[G.R. No. 112392.

February 29, 2000] be amiss to mention here that I merely signed an authority to withdraw said deposit subject to its clearing,
the reason why the transaction is not reflected in the passbook of the account. Besides, I did not receive its
BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. COURT OF APPEALS and BENJAMIN C. NAPIZA, proceeds as may be gleaned from the withdrawal slip under the captioned signature of recipient.
respondents.
If at all, my obligation on the transaction is moral in nature, which (sic) I have been and is (sic) still exerting
This is a petition for review on certiorari of the Decision[1] of the Court of Appeals in CA-G.R. CV No. 37392 utmost and maximum efforts to collect from Mr. Henry Chan who is directly liable under the circumstances.
affirming in toto that of the Regional Trial Court of Makati, Branch 139,[2] which dismissed the complaint Scsdaad
filed by petitioner Bank of the Philippine Islands against private respondent Benjamin C. Napiza for sum of
money. Sdaad xxx......xxx......xxx."

On September 3, 1987, private respondent deposited in Foreign Currency Deposit Unit (FCDU) Savings On August 12, 1986, petitioner filed a complaint against private respondent, praying for the return of the
Account No. 028-187[3] which he maintained in petitioner banks Buendia Avenue Extension Branch, amount of $2,500.00 or the prevailing peso equivalent plus legal interest from date of demand to date of
Continental Bank Managers Check No. 00014757[4] dated August 17, 1984, payable to "cash" in the amount full payment, a sum equivalent to 20% of the total amount due as attorney's fees, and litigation and/or
of Two Thousand Five Hundred Dollars ($2,500.00) and duly endorsed by private respondent on its dorsal costs of suit.
side.[5] It appears that the check belonged to a certain Henry Chan who went to the office of private
respondent and requested him to deposit the check in his dollar account by way of accommodation and for Private respondent filed his answer, admitting that he indeed signed a "blank" withdrawal slip with the
the purpose of clearing the same. Private respondent acceded, and agreed to deliver to Chan a signed blank understanding that the amount deposited would be withdrawn only after the check in question has been
withdrawal slip, with the understanding that as soon as the check is cleared, both of them would go to the cleared. He likewise alleged that he instructed the party to whom he issued the signed blank withdrawal slip
bank to withdraw the amount of the check upon private respondents presentation to the bank of his to return it to him after the bank drafts clearance so that he could lend that party his passbook for the
passbook. purpose of withdrawing the amount of $2,500.00. However, without his knowledge, said party was able to
withdraw the amount of $2,541.67 from his dollar savings account through collusion with one of petitioners
Using the blank withdrawal slip given by private respondent to Chan, on October 23, 1984, one Ruben employees. Private respondent added that he had "given the Plaintiff fifty one (51) days with which to clear
Gayon, Jr. was able to withdraw the amount of $2,541.67 from FCDU Savings Account No. 028-187. Notably, the bank draft in question." Petitioner should have disallowed the withdrawal because his passbook was not
the withdrawal slip shows that the amount was payable to Ramon A. de Guzman and Agnes C. de Guzman presented. He claimed that petitioner had no one to blame except itself "for being grossly negligent;" in
and was duly initialed by the branch assistant manager, Teresita Lindo.[6] fact, it had allegedly admitted having paid the amount in the check "by mistake" x x x "if not altogether due
to collusion and/or bad faith on the part of (its) employees." Charging petitioner with "apparent ignorance
On November 20, 1984, petitioner received communication from the Wells Fargo Bank International of New of routine bank procedures," by way of counterclaim, private respondent prayed for moral damages of
York that the said check deposited by private respondent was a counterfeit check[7] because it was "not of P100,000.00, exemplary damages of P50,000.00 and attorneys fees of 30% of whatever amount that would
the type or style of checks issued by Continental Bank International."[8] Consequently, Mr. Ariel Reyes, the be awarded to him plus an honorarium of P500.00 per appearance in court.
manager of petitioners Buendia Avenue Extension Branch, instructed one of its employees, Benjamin D.
Napiza IV, who is private respondents son, to inform his father that the check bounced.[9] Reyes himself Private respondent also filed a motion for admission of a third party complaint against Chan. He alleged that
sent a telegram to private respondent regarding the dishonor of the check. In turn, private respondents son "thru strategem and/or manipulation," Chan was able to withdraw the amount of $2,500.00 even without
wrote to Reyes stating that the check had been assigned "for encashment" to Ramon A. de Guzman and/or private respondents passbook. Thus, private respondent prayed that third party defendant Chan be made
Agnes C. de Guzman after it shall have been cleared upon instruction of Chan. He also said that upon to refund to him the amount withdrawn and to pay attorneys fees of P5,000.00 plus P300.00 honorarium
learning of the dishonor of the check, his father immediately tried to contact Chan but the latter was out of per appearance.
town.[10]
Petitioner filed a comment on the motion for leave of court to admit the third party complaint, wherein it
Private respondents son undertook to return the amount of $2,500.00 to petitioner bank. On December 18, asserted that per paragraph 2 of the Rules and Regulations governing BPI savings accounts, private
1984, Reyes reminded private respondent of his sons promise and warned that should he fail to return that respondent alone was liable "for the value of the credit given on account of the draft or check deposited." It
amount within seven (7) days, the matter would be referred to the banks lawyers for appropriate action to contended that private respondent was estopped from disclaiming liability because he himself authorized
protect the banks interest.[11] This was followed by a letter of the banks lawyer dated April 8, 1985 the withdrawal of the amount by signing the withdrawal slip. Petitioner prayed for the denial of the said
demanding the return of the $2,500.00.[12] motion so as not to unduly delay the disposition of the main case asserting that private respondents claim
could be ventilated in another case.
In reply, private respondent wrote petitioners counsel on April 20, 1985[13] stating that he deposited the
check "for clearing purposes" only to accommodate Chan. He added: Private respondent replied that for the parties to obtain complete relief and to avoid multiplicity of suits,
the motion to admit third party complaint should be granted. Meanwhile, the trial court issued orders on
"Further, please take notice that said check was deposited on September 3, 1984 and withdrawn on August 25, 1987 and October 28, 1987 directing private respondent to actively participate in locating Chan.
October 23, 1984, or a total period of fifty (50) days had elapsed at the time of withdrawal. Also, it may not

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After private respondent failed to comply, the trial court, on May 18, 1988, dismissed the third party (b)......That the instrument is at the time of his indorsement, valid and subsisting.
complaint without prejudice.
And, in addition, he engages that on due presentment, it shall be accepted or paid, or both, as the case may
On November 4, 1991, a decision was rendered dismissing the complaint. The lower court held that be, according to its tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly
petitioner could not hold private respondent liable based on the checks face value alone. To so hold him taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled
liable "would render inutile the requirement of clearance from the drawee bank before the value of a to pay it."
particular foreign check or draft can be credited to the account of a depositor making such deposit." The
lower court further held that "it was incumbent upon the petitioner to credit the value of the check in Section 65, on the other hand, provides for the following warranties of a person negotiating an instrument
question to the account of the private respondent only upon receipt of the notice of final payment and by delivery or by qualified indorsement: (a) that the instrument is genuine and in all respects what it
should not have authorized the withdrawal from the latters account of the value or proceeds of the check." purports to be; (b) that he has a good title to it, and (c) that all prior parties had capacity to contract.[15] In
Having admitted that it committed a "mistake" in not waiting for the clearance of the check before People v. Maniego,[16] this Court described the liabilities of an indorser as follows: Juris
authorizing the withdrawal of its value or proceeds, petitioner should suffer the resultant loss. Supremax
"Appellants contention that as mere indorser, she may not be liable on account of the dishonor of the
On appeal, the Court of Appeals affirmed the lower courts decision. The appellate court held that petitioner checks indorsed by her, is likewise untenable. Under the law, the holder or last indorsee of a negotiable
committed "clear gross negligence" in allowing Ruben Gayon, Jr. to withdraw the money without presenting instrument has the right to enforce payment of the instrument for the full amount thereof against all
private respondents passbook and, before the check was cleared and in crediting the amount indicated parties liable thereon. Among the parties liable thereon is an indorser of the instrument, i.e., a person
therein in private respondents account. It stressed that the mere deposit of a check in private respondents placing his signature upon an instrument otherwise than as a maker, drawer or acceptor * * unless he
account did not mean that the check was already private respondents property. The check still had to be clearly indicated by appropriate words his intention to be bound in some other capacity. Such an indorser
cleared and its proceeds can only be withdrawn upon presentation of a passbook in accordance with the who indorses without qualification, inter alia engages that on due presentment, * * (the instrument) shall
banks rules and regulations. Furthermore, petitioners contention that private respondent warranted the be accepted or paid, or both, as the case may be, according to its tenor, and that if it be dishonored, and the
checks genuineness by endorsing it is untenable for it would render useless the clearance requirement. necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or any
Likewise, the requirement of presentation of a passbook to ascertain the propriety of the accounting subsequent indorser who may be compelled to pay it. Maniego may also be deemed an accommodation
reflected would be a meaningless exercise. After all, these requirements are designed to protect the bank party in the light of the facts, i.e., a person who has signed the instrument as maker, drawer, acceptor, or
from deception or fraud. indorser, without receiving value therefor, and for the purpose of lending his name to some other person.
As such, she is under the law liable on the instrument to a holder for value, notwithstanding such holder at
The Court of Appeals cited the case of Roman Catholic Bishop of Malolos, Inc. v. IAC,[14] where this Court the time of taking the instrument knew * * (her) to be only an accommodation party, although she has the
stated that a personal check is not legal tender or money, and held that the check deposited in this case right, after paying the holder, to obtain reimbursement from the party accommodated, since the relation
must be cleared before its value could be properly transferred to private respondent's account. between them is in effect that of principal and surety, the accommodation party being the surety."

Without filing a motion for the reconsideration of the Court of Appeals Decision, petitioner filed this It is thus clear that ordinarily private respondent may be held liable as an indorser of the check or even as
petition for review on certiorari, raising the following issues: an accommodation party.[17] However, to hold private respondent liable for the amount of the check he
deposited by the strict application of the law and without considering the attending circumstances in the
1.......WHETHER OR NOT RESPONDENT NAPIZA IS LIABLE UNDER HIS WARRANTIES AS A GENERAL INDORSER. case would result in an injustice and in the erosion of the public trust in the banking system. The interest of
justice thus demands looking into the events that led to the encashment of the check.
2.......WHETHER OR NOT A CONTRACT OF AGENCY WAS CREATED BETWEEN RESPONDENT NAPIZA AND
RUBEN GAYON. Petitioner asserts that by signing the withdrawal slip, private respondent "presented the opportunity for the
withdrawal of the amount in question." Petitioner relied "on the genuine signature on the withdrawal slip,
3.......WHETHER OR NOT PETITIONER WAS GROSSLY NEGLIGENT IN ALLOWING THE WITHDRAWAL. the personality of private respondents son and the lapse of more than fifty (50) days from date of deposit of
the Continental Bank draft, without the same being returned yet."[18] We hold, however, that the propriety
Petitioner claims that private respondent, having affixed his signature at the dorsal side of the check, should of the withdrawal should be gauged by compliance with the rules thereon that both petitioner bank and its
be liable for the amount stated therein in accordance with the following provision of the Negotiable depositors are duty-bound to observe.
Instruments Law (Act No. 2031):
In the passbook that petitioner issued to private respondent, the following rules on withdrawal of deposits
"SEC. 66. Liability of general indorser. Every indorser who indorses without qualification, warrants to all appear:
subsequent holders in due course
"4.......Withdrawals must be made by the depositor personally but in some exceptional circumstances, the
(a)......The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section; and Bank may allow withdrawal by another upon the depositors written authority duly authenticated; and

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neither a deposit nor a withdrawal will be permitted except upon the presentation of the depositors savings transaction that he made with the bank was on September 3, 1984, the date he deposited the controversial
passbook, in which the amount deposited withdrawn shall be entered only by the Bank. check in the amount of $2,500.00.[22]

5.......Withdrawals may be made by draft, mail or telegraphic transfer in currency of the account at the In allowing the withdrawal, petitioner likewise overlooked another rule that is printed in the passbook.
request of the depositor in writing on the withdrawal slip or by authenticated cable. Such request must Thus:
indicate the name of the payee/s, amount and the place where the funds are to be paid. Any stamp,
transmission and other charges related to such withdrawals shall be for the account of the depositor and "2.......All deposits will be received as current funds and will be repaid in the same manner; provided,
shall be paid by him/her upon demand. Withdrawals may also be made in the form of travellers checks and however, that deposits of drafts, checks, money orders, etc. will be accepted as subject to collection only
in pesos. Withdrawals in the form of notes/bills are allowed subject however, to their (availability). and credited to the account only upon receipt of the notice of final payment. Collection charges by the
Banks foreign correspondent in effecting such collection shall be for the account of the depositor. If the
6.......Deposits shall not be subject to withdrawal by check, and may be withdrawn only in the manner account has sufficient balance, the collection shall be debited by the Bank against the account. If, for any
above provided, upon presentation of the depositors savings passbook and with the withdrawal form reason, the proceeds of the deposited checks, drafts, money orders, etc., cannot be collected or if the Bank
supplied by the Bank at the counter."[19] Scjuris is required to return such proceeds, the provisional entry therefor made by the Bank in the savings
passbook and its records shall be deemed automatically cancelled regardless of the time that has elapsed,
Under these rules, to be able to withdraw from the savings account deposit under the Philippine foreign and whether or not the defective items can be returned to the depositor; and the Bank is hereby authorized
currency deposit system, two requisites must be presented to petitioner bank by the person withdrawing an to execute immediately the necessary corrections, amendments or changes in its record, as well as on the
amount: (a) a duly filled-up withdrawal slip, and (b) the depositors passbook. Private respondent admits savings passbook at the first opportunity to reflect such cancellation." (Italics and underlining supplied.)
that he signed a blank withdrawal slip ostensibly in violation of Rule No. 6 requiring that the request for Jurissc
withdrawal must name the payee, the amount to be withdrawn and the place where such withdrawal
should be made. That the withdrawal slip was in fact a blank one with only private respondents two As correctly held by the Court of Appeals, in depositing the check in his name, private respondent did not
signatures affixed on the proper spaces is buttressed by petitioners allegation in the instant petition that become the outright owner of the amount stated therein. Under the above rule, by depositing the check
had private respondent indicated therein the person authorized to receive the money, then Ruben Gayon, with petitioner, private respondent was, in a way, merely designating petitioner as the collecting bank. This
Jr. could not have withdrawn any amount. Petitioner contends that "(i)n failing to do so (i.e., naming his is in consonance with the rule that a negotiable instrument, such as a check, whether a managers check or
authorized agent), he practically authorized any possessor thereof to write any amount and to collect the ordinary check, is not legal tender.[23] As such, after receiving the deposit, under its own rules, petitioner
same."[20] shall credit the amount in private respondents account or infuse value thereon only after the drawee bank
shall have paid the amount of the check or the check has been cleared for deposit. Again, this is in
Such contention would have been valid if not for the fact that the withdrawal slip itself indicates a special accordance with ordinary banking practices and with this Courts pronouncement that "the collecting bank
instruction that the amount is payable to "Ramon A. de Guzman &/or Agnes C. de Guzman." Such being the or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior
case, petitioners personnel should have been duly warned that Gayon, who was also employed in endorsements considering that the act of presenting the check for payment to the drawee is an assertion
petitioners Buendia Ave. Extension branch,[21] was not the proper payee of the proceeds of the check. that the party making the presentment has done its duty to ascertain the genuineness of the
Otherwise, either Ramon or Agnes de Guzman should have issued another authority to Gayon for such endorsements."[24] The rule finds more meaning in this case where the check involved is drawn on a
withdrawal. Of course, at the dorsal side of the withdrawal slip is an "authority to withdraw" naming Gayon foreign bank and therefore collection is more difficult than when the drawee bank is a local one even
the person who can withdraw the amount indicated in the check. Private respondent does not deny having though the check in question is a managers check.[25] Misjuris
signed such authority. However, considering petitioners clear admission that the withdrawal slip was a
blank one except for private respondents signature, the unavoidable conclusion is that the typewritten In Banco Atlantico v. Auditor General,[26] Banco Atlantico, a commercial bank in Madrid, Spain, paid the
name of "Ruben C. Gayon, Jr." was intercalated and thereafter it was signed by Gayon or whoever was amounts represented in three (3) checks to Virginia Boncan, the finance officer of the Philippine Embassy in
allowed by petitioner to withdraw the amount. Under these facts, there could not have been a principal- Madrid. The bank did so without previously clearing the checks with the drawee bank, the Philippine
agent relationship between private respondent and Gayon so as to render the former liable for the amount National Bank in New York, on account of the "special treatment" that Boncan received from the personnel
withdrawn. of Banco Atlanticos foreign department. The Court held that the encashment of the checks without prior
clearance is "contrary to normal or ordinary banking practice specially so where the drawee bank is a
Moreover, the withdrawal slip contains a boxed warning that states: "This receipt must be signed and foreign bank and the amounts involved were large." Accordingly, the Court approved the Auditor Generals
presented with the corresponding foreign currency savings passbook by the depositor in person. For denial of Banco Atlanticos claim for payment of the value of the checks that was withdrawn by Boncan.
withdrawals thru a representative, depositor should accomplish the authority at the back." The requirement
of presentation of the passbook when withdrawing an amount cannot be given mere lip service even Said ruling brings to light the fact that the banking business is affected with public interest. By the nature of
though the person making the withdrawal is authorized by the depositor to do so. This is clear from Rule its functions, a bank is under obligation to treat the accounts of its depositors "with meticulous care, always
No. 6 set out by petitioner so that, for the protection of the banks interest and as a reminder to the having in mind the fiduciary nature of their relationship."[27] As such, in dealing with its depositors, a bank
depositor, the withdrawal shall be entered in the depositors passbook. The fact that private respondents should exercise its functions not only with the diligence of a good father of a family but it should do so with
passbook was not presented during the withdrawal is evidenced by the entries therein showing that the last the highest degree of care.[28]

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 withdrawal in disregard of its own rules and the clearing requirement in the banking system. In so doing,
In the case at bar, petitioner, in allowing the withdrawal of private respondents deposit, failed to exercise petitioner assumed the risk of incurring a loss on account of a forged or counterfeit foreign check and
the diligence of a good father of a family. In total disregard of its own rules, petitioners personnel hence, it should suffer the resulting damage.
negligently handled private respondents account to petitioners detriment. As this Court once said on this
matter: WHEREFORE, the petition for review on certiorari is DENIED. The Decision of the Court of Appeals in CA-G.R.
CV No. 37392 is AFFIRMED.
"Negligence is the omission to do something which a reasonable man, guided by those considerations which
ordinarily regulate the conduct of human affairs, would do, or the doing of something which a prudent and SO ORDERED.
reasonable man would do. The seventy-eight (78)-year-old, yet still relevant, case of Picart v. Smith,
provides the test by which to determine the existence of negligence in a particular case which may be
stated as follows: Did the defendant in doing the alleged negligent act use that reasonable care and caution
which an ordinarily prudent person would have used in the same situation? If not, then he is guilty of G.R. No. 80599 September 15, 1989
negligence. The law here in effect adopts the standard supposed to be supplied by the imaginary conduct of
the discreet pater-familias of the Roman law. The existence of negligence in a given case is not determined ERNESTINA CRISOLOGO-JOSE, petitioner, vs. COURT OF APPEALS and RICARDO S. SANTOS, JR. in his own
by reference to the personal judgment of the actor in the situation before him. The law considers what behalf and as Vice-President for Sales of Mover Enterprises, Inc., respondents.
would be reckless, blameworthy, or negligent in the man of ordinary intelligence and prudence and
determines liability by that."[29] REGALADO, J.:

Petitioner violated its own rules by allowing the withdrawal of an amount that is definitely over and above Petitioner seeks the annulment of the decision 1 of respondent Court of Appeals, promulgated on
the aggregate amount of private respondents dollar deposits that had yet to be cleared. The banks ledger September 8, 1987, which reversed the decision of the trial Court 2 dismissing the complaint for
on private respondents account shows that before he deposited $2,500.00, private respondent had a consignation filed by therein plaintiff Ricardo S. Santos, Jr.
balance of only $750.00.[30] Upon private respondents deposit of $2,500.00 on September 3, 1984, that
amount was credited in his ledger as a deposit resulting in the corresponding total balance of $3,250.00.[31] The parties are substantially agreed on the following facts as found by both lower courts:
On September 10, 1984, the amount of $600.00 and the additional charges of $10.00 were indicated
therein as withdrawn thereby leaving a balance of $2,640.00. On September 30, 1984, an interest of $11.59 In 1980, plaintiff Ricardo S. Santos, Jr. was the vice-president of Mover Enterprises, Inc. in-charge of
was reflected in the ledger and on October 23, 1984, the amount of $2,541.67 was entered as withdrawn marketing and sales; and the president of the said corporation was Atty. Oscar Z. Benares. On April 30,
with a balance of $109.92.[32] On November 19, 1984 the word "hold" was written beside the balance of 1980, Atty. Benares, in accommodation of his clients, the spouses Jaime and Clarita Ong, issued Check No.
$109.92.[33] That must have been the time when Reyes, petitioners branch manager, was informed 093553 drawn against Traders Royal Bank, dated June 14, 1980, in the amount of P45,000.00 (Exh- 'I')
unofficially of the fact that the check deposited was a counterfeit, but petitioners Buendia Ave. Extension payable to defendant Ernestina Crisologo-Jose. Since the check was under the account of Mover
Branch received a copy of the communication thereon from Wells Fargo Bank International in New York the Enterprises, Inc., the same was to be signed by its president, Atty. Oscar Z. Benares, and the treasurer of the
following day, November 20, 1984.[34] According to Reyes, Wells Fargo Bank International handled the said corporation. However, since at that time, the treasurer of Mover Enterprises was not available, Atty.
clearing of checks drawn against U.S. banks that were deposited with petitioner.[35] Jjlex Benares prevailed upon the plaintiff, Ricardo S. Santos, Jr., to sign the aforesaid chEck as an alternate story.
Plaintiff Ricardo S. Santos, Jr. did sign the check.
From these facts on record, it is at once apparent that petitioners personnel allowed the withdrawal of an
amount bigger than the original deposit of $750.00 and the value of the check deposited in the amount of It appears that the check (Exh. '1') was issued to defendant Ernestina Crisologo-Jose in consideration of the
$2,500.00 although they had not yet received notice from the clearing bank in the United States on whether waiver or quitclaim by said defendant over a certain property which the Government Service Insurance
or not the check was funded. Reyes contention that after the lapse of the 35-day period the amount of a System (GSIS) agreed to sell to the clients of Atty. Oscar Benares, the spouses Jaime and Clarita Ong, with
deposited check could be withdrawn even in the absence of a clearance thereon, otherwise it could take a the understanding that upon approval by the GSIS of the compromise agreement with the spouses Ong, the
long time before a depositor could make a withdrawal,[36] is untenable. Said practice amounts to a check will be encashed accordingly. However, since the compromise agreement was not approved within
disregard of the clearance requirement of the banking system. the expected period of time, the aforesaid check for P45,000.00 (Exh. '1') was replaced by Atty. Benares
with another Traders Royal Bank cheek bearing No. 379299 dated August 10, 1980, in the same amount of
While it is true that private respondents having signed a blank withdrawal slip set in motion the events that P45,000.00 (Exhs. 'A' and '2'), also payable to the defendant Jose. This replacement check was also signed
resulted in the withdrawal and encashment of the counterfeit check, the negligence of petitioners by Atty. Oscar Z. Benares and by the plaintiff Ricardo S. Santos, Jr. When defendant deposited this
personnel was the proximate cause of the loss that petitioner sustained. Proximate cause, which is replacement check (Exhs. 'A' and '2') with her account at Family Savings Bank, Mayon Branch, it was
determined by a mixed consideration of logic, common sense, policy and precedent, is "that cause, which, dishonored for insufficiency of funds. A subsequent redepositing of the said check was likewise dishonored
in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and by the bank for the same reason. Hence, defendant through counsel was constrained to file a criminal
without which the result would not have occurred."[37] The proximate cause of the withdrawal and complaint for violation of Batas Pambansa Blg. 22 with the Quezon City Fiscal's Office against Atty. Oscar Z.
eventual loss of the amount of $2,500.00 on petitioners part was its personnels negligence in allowing such Benares and plaintiff Ricardo S. Santos, Jr. The investigating Assistant City Fiscal, Alfonso Llamas, accordingly

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filed an amended information with the court charging both Oscar Benares and Ricardo S. Santos, Jr., for whether primarily or secondarily. Thus, it has been held that in lending his name to the accommodated
violation of Batas Pambansa Blg. 22 docketed as Criminal Case No. Q-14867 of then Court of First Instance party, the accommodation party is in effect a surety for the latter. 6
of Rizal, Quezon City.
Assuming arguendo that Mover Enterprises, Inc. is the accommodation party in this case, as petitioner
Meanwhile, during the preliminary investigation of the criminal charge against Benares and the plaintiff suggests, the inevitable question is whether or not it may be held liable on the accommodation instrument,
herein, before Assistant City Fiscal Alfonso T. Llamas, plaintiff Ricardo S. Santos, Jr. tendered cashier's check that is, the check issued in favor of herein petitioner.
No. CC 160152 for P45,000.00 dated April 10, 1981 to the defendant Ernestina Crisologo-Jose, the
complainant in that criminal case. The defendant refused to receive the cashier's check in payment of the We hold in the negative.
dishonored check in the amount of P45,000.00. Hence, plaintiff encashed the aforesaid cashier's check and
subsequently deposited said amount of P45,000.00 with the Clerk of Court on August 14, 1981 (Exhs. 'D' The aforequoted provision of the Negotiable Instruments Law which holds an accommodation party liable
and 'E'). Incidentally, the cashier's check adverted to above was purchased by Atty. Oscar Z. Benares and on the instrument to a holder for value, although such holder at the time of taking the instrument knew him
given to the plaintiff herein to be applied in payment of the dishonored check. 3 to be only an accommodation party, does not include nor apply to corporations which are accommodation
parties. 7 This is because the issue or indorsement of negotiable paper by a corporation without
After trial, the court a quo, holding that it was "not persuaded to believe that consignation referred to in consideration and for the accommodation of another is ultra vires. 8 Hence, one who has taken the
Article 1256 of the Civil Code is applicable to this case," rendered judgment dismissing plaintiff s complaint instrument with knowledge of the accommodation nature thereof cannot recover against a corporation
and defendant's counterclaim. 4 where it is only an accommodation party. If the form of the instrument, or the nature of the transaction, is
such as to charge the indorsee with knowledge that the issue or indorsement of the instrument by the
As earlier stated, respondent court reversed and set aside said judgment of dismissal and revived the corporation is for the accommodation of another, he cannot recover against the corporation thereon. 9
complaint for consignation, directing the trial court to give due course thereto.
By way of exception, an officer or agent of a corporation shall have the power to execute or indorse a
Hence, the instant petition, the assignment of errors wherein are prefatorily stated and discussed seriatim. negotiable paper in the name of the corporation for the accommodation of a third person only if specifically
authorized to do so. 10 Corollarily, corporate officers, such as the president and vice-president, have no
1. Petitioner contends that respondent Court of Appeals erred in holding that private respondent, power to execute for mere accommodation a negotiable instrument of the corporation for their individual
one of the signatories of the check issued under the account of Mover Enterprises, Inc., is an debts or transactions arising from or in relation to matters in which the corporation has no legitimate
accommodation party under the Negotiable Instruments Law and a debtor of petitioner to the extent of the concern. Since such accommodation paper cannot thus be enforced against the corporation, especially
amount of said check. since it is not involved in any aspect of the corporate business or operations, the inescapable conclusion in
law and in logic is that the signatories thereof shall be personally liable therefor, as well as the
Petitioner avers that the accommodation party in this case is Mover Enterprises, Inc. and not private consequences arising from their acts in connection therewith.
respondent who merely signed the check in question in a representative capacity, that is, as vice-president
of said corporation, hence he is not liable thereon under the Negotiable Instruments Law. The instant case falls squarely within the purview of the aforesaid decisional rules. If we indulge petitioner
in her aforesaid postulation, then she is effectively barred from recovering from Mover Enterprises, Inc. the
The pertinent provision of said law referred to provides: value of the check. Be that as it may, petitioner is not without recourse.

Sec. 29. Liability of accommodation party an accommodation party is one who has signed the instrument The fact that for lack of capacity the corporation is not bound by an accommodation paper does not thereby
as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his absolve, but should render personally liable, the signatories of said instrument where the facts show that
name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding the accommodation involved was for their personal account, undertaking or purpose and the creditor was
such holder, at the time of taking the instrument, knew him to be only an accommodation party. aware thereof.

Consequently, to be considered an accommodation party, a person must (1) be a party to the instrument, Petitioner, as hereinbefore explained, was evidently charged with the knowledge that the cheek was issued
signing as maker, drawer, acceptor, or indorser, (2) not receive value therefor, and (3) sign for the purpose at the instance and for the personal account of Atty. Benares who merely prevailed upon respondent Santos
of lending his name for the credit of some other person. to act as co-signatory in accordance with the arrangement of the corporation with its depository bank. That
it was a personal undertaking of said corporate officers was apparent to petitioner by reason of her
Based on the foregoing requisites, it is not a valid defense that the accommodation party did not receive personal involvement in the financial arrangement and the fact that, while it was the corporation's check
any valuable consideration when he executed the instrument. From the standpoint of contract law, he which was issued to her for the amount involved, she actually had no transaction directly with said
differs from the ordinary concept of a debtor therein in the sense that he has not received any valuable corporation.
consideration for the instrument he signs. Nevertheless, he is liable to a holder for value as if the contract
was not for accommodation 5 in whatever capacity such accommodation party signed the instrument,

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There should be no legal obstacle, therefore, to petitioner's claims being directed personally against Atty.
Oscar Z. Benares and respondent Ricardo S. Santos, Jr., president and vice-president, respectively, of Mover It will be noted that the last part of Section 2 of B.P. 22 provides that the element of knowledge of
Enterprises, Inc. insufficiency of funds or credit is not present and, therefore, the crime does not exist, when the drawer
pays the holder the amount due or makes arrangements for payment in full by the drawee of such check
2. On her second assignment of error, petitioner argues that the Court of Appeals erred in holding within five (5) banking days after receiving notice that such check has not been paid by the drawee.
that the consignation of the sum of P45,000.00, made by private respondent after his tender of payment
was refused by petitioner, was proper under Article 1256 of the Civil Code. Based on the foregoing consideration, this Court finds that the plaintiff-appellant acted within Ms legal
rights when he consigned the amount of P45,000.00 on August 14, 1981, between August 7, 1981, the date
Petitioner's submission is that no creditor-debtor relationship exists between the parties, hence when plaintiff-appellant receive (sic) the notice of non-payment, and August 14, 1981, the date when the
consignation is not proper. Concomitantly, this argument was premised on the assumption that private debt due was deposited with the Clerk of Court (a Saturday and a Sunday which are not banking days)
respondent Santos is not an accommodation party. intervened. The fifth banking day fell on August 14, 1981. Hence, no criminal liability has yet attached to
plaintiff-appellant when he deposited the amount of P45,000.00 with the Court a quo on August 14, 1981.
As previously discussed, however, respondent Santos is an accommodation party and is, therefore, liable for 11
the value of the check. The fact that he was only a co-signatory does not detract from his personal liability.
A co-maker or co-drawer under the circumstances in this case is as much an accommodation party as the That said observations made in the civil case at bar and the intrusion into the merits of the criminal case
other co-signatory or, for that matter, as a lone signatory in an accommodation instrument. Under the pending in another court are improper do not have to be belabored. In the latter case, the criminal trial
doctrine in Philippine Bank of Commerce vs. Aruego, supra, he is in effect a co-surety for the court has to grapple with such factual issues as, for instance, whether or not the period of five banking days
accommodated party with whom he and his co-signatory, as the other co-surety, assume solidary liability ex had expired, in the process determining whether notice of dishonor should be reckoned from any prior
lege for the debt involved. With the dishonor of the check, there was created a debtor-creditor relationship, notice if any has been given or from receipt by private respondents of the subpoena therein with supporting
as between Atty. Benares and respondent Santos, on the one hand, and petitioner, on the other. This affidavits, if any, or from the first day of actual preliminary investigation; and whether there was a
circumstance enables respondent Santos to resort to an action of consignation where his tender of payment justification for not making the requisite arrangements for payment in full of such check by the drawee
had been refused by petitioner. bank within the said period. These are matters alien to the present controversy on tender and consignation
of payment, where no such period and its legal effects are involved.
We interpose the caveat, however, that by holding that the remedy of consignation is proper under the
given circumstances, we do not thereby rule that all the operative facts for consignation which would These are aside from the considerations that the disputed period involved in the criminal case is only a
produce the effect of payment are present in this case. Those are factual issues that are not clear in the presumptive rule, juris tantum at that, to determine whether or not there was knowledge of insufficiency of
records before us and which are for the Regional Trial Court of Quezon City to ascertain in Civil Case No. Q- funds in or credit with the drawee bank; that payment of civil liability is not a mode for extinguishment of
33160, for which reason it has advisedly been directed by respondent court to give due course to the criminal liability; and that the requisite quantum of evidence in the two types of cases are not the same.
complaint for consignation, and which would be subject to such issues or claims as may be raised by
defendant and the counterclaim filed therein which is hereby ordered similarly revived. To repeat, the foregoing matters are properly addressed to the trial court in Criminal Case No. Q-14867, the
resolution of which should not be interfered with by respondent Court of Appeals at the present posture of
3. That respondent court virtually prejudged Criminal Case No. Q-14687 of the Regional Trial Court said case, much less preempted by the inappropriate and unnecessary holdings in the aforequoted portion
of Quezon City filed against private respondent for violation of Batas Pambansa Blg. 22, by holding that no of the decision of said respondent court. Consequently, we modify the decision of respondent court in CA-
criminal liability had yet attached to private respondent when he deposited with the court the amount of G.R. CV No. 05464 by setting aside and declaring without force and effect its pronouncements and findings
P45,000.00 is the final plaint of petitioner. insofar as the merits of Criminal Case No. Q-14867 and the liability of the accused therein are concerned.

We sustain petitioner on this score. WHEREFORE, subject to the aforesaid modifications, the judgment of respondent Court of Appeals is
AFFIRMED.
Indeed, respondent court went beyond the ratiocination called for in the appeal to it in CA-G.R. CV. No.
05464. In its own decision therein, it declared that "(t)he lone issue dwells in the question of whether an SO ORDERED.
accommodation party can validly consign the amount of the debt due with the court after his tender of
payment was refused by the creditor." Yet, from the commercial and civil law aspects determinative of said
issue, it digressed into the merits of the aforesaid Criminal Case No. Q-14867, thus:

Section 2 of B.P. 22 establishes the prima facie evidence of knowledge of such insufficiency of funds or
credit. Thus, the making, drawing and issuance of a check, payment of which is refused by the drawee
because of insufficient funds in or credit with such bank is prima facie evidence of knowledge of
insufficiency of funds or credit, when the check is presented within 90 days from the date of the check.

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FAR EAST BANK & TRUST COMPANY, Petitioner, - versus - GOLD PALACE JEWELLERY CO., as represented Gold Palace, in the meantime, had already utilized portions of the amount. Thus, on July 20, 1998, as the
by Judy L. Yang, Julie Yang-Go and Kho Soon Huat, Respondent. outstanding balance of its account was already inadequate, Far East was able to debit only P168,053.36,[17]
but this was done without a prior written notice to the account holder.[18] Far East only notified by phone
G.R. No. 168274 the representatives of the respondent company.[19]
August 20, 2008
On August 12, 1998, petitioner demanded from respondents the payment of P211,946.64 or the difference
NACHURA, J.: between the amount in the materially altered draft and the amount debited from the respondent companys
account.[20] Because Gold Palace did not heed the demand, Far East consequently instituted Civil Case No.
For the review of the Court through a Rule 45 petition are the following issuances of the Court of Appeals 99-296 for sum of money and damages before the Regional Trial Court (RTC), Branch 64 of Makati City.[21]
(CA) in CA-G.R. CV No. 71858: (1) the March 15, 2005 Decision[1] which reversed the trial courts ruling, and
(2) the May 26, 2005 Resolution[2] which denied the motion for reconsideration of the said CA decision. In their Answer, respondents specifically denied the material allegations in the complaint and interposed as
a defense that the complaint states no cause of actionthe subject foreign draft having been cleared and the
The instant controversy traces its roots to a transaction consummated sometime in June 1998, when a respondent not being the party who made the material alteration. Respondents further counterclaimed for
foreigner, identified as Samuel Tagoe, purchased from the respondent Gold Palace Jewellery Co.s (Gold actual damages, moral and exemplary damages, and attorneys fees considering, among others, that the
Palaces) store at SM-North EDSA several pieces of jewelry valued at P258,000.00.[3] In payment of the petitioner had confiscated without basis Gold Palaces balance in its account resulting in operational loss,
same, he offered Foreign Draft No. M-069670 issued by the United Overseas Bank (Malaysia) BHD Medan and had maliciously imputed to the latter the act of alteration.[22]
Pasar, Kuala Lumpur Branch (UOB), addressed to the Land Bank of the Philippines, Manila (LBP), and
payable to the respondent company for P380,000.00.[4] After trial on the merits, the RTC rendered its July 30, 2001 Decision[23] in favor of Far East, ordering Gold
Palace to pay the former P211,946.64 as actual damages and P50,000.00 as attorneys fees.[24] The trial
Before receiving the draft, respondent Judy Yang, the assistant general manager of Gold Palace, inquired court ruled that, on the basis of its warranties as a general indorser, Gold Palace was liable to Far East.[25]
from petitioner Far East Bank & Trust Companys (Far Easts) SM North EDSA Branch, its neighbor mall
tenant, the nature of the draft. The teller informed her that the same was similar to a managers check, but On appeal, the CA, in the assailed March 15, 2005 Decision,[26] reversed the ruling of the trial court and
advised her not to release the pieces of jewelry until the draft had been cleared.[5] Following the banks awarded respondents counterclaim. It ruled in the main that Far East failed to undergo the proceedings on
advice, Yang issued Cash Invoice No. 1609[6] to the foreigner, asked him to come back, and informed him the protest of the foreign draft or to notify Gold Palace of the drafts dishonor; thus, Far East could not
that the pieces of jewelry would be released when the draft had already been cleared.[7] Respondent Julie charge Gold Palace on its secondary liability as an indorser.[27] The appellate court further ruled that the
Yang-Go, the manager of Gold Palace, consequently deposited the draft in the companys account with the drawee bank had cleared the check, and its remedy should be against the party responsible for the
aforementioned Far East branch on June 2, 1998.[8] alteration. Considering that, in this case, Gold Palace neither altered the draft nor knew of the alteration, it
could not be held liable.[28] The dispositive portion of the CA decision reads:
When Far East, the collecting bank, presented the draft for clearing to LBP, the drawee bank, the latter
cleared the same[9]UOBs account with LBP was debited,[10] and Gold Palaces account with Far East was WHEREFORE, premises considered, the appeal is GRANTED; the assailed Decision dated 30 July 2001 of the
credited with the amount stated in the draft.[11] Regional Trial Court of Makati City, Branch 64 is hereby REVERSED and SET ASIDE; the Complaint dated
January 1999 is DISMISSED; and appellee Far East Bank and Trust Company is hereby ordered to pay
appellant Gold Palace Jewellery Company the amount of Php168,053.36 for actual damages plus legal
The foreigner eventually returned to respondents store on June 6, 1998 to claim the purchased goods. After interest of 12% per annum from 20 July 1998, Php50,000.00 for exemplary damages, and Php50,000.00 for
ascertaining that the draft had been cleared, respondent Yang released the pieces of jewelry to Samuel attorneys fees. Costs against appellee Far East Bank and Trust Company.[29]
Tagoe; and because the amount in the draft was more than the value of the goods purchased, she issued, as
his change, Far East Check No. 1730881[12] for P122,000.00.[13] This check was later presented for
encashment and was, in fact, paid by the said bank.[14] The appellate court, in the further challenged May 26, 2005 Resolution,[30] denied petitioners Motion for
Reconsideration,[31] which prompted the petitioner to institute before the Court the instant Petition for
On June 26, 1998, or after around three weeks, LBP informed Far East that the amount in Foreign Draft No. Review on Certiorari.[32]
M-069670 had been materially altered from P300.00 to P380,000.00 and that it was returning the same.
Attached to its official correspondence were Special Clearing Receipt No. 002593 and the duly notarized and We deny the petition.
consul-authenticated affidavit of a corporate officer of the drawer, UOB.[15] It is noted at this point that the
material alteration was discovered by UOB after LBP had informed it that its funds were being depleted Act No. 2031, or the Negotiable Instruments Law (NIL), explicitly provides that the acceptor, by accepting
following the encashment of the subject draft.[16] Intending to debit the amount from respondents the instrument, engages that he will pay it according to the tenor of his acceptance.[33] This provision
account, Far East subsequently refunded the P380,000.00 earlier paid by LBP. applies with equal force in case the drawee pays a bill without having previously accepted it. His actual
payment of the amount in the check implies not only his assent to the order of the drawer and a recognition
of his corresponding obligation to pay the aforementioned sum, but also, his clear compliance with that

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obligation.[34] Actual payment by the drawee is greater than his acceptance, which is merely a promise in faith that the draft has not been altered.[43] Nonetheless, absent any similar provision in our law, we
writing to pay. The payment of a check includes its acceptance.[35] cannot extend the same preferential treatment to the paying bank.

