G.R. No.

45125 April 22, 1991

LORETA SERRANO, petitioner, vs. COURT OF APPEALS and LONG LIFE PAWNSHOP, INC., respondents.

Cecilio D. Ignacio for petitioner.

Hildawa & Gomez for private respondent.

Sometime in early March 1968, petitioner Loreta Serrano bought some pieces of jewelry for P48,500.00
from Niceta Ribaya. On 21 March 1968, petitioner, then in need of money, instructed her private secretary,
Josefina Rocco, to pawn the jewelry. Josefina Rocco went to private respondent Long Life Pawnshop, Inc.
("Long Life"), pledged the jewelry for P22,000.00 with its principal owner and General Manager, Yu An
Kiong, and then absconded with said amount and the pawn ticket. The pawnshop ticket issued to Josefina
Rocco stipulated that it was redeemable "on presentation by the bearer."

Three (3) months later, Gloria Duque and Amalia Celeste informed Niceta Ribaya that a pawnshop ticket
issued by private respondent was being offered for sale. They told Niceta the ticket probably covered
jewelry once owned by the latter which jewelry had been pawned by one Josefina Rocco. Suspecting that
it was the same jewelry she had sold to petitioner, Niceta informed the latter of this offer and suggested
that petitioner go to the Long Life pawnshop to check the matter out. Petitioner claims she went to private
respondent pawnshop, verified that indeed her missing jewelry was pledged there and told Yu An Kiong
not to permit anyone to redeem the jewelry because she was the lawful owner thereof. Petitioner claims
that Yu An Kiong agreed.

On 9 July 1968, petitioner went to the Manila Police Department to report the loss, and a complaint first
for qualified theft and later changed to estafa was subsequently filed against Josefina Rocco. On the same
date, Detective Corporal Oswaldo Mateo of the Manila Police also claims to have gone to the pawnshop,
showed Yu An Kiong petitioner's report and left the latter a note asking him to hold the jewelry and notify
the police in case some one should redeem the same. The next day, on 10 July 1968, Yu An Kiong
permitted one Tomasa de Leon, exhibiting the appropriate pawnshop ticket, to redeem the jewelry.

On 4 October 1968, petitioner filed a complaint with the then Court of First Instance of Manila for damages
against private respondent Long Life for failure to hold the jewelry and for allowing its redemption without
first notifying petitioner or the police. After trial, the trial judge, Hon. Luis B. Reyes, rendered a decision in
favor of petitioner, awarding her P26,500.00 as actual damages, with legal interest thereon from the date
of the filing of the complaint, P2,000.00 as attorney's fees, and the costs of the suit.

Judge L.B. Reyes' decision was reversed on appeal and the complaint dismissed by the public respondent
Court of Appeals in a Decision promulgated on 26 September 1976.

The Court of Appeals gave credence to Yu An Kiong's testimony that neither petitioner nor Detective Mateo
ever apprised him of the misappropriation of petitioner's loan, or obtained a commitment from him not to
permit redemption of the jewelry, prior to 10 July 1968. Yu An Kiong claims to have become aware of the
loan's misappropriation only on 16 August 1968 when a subpoena duces tecum was served by the Manila
Fiscal's Office requiring him to bring the record of the pledge in connection with the preliminary
investigation of the estafa charge against Josefina Rocco. Consequently, the appellate court ruled, there
could have been no negligence, much less a grave one amounting to bad faith, imputable to Yu An Kiong
as the basis for an award of damages.
In this Petition for Review, petitioner seeks reversal of the Public respondent's findings relating to the
credibility of witnesses and the restoration of the trial court's decision.

Deliberating on the present Petition for Review, the Court considers that the public respondent Court of
Appeals committed reversible error in rendering its questioned Decision.

It is a settled principle of civil procedure that the conclusions of the trial court regarding the credibility of
witnesses are entitled to great respect from the appellate courts because the trial court had an opportunity
to observe the demeanor of witnesses while giving testimony which may indicate their candor or lack
thereof.1 While the Supreme Court ordinarily does not rule on the issue of credibility of witnesses, that
being a question of fact not properly raised in a petition under Rule 45, the Court has undertaken to do so
in exceptional situations where, for instance, as here, the trial court and the Court of Appeals arrived at
divergent conclusions on questions of fact and the credibility of witnesses.2

