, set-off and "apply

the said time deposits to the payment of whatever amount
or amounts may be due" on the loan upon its maturity
(TSN, February 9, 1987, pp. 60-62).

it the aggregate value of the certificates of time deposit of

P1,120,000.00 plus accrued interest and compounded
interest therein at 16% per annum, moral and exemplary
damages as well as attorney's fees.

6. Sometime in November, 1982, Mr. Aranas, Credit

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

After trial, the court a quo rendered its decision dismissing

the instant complaint. 3

7. On November 26, 1982, defendant received a letter

(Defendant's Exhibit 563) from herein plaintiff formally
informing it of its possession of the CTDs in question and of
its decision to pre-terminate the same.
8. On December 8, 1982, plaintiff was requested by herein
defendant to furnish the former "a copy of the document
evidencing the guarantee agreement with Mr. Angel dela
Cruz" as well as "the details of Mr. Angel dela Cruz"
obligation against which plaintiff proposed to apply the
time deposits (Defendant's Exhibit 564).
9. No copy of the requested documents was furnished
herein defendant.
10. Accordingly, defendant bank rejected the plaintiff's
demand and claim for payment of the value of the CTDs in
a letter dated February 7, 1983 (Defendant's Exhibit 566).
11. In April 1983, the loan of Angel dela Cruz with the
defendant bank matured and fell due and on August 5,
1983, the latter set-off and applied the time deposits in
question to the payment of the matured loan (TSN,
February 9, 1987, pp. 130-131).
12. In view of the foregoing, plaintiff filed the instant
complaint, praying that defendant bank be ordered to pay

On appeal, as earlier stated, respondent court affirmed the lower court's

dismissal of the complaint, hence this petition wherein petitioner faults
respondent court in ruling (1) that the subject certificates of deposit are
non-negotiable despite being clearly negotiable instruments; (2) that
petitioner did not become a holder in due course of the said certificates of
deposit; and (3) in disregarding the pertinent provisions of the Code of
Commerce relating to lost instruments payable to bearer. 4
The instant petition is bereft of merit.
A sample text of the certificates of time deposit is reproduced below to
provide a better understanding of the issues involved in this recourse.
SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%
Date of Maturity FEB. 23, 1984 FEB 22, 1982,
19____
This is to Certify that B E A R E R has
deposited in this Bank the sum of PESOS:
FOUR THOUSAND ONLY, SECURITY BANK
SUCAT OFFICE P4,000 & 00 CTS Pesos,
Philippine Currency, repayable to said
depositor 731 days. after date, upon
presentation and surrender of this

certificate, with interest at the rate

of 16% per cent per annum.
(Sgd. Illegible) (Sgd. Illegible)

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

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

AUTHORIZED SIGNATURES

Respondent court ruled that the CTDs in question are non-negotiable

instruments, nationalizing as follows:
. . . While it may be true that the word "bearer" appears
rather boldly in the CTDs issued, it is important to note that
after the word "BEARER" stamped on the space provided
supposedly for the name of the depositor, the words "has
deposited" a certain amount follows. The document further
provides that the amount deposited shall be "repayable to
said depositor" on the period indicated. Therefore, the text
of the instrument(s) themselves manifest with clarity that
they are payable, not to whoever purports to be the
"bearer" but only to the specified person indicated therein,
the depositor. In effect, the appellee bank acknowledges its
depositor Angel dela Cruz as the person who made the
deposit and further engages itself to pay said depositor the
amount indicated thereon at the stipulated date. 6
We disagree with these findings and conclusions, and hereby hold that the
CTDs in question are negotiable instruments. Section 1 Act No. 2031,
otherwise known as the Negotiable Instruments Law, enumerates the
requisites for an instrument to become negotiable, viz:
(a) It must be in writing and signed by the maker or
drawer;

The CTDs in question undoubtedly meet the requirements of the law for
negotiability. The parties' bone of contention is with regard to requisite (d)
set forth above. It is noted that Mr. Timoteo P. Tiangco, Security Bank's
Branch Manager way back in 1982, testified in open court that the
depositor reffered to in the CTDs is no other than Mr. Angel de la Cruz.
xxx xxx xxx
Atty. Calida:
q In other words Mr. Witness, you are
saying that per books of the bank, the
depositor referred (sic) in these certificates
states that it was Angel dela Cruz?
witness:
a Yes, your Honor, and we have the record
to show that Angel dela Cruz was the one
who cause (sic) the amount.
Atty. Calida:
q And no other person or entity or
company, Mr. Witness?
witness:
a None, your Honor.