Unmistakable herein is the fact that the drawee bank cleared and paid the subject foreign draft and Thus, considering that, in this case, Gold Palace is protected by Section 62 of the NIL, its collecting agent, Far
forwarded the amount thereof to the collecting bank. The latter then credited to Gold Palaces account the East, should not have debited the money paid by the drawee bank from respondent companys account.
payment it received. Following the plain language of the law, the drawee, by the said payment, recognized When Gold Palace deposited the check with Far East, the latter, under the terms of the deposit and the
and complied with its obligation to pay in accordance with the tenor of his acceptance. The tenor of the provisions of the NIL, became an agent of the former for the collection of the amount in the draft.[44] The
acceptance is determined by the terms of the bill as it is when the drawee accepts.[36] Stated simply, LBP subsequent payment by the drawee bank and the collection of the amount by the collecting bank closed the
was liable on its payment of the check according to the tenor of the check at the time of payment, which transaction insofar as the drawee and the holder of the check or his agent are concerned, converted the
was the raised amount. check into a mere voucher,[45] and, as already discussed, foreclosed the recovery by the drawee of the
amount paid. This closure of the transaction is a matter of course; otherwise, uncertainty in commercial
Because of that engagement, LBP could no longer repudiate the payment it erroneously made to a due transactions, delay and annoyance will arise if a bank at some future time will call on the payee for the
course holder. We note at this point that Gold Palace was not a participant in the alteration of the draft, return of the money paid to him on the check.[46]
was not negligent, and was a holder in due courseit received the draft complete and regular on its face,
before it became overdue and without notice of any dishonor, in good faith and for value, and absent any As the transaction in this case had been closed and the principal-agent relationship between the payee and
knowledge of any infirmity in the instrument or defect in the title of the person negotiating it.[37] Having the collecting bank had already ceased, the latter in returning the amount to the drawee bank was already
relied on the drawee banks clearance and payment of the draft and not being negligent (it delivered the acting on its own and should now be responsible for its own actions. Neither can petitioner be considered
purchased jewelry only when the draft was cleared and paid), respondent is amply protected by the said to have acted as the representative of the drawee bank when it debited respondents account, because, as
Section 62. Commercial policy favors the protection of any one who, in due course, changes his position on already explained, the drawee bank had no right to recover what it paid. Likewise, Far East cannot invoke
the faith of the drawee banks clearance and payment of a check or draft.[38] the warranty of the payee/depositor who indorsed the instrument for collection to shift the burden it
brought upon itself. This is precisely because the said indorsement is only for purposes of collection which,
This construction and application of the law gives effect to the plain language of the NIL[39] and is in line under Section 36 of the NIL, is a restrictive indorsement.[47] It did not in any way transfer the title of the
with the sound principle that where one of two innocent parties must suffer a loss, the law will leave the instrument to the collecting bank. Far East did not own the draft, it merely presented it for payment.
loss where it finds it.[40] It further reasserts the usefulness, stability and currency of negotiable paper Considering that the warranties of a general indorser as provided in Section 66 of the NIL are based upon a
without seriously endangering accepted banking practices. Indeed, banking institutions can readily protect transfer of title and are available only to holders in due course,[48] these warranties did not attach to the
themselves against liability on altered instruments either by qualifying their acceptance or certification, or indorsement for deposit and collection made by Gold Palace to Far East. Without any legal right to do so,
by relying on forgery insurance and special paper which will make alterations obvious.[41] This is not to the collecting bank, therefore, could not debit respondents account for the amount it refunded to the
mention, but we state nevertheless for emphasis, that the drawee bank, in most cases, is in a better drawee bank.
position, compared to the holder, to verify with the drawer the matters stated in the instrument. As we
have observed in this case, were it not for LBPs communication with the drawer that its account in the The foregoing considered, we affirm the ruling of the appellate court to the extent that Far East could not
Philippines was being depleted after the subject foreign draft had been encashed, then, the alteration debit the account of Gold Palace, and for doing so, it must return what it had erroneously taken. Far Easts
would not have been discovered. What we cannot understand is why LBP, having the most convenient remedy under the law is not against Gold Palace but against the drawee-bank or the person responsible for
means to correspond with UOB, did not first verify the amount of the draft before it cleared and paid the the alteration. That, however, is another issue which we do not find necessary to discuss in this case.
same. Gold Palace, on the other hand, had no facility to ascertain with the drawer, UOB Malaysia, the true
amount in the draft. It was left with no option but to rely on the representations of LBP that the draft was However, we delete the exemplary damages awarded by the appellate court. Respondents have not shown
good. that they are entitled to moral, temperate or compensatory damages.[49] Neither was petitioner impelled
by malice or bad faith in debiting the account of the respondent company and in pursuing its cause.[50] On
In arriving at this conclusion, the Court is not closing its eyes to the other view espoused in common law the contrary, petitioner was honestly convinced of the propriety of the debit. We also delete the award of
jurisdictions that a drawee bank, having paid to an innocent holder the amount of an uncertified, altered attorneys fees for, in a plethora of cases, we have ruled that it is not a sound public policy to place a
check in good faith and without negligence which contributed to the loss, could recover from the person to premium on the right to litigate. No damages can be charged to those who exercise such precious right in
whom payment was made as for money paid by mistake.[42] However, given the foregoing discussion, we good faith, even if done erroneously.[51]
find no compelling reason to apply the principle to the instant case.
WHEREFORE, premises considered, the March 15, 2005 Decision and the May 26, 2005 Resolution of the
The Court is also aware that under the Uniform Commercial Code in the United States of America, if an Court of Appeals in CA-G.R. CV No. 71858 are AFFIRMED WITH THE MODIFICATION that the award of
unaccepted draft is presented to a drawee for payment or acceptance and the drawee pays or accepts the exemplary damages and attorneys fees is DELETED.
draft, the person obtaining payment or acceptance, at the time of presentment, and a previous transferor
of the draft, at the time of transfer, warrant to the drawee making payment or accepting the draft in good SO ORDERED.

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 by x x x de Jesus by means of a check dated 17 April 1997; and that, in any event, the issuance of the check
and [respondents] acceptance thereof novated or superseded the note.
[G.R. No. 154127. December 8, 2003]
[Respondent] tendered a reply to [Petitioner] Garcias answer, thereunder asserting that the loan remained
ROMEO C. GARCIA, petitioner, vs. DIONISIO V. LLAMAS, respondent. unpaid for the reason that the check issued by x x x de Jesus bounced, and that [Petitioner] Garcias answer
DECISION was not even accompanied by a certificate of non-forum shopping. Annexed to the reply were the face of
PANGANIBAN, J.: the check and the reverse side thereof.

Novation cannot be presumed. It must be clearly shown either by the express assent of the parties or by the For his part, x x x de Jesus asserted in his [A]nswer with [C]ounterclaim that out of the supposed
complete incompatibility between the old and the new agreements. Petitioner herein fails to show either P400,000.00 loan, he received only P360,000.00, the P40,000.00 having been advance interest thereon for
requirement convincingly; hence, the summary judgment holding him liable as a joint and solidary debtor two months, that is, for January and February 1997; that[,] in fact[,] he paid the sum of P120,000.00 by way
stands. of interests; that this was made when [respondents] daughter, one Nits Llamas-Quijencio, received from the
Central Police District Command at Bicutan, Taguig, Metro Manila (where x x x de Jesus worked), the sum of
The Case P40,000.00, representing the peso equivalent of his accumulated leave credits, another P40,000.00 as
advance interest, and still another P40,000.00 as interest for the months of March and April 1997; that he
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to nullify the November 26, had difficulty in paying the loan and had asked [respondent] for an extension of time; that [respondent]
2001 Decision[2] and the June 26, 2002 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. 60521. acted in bad faith in instituting the case, [respondent] having agreed to accept the benefits he (de Jesus)
The appellate court disposed as follows: would receive for his retirement, but [respondent] nonetheless filed the instant case while his retirement
was being processed; and that, in defense of his rights, he agreed to pay his counsel P20,000.00 [as]
UPON THE VIEW WE TAKE OF THIS CASE, THUS, the judgment appealed from, insofar as it pertains to attorneys fees, plus P1,000.00 for every court appearance.
[Petitioner] Romeo Garcia, must be, as it hereby is, AFFIRMED, subject to the modification that the award
for attorneys fees and cost of suit is DELETED. The portion of the judgment that pertains to x x x Eduardo de During the pre-trial conference, x x x de Jesus and his lawyer did not appear, nor did they file any pre-trial
Jesus is SET ASIDE and VACATED. Accordingly, the case against x x x Eduardo de Jesus is REMANDED to the brief. Neither did [Petitioner] Garcia file a pre-trial brief, and his counsel even manifested that he would no
court of origin for purposes of receiving ex parte [Respondent] Dionisio Llamas evidence against x x x [longer] present evidence. Given this development, the trial court gave [respondent] permission to present
Eduardo de Jesus.[4] his evidence ex parte against x x x de Jesus; and, as regards [Petitioner] Garcia, the trial court directed
[respondent] to file a motion for judgment on the pleadings, and for [Petitioner] Garcia to file his comment
The challenged Resolution, on the other hand, denied petitioners Motion for Reconsideration. or opposition thereto.

The Antecedents Instead, [respondent] filed a [M]otion to declare [Petitioner] Garcia in default and to allow him to present
his evidence ex parte. Meanwhile, [Petitioner] Garcia filed a [M]anifestation submitting his defense to a
The antecedents of the case are narrated by the CA as follows: judgment on the pleadings. Subsequently, [respondent] filed a [M]anifestation/[M]otion to submit the case
for judgement on the pleadings, withdrawing in the process his previous motion. Thereunder, he asserted
This case started out as a complaint for sum of money and damages by x x x [Respondent] Dionisio Llamas that [petitioners and de Jesus] solidary liability under the promissory note cannot be any clearer, and that
against x x x [Petitioner] Romeo Garcia and Eduardo de Jesus. Docketed as Civil Case No. Q97-32-873, the the check issued by de Jesus did not discharge the loan since the check bounced.[5]
complaint alleged that on 23 December 1996[,] [petitioner and de Jesus] borrowed P400,000.00 from
[respondent]; that, on the same day, [they] executed a promissory note wherein they bound themselves On July 7, 1998, the Regional Trial Court (RTC) of Quezon City (Branch 222) disposed of the case as follows:
jointly and severally to pay the loan on or before 23 January 1997 with a 5% interest per month; that the
loan has long been overdue and, despite repeated demands, [petitioner and de Jesus] have failed and WHEREFORE, premises considered, judgment on the pleadings is hereby rendered in favor of [respondent]
refused to pay it; and that, by reason of the[ir] unjustified refusal, [respondent] was compelled to engage and against [petitioner and De Jesus], who are hereby ordered to pay, jointly and severally, the
the services of counsel to whom he agreed to pay 25% of the sum to be recovered from [petitioner and de [respondent] the following sums, to wit:
Jesus], plus P2,000.00 for every appearance in court. Annexed to the complaint were the promissory note
above-mentioned and a demand letter, dated 02 May 1997, by [respondent] addressed to [petitioner and 1) P400,000.00 representing the principal amount plus 5% interest thereon per month from January 23,
de Jesus]. 1997 until the same shall have been fully paid, less the amount of P120,000.00 representing interests
already paid by x x x de Jesus;
Resisting the complaint, [Petitioner Garcia,] in his [Answer,] averred that he assumed no liability under the
promissory note because he signed it merely as an accommodation party for x x x de Jesus; and, 2) P100,000.00 as attorneys fees plus appearance fee of P2,000.00 for each day of [c]ourt appearance, and;
alternatively, that he is relieved from any liability arising from the note inasmuch as the loan had been paid
3) Cost of this suit.[6]

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 showed that the principal obligor was in truth and in fact x x x de Jesus, as evidenced by the foregoing
Ruling of the Court of Appeals circumstances showing his assumption of sole liability over the loan obligation.

The CA ruled that the trial court had erred when it rendered a judgment on the pleadings against De Jesus. III
According to the appellate court, his Answer raised genuinely contentious issues. Moreover, he was still
required to present his evidence ex parte. Thus, respondent was not ipso facto entitled to the RTC Whether or not judgment on the pleadings or summary judgment was properly availed of by Respondent
judgment, even though De Jesus had been declared in default. The case against the latter was therefore Llamas, despite the fact that there are genuine issues of fact, which the Honorable Court of Appeals itself
remanded by the CA to the trial court for the ex parte reception of the formers evidence. admitted in its Decision, which call for the presentation of evidence in a full-blown trial.[8]

As to petitioner, the CA treated his case as a summary judgment, because his Answer had failed to raise Simply put, the issues are the following: 1) whether there was novation of the obligation; 2) whether the
even a single genuine issue regarding any material fact. defense that petitioner was only an accommodation party had any basis; and 3) whether the judgment
against him -- be it a judgment on the pleadings or a summary judgment -- was proper.
The appellate court ruled that no novation -- express or implied -- had taken place when respondent
accepted the check from De Jesus. According to the CA, the check was issued precisely to pay for the loan The Courts Ruling
that was covered by the promissory note jointly and severally undertaken by petitioner and De Jesus.
Respondents acceptance of the check did not serve to make De Jesus the sole debtor because, first, the The Petition has no merit.
obligation incurred by him and petitioner was joint and several; and, second, the check -- which had been
intended to extinguish the obligation -- bounced upon its presentment. First Issue:
Novation
Hence, this Petition.[7]
Petitioner seeks to extricate himself from his obligation as joint and solidary debtor by insisting that
Issues novation took place, either through the substitution of De Jesus as sole debtor or the replacement of the
promissory note by the check. Alternatively, the former argues that the original obligation was extinguished
Petitioner submits the following issues for our consideration: when the latter, who was his co-obligor, paid the loan with the check.

I The fallacy of the second (alternative) argument is all too apparent. The check could not have extinguished
the obligation, because it bounced upon presentment. By law,[9] the delivery of a check produces the effect
Whether or not the Honorable Court of Appeals gravely erred in not holding that novation applies in the of payment only when it is encashed.
instant case as x x x Eduardo de Jesus had expressly assumed sole and exclusive liability for the loan
obligation he obtained from x x x Respondent Dionisio Llamas, as clearly evidenced by: We now come to the main issue of whether novation took place.

a) Issuance by x x x de Jesus of a check in payment of the full amount of the loan of P400,000.00 in favor of Novation is a mode of extinguishing an obligation by changing its objects or principal obligations, by
Respondent Llamas, although the check subsequently bounced[;] substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the
creditor.[10] Article 1293 of the Civil Code defines novation as follows:
b) Acceptance of the check by the x x x respondent x x x which resulted in [the] substitution by x x x de Jesus
or [the superseding of] the promissory note; Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be
made even without the knowledge or against the will of the latter, but not without the consent of the
c) x x x de Jesus having paid interests on the loan in the total amount of P120,000.00; creditor. Payment by the new debtor gives him rights mentioned in articles 1236 and 1237.

d) The fact that Respondent Llamas agreed to the proposal of x x x de Jesus that due to financial difficulties, In general, there are two modes of substituting the person of the debtor: (1) expromision and (2)
he be given an extension of time to pay his loan obligation and that his retirement benefits from the delegacion. In expromision, the initiative for the change does not come from -- and may even be made
Philippine National Police will answer for said obligation. without the knowledge of -- the debtor, since it consists of a third persons assumption of the obligation. As
such, it logically requires the consent of the third person and the creditor. In delegacion, the debtor offers,
II and the creditor accepts, a third person who consents to the substitution and assumes the obligation; thus,
the consent of these three persons are necessary.[11] Both modes of substitution by the debtor require the
Whether or not the Honorable Court of Appeals seriously erred in not holding that the defense of petitioner consent of the creditor.[12]
that he was merely an accommodation party, despite the fact that the promissory note provided for a joint
and solidary liability, should have been given weight and credence considering that subsequent events

10 | P a g e
Novation may also be extinctive or modificatory. It is extinctive when an old obligation is terminated by the one of them extinguishes the obligation. It therefore follows that in case the creditor fails to collect from
creation of a new one that takes the place of the former. It is merely modificatory when the old obligation one of the solidary debtors, he may still proceed against the other or others. x x x [22]
subsists to the extent that it remains compatible with the amendatory agreement.[13] Whether extinctive
or modificatory, novation is made either by changing the object or the principal conditions, referred to as Moreover, it must be noted that for novation to be valid and legal, the law requires that the creditor
objective or real novation; or by substituting the person of the debtor or subrogating a third person to the expressly consent to the substitution of a new debtor.[23] Since novation implies a waiver of the right the
rights of the creditor, an act known as subjective or personal novation.[14] For novation to take place, the creditor had before the novation, such waiver must be express.[24] It cannot be supposed, without clear
following requisites must concur: proof, that the present respondent has done away with his right to exact fulfillment from either of the
solidary debtors.[25]
1) There must be a previous valid obligation.
More important, De Jesus was not a third person to the obligation. From the beginning, he was a joint and
2) The parties concerned must agree to a new contract. solidary obligor of the P400,000 loan; thus, he can be released from it only upon its extinguishment.
Respondents acceptance of his check did not change the person of the debtor, because a joint and solidary
3) The old contract must be extinguished. obligor is required to pay the entirety of the obligation.

4) There must be a valid new contract.[15] It must be noted that in a solidary obligation, the creditor is entitled to demand the satisfaction of the
whole obligation from any or all of the debtors.[26] It is up to the former to determine against whom to
Novation may also be express or implied. It is express when the new obligation declares in unequivocal enforce collection.[27] Having made himself jointly and severally liable with De Jesus, petitioner is therefore
terms that the old obligation is extinguished. It is implied when the new obligation is incompatible with the liable[28] for the entire obligation.[29]
old one on every point.[16] The test of incompatibility is whether the two obligations can stand together,
each one with its own independent existence.[17] Second Issue:
Accommodation Party
Applying the foregoing to the instant case, we hold that no novation took place.
Petitioner avers that he signed the promissory note merely as an accommodation party; and that, as such,
The parties did not unequivocally declare that the old obligation had been extinguished by the issuance and he was released as obligor when respondent agreed to extend the term of the obligation.
the acceptance of the check, or that the check would take the place of the note. There is no incompatibility
between the promissory note and the check. As the CA correctly observed, the check had been issued This reasoning is misplaced, because the note herein is not a negotiable instrument. The note reads:
precisely to answer for the obligation. On the one hand, the note evidences the loan obligation; and on the
other, the check answers for it. Verily, the two can stand together. PROMISSORY NOTE

Neither could the payment of interests -- which, in petitioners view, also constitutes novation[18] -- change P400,000.00
the terms and conditions of the obligation. Such payment was already provided for in the promissory note
and, like the check, was totally in accord with the terms thereof. RECEIVED FROM ATTY. DIONISIO V. LLAMAS, the sum of FOUR HUNDRED THOUSAND PESOS, Philippine
Currency payable on or before January 23, 1997 at No. 144 K-10 St. Kamias, Quezon City, with interest at
Also unmeritorious is petitioners argument that the obligation was novated by the substitution of debtors. the rate of 5% per month or fraction thereof.
In order to change the person of the debtor, the old one must be expressly released from the obligation,
and the third person or new debtor must assume the formers place in the relation.[19] Well-settled is the It is understood that our liability under this loan is jointly and severally [sic].
rule that novation is never presumed.[20] Consequently, that which arises from a purported change in the
person of the debtor must be clear and express.[21] It is thus incumbent on petitioner to show clearly and Done at Quezon City, Metro Manila this 23rd day of December, 1996.[30]
unequivocally that novation has indeed taken place.
By its terms, the note was made payable to a specific person rather than to bearer or to order[31] -- a
In the present case, petitioner has not shown that he was expressly released from the obligation, that a requisite for negotiability under Act 2031, the Negotiable Instruments Law (NIL). Hence, petitioner cannot
third person was substituted in his place, or that the joint and solidary obligation was cancelled and avail himself of the NILs provisions on the liabilities and defenses of an accommodation party. Besides, a
substituted by the solitary undertaking of De Jesus. The CA aptly held: non-negotiable note is merely a simple contract in writing and is evidence of such intangible rights as may
have been created by the assent of the parties.[32] The promissory note is thus covered by the general
x x x. Plaintiffs acceptance of the bum check did not result in substitution by de Jesus either, the nature of provisions of the Civil Code, not by the NIL.
the obligation being solidary due to the fact that the promissory note expressly declared that the liability of
appellants thereunder is joint and [solidary.] Reason: under the law, a creditor may demand payment or Even granting arguendo that the NIL was applicable, still, petitioner would be liable for the promissory note.
performance from one of the solidary debtors or some or all of them simultaneously, and payment made by Under Article 29 of Act 2031, an accommodation party is liable for the instrument to a holder for value even

11 | P a g e
if, at the time of its taking, the latter knew the former to be only an accommodation party. The relation In view of the foregoing, the CA correctly considered as a summary judgment that which the trial court had
between an accommodation party and the party accommodated is, in effect, one of principal and surety -- issued against petitioner.
the accommodation party being the surety.[33] It is a settled rule that a surety is bound equally and
absolutely with the principal and is deemed an original promissor and debtor from the beginning. The WHEREFORE, this Petition is hereby DENIED and the assailed Decision AFFIRMED. Costs against petitioner.
liability is immediate and direct.[34]
SO ORDERED.
Third Issue:
Propriety of Summary Judgment
or Judgment on the Pleadings
G.R. No. 156294 November 29, 2006
The next issue illustrates the usual confusion between a judgment on the pleadings and a summary
judgment. Under Section 3 of Rule 35 of the Rules of Court, a summary judgment may be rendered after a MELVA THERESA ALVIAR GONZALES, Petitioner, vs. RIZAL COMMERCIAL BANKING CORPORATION,
summary hearing if the pleadings, supporting affidavits, depositions and admissions on file show that (1) Respondent.
except as to the amount of damages, there is no genuine issue regarding any material fact; and (2) the
moving party is entitled to a judgment as a matter of law. GARCIA, J.:

A summary judgment is a procedural device designed for the prompt disposition of actions in which the An action for a sum of money originating from the Regional Trial Court (RTC) of Makati City, Branch 61,
pleadings raise only a legal, not a genuine, issue regarding any material fact.[35] Consequently, facts are thereat docketed as Civil Case No. 88-1502, was decided in favor of therein plaintiff, now respondent Rizal
asserted in the complaint regarding which there is yet no admission, disavowal or qualification; or specific Commercial Banking Corporation (RCBC). On appeal to the Court of Appeals (CA) in CA-G.R. CV No. 48596,
denials or affirmative defenses are set forth in the answer, but the issues are fictitious as shown by the that court, in a decision1 dated August 30, 2002, affirmed the RTC minus the award of attorney’s fees. Upon
pleadings, depositions or admissions.[36] A summary judgment may be applied for by either a claimant or a the instance of herein petitioner Melva Theresa Alviar Gonzales, the case is now before this Court via this
defending party.[37] petition for review on certiorari, based on the following undisputed facts as unanimously found by the RTC
and the CA, which the latter summarized as follows:
On the other hand, under Section 1 of Rule 34 of the Rules of Court, a judgment on the pleadings is proper
when an answer fails to render an issue or otherwise admits the material allegations of the adverse partys Gonzales was an employee of Rizal Commercial Banking Corporation (or RCBC) as New Accounts Clerk in the
pleading. The essential question is whether there are issues generated by the pleadings.[38] A judgment on Retail Banking Department at its Head Office.
the pleadings may be sought only by a claimant, who is the party seeking to recover upon a claim,
counterclaim or cross-claim; or to obtain a declaratory relief. [39] A foreign check in the amount of $7,500 was drawn by Dr. Don Zapanta of the Ade Medical Group with
address at 569 Western Avenue, Los Angeles, California, against the drawee bank Wilshire Center Bank,
Apropos thereto, it must be stressed that the trial courts judgment against petitioner was correctly treated N.A., of Los Angeles, California, U.S.A., and payable to Gonzales’ mother, defendant Eva Alviar (or Alviar).
by the appellate court as a summary judgment, rather than as a judgment on the pleadings. His Answer[40] Alviar then endorsed this check. Since RCBC gives special accommodations to its employees to receive the
apparently raised several issues -- that he signed the promissory note allegedly as a mere accommodation check’s value without awaiting the clearing period, Gonzales presented the foreign check to Olivia Gomez,
party, and that the obligation was extinguished by either payment or novation. However, these are not the RCBC’s Head of Retail Banking. After examining this, Olivia Gomez requested Gonzales to endorse it
factual issues requiring trial. We quote with approval the CAs observations: which she did. Olivia Gomez then acquiesced to the early encashment of the check and signed the check but
indicated thereon her authority of "up to P17,500.00 only". Afterwards, Olivia Gomez directed Gonzales to
Although Garcias [A]nswer tendered some issues, by way of affirmative defenses, the documents submitted present the check to RCBC employee Carlos Ramos and procure his signature. After inspecting the check,
by [respondent] nevertheless clearly showed that the issues so tendered were not valid issues. Firstly, Carlos Ramos also signed it with an "ok" annotation. After getting the said signatures Gonzales presented
Garcias claim that he was merely an accommodation party is belied by the promissory note that he signed. the check to Rolando Zornosa, Supervisor of the Remittance section of the Foreign Department of the RCBC
Nothing in the note indicates that he was only an accommodation party as he claimed to be. Quite the Head Office, who after scrutinizing the entries and signatures therein authorized its encashment. Gonzales
contrary, the promissory note bears the statement: It is understood that our liability under this loan is then received its peso equivalent of P155,270.85.
jointly and severally [sic]. Secondly, his claim that his co-defendant de Jesus already paid the loan by means
of a check collapses in view of the dishonor thereof as shown at the dorsal side of said check.[41] RCBC then tried to collect the amount of the check with the drawee bank by the latter through its
correspondent bank, the First Interstate Bank of California, on two occasions dishonored the check because
From the records, it also appears that petitioner himself moved to submit the case for judgment on the of "END. IRREG" or irregular indorsement. Insisting, RCBC again sent the check to the drawee bank, but this
basis of the pleadings and documents. In a written Manifestation,[42] he stated that judgment on the time the check was returned due to "account closed". Unable to collect, RCBC demanded from Gonzales the
pleadings may now be rendered without further evidence, considering the allegations and admissions of the payment of the peso equivalent of the check that she received. Gonzales settled the matter by agreeing
parties.[43] that payment be made thru salary deduction. This temporary arrangement for salary deductions was
communicated by Gonzales to RCBC through a letter dated November 27, 1987 xxx

12 | P a g e
 The recourse is impressed with merit.
xxx xxx xxx
The dollar-check3 in question in the amount of $7,500.00 drawn by Don Zapanta of Ade Medical Group
The deductions was implemented starting October 1987. On March 7, 1988 RCBC sent a demand letter to (U.S.A.) against a Los Angeles, California bank, Wilshire Center Bank N.A., was dishonored because of "End.
Alviar for the payment of her obligation but this fell on deaf ears as RCBC did not receive any response from Irregular," i.e., an irregular endorsement. While the foreign drawee bank did not specifically state which
Alviar. Taking further action to collect, RCBC then conveyed the matter to its counsel and on June 16, 1988, among the four signatures found on the dorsal portion of the check made the check irregularly endorsed, it
a letter was sent to Gonzales reminding her of her liability as an indorser of the subject check and that for is absolutely undeniable that only the signature of Olivia Gomez, an RCBC employee, was a qualified
her to avoid litigation she has to fulfill her commitment to settle her obligation as assured in her said letter. endorsement because of the phrase "up to P17,500.00 only." There can be no other acceptable explanation
On July 1988 Gonzales resigned from RCBC. What had been deducted from her salary was only P12,822.20 for the dishonor of the foreign check than this signature of Olivia Gomez with the phrase "up to P17,500.00
covering ten months. only" accompanying it. This Court definitely agrees with the petitioner that the foreign drawee bank would
not have dishonored the check had it not been for this signature of Gomez with the same phrase written by
It was against the foregoing factual backdrop that RCBC filed a complaint for a sum of money against Eva her.
Alviar, Melva Theresa Alviar-Gonzales and the latter’s husband Gino Gonzales. The spouses Gonzales filed
an Answer with Counterclaim praying for the dismissal of the complaint as well as payment of P10,822.20 as The foreign drawee bank, Wilshire Center Bank N.A., refused to pay the bearer of this dollar-check drawn by
actual damages, P20,000.00 as moral damages, P20,000.00 as exemplary damages, and P20,000.00 as Don Zapanta because of the defect introduced by RCBC, through its employee, Olivia Gomez. It is, therefore,
attorney’s fees and litigation expenses. Defendant Eva Alviar, on the other hand, was declared in default for a useless piece of paper if returned in that state to its original payee, Eva Alviar.
having filed her Answer out of time.
There is no doubt in the mind of the Court that a subsequent party which caused the defect in the
After trial, the RTC, in its three-page decision,2 held two of the three defendants liable as follows: instrument cannot have any recourse against any of the prior endorsers in good faith. Eva Alviar’s and the
petitioner’s liability to subsequent holders of the foreign check is governed by the Negotiable Instruments
WHEREFORE, premises above considered and plaintiff having established its case against the defendants as Law as follows:
above stated, judgment is hereby rendered for plaintiff and as against defendant EVA. P. ALVIAR as principal
debtor and defendants MELVA THERESA ALVIAR GONZLAES as guarantor as follows: Sec. 66. Liability of general indorser. - Every indorser who indorses without qualification, warrants to all
subsequent holders in due course;
1. To pay plaintiff the amount of P142,648.65 (P155,270.85 less the amount of P12,622.20, as salary
deduction of [Gonzales]), representing the outstanding obligation of the defendants with interest of 12% (a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section; and
per annum starting February 1987 until fully paid;
(b) That the instrument is, at the time of his indorsement, valid and subsisting;

2. To pay the amount of P40,000.00 as and for attorney’s fees; and to And, in addition, he engages that, on due presentment, it shall be accepted or paid, or both, as the case
may be, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be
3. Pay the costs of this suit. duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be
compelled to pay it.
SO ORDERED.
The matters and things mentioned in subdivisions (a), (b) and (c) of Section 65 are the following:
On appeal, the CA, except for the award of attorney’s fees, affirmed the RTC judgment.
(a) That the instrument is genuine and in all respects what it purports to be;
Hence, this recourse by the petitioner on her submission that the CA erred ̶
(b) That he has a good title to it;
XXX IN FINDING [PETITIONER], AN ACCOMMODATION PARTY TO A CHECK SUBSEQUENTLY ENDORSED
PARTIALLY, LIABLE TO RCBC AS GUARANTOR; (c) That all prior parties had capacity to contract;

XXX IN FINDING THAT THE SIGNATURE OF GOMEZ, AN RCBC EMPLOYEE, DOES NOT CONSTITUTE AS AN Under Section 66, the warranties for which Alviar and Gonzales are liable as general endorsers in favor of
ENDORSEMENT BUT ONLY AN INTER-BANK APPROVAL OF SIGNATURE NECESSARY FOR THE ENCASHMENT subsequent endorsers extend only to the state of the instrument at the time of their endorsements,
OF THE CHECK; specifically, that the instrument is genuine and in all respects what it purports to be; that they have good
title thereto; that all prior parties had capacity to contract; and that the instrument, at the time of their
XXX IN NOT FINDING RCBC LIABLE ON THE COUNTERCLAIMS OF [THE PETITIONER]. endorsements, is valid and subsisting. This provision, however, cannot be used by the party which
introduced a defect on the instrument, such as respondent RCBC in this case, which qualifiedly endorsed

13 | P a g e
the same, to hold prior endorsers liable on the instrument because it results in the absurd situation WHEREFORE, the assailed CA Decision dated August 30, 2002 is REVERSED and SET ASIDE and the Complaint
whereby a subsequent party may render an instrument useless and inutile and let innocent parties bear the in this case DISMISSED for lack of merit. Petitioner’s counterclaim is GRANTED, ordering the respondent
loss while he himself gets away scot-free. It cannot be over-stressed that had it not been for the qualified RCBC to reimburse petitioner the amount P12,822.20, with legal interest computed from the time of salary
endorsement ("up to P17,500.00 only") of Olivia Gomez, who is the employee of RCBC, there would have deduction up to actual payment, and to pay petitioner the total amount of P60,000.00 as moral and
been no reason for the dishonor of the check, and full payment by drawee bank therefor would have taken exemplary damages, and attorney’s fees.
place as a matter of course.
Costs against the respondent.
Section 66 of the Negotiable Instruments Law which further states that the general endorser additionally
engages that, on due presentment, the instrument shall be accepted or paid, or both, as the case may be, SO ORDERED.
according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly
taken, he will pay the amount thereof to the holder, or to any subsequent endorser who may be compelled
to pay it, must be read in the light of the rule in equity requiring that those who come to court should come
with clean hands. The holder or subsequent endorser who tries to claim under the instrument which had [G.R. No. 159590. October 18, 2004]
been dishonored for "irregular endorsement" must not be the irregular endorser himself who gave cause HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED, petitioner, vs. CECILIA DIEZ CATALAN,
for the dishonor. Otherwise, a clear injustice results when any subsequent party to the instrument may respondent.
simply make the instrument defective and later claim from prior endorsers who have no knowledge or
participation in causing or introducing said defect to the instrument, which thereby caused its dishonor. [G.R. No. 159591. October 18, 2004]
HSBC INTERNATIONAL TRUSTEE LIMITED, petitioner, vs. CECILIA DIEZ CATALAN, respondent.
Courts in this jurisdiction are not only courts of law but also of equity, and therefore cannot unqualifiedly DECISION
apply a provision of law so as to cause clear injustice which the framers of the law could not have intended AUSTRIA-MARTINEZ, J.:
to so deliberately cause. In Carceller v. Court of Appeals,4 this Court had occasion to stress:
Before us are two petitions for review on certiorari under Rule 45 of the Rules of Court separately filed by
Courts of law, being also courts of equity, may not countenance such grossly unfair results without doing the Hongkong and Shanghai Banking Corporation Limited (HSBANK) and HSBC International Trustee Limited
violence to its solemn obligation to administer fair and equal justice for all. (HSBC TRUSTEE). They seek the reversal of the consolidated Decision,[1] dated August 14, 2003, of the
Court of Appeals (CA) in CA-G.R. SP Nos. 75756 and 75757, which dismissed the petitions for certiorari of
RCBC, which caused the dishonor of the check upon presentment to the drawee bank, through the qualified herein petitioners assailing the Order, dated May 15, 2002, of the Regional Trial Court, Branch 44, Bacolod
endorsement of its employee, Olivia Gomez, cannot hold prior endorsers, Alviar and Gonzales in this case, City (RTC) in Civil Case No. 01-11372 that denied their respective motions to dismiss the amended complaint
liable on the instrument. of respondent Cecilia Diez Catalan.

Moreover, it is a well-established principle in law that as between two parties, he who, by his acts, caused The factual antecedents are as follows:
the loss shall bear the same.5 RCBC, in this instance, should therefore bear the loss.
On January 29, 2001, respondent filed before the RTC, a complaint for a sum of money with damages
Relative to the petitioner’s counterclaim against RCBC for the amount of P12,822.20 which it admittedly against petitioner HSBANK, docketed as Civil Case No. 01-11372, due to HSBANKs alleged wanton refusal to
deducted from petitioner’s salary, the Court must order the return thereof to the petitioner, with legal pay her the value of five HSBANK checks issued by Frederick Arthur Thomson (Thomson) amounting to
interest of 12% per annum, notwithstanding the petitioner’s apparent acquiescence to such an HK$3,200,000.00.[2]
arrangement. It must be noted that petitioner is not any ordinary client or depositor with whom RCBC had
this isolated transaction. Petitioner was a rank-and-file employee of RCBC, being a new accounts clerk On February 7, 2001, summons was served on HSBANK at the Enterprise Center, Tower I, Ayala Avenue
thereat. It is easy to understand how a vulnerable Gonzales, who is financially dependent upon RCBC, would corner Paseo de Roxas St., Makati City.[3] HSBANK filed a Motion for Extension of Time to File Answer or
rather bite the bullet, so to speak, and expectedly opt for salary deduction rather than lose her job and her Motion to Dismiss dated February 21, 2001.[4] Then, it filed a Motion to Dismiss, dated March 8, 2001, on
entire salary altogether. In this sense, we cannot take petitioner’s apparent acquiescence to the salary the grounds that (a) the RTC has no jurisdiction over the subject matter of the complaint; (b) the RTC has
deduction as being an entirely free and voluntary act on her part. Additionally, under the obtaining facts not acquired jurisdiction for failure of the plaintiff to pay the correct filing or docket fees; (c) the RTC has no
and circumstances surrounding the present complaint for collection of sum of money by RCBC against its jurisdiction over the person of HSBANK; (d) the complaint does not state a cause of action against HSBANK;
employee, which may be deemed tantamount to harassment, and the fact that RCBC itself was the one, and (e) plaintiff engages in forum-shopping.[5]
acting through its employee, Olivia Gomez, which gave reason for the dishonor of the dollar-check in
question, RCBC may likewise be held liable for moral and exemplary damages and attorney’s fees by way of On September 10, 2001, Catalan filed an Amended Complaint impleading petitioner HSBC TRUSTEE as co-
damages, in the amount of P20,000.00 for each. defendant and invoking Article 19 of the Civil Code as basis for her cause of action.[6]

The Amended Complaint alleges:

14 | P a g e
 that everyone must act with justice, give everyone his due and observe honesty and good faith. The refusal
Defendants HSBANK and HSBC TRUSTEE, doing business in the Philippines, are corporations duly organized of HSBANK and HSBC TRUSTEE to pay the checks without any valid reason is intended solely to prejudice
under the laws of the British Virgin Islands with head office at 1 Grenville Street, St. Helier Jersey, Channel and injure Catalan. When they declined payment of the checks despite instructions of the drawer, Thomson,
Islands and with branch offices at Level 12, 1 Queens Road Central, Hongkong and may be served with to honor them, coupled with the fact that the checks were duly funded, they acted in bad faith, thus causing
summons and other court processes through their main office in Manila with address at HSBC, the damage to Catalan. A person may not exercise his right unjustly or in a manner that is not in keeping with
Enterprise Center, Tower 1, Ayala Avenue corner Paseo de Roxas Street, Makati City. honesty or good faith, otherwise he opens himself to liability for abuse of right.[8]

Sometime in March 1997, Thomson issued five HSBANK checks payable to Catalan, to wit: Catalan prays that HSBANK and HSBC TRUSTEE be ordered to pay P20,864,000.00 representing the value of
the five checks at the rate of P6.52 per HK$1 as of January 29, 2001 for the acts of HSBANK and HSBC
CHECK NO. DATE AMOUNT TRUSTEE in refusing to pay the amount justly due her, in addition to moral and exemplary damages,
attorneys fees and litigation expenses.[9]
807852 Mar. 15, 1997 $600,000.00
807853 Mar. 17, 1997 800,000.00 On October 2, 2001, HSBANK filed a Motion to Dismiss Amended Complaint on the grounds that: (a) the RTC
807854 Mar. 17, 1997 600,000.00 has no jurisdiction over the subject matter of the complaint since the action is a money claim for a debt
807855 Mar. 22, 1997 600,000.00 contracted by Thomson before his death which should have been filed in the estate or intestate
807856 Mar. 23, 1997 600,000.00 proceedings of Thomson; (b) Catalan engages in forum shopping by filing the suit and at the same time filing
TOTAL $3,200,000.00 a claim in the probate proceeding filed with another branch of the RTC; (c) the amended complaint states
no cause of action against HSBANK since it has no obligation to pay the checks as it has not accepted the
The checks when deposited were returned by HSBANK purportedly for reason of payment stopped pending checks and Catalan did not re-deposit the checks or make a formal protest; (d) the RTC has not acquired
confirmation, despite the fact that the checks were duly funded. On March 18, 1997, Thomson wrote a jurisdiction over the person of HSBANK for improper service of summons; and, (e) it did not submit to the
letter to a certain Ricky Sousa[7] of HSBANK confirming the checks he issued to Catalan and requesting that jurisdiction of the RTC by filing a motion for extension of time to file a motion to dismiss.[10]
all his checks be cleared. On March 20, 1997, Thomson wrote another letter to Sousa of HSBANK requesting
an advice in writing to be sent to the Philippine National Bank, through the fastest means, that the checks Meanwhile, on October 17, 2001, summons for HSBC TRUSTEE was tendered to the In House Counsel of
he previously issued to Catalan were already cleared. Thereafter, Catalan demanded that HSBANK make HSBANK (Makati Branch) at the Enterprise Center, Tower 1, Ayala Avenue corner Paseo de Roxas, Makati.
good the checks issued by Thomson. On May 16, 1997, Marilou A. Lozada, personal secretary and attorney- Without submitting itself to the jurisdiction of the RTC, HSBC TRUSTEE filed a Special Appearance for
in-fact of Thomson, wrote a letter to Sousa of HSBANK informing him that HSBANKs failure to clear all the Motion to Dismiss Amended Complaint, dated October 29, 2001, questioning the jurisdiction of the RTC
checks had saddened Thomson and requesting that the clearing of the checks be facilitated. Subsequently, over it.[11] HSBC TRUSTEE alleges that tender of summons through HSBANK Makati did not confer upon the
Thomson died and Catalan forwarded her demand to HSBC TRUSTEE. Catalan sent photocopies of the RTC jurisdiction over it because: (a) it is a corporation separate and distinct from HSBANK; (b) it does not
returned checks to HSBC TRUSTEE. Not satisfied, HSBC TRUSTEE through deceit and trickery, required hold office at the HSBANK Makati or in any other place in the Philippines; (c) it has not authorized HSBANK
Catalan, as a condition for the acceptance of the checks, to submit the original copies of the returned Makati to receive summons for it; and, (d) it has no resident agent upon whom summons may be served
checks, purportedly, to hasten payment of her claim. HSBC TRUSTEE succeeded in its calculated deception because it does not transact business in the Philippines.
because on April 21, 1999, Catalan and her former counsel went to Hongkong at their own expense to
personally deliver the originals of the returned checks to the officers of HSBC TRUSTEE, anxious of receiving Subsequently, HSBC TRUSTEE filed a Submission, dated November 15, 2001, attaching the Affidavit
the money value of the checks but HSBC TRUSTEE despite receipt of the original checks, refused to pay executed in Hongkong by Phoenix Lam, Senior Vice-President of HSBC TRUSTEE, attesting to the fact that: 1)
Catalans claim. Having seen and received the original of the checks, upon its request, HSBC TRUSTEE is HSBC TRUSTEE has not done nor is it doing business in the Philippines; 2) it does not maintain any office in
deemed to have impliedly accepted the checks. Moreover, the refusal of HSBANK and HSBC TRUSTEE to pay Makati or anywhere in the Philippines; 3) it has not appointed any agent in Philippines; and 4) HSBANK
the checks is equivalent to illegal freezing of ones deposit. On the assurance of HSBC TRUSTEE that her Makati has no authority to receive any summons or court processes for HSBC TRUSTEE.[12]
claim will soon be paid, as she was made to believe that payments of the checks shall be made by HSBC
TRUSTEE upon sight, the unsuspecting Catalan left the originals of the checks with HSBC TRUSTEE and was On May 15, 2002, the RTC issued an Order denying the two motions to dismiss.[13] The RTC held that it has
given only an acknowledgment receipt. Catalan made several demands and after several more follow ups, jurisdiction over the subject matter of the action because it is an action for damages under Article 19 of the
on August 16, 1999, Phoenix Lam, Senior Vice President of HSBC TRUSTEE, in obvious disregard of her valid Civil Code for the acts of unjustly refusing to honor the checks issued by Thomson and not a money claim
claim, informed Catalan that her claim is disapproved. No reason or explanation whatsoever was made why against the estate of Thomson; that Catalan did not engage in forum-shopping because the elements
her claim was disapproved, neither were the checks returned to her. Catalan appealed for fairness and thereof are not attendant in the case; that the question of cause of action should be threshed out or
understanding, in the hope that HSBC TRUSTEE would act fairly and justly on her claim but these demands ventilated during the proceedings in the main action and after the plaintiff and defendants have adduced
were met by a stonewall of silence. On June 9, 2000, Catalan through counsel sent a last and final demand evidence in their favor; that it acquired jurisdiction over the person of defendants because the question of
to HSBC TRUSTEE to remit the amount covered by the checks but despite receipt of said letter, no payment whether a foreign corporation is doing business or not in the Philippines cannot be a subject of a Motion to
was made. Clearly, the act of the HSBANK and HSBC TRUSTEE in refusing to honor and pay the checks validly Dismiss but should be ventilated in the trial on the merits; and defendants voluntarily submitted to the
issued by Thomson violates the abuse of rights principle under Article 19 of the Civil Code which requires jurisdiction of the RTC setting up in their Motions to Dismiss other grounds aside from lack of jurisdiction.

