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16. SAPIERA vs CA G.R. No. 128927, September 14, 1999
Thursday, January 29, 2009
Facts: On several occasions, petitioner Sapiera, a sari-sari store
owner, purchased from Monnico Mart certain grocery items, mostly
cigarettes, and paid for them with checks issued by one Arturo de
Guzman. These checks were signed at the back by the petitioner.
When presented for payment, the checks were dishonored because
the drawer’s account was already closed. Private respondent Roman
Sua informed De Guzman and petitioner about the dishonor but both
failed to pay the value of the checks. Hence, four (4) charges of estafa
were filed against petitioner but consequently she was acquitted for
insufficiency of evidence but the court a quo did not rule on whether
she could be held civilly liable for the checks she indorsed to private
respondent. On appeal, the respondent court ordered petitioner to
pay private respondent the remaining P210, P150. After deducting
the amount already collected by the latter as civil indemnity in
the criminal cases against De Guzman. Hence, this instant petition.
Issue: Can petitioner be required to pay civil indemnity to private
respondent after trial court had acquitted her of criminal charges?
Held: Yes. It is 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. The NIL clearly provides – 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 (f) Where a signature is so
placed upon the instrument that it is not clear in what capacity the
person making the same intended to sign, he is deemed an indorser. x
x x
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 action might arise did not exist. 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 unpaid value of the checks signed by her in
favor of the complainant.
17. ADALIA FRANCISCO vs. COURT OF APPEALS, ET AL.
G.R. No. 116320 November 29, 1999
FACTS:
A. Francisco Realty & Development Corporation (AFRDC), of which
petitioner Francisco is the president, entered into a Land
Development and Construction Contract with private respondent
Herby Commercial & Construction Corporation (HCCC), represented
by its President and General Manager private respondent Ong. Under
the contract, HCCC was to be paid on the basis of the completed
houses and developed lands delivered to and accepted by AFRDC and
the GSIS. Sometime in 1979, Ong discovered that Diaz and Francisco,
the Vice-President of GSIS, had executed and signed seven checks of
various dates and amounts payable to HCCC for completed and
delivered work under the contract. Ong, however, claims that these
checks were never delivered to HCCC. It turned out that Francisco
forged the indorsement of Ong on the checks and indorsed the
checks for a second time by signing her name at the back of the
checks, petitioner then deposited said checks in her savings
account. A case was brought by private respondents against
petitioner to recover the value of said checks. Petitioner however
claims that she was authorized to sign Ong's name on the checks by
virtue of the Certification executed by Ong in her favor giving her the
authority to collect all the receivables of HCCC from the GSIS,
including the questioned checks.
ISSUE:
Whether petitioner cannot be held liable on the questioned checks
by virtue of the Certification executed by Ong giving her the authority
to collect such checks from the GSIS.
RULING:
Petitioner is liable. The Negotiable Instruments Law provides that
where any person is under obligation to indorse in a representative
capacity, he may indorse in such terms as to negative personal
liability. An agent, when so signing, should indicate that he is merely
signing in behalf of the principal and must disclose the name of his
principal; otherwise he shall be held personally liable. Even assuming
that Francisco was authorized by HCCC to sign Ong's name, still,
Francisco did not indorse the instrument in accordance with law.
Instead of signing Ong's name, Francisco should have signed her own
name and expressly indicated that she was signing as an agent of
HCCC. Thus, the Certification cannot be used by Francisco to validate
her act of forgery
18. PHILIPPINE BANK OF COMMERCE vs. ARUEGO
Facts:
Jose Aruego obtained a credit accommodation from the Philippine
Bank of Commerce to facilitate the payment of printing of “World
Current Events”, the periodical he is publishing. Thus, for every
printing of the periodical, the printer, Encal Press and Photo
Engraving, collected the cost of printing by drawing a draft against the
plaintiff, said draft being sent later to the defendant for acceptance.
As an added security for the payment of the amounts advanced to
Encal Press and Photo-Engraving, the plaintiff bank also required
defendant Aruego to execute a trust receipt in favor of said bank
wherein said defendant undertook to hold in trust for plaintiff the
periodicals and to sell the same with the promise to turn over to the
plaintiff the proceeds of the sale of said publication to answer for the
payment of all obligations arising from the draft. The Philippine Bank
of Commerce instituted an action against Aruego to recover the cost
of printing of the latter’s periodical. Aruego however argues that he
signed the supposed bills of exchange only as an agent of the
Philippine Education Foundation Company where he is president.
Issue:
Whether Aruego can be held liable by the petitioner although he
signed the supposed bills of exchange only as an agent of Philippine
Education Foundation Company.
Held:
Yes. Aruego did not disclose in any of the drafts that he accepted that
he was signing as representative of the Philippine Education
Foundation Company. Aruego contends that he signed the supposed
bills of exchange as an agent of the Philippine Education Foundation
Company where he is president. Section 20 of the Negotiable
Instruments Law provides that "Where the instrument contains or a
person adds to his signature words indicating that he signs for or on
behalf of a principal or in a representative capacity, he is not liable on
the instrument if he was duly authorized; but the mere addition of
words describing him as an agent or as filing a representative
character, without disclosing his principal, does not exempt him from
personal liability." An inspection of the drafts accepted by the
defendant shows that nowhere has he disclosed that he was signing
as a representative of the Philippine Education Foundation
Company. He merely signed as follows: "JOSE ARUEGO (Acceptor)
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(SGD) JOSE ARGUEGO For failure to disclose his principal, Aruego is
personally liable for the drafts he accepted.