(b) Must contain an unconditional promise or order to pay a

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

xxx xxx xxx

Atty. Calida:

q Mr. Witness, who is the depositor

identified in all of these certificates of time
deposit insofar as the bank is concerned?
witness:
a Angel dela Cruz is the depositor. 8
xxx xxx xxx
On this score, the accepted rule is that the negotiability or nonnegotiability of an instrument is determined from the writing, that is, from
the face of the instrument itself. 9 In the construction of a bill or note, the
intention of the parties is to control, if it can be legally
ascertained. 10 While the writing may be read in the light of surrounding
circumstances in order to more perfectly understand the intent and
meaning of the parties, yet as they have constituted the writing to be the
only outward and visible expression of their meaning, no other words are
to be added to it or substituted in its stead. The duty of the court in such
case is to ascertain, not what the parties may have secretly intended as
contradistinguished from what their words express, but what is the
meaning of the words they have used. What the parties meant must be
determined by what they said. 11
Contrary to what respondent court held, the CTDs are negotiable
instruments. The documents provide that the amounts deposited shall be
repayable to the depositor. And who, according to the document, is the
depositor? It is the "bearer." The documents do not say that the depositor
is Angel de la Cruz and that the amounts deposited are repayable
specifically to him. Rather, the amounts are to be repayable to the bearer
of the documents or, for that matter, whosoever may be the bearer at the
time of presentment.
If it was really the intention of respondent bank to pay the amount to Angel
de la Cruz only, it could have with facility so expressed that fact in clear
and categorical terms in the documents, instead of having the word
"BEARER" stamped on the space provided for the name of the depositor in
each CTD. On the wordings of the documents, therefore, the amounts
deposited are repayable to whoever may be the bearer thereof. Thus,
petitioner's aforesaid witness merely declared that Angel de la Cruz is the

depositor "insofar as the bank is concerned," but obviously other parties

not privy to the transaction between them would not be in a position to
know that the depositor is not the bearer stated in the CTDs. Hence, the
situation would require any party dealing with the CTDs to go behind the
plain import of what is written thereon to unravel the agreement of the
parties thereto through facts aliunde. This need for resort to extrinsic
evidence is what is sought to be avoided by the Negotiable Instruments
Law and calls for the application of the elementary rule that the
interpretation of obscure words or stipulations in a contract shall not favor
the party who caused the obscurity. 12
The next query is whether petitioner can rightfully recover on the CTDs.
This time, the answer is in the negative. The records reveal that Angel de
la Cruz, whom petitioner chose not to implead in this suit for reasons of its
own, delivered the CTDs amounting to P1,120,000.00 to petitioner without
informing respondent bank thereof at any time. Unfortunately for
petitioner, although the CTDs are bearer instruments, a valid negotiation
thereof for the true purpose and agreement between it and De la Cruz, as
ultimately ascertained, requires both delivery and indorsement. For,
although petitioner seeks to deflect this fact, the CTDs were in reality
delivered to it as a security for De la Cruz' purchases of its fuel products.
Any doubt as to whether the CTDs were delivered as payment for the fuel
products or as a security has been dissipated and resolved in favor of the
latter by petitioner's own authorized and responsible representative
himself.
In a letter dated November 26, 1982 addressed to respondent Security
Bank, J.Q. Aranas, Jr., Caltex Credit Manager, wrote: ". . . These certificates
of deposit were negotiated to us by Mr. Angel dela Cruz to guarantee his
purchases of fuel products" (Emphasis ours.) 13 This admission is
conclusive upon petitioner, its protestations notwithstanding. Under the
doctrine of estoppel, an admission or representation is rendered conclusive
upon the person making it, and cannot be denied or disproved as against
the person relying thereon. 14 A party may not go back on his own acts and
representations to the prejudice of the other party who relied upon
them. 15 In the law of evidence, whenever a party has, by his own
declaration, act, or omission, intentionally and deliberately led another to
believe a particular thing true, and to act upon such belief, he cannot, in
any litigation arising out of such declaration, act, or omission, be permitted
to falsify it. 16