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 THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING THAT ALLEGATIONS IN THE AMENDED
HSBANK and HSBC TRUSTEE filed separate motions for reconsideration[14] but both proved futile as they COMPLAINT MAKE OUT A CAUSE OF ACTION WHICH COULD MERIT A FAVORABLE JUDGMENT IF FOUND TO
were denied by the RTC in an Order dated December 20, 2002.[15] BE TRUE, OR IN NOT HOLDING THAT THE AMENDED COMPLAINT STATES NO CAUSE OF ACTION AGAINST
HSBANK, AS DRAWEE BANK.
On February 21, 2003, Catalan moved to declare HSBANK and HSBC TRUSTEE in default for failure to file
their answer to the amended complaint. IV.

On March 5, 2003, HSBANK and HSBC TRUSTEE filed separate petitions for certiorari and/or prohibition with THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN DISREGARDING THE FACT THAT CATALAN
the CA, docketed as CA-G.R. SP Nos. 75756[16] and 75757,[17] respectively. ENGAGED IN FORUM SHOPPING BY FILING THE AMENDED COMPLAINT WHILE HER PETITION FOR THE
PROBATE OF THE SUPPOSED WILL OF THE DECEASED FREDERICK ARTHUR THOMSON IS PENDING WITH
Subsequently, HSBANK and HSBC TRUSTEE filed before the RTC separate Answers ad cautelam, both dated ANOTHER BRANCH OF THE COURT A QUO.
March 18, 2003, as a precaution against being declared in default and without prejudice to the separate
petitions for certiorari and/or prohibition then pending with the CA.[18] V.

Meanwhile, the two petitions for certiorari before the CA were consolidated and after responsive pleadings THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING THAT HSBANK HAD SUBMITTED TO THE
were filed, the cases were deemed submitted for decision. JURISDICTION OF THE COURT A QUO BY SUBMITTING AN ANSWER TO THE AMENDED COMPLAINT.[20]

In a consolidated Decision dated August 14, 2003, the CA dismissed the two petitions for certiorari.[19] The In G.R. No. 159591, HSBC TRUSTEE also assigns the foregoing first, second and fifth errors as its own.[21] In
CA held that the filing of petitioners answers before the RTC rendered moot and academic the issue of the addition, it claims that:
RTCs lack of jurisdiction over the person of the petitioners; that the RTC has jurisdiction over the subject
matter since it is one for damages under Article 19 of the Civil Code for the alleged unjust acts of petitioners THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN NOT ORDERING THE DISMISSAL OF THE AMENDED
and not a money claim against the estate of Thomson; and, that the amended complaint states a cause of COMPLAINT AGAINST HSBC TRUSTEE DESPITE THE FACT IT HAS NOT BEEN DULY SERVED WITH SUMMONS.
action under Article 19 of the Civil Code which could merit a favorable judgment if found to be true. The CA [22]
noted that Catalan may have prayed for payment of the value of the checks but ratiocinated that she
merely used the value as basis for the computation of the damages. HSBANK and HSBC TRUSTEE contend in common that Catalan has no cause of action for abuse of rights
under Article 19 of the Civil Code; that her complaint, under the guise of a claim for damages, is actually a
Hence, the present petitions. money claim against the estate of Thomson arising from checks issued by the latter in her favor in payment
of indebtedness.
In G.R. No. 159590, HSBANK submits the following assigned errors:
HSBANK claims that the money claim should be dismissed on the ground of forum-shopping since Catalan
I. also filed a petition for probate of the alleged last will of Thomson before RTC, Branch 48, Bacolod City,
docketed as Spec. Proc No. 00-892. In addition, HSBANK imputes error upon the CA in holding that by filing
THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING THAT THE COURT A QUO, ACTING AS AN an answer to the amended complaint, petitioners are estopped from questioning the jurisdiction of the RTC.
(SIC) REGULAR COURT, HAS JURISDICTION OVER THE AMENDED COMPLAINT SEEKING TO ORDER HSBC
TRUSTEE, THE EXECUTOR OF THE DECEASED FREDERICK ARTHUR THOMSON, TO PAY SUBJECT CHECKS HSBC TRUSTEE maintains that the RTC did not acquire jurisdiction over it for improper service of summons.
ISSUED BY THE LATE FREDERICK ARTHUR THOMSON, ADMITTEDLY IN PAYMENT OF HIS INDEBTEDNESS TO
CATALAN. In her Comment, Catalan insists that her complaint is one for damages under Article 19 of the Civil Code for
the wanton refusal to honor and pay the value of five checks issued by the Thomson amounting to
II. HK$3,200,000.00. She argues that the issue of jurisdiction has been rendered moot by petitioners
participation in the proceedings before the RTC.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING THAT THE AMENDED COMPLAINT DOES
NOT SEEK TO ORDER HSBANK AND HSBC INTERNATIONAL TRUSTEE LIMITED TO PAY THE OBLIGATION OF Succinctly, the issues boil down to the following:
THE (SIC) FREDERICK ARTHUR THOMSON AS EVIDENCED BY THE CHECKS, BUT PRAYS FOR DAMAGES
EQUIVALENT OR COMPUTED ON THE BASIS OF THE VALUE OF THE CHECKS BECAUSE THE DEFENDANTS 1) Does the complaint state a cause of action?
FAILED TO COMPLY WITH THE MANDATES OF ARTICLE 19 OF THE NEW CIVIL CODE.
2) Did Catalan engage in forum-shopping by filing the complaint for damages when she also filed a petition
III. for probate of the alleged last will of Thomson with another branch of the RTC? and,

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3) Did the RTC acquire jurisdiction over HSBANK and HSBC TRUSTEE? Corollary thereto, did the filing of the However, HSBANK is not being sued on the value of the check itself but for how it acted in relation to
answer before the RTC render the issue of lack of jurisdiction moot and academic? Catalans claim for payment despite the repeated directives of the drawer Thomson to recognize the check
the latter issued. Catalan may have prayed that she be paid the value of the checks but it is axiomatic that
We shall resolve the issue in seriatim. what determines the nature of an action, as well as which court has jurisdiction over it, are the allegations
of the complaint, irrespective of whether or not the plaintiff is entitled to recover upon all or some of the
Does the complaint state a cause of action against HSBANK and HSBC TRUSTEE? claims asserted therein.[30]

The elementary test for failure to state a cause of action is whether the complaint alleges facts which if true Anent HSBC TRUSTEE, it is being sued for the baseless rejection of Catalans claim. When Catalan parted with
would justify the relief demanded. Stated otherwise, may the court render a valid judgment upon the facts the checks as a requirement for the processing of her claim, even going to the extent of traveling to
alleged therein?[23] The inquiry is into the sufficiency, not the veracity of the material allegations.[24] If the Hongkong to deliver personally the checks, HSBC TRUSTEE summarily disapproved her claim with nary a
allegations in the complaint furnish sufficient basis on which it can be maintained, it should not be reason. HSBC TRUSTEE gave no heed to Catalans incessant appeals for an explanation. Her pleas fell on deaf
dismissed regardless of the defense that may be presented by the defendants.[25] and uncaring corporate ears. Clearly, HSBC TRUSTEEs acts are anathema to the prescription for human
conduct enshrined in Article 19 of the Civil Code.
Catalan anchors her complaint for damages on Article 19 of the Civil Code. It speaks of the fundamental
principle of law and human conduct that a person "must, in the exercise of his rights and in the Did Catalan engage in forum-shopping?
performance of his duties, act with justice, give every one his due, and observe honesty and good faith." It
sets the standards which may be observed not only in the exercise of ones rights but also in the It has been held that forum-shopping exists where a litigant sues the same party against whom another
performance of ones duties. When a right is exercised in a manner which does not conform with the norms action or actions for the alleged violation of the same right and the enforcement of the same relief is/are
enshrined in Article 19 and results in damage to another, a legal wrong is thereby committed for which the still pending, the defense of litis pendentia in one case is a bar to the others; and, a final judgment in one
wrongdoer must be held responsible.[26] But a right, though by itself legal because recognized or granted would constitute res judicata and thus would cause the dismissal of the rest.[31]
by law as such, may nevertheless become the source of some illegality. A person should be protected only
when he acts in the legitimate exercise of his right, that is, when he acts with prudence and in good faith; Thus, there is forum-shopping when there exist: a) identity of parties, or at least such parties as represent
but not when he acts with negligence or abuse.[27] There is an abuse of right when it is exercised for the the same interests in both actions, b) identity of rights asserted and relief prayed for, the relief being
only purpose of prejudicing or injuring another. The exercise of a right must be in accordance with the founded on the same facts, and c) the identity of the two preceding particulars is such that any judgment
purpose for which it was established, and must not be excessive or unduly harsh; there must be no rendered in the pending case, regardless of which party is successful would amount to res judicata in the
intention to injure another.[28] other.[32]

Applying the foregoing requisites to the case before us in relation to Spec. Proc No. 00-892, the probate
Thus, in order to be liable under the abuse of rights principle, three elements must concur, to wit: (a) that proceeding brought by Catalan before RTC, Branch 48, Bacolod City, it is obvious that forum-shopping does
there is a legal right or duty; (b) which is exercised in bad faith; and (c) for the sole intent of prejudicing or not exist.
injuring another.[29]
There is no identity of parties. HSBANK is not a party in the probate proceeding. HSBC TRUSTEE is only a
In this instance, after carefully examining the amended complaint, we are convinced that the allegations party in the probate proceeding because it is the executor and trustee named in the Hongkong will of
therein are in the nature of an action based on tort under Article 19 of the Civil Code. It is evident that Thomson. HSBC TRUSTEE is representing the interest of the estate of Thomson and not its own corporate
Catalan is suing HSBANK and HSBC TRUSTEE for unjustified and willful refusal to pay the value of the checks. interest.

HSBANK is being sued for unwarranted failure to pay the checks notwithstanding the repeated assurance of With respect to the second and third requisites, a scrutiny of the entirety of the allegations of the amended
the drawer Thomson as to the authenticity of the checks and frequent directives to pay the value thereof to complaint in this case reveals that the rights asserted and reliefs prayed for therein are different from those
Catalan. Her allegations in the complaint that the gross inaction of HSBANK on Thomsons instructions, as pleaded in the probate proceeding, such that a judgment in one case would not bar the prosecution of the
well as its evident failure to inform Catalan of the reason for its continued inaction and non-payment of the other case. Verily, there can be no forum-shopping where in one proceeding a party raises a claim for
checks, smack of insouciance on its part, are sufficient statements of clear abuse of right for which it may be damages based on tort and, in another proceeding a party seeks the allowance of an alleged last will based
held liable to Catalan for any damages she incurred resulting therefrom. HSBANKs actions, or lack thereof, on ones claim as an heir. After all, the merits of the action for damages is not to be determined in the
prevented Catalan from seeking further redress with Thomson for the recovery of her claim while the latter probate proceeding and vice versa. Undeniably, the facts or evidence as would support and establish the
was alive. two causes of action are not the same.[33] Consequently, HSBANKs reliance on the principle of forum-
shopping is clearly misplaced.
HSBANK claims that Catalan has no cause of action because under Section 189 of the Negotiable
Instruments Law, a check of itself does not operate as an assignment of any part of the funds to the credit Did the RTC acquire jurisdiction over HSBANK and HSBC TRUSTEE?
of the drawer with the bank, and the bank is not liable to the holder unless and until it accepts or certifies it.

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The Rules of Court provides that a court generally acquires jurisdiction over a person through either a valid the rule on summons, the fact of doing business must first be "established by appropriate allegations in the
service of summons in the manner required by law or the persons voluntary appearance in court.[34] complaint" and the court in determining such fact need not go beyond the allegations therein.[40]

In holding that it acquired jurisdiction over HSBANK and HSBC TRUSTEE, the RTC held that both voluntarily The allegations in the amended complaint subject of the present cases did not sufficiently show the fact of
submitted to the jurisdiction of the court by setting up in their Motions to Dismiss other grounds aside from HSBC TRUSTEEs doing business in the Philippines. It does not appear at all that HSBC TRUSTEE had
lack of jurisdiction. On the other hand, the CA ruled that HSBANK and HSBC TRUSTEE are estopped from performed any act which would give the general public the impression that it had been engaging, or intends
challenging the jurisdiction of the RTC because they filed their respective answers before the RTC. to engage in its ordinary and usual business undertakings in the country. Absent from the amended
complaint is an allegation that HSBC TRUSTEE had performed any act in the country that would place it
We find that both lower courts overlooked Section 20 of Rule 14 of the 1997 Rules of Civil Procedure which within the sphere of the courts jurisdiction.
provides that the inclusion in a motion to dismiss of other grounds aside from lack of jurisdiction over the
person of the defendant shall not be deemed a voluntary appearance. Nonetheless, such omission does not We have held that a general allegation, standing alone, that a party is doing business in the Philippines does
aid HSBANKs case. not make it so; a conclusion of fact or law cannot be derived from the unsubstantiated assertions of parties
notwithstanding the demands of convenience or dispatch in legal actions, otherwise, the Court would be
It must be noted that HSBANK initially filed a Motion for Extension of Time to File Answer or Motion to guilty of sorcery; extracting substance out of nothingness.[41]
Dismiss.[35] HSBANK already invoked the RTCs jurisdiction over it by praying that its motion for extension of
time to file answer or a motion to dismiss be granted. The Court has held that the filing of motions seeking Besides, there is no allegation in the amended complaint that HSBANK is the domestic agent of HSBC
affirmative relief, such as, to admit answer, for additional time to file answer, for reconsideration of a TRUSTEE to warrant service of summons upon it. Thus, the summons tendered to the In House Counsel of
default judgment, and to lift order of default with motion for reconsideration, are considered voluntary HSBANK (Makati Branch) for HSBC TRUSTEE was clearly improper.
submission to the jurisdiction of the court.[36] Consequently, HSBANKs expressed reservation in its Answer
ad cautelam that it filed the same as a mere precaution against being declared in default, and without There being no proper service of summons, the RTC cannot take cognizance of the case against HSBC
prejudice to the Petition for Certiorari and/or Prohibition xxx now pending before the Court of Appeals[37] TRUSTEE for lack of jurisdiction over it. Any proceeding undertaken by the RTC is therefore null and
to assail the jurisdiction of the RTC over it is of no moment. Having earlier invoked the jurisdiction of the void.[42] Accordingly, the complaint against HSBC TRUSTEE should have been dismissed for lack of
RTC to secure affirmative relief in its motion for additional time to file answer or motion to dismiss, jurisdiction over it.
HSBANK, effectively submitted voluntarily to the jurisdiction of the RTC and is thereby estopped from
asserting otherwise, even before this Court. WHEREFORE, the petition in G.R. No. 159590 is DENIED. The Decision of the Court of Appeals, dated August
14, 2003, in CA-G.R. SP No. 75757 dismissing the petition for certiorari of the Hongkong and Shanghai
In contrast, the filing by HSBC TRUSTEE of a motion to dismiss cannot be considered a voluntary submission Banking Corporation Limited is AFFIRMED.
to the jurisdiction of the RTC. It was a conditional appearance, entered precisely to question the regularity
of the service of summons. It is settled that a party who makes a special appearance in court challenging the The petition in G.R. No. 159591 is GRANTED. The Decision of the Court of Appeals, dated August 14, 2003, in
jurisdiction of said court, e.g., invalidity of the service of summons, cannot be considered to have submitted CA-G.R. SP No. 75756 dismissing the petition for certiorari of the HSBC International Trustee Limited is
himself to the jurisdiction of the court.[38] HSBC TRUSTEE has been consistent in all its pleadings in assailing REVERSED and SET ASIDE. The Regional Trial Court, Branch 44, Bacolod City is declared without jurisdiction
the service of summons and the jurisdiction of the RTC over it. Thus, HSBC TRUSTEE cannot be declared in to take cognizance of Civil Case No. 01-11372 against the HSBC International Trustee Limited, and all its
estoppel when it filed an Answer ad cautelam before the RTC while its petition for certiorari was pending orders and issuances with respect to the latter are hereby ANNULLED and SET ASIDE. The said Regional Trial
before the CA. Such answer did not render the petition for certiorari before the CA moot and academic. The Court is hereby ORDERED to DESIST from maintaining further proceedings against the HSBC International
Answer of HSBC TRUSTEE was only filed to prevent any declaration that it had by its inaction waived the Trustee Limited in the case aforestated.
right to file responsive pleadings.
SO ORDERED.
Admittedly, HSBC TRUSTEE is a foreign corporation, organized and existing under the laws of the British
Virgin Islands. For proper service of summons on foreign corporations, Section 12 of Rule 14 of the Revised
Rules of Court provides:

SEC. 12. Service upon foreign private juridical entity. When the defendant is a foreign private juridical entity JAI-ALAI CORPORATION OF THE PHILIPPINES, Petitioner, v. BANK OF THE PHILIPPINE ISLAND, Respondent.
which has transacted business in the Philippines, service may be made on its resident agent designated in
accordance with law for that purpose, or if there be no such agent, on the government official designated CASTRO, J.:
by law to that effect, or on any of its officers or agents within the Philippines.
This is a petition by the Jai-Alai Corporation of the Philippines (hereinafter referred to as the petitioner) for
In French Oil Mill Machinery Co., Inc. vs. Court of Appeals,[39] we had occasion to rule that it is not enough review of the decision of the Court of Appeals in C.A.-G.R. 34042-R dated June 25, 1968 in favor of the Bank
to merely allege in the complaint that a defendant foreign corporation is doing business. For purposes of of the Philippine Islands (hereinafter referred to as the respondent).

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 account of its depositor, at any time before that event, regardless of whether or not the item itself can be
From April 2, 1959 to May 18, 1959, ten checks with a total face value of P8,030.58 were deposited by the returned."
petitioner in its current account with the respondent bank. The particulars of these checks are as follows:
About the latter part of July 1959, after Ramirez had resigned from the Inter-Island Gas and after the checks
1. Drawn by the Delta Engineering Service upon the Pacific Banking Corporation and payable to the had been submitted to inter-bank clearing, the Inter-Island Gas discovered that all the indorsements made
Inter-Island Gas Service Inc. or order: on the checks purportedly by its cashiers, Santiago Amplayo and Vicenta Mucor (who were merely
authorized to deposit checks issued payable to the said company) as well as the rubber stamp impression
Date Check Exhibit thereon reading "Inter-Island Gas Service, Inc.," were forgeries. In due time, the Inter-Island Gas advised the
petitioner, the respondent, the drawers and the drawee-banks of the said checks about the forgeries, and
Deposited Number Amount Number filed a criminal complaint against Ramirez with the Office of the City Fiscal of Manila. 1

4/2/59 B-352680 P500.00 18 The respondent's cashier, Ramon Sarthou, upon receipt of the latter of Inter-Island Gas dated August 31,
1959, called up the petitioner's cashier, Manuel Garcia, and advised the latter that in view of the
4/20/59 A-156907 372.32 19 circumstances he would debit the value of the checks against the petitioner's account as soon as they were
returned by the respective drawee-banks.
4/24/59 A-156924 397.82 20
Meanwhile, the drawers of the checks, having been notified of the forgeries, demanded reimbursement to
5/4/59 B-364764 250.00 23 their respective accounts from the drawee-banks, which in turn demanded from the respondent, as
collecting bank, the return of the amounts they had paid on account thereof. When the drawee-banks
5/6/59 B-364775 250.00 24 returned the checks to the respondent, the latter paid their value which the former in turn paid to the Inter-
Island Gas. The respondent, for its part, debited the petitioner's current account and forwarded to the latter
2. Drawn by the Enrique Cortiz & Co. upon the Pacific Banking Corporation and payable to the Inter- the checks containing the forged indorsements, which the petitioner, however, refused to accept.
Island Gas Service, Inc. or bearer:
On October 8, 1959 the petitioner drew against its current account with the respondent a check for
4/13/59 B-335063 P 2108.70 21 P135,000 payable to the order of the Mariano Olondriz y Cia. in payment of certain shares of stock. The
check was, however, dishonored by the respondent as its records showed that as of October 8, 1959 the
4/27/59 B-335072 P2210.94 22 current account of the petitioner, after netting out the value of the checks P8,030.58) with the forged
indorsements, had a balance of only P128,257.65.
3. Drawn by the Luzon Tinsmith & Company upon the China Banking Corporation and payable to the
Inter-Island Gas Service, Inc. or bearer: The petitioner then filed a complaint against the respondent with the Court of First Instance of Manila,
which was however dismissed by the trial court after due trial, and as well by the Court of Appeals, on
5/18/59 VN430188 P940.80 25 appeal.

4. Drawn by the Roxas Manufacturing, Inc. upon the Philippine National Bank and payable to the Hence, the present recourse.
Inter-Island Gas Service, Inc. order:
The issues posed by the petitioner in the instant petition may be briefly stated as follows:
5/14/59 1860160 P 500.00 26
(a) Whether the respondent had the right to debit the petitioner's current account in the amount
5/18/59 1860660 P 500.00 27 corresponding to the total value of the checks in question after more than three months had elapsed from
the date their value was credited to the petitioner's account:(b) Whether the respondent is estopped from
All the foregoing checks, which were acquired by the petitioner from one Antonio J. Ramirez, a sales agent claiming that the amount of P8,030.58, representing the total value of the checks with the forged
of the Inter-Island Gas and a regular bettor at jai-alai games, were, upon deposit, temporarily credited to indorsements, had not been properly credited to the petitioner's account, since the same had already been
the petitioner's account in accordance with the clause printed on the deposit slips issued by the respondent paid by the drawee-banks and received in due course by the respondent; and(c) On the assumption that the
and which reads: respondent had improperly debited the petitioner's current account, whether the latter is entitled to
damages.
"Any credit allowed the depositor on the books of the Bank for checks or drafts hereby received for deposit,
is provisional only, until such time as the proceeds thereof, in current funds or solvent credits, shall have These three issues interlock and will be resolved jointly.
been actually received by the Bank and the latter reserves to itself the right to charge back the item to the

19 | P a g e
In our opinion, the respondent acted within legal bounds when it debited the petitioner's account. When Inter-Island Gas Service, Inc. Yet, the petitioner cashed these checks to a mere individual who was
the petitioner deposited the checks with the respondent, the nature of the relationship created at that admittedly a habitue at its jai-alai games without making any inquiry as to his authority to exchange checks
stage was one of agency, that is, the bank was to collect from the drawees of the checks the corresponding belonging to the payee-corporation. In Insular Drug Co. vs. National 6 the Court made the pronouncement
proceeds. It is true that the respondent had already collected the proceeds of the checks when it debited that.
the petitioner's account, so that following the rule in Gullas vs. Philippine National Bank 2 it might be
argued that the relationship between the parties had become that of creditor and debtor as to preclude the ". . . The right of an agent to indorse commercial paper is a very responsible power and will not be lightly
respondent from using the petitioner's funds to make payments not authorized by the latter. It is our view inferred. A salesman with authority to collect money belonging to his principal does not have the implied
nonetheless that no creditor-debtor relationship was created between the parties. authority to indorse checks received in payment. Any person taking checks made payable to a corporation,
which can act only by agents, does so at his peril, and must abide by the consequences if the agent who
Section 23 of the Negotiable Instruments Law (Act 2031) states that 3 — indorses the same is without authority." (underscoring supplied)

"When a signature is forged or made without the authority of the person whose signature it purports to be, It must be noted further that three of the checks in question are crossed checks, namely, exhs. 21, 25 and
it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce 27, which may only be deposited, but not encashed; yet, the petitioner negligently accepted them for cash.
payment thereof against any party thereto, can be acquired through or under such signature, unless the That two of the crossed checks, namely, exhs. 21 and 25, are bearer instruments would not, in our view,
party against whom it is sought to enforce such right is precluded from setting up the forgery or want of exculpate the petitioner from liability with respect to them. The fact that they are bearer checks and at the
authority." same time crossed checks should have aroused the petitioner's suspicion as to the title of Ramirez over
them and his authority to cash them (apparently to purchase jai-alai tickets from the petitioner), it
Since under the foregoing provision, a forged signature in a negotiable instrument is wholly inoperative and appearing on their face that a corporate entity — the Inter Island Gas Service, Inc. — was the payee thereof
no right to discharge it or enforce its payment can be acquired through or under the forged signature and Ramirez delivered the said checks to the petitioner ostensibly on the strength of the payee's cashiers'
except against a party who cannot invoke the forgery, it stands to reason, upon the facts of record, that the indorsements.
respondent, as a collecting bank which indorsed the checks to the drawee-banks for clearing, should be
liable to the latter for reimbursement, for, as found by the court a quo and by the appellate court, the At all events, under Section 67 of the Negotiable Instruments Law, "Where a person places his indorsement
indorsements on the checks had been forged prior to their delivery to the petitioner. In legal on an instrument negotiable by delivery he incurs all the liability of an indorser," and under Section 66 of
contemplation, therefore, the payments made by the drawee-banks to the respondent on account of the the same statute a general indorser warrants that the instrument "is genuine and in all respects what it
said checks were ineffective; and, such being the case, the relationship of creditor and debtor between the purports to be." Considering that the petitioner indorsed the said checks when it deposited them with the
petitioner and the respondent had not been validly effected, the checks not having been properly and respondent, the petitioner as an indorser guaranteed the genuineness of all prior indorsements thereon.
legitimately converted into cash. 4 The respondent which relied upon the petitioner's warranty should not be held liable for the resulting loss.
This conclusion applied similarly to exh. 22 which is an uncrossed bearer instrument, for under Section 65 of
In Great Eastern Life Ins. Co. vs. Hongkong & Shanghai Bank, 5 the Court ruled that it is the obligation of the the Negotiable Instrument Law. "Every person negotiating an instrument by delivery . . . warrants (a) That
collecting bank to reimburse the drawee-bank the value of the checks subsequently found to contain the the instrument is genuine and in all respects what it purports to be." Under that same section this warranty
forged indorsement of the payee. The reason is that the bank with which the check was deposited has no "extends in favor of no holder other than the immediate transferee," which, in the case at bar, would be the
right to pay the sum stated therein to the forger "or anyone else upon a forged signature." "It was its duty respondent.
to know," said the Court, "that [the payee's] endorsement was genuine before cashing the check." The
petitioner must in turn shoulder the loss of the amounts which the respondent; as its collecting agent, had The provision in the deposit slip issued by the respondent which stipulates that it "reserves to itself the right
to reimburse to the drawee-banks. to charge back the item to the account of its depositor," at any time before "current funds or solvent credits
shall have been actually received by the Bank," would not materially affect the conclusion we have reached.
We do not consider material for the purposes of the case at bar that more than three months had elapsed That stipulation prescribes that there must be an actual receipt by the bank of current funds or solvent
since the proceeds of the checks in question were collected by the respondent. The record shows that the credits; but as we have earlier indicated the transfer by the drawee-banks of funds to the respondent on
respondent had acted promptly after being informed that the indorsements on the checks were forged. account of the checks in question was ineffectual because made under the mistaken and valid assumption
Moreover, having received the checks merely for collection and deposit, the respondent cannot he that the indorsements of the payee thereon were genuine. Under article 2154 of the New Civil Code "If
expected to know or ascertain the genuineness of all prior indorsements on the said checks. Indeed, having something is received when there is no right to demand it and it was unduly delivered through mistake, the
itself indorsed them to the respondent in accordance with the rules and practices of commercial banks, of obligation to return it arises." There was, therefore, in contemplation of law, no valid payment of money
which the Court takes due cognizance, the petitioner is deemed to have given the warranty prescribed in made by the drawee-banks to the respondent on account of the questioned checks.
Section 66 of the Negotiable Instruments Law that every single one of those checks "is genuine and in all
respects what it purports to be.". ACCORDINGLY, the judgment of the Court of Appeals is affirmed, at petitioner's cost.

The petitioner was, moreover, grossly recreant in accepting the checks in question from Ramirez. It could
not have escaped the attention of the petitioner that the payee of all the checks was a corporation — the

20 | P a g e
 ONLY, equivalent to the amount of the 3 three US$ checks amounting to $12,621.13, and to levy the goods
[G.R. No. 130756. January 21, 1999] and chattels of the defendant/s, except those which are exempt from execution and to make the sale
thereat in accordance with the procedure outlined by Rule 39, Revised Rules of Court and such cases made
ESTER B. MARALIT, petitioner, vs. JESUSA CORAZON L. IMPERIAL, respondent. and provided, together with all your lawful fees for the services of this writ.
DECISION
MENDOZA, J.: Accordingly, the sheriff served a notice of garnishment on the PNB.

This is a petition for review on certiorari of the decision, dated August 26, 1997, and the resolution, dated Respondent at first moved to declare her savings account exempt from execution on the ground that the
September 29, 1997, of the Regional Trial Court of Naga City (Branch 21) in Special Civil Case No. RTC 97- same represented her salary as an employee of the Commission on Audit, which was not even sufficient for
3744. her expenses and that of her family. Later, she moved to quash the writ of execution on the ground that the
judgment did not order the accused to pay [a] specific amount of money to a particular person as it merely
The facts are as follows: adjudicated the criminal aspect but not the civil aspect hence there was no judgment rendered which can
be the subject of execution.
Petitioner Ester B. Maralit filed three complaints for estafa through falsification of commercial documents
through reckless imprudence against respondent Jesusa Corazon L. Imperial.[1] Maralit alleged that she was Both motions of respondent were denied by the MTC for lack of merit in its order, dated February 24,
assistant manager of the Naga City branch of the Philippine National Bank (PNB); that on May 20, 1992, 1997.[5] Accordingly, an alias writ of execution was issued.
June 1, 1992, and July 1, 1992 respondent Imperial separately deposited in her savings account at the PNB
three United States treasury warrants bearing USTW Nos. 2034-91254963, 2034-91180047, and 2034- On April 14, 1997, respondent filed a petition for certiorari and prohibition in the Regional Trial Court of
33330760 and on the same days withdrew their peso equivalent of P59,216.86, P130,743.60, and Naga City, contending that the writ of execution issued by the MTC was at variance with the judgment in
P130,326.00, respectively; and that the treasury warrants were subsequently returned one after the other the criminal cases.
by the United States Treasury, through the Makati branch of the Citibank, on the ground that the amounts
thereof had been altered. Maralit claimed that, as a consequence, she was held personally liable by the PNB The RTC issued a writ of preliminary injunction enjoining enforcement of the writ of execution issued by the
for the total amount of P320,287.30. MTC. On August 26, 1997, it rendered a decision, which, among other things, made permanent the
injunction. The RTC held that the decision of the MTC did not really find respondent liable for P320,286.46
In her counter-affidavit, respondent claimed that she merely helped a relative, Aida Abengoza, encash the because in fact it was petitioner who was found responsible for making the defraudation possible.
treasury warrants; that she deposited the treasury warrants in her savings account and then withdrew their
peso equivalent with the approval of petitioner; that she gave the money to Aida Abengoza; that she did Petitioner moved for reconsideration alleging that respondent filed her petition for certiorari and
not know that the amounts on the treasury warrants had been altered nor did she represent to petitioner prohibition more than three months after the MTC had ordered execution of its decision on November 11,
that the treasury warrants were genuine; and that upon being informed of the dishonor of the warrants she 1996. However, her motion was denied on September 28, 1997.[6] The RTC held that the three-month
immediately contacted Aida Abengoza and signed an acknowledgment of debt promising to pay the total period should be counted from April 1, 1997, when the alias writ of execution was issued, or from April 7,
amount of the treasury warrants. 1997, when the MTC denied private respondents motion for reconsideration of the order denying her
motion to quash the writ of execution. The RTC likewise found the second ground of petitioners motion for
After preliminary investigation, the City Prosecutor of Naga City filed three informations against respondent reconsideration, i.e., that its decision was contrary to law and jurisprudence, devoid of merit.
in the Municipal Trial Court of Naga City (Branch 3).
Hence, this petition. Petitioner raises the following issues:[7]
On September 26, 1996, judgment was rendered as follows:
1. Whether respondents Petition for Certiorari and Prohibition under Rule 65 of the Rules of Court was filed
WHEREFORE, in view of the foregoing considerations, the Court finds no ground to hold the accused out of time;
criminally liable for which she is charged, hence Corazon Jesusa L. Imperial is ACQUITTED of all the charges
against her. The accused however is civilly liable as indorser of the checks which is (sic) the subject matter of 2. Whether this case warrants the relaxation of the rule that Certiorari is not a substitute for a lost or lapsed
the criminal action.[2] appeal.

The decision having become final and executory, the MTC, on November 11, 1996, ordered the 3. Whether or not the MTC committed grave abuse of discretion amounting to lack or excess of jurisdiction,
enforcement of the civil liability against the accused arising from the criminal action.[3] The writ of when it issued the Order of Execution, Writ of Execution and Alias Writ of Execution to implement its final
execution, dated December 9, 1996, directed the sheriff as follows:[4] and executory civil judgment in Criminal Cases No. 68697, 68698 and 68699, which reads: . . . The accused
however is civilly liable as indorser of the checks subject matter of the criminal action.
NOW, THEREFORE, you are hereby commanded to cause the execution of the aforesaid judgment in the
amount of THREE HUNDRED TWENTY THOUSAND TWO HUNDRED EIGHTY SIX & 46/100 (P320,286.46)

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4. Whether or not the MTC merely adjudicated the criminal aspect but not the civil aspect of Criminal Cases equivalent, without the check being cleared and if the same is dishonored she should be responsible. (page
68697, 68698 and 68699. 5, judgment).

5. Whether there was substantial variance as between the dispositive portion of the civil judgment and the The information accuses the accused for disregarding the banking laws and procedure of the PNB. This is a
writ of execution issued thereunder. generous statement. In the first place the accused is not an employee of the bank. She has no control nor
supervision over its employees. If there is anyone who has disregarded banking laws, it is the private
6. Whether or not a court exercising certiorari jurisdiction has the authority to modify or alter the final and complainant for approving withdrawals before the check were cleared. Mrs. Maralit is more knowledgeable
executory decision of the lower court even by way of an obiter dictum. of the banking procedures of the bank of which she is the assistant manager. She knows the risk of
approving encashment before clearing. She took the risk therefore she should be responsible for the
Petitioner contends that the phrase civilly liable in the judgment part of the MTCs decision also connotes an outcome of the risk she has taken. (page 6, Judgment).
order to pay on respondents part.
The Court is of the opinion that there was negligence on both the complainant and the accused but greater
It may fairly be assumed that the decision of the MTC was an adjudication of both the criminal and civil responsibility should be borne by the private complainant. The accused could not have encashed and
liability of respondent inasmuch as it does not appear that petitioner instituted a separate civil action or deposited the checks without her approval. If the complainant was not remiss in her duty in imposing the
reserved or waived the right to bring such action. The question is whether the decision of the MTC finds banking rules strictly, then these things could not have happened. (page 7, Judgment).[8]
respondent civilly liable and, in the affirmative, for how much. As already stated, the RTC held that the MTC
did not really find respondent liable. In reaching that conclusion, the RTC said: This portion of the decision of the MTC actually refers to respondents criminal liability and not her civil
liability. More specifically, the portion in question refers to the allegations in the three informations that
A mere reading of the dispositive portion of the judgment and the writ of execution will readily show that respondent committed falsification of commercial documents through reckless imprudence by 1) taking
there is variance between the two. Whereas, the judgment pronounced [respondent herein] to be civilly advantage of [her] position as state auditor of the Commission on Audit assigned at the PNB, Naga Branch,
liable as indorser of the checks which is the subject matter of the criminal action, the writ of execution 2) disregard[ing] existing procedure, banking laws, policies, and circulars of the PNB, 3) . . . not tak[ing] the
commanded the Sheriff to cause the execution of the aforesaid judgment in the amount of THREE necessary precaution to determine the genuineness of the Treasury Warrants and the alteration of the
HUNDRED TWENTY THOUSAND TWO HUNDRED EIGHTY SIX & 46/100 (P320,286.46) ONLY, equivalent to the amount[s] therein deposited and [in] encash[ing] the checks, and 4) . . . [her] negligence, carelessness, and
amount of the 3 three US$ checks amounting to $12,621.13, . . . . In the judgment, nothing is mentioned imprudence [which] caused damage and loss to [petitioner].[9] Nevertheless, the MTC held that respondent
about the amount for which [respondent herein] is liable as indorser, but in the writ of execution, the civil was civilly liable as the penultimate paragraph of its decision makes clear:
liability of the [respondent herein] has already been fixed at P320,286.46. The variance, therefore, between
the judgment and the writ of execution is substantial because it consists of the addition of the amount of The Court symphatizes with the complainant that there was indeed damage and loss, but said loss is
the civil liability of the [respondent herein]. chargeable to the accused who upon her indorsements warrant that the instrument is genuine in all respect
what it purports to be and that she will pay the amount thereof in case of dishonor. (Sec. 66 Negotiable
.... Instrument Law) [10]

. . . The [MTCs] findings of facts and conclusions of law as expressed in the body of the decision do not Thus, while the MTC found petitioner partly responsible for the encashment of the altered checks, it found
support the dispositive portion of the judgment that [respondent herein] is civilly liable. On the contrary a respondent civilly liable because of her indorsements of the treasury warrants, in addition to the fact that
reading of the body of the judgment in question will show that [respondent] is not civilly liable. For three (3) respondent executed a notarized acknowledgment of debt promising to pay the total amount of said
times, the Court stated in the body of its decision that it is [petitioner] Maralit herself who should be faulted warrants.
and be held responsible for the payment of the dishonored US Dollar checks.
In this case, to affirm the RTCs decision would be to hold that respondent was absolved from both criminal
Hereunder quoted are portions of the body of the decision in question showing that [respondent] herein and civil liability by the MTC. Such reading of the MTC decision will not, however, bear analysis. For one, the
should not be held civilly liable and that it was [petitioner] Maralit who should be blamed and be held dispositive portion of the decision of the MTC expressly declares respondent to be civilly liable as indorser
responsible: of the checks which is [sic] the subject matter of the criminal action. To find therefore that there is no
declaration of civil liability of respondent would be to disregard the judgment of the MTC. Worse, it would
. . . The Court however is quite intrigue[d] on why the accused was allowed to encash the peso equivalent be to amend a final and executory decision of a court.
despite the fact that the check was deposited for collection and clearing. It is the established procedure of
banks that out of town checks and US Treasury Warrants should first be cleared before the same is to be It is argued that the decision of the MTC did not order respondent, as accused in the case, to pay a specific
paid. More so if the holder is a second indorser. The private complainant in this regard explained that [as amount of money to any particular person such that it could not be an adjudication of respondents civil
assistant branch manager] she has the discretion and that there is no hold order appearing in the savings liability. However, the ambiguity can easily be clarified by a resort to the text of the decision or, what is
account of the accused. She likewise explained that she trusted the accused whom she knew is working in properly called, the opinion part. Doing so, it is clear that it can only be to petitioner that respondent was
the same building and a depositor. In short she took the risk of approving the withdrawal of the peso made liable as the former was the offended party in the case. As for what amount respondent is liable, it

22 | P a g e
can only be for the total amount of the treasury warrants subject of the case, determined according to their The car was stolen. On Bitangas claim, Malayan Insurance issued a check payable to the order of B.A.
peso equivalent, in the decision of the MTC. Finance Corporation and Lamberto Bitanga for P224,500, drawn against China Banking Corporation (China
Bank). The check was crossed with the notation For Deposit Payees Account Only.[6]
For another, that respondent should pay petitioner the amounts of the altered treasury warrants is the
logical consequence of the MTCs holding that private respondent is civilly liable for the treasury warrants Without the indorsement or authority of his co-payee BA Finance, Bitanga deposited the check to his
subject of the case.[11] account with the Asianbank Corporation (Asianbank), now merged with herein petitioner Metropolitan
Bank and Trust Company (Metrobank). Bitanga subsequently withdrew the entire proceeds of the check.
WHEREFORE, the decision of the Regional Trial Court of Naga City (Branch 21) is REVERSED.
In the meantime, Bitangas loan became past due, but despite demands, he failed to settle it.