The Court of Appeals rejected what it considered to be the incredible testimony of petitioner and Detective
Mateo. It faulted petitioner for failing to report to the police authorities the loss of her jewelry immediately
on 21 March 1968 when Josefina Rocco failed to return to her either the loan proceeds or the jewelry. But
it must be noted that Josefina Rocco simply disappeared without a trace on said date. Petitioner had no
way of knowing if Josefina had misappropriated her jewelry, or had first pledged the jewelry as instructed
and then misappropriated the proceeds of the loan. In the latter case, which was in fact what had
occurred, petitioner could have had no idea as to the identity of the pawnbroker. Moreover, this Court has
several times recognized that different people may have diverse reasons for failing to report promptly to
the police their having been victimized by some criminal or fraudulent scheme and that such failure does
not by itself render their subsequent testimony unworthy of credence.3

The Court of Appeals also found it hard to believe that Detective Mateo had failed to obtain a written
acknowledgment from Yu An Kiong of the receipt of the note as corroboration for his testimony. However,
absent evidence that it was an established practice for police officers to obtain such acknowledgment in
situations like the one here, it is difficult to see why Detective Mateo's behavior should be considered
unbelievable. On the other hand, as the trial court pointed out, it would not have been sensible for
Detective Mateo to leave a note reminding Yu An Kiong to hold unto the jewelry if the latter had in fact
then told the policeman that the jewelry had already been redeemed.

The public respondent apparently believed petitioner had failed to establish her ownership of the jewelry
pledged by Josefina Rocco, such failure purportedly engendering doubt that Tomasa de Leon may have
redeemed jewelry different from that owned by petitioner. This is curious and untenable because the
record on appeal indicates that Yu An Kiong had admitted in his answer and memorandum before the trial
court that he received pledged jewelry from Josefina Rocco and, in his memorandum, that such jewelry
had been entrusted to Josefina by petitioner as the latter's employer. It is clear from these judicial
admissions that he considered petitioner to have been the true owner of the jewelry.

Finally, the Court of Appeals did not believe petitioner's testimony because of a claimed material
inconsistency therein. On direct examination, petitioner said she "immediately" went to the private
respondent's establishment upon being informed by Niceta Ribaya of the possible whereabouts of her
jewelry. On cross-examination, she said she went to the establishment "a few days later." If this is an
inconsistency, it relates to an unimportant detail. What is clear is that in any event, petitioner testified that
she went to the respondent's pawnshop to meet Yu An Kiong and notify him of the misappropriation
before anyone had redeemed the jewelry.

We must also note that the Court of Appeals apparently over-looked a fact of substance which did not
escape the attention of the trial court. Petitioner's version of events was corroborated by Police Detective
Mateo and by Niceta Ribaya. These were two (2) individuals who had nothing to gain from the outcome of
the case. Certainly, their disinterested testimony should have been accorded more probative weight than
the negative, uncorroborated and self-serving testimony of Yu An Kiong, which presented a diametrically
opposed version of events calculated to show that in permitting redemption of the jewelry, he was acting
in good faith.4

The testimony of Detective Mateo was moreover supported by the presumption that he had acted in the
regular performance of his official duty as a police officer, a presumption that Yu An Kiong did not try to
rebut.

This being a civil case, it was enough for petitioner to show, by a preponderance of evidence, that her
version of events did in fact occur. We agree with the trial court that this burden of proof had been
discharged by petitioner because her evidence was direct and more credible and persuasive than that
propounded by Yu An Kiong,5 and corroborated by disinterested witnesses.

Turning to the substantive legal rights and duties of the parties, we believe and so hold that, having been
notified by petitioner and the police that jewelry pawned to it was either stolen or involved in an
embezzlement of the proceeds of the pledge, private respondent pawnbroker became duty bound to hold
the things pledged and to give notice to petitioner and the police of any effort to redeem them. Such a
duty was imposed by Article 21 of the Civil Code.6 The circumstance that the pawn ticket stated
that the pawn was redeemable by the bearer, did not dissolve that duty. The pawn ticket was
not a negotiable instrument under the Negotiable Instruments Law nor a negotiable
document of title under Articles 1507 et seq. of the Civil Code. If the third person Tomasa de
Leon, who redeemed the things pledged a day after petitioner and the police had notified Long Life,
claimed to be owner thereof, the prudent recourse of the pawnbroker was to file an interpleader suit,
impleading both petitioner and Tomasa de Leon. The respondent pawnbroker was, of course, entitled to
demand payment of the loan extended on the security of the pledge before surrendering the jewelry, upon
the assumption that it had given the loan in good faith and was not a "fence" for stolen articles and had
not conspired with the faithless Josefina Rocco or with Tomasa de Leon. Respondent pawnbroker acted in
reckless disregard of that duty in the instant case and must bear the consequences, without prejudice to
its right to recover damages from Josefina Rocco.