If it were true that the CTDs were delivered as payment and not as
security, petitioner's credit manager could have easily said so, instead of
using the words "to guarantee" in the letter aforequoted. Besides, when
respondent bank, as defendant in the court below, moved for a bill of
particularity therein 17 praying, among others, that petitioner, as plaintiff,
be required to aver with sufficient definiteness or particularity (a) the due
date or dates ofpayment of the alleged indebtedness of Angel de la Cruz to
plaintiff and (b) whether or not it issued a receipt showing that the CTDs
were delivered to it by De la Cruz as payment of the latter's alleged
indebtedness to it, plaintiff corporation opposed the motion. 18 Had it
produced the receipt prayed for, it could have proved, if such truly was the
fact, that the CTDs were delivered as payment and not as security. Having
opposed the motion, petitioner now labors under the presumption that
evidence willfully suppressed would be adverse if produced. 19
Under the foregoing circumstances, this disquisition in Intergrated Realty
Corporation, et al. vs. Philippine National Bank, et al. 20 is apropos:
. . . Adverting again to the Court's pronouncements
in Lopez, supra, we quote therefrom:
The character of the transaction between
the parties is to be determined by their
intention, regardless of what language was
used or what the form of the transfer was.
If it was intended to secure the payment of
money, it must be construed as a pledge;
but if there was some other intention, it is
not a pledge. However, even though a
transfer, if regarded by itself, appears to
have been absolute, its object and
character might still be qualified and
explained by contemporaneous writing
declaring it to have been a deposit of the
property as collateral security. It has been
said that a transfer of property by the
debtor to a creditor, even if sufficient on its
face to make an absolute conveyance,
should be treated as a pledge if the debt
continues in inexistence and is not
discharged by the transfer, and that

accordingly the use of the terms ordinarily

importing conveyance of absolute
ownership will not be given that effect in
such a transaction if they are also
commonly used in pledges and mortgages
and therefore do not unqualifiedly indicate
a transfer of absolute ownership, in the
absence of clear and unambiguous
language or other circumstances excluding
an intent to pledge.
Petitioner's insistence that the CTDs were negotiated to it begs the
question. Under the Negotiable Instruments Law, an instrument is
negotiated when it is transferred from one person to another in such a
manner as to constitute the transferee the holder thereof, 21 and a holder
may be the payee or indorsee of a bill or note, who is in possession of it, or
the bearer thereof. 22 In the present case, however, there was no
negotiation in the sense of a transfer of the legal title to the CTDs in favor
of petitioner in which situation, for obvious reasons, mere delivery of the
bearer CTDs would have sufficed. Here, the delivery thereof only as
security for the purchases of Angel de la Cruz (and we even disregard the
fact that the amount involved was not disclosed) could at the most
constitute petitioner only as a holder for value by reason of his lien.
Accordingly, a negotiation for such purpose cannot be effected by mere
delivery of the instrument since, necessarily, the terms thereof and the
subsequent disposition of such security, in the event of non-payment of
the principal obligation, must be contractually provided for.
The pertinent law on this point is that where the holder has a lien on the
instrument arising from contract, he is deemed a holder for value to the
extent of his lien. 23 As such holder of collateral security, he would be a
pledgee but the requirements therefor and the effects thereof, not being
provided for by the Negotiable Instruments Law, shall be governed by the
Civil Code provisions on pledge of incorporeal rights, 24 which inceptively
provide:
Art. 2095. Incorporeal rights, evidenced by negotiable
instruments, . . . may also be pledged. The instrument
proving the right pledged shall be delivered to the creditor,
and if negotiable, must be indorsed.