BA Finance eventually learned of the loss of the car and of Malayan Insurances issuance of a crossed check
METROPOLITAN BANK AND TRUST COMPANY (formerly ASIANBANK CORPORATION), payable to it and Bitanga, and of Bitangas depositing it in his account at Asianbank and withdrawing the
Petitioner, - versus -BA FINANCE CORPORATION and MALAYAN INSURANCE CO., INC., entire proceeds thereof.
Respondents.
BA Finance thereupon demanded the payment of the value of the check from Asianbank[7] but to no avail,
G.R. No. 179952 prompting it to file a complaint before the Regional Trial Court (RTC) of Makati for sum of money and
damages against Asianbank and Bitanga,[8] alleging that, inter alia, it is entitled to the entire proceeds of
Promulgated: the check.
December 4, 2009 In its Answer with Counterclaim,[9] Asianbank alleged that BA Finance instituted [the] complaint in bad faith
to coerce [it] into paying the whole amount of the CHECK knowing fully well that its rightful claim, if any, is
x-------------------------------------------------x against Malayan [Insurance].[10]

DECISION Asianbank thereafter filed a cross-claim against Bitanga,[11] alleging that he fraudulently induced its
personnel to release to him the full amount of the check; and that on being later informed that the entire
amount of the check did not belong to Bitanga, it took steps to get in touch with him but he had changed
CARPIO MORALES, J.: residence without leaving any forwarding address.[12]
Lamberto Bitanga (Bitanga) obtained from respondent BA Finance Corporation (BA Finance) a P329,280[1]
loan to secure which, he mortgaged his car to respondent BA Finance.[2] The mortgage contained the And Asianbank filed a third-party complaint against Malayan Insurance,[13] alleging that Malayan Insurance
following stipulation: was grossly negligent in issuing the check payable to both Bitanga and BA Finance and delivering it to
Bitanga without the consent of BA Finance.[14]
The MORTGAGOR covenants and agrees that he/it will cause the property(ies) hereinabove mortgaged to
be insured against loss or damage by accident, theft and fire for a period of one year from date hereof with Bitanga was declared in default in Asianbanks cross-claim.[15]
an insurance company or companies acceptable to the MORTGAGEE in an amount not less than the
outstanding balance of mortgage obligations and that he/it will make all loss, if any, under such policy or Branch 137 of the Makati RTC, finding that Malayan Insurance was not privy to the contract between BA
policies, payable to the MORTGAGEE or its assigns as its interest may appear x x x.[3] (emphasis and Finance and Bitanga, and noting the claim of Malayan Insurance that it is its policy to issue checks to both
underscoring supplied) the insured and the financing company, held that Malayan Insurance cannot be faulted for negligence for
issuing the check payable to both BA Finance and Bitanga.
Bitanga thus had the mortgaged car insured by respondent Malayan Insurance Co., Inc. (Malayan
Insurance)[4] which issued a policy stipulating that, inter alia, The trial court, holding that Asianbank was negligent in allowing Bitanga to deposit the check to his account
and to withdraw the proceeds thereof, without his co-payee BA Finance having either indorsed it or
Loss, if any shall be payable to BA FINANCE CORP. as its interest may appear. It is hereby expressly authorized him to indorse it in its behalf,[16] found Asianbank and Bitanga jointly and severally liable to BA
understood that this policy or any renewal thereof, shall not be cancelled without prior notification and Finance following Section 41 of the Negotiable Instruments Law and Associated Bank v. Court of
conformity by BA FINANCE CORPORATION.[5] (emphasis and underscoring supplied) Appeals.[17]

Thus the trial court disposed:

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 D. Malayans act of issuing and delivering the check solely to Bitanga in violation of the loss payee clause in
1) To pay plaintiff jointly and severally the sum of P224,500.00 with interest thereon at the the Policy, is the proximate cause of the alleged damage to BA Finance.
rate of 12% from September 25, 1992 until fully paid;
2) To pay plaintiff the sum of P50,000.00 as exemplary damages; P20,000.00 as actual E. Assuming Asianbank is liable, BA Finance can claim only his proportionate interest on the check as it is a
damages; P30,000.00 as attorneys fee; and joint payee thereof.
3) To pay the costs of suit.
F. Bitanga alone is liable for the amount to BA Finance on the ground of unjust enrichment or solutio
Asianbanks and Bitangas [sic] counterclaims are dismissed. indebiti.
The third party complaint of defendant/third party plaintiff against third-party defendant Malayan
Insurance, Co., Inc. is hereby dismissed. Asianbank is ordered to pay Malayan attorneys fee of P50,000.00 G. BA Finance is liable to pay Asianbank actual and exemplary damages.[20] (underscoring supplied)
and a per appearance fee of P500.00.
The appellate court, summarizing the errors attributed to the trial court by Asianbank to be whetherBA
On the cross-claim of defendant Asianbank, co-defendant Lamberto Bitanga is ordered to pay the former Finance has a cause of action against [it] even if the subject check had not been delivered toBA Finance by
the amounts the latter is ordered to pay the plaintiff in Nos. 1, 2 and 3 above-mentioned. the issuer itself, held in the affirmative and accordingly affirmed the trial courts decision but deleted the
award of P20,000 as actual damages.[21]
SO ORDERED.[18] (emphasis and underscoring supplied)
Hence, the present Petition for Review on Certiorari[22] filed by Metrobank (hereafter petitioner) to which
Before the Court of Appeals, Asianbank, in its Appellants Brief, submitted the following issues for Asianbank was, as earlier stated, merged, faulting the appellate court
consideration:
I. x x x in applying the case of Associated Bank v. Court of Appeals, in the absence of factual
3.01.1.1 Whether BA Finance has a cause of action against Asianbank. similarity and of the legal relationships necessary for the application of the desirable shortcut rule. x x x
II. x x x in not finding that x x x the general rule that the payee has no cause of action against
3.01.1.2 Assuming that BA Finance has a valid cause of action, may it claim from Asianbank more than the collecting bank absent delivery to him must be applied.
one-half of the value of the check considering that it is a mere co-payee or joint payee of the check? III. x x x in finding that all the elements of a cause of action by BA Finance Corporation against
Asianbank Corporation are present.
3.01.1.3 Whether BA Finance is liable to Asianbank for actual and exemplary damages for wrongfully IV. x x x in finding that Article 1208 of the Civil Code is not applicable.
bringing the case to court. V. x x x in awarding of exemplary damages even in the absence of moral, temperate, liquidated
or compensatory damages and a finding of fact that Asianbank acted in a wanton, fraudulent, reckless,
3.01.1.4 Whether Malayan is liable to Asianbank for reimbursement of any sum of money which this oppressive or malevolent manner.
Honorable Court may award to BA Finance in this case.[19] (underscoring supplied) xxxx
VII. x x x in dismissing Asianbanks counterclaim and Third Party complaint [against Malayan
Insurance].[23] (italics in the original; underscoring supplied)

And it proffered the following arguments: Petitioner proffers the following arguments against the application of Associated Bank v. CA to the case:

A. BA Finance has no cause of action against Asianbank as it has no legal right and title to the check x x x [T]he rule established in the Associated Bank case has provided a speedier remedy for the payee to
considering that the check was not delivered to BA Finance. Hence, BA Finance is not a holder thereof under recover from erring collecting banks despite the absence of delivery of the negotiable instrument. However,
the Negotiable Instruments Law. the application of the rule demands careful consideration of the factual settings and issues raised in the
case x x x.
B. Asianbank, as collecting bank, is not liable to BA Finance as there was no privity of contract between
them. One of the relevant circumstances raised in Associated Bank is the existence of forgery or unauthorized
indorsement. x x x
C. Asianbank, as collecting bank, is not liable to BA Finance, considering that, as the intermediary between
the payee and the drawee Chinabank, it merely acted on the instructions of drawee Chinabank to pay the xxxx
amount of the check to Bitanga, hence, the consequent damage to BA Finance was due to the negligence of
Chinabank. In the case at bar, Bitanga is authorized to indorse the check as the drawer names him as one of the payees.
Moreover, his signature is not a forgery nor has he or anyone forged the signature of the representative of
BA Finance Corporation. No unauthorized indorsement appears on the check.

24 | P a g e
 fails. The payment of an instrument over a missing indorsement is the equivalent of payment on a forged
xxxx indorsement[27] or an unauthorized indorsement in itself in the case of joint payees.[28]

Absent the indispensable fact of forgery or unauthorized indorsement, the desirable shortcut rule cannot be Clearly, petitioner, through its employee, was negligent when it allowed the deposit of the crossed check,
applied,[24] (underscoring supplied) despite the lone endorsement of Bitanga, ostensibly ignoring the fact that the check did not, it bears
repeating, carry the indorsement of BA Finance.[29]

The petition fails. As has been repeatedly emphasized, the banking business is imbued with public interest such that the
highest degree of diligence and highest standards of integrity and performance are expected of banks in
Section 41 of the Negotiable Instruments Law provides: order to maintain the trust and confidence of the public in general in the banking sector.[30] Undoubtedly,
Where an instrument is payable to the order of two or more payees or indorsees who are not partners, all BA Finance has a cause of action against petitioner.
must indorse unless the one indorsing has authority to indorse for the others. (emphasis and underscoring
supplied) Is petitioner liable to BA Finance for the full value of the check?

Bitanga alone endorsed the crossed check, and petitioner allowed the deposit and release of the proceeds Petitioner, at all events, argue that its liability to BA Finance should only be one-half of the amount covered
thereof, despite the absence of authority of Bitangas co-payee BA Finance to endorse it on its behalf.[25] by the check as there is no indication in the check that Bitanga and BA Finance are solidary creditors to thus
Denying any irregularity in accepting the check, petitioner maintains that it followed normal banking make them presumptively joint creditors under Articles 1207 and 1208 of the Civil Code which respectively
procedure. The testimony of Imelda Cruz, Asianbanks then accounting head, shows otherwise, however, viz: provide:

Q Now, could you be familiar with a particular policy of the bank with respect to checks with joined (sic) Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and the same
payees? obligation does not imply that each one of the former has a right to demand, or that each one of the latter
A Yes, sir. is bound to render, entire compliance with the prestations. There is a solidary liability only when the
obligation expressly so states, or when the law or the nature of the obligation requires solidarity.
Q And what would be the particular policy of the bank regarding this transaction?
A The bank policy and procedure regarding the joint checks. Once it is deposited to a single account, we are Art. 1208. If from the law, or the nature or wording of the obligations to which the preceding article refers
not accepting joint checks for single account, depositing to a single account (sic). to the contrary does not appear, the credit or debt shall be presumed to be divided into as many equal
shares as there are creditors or debtors, the debts or credits being considered distinct from one another,
Q What happened to the bank employee who allowed this particular transaction to occur? subject to the Rules of Court governing the multiplicity of suits.
A Once the branch personnel, the bank personnel (sic) accepted it, he is liable.
Petitioners argument is flawed.
Q What do you mean by the branch personnel being held liable?
A Because since (sic) the bank policy, we are not supposed to accept joint checks to a [single] account, so The provisions of the Negotiable Instruments Law and underlying jurisprudential teachings on the black-
we mean that personnel would be held liable in the sense that (sic) once it is withdrawn or encashed, it will letter law provide definitive justification for petitioners full liability on the value of the check.
not be allowed.
To be sure, a collecting bank, Asianbank in this case, where a check is deposited and which indorses the
Q In your experience, have you encountered any bank employee who was subjected to disciplinary action check upon presentment with the drawee bank, is an indorser.[31] This is because in indorsing a check to
by not following bank policies? the drawee bank, a collecting bank stamps the back of the check with the phrase all prior endorsements
A The one that happened in that case, since I really dont know who that personnel is, he is no longer and/or lack of endorsement guaranteed[32] and, for all intents and purposes, treats the check as a
connected with the bank. negotiable instrument, hence, assumes the warranty of an indorser.[33] Without Asianbanks warranty, the
drawee bank (China Bank in this case) would not have paid the value of the subject check.
Q What about in general, do you know of any disciplinary action, Madam witness?
A Since theres a negligence on the part of the bank personnel, it will be a ground for his separation [from] Petitioner, as the collecting bank or last indorser, generally suffers the loss because it has the duty to
the bank.[26] (emphasis, italics and underscoring supplied) ascertain the genuineness of all prior indorsements 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
Admittedly, petitioner dismissed the employee who allowed the deposit of the check in Bitangas account. the genuineness of prior indorsements.[34]

Petitioners argument that since there was neither forgery, nor unauthorized indorsement because Bitanga Accordingly, one who credits the proceeds of a check to the account of the indorsing payee is liable in
was a co-payee in the subject check, the dictum in Associated Bank v. CA does not apply in the present case conversion to the non-indorsing payee for the entire amount of the check.[35]

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 As for the dismissal by the appellate court of petitioners third-party complaint against Malayan Insurance,
It bears noting that in petitioners cross-claim against Bitanga, the trial court ordered Bitanga to return to the same is well-taken. Petitioner based its third-party complaint on Malayan Insurances alleged gross
petitioner the entire value of the check ─ P224,500.00 ─ with interest as well as damages and cost of suit. negligence in issuing the check payable to both BA Finance and Bitanga, despite the stipulation in the
Petitioner never questioned this aspect of the trial courts disposition, yet it now prays for the modification mortgage and in the insurance policy that liability for loss shall be payable to BA Finance.[44] Malayan
of its liability to BA Finance to only one-half of said amount. To pander to petitioners supplication would Insurance countered, however, that it
certainly amount to unjust enrichment at BA Finances expense. Petitioners remedywhich is the
reimbursement for the full amount of the check from the perpetrator of the irregularity lies with Bitanga. x x x paid the amount of P224,500 to BA Finance Corporation and Lamberto Bitanga in compliance with the
decision in the case of Lamberto Bitanga versus Malayan Insurance Co., Inc., Civil Case No. 88-2802, RTC-
Articles 1207 and 1208 of the Civil Code cannot be applied to the present case as these are completely Makati Br. 132, and affirmed on appeal by the Supreme Court [3rd Division], G.R. no. 101964, April 8, 1992 x
irrelevant. The drawer, Malayan Insurance in this case, issued the check to answer for an underlying x x.[45] (underscoring supplied)
contractual obligation (payment of insurance proceeds). The obligation is merely reflected in the instrument
and whether the payees would jointly share in the proceeds or not is beside the point.
It is noted that Malayan Insurance, which stated that it was a matter of company policy to issue checks in
Moreover, granting petitioners appeal for partial liability would run counter to the existing principles on the the name of the insured and the financing company, presented a witness to rebut its supposed negligence.
liabilities of parties on negotiable instruments, particularly on Section 68 of the Negotiable Instruments Law [46] Perforce, it thus wrote a crossed check with joint payees so as to serve warning that the check was
which instructs that joint payees who indorse are deemed to indorse jointly and severally.[36] Recall that issued for a definite purpose.[47] Petitioner never ever disputed these assertions.
when the maker dishonors the instrument, the holder thereof can turn to those secondarily liable the
indorser for recovery.[37] And since the law explicitly mandates a solidary liability on the part of the joint The Court takes exception, however, to the appellate courts affirmance of the trial courts grant of legal
payees who indorse the instrument, the holder thereof (assuming the check was further negotiated) can interest of 12% per annum on the value of the check. For the obligation in this case did not arise out of a
turn to either Bitanga or BA Finance for full recompense. loan or forbearance of money, goods or credit. While Article 1980 of the Civil Code provides that:

Respecting petitioners challenge to the award by the appellate court of exemplary damages to BA Finance, Fixed savings, and current deposits of money in banks and similar institutions shall be governed by the
the same fails. Contrary to petitioners claim that no moral, temperate, liquidated or compensatory damages provisions concerning simple loan,
were awarded by the trial court,[38] the RTC did in fact award compensatory or actual damages of
P224,500, the value of the check, plus interest thereon.
said provision does not find application in this case since the nature of the relationship between BA Finance
Petitioner argues, however, that assuming arguendo that compensatory damages had been awarded, the and petitioner is one of agency whereby petitioner, as collecting bank, is to collect for BA Finance the
same contravened Article 2232 of the Civil Code which provides that in contracts or quasi-contracts, the corresponding proceeds from the check.[48] Not being a loan or forbearance of money, the interest should
court may award exemplary damages only if the defendant acted in a wanton, fraudulent, reckless, be 6% per annum computed from the date of extrajudicial demand on September 25, 1992 until finality of
oppressive, or malevolent manner. Since, so petitioner concludes, there was no finding that it acted in a judgment; and 12% per annum from finality of judgment until payment, conformably with Eastern Shipping
wanton, fraudulent, reckless, oppressive, or malevolent manner,[39] it is not liable for exemplary damages. Lines, Inc. v. Court of Appeals.[49]

The argument fails. To reiterate, petitioners liability is based not on contract or quasi-contract but on quasi-
delict since there is no pre-existing contractual relation between the parties.[40] Article 2231 of the Civil WHEREFORE, the Decision of the Court of Appeals dated May 18, 2007 is AFFIRMED with MODIFICATION in
Code, which provides that in quasi-delict, exemplary damages may be granted if the defendant acted with that the rate of interest on the judgment obligation of P224,500 should be 6% per annum, computed from
gross negligence, thus applies. For gross negligence implies a want or absence of or failure to exercise even the time of extrajudicial demand on September 25, 1992 until its full payment before finality of judgment;
slight care or diligence, or the entire absence of care,[41] evincing a thoughtless disregard of consequences thereafter, if the amount adjudged remains unpaid, the interest rate shall be 12% per annum computed
without exerting any effort to avoid them.[42] from the time the judgment becomes final and executory until fully satisfied.
Costs against petitioner.

x x x The law allows the grant of exemplary damages to set an example for the public good. The business of SO ORDERED.
a bank is affected with public interest; thus it makes a sworn profession of diligence and meticulousness in
giving irreproachable service. For this reason, the bank should guard against in injury attributable to
negligence or bad faith on its part. The award of exemplary damages is proper as a warning to [the
petitioner] and all concerned not to recklessly disregard their obligation to exercise the highest and strictest
diligence in serving their depositors.[43] (Italics and underscoring supplied)

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G.R. No. L-39641 February 28, 1983 (a) Ordering Sambok Motors Company to pay to the plaintiff the sum of P15,939.00 plus the legal
rate of interest from October 30, 1969;
METROPOL (BACOLOD) FINANCING & INVESTMENT CORPORATION, plaintiff-appellee,
vs. SAMBOK MOTORS COMPANY and NG SAMBOK SONS MOTORS CO., LTD., defendants-appellants. (b) Ordering same defendant to pay to plaintiff the sum equivalent to 25% of P15,939.00 plus interest
thereon until fully paid; and
DE CASTRO, J.:
(c) To pay the cost of suit.
The former Court of Appeals, by its resolution dated October 16, 1974 certified this case to this Court the
issue issued therein being one purely of law. Not satisfied with the decision, the present appeal was instituted, appellant Sambok raising a lone
assignment of error as follows:
On April 15, 1969 Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons Motors Co.,
Ltd., in the amount of P15,939.00 payable in twelve (12) equal monthly installments, beginning May 18, The trial court erred in not dismissing the complaint by finding defendant appellant Sambok Motors
1969, with interest at the rate of one percent per month. It is further provided that in case on non-payment Company as assignor and a qualified indorsee of the subject promissory note and in not holding it as only
of any of the installments, the total principal sum then remaining unpaid shall become due and payable secondarily liable thereof.
with an additional interest equal to twenty-five percent of the total amount due.
Appellant Sambok argues that by adding the words "with recourse" in the indorsement of the note, it
On the same date, Sambok Motors Company (hereinafter referred to as Sambok), a sister company of Ng becomes a qualified indorser that being a qualified indorser, it does not warrant that if said note is
Sambok Sons Motors Co., Ltd., and under the same management as the former, negotiated and indorsed dishonored by the maker on presentment, it will pay the amount to the holder; that it only warrants the
the note in favor of plaintiff Metropol Financing & Investment Corporation with the following indorsement: following pursuant to Section 65 of the Negotiable Instruments Law: (a) that the instrument is genuine and
in all respects what it purports to be; (b) that he has a good title to it; (c) that all prior parties had capacity
Pay to the order of Metropol Bacolod Financing & Investment Corporation with recourse. Notice of to contract; (d) that he has no knowledge of any fact which would impair the validity of the instrument or
Demand; Dishonor; Protest; and Presentment are hereby waived. render it valueless.

SAMBOK MOTORS CO. (BACOLOD) The appeal is without merit.

By: A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may be
made by adding to the indorser's signature the words "without recourse" or any words of similar import. 2
RODOLFO G. NONILLO Asst. General Manager Such an indorsement relieves the indorser of the general obligation to pay if the instrument is dishonored
but not of the liability arising from warranties on the instrument as provided in Section 65 of the Negotiable
The maker, Dr. Villaruel defaulted in the payment of his installments when they became due, so on October Instruments Law already mentioned herein. However, appellant Sambok indorsed the note "with recourse"
30, 1969 plaintiff formally presented the promissory note for payment to the maker. Dr. Villaruel failed to and even waived the notice of demand, dishonor, protest and presentment.
pay the promissory note as demanded, hence plaintiff notified Sambok as indorsee of said note of the fact
that the same has been dishonored and demanded payment. "Recourse" means resort to a person who is secondarily liable after the default of the person who is
primarily liable. 3 Appellant, by indorsing the note "with recourse" does not make itself a qualified indorser
Sambok failed to pay, so on November 26, 1969 plaintiff filed a complaint for collection of a sum of money but a general indorser who is secondarily liable, because by such indorsement, it agreed that if Dr. Villaruel
before the Court of First Instance of Iloilo, Branch I. Sambok did not deny its liability but contended that it fails to pay the note, plaintiff-appellee can go after said appellant. The effect of such indorsement is that the
could not be obliged to pay until after its co-defendant Dr. Villaruel has been declared insolvent. note was indorsed without qualification. A person who indorses without qualification engages that on due
presentment, the note shall be accepted or paid, or both as the case may be, and that if it be dishonored,
During the pendency of the case in the trial court, defendant Dr. Villaruel died, hence, on October 24, 1972 he will pay the amount thereof to the holder. 4 Appellant Sambok's intention of indorsing the note without
the lower court, on motion, dismissed the case against Dr. Villaruel pursuant to Section 21, Rule 3 of the qualification is made even more apparent by the fact that the notice of demand, dishonor, protest and
Rules of Court. 1 presentment were an waived. The words added by said appellant do not limit his liability, but rather
confirm his obligation as a general indorser.
On plaintiff's motion for summary judgment, the trial court rendered its decision dated September 12,
1973, the dispositive portion of which reads as follows: Lastly, the lower court did not err in not declaring appellant as only secondarily liable because after an
instrument is dishonored by non-payment, the person secondarily liable thereon ceases to be such and
WHEREFORE, judgment is rendered: becomes a principal debtor. 5 His liabiliy becomes the same as that of the original obligor. 6 Consequently,
the holder need not even proceed against the maker before suing the indorser.

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WHEREFORE, the decision of the lower court is hereby affirmed. No costs. rentals as of April 1982, and the monthly rental of P800.00 until the property is delivered to respondent
Peñarroyo; to pay respondents the sum of P20,000.00 as attorney's fees; and to pay the costs of the suit.
SO ORDERED.
In his Answer, petitioner admitted that the lot had been mortgaged to the Associated Banking Corporation
(now Associated Citizens Bank). He contended, however, that the complaint did not state a cause of action;
that the real property in interest was the Testate Estate of Angela M. Butte, which should have been joined
G.R. No. 105188 January 23, 1998 as a party defendant; that the case amounted to a claim against the Estate of Angela M. Butte and should
have been filed in Special Proceedings No. A-17910 before the Probate Court in Quezon City; and that, if as
MYRON C. PAPA, Administrator of the Testate Estate of Angela M. Butte, petitioner, alleged in the complaint, the property had been assigned to Tomas L. Parpana, as special administrator of
vs. A.U. VALENCIA and CO. INC., FELIX PEÑARROYO, SPS. ARSENIO B. REYES & AMANDA SANTOS, and the Estate of Ramon Papa, Jr., said estate should be impleaded. Petitioner, likewise, claimed that he could
DELFIN JAO, respondents. not recall in detail the transaction which allegedly occurred in 1973; that he did not have TCT No. 28993 in
KAPUNAN, J.: his possession; that he could not be held personally liable as he signed the deed merely as attorney-in-fact
of said Angela M. Butte. Finally, petitioner asseverated that as a result of the filing of the case, he was
In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Myron C. Papa seeks compelled to hire the services of counsel for a fee of P20,000.00 for which respondents should be held
to reverse and set aside 1) the Decision dated 27 January 1992 of the Court of Appeals which affirmed with liable.
modification the decision of the trial court; and 2) the Resolution dated 22 April 1992 of the same court,
which denied petitioner's motion for reconsideration of the above decision. Upon his motion, herein private respondent Delfin Jao was allowed to intervene in the case. Making
common cause with respondents Valencia and Peñarroyo, respondent Jao alleged that the subject lot which
The antecedent facts of this case are as follows: had been sold to respondent Peñarroyo through respondent Valencia was in turn sold to him on 20 August
1973 for the sum of P71,500.00, upon his paying earnest money in the amount of P5,000.00. He, therefore,
Sometime in June 1982, herein private respondents A.U. Valencia and Co., Inc. (hereinafter referred to as prayed that judgment be rendered in favor of respondents, the latter in turn be ordered to execute in his
respondent Valencia, for brevity) and Felix Peñarroyo (hereinafter called respondent Peñarroyo), filed with favor the appropriate deed of conveyance covering the property in question and to turn over to him the
the Regional Trial Court of Pasig, Branch 151, a complaint for specific performance against herein petitioner rentals which aforesaid respondents sought to collect from petitioner Myron V. Papa.
Myron C. Papa, in his capacity as administrator of the Testate Estate of one Angela M. Butte.
Respondent Jao, likewise, averred that as a result of petitioner's refusal to deliver the title to the property
The complaint alleged that on 15 June 1973, petitioner Myron C. Papa, acting as attorney-in-fact of Angela to respondents Valencia and Peñarroyo, who in turn failed to deliver the said title to him, he suffered
M. Butte, sold to respondent Peñarroyo, through respondent Valencia, a parcel of land, consisting of 286.60 mental anguish and serious anxiety for which he sought payment of moral damages; and, additionally, the
square meters, located at corner Retiro and Cadiz Streets, La Loma, Quezon City, and covered by Transfer payment of attorney's fees and costs.
Certificate of Title No. 28993 of the Register of Deeds of Quezon City; that prior to the alleged sale, the said
property, together with several other parcels of land likewise owned by Angela M. Butte, had been For his part, petitioner, as administrator of the Testate Estate of Angela M. Butte, filed a third-party
mortgaged by her to the Associated Banking Corporation (now Associated Citizens Bank); that after the complaint against herein private respondents, spouses Arsenio B. Reyes and Amanda Santos (respondent
alleged sale, but before the title to the subject property had been released, Angela M. Butte passed away; Reyes spouses, for short). He averred, among other's that the late Angela M. Butte was the owner of the
that despite representations made by herein respondents to the bank to release the title to the property subject property; that due to non-payment of real estate tax said property was sold at public auction the
sold to respondent Peñarroyo, the bank refused to release it unless and until all the mortgaged properties City Treasurer of Quezon City to the respondent Reyes spouses on 21 January 1980 for the sum of
of the late Angela M. Butte were also redeemed; that in order to protect his rights and interests over the P14,000.00; that the one-year period of redemption had expired; that respondents Valencia and Peñarroyo
property, respondent Peñarroyo caused the annotation on the title of an adverse claim as evidenced by had sued petitioner Papa as administrator of the estate of Angela M. Butte, for the delivery of the title to
Entry No. P.E.-6118/T-28993, inscribed on 18 January 1997. the property; that the same aforenamed respondents had acknowledged that the price paid by them was
insufficient, and that they were willing to add a reasonable amount or a minimum of P55,000.00 to the
The complaint further alleged that it was only upon the release of the title to the property, sometime in price upon delivery of the property, considering that the same was estimated to be worth P143,000.00; that
April 1977, that respondents Valencia and Peñarroyo discovered that the mortgage rights of the bank had petitioner was willing to reimburse respondents Reyes spouses whatever amount they might have paid for
been assigned to one Tomas L. Parpana (now deceased), as special administrator of the Estate of Ramon taxes and other charges, since the subject property was still registered in the name of the late Angela M.
Papa, Jr., on 12 April 1977; that since then, herein petitioner had been collecting monthly rentals in the Butte; that it was inequitable to allow respondent Reyes spouses to acquire property estimated to be worth
amount of P800.00 from the tenants of the property, knowing that said property had already been sold to P143,000.00, for a measly sum of P14,000.00. Petitioner prayed that judgment be rendered canceling the
private respondents on 15 June 1973; that despite repeated demands from said respondents, petitioner tax sale to respondent Reyes spouses; restoring the subject property to him upon payment by him to said
refused and failed to deliver the title to the property. Thereupon, respondents Valencia and Peñarroyo filed respondent Reyes spouses of the amount of P14,000.00, plus legal interest; and, ordering respondents
a complaint for specific performance, praying that petitioner be ordered to deliver to respondent Peñarroyo Valencia and Peñarroyo to pay him at least P55,000.00 plus everything they might have to pay the Reyes
the title to the subject property (TCT 28993); to turn over to the latter the sum of P72,000.00 as accrued spouses in recovering the property.

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Respondent Reyes spouses in their Answer raised the defense of prescription of petitioner's right to redeem certificate of title in the name of Felix Peñarroyo. In all other respects, the decision appealed from is
the property. AFFIRMED. Costs against defendant-appellant Myron C. Papa.

At the trial, only respondent Peñarroyo testified. All the other parties only submitted documentary proof. SO ORDERED. 2

On 29 June 1987, the trial court rendered a decision, the dispositive portion of which reads: In affirming the trial court's decision, respondent court held that contrary to petitioner's claim that he did
not encash the aforesaid check, and therefore, the sale was not consummated, there was no evidence at all
WHEREUPON, judgment is hereby rendered as follows: that petitioner did not, in fact, encash said check. On the other hand, respondent Peñarroyo testified in
court that petitioner Papa had received the amount of P45,000.00 and issued receipts therefor. According
1) Allowing defendant to redeem from third-party defendants and ordering the latter to allow the to respondent court, the presumption is that the check was encashed, especially since the payment by
former to redeem the property in question, by paying the sum of P14,000.00 plus legal interest of 12% check was not denied by defendant-appellant (herein petitioner) who, in his Answer, merely alleged that he
thereon from January 21, 1980; "can no longer recall the transaction which is supposed to have happened 10 years ago." 3

2) Ordering defendant to execute a Deed of Absolute Sale in favor of plaintiff Felix Peñarroyo On petitioner's claim that he cannot be held personally liable as he had acted merely as attorney-in-fact of
covering the property in question and to deliver peaceful possession and enjoyment of the said property to the owner, Angela M. Butte, respondent court held that such contention is without merit. This action was
the said plaintiff, free from any liens and encumbrances; not brought against him in his personal capacity, but in his capacity as the administrator of the Testate
Estate of Angela M. Butte. 4
Should this not be possible, for any reason not attributable to defendant, said defendant is ordered to pay
to plaintiff Felix Peñarroyo the sum of P45,000.00 plus legal interest of 12% from June 15, 1973; On petitioner's contention that the estate of Angela M. Butte should have been joined in the action as the
real party in interest, respondent court held that pursuant to Rule 3, Section 3 of the Rules of Court, the
3) Ordering plaintiff Felix Peñarroyo to execute and deliver to intervenor a deed of absolute sale estate of Angela M. Butte does not have to be joined in the action. Likewise, the estate of Ramon Papa, Jr.,
over the same property, upon the latter's payment to the former of the balance of the purchase price of is not an indispensable party under Rule 3, Section 7 of the same Rules. For the fact is that Ramon Papa, Jr.,
P71,500.00; or his estate, was not a party to the Deed of Absolute Sale, and it is basic law that contracts bind only those
who are parties thereto. 5
Should this not be possible, plaintiff Felix Peñarroyo is ordered to pay intervenor the sum of P5,000.00 plus
legal interest of 12% from August 23, 1973; and Respondent court observed that the conditions under which the mortgage rights of the bank were assigned
are not clear. In any case, any obligation which the estate of Angela M. Butte might have to the estate of
4) Ordering defendant to pay plaintiffs the amount of P5,000.00 for and as attorney's fees and Ramon Papa, Jr. is strictly between them. Respondents Valencia and Peñarroyo are not bound by any such
litigation expenses. obligation.

SO ORDERED. 1 Petitioner filed a motion for reconsideration of the above decision, which motion was denied by respondent
Court of Appeals.
Petitioner appealed the aforesaid decision of the trial court to the Court of Appeals, alleging among others
that the sale was never "consummated" as he did not encash the check (in the amount of P40,000.00) given Hence, this petition wherein petitioner raises the following issues:
by respondents Valencia and Peñarroyo in payment of the full purchase price of the subject lot. He
maintained that what said respondent had actually paid was only the amount of P5,000.00 (in cash) as I. THE CONCLUSION OR FINDING OF THE COURT OF APPEALS THAT THE SALE IN QUESTION WAS
earnest money. CONSUMMATED IS GROUNDED ON SPECULATION OR CONJECTURE, AND IS CONTRARY TO THE APPLICABLE
LEGAL PRINCIPLE.
Respondent Reyes spouses, likewise, appealed the above decision. However, their appeal was dismissed
because of failure to file their appellant's brief. II. THE COURT OF APPEALS, IN MODIFYING THE DECISION OF THE TRIAL COURT, ERRED BECAUSE IT,
IN EFFECT, CANCELLED OR NULLIFIED AN ASSIGNMENT OF THE SUBJECT PROPERTY IN FAVOR OF THE
On 27 January 1992, the Court of Appeals rendered a decision, affirming with modification the trial court's ESTATE OF RAMON PAPA, JR. WHICH IS NOT A PARTY IN THIS CASE.
decision, thus:
III. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE ESTATE OF ANGELA M. BUTTE AND
WHEREFORE, the second paragraph of the dispositive portion of the appealed decision is MODIFIED, by THE ESTATE OF RAMON PAPA, JR. ARE INDISPENSABLE PARTIES IN THIS
ordering the defendant-appellant to deliver to plaintiff-appellees the owner's duplicate of TCT No. 28993 of CASE. 6
Angela M. Butte and the peaceful possession and enjoyment of the lot in question or, if the owner's
duplicate certificate cannot be produced, to authorize the Register of Deeds to cancel it and issue a

29 | P a g e
Petitioner argues that respondent Court of Appeals erred in concluding that alleged sale of the subject Considering that respondents Valencia and Peñarroyo had fulfilled their part of the contract of sale by
property had been consummated. He contends that such a conclusion is based on the erroneous delivering the payment of the purchase price, said respondents, therefore, had the right to compel
presumption that the check (in the amount of P40,000.00) had been cashed, citing Art. 1249 of the Civil petitioner to deliver to them the owner's duplicate of TCT No. 28993 of Angela M. Butte and the peaceful
Code, which provides, in part, that payment by checks shall produce the effect of payment only when they possession and enjoyment of the lot in question.
have been cashed or when through the fault of the creditor they have been impaired. 7 Petitioner insists
that he never cashed said check; and, such being the case, its delivery never produced the effect of With regard to the alleged assignment of mortgage rights, respondent Court of Appeals has found that the
payment. Petitioner, while admitting that he had issued receipts for the payments, asserts that said conditions under which said mortgage rights of the bank were assigned are not clear. Indeed, a perusal of
receipts, particularly the receipt of PCIB Check No. 761025 in the amount of P40,000.00, do not prove the original records of the case would show that there is nothing there that could shed light on the
payment. He avers that there must be a showing that said check had been encashed. If, according to transactions leading to the said assignment of rights; nor is there any evidence on record of the conditions
petitioner, the check had been encashed, respondent Peñarroyo should have presented PCIB Check No. under which said mortgage rights were assigned. What is certain is that despite the said assignment of
761025 duly stamped received by the payee, or at least its microfilm copy. mortgage rights, the title to the subject property has remained in the name of the late Angela M. Butte. 14
This much is admitted by petitioner himself in his answer to respondent's complaint as well as in the third-
Petitioner finally avers that, in fact, the consideration for the sale was still in the hands of respondents party complaint that petitioner filed against respondent-spouses Arsenio B. Reyes and Amanda Santos. 15
Valencia and Peñarroyo, as evidenced by a letter addressed to him in which said respondents wrote, in part: Assuming arquendo that the mortgage rights of the Associated Citizens Bank had been assigned to the
estate of Ramon Papa, Jr., and granting that the assigned mortgage rights validly exists and constitute a lien
. . . Please be informed that I had been authorized by Dr. Ramon Papa, Jr., heir of Mrs. Angela M. Butte to on the property, the estate may file the appropriate action to enforce such lien. The cause of action for
pay you the aforementioned amount of P75,000.00 for the release and cancellation of subject property's specific performance which respondents Valencia and Peñarroyo have against petitioner is different from
mortgage. The money is with me and if it is alright with you, I would like to tender the payment as soon as the cause of action which the estate of Ramon Papa, Jr. may have to enforce whatever rights or liens it has
possible. . . . 8 on the property by reason of its being an alleged assignee of the bank's rights of mortgage.

We find no merit in petitioner's arguments. Finally, the estate of Angela M. Butte is not an indispensable party. Under Section 3 of Rule 3 of the Rules of
Court, an executor or administrator may sue or be sued without joining the party for whose benefit the
It is an undisputed fact that respondents Valencia and Peñarroyo had given petitioner Myron C. Papa the action is presented or defended, thus:
amounts of Five Thousand Pesos (P5,000.00) in cash on 24 May 1973, and Forty Thousand Pesos
(P40,000.00) in check on 15 June 1973, in payment of the purchase price of the subject lot. Petitioner Sec. 3. Representative parties. — A trustee of an express trust, a guardian, executor or administrator, or
himself admits having received said amounts, 9 and having issued receipts therefor. 10 Petitioner's a party authorized by statute, may sue or be sued without joining the party for whose benefit the action is
assertion that he never encashed the aforesaid check is not substantiated and is at odds with his statement presented or defended; but the court may, at any stage of the proceedings, order such beneficiary to be
in his answer that "he can no longer recall the transaction which is supposed to have happened 10 years made a party. An agent acting in his own name and for the benefit of an undisclosed principal may sue or be
ago." After more than ten (10) years from the payment in party by cash and in part by check, the sued without joining the principal except when the contract involves things belonging to the principal. 16
presumption is that the check had been encashed. As already stated, he even waived the presentation of
oral evidence. Neither is the estate of Ramon Papa, Jr. an indispensable party without whom, no final determination of the
action can be had. Whatever prior and subsisting mortgage rights the estate of Ramon Papa, Jr. has over the
Granting that petitioner had never encashed the check, his failure to do so for more than ten (10) years property may still be enforced regardless of the change in ownership thereof.
undoubtedly resulted in the impairment of the check through his unreasonable and unexplained delay.
WHEREFORE, the petition for review is hereby DENIED and the Decision of the Court of Appeals, dated 27
While it is true that the delivery of a check produces the effect of payment only when it is cashed, pursuant January 1992 is AFFIRMED.
to Art. 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by the creditor's unreasonable
delay in presentment. The acceptance of a check implies an undertaking of due diligence in presenting it for SO ORDERED.
payment, and if he from whom it is received sustains loss by want of such diligence, it will be held to
operate as actual payment of the debt or obligation for which it was given. 11 It has, likewise, been held
that if no presentment is made at all, the drawer cannot be held liable irrespective of loss or injury 12 unless
presentment is otherwise excused. This is in harmony with Article 1249 of the Civil Code under which
payment by way of check or other negotiable instrument is conditioned on its being cashed, except when
through the fault of the creditor, the instrument is impaired. The payee of a check would be a creditor
under this provision and if its no-payment is caused by his negligence, payment will be deemed effected and
the obligation for which the check was given as conditional payment will be discharged. 13

30 | P a g e
G.R. No. 187769 June 4, 2014 completely denied authorizing the loan or the check’s negotiation, and asserted that he was not privy to the
parties’ loan agreement.
ALVIN PATRIMONIO, Petitioner, vs. NAPOLEON GUTIERREZ and OCTAVIO MARASIGAN III, Respondents.
Only Marasigan filed his answer to the complaint. In the RTC’s order dated December 22, 1997,Gutierrez
Assailed in this petition for review on certiorari1 under Rule 45 of the Revised Rules of Court is the decision2 was declared in default.
dated September 24, 2008 and the resolution3 dated April 30, 2009 of the Court of Appeals (CA) in CA-G.R.
CV No. 82301. The appellate court affirmed the decision of the Regional Trial Court (RTC) of Quezon City, The Ruling of the RTC
Branch 77, dismissing the complaint for declaration of nullity of loan filed by petitioner Alvin Patrimonio and
ordering him to pay respondent Octavio Marasigan III (Marasigan) the sum of P200,000.00. The RTC ruled on February 3,2003 in favor of Marasigan.4 It found that the petitioner, in issuing the pre-
signed blank checks, had the intention of issuing a negotiable instrument, albeit with specific instructions to
The Factual Background Gutierrez not to negotiate or issue the check without his approval. While under Section 14 of the Negotiable
Instruments Law Gutierrez had the prima facie authority to complete the checks by filling up the blanks
The facts of the case, as shown by the records, are briefly summarized below. therein, the RTC ruled that he deliberately violated petitioner’s specific instructions and took advantage of
the trust reposed in him by the latter.
The petitioner and the respondent Napoleon Gutierrez (Gutierrez) entered into a business venture under
the name of Slam Dunk Corporation (Slum Dunk), a production outfit that produced mini-concerts and Nonetheless, the RTC declared Marasigan as a holder in due course and accordingly dismissed the
shows related to basketball. Petitioner was already then a decorated professional basketball player while petitioner’s complaint for declaration of nullity of the loan. It ordered the petitioner to pay Marasigan the
Gutierrez was a well-known sports columnist. face value of the check with a right to claim reimbursement from Gutierrez.