The trial court correctly held that private respondent was liable to petitioner for actual damages which
corresponded to the difference in the value of the jewelry (P48,500.00) and the amount of the loan
(P22,000.00), or the sum of P26,500.00. Petitioner is entitled to collect the balance of the value of the
jewelry, corresponding to the amount of the loan, in an appropriate action against Josefina Rocco. Private
respondent Long Life in turn is entitled to seek reimbursement from Josefina Rocco of the amount of the
damages it must pay to petitioner.

ACCORDINGLY, the Petition is GRANTED. The Decision of the Court of Appeals dated 23 September 1976
is hereby REVERSED and SET ASIDE. The Decision of the Court of First Instance dated 22 May 1970 is
hereby REINSTATED in toto. No pronouncement as to costs.
6 Article 21 of the Civil Code provides:

Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good
customs or public policy shall compensate the latter for the damage.

The problems exemplified in this case are now addressed by P.D. No. 114 entitled the "Pawnshop
Regulation Act," dated 29 January 1973. Section 13 of this statute grants the pawner an automatic grace
period of ninety (90) days from the date of maturity of the obligation, within which to redeem the pawn by
payment of the principal of the debt with interest, principal and interest being compounded at the time the
obligation matured. Under Section 15 of the same statute, the pawnbroker is expressly forbidden to sell or
otherwise dispose of things received in pawn or pledge to anyone other than the pawner, except at public
auction, under the control and direction of a licensed auctioneer, and then only after publication of notice
in at least two (2) daily newspapers during the week preceding the date of such public auction sale.
Section 14 expressly requires the pawnbroker to notify the pawner of the date, hour and place of the sale.

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.

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

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 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).

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).

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).

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 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.

After trial, the court a quo rendered its decision dismissing the instant complaint. 3

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)

—————————— ———————————
AUTHORIZED SIGNATURES 5

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;

(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.

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. 7

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 non-negotiability 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 of payment 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.

Narvasa, C.J., Padilla and Nocon, JJ., concur.

G.R. No. 97753 August 10, 1992

Lessons Applicable: Requisites of negotiability to antedated and postdated instruments (Negotiable

FACTS:

Security Bank and Trust Company (Security Bank), a commercial banking institution, through its Sucat
Branch issued 280 certificates of time deposit (CTDs) in favor of Angel dela Cruz who deposited with
Security Bank the total amount of P1,120,000
Angel delivered the CTDs to Caltex for his purchase of fuel products

March 18, 1982: Angel informed Mr. Tiangco, the Sucat Branch Manager that he lost all CTDs, submitted
the required Affidavit of Loss and received the replacement

March 25, 1982: Angel dela Cruz negotiated and obtained a loan from Security Bank in the amount of
P875,000 and executed a notarized Deed of Assignment of Time Deposit

November, 1982: Mr. Aranas, Credit Manager of Caltex went to the Sucat branch to verify the CTDs
declared lost by Angel

November 26, 1982: Security Bank received a letter from Caltex formally informing it of its possession of
the CTDs in question and of its decision to pre-terminate the same.

December 8, 1982: Caltex was requested by Security Bank to furnish:

a copy of the document evidencing the guarantee agreement with Mr. Angel dela Cruz

the details of Mr. Angel's obligation against which Caltex proposed to apply the time deposits

Security Bank rejected Caltex demand for payment bec. it failed to furnish a copy of its agreement w/
Angel

April 1983, the loan of Angel dela Cruz with Security Bank matured

August 5, 1983: CTD were set-off w/ the matured loan

Caltex filed a complaint praying the bank to pay 1,120,000 plus 16% interest

CA affirmed RTC to dismiss complaint

ISSUE:

W/N the CTDs are negotiable

W/N Caltex as holder in due course can rightfully recover on the CTDs

HELD: Petition is Denied and appealed decision is affirmed.

1. YES.

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;

(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 -check

(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with
reasonable certainty.
The documents provide that the amounts deposited shall be repayable to the depositor

depositor = bearer

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 negotiability or
non-negotiability of an instrument is determined from the writing, that is, from the face of the instrument
itself

2. NO.

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 CTDs were in
reality delivered to it as a security for De la Cruz' purchases of its fuel products

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.

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.

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:

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.

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.