Art. 2096. A pledge shall not take effect against third

persons if a description of the thing pledged and the date
of the pledge do not appear in a public instrument.
Aside from the fact that the CTDs were only delivered but not indorsed, the
factual findings of respondent court quoted at the start of this opinion
show that petitioner failed to produce any document evidencing any
contract of pledge or guarantee agreement between it and Angel de la
Cruz. 25 Consequently, the mere delivery of the CTDs did not legally vest in
petitioner any right effective against and binding upon respondent bank.
The requirement under Article 2096 aforementioned is not a mere rule of
adjective law prescribing the mode whereby proof may be made of the
date of a pledge contract, but a rule of substantive law prescribing a
condition without which the execution of a pledge contract cannot affect
third persons adversely. 26
On the other hand, the assignment of the CTDs made by Angel de la Cruz
in favor of respondent bank was embodied in a public instrument. 27 With
regard to this other mode of transfer, the Civil Code specifically declares:
Art. 1625. An assignment of credit, right or action shall
produce no effect as against third persons, unless it
appears in a public instrument, or the instrument is
recorded in the Registry of Property in case the assignment
involves real property.
Respondent bank duly complied with this statutory requirement. Contrarily,
petitioner, whether as purchaser, assignee or lien holder of the CTDs,
neither proved the amount of its credit or the extent of its lien nor the
execution of any public instrument which could affect or bind private
respondent. Necessarily, therefore, as between petitioner and respondent
bank, the latter has definitely the better right over the CTDs in question.
Finally, petitioner faults respondent court for refusing to delve into the
question of whether or not private respondent observed the requirements
of the law in the case of lost negotiable instruments and the issuance of
replacement certificates therefor, on the ground that petitioner failed to
raised that issue in the lower court. 28

On this matter, we uphold respondent court's finding that the aspect of

alleged negligence of private respondent was not included in the
stipulation of the parties and in the statement of issues submitted by them
to the trial court. 29 The issues agreed upon by them for resolution in this
case are:
1. Whether or not the CTDs as worded are negotiable
instruments.
2. Whether or not defendant could legally apply the
amount covered by the CTDs against the depositor's loan
by virtue of the assignment (Annex "C").
3. Whether or not there was legal compensation or set off
involving the amount covered by the CTDs and the
depositor's outstanding account with defendant, if any.
4. Whether or not plaintiff could compel defendant to
preterminate the CTDs before the maturity date provided
therein.
5. Whether or not plaintiff is entitled to the proceeds of the
CTDs.
6. Whether or not the parties can recover damages,
attorney's fees and litigation expenses from each other.
As respondent court correctly observed, with appropriate citation of some
doctrinal authorities, the foregoing enumeration does not include the issue
of negligence on the part of respondent bank. An issue raised for the first
time on appeal and not raised timely in the proceedings in the lower court
is barred by estoppel. 30 Questions raised on appeal must be within the
issues framed by the parties and, consequently, issues not raised in the
trial court cannot be raised for the first time on appeal. 31
Pre-trial is primarily intended to make certain that all issues necessary to
the disposition of a case are properly raised. Thus, to obviate the element
of surprise, parties are expected to disclose at a pre-trial conference all
issues of law and fact which they intend to raise at the trial, except such as
may involve privileged or impeaching matters. The determination of issues

at a pre-trial conference bars the consideration of other questions on

appeal. 32
To accept petitioner's suggestion that respondent bank's supposed
negligence may be considered encompassed by the issues on its right to
preterminate and receive the proceeds of the CTDs would be tantamount
to saying that petitioner could raise on appeal any issue. We agree with
private respondent that the broad ultimate issue of petitioner's entitlement
to the proceeds of the questioned certificates can be premised on a
multitude of other legal reasons and causes of action, of which respondent
bank's supposed negligence is only one. Hence, petitioner's submission, if
accepted, would render a pre-trial delimitation of issues a useless
exercise. 33
Still, even assuming arguendo that said issue of negligence was raised in
the court below, petitioner still cannot have the odds in its favor. A close
scrutiny of the provisions of the Code of Commerce laying down the rules
to be followed in case of lost instruments payable to bearer, which it
invokes, will reveal that said provisions, even assuming their applicability
to the CTDs in the case at bar, are merely permissive and not mandatory.
The very first article cited by petitioner speaks for itself.
Art 548. The dispossessed owner, no matter for what cause
it may be, may apply to the judge or court of competent
jurisdiction, asking that the principal, interest or dividends
due or about to become due, be not paid a third person, as
well as in order to prevent the ownership of the instrument
that a duplicate be issued him. (Emphasis ours.)
xxx xxx xxx
The use of the word "may" in said provision shows that it is not mandatory
but discretionary on the part of the "dispossessed owner" to apply to the
judge or court of competent jurisdiction for the issuance of a duplicate of
the lost instrument. Where the provision reads "may," this word shows that
it is not mandatory but discretional. 34 The word "may" is usually
permissive, not mandatory. 35 It is an auxiliary verb indicating liberty,
opportunity, permission and possibility. 36