In the course of their business, the petitioner pre-signed several checks to answer for the expenses of Slam The petitioner elevated the case to the Court of Appeals (CA), insisting that Marasigan is not a holder in due
Dunk. Although signed, these checks had no payee’s name, date or amount. The blank checks were course. He contended that when Marasigan received the check, he knew that the same was without a date,
entrusted to Gutierrez with the specific instruction not to fill them out without previous notification to and and hence, incomplete. He also alleged that the loan was actually between Marasigan and Gutierrez with
approval by the petitioner. According to petitioner, the arrangement was made so that he could verify the his check being used only as a security.
validity of the payment and make the proper arrangements to fund the account.
The Ruling of the CA
In the middle of 1993, without the petitioner’s knowledge and consent, Gutierrez went to Marasigan (the
petitioner’s former teammate), to secure a loan in the amount of P200,000.00 on the excuse that the On September 24, 2008, the CA affirmed the RTC ruling, although premised on different factual findings.
petitioner needed the money for the construction of his house. In addition to the payment of the principal, After careful analysis, the CA agreed with the petitioner that Marasigan is not a holder in due course as he
Gutierrez assured Marasigan that he would be paid an interest of 5% per month from March to May 1994. did not receive the check in good faith.

After much contemplation and taking into account his relationship with the petitioner and Gutierrez, The CA also concluded that the check had been strictly filled out by Gutierrez in accordance with the
Marasigan acceded to Gutierrez’ request and gave him P200,000.00 sometime in February 1994. Gutierrez petitioner’s authority. It held that the loan may not be nullified since it is grounded on an obligation arising
simultaneously delivered to Marasigan one of the blank checks the petitioner pre-signed with Pilipinas from law and ruled that the petitioner is still liable to pay Marasigan the sum of P200,000.00.
Bank, Greenhills Branch, Check No. 21001764 with the blank portions filled out with the words "Cash" "Two
Hundred Thousand Pesos Only", and the amount of "P200,000.00". The upper right portion of the check After the CA denied the subsequent motion for reconsideration that followed, the petitioner filed the
corresponding to the date was also filled out with the words "May 23, 1994" but the petitioner contended present petition for review on certiorari under Rule 45 of the Revised Rules of Court.
that the same was not written by Gutierrez.
The Petition
On May 24, 1994, Marasigan deposited the check but it was dishonored for the reason "ACCOUNT CLOSED."
It was later revealed that petitioner’s account with the bank had been closed since May 28, 1993. The petitioner argues that: (1) there was no loan between him and Marasigan since he never authorized the
borrowing of money nor the check’s negotiation to the latter; (2) under Article 1878 of the Civil Code, a
Marasigan sought recovery from Gutierrez, to no avail. He thereafter sent several demand letters to the special power of attorney is necessary for an individual to make a loan or borrow money in behalf of
petitioner asking for the payment of P200,000.00, but his demands likewise went unheeded. Consequently, another; (3) the loan transaction was between Gutierrez and Marasigan, with his check being used only as a
he filed a criminal case for violation of B.P. 22 against the petitioner, docketed as Criminal Case No. 42816. security; (4) the check had not been completely and strictly filled out in accordance with his authority since
the condition that the subject check can only be used provided there is prior approval from him, was not
On September 10, 1997, the petitioner filed before the Regional Trial Court (RTC) a Complaint for complied with; (5) even if the check was strictly filled up as instructed by the petitioner, Marasigan is still
Declaration of Nullity of Loan and Recovery of Damages against Gutierrez and co-respondent Marasigan. He not entitled to claim the check’s value as he was not a holder in due course; and (6) by reason of the bad
faith in the dealings between the respondents, he is entitled to claim for damages.

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The Issues As a general rule, a contract of agency may be oral.6 However, it must be written when the law requires a
specific form, for example, in a sale of a piece of land or any interest therein through an agent.
Reduced to its basics, the case presents to us the following issues:
Article 1878 paragraph 7 of the Civil Code expressly requires a special power of authority before an agent
1. Whether the contract of loan in the amount of P200,000.00 granted by respondent Marasigan to can loan or borrow money in behalf of the principal, to wit:
petitioner, through respondent Gutierrez, may be nullified for being void;
Art. 1878. Special powers of attorney are necessary in the following cases:
2. Whether there is basis to hold the petitioner liable for the payment of the P200,000.00 loan;
xxxx
3. Whether respondent Gutierrez has completely filled out the subject check strictly under the authority
given by the petitioner; and (7) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the
things which are under administration. (emphasis supplied)
4. Whether Marasigan is a holder in due course.
Article 1878 does not state that the authority be in writing. As long as the mandate is express, such
The Court’s Ruling authority may be either oral or written. We unequivocably declared in Lim Pin v. Liao Tian, et al.,7 that the
requirement under Article 1878 of the Civil Code refers to the nature of the authorization and not to its
The petition is impressed with merit. form. Be that as it may, the authority must be duly established by competent and convincing evidence other
than the self serving assertion of the party claiming that such authority was verbally given, thus:
We note at the outset that the issues raised in this petition are essentially factual in nature. The main point
of inquiry of whether the contract of loan may be nullified, hinges on the very existence of the contract of The requirements of a special power of attorney in Article 1878 of the Civil Code and of a special authority
loan – a question that, as presented, is essentially, one of fact. Whether the petitioner authorized the in Rule 138 of the Rules of Court refer to the nature of the authorization and not its form. The requirements
borrowing; whether Gutierrez completely filled out the subject check strictly under the petitioner’s are met if there is a clear mandate from the principal specifically authorizing the performance of the act. As
authority; and whether Marasigan is a holder in due course are also questions of fact, that, as a general early as 1906, this Court in Strong v. Gutierrez-Repide (6 Phil. 680) stated that such a mandate may be
rule, are beyond the scope of a Rule 45 petition. either oral or written, the one vital thing being that it shall be express. And more recently, We stated that, if
the special authority is not written, then it must be duly established by evidence:
The rule that questions of fact are not the proper subject of an appeal by certiorari, as a petition for review
under Rule 45 is limited only to questions of law, is not an absolute rule that admits of no exceptions. One x x x the Rules require, for attorneys to compromise the litigation of their clients, a special authority. And
notable exception is when the findings off act of both the trial court and the CA are conflicting, making their while the same does not state that the special authority be in writing the Court has every reason to expect
review necessary.5 In the present case, the tribunals below arrived at two conflicting factual findings, albeit that, if not in writing, the same be duly established by evidence other than the self-serving assertion of
with the same conclusion, i.e., dismissal of the complaint for nullity of the loan. Accordingly, we will counsel himself that such authority was verbally given him.(Home Insurance Company vs. United States
examine the parties’ evidence presented. lines Company, et al., 21 SCRA 863; 866: Vicente vs. Geraldez, 52 SCRA 210; 225). (emphasis supplied).

I. Liability Under the Contract of Loan The Contract of Loan Entered Into by Gutierrez in Behalf of the Petitioner Should be Nullified for Being Void;
Petitioner is Not Bound by the Contract of Loan.
The petitioner seeks to nullify the contract of loan on the ground that he never authorized the borrowing of
money. He points to Article 1878, paragraph 7 of the Civil Code, which explicitly requires a written authority A review of the records reveals that Gutierrez did not have any authority to borrow money in behalf of the
when the loan is contracted through an agent. The petitioner contends that absent such authority in petitioner.1âwphi1 Records do not show that the petitioner executed any special power of attorney (SPA) in
writing, he should not be held liable for the face value of the check because he was not a party or privy to favor of Gutierrez. In fact, the petitioner’s testimony confirmed that he never authorized Gutierrez (or
the agreement. anyone for that matter), whether verbally or in writing, to borrow money in his behalf, nor was he aware of
any such transaction:
Contracts of Agency May be Oral Unless The Law Requires a Specific Form
ALVIN PATRIMONIO (witness)
Article 1868 of the Civil Code defines a contract of agency as a contract whereby a person "binds himself to
render some service or to do something in representation or on behalf of another, with the consent or ATTY. DE VERA: Did you give Nap Gutierrez any Special Power of Attorney in writing authorizing him to
authority of the latter." Agency may be express, or implied from the acts of the principal, from his silence or borrow using your money?
lack of action, or his failure to repudiate the agency, knowing that another person is acting on his behalf
without authority. WITNESS: No, sir. (T.S.N., Alvin Patrimonio, Nov. 11, 1999, p. 105)8

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 principal, otherwise, it will bind the agent only. It is not enough merely that the agent was in fact authorized
xxxx to make the mortgage, if he has not acted in the name of the principal. x x x (emphasis supplied).

Marasigan however submits that the petitioner’s acts of pre-signing the blank checks and releasing them to In the absence of any showing of any agency relations or special authority to act for and in behalf of the
Gutierrez suffice to establish that the petitioner had authorized Gutierrez to fill them out and contract the petitioner, the loan agreement Gutierrez entered into with Marasigan is null and void. Thus, the petitioner
loan in his behalf. is not bound by the parties’ loan agreement.

Marasigan’s submission fails to persuade us. Furthermore, that the petitioner entrusted the blank pre-signed checks to Gutierrez is not legally sufficient
because the authority to enter into a loan can never be presumed. The contract of agency and the special
In the absence of any authorization, Gutierrez could not enter into a contract of loan in behalf of the fiduciary relationship inherent in this contract must exist as a matter of fact. The person alleging it has the
petitioner. As held in Yasuma v. Heirs of De Villa,9 involving a loan contracted by de Villa secured by real burden of proof to show, not only the fact of agency, but also its nature and extent.11 As we held in People
estate mortgages in the name of East Cordillera Mining Corporation, in the absence of an SPA conferring v. Yabut:12
authority on de Villa, there is no basis to hold the corporation liable, to wit:
Modesto Yambao's receipt of the bad checks from Cecilia Que Yabut or Geminiano Yabut, Jr., in Caloocan
The power to borrow money is one of those cases where corporate officers as agents of the corporation City cannot, contrary to the holding of the respondent Judges, be licitly taken as delivery of the checks to
need a special power of attorney. In the case at bar, no special power of attorney conferring authority on de the complainant Alicia P. Andan at Caloocan City to fix the venue there. He did not take delivery of the
Villa was ever presented. x x x There was no showing that respondent corporation ever authorized de Villa checks as holder, i.e., as "payee" or "indorsee." And there appears to beno contract of agency between
to obtain the loans on its behalf. Yambao and Andan so as to bind the latter for the acts of the former. Alicia P. Andan declared in that sworn
testimony before the investigating fiscal that Yambao is but her "messenger" or "part-time employee."
xxxx There was no special fiduciary relationship that permeated their dealings. For a contract of agency to exist,
the consent of both parties is essential, the principal consents that the other party, the agent, shall act on
Therefore, on the first issue, the loan was personal to de Villa. There was no basis to hold the corporation his behalf, and the agent consents so to act. It must exist as a fact. The law makes no presumption thereof.
liable since there was no authority, express, implied or apparent, given to de Villa to borrow money from The person alleging it has the burden of proof to show, not only the fact of its existence, but also its nature
petitioner. Neither was there any subsequent ratification of his act. and extent. This is more imperative when it is considered that the transaction dealt with involves checks,
which are not legal tender, and the creditor may validly refuse the same as payment of obligation.(at p.
xxxx 630). (emphasis supplied)

The liability arising from the loan was the sole indebtedness of de Villa (or of his estate after his death). The records show that Marasigan merely relied on the words of Gutierrez without securing a copy of the
(citations omitted; emphasis supplied). SPA in favor of the latter and without verifying from the petitioner whether he had authorized the
borrowing of money or release of the check. He was thus bound by the risk accompanying his trust on the
This principle was also reiterated in the case of Gozun v. Mercado,10 where this court held: mere assurances of Gutierrez.

Petitioner submits that his following testimony suffices to establish that respondent had authorized Lilian to No Contract of Loan Was Perfected Between Marasigan And Petitioner, as The Latter’s Consent Was Not
obtain a loan from him. Obtained.

xxxx Another significant point that the lower courts failed to consider is that a contract of loan, like any other
contract, is subject to the rules governing the requisites and validity of contracts in general.13 Article 1318
Petitioner’s testimony failed to categorically state, however, whether the loan was made on behalf of of the Civil Code14 enumerates the essential requisites for a valid contract, namely:
respondent or of his wife. While petitioner claims that Lilian was authorized by respondent, the statement
of account marked as Exhibit "A" states that the amount was received by Lilian "in behalf of Mrs. Annie 1. consent of the contracting parties;
Mercado.
2. object certain which is the subject matter of the contract; and
It bears noting that Lilian signed in the receipt in her name alone, without indicating therein that she was
acting for and in behalf of respondent. She thus bound herself in her personal capacity and not as an agent 3. cause of the obligation which is established.
of respondent or anyone for that matter.
In this case, the petitioner denied liability on the ground that the contract lacked the essential element of
It is a general rule in the law of agency that, in order to bind the principal by a mortgage on real property consent. We agree with the petitioner. As we explained above, Gutierrez did not have the petitioner’s
executed by an agent, it must upon its face purport to be made, signed and sealed in the name of the written/verbal authority to enter into a contract of loan. While there may be a meeting of the minds

33 | P a g e
between Gutierrez and Marasigan, such agreement cannot bind the petitioner whose consent was not
obtained and who was not privy to the loan agreement. Hence, only Gutierrez is bound by the contract of Marasigan is Not a Holder in Due Course
loan.
The Negotiable Instruments Law (NIL) defines a holder in due course, thus:
True, the petitioner had issued several pre-signed checks to Gutierrez, one of which fell into the hands of
Marasigan. This act, however, does not constitute sufficient authority to borrow money in his behalf and Sec. 52 — A holder in due course is a holder who has taken the instrument under the following conditions:
neither should it be construed as petitioner’s grant of consent to the parties’ loan agreement. Without any
evidence to prove Gutierrez’ authority, the petitioner’s signature in the check cannot be taken, even (a) That it is complete and regular upon its face;
remotely, as sufficient authorization, much less, consent to the contract of loan. Without the consent given
by one party in a purported contract, such contract could not have been perfected; there simply was no (b) That he became the holder of it before it was overdue, and without notice that it had been previously
contract to speak of.15 dishonored, if such was the fact;

With the loan issue out of the way, we now proceed to determine whether the petitioner can be made (c) That he took it in good faith and for value;
liable under the check he signed.
(d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in
II. Liability Under the Instrument the title of the person negotiating it.(emphasis supplied)

The answer is supplied by the applicable statutory provision found in Section 14 of the Negotiable Section 52(c) of the NIL states that a holder in due course is one who takes the instrument "in good faith
Instruments Law (NIL) which states: and for value." It also provides in Section 52(d) that in order that one may be a holder in due course, it is
necessary that at the time it was negotiated to him he had no notice of any infirmity in the instrument or
Sec. 14. Blanks; when may be filled.- Where the instrument is wanting in any material particular, the person defect in the title of the person negotiating it.
in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a
signature on a blank paper delivered by the person making the signature in order that the paper may be Acquisition in good faith means taking without knowledge or notice of equities of any sort which could
converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any beset up against a prior holder of the instrument.18 It means that he does not have any knowledge of fact
amount. In order, however, that any such instrument when completed may be enforced against any person which would render it dishonest for him to take a negotiable paper. The absence of the defense, when the
who became a party thereto prior to its completion, it must be filled up strictly in accordance with the instrument was taken, is the essential element of good faith.19
authority given and within a reasonable time. But if any such instrument, after completion, is negotiated to
a holder in due course, it is valid and effectual for all purposes in his hands, and he may enforce it as if it had As held in De Ocampo v. Gatchalian:20
been filled up strictly in accordance with the authority given and within a reasonable time.
In order to show that the defendant had "knowledge of such facts that his action in taking the instrument
This provision applies to an incomplete but delivered instrument. Under this rule, if the maker or drawer amounted to bad faith," it is not necessary to prove that the defendant knew the exact fraud that was
delivers a pre-signed blank paper to another person for the purpose of converting it into a negotiable practiced upon the plaintiff by the defendant's assignor, it being sufficient to show that the defendant had
instrument, that person is deemed to have prima facie authority to fill it up. It merely requires that the notice that there was something wrong about his assignor's acquisition of title, although he did not have
instrument be in the possession of a person other than the drawer or maker and from such possession, notice of the particular wrong that was committed.
together with the fact that the instrument is wanting in a material particular, the law presumes agency to
fill up the blanks.16 It is sufficient that the buyer of a note had notice or knowledge that the note was in some way tainted with
fraud. It is not necessary that he should know the particulars or even the nature of the fraud, since all that is
In order however that one who is not a holder in due course can enforce the instrument against a party required is knowledge of such facts that his action in taking the note amounted bad faith.
prior to the instrument’s completion, two requisites must exist: (1) that the blank must be filled strictly in
accordance with the authority given; and (2) it must be filled up within a reasonable time. If it was proven The term ‘bad faith’ does not necessarily involve furtive motives, but means bad faith in a commercial
that the instrument had not been filled up strictly in accordance with the authority given and within a sense. The manner in which the defendants conducted their Liberty Loan department provided an easy way
reasonable time, the maker can set this up as a personal defense and avoid liability. However, if the holder for thieves to dispose of their plunder. It was a case of "no questions asked." Although gross negligence
is a holder in due course, there is a conclusive presumption that authority to fill it up had been given and does not of itself constitute bad faith, it is evidence from which bad faith may be inferred. The
that the same was not in excess of authority.17 circumstances thrust the duty upon the defendants to make further inquiries and they had no right to shut
their eyes deliberately to obvious facts. (emphasis supplied).
In the present case, the petitioner contends that there is no legal basis to hold him liable both under the
contract and loan and under the check because: first, the subject check was not completely filled out strictly
under the authority he has given and second, Marasigan was not a holder in due course.

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In the present case, Marasigan’s knowledge that the petitioner is not a party or a privy to the contract of Yet, it does not follow that simply because he is not a holder in due course, Marasigan is already totally
loan, and correspondingly had no obligation or liability to him, renders him dishonest, hence, in bad faith. barred from recovery. The NIL does not provide that a holder who is not a holder in due course may not in
The following exchange is significant on this point: any case recover on the instrument.22 The only disadvantage of a holder who is not in due course is that
the negotiable instrument is subject to defenses as if it were non-negotiable.23 Among such defenses is the
WITNESS: AMBET NABUS filling up blank not within the authority.

Q: Now, I refer to the second call… after your birthday. Tell us what you talked about? On this point, the petitioner argues that the subject check was not filled up strictly on the basis of the
authority he gave. He points to his instruction not to use the check without his prior approval and argues
A: Since I celebrated my birthday in that place where Nap and I live together with the other crew, there that the check was filled up in violation of said instruction.
were several visitors that included Danny Espiritu. So a week after my birthday, Bong Marasigan called me
up again and he was fuming mad. Nagmumura na siya. Hinahanap niya si… hinahanap niya si Nap, dahil Check Was Not Completed Strictly Under The Authority Given by The Petitioner
pinagtataguan na siya at sinabi na niya na kailangan I-settle na niya yung utang ni Nap, dahil…
Our own examination of the records tells us that Gutierrez has exceeded the authority to fill up the blanks
xxxx and use the check.1âwphi1 To repeat, petitioner gave Gutierrez pre-signed checks to be used in their
business provided that he could only use them upon his approval. His instruction could not be any clearer as
WITNESS: Yes. Sinabi niya sa akin na kailangan ayusin na bago pa mauwi sa kung saan ang tsekeng Gutierrez’ authority was limited to the use of the checks for the operation of their business, and on the
tumalbog… (He told me that we have to fix it up before it…) mauwi pa kung saan… condition that the petitioner’s prior approval be first secured.

xxxx While under the law, Gutierrez had a prima facie authority to complete the check, such prima facie
authority does not extend to its use (i.e., subsequent transfer or negotiation)once the check is completed.
Q: What was your reply, if any? In other words, only the authority to complete the check is presumed. Further, the law used the term
"prima facie" to underscore the fact that the authority which the law accords to a holder is a presumption
A: I actually asked him. Kanino ba ang tseke na sinasabi mo? juris tantumonly; hence, subject to subject to contrary proof. Thus, evidence that there was no authority or
that the authority granted has been exceeded may be presented by the maker in order to avoid liability
(Whose check is it that you are referring to or talking about?) under the instrument.

Q: What was his answer? In the present case, no evidence is on record that Gutierrez ever secured prior approval from the petitioner
to fill up the blank or to use the check. In his testimony, petitioner asserted that he never authorized nor
A: It was Alvin’s check. approved the filling up of the blank checks, thus:

Q: What was your reply, if any? ATTY. DE VERA: Did you authorize anyone including Nap Gutierrez to write the date, May 23, 1994?

A: I told him do you know that it is not really Alvin who borrowed money from you or what you want to WITNESS: No, sir.
appear…
Q: Did you authorize anyone including Nap Gutierrez to put the word cash? In the check?
xxxx
A: No, sir.
Q: What was his reply?
Q: Did you authorize anyone including Nap Gutierrez to write the figure P200,000 in this check?
A: Yes, it was Nap, pero tseke pa rin ni Alvin ang hawak ko at si Alvin ang maiipit dito.(T.S.N., Ambet Nabus,
July 27, 2000; pp.65-71; emphasis supplied)21 A: No, sir.

Since he knew that the underlying obligation was not actually for the petitioner, the rule that a possessor of Q: And lastly, did you authorize anyone including Nap Gutierrez to write the words P200,000 only xx in this
the instrument is prima facie a holder in due course is inapplicable. As correctly noted by the CA, his check?
inaction and failure to verify, despite knowledge of that the petitioner was not a party to the loan, may be
construed as gross negligence amounting to bad faith. A: No, sir. (T.S.N., Alvin Patrimonio, November 11, 1999).24

35 | P a g e
Notably, Gutierrez was only authorized to use the check for business expenses; thus, he exceeded the fully well that the said checks are worthless and are not covered by funds in the aforementioned banks, for
authority when he used the check to pay the loan he supposedly contracted for the construction of which reason the same were dishonored and rejected by the said banks when presented for encashment, to
petitioner's house. This is a clear violation of the petitioner's instruction to use the checks for the expenses the damage and prejudice of the Republic of the Philippines, in the amount of P66,434.50, Philippine
of Slam Dunk. It cannot therefore be validly concluded that the check was completed strictly in accordance currency. 1
with the authority given by the petitioner.
Only Lt. Ubay and Mrs. Maniego were arraigned, Mrs. Pamintuan having apparently fled to the United
Considering that Marasigan is not a holder in due course, the petitioner can validly set up the personal States in August, 1962. 2 Both Ubay and Maniego entered a plea of not guilty. 3
defense that the blanks were not filled up in accordance with the authority he gave. Consequently,
Marasigan has no right to enforce payment against the petitioner and the latter cannot be obliged to pay After trial judgment was rendered by the Court of First Instance, 4 the dispositive part whereof reads:
the face value of the check.
There being sufficient evidence beyond reasonable doubt against the accused, Rizalino M. Ubay, the Court
WHEREFORE, in view of the foregoing, judgment is hereby rendered GRANTING the petitioner Alvin hereby convicts him of the crime of malversation and sentences him to suffer the penalty of reclusion
Patrimonio's petition for review on certiorari. The appealed Decision dated September 24, 2008 and the temporal of TWELVE (12) YEARS, ONE (1) DAY to FOURTEEN (14) YEARS, EIGHT (8) MONTHS, and a fine of
Resolution dated April 30, 2009 of the Court of Appeals are consequently ANNULLED AND SET ASIDE. Costs P57,434.50 which is the amount malversed, and to suffer perpetual special disqualification.
against the respondents.
In the absence of evidence against accused Julia T. Maniego, the Court hereby acquits her, but both she and
SO ORDERED. Rizal T. Ubay are hereby ordered to pay jointly and severally the amount of P57,434.50 to the government.
5

Maniego sought reconsideration of the judgment, praying that she be absolved from civil liability or, at the
G.R. No. L-30910 February 27, 1987 very least, that her liability be reduced to P46,934.50. 6 The Court declined to negate her civil liability, but
PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. JULIA MANIEGO, accused-appellant. did reduce the amount thereof to P 46,934.50. 7 She appealed to the Court of Appeals 8 as Ubay had earlier
done. 9
NARVASA, J.:
Ubay's appeal was subsequently dismissed by the Appellate Court because of his failure to file brief. 10 On
Application of the established rule in this jurisdiction, that the acquittal of an accused on reasonable doubt the other hand, Maniego submitted her brief in due course, and ascribed three (3) errors to the Court a
is not generally an impediment to the imposition, in the same criminal action, of civil liability for damages quo, to wit:
on said accused, is what is essentially called into question by the appellant in this case.
1) The Lower Court erred in holding her civilly liable to indemnify the Government for the value of
The information which initiated the instant criminal proceedings in the Court of First Instance of Rizal the cheeks after she had been found not guilty of the crime out of which the civil liability arises.
indicted three (3) persons — Lt. Rizalino M. Ubay, Mrs. Milagros Pamintuan, and Mrs. Julia T. Maniego —
for the crime of MALVERSATION committed as follows: 2) Even assuming arguendo that she could properly be held civilly liable after her acquittal, it was
error for the lower Court to adjudge her liable as an indorser to indemnify the government for the amount
That on or about the period covering the month of May, 1957 up to and including the month of August, of the cheeks.
1957, in Quezon City, Philippines, the above-named accused, conspiring together, confederating with and
helping one another, with intent of gain and without authority of law, did, then and there, willfully, 3) The Lower Court erred in declaring her civilly liable jointly and severally with her co-defendant
unlawfully and feloniously malverse, misappropriate and misapply public funds in the amount of P Ubay, instead of absolving her altogether. 11
66,434.50 belonging to the Republic of the Philippines, in the following manner, to wit: the accused, Lt.
RIZALINO M. Ubay, a duly appointed officer in the Armed Forces of the Philippines in active duty, who, Because, in the Appellate Court's view, Maniego's brief raised only questions of law, her appeal was later
during the period specified above, was designated as Disbursing Officer in the Office of the Chief of Finance, certified to this Court pursuant to Section 17, in relation to Section 31, of the Judiciary Act, as amended, and
GHQ, Camp Murphy, Quezon City, and as such was entrusted with and had under his custody and control Section 3, Rule 50 of the Rules of Court. 12
public funds, conspiring and confederating with co-accused, MILAGROS T. PAMINTUAN and JULIA T.
MANIEGO, did then and there, unlawfully, willfully and feloniously, with intent of gain and without authority The verdict must go against the appellant.
of law, and in pursuance of their conspiracy, take, receive, and accept from his said co-accused several
personal checks drawn against the Philippine National Bank and the Bank of the Philippine Islands, of which Well known is the principle that "any person criminally hable for felony is also civilly liable." 13 But a person
the accused, MILAGROS T. PAMINTUAN is the drawer and the accused, JULIA T. MANIEGO, is the indorser, adjudged not criminally responsible may still be held to be civilly liable. A person's acquittal of a crime on
in the total amount of P66,434.50, cashing said checks and using for this purpose the public funds entrusted the ground that his guilt has not been proven beyond reasonable doubt 14 does not bar a civil action for
to and placed under the custody and control of the said Lt. Rizalino M. Ubay, all the said accused knowing damages founded on the same acts involved in the offense. 15 Extinction of the penal action does not carry

36 | P a g e
with it extinction of the civil unless the extinction proceeds from a declaration in a final judgment that the G.R. No. L-26001 October 29, 1968
fact from which the civil might arise did not exist. 16
PHILIPPINE NATIONAL BANK, petitioner, vs. THE COURT OF APPEALS and PHILIPPINE COMMERCIAL AND
Rule III SEC. 3(b) — Extinction of the penal action does not carry with it extinction of the civil, unless the INDUSTRIAL BANK, respondents.
extinction proceeds from a declaration in a final judgment that the fact from which the civil might arise did
not exist. In other cases, the person entitled to the civil action may institute it in the jurisdiction and in the CONCEPCION, C.J.:
manner provided by law against the person who may be liable for restitution of the thing and reparation of
indemnity for the damage suffered. (1985 Rules on Criminal Procedure). The Philippine National Bank — hereinafter referred to as the PNB — seeks the review by certiorari of a
decision of the Court of Appeals, which affirmed that of the Court of First Instance of Manila, dismissing
Hence, contrary to her submission, 17 Maniego's acquittal on reasonable doubt of the crime of plaintiff's complaint against the Philippine Commercial and Industrial Bank — hereinafter referred to as the
Malversation imputed to her and her two (2) co-accused did not operate to absolve her from civil liability PCIB — for the recovery of P57,415.00.
for reimbursement of the amount rightfully due to the Government as owner thereof. Her liability therefor
could properly be adjudged, as it was so adjudged, by the Trial Court on the basis of the evidence before it, A partial stipulation of facts entered into by the parties and the decision of the Court of Appeals show that,
which adequately establishes that she was an indorser of several checks drawn by her sister, which were on about January 15, 1962, one Augusto Lim deposited in his current account with the PCIB branch at Padre
dishonored after they had been exchanged with cash belonging to the Government, then in the official Faura, Manila, GSIS Check No. 645915- B, in the sum of P57,415.00, drawn against the PNB; that, following
custody of Lt. Ubay. an established banking practice in the Philippines, the check was, on the same date, forwarded, for clearing,
through the Central Bank, to the PNB, which did not return said check the next day, or at any other time,
Appellant's contention that as mere indorser, she may not be made liable on account of the dishonor of the but retained it and paid its amount to the PCIB, as well as debited it against the account of the GSIS in the
checks indorsed by her, is likewise untenable. Under the law, the holder or last indorsee of a negotiable PNB; that, subsequently, or on January 31, 1962, upon demand from the GSIS, said sum of P57,415.00 was
instrument has the right to "enforce payment of the instrument for the full amount thereof against all re-credited to the latter's account, for the reason that the signatures of its officers on the check were
parties liable thereon." 18 Among the "parties liable thereon" is an indorser of the instrument i.e., "a person forged; and that, thereupon, or on February 2, 1962, the PNB demanded from the PCIB the refund of said
placing his signature upon an instrument otherwise than as maker, drawer, or acceptor ** unless he clearly sum, which the PCIB refused to do. Hence, the present action against the PCIB, which was dismissed by the
indicates by appropriate words his intention to be bound in some other capacity. " 19 Such an indorser Court of First Instance of Manila, whose decision was, in turn, affirmed by the Court of Appeals.
"who indorses without qualification," inter alia "engages that on due presentment, ** (the instrument) shall
be accepted or paid, or both, as the case may be, according to its tenor, and that if it be dishonored, and the It is not disputed that the signatures of the General Manager and the Auditor of the GSIS on the check, as
necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any drawer thereof, are forged; that the person named in the check as its payee was one Mariano D. Pulido,
subsequent indorser who may be compelled to pay it." 20 Maniego may also be deemed an who purportedly indorsed it to one Manuel Go; that the check purports to have been indorsed by Manuel
"accommodation party" in the light of the facts, i.e., a person "who has signed the instrument as maker, Go to Augusto Lim, who, in turn, deposited it with the PCIB, on January 15, 1962; that, thereupon, the PCIB
drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to stamped the following on the back of the check: "All prior indorsements and/or Lack of Endorsement
some other person." 21 As such, she is under the law "liable on the instrument to a holder for value, Guaranteed, Philippine Commercial and Industrial Bank," Padre Faura Branch, Manila; that, on the same
notwithstanding such holder at the time of taking the instrument knew ** (her) to be only an date, the PCIB sent the check to the PNB, for clearance, through the Central Bank; and that, over two (2)
accommodation party," 22 although she has the right, after paying the holder, to obtain reimbursement months before, or on November 13, 1961, the GSIS had notified the PNB, which acknowledged receipt of
from the party accommodated, "since the relation between them is in effect that of principal and surety, the notice, that said check had been lost, and, accordingly, requested that its payment be stopped.
the accommodation party being the surety." 23
In its brief, the PNB maintains that the lower court erred: (1) in not finding the PCIB guilty of negligence; (2)
One last word. The Trial Court acted correctly in adjudging Maniego to be civilly liable in the same criminal in not finding that the indorsements at the back of the check are forged; (3) in not finding the PCIB liable to
action in which she had been acquitted of the felony of Malversation ascribed to her, dispensing with the the PNB by virtue of the former's warranty on the back of the check; (4) in not holding that "clearing" is not
necessity of having a separate civil action subsequently instituted against her for the purpose. 24 "acceptance", in contemplation of the Negotiable Instruments law; (5) in not finding that, since the check
had not been accepted by the PNB, the latter is entitled to reimbursement therefor; and (6) in denying the
WHEREFORE, the judgment of the Trial Court, being entirely in accord with the facts and the law, is hereby PNB's right to recover from the PCIB.
affirmed in toto, with costs against the appellant.
The first assignment of error will be discussed later, together with the last,with which it is interrelated.
SO ORDERED.
As regards the second assignment of error, the PNB argues that, since the signatures of the drawer are
forged, so must the signatures of the supposed indorsers be; but this conclusion does not necessarily follow
from said premise. Besides, there is absolutely no evidence, and the PNB has not even tried to prove that
the aforementioned indorsements are spurious. Again, the PNB refunded the amount of the check to the
GSIS, on account of the forgery in the signatures, not of the indorsers or supposed indorsers, but of the

37 | P a g e
officers of the GSIS as drawer of the instrument. In other words, the question whether or not the
indorsements have been falsified is immaterial to the PNB's liability as a drawee, or to its right to recover Then, again, it has, likewise, been held that, where the collecting (PCIB) and the drawee (PNB) banks are
from the PCIB,1 for, as against the drawee, the indorsement of an intermediate bank does not guarantee equally at fault, the court will leave the parties where it finds them.15
the signature of the drawer,2 since the forgery of the indorsement is not the cause of the loss.3
Lastly, Section 62 of Act No. 2031 provides:
With respect to the warranty on the back of the check, to which the third assignment of error refers, it
should be noted that the PCIB thereby guaranteed "all prior indorsements," not the authenticity of the The acceptor by accepting the instrument engages that he will pay it according to the tenor of his
signatures of the officers of the GSIS who signed on its behalf, because the GSIS is not an indorser of the acceptance; and admits:
check, but its drawer.4 Said warranty is irrelevant, therefore, to the PNB's alleged right to recover from the
PCIB. It could have been availed of by a subsequent indorsee5 or a holder in due course6 subsequent to the (a) The existence of the drawer, the genuineness of his signature, and his capacity and authority to
PCIB, but, the PNB is neither.7 Indeed, upon payment by the PNB, as drawee, the check ceased to be a draw the instrument; and
negotiable instrument, and became a mere voucher or proof of payment.8
(b) The existence of the payee and his then capacity to indorse.
Referring to the fourth and fifth assignments of error, we must bear in mind that, in general, "acceptance",
in the sense in which this term is used in the Negotiable Instruments Law9 is not required for checks, for the The prevailing view is that the same rule applies in the case of a drawee who pays a bill without having
same are payable on demand.10 Indeed, "acceptance" and "payment" are, within the purview of said Law, previously accepted it.16
essentially different things, for the former is "a promise to perform an act," whereas the latter is the "actual
performance" thereof.11 In the words of the Law,12 "the acceptance of a bill is the signification by the WHEREFORE, the decision appealed from is hereby affirmed, with costs against the Philippine National
drawee of his assent to the order of the drawer," which, in the case of checks, is the payment, on demand, Bank. It is so ordered.
of a given sum of money. Upon the other hand, actual payment of the amount of a check implies not only
an assent to said order of the drawer and a recognition of the drawer's obligation to pay the
aforementioned sum, but, also, a compliance with such obligation.

Let us now consider the first and the last assignments of error. The PNB maintains that the lower court G.R. No. L-18751 September 26, 1922
erred in not finding that the PCIB had been guilty of negligence in not discovering that the check was forged.
Assuming that there had been such negligence on the part of the PCIB, it is undeniable, however, that the THE PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs. BARTOLOME PICORNELL, ET AL., defendants.
PNB has, also, been negligent, with the particularity that the PNB had been guilty of a greater degree of BARTOLOME PICORNELL, appellant.
negligence, because it had a previous and formal notice from the GSIS that the check had been lost, with
the request that payment thereof be stopped. Just as important, if not more important and decisive, is the G.R. No. L-18915 September 26, 1922
fact that the PNB's negligence was the main or proximate cause for the corresponding loss.
THE PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs. BARTOLOME PICORNELL, ET AL., defendants.
In this connection, it will be recalled that the PCIB did not cash the check upon its presentation by Augusto JOAQUIN PARDO DE TAVERA, appellant.
Lim; that the latter had merely deposited it in his current account with the PCIB; that, on the same day, the
PCIB sent it, through the Central Bank, to the PNB, for clearing; that the PNB did not return the check to the ROMUALDEZ, J.:
PCIB the next day or at any other time; that said failure to return the check to the PCIB implied, under the
current banking practice, that the PNB considered the check good and would honor it; that, in fact, the PNB In a decision rendered January 9, 1922, and amended by an order of February 18th next, the Court of First
honored the check and paid its amount to the PCIB; and that only then did the PCIB allow Augusto Lim to Instance of Manila sentenced the defendants to pay solidarily to the plaintiff bank of the sum of P28,790.72
draw said amount from his aforementioned current account. with interest at the rate of 9 per centum per annum from May 3, 1921, and costs; and the defendant
Bartolome Picornell, to pay said plaintiff the sum of P10,739.11 with interest at 9 per centum per annum, all
Thus, by not returning the check to the PCIB, by thereby indicating that the PNB had found nothing wrong as aforesaid, deducting the sum of P6,708.82 from such amounts to be paid be the defendants.
with the check and would honor the same, and by actually paying its amount to the PCIB, the PNB induced
the latter, not only to believe that the check was genuine and good in every respect, but, also, to pay its This total sum which the defendants are required to pay represents the value of a bill of exchange drawn by
amount to Augusto Lim. In other words, the PNB was the primary or proximate cause of the loss, and, Bartolome Picornell in favor of the National Bank, plaintiff, against the firm of Hyndman, Tavera & Ventura,
hence, may not recover from the PCIB.13 now dissolved, its only successor being the defendant Joaquin Pardo de Tavera. The sum of P6,708.82,
which the trial court ordered deducted from the value of the bill of exchange, is the proceeds received by
It is a well-settled maxim of law and equity that when one of two (2) innocent persons must suffer by the the bank from the sale of a part of a certain quality of tobacco shipped by Picornell at Cebu to the
wrongful act of a third person, the loss must be borne by the one whose negligence was the proximate Hyndman, Tavera & Ventura company at Manila, the price of which, together with his commission, was
cause of the loss or who put it into the power of the third person to perpetrate the wrong.14 received by him from the branch of the plaintiff bank in Cebu, and in consideration whereof he drew the bill

38 | P a g e
from the central office of said bank in Manila and against the said Hyndman, Tavera & Ventura company,
the consignee of the tobacco. This instrument was delivered to the branch of the National Bank in Cebu, together with the invoice and bill
of lading of the tobacco, which was shipped in the boat Don Ildefonso, on February 27, 1920, consigned to
The P28,790.72, which the defendants are sentenced to pay solidarily to the plaintiff bank, constitutes the Hyndman, Tavera & Ventura at Manila. The invoice and bill of lading were delivered to the National Bank
value of the tobacco at the date when the bill fell due, as appraised for the purpose. with the understanding that the bank should not delivered them to Hyndman, Tavera & Ventura except
upon payment of the bill; which condition was expressed by the well-known formula "D/P" (documents for
The reasoning of the trial court for fixing the respective responsibilities of the defendants is given in its [against] payment).
decision and is as follows:
The central office of the National Bank in Manila received the bill and the aforesaid documents annexed
. . . The defendant Pardo de Tavera, successor to Hyndman, Tavera & Ventura, by his having accepted the thereto; and on March 3, 1920, presented the bill to Hyndman, Tavera & Ventura, who accepted it stating
bill and denied payment thereof, notwithstanding the existence of a consideration which is the real value of on the face thereof the following:
the tobacco, and the defendant Picornell by his having drawn such bill and received its value from the
branch of the plaintiff bank in Cebu, became liable upon the same bill, the defendant Picornell to its full Accepted, 3d March, 1920. Due, 2d April, 1920. Hyndman, Tavera & Ventura, by (Sgd.) J. Pardo de Tavera,
value, and the defendant Pardo de Tavera to the extent of the value of the tobacco. member of the firm.