Moreover, as correctly analyzed by private respondent, 37 Articles 548 to

558 of the Code of Commerce, on which petitioner seeks to anchor
respondent bank's supposed negligence, merely established, on the one
hand, a right of recourse in favor of a dispossessed owner or holder of a
bearer instrument so that he may obtain a duplicate of the same, and, on
the other, an option in favor of the party liable thereon who, for some valid
ground, may elect to refuse to issue a replacement of the instrument.
Significantly, none of the provisions cited by petitioner categorically
restricts or prohibits the issuance a duplicate or replacement
instrument sans compliance with the procedure outlined therein, and none
establishes a mandatory precedent requirement therefor.
WHEREFORE, on the modified premises above set forth, the petition is
DENIED and the appealed decision is hereby AFFIRMED.
SO ORDERED.

Hartigan and Welch; Fisher and De Witt; Perkins and Kincaid; Gibbs, Mc
Donough and Johnson; Julian Wolfson; Ross and Lawrence; Francis B.
Mahoney, and Jose A. Espiritu, amici curiae.
MALCOLM, J.:
The question of first impression raised in this case concerns the validity in
this jurisdiction of a provision in a promissory note whereby in case the
same is not paid at maturity, the maker authorizes any attorney to appear
and confess judgment thereon for the principal amount, with interest,
costs, and attorney's fees, and waives all errors, rights to inquisition, and
appeal, and all property exceptions.
On May 8, 1920, the manager and the treasurer of the Manila Oil Refining
& By-Products Company, Inc., executed and delivered to the Philippine
National Bank, a written instrument reading as follows:
RENEWAL.
P61,000.00
MANILA, P.I., May 8, 1920.
On demand after date we promise to pay to the order of the
Philippine National Bank sixty-one thousand only pesos at
Philippine National Bank, Manila, P.I.

CASE #15
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-18103

June 8, 1922

PHILIPPINE NATIONAL BANK, plaintiff-appellee,

vs.
MANILA OIL REFINING & BY-PRODUCTS COMPANY, INC., defendantappellant.
Antonio Gonzalez for appellant.
Roman J. Lacson for appellee.

Without defalcation, value received; and to hereby authorize any

attorney in the Philippine Islands, in case this note be not paid at
maturity, to appear in my name and confess judgment for the
above sum with interest, cost of suit and attorney's fees of ten (10)
per cent for collection, a release of all errors and waiver of all
rights to inquisition and appeal, and to the benefit of all laws
exempting property, real or personal, from levy or sale. Value
received. No. ____ Due ____
MANILA OIL REFINING & BY-PRODUCTS CO., INC.,
(Sgd.) VICENTE SOTELO,
Manager.

MANILA OIL REFINING & BY-PRODUCTS CO., INC.,

(Sgd.) RAFAEL LOPEZ,
Treasurer
The Manila Oil Refining and By-Products Company, Inc. failed to pay the
promissory note on demand. The Philippine National Bank brought action in
the Court of First Instance of Manila, to recover P61,000, the amount of the
note, together with interest and costs. Mr. Elias N. Rector, an attorney
associated with the Philippine National Bank, entered his appearance in
representation of the defendant, and filed a motion confessing judgment.
The defendant, however, in a sworn declaration, objected strongly to the
unsolicited representation of attorney Recto. Later, attorney Antonio
Gonzalez appeared for the defendant and filed a demurrer, and when this
was overruled, presented an answer. The trial judge rendered judgment on
the motion of attorney Recto in the terms of the complaint.
The foregoing facts, and appellant's three assignments of error, raise
squarely the question which was suggested in the beginning of this
opinion. In view of the importance of the subject to the business
community, the advice of prominent attorneys-at-law with banking
connections, was solicited. These members of the bar responded promptly
to the request of the court, and their memoranda have proved highly
useful in the solution of the question. It is to the credit of the bar that
although the sanction of judgement notes in the Philippines might prove of
immediate value to clients, every one of the attorneys has looked upon the
matter in a big way, with the result that out of their independent
investigations has come a practically unanimous protest against the
recognition in this jurisdiction of judgment notes. 1
Neither the Code of Civil Procedure nor any other remedial statute
expressly or tacitly recognizes a confession of judgment commonly called a
judgment note. On the contrary, the provisions of the Code of Civil
Procedure, in relation to constitutional safeguards relating to the right to
take a man's property only after a day in court and after due process of
law, contemplate that all defendants shall have an opportunity to be heard.
Further, the provisions of the Code of Civil Procedure pertaining to counter
claims argue against judgment notes, especially as the Code provides that
in case the defendant or his assignee omits to set up a counterclaim, he
cannot afterwards maintain an action against the plaintiff therefor. (Secs.
95, 96, 97.) At least one provision of the substantive law, namely, that the