From this judgment the defendants appealed. The tobacco having arrived at Manila, the firm of Tambunting, owner of the ship Don Ildefonso, that
brought the shipment, requested Hyndman, Tavera & Ventura to send for the goods, which was done by
Joaquin Pardo de Tavera alleged that the bill in question was without consideration and that judgment the company without the knowledge of the National Bank which retained and always had in its possession
should not have been rendered against him. The appellant Picornell contended that it should have been the invoice and bill of lading of the tobacco, until it presented them as evidence at the trial.
taken into account that he merely acted as an agent of Hyndman, Tavera & Ventura in all these
transactions; that the tobacco was not of inferior quality, as alleged by the said company; that the condition Hyndman, Tavera & Ventura proceeded to the examination of the tobacco, which was deposited in their
"D/P" attached to the transaction was not modified; that he had the right to complain because the bank warehouses, and wrote and cable to Bartolome Picornell, notifying him that of the tobacco received, there
consented to the said company taking possession of the tobacco before the payment of the bill; that the was a certain portion which was no use and was damaged. To these communications, Picornell answered,
bank held the tobacco as a deposit; that the bank was not authorized to sell the tobacco, said sale not being sending the following letter:
allowed either by law or by the circumstances that he should not have been ordered to pay the value of the
bill without proof that he was notified of its dishonor, as required by section 89 of the Negotiable Cebu, March 13, 1920.
Instruments Law.
Messrs. HYNDMAN, TAVERA & VENTURA,
The appellee bank maintains that the appellants have no right to discuss issues of fact in this instance for Manila.
not having complied with the requirements enumerated in paragraph (a) of Rule 16 of the Rules of the
Courts of First Instance. The rule cited refers to special proceedings. Moreover, we believe, we believe that TABACO
the necessary requirements in order that this court may pass upon questions of fact have been complied
with by the appellants. DEAR SIRS: Your letters of the 3d and 9th, and your telegram of the 5th, inst, received and the sample of
tobacco sent through the captain of the boat Don Ildefonso.
The following facts are proved: That Bartolome Picornell, following instruction of Hyndman, Tavera &
Ventura, bought in Cebu 1,735 bales of tobacco; that Picornell obtained from the branch of the National I wired to the seller asking him to come over and I hope he will do so at the first opportunity.
Bank in Cebu the sum of P39,529.83, the value of the tobacco, together with his commission of 1 real per
quintal (according to stipulation Exhibit 4), having, in turn, drawn the following bill of exchange, Exhibit A: It would be well that you should inform me of the exact number of bales deteriorated and useless, and if
possible that said information should be furnished by the Bureau of Internal Revenue. Moreover, it would
No. 2-A. Cebu, 28 febrero, 1920. For P39,529.83 be well also that you should not sell any bale of said shipment until the matter is settled.

At treinta (30) days sight please pay this first of exchange (second unpaid) to the order of Philippine Yours very truly,
National Bank treinta y nueve mil quinientos veintinueve pesos con 83/100. Value received.
(Sgd.) B. PICORNELL
To Sres. HYNDMAN, TAVERA Y VENTURA
Calle Soler 26 y 28. Through these communications, therefore, Picornell learned that Hyndman, Tavera & Ventura had in their
possession the tobacco aforementioned.
(Sgd.) B. PICORNELL

39 | P a g e
In view of the question raised by the said company as to the quality of the aforesaid tobacco, more full and complete. The Hyndman, Tavera & Ventura company cannot escape liability in view of section 28 of
correspondence was exchange between the company and Picornell, who, upon the suggestion of the the Negotiable Instruments Law.
former, wrote on March 26, 1920, this letter:
. . . The drawee by acceptance becomes liable to the payee or his indorsee, and also to the drawer himself.
Messrs. Philippine National Bank, But the drawer and acceptor are the immediate parties to the consideration, and if the acceptance be
Cebu. without consideration, the drawer cannot recover of the acceptor. The payee holds a different relation; he
is a stranger to the transaction between the drawer and the acceptor, and is, therefore, in a legal sense a
DEAR SIRS: I would be obliged to you if you would wire your central office at Manila to extend thirty days remote party. In a suit by him against the acceptor, the question as to the consideration between the
the time for payment of the bill for P39,529.83 against Messrs. Hyndman, Tavera & Ventura of Manila. drawer and the acceptor cannot be inquired into. The payee or holder gives value to the drawer, and if he is
ignorant of the equities between the drawer and the acceptor, he is in the position on a bona fide indorsee.
Awaiting your favor, I remain, Hence, it is no defense to a suit against the acceptor of a draft which has been discounted, and upon which
money has been advance by the plaintiff, that the draft was accepted or the accommodation of the drawer.
Yours very truly, . . . (3 R. C. L., pp. 1143, 1144, par, 358.)

(Sgd.) B. PICORNELL As to Bartolome Picornell, he warranted, as drawer of the bill, that it would be accepted upon proper
presentment and paid in due course, and as it was not paid, he became liable to the payment of its value to
The bank granted this request of the defendants; wherefore Hyndman, Tavera & Ventura reaccepted the bill the holder thereof, which is the plaintiff bank. (Sec. 61, Negotiable Instruments Law.)
in the following terms:
The fact that Picornell was a commission agent of Hyndman, Tavera & Ventura, in the purchase of the
Accepted for thirty days. Due May 2d, 1920. Hyndman, Tavera & Ventura, By (Sgd.) J Pardo de Tavera, tobacco, does not necessarily make him an agent of the company in its obligations arising from the drawing
member of the firm. of the bill by him. His acts in negotiating the bill constitute a different contract from that made by his having
purchased the tobacco on behalf of Hyndman, Tavera & Ventura. Furthermore, he cannot exempt himself
May 2, 1920, arrived and the bill was not paid. On the 4th of the same month, Hyndman, Tavera & Ventura from responsibility by the fact of his having been a mere agent of this company, because nothing to this
sent a letter to the plaintiff bank as follows: effect was indicated or added to his signature on signing the bill. (Sec. 20, Negotiable Instruments Law.)

DEAR SIRS: We very much regret to have to inform you that we absolutely refuse to pay draft No. 2 for The fact that the tobacco was or was not of inferior quality does not affect the responsibility of Picornell,
thirty-nine thousand five hundred and twenty-nine pesos and eighty-three cents (P39,529.83), referring to because while it may an effect upon the contract between him and the firm of Hyndman, Tavera & Ventura,
1,871,235 quintals of Leaf Tobacco Barili, owing to noncompliance of the contract by the drawer. yet it cannot have upon the responsibility of both to the bank, upon the bill drawn and accepted as above
stated.
We, therefore, beg to notify you that the said Lead Tobacco is at the disposal of your goodselves at our go-
down No. 26-36 Calle Soler. As to the instruction "D/P" appearing on the instrument, it was not violated by the bank, which, as above
stated, kept possession of the invoice and the bill of lading of the tobacco. By virtue of this circumstance,
The bank protested the bill, tool possession of the tobacco, and had it appraised on the 12th of the same the bank had the right to deal with that tobacco as a security in case of non-payment of the bill, and this
month, its value having been fixed at P28,790.72. That this valuation was just, reasonable and exact is not was admitted by Hyndman, Tavera & Ventura when, upon their refusal to pay the bill, they placed the
questioned by the parties. tobacco at the disposal of the bank.

The bank brought this action, and about September, 1921, sold the tobacco, obtaining from the sale Neither does the fact of Hyndman, Tavera & Ventura having been given possession of the tobacco before
P6,708.82. the payment of the bill affect the liability of the defendants to the bank thereon.

This action is for the recovery of the value of the bill of exchange above-mentioned. The Hyndman, Tavera The title of the bank to the tobacco in question by reason of the condition "D/P" was that a pledgee, and its
& Ventura company accepted it unconditionally, but did not pay it at its maturity; wherefore its possession after its delivery to it by Hyndman, Tavera & Ventura was of the same nature -- a discount
responsibility, or that of its successor, J. Pardo de Tavera, to pay the same, is clear. (Sec. 62, Negotiable security, which it was authorized to accept and retail. (Act No. 2938.)
Instruments Law.)
The appellants question the power of the bank to sell, as it did, the tobacco in question. Taking into account
The question whether or not the tobacco was worth the value of the bill, does not concern the plaintiff the circumstances of the case, we fold that the bank did not violate the law in making such sale without
bank. Such partial want of consideration, if it was, does not exist with respect to the bank which paid to notice. We hold that it is one of those cases provided for by law (sec. 33, Act. No. 2938), wherein a previous
Picornell the full value of said bill of exchange. The bank was a holder in due course, and was such for value notice of the sale is not indispensable. Besides, as to the price obtained in the sale, no question is made that
it was the best obtainable.

40 | P a g e
 under the promissory note (Exhibit "H"), the sum of P281,875.91 with interest from January 29, 1981; and
Concerning the notice to Picornell of the dishonor of the bill, it appears from Exhibit C, which is to protest under the promissory note (Exhibit "I"), the sum of P200,000.00 with interest from January 29, 1981.
for the non-payment thereof, that a copy of such protest was sent by mail in good season addressed to
Bartolome Picornell, the presumption, now conclusive, that the latter received it (secs. 105, 106, Negotiable Under the promissory note (Exhibit "D") defendants Pinch Manufacturing Corporation (formerly named
Instruments Law), not having been rebutted, or at least, contradicted. Worldwide Garment Manufacturing, Inc.), and Shozo Yamaguchi are ordered to pay jointly and severally,
the plaintiff bank the sum of P367,000.00 with interest of 16% per annum from January 29, 1980 until fully
Upon the non-payment of the bill by the drawee-acceptor, the bank had the right of recourse, which it paid
exercised, against the drawer. (Sec. 84, Negotiable Instruments Law.)
Under the promissory note (Exhibit "F") defendant corporation Pinch (formerly Worldwide) is ordered to
The drawee, the Hyndman, Tavera & Ventura company, or its successors, J. Pardo de Tavera, accepted the pay the plaintiff bank the sum of P140,000.00 with interest at 16% per annum from November 27, 1980
bill and is primarily liable for the value of the negotiable instrument, while the drawer, Bartolome Picornell, until fully paid.
is secondarily liable. (3. R. C. L., pp. 1144, 1145.) However, no question has been raised about this aspect of
the responsibility of the defendants. Defendant Pinch (formely Worldwide) is hereby ordered to pay the plaintiff the sum of P231,120.81 with
interest at 12% per annum from July 1, 1981, until fully paid and the sum of P331,870.97 with interest from
We are of the opinion that the appellants are liable to the National Bank for the value of the bill of exchange March 28, 1981, until fully paid.
Exhibit A, deducting therefrom P6,708.82 the proceeds of the sale of the tobacco. But the bank, not having
appealed from the judgment of the lower court, we cannot alter it in favor of said party, which, by its All the defendants are also ordered to pay, jointly and severally, the plaintiff the sum of P100,000.00 as and
omission to appeal, has shown full conformity with the judgment rendered. for reasonable attorney's fee and the further sum equivalent to 3% per annum of the respective principal
sums from the dates above stated as penalty charge until fully paid, plus one percent (1%) of the principal
For the foregoing, the judgment appealed from is affirmed, with costs against the defendants. So ordered. sums as service charge.

With costs against the defendants.

SO ORDERED. 1
G.R. No. 93073 December 21, 1992
From the above decision only defendant Fermin Canlas appealed to the then Intermediate Court (now the
REPUBLIC PLANTERS BANK, petitioner, vs. COURT OF APPEALS and FERMIN CANLAS, respondents. Court Appeals). His contention was that inasmuch as he signed the promissory notes in his capacity as
officer of the defunct Worldwide Garment Manufacturing, Inc, he should not be held personally liable for
CAMPOS, JR., J.: such authorized corporate acts that he performed. It is now the contention of the petitioner Republic
Planters Bank that having unconditionally signed the nine (9) promissory notes with Shozo Yamaguchi,
This is an appeal by way of a Petition for Review on Certiorari from the decision * of the Court of Appeals in jointly and severally, defendant Fermin Canlas is solidarity liable with Shozo Yamaguchi on each of the nine
CA G.R. CV No. 07302, entitled "Republic Planters Bank.Plaintiff-Appellee vs. Pinch Manufacturing notes.
Corporation, et al., Defendants, and Fermin Canlas, Defendant-Appellant", which affirmed the decision ** in
Civil Case No. 82-5448 except that it completely absolved Fermin Canlas from liability under the promissory We find merit in this appeal.
notes and reduced the award for damages and attorney's fees. The RTC decision, rendered on June 20,
1985, is quoted hereunder: From the records, these facts are established: Defendant Shozo Yamaguchi and private respondent Fermin
Canlas were President/Chief Operating Officer and Treasurer respectively, of Worldwide Garment
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff Republic Planters Manufacturing, Inc.. By virtue of Board Resolution No.1 dated August 1, 1979, defendant Shozo Yamaguchi
Bank, ordering defendant Pinch Manufacturing Corporation (formerly Worldwide Garment Manufacturing, and private respondent Fermin Canlas were authorized to apply for credit facilities with the petitioner
Inc.) and defendants Shozo Yamaguchi and Fermin Canlas to pay, jointly and severally, the plaintiff bank the Republic Planters Bank in the forms of export advances and letters of credit/trust receipts accommodations.
following sums with interest thereon at 16% per annum from the dates indicated, to wit: Petitioner bank issued nine promissory notes, marked as Exhibits A to I inclusive, each of which were
uniformly worded in the following manner:
Under the promissory note (Exhibit "A"), the sum of P300,000.00 with interest from January 29, 1981 until
fully paid; under promissory note (Exhibit "B"), the sum of P40,000.00 with interest from November 27, ___________, after date, for value received, I/we, jointly and severaIly promise to pay to the ORDER of the
1980; under the promissory note (Exhibit "C"), the sum of P166,466.00 which interest from January 29, REPUBLIC PLANTERS BANK, at its office in Manila, Philippines, the sum of ___________ PESOS(....) Philippine
1981; under the promissory note (Exhibit "E"), the sum of P86,130.31 with interest from January 29, 1981; Currency...
under the promissory note (Exhibit "G"), the sum of P12,703.70 with interest from November 27, 1980;

41 | P a g e
On the right bottom margin of the promissory notes appeared the signatures of Shozo Yamaguchi and Where an instrument containing the words "I promise to pay" is signed by two or more persons, they are
Fermin Canlas above their printed names with the phrase "and (in) his personal capacity" typewritten deemed to be jointly and severally liable thereon. 6 An instrument which begins" with "I" ,We" , or "Either
below. At the bottom of the promissory notes appeared: "Please credit proceeds of this note to: of us" promise to, pay, when signed by two or more persons, makes them solidarily liable. 7 The fact that
the singular pronoun is used indicates that the promise is individual as to each other; meaning that each of
________ Savings Account ______XX Current Account the co-signers is deemed to have made an independent singular promise to pay the notes in full.

No. 1372-00257-6 In the case at bar, the solidary liability of private respondent Fermin Canlas is made clearer and certain,
without reason for ambiguity, by the presence of the phrase "joint and several" as describing the
of WORLDWIDE GARMENT MFG. CORP. unconditional promise to pay to the order of Republic Planters Bank. A joint and several note is one in
which the makers bind themselves both jointly and individually to the payee so that all may be sued
These entries were separated from the text of the notes with a bold line which ran horizontally across the together for its enforcement, or the creditor may select one or more as the object of the suit. 8 A joint and
pages. several obligation in common law corresponds to a civil law solidary obligation; that is, one of several
debtors bound in such wise that each is liable for the entire amount, and not merely for his proportionate
In the promissory notes marked as Exhibits C, D and F, the name Worldwide Garment Manufacturing, Inc. share. 9 By making a joint and several promise to pay to the order of Republic Planters Bank, private
was apparently rubber stamped above the signatures of defendant and private respondent. respondent Fermin Canlas assumed the solidary liability of a debtor and the payee may choose to enforce
the notes against him alone or jointly with Yamaguchi and Pinch Manufacturing Corporation as solidary
On December 20, 1982, Worldwide Garment Manufacturing, Inc. noted to change its corporate name to debtors.
Pinch Manufacturing Corporation.
As to whether the interpolation of the phrase "and (in) his personal capacity" below the signatures of the
On February 5, 1982, petitioner bank filed a complaint for the recovery of sums of money covered among makers in the notes will affect the liability of the makers, We do not find it necessary to resolve and decide,
others, by the nine promissory notes with interest thereon, plus attorney's fees and penalty charges. The because it is immaterial and will not affect to the liability of private respondent Fermin Canlas as a joint and
complainant was originally brought against Worldwide Garment Manufacturing, Inc. inter alia, but it was several debtor of the notes. With or without the presence of said phrase, private respondent Fermin Canlas
later amended to drop Worldwide Manufacturing, Inc. as defendant and substitute Pinch Manufacturing is primarily liable as a co-maker of each of the notes and his liability is that of a solidary debtor.
Corporation it its place. Defendants Pinch Manufacturing Corporation and Shozo Yamaguchi did not file an
Amended Answer and failed to appear at the scheduled pre-trial conference despite due notice. Only Finally, the respondent Court made a grave error in holding that an amendment in a corporation's Articles
private respondent Fermin Canlas filed an Amended Answer wherein he, denied having issued the of Incorporation effecting a change of corporate name, in this case from Worldwide Garment
promissory notes in question since according to him, he was not an officer of Pinch Manufacturing manufacturing Inc to Pinch Manufacturing Corporation extinguished the personality of the original
Corporation, but instead of Worldwide Garment Manufacturing, Inc., and that when he issued said corporation.
promissory notes in behalf of Worldwide Garment Manufacturing, Inc., the same were in blank, the
typewritten entries not appearing therein prior to the time he affixed his signature. The corporation, upon such change in its name, is in no sense a new corporation, nor the successor of the
original corporation. It is the same corporation with a different name, and its character is in no respect
In the mind of this Court, the only issue material to the resolution of this appeal is whether private changed. 10
respondent Fermin Canlas is solidarily liable with the other defendants, namely Pinch Manufacturing
Corporation and Shozo Yamaguchi, on the nine promissory notes. A change in the corporate name does not make a new corporation, and whether effected by special act or
under a general law, has no affect on the identity of the corporation, or on its property, rights, or liabilities.
We hold that private respondent Fermin Canlas is solidarily liable on each of the promissory notes bearing 11
his signature for the following reasons:
The corporation continues, as before, responsible in its new name for all debts or other liabilities which it
The promissory motes are negotiable instruments and must be governed by the Negotiable Instruments had previously contracted or incurred. 12
Law. 2
As a general rule, officers or directors under the old corporate name bear no personal liability for acts done
Under the Negotiable lnstruments Law, persons who write their names on the face of promissory notes are or contracts entered into by officers of the corporation, if duly authorized. Inasmuch as such officers acted
makers and are liable as such. 3 By signing the notes, the maker promises to pay to the order of the payee in their capacity as agent of the old corporation and the change of name meant only the continuation of the
or any holder 4 according to the tenor thereof. 5 Based on the above provisions of law, there is no denying old juridical entity, the corporation bearing the same name is still bound by the acts of its agents if
that private respondent Fermin Canlas is one of the co-makers of the promissory notes. As such, he cannot authorized by the Board. Under the Negotiable Instruments Law, the liability of a person signing as an agent
escape liability arising therefrom. is specifically provided for as follows:

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Sec. 20. Liability of a person signing as agent and so forth. Where the instrument contains or a person In the case at bar however , it was found by the trial court that the rate of interest is 9% per annum, which
adds to his signature words indicating that he signs for or on behalf of a principal , or in a representative interest rate the plaintiff may at any time without notice, raise within the limits allowed law. And so, as of
capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words February 16, 1984 , the plaintiff had fixed the interest at 16% per annum.
describing him as an agent, or as filling a representative character, without disclosing his principal, does not
exempt him from personal liability. This Court has held that the rates under the Usury Law, as amended by Presidential Decree No. 116, are
applicable only to interests by way of compensation for the use or forebearance of money. Article 2209 of
Where the agent signs his name but nowhere in the instrument has he disclosed the fact that he is acting in the Civil Code, on the other hand, governs interests by way of damages. 15 This fine distinction was not
a representative capacity or the name of the third party for whom he might have acted as agent, the agent taken into consideration by the appellate court, which instead made a general statement that the interest
is personally liable to take holder of the instrument and cannot be permitted to prove that he was merely rate be at 12% per annum.
acting as agent of another and parol or extrinsic evidence is not admissible to avoid the agent's personal
liability. 13 Inasmuch as this Court had declared that increases in interest rates are not subject to any ceiling prescribed
by the Usury Law, the appellate court erred in limiting the interest rates at 12% per annum. Central Bank
On the private respondent's contention that the promissory notes were delivered to him in blank for his Circular No. 905, Series of 1982 removed the Usury Law ceiling on interest rates. 16
signature, we rule otherwise. A careful examination of the notes in question shows that they are the
stereotype printed form of promissory notes generally used by commercial banking institutions to be signed In the 1ight of the foregoing analysis and under the plain language of the statute and jurisprudence on the
by their clients in obtaining loans. Such printed notes are incomplete because there are blank spaces to be matter, the decision of the respondent: Court of Appeals absolving private respondent Fermin Canlas is
filled up on material particulars such as payee's name, amount of the loan, rate of interest, date of issue and REVERSED and SET ASIDE. Judgement is hereby rendered declaring private respondent Fermin Canlas jointly
the maturity date. The terms and conditions of the loan are printed on the note for the borrower-debtor 's and severally liable on all the nine promissory notes with the following sums and at 16% interest per annum
perusal. An incomplete instrument which has been delivered to the borrower for his signature is governed from the dates indicated, to wit:
by Section 14 of the Negotiable Instruments Law which provides, in so far as relevant to this case, thus:
Under the promissory note marked as exhibit A, the sum of P300,000.00 with interest from January 29,
Sec. 14. Blanks: when may be filled. — Where the instrument is wanting in any material particular, the 1981 until fully paid; under promissory note marked as Exhibit B, the sum of P40,000.00 with interest from
person in possesion thereof has a prima facie authority to complete it by filling up the blanks therein. ... In November 27, 1980: under the promissory note denominated as Exhibit C, the amount of P166,466.00 with
order, however, that any such instrument when completed may be enforced against any person who interest from January 29, 1981; under the promissory note denominated as Exhibit D, the amount of
became a party thereto prior to its completion, it must be filled up strictly in accordance with the authority P367,000.00 with interest from January 29, 1981 until fully paid; under the promissory note marked as
given and within a reasonable time... Exhibit E, the amount of P86,130.31 with interest from January 29, 1981; under the promissory note
marked as Exhibit F, the sum of P140,000.00 with interest from November 27, 1980 until fully paid; under
Proof that the notes were signed in blank was only the self-serving testimony of private respondent Fermin the promissory note marked as Exhibit G, the amount of P12,703.70 with interest from November 27, 1980;
Canlas, as determined by the trial court, so that the trial court ''doubts the defendant (Canlas) signed in the promissory note marked as Exhibit H, the sum of P281,875.91 with interest from January 29, 1981; and
blank the promissory notes". We chose to believe the bank's testimony that the notes were filled up before the promissory note marked as Exhibit I, the sum of P200,000.00 with interest on January 29, 1981.
they were given to private respondent Fermin Canlas and defendant Shozo Yamaguchi for their signatures
as joint and several promissors. For signing the notes above their typewritten names, they bound The liabilities of defendants Pinch Manufacturing Corporation (formerly Worldwide Garment
themselves as unconditional makers. We take judicial notice of the customary procedure of commercial Manufacturing, Inc.) and Shozo Yamaguchi, for not having appealed from the decision of the trial court,
banks of requiring their clientele to sign promissory notes prepared by the banks in printed form with blank shall be adjudged in accordance with the judgment rendered by the Court a quo.
spaces already filled up as per agreed terms of the loan, leaving the borrowers-debtors to do nothing but
read the terms and conditions therein printed and to sign as makers or co-makers. When the notes were With respect to attorney's fees, and penalty and service charges, the private respondent Fermin Canlas is
given to private respondent Fermin Canlas for his signature, the notes were complete in the sense that the hereby held jointly and solidarity liable with defendants for the amounts found, by the Court a quo. With
spaces for the material particular had been filled up by the bank as per agreement. The notes were not costs against private respondent.
incomplete instruments; neither were they given to private respondent Fermin Canlas in blank as he claims.
Thus, Section 14 of the NegotiabIe Instruments Law is not applicable.

The ruling in case of Reformina vs. Tomol relied upon by the appellate court in reducing the interest rate on
the promissory notes from 16% to 12% per annum does not squarely apply to the instant petition. In the
abovecited case, the rate of 12% was applied to forebearances of money, goods or credit and court
judgemets thereon, only in the absence of any stipulation between the parties.

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. G.R. No. L-17845 April 27, 1967 nothing therefrom. He paid the bank because he was a joint and several obligor. The least that can be said is
that, as between Varona and Sadaya, there is an implied contract of indemnity. And Varona is bound by the
INTESTATE ESTATE OF VICTOR SEVILLA. SIMEON SADAYA, petitioner, vs. FRANCISCO SEVILLA, respondent. obligation to reimburse Sadaya.4

SANCHEZ, J.: 3. The common creditor, the Bank of the Philippine Islands, now out of the way, we first look into the
relations inter se amongst the three consigners of the promissory note. Their relations vis-a-vis the Bank, we
On March 28, 1949, Victor Sevilla, Oscar Varona and Simeon Sadaya executed, jointly and severally, in favor repeat, is that of joint and several obligors. But can the same thing be said about the relations of the three
of the Bank of the Philippine Islands, or its order, a promissory note for P15,000.00 with interest at 8% per consigners, in respect to each other?
annum, payable on demand. The entire, amount of P15,000.00, proceeds of the promissory note, was
received from the bank by Oscar Varona alone. Victor Sevilla and Simeon Sadaya signed the promissory note Surely enough, as amongst the three, the obligation of Varona and Sevilla to Sadaya who paid can not be
as co-makers only as a favor to Oscar Varona. Payments were made on account. As of June 15, 1950, the joint and several. For, indeed, had payment been made by Oscar Varona, instead of Simeon Sadaya, Varona
outstanding balance stood P4,850.00. No payment thereafter made. could not have had reason to seek reimbursement from either Sevilla or Sadaya, or both. After all, the
proceeds of the loan went to Varona and the other two received nothing therefrom.
On October 6, 1952, the bank collected from Sadaya the foregoing balance which, together with interest,
totalled P5,416.12. Varona failed to reimburse Sadaya despite repeated demands. 4. On principle, a solidary accommodation maker — who made payment — has the right to contribution,
from his co-accommodation maker, in the absence of agreement to the contrary between them, and
Victor Sevilla died. Intestate estate proceedings were started in the Court of First Instance of Rizal, Special subject to conditions imposed by law. This right springs from an implied promise between the
Proceeding No. 1518. Francisco Sevilla was named administrator. accommodation makers to share equally the burdens that may ensue from their having consented to stamp
their signatures on the promissory note.5 For having lent their signatures to the principal debtor, they
In Special Proceeding No. 1518, Sadaya filed a creditor's claim for the above sum of P5,746.12, plus clearly placed themselves — in so far as payment made by one may create liability on the other — in the
attorneys fees in the sum of P1,500.00. The administrator resisted the claim upon the averment that the category of mere joint grantors of the former.6 This is as it should be. Not one of them benefited by the
deceased Victor Sevilla "did not receive any amount as consideration for the promissory note," but signed it promissory note. They stand on the same footing. In misfortune, their burdens should be equally spread.
only "as surety for Oscar Varona".
Manresa, commenting on Article 1844 of the Civil Code of Spain,7 which is substantially reproduced in
On June 5, 1957, the trial court issued an order admitting the claim of Simeon Sadaya in the amount of Article 20738 of our Civil Code, on this point stated:
P5,746.12, and directing the administrator to pay the same from any available funds belonging to the estate
of the deceased Victor Sevilla. Otros, como Pothier, entienden que, si bien el principio es evidente enestricto concepto juridico, se han
extremado sus consecuencias hasta el punto de que estas son contrarias, no solo a la logica, sino tambien a
The motion to reconsider having been overruled, the administrator appealed.1 The Court of Appeals, in a la equidad, que debe ser el alma del Derecho, como ha dicho Laurent.
decision promulgated on July, 15, 1960, voted to set aside the order appealed from and to disapprove and
disallow "appellee's claim of P5,746.12 against the intestate estate." Esa accion — sostienen — no nace de la fianza, pues, en efecto, el hecho de afianzar una misma deuda no
crea ningun vinculo juridico, ni ninguna razon de obligar entre los fiadores, sino que trae, por el contrario,
The case is now before this Court on certiorari to review the judgment of the Court of Appeals. su origen de una acto posterior, cual es el pago de toda la deuda realizado por uno de ellos, y la equdad, no
permite que los denias fiadores, que igualmente estaban estaban obligos a dicho pago, se aprovenchen de
Sadaya's brief here seeks reversal of the appellate court's decision and prays that his claim "in the amount ese acto en perjuico del que lo realozo.
of 50% of P5,746.12, or P2,873.06, against the intestate estate of the deceased Victor Sevilla," be approved.
Lo cierto es que esa accion concedida al fiador nace, si, del hecho del pago, pero es consecuencia del
1. That Victor Sevilla and Simeon Sadaya were joint and several accommodation makers of the 15,000.00- beneficio o del derecho de division, como tenemos ya dicho. En efecto, por virtud de esta todos los
peso promissory note in favor of the Bank of the Philippine Islands, need not be essayed. As such cofiadores vienen obligados a contribuir al pago de parte que a cada uno corresponde. De ese obligacion,
accommodation the makers, the individual obligation of each of them to the bank is no different from, and contraida por todos ellos, se libran los que no han pagado por consecuencia del acto realizado por el que
no greater and no less than, that contract by Oscar Varona. For, while these two did not receive value on pago, y si bien este no hizo mas que cumplir el deber que el contracto de fianza le imponia de responder de
the promissory note, they executed the same with, and for the purpose of lending their names to, Oscar todo el debito cuando no limito su obligacion a parte alguna del mismo, dicho acto redunda en beneficio de
Varona. Their liability to the bank upon the explicit terms of the promissory note is joint and several.2 los otros cofiadores los cuales se aprovechan de el para quedar desligados de todo compromiso con el
Better yet, the bank could have pursued its right to collect the unpaid balance against either Sevilla or acreedor.9
Sadaya. And the fact is that one of the last two, Simeon Sadaya, paid that balance.
5. And now, to the requisites before one accommodation maker can seek reimbursement from a co-
2. It is beyond debate that Simeon Sadaya could have sought reimbursement of the total amount paid from accommodation maker.
Oscar Varona. This is but right and just. Varona received full value of the promissory note.3 Sadaya received

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By Article 18 of the Civil Code in matters not covered by the special laws, "their deficiency shall be supplied primero a la indemnizacion por el deudor a los confiadores que hubieran hecho el reintegro, obligando a
by the provisions of this Code". Nothing extant in the Negotiable Instruments Law would define the right of estos, sin excepcion alguna, a soportar siempre los gastos y las molestias que anteriormente homos
one accommodation maker to seek reimbursement from another. Perforce, we must go to the Civil indicado. Y para evitar estos perjuicios, la ley no ha podido menos de reducir el ejercicio de ese derecho a
Code.1äwphï1.ñët los casos en que absolutamente sea indispensable.13

Because Sevilla and Sadaya, in themselves, are but co-guarantors of Varona, their case comes within the 6. All of the foregoing postulate the following rules: (1) A joint and several accommodation maker of a
ambit of Article 2073 of the Civil Code which reads: negotiable promissory note may demand from the principal debtor reimbursement for the amount that he
paid to the payee; and (2) a joint and several accommodation maker who pays on the said promissory note
ART. 2073. When there are two or more guarantors of the same debtor and for the same debt, the one may directly demand reimbursement from his co-accommodation maker without first directing his action
among them who has paid may demand of each of the others the share which is proportionally owing from against the principal debtor provided that (a) he made the payment by virtue of a judicial demand, or (b) a
him. principal debtor is insolvent.

If any of the guarantors should be insolvent, his share shall be borne by the others, including the payer, in The Court of Appeals found that Sadaya's payment to the bank "was made voluntarily and without any
the same proportion. judicial demand," and that "there is an absolute absence of evidence showing that Varona is insolvent". This
combination of fact and lack of fact epitomizes the fatal distance between payment by Sadaya and Sadaya's
The provisions of this article shall not be applicable, unless the payment has been made in virtue of a right to demand of Sevilla "the share which is proportionately owing from him."
judicial demand or unless the principal debtor is insolvent.10
For the reasons given, the judgment of the Court of Appeals under review is hereby affirmed. No costs. So
As Mr. Justice Street puts it: "[T]hat article deals with the situation which arises when one surety has paid ordered.
the debt to the creditor and is seeking contribution from his cosureties."11

Not that the requirements in paragraph 3, Article 2073, just quoted, are devoid of cogent reason. Says
Manresa:12
[G.R. No. 129015. August 13, 2004]
c) Requisitos para el ejercicio del derecho de reintegro o de reembolso derivado de la corresponsabilidad de
los cofiadores. SAMSUNG CONSTRUCTION COMPANY PHILIPPINES, INC., petitioner, vs. FAR EAST BANK AND TRUST
COMPANY AND COURT OF APPEALS, respondents.
— La tercera de las prescripciones que comprende el articulo se refiere a los requisitos que deben concurrir DECISION
para que pueda tener lugar lo dispuesto en el mismo. Ese derecho que concede al fiador para reintegrarse TINGA, J.:
directamente de los fiadores de lo que pago por ellos en vez de dirigir su reclamacion contra el deudor, es
un beneficio otorgado por la ley solo ell dos casos determinados, cuya justificacion resulta evidenciada Called to fore in the present petition is a classic textbook question if a bank pays out on a forged check, is it
desde luego; y esa limitacion este debidamente aconsejada por una razon de prudencia que no puede liable to reimburse the drawer from whose account the funds were paid out? The Court of Appeals, in
desconocerse, cual es la de evitar que por la mera voluntad de uno de los cofiadores pueda hacerse surgir la reversing a trial court decision adverse to the bank, invoked tenuous reasoning to acquit the bank of
accion de reintegro contra los demas en prejuicio de los mismos. liability. We reverse, applying time-honored principles of law.

El perjuicio que con tal motivo puede inferirse a los cofiadores es bien notorio, pues teniendo en primer The salient facts follow.
termino el fiador que paga por el deudor el derecho de indemnizacion contra este, sancionado por el art.
1,838, es de todo punto indudable que ejercitando esta accion pueden quedar libres de toda Plaintiff Samsung Construction Company Philippines, Inc. (Samsung Construction), while based in Bian,
responsabilidad los demas cofiadores si, a consecuencia de ella, indemniza el fiado a aquel en los terminos Laguna, maintained a current account with defendant Far East Bank and Trust Company[1] (FEBTC) at the
establecidos en el expresado articulo. Por el contrario de prescindir de dicho derecho el fiador, reclamando latters Bel-Air, Makati branch.[2] The sole signatory to Samsung Constructions account was Jong Kyu Lee
de los confiadores en primer lugar el oportuno reintegro, estos en tendrian mas remedio que satisfacer sus (Jong), its Project Manager,[3] while the checks remained in the custody of the companys accountant, Kyu
ductares respectivas, repitiendo despues por ellas contra el deudor con la imposicion de las molestias y Yong Lee (Kyu).[4]
gastos consiguientes.
On 19 March 1992, a certain Roberto Gonzaga presented for payment FEBTC Check No. 432100 to the
No es aventurado asegurar que si el fiador que paga pudiera libremente utilizar uno u otro de dichos banks branch in Bel-Air, Makati. The check, payable to cash and drawn against Samsung Constructions
derechos, el de indemnizacion por el deudor y el del reintegro por los cofiadores, indudablemente optaria current account, was in the amount of Nine Hundred Ninety Nine Thousand Five Hundred Pesos
siempre y en todo caso por el segundo, puesto que mucha mas garantias de solvencia y mucha mas (P999,500.00). The bank teller, Cleofe Justiani, first checked the balance of Samsung Constructions account.
seguridad del cobro ha de encontrar en los fiadores que en el deudor; y en la practica quedaria reducido el After ascertaining there were enough funds to cover the check,[5] she compared the signature appearing on

45 | P a g e
the check with the specimen signature of Jong as contained in the specimen signature card with the bank. FEBTC timely appealed to the Court of Appeals. On 28 November 1996, the Special Fourteenth Division of
After comparing the two signatures, Justiani was satisfied as to the authenticity of the signature appearing the Court of Appeals rendered a Decision,[16] reversing the RTC Decision and absolving FEBTC from any
on the check. She then asked Gonzaga to submit proof of his identity, and the latter presented three (3) liability. The Court of Appeals held that the contradictory findings of the NBI and the PNP created doubt as
identification cards.[6] to whether there was forgery.[17] Moreover, the appellate court also held that assuming there was forgery,
it occurred due to the negligence of Samsung Construction, imputing blame on the accountant Kyu for lack
At the same time, Justiani forwarded the check to the branch Senior Assistant Cashier Gemma Velez, as it of care and prudence in keeping the checks, which if observed would have prevented Sempio from gaining
was bank policy that two bank branch officers approve checks exceeding One Hundred Thousand Pesos, for access thereto.[18] The Court of Appeals invoked the ruling in PNB v. National City Bank of New York[19]
payment or encashment. Velez likewise counterchecked the signature on the check as against that on the that, if a loss, which must be borne by one or two innocent persons, can be traced to the neglect or fault of
signature card. He too concluded that the check was indeed signed by Jong. Velez then forwarded the check either, such loss would be borne by the negligent party, even if innocent of intentional fraud.[20]
and signature card to Shirley Syfu, another bank officer, for approval. Syfu then noticed that Jose Sempio III
(Sempio), the assistant accountant of Samsung Construction, was also in the bank. Sempio was well-known Samsung Construction now argues that the Court of Appeals had seriously misapprehended the facts when
to Syfu and the other bank officers, he being the assistant accountant of Samsung Construction. Syfu it overturned the RTCs finding of forgery. It also contends that the appellate court erred in finding that it
showed the check to Sempio, who vouched for the genuineness of Jongs signature. Confirming the identity had been negligent in safekeeping the check, and in applying the equity principle enunciated in PNB v.
of Gonzaga, Sempio said that the check was for the purchase of equipment for Samsung Construction. National City Bank of New York.
Satisfied with the genuineness of the signature of Jong, Syfu authorized the banks encashment of the check
to Gonzaga. Since the trial court and the Court of Appeals arrived at contrary findings on questions of fact, the Court is
obliged to examine the record to draw out the correct conclusions. Upon examination of the record, and
The following day, the accountant of Samsung Construction, Kyu, examined the balance of the bank account based on the applicable laws and jurisprudence, we reverse the Court of Appeals.
and discovered that a check in the amount of Nine Hundred Ninety Nine Thousand Five Hundred Pesos
(P999,500.00) had been encashed. Aware that he had not prepared such a check for Jongs signature, Kyu Section 23 of the Negotiable Instruments Law states:
perused the checkbook and found that the last blank check was missing.[7] He reported the matter to Jong,
who then proceeded to the bank. Jong learned of the encashment of the check, and realized that his When a signature is forged or made without the authority of the person whose signature it purports to be,
signature had been forged. The Bank Manager reputedly told Jong that he would be reimbursed for the it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce
amount of the check.[8] Jong proceeded to the police station and consulted with his lawyers.[9] payment thereof against any party thereto, can be acquired through or under such signature, unless the
Subsequently, a criminal case for qualified theft was filed against Sempio before the Laguna court.[10] party against whom it is sought to enforce such right is precluded from setting up the forgery or want of
authority. (Emphasis supplied)
In a letter dated 6 May 1992, Samsung Construction, through counsel, demanded that FEBTC credit to it the
amount of Nine Hundred Ninety Nine Thousand Five Hundred Pesos (P999,500.00), with interest.[11] In The general rule is to the effect that a forged signature is wholly inoperative, and payment made through or
response, FEBTC said that it was still conducting an investigation on the matter. Unsatisfied, Samsung under such signature is ineffectual or does not discharge the instrument.[21] If payment is made, the
Construction filed a Complaint on 10 June 1992 for violation of Section 23 of the Negotiable Instruments drawee cannot charge it to the drawers account. The traditional justification for the result is that the
Law, and prayed for the payment of the amount debited as a result of the questioned check plus interest, drawee is in a superior position to detect a forgery because he has the makers signature and is expected to
and attorneys fees.[12] The case was docketed as Civil Case No. 92-61506 before the Regional Trial Court know and compare it.[22] The rule has a healthy cautionary effect on banks by encouraging care in the
(RTC) of Manila, Branch 9.[13] comparison of the signatures against those on the signature cards they have on file. Moreover, the very
opportunity of the drawee to insure and to distribute the cost among its customers who use checks makes
During the trial, both sides presented their respective expert witnesses to testify on the claim that Jongs the drawee an ideal party to spread the risk to insurance.[23]
signature was forged. Samsung Corporation, which had referred the check for investigation to the NBI,
presented Senior NBI Document Examiner Roda B. Flores. She testified that based on her examination, she Brady, in his treatise The Law of Forged and Altered Checks, elucidates:
concluded that Jongs signature had been forged on the check. On the other hand, FEBTC, which had sought
the assistance of the Philippine National Police (PNP),[14] presented Rosario C. Perez, a document examiner When a person deposits money in a general account in a bank, against which he has the privilege of drawing
from the PNP Crime Laboratory. She testified that her findings showed that Jongs signature on the check checks in the ordinary course of business, the relationship between the bank and the depositor is that of
was genuine.[15] debtor and creditor. So far as the legal relationship between the two is concerned, the situation is the same
as though the bank had borrowed money from the depositor, agreeing to repay it on demand, or had
Confronted with conflicting expert testimony, the RTC chose to believe the findings of the NBI expert. In a bought goods from the depositor, agreeing to pay for them on demand. The bank owes the depositor
Decision dated 25 April 1994, the RTC held that Jongs signature on the check was forged and accordingly money in the same sense that any debtor owes money to his creditor. Added to this, in the case of bank and
directed the bank to pay or credit back to Samsung Constructions account the amount of Nine Hundred depositor, there is, of course, the banks obligation to pay checks drawn by the depositor in proper form and
Ninety Nine Thousand Five Hundred Pesos (P999,500.00), together with interest tolled from the time the presented in due course. When the bank receives the deposit, it impliedly agrees to pay only upon the
complaint was filed, and attorneys fees in the amount of Fifteen Thousand Pesos (P15,000.00). depositors order. When the bank pays a check, on which the depositors signature is a forgery, it has failed

46 | P a g e
to comply with its contract in this respect. Therefore, the bank is held liable.
[There] is ground to doubt the findings of the trial court sustaining the alleged forgery in view of the
conflicting conclusions made by handwriting experts from the NBI and the PNP, both agencies of the
The fact that the forgery is a clever one is immaterial. The forged signature may so closely resemble the government.
genuine as to defy detection by the depositor himself. And yet, if a bank pays the check, it is paying out its
own money and not the depositors. xxx

The forgery may be committed by a trusted employee or confidential agent. The bank still must bear the These contradictory findings create doubt on whether there was indeed a forgery. In the case of Tenio-
loss. Even in a case where the forged check was drawn by the depositors partner, the loss was placed upon Obsequio v. Court of Appeals, 230 SCRA 550, the Supreme Court held that forgery cannot be presumed; it
the bank. The case referred to is Robinson v. Security Bank, Ark., 216 S. W. Rep. 717. In this case, the must be proved by clear, positive and convincing evidence.
plaintiff brought suit against the defendant bank for money which had been deposited to the plaintiffs
credit and which the bank had paid out on checks bearing forgeries of the plaintiffs signature. This reasoning is pure sophistry. Any litigator worth his or her salt would never allow an opponents expert
witness to stand uncontradicted, thus the spectacle of competing expert witnesses is not unusual. The trier
xxx of fact will have to decide which version to believe, and explain why or why not such version is more
credible than the other. Reliance therefore cannot be placed merely on the fact that there are colliding
It was held that the bank was liable. It was further held that the fact that the plaintiff waited eight or nine opinions of two experts, both clothed with the presumption of official duty, in order to draw a conclusion,
months after discovering the forgery, before notifying the bank, did not, as a matter of law, constitute a especially one which is extremely crucial. Doing so is tantamount to a jurisprudential cop-out.
ratification of the payment, so as to preclude the plaintiff from holding the bank liable. xxx
Much is expected from the Court of Appeals as it occupies the penultimate tier in the judicial hierarchy. This
This rule of liability can be stated briefly in these words: A bank is bound to know its depositors signature. Court has long deferred to the appellate court as to its findings of fact in the understanding that it has the
The rule is variously expressed in the many decisions in which the question has been considered. But they appropriate skill and competence to plough through the minutiae that scatters the factual field. In failing to
all sum up to the proposition that a bank must know the signatures of those whose general deposits it thoroughly evaluate the evidence before it, and relying instead on presumptions haphazardly drawn, the
carries.[24] Court of Appeals was sadly remiss. Of course, courts, like humans, are fallible, and not every error deserves
a stern rebuke. Yet, the appellate courts error in this case warrants special attention, as it is absurd and
By no means is the principle rendered obsolete with the advent of modern commercial transactions. even dangerous as a precedent. If this rationale were adopted as a governing standard by every court in the
Contemporary texts still affirm this well-entrenched standard. Nickles, in his book Negotiable Instruments land, barely any actionable claim would prosper, defeated as it would be by the mere invocation of the
and Other Related Commercial Paper wrote, thus: existence of a contrary expert opinion.

The deposit contract between a payor bank and its customer determines who can draw against the On the other hand, the RTC did adjudge the testimony of the NBI expert as more credible than that of the
customers account by specifying whose signature is necessary on checks that are chargeable against the PNP, and explained its reason behind the conclusion:
customers account. Therefore, a check drawn against the account of an individual customer that is signed
by someone other than the customer, and without authority from her, is not properly payable and is not After subjecting the evidence of both parties to a crucible of analysis, the court arrived at the conclusion
chargeable to the customers account, inasmuch as any unauthorized signature on an instrument is that the testimony of the NBI document examiner is more credible because the testimony of the PNP Crime
ineffective as the signature of the person whose name is signed.[25] Laboratory Services document examiner reveals that there are a lot of differences in the questioned
signature as compared to the standard specimen signature. Furthermore, as testified to by Ms. Rhoda
Under Section 23 of the Negotiable Instruments Law, forgery is a real or absolute defense by the party Flores, NBI expert, the manner of execution of the standard signatures used reveals that it is a free rapid
whose signature is forged.[26] On the premise that Jongs signature was indeed forged, FEBTC is liable for continuous execution or stroke as shown by the tampering terminal stroke of the signatures whereas the
the loss since it authorized the discharge of the forged check. Such liability attaches even if the bank exerts questioned signature is a hesitating slow drawn execution stroke. Clearly, the person who executed the
due diligence and care in preventing such faulty discharge. Forgeries often deceive the eye of the most questioned signature was hesitant when the signature was made.[30]
cautious experts; and when a bank has been so deceived, it is a harsh rule which compels it to suffer
although no one has suffered by its being deceived.[27] The forgery may be so near like the genuine as to During the testimony of PNP expert Rosario Perez, the RTC bluntly noted that apparently, there [are]
defy detection by the depositor himself, and yet the bank is liable to the depositor if it pays the check.[28] differences on that questioned signature and the standard signatures.[31] This Court, in examining the
signatures, makes a similar finding. The PNP expert excused the noted differences by asserting that they
Thus, the first matter of inquiry is into whether the check was indeed forged. A document formally were mere variations, which are normal deviations found in writing.[32] Yet the RTC, which had the
presented is presumed to be genuine until it is proved to be fraudulent. In a forgery trial, this presumption opportunity to examine the relevant documents and to personally observe the expert witness, clearly
must be overcome but this can only be done by convincing testimony and effective illustrations.[29] disbelieved the PNP expert. The Court similarly finds the testimony of the PNP expert as unconvincing.
During the trial, she was confronted several times with apparent differences between strokes in the
In ruling that forgery was not duly proven, the Court of Appeals held: questioned signature and the genuine samples. Each time, she would just blandly assert that these

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differences were just variations,[33] as if the mere conjuration of the word would sufficiently disquiet The RTC was sufficiently convinced by the NBI examiners testimony, and explained her reasons in its
whatever doubts about the deviations. Such conclusion, standing alone, would be of little or no value unless Decisions. While the Court of Appeals disagreed and upheld the findings of the PNP, it failed to convincingly
supported by sufficiently cogent reasons which might amount almost to a demonstration.[34] demonstrate why such findings were more credible than those of the NBI expert. As a throwaway, the
assailed Decision noted that the PNP, not the NBI, had the opportunity to examine the specimen signature
The most telling difference between the questioned and genuine signatures examined by the PNP is in the card signed by Jong, which was relied upon by the employees of FEBTC in authenticating Jongs signature.
final upward stroke in the signature, or the point to the short stroke of the terminal in the capital letter L, as The distinction is irrelevant in establishing forgery. Forgery can be established comparing the contested
referred to by the PNP examiner who had marked it in her comparison chart as point no. 6. To the plain eye, signatures as against those of any sample signature duly established as that of the persons whose signature
such upward final stroke consists of a vertical line which forms a ninety degree (90) angle with the previous was forged.
stroke. Of the twenty one (21) other genuine samples examined by the PNP, at least nine (9) ended with an
upward stroke.[35] However, unlike the questioned signature, the upward strokes of eight (8) of these FEBTC lays undue emphasis on the fact that the PNP examiner did compare the questioned signature
signatures are looped, while the upward stroke of the seventh[36] forms a severe forty-five degree (45) against the bank signature cards. The crucial fact in question is whether or not the check was forged, not
with the previous stroke. The difference is glaring, and indeed, the PNP examiner was confronted with the whether the bank could have detected the forgery. The latter issue becomes relevant only if there is need
inconsistency in point no. 6. to weigh the comparative negligence between the bank and the party whose signature was forged.

Q: Now, in this questioned document point no. 6, the s stroke is directly upwards. At the same time, the Court of Appeals failed to assess the effect of Jongs testimony that the signature on
the check was not his.[47] The assertion may seem self-serving at first blush, yet it cannot be ignored that
A: Yes, sir. Jong was in the best position to know whether or not the signature on the check was his. While his claim
should not be taken at face value, any averments he would have on the matter, if adjudged as truthful,
Q: Now, can you look at all these standard signature (sic) were (sic) point 6 is repeated or the last stroke s is deserve primacy in consideration. Jongs testimony is supported by the findings of the NBI examiner. They
pointing directly upwards? are also backed by factual circumstances that support the conclusion that the assailed check was indeed
forged. Judicial notice can be taken that is highly unusual in practice for a business establishment to draw a
A: There is none in the standard signature, sir.[37] check for close to a million pesos and make it payable to cash or bearer, and not to order. Jong immediately
reported the forgery upon its discovery. He filed the appropriate criminal charges against Sempio, the
Again, the PNP examiner downplayed the uniqueness of the final stroke in the questioned signature as a putative forger.[48]
mere variation,[38] the same excuse she proffered for the other marked differences noted by the Court and
the counsel for petitioner.[39] Now for determination is whether Samsung Construction was precluded from setting up the defense of
forgery under Section 23 of the Negotiable Instruments Law. The Court of Appeals concluded that Samsung
There is no reason to doubt why the RTC gave credence to the testimony of the NBI examiner, and not the Construction was negligent, and invoked the doctrines that where a loss must be borne by one of two
PNP experts. The NBI expert, Rhoda Flores, clearly qualifies as an expert witness. A document examiner for innocent person, can be traced to the neglect or fault of either, it is reasonable that it would be borne by
fifteen years, she had been promoted to the rank of Senior Document Examiner with the NBI, and had held him, even if innocent of any intentional fraud, through whose means it has succeeded[49] or who put into
that rank for twelve years prior to her testimony. She had placed among the top five examinees in the the power of the third person to perpetuate the wrong.[50] Applying these rules, the Court of Appeals
Competitive Seminar in Question Document Examination, conducted by the NBI Academy, which qualified determined that it was the negligence of Samsung Construction that allowed the encashment of the forged
her as a document examiner.[40] She had trained with the Royal Hongkong Police Laboratory and is a check.
member of the International Association for Identification.[41] As of the time she testified, she had
examined more than fifty to fifty-five thousand questioned documents, on an average of fifteen to twenty In the case at bar, the forgery appears to have been made possible through the acts of one Jose Sempio III,
documents a day.[42] In comparison, PNP document examiner Perez admitted to having examined only an assistant accountant employed by the plaintiff Samsung [Construction] Co. Philippines, Inc. who
around five hundred documents as of her testimony.[43] supposedly stole the blank check and who presumably is responsible for its encashment through a forged
signature of Jong Kyu Lee. Sempio was assistant to the Korean accountant who was in possession of the
In analyzing the signatures, NBI Examiner Flores utilized the scientific comparative examination method blank checks and who through negligence, enabled Sempio to have access to the same. Had the Korean
consisting of analysis, recognition, comparison and evaluation of the writing habits with the use of accountant been more careful and prudent in keeping the blank checks Sempio would not have had the
instruments such as a magnifying lense, a stereoscopic microscope, and varied lighting substances. She also chance to steal a page thereof and to effect the forgery. Besides, Sempio was an employee who appears to
prepared enlarged photographs of the signatures in order to facilitate the necessary comparisons.[44] She have had dealings with the defendant Bank in behalf of the plaintiff corporation and on the date the check
compared the questioned signature as against ten (10) other sample signatures of Jong. Five of these was encashed, he was there to certify that it was a genuine check issued to purchase equipment for the
signatures were executed on checks previously issued by Jong, while the other five contained in business company.[51]
letters Jong had signed.[45] The NBI found that there were significant differences in the handwriting
characteristics existing between the questioned and the sample signatures, as to manner of execution, We recognize that Section 23 of the Negotiable Instruments Law bars a party from setting up the defense of
link/connecting strokes, proportion characteristics, and other identifying details.[46] forgery if it is guilty of negligence.[52] Yet, we are unable to conclude that Samsung Construction was guilty
of negligence in this case. The appellate court failed to explain precisely how the Korean accountant was

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negligent or how more care and prudence on his part would have prevented the forgery. We cannot sustain Quite palpably, the general rule remains that the drawee who has paid upon the forged signature bears the
this tar and feathering resorted to without any basis. loss. The exception to this rule arises only when negligence can be traced on the part of the drawer whose
signature was forged, and the need arises to weigh the comparative negligence between the drawer and
The bare fact that the forgery was committed by an employee of the party whose signature was forged the drawee to determine who should bear the burden of loss. The Court finds no basis to conclude that
cannot necessarily imply that such partys negligence was the cause for the forgery. Employers do not Samsung Construction was negligent in the safekeeping of its checks. For one, the settled rule is that the
possess the preternatural gift of cognition as to the evil that may lurk within the hearts and minds of their mere fact that the depositor leaves his check book lying around does not constitute such negligence as will
employees. The Courts pronouncement in PCI Bank v. Court of Appeals[53] applies in this case, to wit: free the bank from liability to him, where a clerk of the depositor or other persons, taking advantage of the
opportunity, abstract some of the check blanks, forges the depositors signature and collect on the checks
[T]he mere fact that the forgery was committed by a drawer-payors confidential employee or agent, who by from the bank.[62] And for another, in point of fact Samsung Construction was not negligent at all since it
virtue of his position had unusual facilities for perpetrating the fraud and imposing the forged paper upon reported the forgery almost immediately upon discovery.[63]
the bank, does not entitle the bank to shift the loss to the drawer-payor, in the absence of some
circumstance raising estoppel against the drawer.[54] It is also worth noting that the forged signatures in PNB v. National City Bank of New York were not of the
drawer, but of indorsers. The same circumstance attends PNB v. Court of Appeals,[64] which was also cited
Admittedly, the record does not clearly establish what measures Samsung Construction employed to by the Court of Appeals. It is accepted that a forged signature of the drawer differs in treatment than a
safeguard its blank checks. Jong did testify that his accountant, Kyu, kept the checks inside a safety box,[55] forged signature of the indorser.
and no contrary version was presented by FEBTC. However, such testimony cannot prove that the checks
were indeed kept in a safety box, as Jongs testimony on that point is hearsay, since Kyu, and not Jong, The justification for the distinction between forgery of the signature of the drawer and forgery of an
would have the personal knowledge as to how the checks were kept. indorsement is that the drawee is in a position to verify the drawers signature by comparison with one in his
hands, but has ordinarily no opportunity to verify an indorsement.[65]
Still, in the absence of evidence to the contrary, we can conclude that there was no negligence on Samsung
Constructions part. The presumption remains that every person takes ordinary care of his concerns,[56] and Thus, a drawee bank is generally liable to its depositor in paying a check which bears either a forgery of the
that the ordinary course of business has been followed.[57] Negligence is not presumed, but must be drawers signature or a forged indorsement. But the bank may, as a general rule, recover back the money
proven by him who alleges it.[58] While the complaint was lodged at the instance of Samsung Construction, which it has paid on a check bearing a forged indorsement, whereas it has not this right to the same extent
the matter it had to prove was the claim it had alleged - whether the check was forged. It cannot be with reference to a check bearing a forgery of the drawers signature.[66]
required as well to prove that it was not negligent, because the legal presumption remains that ordinary
care was employed. The general rule imputing liability on the drawee who paid out on the forgery holds in this case.

Thus, it was incumbent upon FEBTC, in defense, to prove the negative fact that Samsung Construction was Since FEBTC puts into issue the degree of care it exercised before paying out on the forged check, we might
negligent. While the payee, as in this case, may not have the personal knowledge as to the standard as well comment on the banks performance of its duty. It might be so that the bank complied with its own
procedures observed by the drawer, it well has the means of disputing the presumption of regularity. internal rules prior to paying out on the questionable check. Yet, there are several troubling circumstances
Proving a negative fact may be a difficult office,[59] but necessarily so, as it seeks to overcome a that lead us to believe that the bank itself was remiss in its duty.
presumption in law. FEBTC was unable to dispute the presumption of ordinary care exercised by Samsung
Construction, hence we cannot agree with the Court of Appeals finding of negligence. The fact that the check was made out in the amount of nearly one million pesos is unusual enough to
require a higher degree of caution on the part of the bank. Indeed, FEBTC confirms this through its own
The assailed Decision replicated the extensive efforts which FEBTC devoted to establish that there was no internal procedures. Checks below twenty-five thousand pesos require only the approval of the teller; those
negligence on the part of the bank in its acceptance and payment of the forged check. However, the degree between twenty-five thousand to one hundred thousand pesos necessitate the approval of one bank
of diligence exercised by the bank would be irrelevant if the drawer is not precluded from setting up the officer; and should the amount exceed one hundred thousand pesos, the concurrence of two bank officers
defense of forgery under Section 23 by his own negligence. The rule of equity enunciated in PNB v. National is required.[67]
City Bank of New York, [60] as relied upon by the Court of Appeals, deserves careful examination.
In this case, not only did the amount in the check nearly total one million pesos, it was also payable to cash.
The point in issue has sometimes been said to be that of negligence. The drawee who has paid upon the That latter circumstance should have aroused the suspicion of the bank, as it is not ordinary business
forged signature is held to bear the loss, because he has been negligent in failing to recognize that the practice for a check for such large amount to be made payable to cash or to bearer, instead of to the order
handwriting is not that of his customer. But it follows obviously that if the payee, holder, or presenter of the of a specified person.[68] Moreover, the check was presented for payment by one Roberto Gonzaga, who
forged paper has himself been in default, if he has himself been guilty of a negligence prior to that of the was not designated as the payee of the check, and who did not carry with him any written proof that he was
banker, or if by any act of his own he has at all contributed to induce the banker's negligence, then he may authorized by Samsung Construction to encash the check. Gonzaga, a stranger to FEBTC, was not even an
lose his right to cast the loss upon the banker.[61] (Emphasis supplied) employee of Samsung Construction.[69] These circumstances are already suspicious if taken independently,
much more so if they are evaluated in concurrence. Given the shadiness attending Gonzagas presentment
of the check, it was not sufficient for FEBTC to have merely complied with its internal procedures, but

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mandatory that all earnest efforts be undertaken to ensure the validity of the check, and of the authority of [G.R. No. 128927. September 14, 1999]
Gonzaga to collect payment therefor.
REMEDIOS NOTA SAPIERA, petitioner, vs. COURT OF APPEALS and RAMON SUA, respondents.
According to FEBTC Senior Assistant Cashier Gemma Velez, the bank tried, but failed, to contact Jong over DECISION
the phone to verify the check.[70] She added that calling the issuer or drawer of the check to verify the BELLOSILLO, J.:
same was not part of the standard procedure of the bank, but an extra effort.[71] Even assuming that such
personal verification is tantamount to extraordinary diligence, it cannot be denied that FEBTC still paid out REMEDIOS NOTA SAPIERA appeals to us through this petition for review the Decision of the Court of
the check despite the absence of any proof of verification from the drawer. Instead, the bank seems to have Appeals[1] which acquitted her of the crime of estafa but held her liable nonetheless for the value of the
relied heavily on the say-so of Sempio, who was present at the bank at the time the check was presented. checks she indorsed in favor of private respondent Ramon Sua.

FEBTC alleges that Sempio was well-known to the bank officers, as he had regularly transacted with the On several occasions petitioner Remedios Nota Sapiera, a sari-sari store owner, purchased from Monrico
bank in behalf of Samsung Construction. It was even claimed that everytime FEBTC would contact Jong Mart certain grocery items, mostly cigarettes, and paid for them with checks issued by one Arturo de
about problems with his account, Jong would hand the phone over to Sempio.[72] However, the only proof Guzman: (a) PCIB Check No. 157059 dated 26 February 1987 for P140,000.00; (b) PCIB Check No. 157073
of such allegations is the testimony of Gemma Velez, who also testified that she did not know Sempio dated 26 February 1987 for P28,000.00; (c) PCIB Check No. 157057 dated 27 February 1987 for P42,150.00;
personally,[73] and had met Sempio for the first time only on the day the check was encashed.[74] In fact, and, d) Metrobank Check No. DAG - 045104758 PA dated 2 March 1987 for P125,000.00. These checks were
Velez had to inquire with the other officers of the bank as to whether Sempio was actually known to the signed at the back by petitioner. When presented for payment the checks were dishonored because the
employees of the bank.[75] Obviously, Velez had no personal knowledge as to the past relationship drawers account was already closed. Private respondent Ramon Sua informed Arturo de Guzman and
between FEBTC and Sempio, and any averments of her to that effect should be deemed hearsay evidence. petitioner about the dishonor but both failed to pay the value of the checks. Hence, four (4) charges of
Interestingly, FEBTC did not present as a witness any other employee of their Bel-Air branch, including those estafa were filed against petitioner with the Regional Trial Court of Dagupan City, docketed as Crim. Cases
who supposedly had transacted with Sempio before. Nos. D-8728, D-8729, D-8730 and D-8731. Arturo de Guzman was charged with two (2) counts of violation
of B.P. Blg. 22, docketed as Crim. Cases Nos. D-8733 and D-8734. These cases against petitioner and de
Even assuming that FEBTC had a standing habit of dealing with Sempio, acting in behalf of Samsung Guzman were consolidated and tried jointly.
Construction, the irregular circumstances attending the presentment of the forged check should have put
the bank on the highest degree of alert. The Court recently emphasized that the highest degree of care and On 27 December 1989 the court a quo[2] acquitted petitioner of all the charges of estafa but did not rule on
diligence is required of banks. whether she could be held civilly liable for the checks she indorsed to private respondent. The trial court
found Arturo de Guzman guilty of Violation of B.P. Blg. 22 on two (2) counts and sentenced him to suffer
Banks are engaged in a business impressed with public interest, and it is their duty to protect in return their imprisonment of six (6) months and one (1) day in each of the cases, and to pay private respondent
many clients and depositors who transact business with them. They have the obligation to treat their clients P167,150.00 as civil indemnity.
account meticulously and with the highest degree of care, considering the fiduciary nature of their
relationship. The diligence required of banks, therefore, is more than that of a good father of a family.[76] Private respondent filed a notice of appeal with the trial court with regard to the civil aspect but the court
refused to give due course to the appeal on the ground that the acquittal of petitioner was absolute. Private
Given the circumstances, extraordinary diligence dictates that FEBTC should have ascertained from Jong respondent then filed a petition for mandamus with the Court of Appeals, docketed as CA-GR SP No. 24626,
personally that the signature in the questionable check was his. praying that the court a quo be ordered to give due course to the appeal on the civil aspect of the decision.
The Court of Appeals granted the petition and ruled that private respondent could appeal with respect to
Still, even if the bank performed with utmost diligence, the drawer whose signature was forged may still the civil aspect the judgment of acquittal by the trial court.
recover from the bank as long as he or she is not precluded from setting up the defense of forgery. After all,
Section 23 of the Negotiable Instruments Law plainly states that no right to enforce the payment of a check On 22 January 1996, the Court of Appeals in CA-GR CV No. 36376 rendered the assailed Decision insofar as
can arise out of a forged signature. Since the drawer, Samsung Construction, is not precluded by negligence it sustained the appeal of private respondent on the civil aspect and ordering petitioner to pay private
from setting up the forgery, the general rule should apply. Consequently, if a bank pays a forged check, it respondent P335,000.00 representing the aggregate face value of the four (4) checks indorsed by petitioner
must be considered as paying out of its funds and cannot charge the amount so paid to the account of the plus legal interest from the notice of dishonor.
depositor.[77] A bank is liable, irrespective of its good faith, in paying a forged check.[78]
Petitioner filed a motion for reconsideration of the Decision. On 19 March 1997 the Court of Appeals issued
WHEREFORE, the Petition is GRANTED. The Decision of the Court of Appeals dated 28 November 1996 is a Resolution noting the admission of both parties that private respondent had already collected the amount
REVERSED, and the Decision of the Regional Trial Court of Manila, Branch 9, dated 25 April 1994 is of P125,000.00 from Arturo de Guzman with regard to his civil liability in Crim. Cases Nos. 8733 and 8734.
REINSTATED. Costs against respondent. The appellate court noted that private respondent was the same offended party in the criminal cases
against petitioner and against de Guzman. Criminal Cases Nos. 8733 and 8734 against De Guzman, and
SO ORDERED. Crim. Cases Nos. 8730 and 8729 against petitioner, involved the same checks, to wit: PCIB Checks Nos.
157057 for P42,150.00 and Metrobank Check No. DAG-045104758 PA for P125,000.00.

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Thus, the Court of Appeals ruled that private respondent could not recover twice on the same checks. Since (d) Sales Invoice No. 20148 and 20149 both dated March 2, 1987 in the amount of P120,103.75; said items
he had collected P125,000.00 as civil indemnity in Crim. Cases Nos. 8733 and 8734, this amount should be were paid with Metrobank Check No. 045104758 dated March 2, 1987 in the amount of P125,000.00.
deducted from the sum total of the civil indemnity due him arising from the estafa cases against petitioner.
The appellate court then corrected its previous award, which was erroneously placed at P335,000.00, to That all these checks were deposited with the Consolidated Bank and Trust Company, Dagupan Branch, for
P335,150.00 as the sum total of the amounts of the four (4) checks involved. Deducting the amount of collection from the drawee bank;
P125,000.00 already collected by private respondent, petitioner was adjudged to pay P210,150.00 as civil
liability to private respondent. Hence, this petition alleging that respondent Court of Appeals erred in That when presented for payment by the collecting bank to the drawee bank, said checks were dishonored
holding petitioner civilly liable to private respondent because her acquittal by the trial court from charges of due to account closed, as evidenced by check return slips; x x x x.
estafa in Crim. Cases Nos. D-8728, D-8729, D-8730 and D-8731 was absolute, the trial court having declared
in its decision that the fact from which the civil liability might have arisen did not exist. From the evidence, the Court finds that accused Remedios Nota Sapiera is the owner of a sari-sari store
inside the public market; that she sells can(ned) goods, candies and assorted grocery items; that she knows
We cannot sustain petitioner. The issue is whether respondent Court of Appeals committed reversible error accused Arturo De Guzman, a customer since February 1987; that de Guzman purchases from her grocery
in requiring petitioner to pay civil indemnity to private respondent after the trial court had acquitted her of items including cigarettes; that she knows Ramon Sua; that she has business dealings with him for 5 years;
the criminal charges. Section 2, par. (b), of Rule 111 of the Rules of Court, as amended, specifically provides: that her purchase orders were in clean sheets of paper; that she never pays in check; that Ramon Sua asked
"Extinction of the penal action does not carry with it extinction of the civil, unless the extinction proceeds her to sign subject checks as identification of the signature of Arturo de Guzman; that she pays in cash;
from a declaration in a final judgment that the fact from which the civil might arise did not exist. sometimes delayed by several days; that she signed the four (4) checks on the reverse side; that she did not
know the subject invoices; that de Guzman made the purchases and he issued the checks; that the goods
The judgment of acquittal extinguishes the liability of the accused for damages only when it includes a were delivered to de Guzman; that she was not informed of dishonored checks; and that counsel for Ramon
declaration that the fact from which the civil liability might arise did not exist. Thus, the civil liability is not Sua informed de Guzman and told him to pay x x x x
extinguished by acquittal where: (a) the acquittal is based on reasonable doubt; (b) where the court
expressly declares that the liability of the accused is not criminal but only civil in nature; and, (c) where the In the case of accused Remedios Nota Sapiera, the prosecution failed to prove conspiracy.
civil liability is not derived from or based on the criminal act of which the accused is acquitted.[3] Thus,
under Art. 29 of the Civil Code - Based on the above findings of the trial court, the exoneration of petitioner of the charges of estafa was
based on the failure of the prosecution to present sufficient evidence showing conspiracy between her and
When the accused in a criminal prosecution is acquitted on the ground that his guilt has not been proved the other accused Arturo de Guzman in defrauding private respondent. However, by her own testimony,
beyond reasonable doubt, a civil action for damages for the same act or omission may be instituted. Such petitioner admitted having signed the four (4) checks in question on the reverse side. The evidence of the
action requires only a preponderance of evidence. Upon motion of the defendant, the court may require prosecution shows that petitioner purchased goods from the grocery store of private respondent as shown
the plaintiff to file a bond to answer for damages in case the complaint should be found to be malicious. by the sales invoices issued by private respondent; that these purchases were paid with the four (4) subject
checks issued by de Guzman; that petitioner signed the same checks on the reverse side; and when
In a criminal case where the judgment of acquittal is based upon reasonable doubt, the court shall so presented for payment, the checks were dishonored by the drawee bank due to the closure of the drawers
declare. In the absence of any declaration to that effect, it may be inferred from the text of the decision account; and, petitioner was informed of the dishonor.
whether or not acquittal is due to that ground.
We affirm the findings of the Court of Appeals that despite the conflicting versions of the parties, it is
An examination of the decision in the criminal cases reveals these findings of the trial court - undisputed that the four (4) checks issued by de Guzman were signed by petitioner at the back without any
indication as to how she should be bound thereby and, therefore, she is deemed to be an indorser thereof.
Evidence for the prosecution tends to show that on various occasions, Remedios Nota Sapiera purchased The Negotiable Instruments Law clearly provides -
from Monrico Mart grocery items (mostly cigarettes) which purchases were paid with checks issued by
Arturo de Guzman; that those purchases and payments with checks were as follows: Sec. 17. Construction where instrument is ambiguous. - Where the language of the instrument is
ambiguous, or there are admissions therein, the following rules of construction apply: x x x x (f) Where a
(a) Sales Invoice No. 20104 dated February 26, 1987 in the amount of P28,000.00; that said items purchased signature is so placed upon the instrument that it is not clear in what capacity the person making the same
were paid with PCIBank Check No. 157073 dated February 26, 1987; intended to sign, he is deemed an indorser. x x x x

(b) Sales Invoice No. 20108 dated February 26, 1987 in the amount of P140,000.00; that said items Sec. 63. When person deemed indorser. - A person placing his signature upon an instrument otherwise than
purchased were paid with PCIBank No. 157059 dated February 26, 1987; as maker, drawer or acceptor, is deemed to be an indorser unless he clearly indicates by appropriate words
his intention to be bound in some other capacity.
(c) Sales Invoice No. 20120 dated February 27, 1987 in the amount of P42,150.00; that said items were paid
with PCIBank Check No. 157057 dated February 27, 1987;

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Sec. 66. Liability of general indorser. - Every indorser who indorses without qualification, warrants to all [G.R. No. 153535. July 28, 2005]
subsequent holders in due course: (a) The matters and things mentioned in subdivisions (a), (b) and (c) of
the next preceding section; and (b) That the instrument is, at the time of the indorsement, valid and SOLIDBANK CORPORATION, petitioner, vs. MINDANAO FERROALLOY CORPORATION, Spouses JONG-WON
subsisting; HONG and SOO-OK KIM HONG,* TERESITA CU, and RICARDO P. GUEVARA and Spouse,** respondents.
DECISION
And, in addition, he engages that, on due presentment, it shall be accepted or paid or both, as the case may PANGANIBAN, J.:
be, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly
taken, he will pay the amount thereof to the holder or to any subsequent indorser who may be compelled To justify an award for moral and exemplary damages under Articles 19 to 21 of the Civil Code (on human
to pay it. relations), the claimants must establish the other partys malice or bad faith by clear and convincing
evidence.
The dismissal of the criminal cases against petitioner did not erase her civil liability since the dismissal was
due to insufficiency of evidence and not from a declaration from the court that the fact from which the civil The Case
action might arise did not exist.[4] An accused acquitted of estafa may nevertheless be held civilly liable
where the facts established by the evidence so warrant. The accused should be adjudged liable for the Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assailing the December 21, 2001
unpaid value of the checks signed by her in favor of the complainant.[5] Decision[2] and the May 15, 2002 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. 67482. The CA
disposed as follows:
The rationale behind the award of civil indemnity despite a judgment of acquittal when evidence is
sufficient to sustain the award was explained by the Code Commission in connection with Art. 29 of the Civil IN THE LIGHT OF ALL THE FOREGOING, the appeal is DISMISSED. The Decision appealed from is
Code, to wit: AFFIRMED.[4]

The old rule that the acquittal of the accused in a criminal case also releases him from civil liability is one of The assailed Resolution, on the other hand, denied petitioners Motion for Reconsideration.
the most serious flaws in the Philippine legal system. It has given rise to numberless instances of miscarriage
of justice, where the acquittal was due to a reasonable doubt in the mind of the court as to the guilt of the The Facts
accused. The reasoning followed is that inasmuch as the civil responsibility is derived from the criminal
offense, when the latter is not proved, civil liability cannot be demanded. The CA narrated the antecedents as follows:

This is one of those cases where confused thinking leads to unfortunate and deplorable consequences. Such The Maria Cristina Chemical Industries (MCCI) and three (3) Korean corporations, namely, the Ssangyong
reasoning fails to draw a clear line of demarcation between criminal liability and civil responsibility, and to Corporation, the Pohang Iron and Steel Company and the Dongil Industries Company, Ltd., decided to forge
determine the logical result of the distinction. The two liabilities are separate and distinct from each other. a joint venture and establish a corporation, under the name of the Mindanao Ferroalloy Corporation
One affects the social order and the other private rights. One is for punishment or correction of the (Corporation for brevity) with principal offices in Iligan City. Ricardo P. Guevara was the President and
offender while the other is for reparation of damages suffered by the aggrieved party x x x x It is just and Chairman of the Board of Directors of the Corporation. Jong-Won Hong, the General Manager of Ssangyong
proper that for the purposes of imprisonment of or fine upon the accused, the offense should be proved Corporation, was the Vice-President of the Corporation for Finance, Marketing and Administration. So was
beyond reasonable doubt. But for the purpose of indemnifying the complaining party, why should the Teresita R. Cu. On November 26, 1990, the Board of Directors of the Corporation approved a Resolution
offense also be proved beyond reasonable doubt? Is not the invasion or violation of every private right to be authorizing its President and Chairman of the Board of Directors or Teresita R. Cu, acting together with
proved only by preponderance of evidence? Is the right of the aggrieved person any less private because Jong-Won Hong, to secure an omnibus line in the aggregate amount of P30,000,000.00 from the Solidbank x
the wrongful act is also punishable by the criminal law?[6] x x.

Finally, with regard to the computation of the civil liability of petitioner, the finding of the Court of Appeals xxxxxxxxx
that petitioner is civilly liable for the aggregate value of the unpaid four (4) checks subject of the criminal
cases in the sum of P335,150.00, less the amount of P125,000.00 already collected by private respondent In the meantime, the Corporation started its operations sometime in April, 1991. Its indebtedness
pending appeal, resulting in the amount of P210,150.00 still due private respondent, is a factual matter ballooned to P200,453,686.69 compared to its assets of only P65,476,000.00. On May 21, 1991, the
which is binding and conclusive upon this Court. Corporation secured an ordinary time loan from the Solidbank in the amount of P3,200,000.00. Another
ordinary time loan was granted by the Bank to the Corporation on May 28, 1991, in the amount of
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals dated 22 January 1996 as P1,800,000.00 or in the total amount of P5,000,000.00, due on July 15 and 26, 1991, respectively.
amended by its Resolution dated 19 March 1997 ordering petitioner Remedios Nota Sapiera to pay private
respondent Ramon Sua the remaining amount of P210,150.00 as civil liability, is AFFIRMED. Costs against However, the Corporation and the Bank agreed to consolidate and, at the same time, restructure the two
petitioners. (2) loan availments, the same payable on September 20, 1991. The Corporation executed Promissory Note
No. 96-91-00865-6 in favor of the Bank evidencing its loan in the amount of P5,160,000.00, payable on

52 | P a g e
September 20, 1991. Teresita Cu and Jong-Won Hong affixed their signatures on the note. To secure the [Petitioner] likewise filed a criminal complaint x x x entitled and docketed as Solidbank Corporation vs.
payment of the said loan, the Corporation, through Jong-Won Hong and Teresita Cu, executed a Deed of Ricardo Guevara, Teresita R. Cu and Jong Won Hong x x x for Violation of P.D. 115. On April 14, 1993, the
Assignment in favor of the Bank covering its rights, title and interest to the following: investigating Prosecutor issued a Resolution finding no probable cause for violation of P.D. 115 against the
Respondents as the goods covered by the quedan were nonexistent:
The entire proceeds of drafts drawn under Irrevocable Letter of Credit No. M-S-041-2002080 opened with
The Mitsubishi Bank Ltd. Tokyo dated June 13, 1991 for the account of Ssangyong Japan Corporation, 7F. xxxxxxxxx
Matsuoka-Tamura-Cho Bldg., 22-10, 5-Chome, Shimbashi, Minato-Ku, Tokyo, Japan up to the extent of
US$197,679.00 In their Answer to the complaint [in the civil case], the Spouses Jong-Won Hong and Soo-ok Kim Hong
alleged, inter alia, that [petitioner] had no cause of action against them as:
The Corporation likewise executed a Quedan, by way of additional security, under which the Corporation
bound and obliged to keep and hold, in trust for the Bank or its Order, Ferrosilicon for US$197,679.00. Jong- x x x the clean loan of P5.1 M obtained was a corporate undertaking of defendant MINFACO executed
Won Hong and Teresita Cu affixed their signatures thereon for the Corporation. The Corporation, also, through its duly authorized representatives, Ms. Teresita R. Cu and Mr. Jong-Won Hong, both Vice
through Jong-Won Hong and Teresita Cu, executed a Trust Receipt Agreement, by way of additional security Presidents then of MINFACO. x x x.
for said loan, the Corporation undertaking to hold in trust, for the Bank, as its property, the following:
xxxxxxxxx
1. THE MITSUBISHI BANK LTD., Tokyo L/C No. M-S-041-2002080 for account of Ssangyong Japan
Corporation, Tokyo, Japan for US$197,679.00 Ferrosilicon to expire September 20, 1991. [On their part, respondents] Teresita Cu and Ricardo Guevara alleged that [petitioner] had no cause of
action against them because: (a) Ricardo Guevara did not sign any of the documents in favor of [petitioner];
2. SEC QUEDAN NO. 91-476 dated June 26, 1991 covering the following: (b) Teresita Cu signed the Promissory Note, Deed of Assignment, Trust Receipt and Quedan in blank and
merely as representative and, hence, for and in behalf of the Defendant Corporation and, hence, was not
Ferrosilicon for US$197,679.00 personally liable to [petitioner].

However, shortly after the execution of the said deeds, the Corporation stopped its operations. The In the interim, the Corporation filed, on June 20, 1994, a Petition, with the Regional Trial Court of Iligan City,
Corporation failed to pay its loan availments from the Bank inclusive of accrued interest. On February 11, for Voluntary Insolvency x x x.
1992, the Bank sent a letter to the Corporation demanding payment of its loan availments inclusive of
interests due. The Corporation failed to comply with the demand of the Bank. On November 23, 1992, the xxxxxxxxx
Bank sent another letter to the [Corporation] demanding payment of its account which, by November 23,
1992, had amounted to P7,283,913.33. The Corporation again failed to comply with the demand of the Appended to the Petition was a list of its creditors, including [petitioner], for the amount of P8,144,916.05.
Bank. The Court issued an Order, on July 12, 1994, finding the Petition sufficient in form and substance x x x.