validity and fulfillment of contracts cannot be left to the will of one of the
contracting parties (Civil Code, art. 1356), constitutes another indication of
fundamental legal purposes.
The attorney for the appellee contends that the Negotiable Instruments
Law (Act No. 2031) expressly recognizes judgment notes, and that they are
enforcible under the regular procedure. The Negotiable Instruments Law, in
section 5, provides that "The negotiable character of an instrument
otherwise negotiable is not affected by a provision which ". . . (b)
Authorizes a confession of judgment if the instrument be not paid at
maturity." We do not believe, however, that this provision of law can be
taken to sanction judgments by confession, because it is a portion of a
uniform law which merely provides that, in jurisdiction where judgment
notes are recognized, such clauses shall not affect the negotiable
character of the instrument. Moreover, the same section of the Negotiable
Instruments. Law concludes with these words: "But nothing in this section
shall validate any provision or stipulation otherwise illegal."
The court is thus put in the position of having to determine the validity in
the absence of statute of a provision in a note authorizing an attorney to
appear and confess judgment against the maker. This situation, in reality,
has its advantages for it permits us to reach that solution which is best
grounded in the solid principles of the law, and which will best advance the
public interest.
The practice of entering judgments in debt on warrants of attorney is of
ancient origin. In the course of time a warrant of attorney to confess
judgement became a familiar common law security. At common law, there
were two kinds of judgments by confession; the one a judgment
by cognovit actionem, and the other by confession relicta verificatione. A
number of jurisdictions in the United States have accepted the common
law view of judgments by confession, while still other jurisdictions have
refused to sanction them. In some States, statutes have been passed
which have either expressly authorized confession of judgment on warrant
of attorney, without antecedent process, or have forbidden judgments of
this character. In the absence of statute, there is a conflict of authority as
to the validity of a warrant of attorney for the confession of judgement. The
weight of opinion is that, unless authorized by statute, warrants of attorney
to confess judgment are void, as against public policy.

Possibly the leading case on the subject is First National Bank of Kansas
City vs. White ([1909], 220 Mo., 717; 16 Ann. Cas., 889; 120 S. W., 36; 132
Am. St. Rep., 612). The record in this case discloses that on October 4,
1990, the defendant executed and delivered to the plaintiff an obligation in
which the defendant authorized any attorney-at-law to appear for him in an
action on the note at any time after the note became due in any court of
record in the State of Missouri, or elsewhere, to waive the issuing and
service of process, and to confess judgement in favor of the First National
Bank of Kansas City for the amount that might then be due thereon, with
interest at the rate therein mentioned and the costs of suit, together with
an attorney's fee of 10 per cent and also to waive and release all errors in
said proceedings and judgment, and all proceedings, appeals, or writs of
error thereon. Plaintiff filed a petition in the Circuit Court to which was
attached the above-mentioned instrument. An attorney named Denham
appeared pursuant to the authority given by the note sued on, entered the
appearance of the defendant, and consented that judgement be rendered
in favor of the plaintiff as prayed in the petition. After the Circuit Court had
entered a judgement, the defendants, through counsel, appeared specially
and filed a motion to set it aside. The Supreme Court of Missouri, speaking
through Mr. Justice Graves, in part said:
But going beyond the mere technical question in our preceding
paragraph discussed, we come to a question urged which goes to
the very root of this case, and whilst new and novel in this state,
we do not feel that the case should be disposed of without
discussing and passing upon that question.
xxx

xxx

xxx

And if this instrument be considered as security for a debt, as it

was by the common law, it has never so found recognition in this
state. The policy of our law has been against such hidden
securities for debt. Our Recorder's Act is such that instruments
intended as security for debt should find a place in the public
records, and if not, they have often been viewed with suspicion,
and their bona fides often questioned.
Nor do we thing that the policy of our law is such as to thus place a
debtor in the absolute power of his creditor. The field for fraud is
too far enlarged by such an instrument. Oppression and tyranny
would follow the footsteps of such a diversion in the way of