On January 6, 1993, the Bank filed a complaint against the Corporation with the Regional Trial Court of xxxxxxxxx
Makati City, entitled and docketed as Solidbank Corporation vs. Mindanao Ferroalloy Corporation, Sps.
Jong-Won Hong and the Sps. Teresita R. Cu, Civil Case No. 93-038 for Sum of Money with a plea for the In view of said development, the Court issued an Order, in Civil Case No. 93-038, suspending the
issuance of a writ of preliminary attachment. x x x proceedings as against the Defendant Corporation but ordering the proceedings to proceed as against the
individual defendants x x x.
xxxxxxxxx
xxxxxxxxx
Under its Amended Complaint, the Plaintiff alleged that it impleaded Ricardo Guevara and his wife as
Defendants because, [among others]: On December 10, 1999, the Court rendered a Decision dismissing the complaint for lack of cause of action
of [petitioner] against the Spouses Jong-Won Hong, Teresita Cu and the Spouses Ricardo Guevara, x x x.
Defendants JONG-WON HONG and TERESITA CU, are the Vice-Presidents of defendant corporation, and also
members of the companys Board of Directors. They are impleaded as joint and solidary debtors of xxxxxxxxx
[petitioner] bank having signed the Promissory Note, Quedan, and Trust Receipt agreements with
[petitioner], in this case. In dismissing the complaint against the individual [respondents], the Court a quo found and declared that
[petitioner] failed to adduce a morsel of evidence to prove the personal liability of the said [respondents]
xxxxxxxxx for the claims of [petitioner] and that the latter impleaded the [respondents], in its complaint and amended
complaint, solely to put more pressure on the Defendant Corporation to pay its obligations to [petitioner].

53 | P a g e
[Petitioner] x x x interposed an appeal, from the Decision of the Court a quo and posed, for x x x resolution,
the issue of whether or not the individual [respondents], are jointly and severally liable to [petitioner] for Issues
the loan availments of the [respondent] Corporation, inclusive of accrued interests and penalties.
In its Memorandum, petitioner raises the following issues:
In the meantime, on motion of [petitioner], the Court set aside its Order, dated February 2, 1995,
suspending the proceedings as against the [respondent] Corporation. [Petitioner] filed a Motion for A. Whether or not there is ample evidence on record to support the joint and solidary liability of individual
Summary Judgment against the [respondent] Corporation. On February 28, 2000, the Court rendered a respondents with Mindanao Ferroalloy Corporation.
Summary Judgment against the [respondent] Corporation, the decretal portion of which reads as follows:
B. In the absence of joint and solidary liability[,] will the provision of Article 1208 in relation to Article 1207
WHEREFORE, premises considered, this Court hereby resolves to give due course to the motion for of the New Civil Code providing for joint liability be applicable to the case at bar.
summary judgment filed by herein [petitioner]. Consequently, judgment is hereby rendered in favor of
[Petitioner] SOLIDBANK CORPORATION and against [Respondent] MINDANAO FERROALLOY CORPORATION, C. May bank practices be the proper subject of judicial notice under Sec. 1 [of] Rule 129 of the Rules of
ordering the latter to pay the former the amount of P7,086,686.70, representing the outstanding balance of Court.
the subject loan as of 24 September 1994, plus stipulated interest at the rate of 16% per annum to be
computed from the aforesaid date until fully paid together with an amount equivalent to 12% of the total D. Whether or not there is evidence to sustain the claim that respondents were impleaded to apply
amount due each year from 24 September 1994 until fully paid. Lastly, said [respondent] is hereby ordered pressure upon them to pay the obligations in lieu of MINFACO that is declared insolvent.
to pay [petitioner] the amount of P25,000.00 to [petitioner] as reasonable attorneys fees as well as cost of
litigation.[5] E. Whether or not there are sufficient bases for the award of various kinds of and substantial amounts in
damages including payment for attorneys fees.
In its appeal, petitioner argued that (1) it had adduced the requisite evidence to prove the solidary liability
of the individual respondents, and (2) it was not liable for their counterclaims for damages and attorneys F. Whether or not respondents committed fraud and misrepresentations and acted in bad faith.
fees.
G. Whether or not the inclusion of respondents spouses is proper under certain circumstances and
Ruling of the Court of Appeals supported by prevailing jurisprudence.[7]

Affirming the RTC, the appellate court ruled that the individual respondents were not solidarily liable with In sum, there are two main questions: (1) whether the individual respondents are liable, either jointly or
the Mindanao Ferroalloy Corporation, because they had acted merely as officers of the corporation, which solidarily, with the Mindanao Ferroalloy Corporation; and (2) whether the award of damages to the
was the real party in interest. Respondent Guevara was not even a signatory to the Promissory Note, the individual respondents is valid and legal.
Trust Receipt Agreement, the Deed of Assignment or the Quedan; he was merely authorized to represent
Minfaco to negotiate with and secure the loans from the bank. On the other hand, the CA noted that The Courts Ruling
Respondents Cu and Hong had not signed the above documents as comakers, but as signatories in their
representative capacities as officers of Minfaco. The Petition is partly meritorious.

Likewise, the CA held that the individual respondents were not liable to petitioner for damages, simply First Issue:
because (1) they had not received the proceeds of the irrevocable Letter of Credit, which was the subject of Liability of Individual Respondents
the Deed of Assignment; and (2) the goods subject of the Trust Receipt Agreement had been found to be
nonexistent. The appellate court took judicial notice of the practice of banks and financing institutions to Petitioner argues that the individual respondents were jointly or solidarily liable with Minfaco, either
investigate, examine and assess all properties offered by borrowers as collaterals, in order to determine the because their participation in the loan contract and the loan documents made them comakers; or because
feasibility and advisability of granting loans. Before agreeing to the consolidation of Minfacos loans, it they committed fraud and deception, which justifies the piercing of the corporate veil.
presumed that petitioner had done its homework.
The first contention hinges on certain factual determinations made by the trial and the appellate courts.
As to the award of damages to the individual respondents, the CA upheld the trial courts findings that it was These tribunals found that, although he had not signed any document in connection with the subject
clearly unfair on petitioners part to have impleaded the wives of Guevara and Hong, because the women transaction, Respondent Guevara was authorized to represent Minfaco in negotiating for a P30 million loan
were not privy to any of the transactions between petitioner and Minfaco. Under Articles 19, 20 and 2229 from petitioner. As to Cu and Hong, it was determined, among others, that their signatures on the loan
of the Civil Code, such reckless and wanton act of pressuring individual respondents to settle the documents other than the Deed of Assignment were not prefaced with the word by, and that there were no
corporations obligations is a ground to award moral and exemplary damages, as well as attorneys fees. other signatures to indicate who had signed for and on behalf of Minfaco, the principal borrower. In the
Promissory Note, they signed above the printed name of the corporation -- on the space provided for
Hence this Petition.[6] Maker/Borrower, not on that provided for Co-maker.

54 | P a g e
 as representatives of the corporation, and the second as themselves in their individual capacities; 3) they
Petitioner has not shown any exceptional circumstance that sanctions the disregard of these findings of did not sign under the spaces provided for Co-maker, and neither were their addresses reflected there; and
fact, which are thus deemed final and conclusive upon this Court and may not be reviewed on appeal.[8] 4) at the back of the Promissory Note, they signed above the words Authorized Representative.

No Personal Liability Solidary Liability

Basic is the principle that a corporation is vested by law with a personality separate and distinct from that of Moreover, it is axiomatic that solidary liability cannot be lightly inferred.[14] Under Article 1207 of the Civil
each person composing[9] or representing it.[10] Equally fundamental is the general rule that corporate Code, there is a solidary liability only when the obligation expressly so states, or when the law or the nature
officers cannot be held personally liable for the consequences of their acts, for as long as these are for and of the obligation requires solidarity. Since solidary liability is not clearly expressed in the Promissory Note
on behalf of the corporation, within the scope of their authority and in good faith.[11] The separate and is not required by law or the nature of the obligation in this case, no conclusion of solidary liability can
corporate personality is a shield against the personal liability of corporate officers, whose acts are properly be made.
attributed to the corporation.[12]
Furthermore, nothing supports the alleged joint liability of the individual petitioners because, as correctly
Tramat Mercantile v. Court of Appeals[13] held thus: pointed out by the two lower courts, the evidence shows that there is only one debtor: the corporation. In a
joint obligation, there must be at least two debtors, each of whom is liable only for a proportionate part of
Personal liability of a corporate director, trustee or officer along (although not necessarily) with the the debt; and the creditor is entitled only to a proportionate part of the credit.[15]
corporation may so validly attach, as a rule, only when
Moreover, it is rather late in the day to raise the alleged joint liability, as this matter has not been pleaded
1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross negligence in before the trial and the appellate courts. Before the lower courts, petitioner anchored its claim solely on the
directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation, its stockholders or alleged joint and several (or solidary) liability of the individual respondents. Petitioner must be reminded
other persons; that an issue cannot be raised for the first time on appeal, but seasonably in the proceedings before the trial
court.[16]
2. He consents to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file
with the corporate secretary his written objection thereto; So too, the Promissory Note in question is a negotiable instrument. Under Section 19 of the Negotiable
Instruments Law, agents or representatives may sign for the principal. Their authority may be established,
3. He agrees to hold himself personally and solidarily liable with the corporation; or as in other cases of agency. Section 20 of the law provides that a person signing for and on behalf of a
[disclosed] principal or in a representative capacity x x x is not liable on the instrument if he was duly
4. He is made, by a specific provision of law, to personally answer for his corporate action. authorized.

Consistent with the foregoing principles, we sustain the CAs ruling that Respondent Guevara was not The authority of Respondents Cu and Hong to sign for and on behalf of the corporation has been amply
personally liable for the contracts. First, it is beyond cavil that he was duly authorized to act on behalf of the established by the Resolution of Minfacos Board of Directors, stating that Atty. Ricardo P. Guevara
corporation; and that in negotiating the loans with petitioner, he did so in his official capacity. Second, no (President and Chairman), or Ms. Teresita R. Cu (Vice President), acting together with Mr. Jong Won Hong
sufficient and specific evidence was presented to show that he had acted in bad faith or gross negligence in (Vice President), be as they are hereby authorized for and in behalf of the Corporation to: 1. Negotiate with
that negotiation. Third, he did not hold himself personally and solidarily liable with the corporation. Neither and obtain from (petitioner) the extension of an omnibus line in the aggregate of P30 million x x x; and 2.
is there any specific provision of law making him personally answerable for the subject corporate acts. Execute and deliver all documentation necessary to implement all of the foregoing.[17]

On the other hand, Respondents Cu and Hong signed the Promissory Note without the word by preceding Further, the agreement involved here is a contract of adhesion, which was prepared entirely by one party
their signatures, atop the designation Maker/Borrower and the printed name of the corporation, as follows: and offered to the other on a take it or leave it basis. Following the general rule, the contract must be read
against petitioner, because it was the party that prepared it,[18] more so because a bank is held to high
__(Sgd) Cu/Hong__ standards of care in the conduct of its business.[19]
(Maker/Borrower)
MINDANAO FERROALLOY In the totality of the circumstances, we hold that Respondents Cu and Hong clearly signed the Note merely
as representatives of Minfaco.
While their signatures appear without qualification, the inference that they signed in their individual
capacities is negated by the following facts: 1) the name and the address of the corporation appeared on No Reason to Pierce
the space provided for Maker/Borrower; 2) Respondents Cu and Hong had only one set of signatures on the the Corporate Veil
instrument, when there should have been two, if indeed they had intended to be bound solidarily -- the first

55 | P a g e
Under certain circumstances, courts may treat a corporation as a mere aggroupment of persons, to whom
liability will directly attach. The distinct and separate corporate personality may be disregarded, inter alia, Judicial Notice
when the corporate identity is used to defeat public convenience, justify a wrong, protect a fraud, or defend of Bank Practices
a crime. Likewise, the corporate veil may be pierced when the corporation acts as a mere alter ego or
business conduit of a person, or when it is so organized and controlled and its affairs so conducted as to This point brings us to the alleged error of the appellate court in taking judicial notice of the practice of
make it merely an instrumentality, agency, conduit or adjunct of another corporation.[20] But to disregard banks in conducting background checks on borrowers and sureties. While a court is not mandated to take
the separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly judicial notice of this practice under Section 1 of Rule 129 of the Rules of Court, it nevertheless may do so
established; it cannot be presumed.[21] under Section 2 of the same Rule. The latter Rule provides that a court, in its discretion, may take judicial
notice of matters which are of public knowledge, or ought to be known to judges because of their judicial
Petitioner contends that the corporation was used to protect the fraud foisted upon it by the individual functions.
respondents. It argues that the CA failed to consider the following badges of fraud and evident bad faith: 1)
the individual respondents misrepresented the corporation as solvent and financially capable of paying its Thus, the Court has taken judicial notice of the practices of banks and other financial institutions. Precisely,
loan; 2) they knew that prices of ferrosilicon were declining in the world market when they secured the loan it has noted that it is their uniform practice, before approving a loan, to investigate, examine and assess
in June 1991; 3) not a single centavo was paid for the loan; and 4) the corporation suspended its operations would-be borrowers credit standing or real estate[32] offered as security for the loan applied for.
shortly after the loan was granted.[22]
Second Issue:
Fraud refers to all kinds of deception -- whether through insidious machination, manipulation, concealment Award of Damages
or misrepresentation -- that would lead an ordinarily prudent person into error after taking the
circumstances into account.[23] In contracts, a fraud known as dolo causante or causal fraud[24] is basically The individual respondents were awarded moral and exemplary damages as well as attorneys fees under
a deception used by one party prior to or simultaneous with the contract, in order to secure the consent of Articles 19 to 21 of the Civil Code, on the basic premise that the suit was clearly malicious and intended
the other.[25] Needless to say, the deceit employed must be serious. In contradistinction, only some merely to harass.
particular or accident of the obligation is referred to by incidental fraud or dolo incidente,[26] or that which
is not serious in character and without which the other party would have entered into the contract Article 19 of the Civil Code expresses the fundamental principle of law on human conduct that a person
anyway.[27] must, in the exercise of his rights and in the performance of his duties, act with justice, give every one his
due, and observe honesty and good faith. Under this basic postulate, the exercise of a right, though legal by
Fraud must be established by clear and convincing evidence; mere preponderance of evidence is not itself, must nonetheless be done in accordance with the proper norm. When the right is exercised
adequate.[28] Bad faith, on the other hand, imports a dishonest purpose or some moral obliquity and arbitrarily, unjustly or excessively and results in damage to another, a legal wrong is committed for which
conscious doing of a wrong, not simply bad judgment or negligence.[29] It is synonymous with fraud, in that the wrongdoer must be held responsible.[33]
it involves a design to mislead or deceive another.[30]
To be liable under the abuse-of-rights principle, three elements must concur: a) a legal right or duty, b) its
Unfortunately, petitioner was unable to establish clearly and precisely how the alleged fraud was exercise in bad faith, and c) the sole intent of prejudicing or injuring another.[34] Needless to say, absence
committed. It failed to establish that it was deceived into granting the loans because of respondents of good faith[35] must be sufficiently established.
misrepresentations and/or insidious actions. Quite the contrary, circumstances indicate the weakness of its
submission. Article 20 makes [e]very person who, contrary to law, willfully or negligently causes damage to another
liable for damages. Upon the other hand, held liable for damages under Article 21 is one who willfully
First, petitioner does not deny that the P5 million loan represented the consolidation of two loans,[31] causes loss or injury to another in a manner that is contrary to morals, good customs or public policy.
granted long before the bank required the individual respondents to execute the Promissory Note, Trust
Receipt Agreement, Quedan or Deed of Assignment. Hence, no words, acts or machinations arising from For damages to be properly awarded under the above provisions, it is necessary to demonstrate by clear
any of those instruments could have been used by them prior to or simultaneous with the execution of the and convincing evidence[36] that the action instituted by petitioner was clearly so unfounded and
contract, or even as some accident or particular of the obligation. untenable as to amount to gross and evident bad faith.[37] To justify an award of damages for malicious
prosecution, one must prove two elements: malice or sinister design to vex or humiliate and want of
Second, petitioner bank was in a position to verify for itself the solvency and trustworthiness of respondent probable cause.[38]
corporation. In fact, ordinary business prudence required it to do so before granting the multimillion loans.
It is of common knowledge that, as a matter of practice, banks conduct exhaustive investigations of the Petitioner was proven wrong in impleading Spouses Guevara and Hong. Beyond that fact, however,
financial standing of an applicant debtor, as well as appraisals of collaterals offered as securities for loans to respondents have not established that the suit was so patently malicious as to warrant the award of
ensure their prompt and satisfactory payment. To uphold petitioners cry of fraud when it failed to verify the damages under the Civil Codes Articles 19 to 21, which are grounded on malice or bad faith.[39] With the
existence of the goods covered by the Trust Receipt Agreement and the Quedan is to condone its presumption of law on the side of good faith, and in the absence of adequate proof of malice, we find that
negligence. petitioner impleaded the spouses because it honestly believed that the conjugal partnerships had benefited

56 | P a g e
from the proceeds of the loan, as stated in their Complaint and subsequent pleadings. Its act does not G.R. No. L-56169 June 26, 1992
amount to evident bad faith or malice; hence, an award for damages is not proper. The adverse result of an
act per se neither makes the act wrongful nor subjects the actor to the payment of damages, because the TRAVEL-ON, INC., petitioner, vs. COURT OF APPEALS and ARTURO S. MIRANDA, respondents.
law could not have meant to impose a penalty on the right to litigate.[40]
FELICIANO, J.:
For the same reason, attorneys fees cannot be granted. Article 2208 of the Civil Code states that in the
absence of a stipulation, attorneys fees cannot be recovered, except in any of the following circumstances: Petitioner Travel-On. Inc. ("Travel-On") is a travel agency selling airline tickets on commission basis for and
in behalf of different airline companies. Private respondent Arturo S. Miranda had a revolving credit line
(1) When exemplary damages are awarded; with petitioner. He procured tickets from petitioner on behalf of airline passengers and derived
commissions therefrom.
(2) When the defendants act or omission has compelled the plaintiff to litigate with third persons or to incur
expenses to protect his interest; On 14 June 1972, Travel-On filed suit before the Court of First Instance ("CFI") of Manila to collect on six (6)
checks issued by private respondent with a total face amount of P115,000.00. The complaint, with a prayer
(3) In criminal cases of malicious prosecution against the plaintiff; for the issuance of a writ of preliminary attachment and attorney's fees, averred that from 5 August 1969 to
16 January 1970, petitioner sold and delivered various airline tickets to respondent at a total price of
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff; P278,201.57; that to settle said account, private respondent paid various amounts in cash and in kind, and
thereafter issued six (6) postdated checks amounting to P115,000.00 which were all dishonored by the
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiffs plainly valid, drawee banks. Travel-On further alleged that in March 1972, private respondent made another payment of
just and demandable claim; P10,000.00 reducing his indebtedness to P105,000.00. The writ of attachment was granted by the court a
quo.
(6) In actions for legal support;
In his answer, private respondent admitted having had transactions with Travel-On during the period
(7) In actions for the recovery of wages of household helpers, laborers and skilled workers; stipulated in the complaint. Private respondent, however, claimed that he had already fully paid and even
overpaid his obligations and that refunds were in fact due to him. He argued that he had issued the
(8) In actions for indemnity under workmens compensation and employers liability laws; postdated checks for purposes of accommodation, as he had in the past accorded similar favors to
petitioner. During the proceedings, private respondent contested several tickets alleged to have been
(9) In a separate civil action to recover civil liability arising from a crime; erroneously debited to his account. He claimed reimbursement of his alleged over payments, plus litigation
expenses, and exemplary and moral damages by reason of the allegedly improper attachment of his
(10) When at least double judicial costs are awarded; properties.

(11) In any other case where the court deems it just and equitable that attorneys fees and expenses of In support of his theory that the checks were issued for accommodation, private respondent testified that
litigation should be recovered. he bad issued the checks in the name of Travel-On in order that its General Manager, Elita Montilla, could
show to Travel-On's Board of Directors that the accounts receivable of the company were still good. He
In the instant case, none of the enumerated grounds for recovery of attorneys fees are present. further stated that Elita Montilla tried to encash the same, but that these were dishonored and were
subsequently returned to him after the accommodation purpose had been attained.
WHEREFORE, this Petition is PARTIALLY GRANTED. The assailed Decision is AFFIRMED, but the award of
moral and exemplary damages as well as attorneys fees is DELETED. No costs. Travel-On's witness, Elita Montilla, on the other hand explained that the "accommodation" extended to
Travel-On by private respondent related to situations where one or more of its passengers needed money in
SO ORDERED. Hongkong, and upon request of Travel-On respondent would contact his friends in Hongkong to advance
Hongkong money to the passenger. The passenger then paid Travel-On upon his return to Manila and which
payment would be credited by Travel-On to respondent's running account with it.

In its decision dated 31 January 1975, the court a quo ordered Travel-On to pay private respondent the
amount of P8,894.91 representing net overpayments by private respondent, moral damages of P10,000.00
for the wrongful issuance of the writ of attachment and for the filing of this case, P5,000.00 for attorney's
fees and the costs of the suit.

57 | P a g e
The trial court ruled that private respondent's indebtedness to petitioner was not satisfactorily established Contrary to the view held by the Court of Appeals, this Court finds that the checks are the all important
and that the postdated checks were issued not for the purpose of encashment to pay his indebtedness but evidence of petitioner's case; that these checks clearly established private respondent's indebtedness to
to accommodate the General Manager of Travel-On to enable her to show to the Board of Directors that petitioner; that private respondent was liable thereunder.
Travel-On was financially stable.
It is important to stress that a check which is regular on its face is deemed prima facie to have been issued
Petitioner filed a motion for reconsideration that was, however, denied by the trial court, which in fact then for a valuable consideration and every person whose signature appears thereon is deemed to have become
increased the award of moral damages to P50,000.00. a party thereto for value. 1 Thus, the mere introduction of the instrument sued on in evidence prima facie
entitles the plaintiff to recovery. Further, the rule is quite settled that a negotiable instrument is presumed
On appeal, the Court of Appeals affirmed the decision of the trial court, but reduced the award of moral to have been given or indorsed for a sufficient consideration unless otherwise contradicted and overcome
damages to P20,000.00, with interest at the legal rate from the date of the filing of the Answer on 28 by other competent evidence. 2
August 1972.
In the case at bar, the Court of Appeals, contrary to these established rules, placed the burden of proving
Petitioner moved for reconsideration of the Court of Appeal's' decision, without success. the existence of valuable consideration upon petitioner. This cannot be countenanced; it was up to private
respondent to show that he had indeed issued the checks without sufficient consideration. The Court
In the instant Petition for Review, it is urged that the postdated checks are per se evidence of liability on the considers that Private respondent was unable to rebut satisfactorily this legal presumption. It must also be
part of private respondent. Petitioner further argues that even assuming that the checks were for noted that those checks were issued immediately after a letter demanding payment had been sent to
accommodation, private respondent is still liable thereunder considering that petitioner is a holder for private respondent by petitioner Travel-On.
value.
The fact that all the checks issued by private respondent to petitioner were presented for payment by the
Both the trial and appellate courts had rejected the checks as evidence of indebtedness on the ground that latter would lead to no other conclusion than that these checks were intended for encashment. There is
the various statements of account prepared by petitioner did not show that Private respondent had an nothing in the checks themselves (or in any other document for that matter) that states otherwise.
outstanding balance of P115,000.00 which is the total amount of the checks he issued. It was pointed out
that while the various exhibits of petitioner showed various accountabilities of private respondent, they did We are unable to accept the Court of Appeals' conclusion that the checks here involved were issued for
not satisfactorily establish the amount of the outstanding indebtedness of private respondent. The "accommodation" and that accordingly private respondent maker of those checks was not liable thereon to
appellate court made much of the fact that the figures representing private respondent's unpaid accounts petitioner payee of those checks.
found in the "Schedule of Outstanding Account" dated 31 January 1970 did not tally with the figures found
in the statement which showed private respondent's transactions with petitioner for the years 1969 and In the first place, while the Negotiable Instruments Law does refer to accommodation transactions, no such
1970; that there was no satisfactory explanation as to why the total outstanding amount of P278,432.74 transaction was here shown. Section 29 of the Negotiable Instruments Law provides as follows:
was still used as basis in the accounting of 7 April 1972 considering that according to the table of
transactions for the year 1969 and 1970, the total unpaid account of private respondent amounted to Sec. 29. Liability of accommodation party. — An accommodation party is one who has signed the
P239,794.57. instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose
of lending his name to some other person. Such a person is liable on the instrument to a holder for value,
We have, however, examined the record and it shows that the 7 April 1972 Statement of Account had notwithstanding such holder, at the time of taking the instrument, knew him to be only an accommodation
simply not been updated; that if we use as basis the figure as of 31 January 1970 which is P278,432.74 and party.
from it deduct P38,638.17 which represents some of the payments subsequently made by private
respondent, the figure — P239,794.57 will be obtained. In accommodation transactions recognized by the Negotiable Instruments Law, an accommodating party
lends his credit to the accommodated party, by issuing or indorsing a check which is held by a payee or
Also, the fact alone that the various statements of account had variances in figures, simply did not mean indorsee as a holder in due course, who gave full value therefor to the accommodated party. The latter, in
that private respondent had no more financial obligations to petitioner. It must be stressed that private other words, receives or realizes full value which the accommodated party then must repay to the
respondent's account with petitioner was a running or open one, which explains the varying figures in each accommodating party, unless of course the accommodating party intended to make a donation to the
of the statements rendered as of a given date. accommodated party. But the accommodating party is bound on the check to the holder in due course who
is necessarily a third party and is not the accommodated party. Having issued or indorsed the check, the
The appellate court erred in considering only the statements of account in determining whether private accommodating party has warranted to the holder in due course that he will pay the same according to its
respondent was indebted to petitioner under the checks. By doing so, it failed to give due importance to the tenor. 3
most telling piece of evidence of private respondent's indebtedness — the checks themselves which he had
issued. In the case at bar, Travel-On was payee of all six (6) checks, it presented these checks for payment at the
drawee bank but the checks bounced. Travel-On obviously was not an accommodated party; it realized no
value on the checks which bounced.

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 [G.R. No. 132560. January 30, 2002]
Travel-On was entitled to the benefit of the statutory presumption that it was a holder in due course, 4 that
the checks were supported by valuable consideration. 5 Private respondent maker of the checks did not WESTMONT BANK (formerly ASSOCIATED BANKING CORP.), petitioner, vs. EUGENE ONG, respondent.
successfully rebut these presumptions. The only evidence aliunde that private respondent offered was his DECISION
own self-serving uncorroborated testimony. He claimed that he had issued the checks to Travel-On as payee QUISUMBING, J.:
to "accommodate" its General Manager who allegedly wished to show those checks to the Board of
Directors of Travel-On to "prove" that Travel-On's account receivables were somehow "still good." It will be This is a petition for review of the decision[1] dated January 13, 1998, of the Court of Appeals in CA-G.R. CV
seen that this claim was in fact a claim that the checks were merely simulated, that private respondent did No. 28304 ordering the petitioner to pay respondent P1,754,787.50 plus twelve percent (12%) interest per
not intend to bind himself thereon. Only evidence of the clearest and most convincing kind will suffice for annum computed from October 7, 1977, the date of the first extrajudicial demand, plus damages.
that purpose; 6 no such evidence was submitted by private respondent. The latter's explanation was denied
by Travel-On's General Manager; that explanation, in any case, appears merely contrived and quite hollow The facts of this case are undisputed.
to us. Upon the other hand, the "accommodation" or assistance extended to Travel-On's passengers abroad
as testified by petitioner's General Manager involved, not the accommodation transactions recognized by Respondent Eugene Ong maintained a current account with petitioner, formerly the Associated Banking
the NIL, but rather the circumvention of then existing foreign exchange regulations by passengers booked Corporation, but now known as Westmont Bank. Sometime in May 1976, he sold certain shares of stocks
by Travel-On, which incidentally involved receipt of full consideration by private respondent. through Island Securities Corporation. To pay Ong, Island Securities purchased two (2) Pacific Banking
Corporation managers checks,[2] both dated May 4, 1976, issued in the name of Eugene Ong as payee.
Thus, we believe and so hold that private respondent must be held liable on the six (6) checks here involved. Before Ong could get hold of the checks, his friend Paciano Tanlimco got hold of them, forged Ongs
Those checks in themselves constituted evidence of indebtedness of private respondent, evidence not signature and deposited these with petitioner, where Tanlimco was also a depositor. Even though Ongs
successfully overturned or rebutted by private respondent. specimen signature was on file, petitioner accepted and credited both checks to the account of Tanlimco,
without verifying the signature indorsements appearing at the back thereof. Tanlimco then immediately
Since the checks constitute the best evidence of private respondent's liability to petitioner Travel-On, the withdrew the money and absconded.
amount of such liability is the face amount of the checks, reduced only by the P10,000.00 which Travel-On
admitted in its complaint to have been paid by private respondent sometime in March 1992. Instead of going straight to the bank to stop or question the payment, Ong first sought the help of
Tanlimcos family to recover the amount. Later, he reported the incident to the Central Bank, which like the
The award of moral damages to Private respondent must be set aside, for the reason that Petitioner's first effort, unfortunately proved futile.
application for the writ of attachment rested on sufficient basis and no bad faith was shown on the part of
Travel-On. If anyone was in bad faith, it was private respondent who issued bad checks and then pretended It was only on October 7, 1977, about five (5) months from discovery of the fraud, did Ong cry foul and
to have "accommodated" petitioner's General Manager by assisting her in a supposed scheme to deceive demanded in his complaint that petitioner pay the value of the two checks from the bank on whose gross
petitioner's Board of Directors and to misrepresent Travel-On's financial condition. negligence he imputed his loss. In his suit, he insisted that he did not deliver, negotiate, endorse or transfer
to any person or entity the subject checks issued to him and asserted that the signatures on the back were
ACCORDINGLY, the Court Resolved to GRANT due course to the Petition for Review on Certiorari and to spurious.[3]
REVERSE and SET ASIDE the Decision dated 22 October 1980 and the Resolution of 23 January 1981 of the
Court of Appeals, as well as the Decision dated 31 January 1975 of the trial court, and to enter a new The bank did not present evidence to the contrary, but simply contended that since plaintiff Ong claimed to
decision requiring private respondent Arturo S. Miranda to pay to petitioner Travel-On the amount of have never received the originals of the two (2) checks in question from Island Securities, much less to have
P105,000.00 with legal interest thereon from 14 June 1972, plus ten percent (10%) of the total amount due authorized Tanlimco to receive the same, he never acquired ownership of these checks. Thus, he had no
as attorney's fees. Costs against Private respondent. legal personality to sue as he is not a real party in interest. The bank then filed a demurrer to evidence
which was denied.

On February 8, 1989, after trial on the merits, the Regional Trial Court of Manila, Branch 38, rendered a
decision, thus:

IN VIEW OF THE FOREGOING, the court hereby renders judgment for the plaintiff and against the
defendant, and orders the defendant to pay the plaintiff:

1. The sum of P1,754,787.50 representing the total face value of the two checks in question, exhibits A and
B, respectively, with interest thereon at the legal rate of twelve percent (12%) per annum computed from
October 7, 1977 (the date of the first extrajudicial demand) up to and until the same shall have been paid in
full;

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2. Moral damages in the amount of P250,000.00; Petitioner also cites Article 1249[9] of the Civil Code explaining that a check, even if it is a managers check,
is not legal tender. Hence, the creditor cannot be compelled to accept payment thru this means.[10] It is
3. Exemplary or corrective damages in the sum of P100,000.00 by way of example or correction for the petitioners position that for all intents and purposes, Island Securities has not yet tendered payment to
public good; respondent Ong, thus, any action by Ong should be directed towards collecting the amount from Island
Securities. Petitioner claims that Ongs cause of action against it has not ripened as of yet. It may be that
4. Attorneys fees of P50,000.00 and costs of suit. petitioner would be liable to the drawee bank - - but that is a matter between petitioner and drawee-bank,
Pacific Banking Corporation.[11]
Defendants counterclaims are dismissed for lack of merit.
For its part, respondent Ong leans on the ruling of the trial court and the Court of Appeals which held that
SO ORDERED.[4] the suit of Ong against the petitioner bank is a desirable shortcut to reach the party who ought in any event
to be ultimately liable.[12] It likewise cites the ruling of the courts a quo which held that according to the
Petitioner elevated the case to the Court of Appeals without success. In its decision, the appellate court general rule, a bank who has obtained possession of a check upon an unauthorized or forged indorsement
held: of the payees signature and who collects the amount of the check from the drawee is liable for the
proceeds thereof to the payee. The theory of said rule is that the collecting banks possession of such check
WHEREFORE, in view of the foregoing, the appealed decision is AFFIRMED in toto.[5] is wrongful.[13]

Petitioner now comes before this Court on a petition for review, alleging that the Court of Appeals erred: Respondent also cites Associated Bank vs. Court of Appeals[14] which held that the collecting bank or last
endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior
I endorsements. The collecting bank is also made liable because it is privy to the depositor who negotiated
the check. The bank knows him, his address and history because he is a client. Hence, it is in a better
... IN AFFIRMING THE TRIAL COURTS CONCLUSION THAT RESPONDENT HAS A CAUSE OF ACTION AGAINST position to detect forgery, fraud or irregularity in the indorsement.[15]
THE PETITIONER.
Anent Article 1249 of the Civil Code, Ong points out that bank checks are specifically governed by the
II Negotiable Instruments Law which is a special law and only in the absence of specific provisions or
deficiency in the special law may the Civil Code be invoked.[16]
... IN AFFIRMING THE TRIAL COURTS DECISION FINDING PETITIONER LIABLE TO RESPONDENT AND
DECLARING THAT THE LATTER MAY RECOVER DIRECTLY FROM THE FORMER; AND Considering the contentions of the parties and the evidence on record, we find no reversible error in the
assailed decisions of the appellate and trial courts, hence there is no justifiable reason to grant the petition.
III
Petitioners claim that respondent has no cause of action against the bank is clearly misplaced. As defined, a
... IN NOT ADJUDGING RESPONDENT GUILTY OF LACHES AND IN NOT ABSOLVING PETITIONER FROM cause of action is the act or omission by which a party violates a right of another.[17] The essential
LIABILITY. elements of a cause of action are: (a) a legal right or rights of the plaintiff, (b) a correlative obligation of the
defendant, and (c) an act or omission of the defendant in violation of said legal right.[18]
Essentially the issues in this case are: (1) whether or not respondent Ong has a cause of action against
petitioner Westmont Bank; and (2) whether or not Ong is barred to recover the money from Westmont The complaint filed before the trial court expressly alleged respondents right as payee of the managers
Bank due to laches. checks to receive the amount involved, petitioners correlative duty as collecting bank to ensure that the
amount gets to the rightful payee or his order, and a breach of that duty because of a blatant act of
Respondent admitted that he was never in actual or physical possession of the two (2) checks of the Island negligence on the part of petitioner which violated respondents rights.[19]
Securities nor did he authorize Tanlimco or any of the latters representative to demand, accept and receive
the same. For this reason, petitioner argues, respondent cannot sue petitioner because under Section 51 of Under Section 23 of the Negotiable Instruments Law:
the Negotiable Instruments Law[6] it is only when a person becomes a holder of a negotiable instrument
can he sue in his own name. Conversely, prior to his becoming a holder, he had no right or cause of action When a signature is forged or made without the authority of the person whose signature it purports to be,
under such negotiable instrument. Petitioner further argues that since Section 191[7] of the Negotiable it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce
Instruments Law defines a holder as the payee or indorsee of a bill or note, who is in possession of it, or the payment thereof against any party thereto, can be acquired through or under such signature, unless the
bearer thereof, in order to be a holder, it is a requirement that he be in possession of the instrument or the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of
bearer thereof. Simply stated, since Ong never had possession of the checks nor did he authorize anybody, authority.
he did not become a holder thereof hence he cannot sue in his own name.[8]

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Since the signature of the payee, in the case at bar, was forged to make it appear that he had made an what is worse did so but, chose to disregard the obvious dissimilarity of the signatures. The first omission
indorsement in favor of the forger, such signature should be deemed as inoperative and ineffectual. makes it guilty of gross negligence; the second of bad faith. In either case, defendant is liable to plaintiff for
Petitioner, as the collecting bank, grossly erred in making payment by virtue of said forged signature. The the proceeds of the checks in question.[27]
payee, herein respondent, should therefore be allowed to recover from the collecting bank.
These findings are binding and conclusive on the appellate and the reviewing courts.
The collecting bank is liable to the payee and must bear the loss because it is its legal duty to ascertain that
the payees endorsement was genuine before cashing the check.[20] As a general rule, a bank or corporation On the second issue, petitioner avers that respondent Ong is barred by laches for failing to assert his right
who has obtained possession of a check upon an unauthorized or forged indorsement of the payees for recovery from the bank as soon as he discovered the scam. The lapse of five months before he went to
signature and who collects the amount of the check from the drawee, is liable for the proceeds thereof to seek relief from the bank, according to petitioner, constitutes laches.
the payee or other owner, notwithstanding that the amount has been paid to the person from whom the
check was obtained.[21] In turn, respondent contends that petitioner presented no evidence to support its claim of laches. On the
contrary, the established facts of the case as found by the trial court and affirmed by the Court of Appeals
The theory of the rule is that the possession of the check on the forged or unauthorized indorsement is are that respondent left no stone unturned to obtain relief from his predicament.
wrongful, and when the money had been collected on the check, the bank or other person or corporation
can be held as for moneys had and received, and the proceeds are held for the rightful owners who may On the matter of delay in reporting the loss, respondent calls attention to the fact that the checks were
recover them. The position of the bank taking the check on the forged or unauthorized indorsement is the issued on May 4, 1976, and on the very next day, May 5, 1976, these were already credited to the account
same as if it had taken the check and collected the money without indorsement at all and the act of the of Paciano Tanlimco and presented for payment to Pacific Banking Corporation. So even if the theft of the
bank amounts to conversion of the check.[22] checks were discovered and reported earlier, respondent argues, it would not have altered the situation as
the encashment of the checks was consummated within twenty four hours and facilitated by the gross
Petitioners claim that since there was no delivery yet and respondent has never acquired possession of the negligence of the petitioner bank.[28]
checks, respondents remedy is with the drawer and not with petitioner bank. Petitioner relies on the view
to the effect that where there is no delivery to the payee and no title vests in him, he ought not to be Laches may be defined as the failure or neglect for an unreasonable and unexplained length of time, to do
allowed to recover on the ground that he lost nothing because he never became the owner of the check that which, by exercising due diligence, could or should have been done earlier. It is negligence or omission
and still retained his claim of debt against the drawer.[23] However, another view in certain cases holds that to assert a right within a reasonable time, warranting a presumption that the party entitled thereto has
even if the absence of delivery is considered, such consideration is not material. The rationale for this view either abandoned or declined to assert it.[29] It concerns itself with whether or not by reason of long
is that in said cases the plaintiff uses one action to reach, by a desirable short cut, the person who ought in inaction or inexcusable neglect, a person claiming a right should be barred from asserting the same,
any event to be ultimately liable as among the innocent persons involved in the transaction. In other words, because to allow him to do so would be unjust to the person against whom such right is sought to be
the payee ought to be allowed to recover directly from the collecting bank, regardless of whether the check enforced.[30]
was delivered to the payee or not.[24]
In the case at bar, it cannot be said that respondent sat on his rights. He immediately acted after knowing of
Considering the circumstances in this case, in our view, petitioner could not escape liability for its negligent the forgery by proceeding to seek help from the Tanlimco family and later the Central Bank, to remedy the
acts. Admittedly, respondent Eugene Ong at the time the fraudulent transaction took place was a depositor situation and recover his money from the forger, Paciano Tanlimco. Only after he had exhausted
of petitioner bank. Banks are engaged in a business impressed with public interest, and it is their duty to possibilities of settling the matter amicably with the family of Tanlimco and through the CB, about five
protect in return their many clients and depositors who transact business with them.[25] They have the months after the unlawful transaction took place, did he resort to making the demand upon the petitioner
obligation to treat their clients account meticulously and with the highest degree of care, considering the and eventually before the court for recovery of the money value of the two checks. These acts cannot be
fiduciary nature of their relationship. The diligence required of banks, therefore, is more than that of a good construed as undue delay in or abandonment of the assertion of his rights.
father of a family.[26] In the present case, petitioner was held to be grossly negligent in performing its
duties. As found by the trial court: Moreover, the claim of petitioner that respondent should be barred by laches is clearly a vain attempt to
deflect responsibility for its negligent act. As explained by the appellate court, it is petitioner which had the
xxx (A)t the time the questioned checks were accepted for deposit to Paciano Tanlimcos account by last clear chance to stop the fraudulent encashment of the subject checks had it exercised due diligence and
defendant bank, defendant bank, admittedly had in its files specimen signatures of plaintiff who maintained followed the proper and regular banking procedures in clearing checks.[31] As we had earlier ruled, the one
a current account with them (Exhibits L-1 and M-1; testimony of Emmanuel Torio). Given the substantial who had the last clear opportunity to avoid the impending harm but failed to do so is chargeable with the
face value of the two checks, totalling P1,754,787.50, and the fact that they were being deposited by a consequences thereof.[32]
person not the payee, the very least defendant bank should have done, as any reasonable prudent man
would have done, was to verify the genuineness of the indorsements thereon. The Court cannot help but WHEREFORE, the instant petition is DENIED for lack of merit. The assailed decision of the Court of Appeals,
note that had defendant conducted even the most cursory comparison with plaintiffs specimen signatures sustaining the judgment of the Regional Trial Court of Manila, is AFFIRMED.
in its files (Exhibit L-1 and M-1) it would have at once seen that the alleged indorsements were falsified and
were not those of the plaintiff-payee. However, defendant apparently failed to make such a verification or, Costs against petitioner.

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