security for debt. Such instruments procured by duress could

shortly be placed in judgment in a foreign court and much distress
result therefrom.
Again, under the law the right to appeal to this court or some other
appellate court is granted to all persons against whom an adverse
judgment is rendered, and this statutory right is by the instrument
stricken down. True it is that such right is not claimed in this case,
but it is a part of the bond and we hardly know why this pound of
flesh has not been demanded. Courts guard with jealous eye any
contract innovations upon their jurisdiction. The instrument before
us, considered in the light of a contract, actually reduces the courts
to mere clerks to enter and record the judgment called for therein.
By our statute (Rev. St. 1899, sec. 645) a party to a written
instrument of this character has the right to show a failure of
consideration, but this right is brushed to the wind by this
instrument and the jurisdiction of the court to hear that
controversy is by the whose object is to oust the jurisdiction of the
courts are contrary to public policy and will not be enforced. Thus it
is held that any stipulation between parties to a contract
distinguishing between the different courts of the country is
contrary to public policy. The principle has also been applied to a
stipulation in a contract that a party who breaks it may not be
sued, to an agreement designating a person to be sued for its
breach who is nowise liable and prohibiting action against any but
him, to a provision in a lease that the landlord shall have the right
to take immediate judgment against the tenant in case of a default
on his part, without giving the notice and demand for possession
and filing the complaint required by statute, to a by-law of a
benefit association that the decisions of its officers on claim shall
be final and conclusive, and to many other agreements of a similar
tendency. In some courts, any agreement as to the time for suing
different from time allowed by the statute of limitations within
which suit shall be brought or the right to sue be barred is held
void.
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We shall not pursue this question further. This contract, in so far as

it goes beyond the usual provisions of a note, is void as against the
public policy of the state, as such public policy is found expressed

in our laws and decisions. Such agreements are iniquitous to the

uttermost and should be promptly condemned by the courts, until
such time as they may receive express statutory recognition, as
they have in some states.
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From what has been said, it follows that the Circuit Court never had
jurisdiction of the defendant, and the judgement is reversed.
The case of Farquhar and Co. vs. Dehaven ([1912], 70 W. Va., 738; 40
L.R.A. [N. S.], 956; 75 S.E., 65; Ann. Cas. [1914-A], 640), is another wellconsidered authority. The notes referred to in the record contained waiver
of presentment and protest, homestead and exemption rights real and
personal, and other rights, and also the following material provision: "And
we do hereby empower and authorize the said A. B. Farquhar Co. Limited,
or agent, or any prothonotary or attorney of any Court of Record to appear
for us and in our name to confess judgement against us and in favor of
said A. B. Farquhar Co., Limited, for the above named sum with costs of
suit and release of all errors and without stay of execution after the
maturity of this note." The Supreme Court of West Virginia, on
consideration of the validity of the judgment note above described,
speaking through Mr. Justice Miller, in part said:
As both sides agree the question presented is one of first
impression in this State. We have no statutes, as has Pennsylvania
and many other states, regulating the subject. In the decision we
are called upon to render, we must have recourse to the rules and
principles of the common law, in force here, and to our statute law,
applicable, and to such judicial decisions and practices in Virginia,
in force at the time of the separation, as are properly binding on
us. It is pertinent to remark in this connection, that after nearly
fifty years of judicial history this question, strong evidence, we
think, that such notes, if at all, have never been in very general
use in this commonwealth. And in most states where they are
current the use of them has grown up under statutes authorizing
them, and regulating the practice of employing them in
commercial transactions.
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It is contended, however, that the old legal maxim, qui facit per
alium, facit per se, is as applicable here as in other cases. We do
not think so. Strong reasons exist, as we have shown, for denying
its application, when holders of contracts of this character seek the
aid of the courts and of their execution process to enforce them,
defendant having had no day in court or opportunity to be heard.
We need not say in this case that a debtor may not, by proper
power of attorney duly executed, authorize another to appear in
court, and by proper endorsement upon the writ waive service of
process, and confess judgement. But we do not wish to be
understood as approving or intending to countenance the practice
employing in this state commercial paper of the character here
involved. Such paper has heretofore had little if any currency here.
If the practice is adopted into this state it ought to be, we think, by
act of the Legislature, with all proper safeguards thrown around it,
to prevent fraud and imposition. The policy of our law is, that no
man shall suffer judgment at the hands of our courts without
proper process and a day to be heard. To give currency to such
paper by judicial pronouncement would be to open the door to
fraud and imposition, and to subject the people to wrongs and
injuries not heretofore contemplated. This we are unwilling to do.
A case typical of those authorities which lend support to judgment notes is
First National Bank of Las Cruces vs. Baker ([1919], 180 Pac., 291). The
Supreme Court of New Mexico, in a per curiam decision, in part, said:
In some of the states the judgments upon warrants of attorney are
condemned as being against public policy. (Farquhar and Co. vs.
Dahaven, 70 W. Va., 738; 75 S.E., 65; 40 L.R.A. [N. S.], 956; Ann.
Cas. [1914 A]. 640, and First National Bank of Kansas City vs.
White, 220 Mo., 717; 120 S. W., 36; 132 Am. St. Rep., 612; 16 Ann.
Cas., 889, are examples of such holding.) By just what course of
reasoning it can be said by the courts that such judgments are
against public policy we are unable to understand. It was a practice
from time immemorial at common law, and the common law
comes down to us sanctioned as justified by the reason and
experience of English-speaking peoples. If conditions have arisen in
this country which make the application of the common law
undesirable, it is for the Legislature to so announce, and to prohibit
the taking of judgments can be declared as against the public
policy of the state. We are aware that the argument against them

is that they enable the unconscionable creditor to take advantage

of the necessities of the poor debtor and cut him off from his
ordinary day in court. On the other hand, it may be said in their
favor that it frequently enables a debtor to obtain money which he
could by no possibility otherwise obtain. It strengthens his credit,
and may be most highly beneficial to him at times. In some of the
states there judgments have been condemned by statute and of
course in that case are not allowed.
Our conclusion in this case is that a warrant of attorney given as
security to a creditor accompanying a promissory note confers a
valid power, and authorizes a confession of judgment in any court
of competent jurisdiction in an action to be brought upon said note;
that our cognovit statute does not cover the same field as that
occupied by the common-law practice of taking judgments upon
warrant of attorney, and does not impliedly or otherwise abrogate
such practice; and that the practice of taking judgments upon
warrants of attorney as it was pursued in this case is not against
any public policy of the state, as declared by its laws.
With reference to the conclusiveness of the decisions here mentioned, it
may be said that they are based on the practice of the English-American
common law, and that the doctrines of the common law are binding upon
Philippine courts only in so far as they are founded on sound principles
applicable to local conditions.

On the other hand, are disadvantages to the commercial world which

outweigh the considerations just mentioned. Such warrants of attorney are
void as against public policy, because they enlarge the field for fraud,
because under these instruments the promissor bargains away his right to
a day in court, and because the effect of the instrument is to strike down
the right of appeal accorded by statute. The recognition of such a form of
obligation would bring about a complete reorganization of commercial
customs and practices, with reference to short-term obligations. It can
readily be seen that judgement notes, instead of resulting to the
advantage of commercial life in the Philippines might be the source of
abuse and oppression, and make the courts involuntary parties thereto. If
the bank has a meritorious case, the judgement is ultimately certain in the
courts.
We are of the opinion that warrants of attorney to confess judgment are
not authorized nor contemplated by our law. We are further of the opinion
that provisions in notes authorizing attorneys to appear and confess
judgments against makers should not be recognized in this jurisdiction by
implication and should only be considered as valid when given express
legislative sanction.
The judgment appealed from is set aside, and the case is remanded to the
lower court for further proceedings in accordance with this decision.
Without special finding as to costs in this instance, it is so ordered.
Araullo, C.J., Avancea, Villamor, Ostrand, Johns and Romualdez, JJ., concur.

Judgments by confession as appeared at common law were considered an

amicable, easy, and cheap way to settle and secure debts. They are a
quick remedy and serve to save the court's time. They also save the time
and money of the litigants and the government the expenses that a long
litigation entails. In one sense, instruments of this character may be
considered as special agreements, with power to enter up judgments on
them, binding the parties to the result as they themselves viewed it.