19. SamsungConst.Co.Phil.vFarEastBank;G.R.No.129015;13Aug2004;436SCRA402
FACTS:
A check drawn against petitioner was presented for payment to
respondent Bank. Satisfied with the authenticity of the signature
appearing thereon, the check was encashed. The following day,
petitioner’s accountant who had custody of the company checks
discovered that a check was missing and reported the petitioner’s
project manager who is also the sole signatory to its checking
account. Petitioner demanded that it be reimbursed for the proceeds
of the check.
ISSUE(S):
Whether or not respondent bank is liable to reimburse for the
payment of the forged check.
RULING:
YES. Banks are engaged in a business impressed with public interest,
and it is their duty to protect in return their many clients and
depositors who transact business with them. They have the obligation
to treat their client’s account meticulously and with the highest
degree of care, considering the fiduciary nature of their relationship.
The diligence required of banks, therefore, is more than that of a
good father of a family. Given the circumstances, extraordinary
diligence dictates that FEBTC should have ascertained from Jong
personally that the signature in the questionable check was his. Since
the drawer, Samsung Construction, is not precluded by negligence
from setting up the forgery, the general rule should apply.
Consequently, if a bank pays a forged check, it must be considered as
paying out of its funds and cannot charge the amount so paid to the
account of the depositor. A bank is liable, irrespective of its good
faith, in paying a forged check.
20. same with #17
21 Associated Bank vs Court of Appeals (1996)
252 SCRA 620 – Mercantile Law – Negotiable Instruments Law –
Liabilities of Parties – Forgery – Collecting Bank vs Drawee Bank
The Province of Tarlac was disbursing funds to Concepcion Emergency
Hospital via checks drawn against its account with the Philippine
National Bank (PNB). These checks were drawn payable to the order
of Concepcion Emergency Hospital. Fausto Pangilinan was the cashier
of Concepcion Emergency Hospital in Tarlac until his retirement in
1978. He used to handle checks issued by the provincial government
of Tarlac to the said hospital. However, after his retirement, the
provincial government still delivered checks to him until its discovery
of this irregularity in 1981. By forging the signature of the chief payee
of the hospital (Dr. Adena Canlas), Pangilinan was able to deposit 30
checks amounting to P203k to his account with the Associated Bank.
When the province of Tarlac discovered this irregularity, it demanded
PNB to reimburse the said amount. PNB in turn demanded Associated
Bank to reimburse said amount. PNB averred that Associated Bank is
liable to reimburse because of its indorsement borne on the face of
the checks:
“All prior endorsements guaranteed ASSOCIATED BANK.”
ISSUE: What are the liabilities of each party?
HELD: The checks involved in this case are order instruments.
Liability of Associated Bank
Where the instrument is payable to order at the time of the forgery,
such as the checks in this case, the signature of its rightful holder
(here, the payee hospital) is essential to transfer title to the same
instrument. When the holder’s indorsement is forged, all parties prior
to the forgery may raise the real defense of forgery against all parties
subsequent thereto.
A collecting bank (in this case Associated Bank) where a check is
deposited and which indorses the check upon presentment with the
drawee bank (PNB), is such an indorser. So even if the indorsement
on the check deposited by the banks’s client is forged, Associated
Bank is bound by its warranties as an indorser and cannot set up the
defense of forgery as against the PNB.
EXCEPTION: If it can be shown that the drawee bank (PNB)
unreasonably delayed in notifying the collecting bank (Associated
Bank) of the fact of the forgery so much so that the latter can no
longer collect reimbursement from the depositor-forger.
Liability of PNB
The bank on which a check is drawn, known as the drawee bank
(PNB), is under strict liability to pay the check to the order of the
payee (Provincial Government of Tarlac). Payment under a forged
indorsement is not to the drawer’s order. When the drawee bank
pays a person other than the payee, it does not comply with the
terms of the check and violates its duty to charge its customer’s (the
drawer) account only for properly payable items. Since the drawee
bank did not pay a holder or other person entitled to receive
payment, it has no right to reimbursement from the drawer. The
general rule then is that the drawee bank may not debit the drawer’s
account and is not entitled to indemnification from the drawer. The
risk of loss must perforce fall on the drawee bank.
EXCEPTION: If the drawee bank (PNB) can prove a failure by the
customer/drawer (Tarlac Province) to exercise ordinary care that
substantially contributed to the making of the forged signature, the
drawer is precluded from asserting the forgery.
In sum, by reason of Associated Bank’s indorsement and warranties
of prior indorsements as a party after the forgery, it is liable to refund
the amount to PNB. The Province of Tarlac can ask reimbursement
from PNB because the Province is a party prior to the forgery. Hence,
the instrument is inoperative. HOWEVER, it has been proven that the
Provincial Government of Tarlac has been negligent in issuing the
checks especially when it continued to deliver the checks to
Pangilinan even when he already retired. Due to this contributory
negligence, PNB is only ordered to pay 50% of the amount or half of
P203 K.
BUT THEN AGAIN, since PNB can pass its loss to Associated Bank (by
reason of Associated Bank’s warranties), PNB can ask the 50%
reimbursement from Associated Bank. Associated Bank can ask
reimbursement from Pangilinan but unfortunately in this case, the
court did not acquire jurisdiction over him.
22 Traders Royal Bank V. Radio Philippines Network Inc. (2002)
G.R. No. 138510 October 10, 2002
Lessons Applicable: Liabilities of the Parties (Negotiable Instruments
Law)
FACTS: Traders (sold 3 managers check)> RPN,IBC,BBC (received by
<Mrs. Vera) --(not received) BIR-- > SBTC (deposited by unknown
persons)
April 15, 1985: Bureau of Internal Revenue (BIR) assessed Radio
Philippines Network (RPN), Intercontinental Broadcasting Corporation
(IBC), and Banahaw Broadcasting Corporation (BBC) of their tax
obligations for the taxable years 1978 to 1983.
March 25, 1987: Mrs. Lourdes C. Vera, RPN,IBC,BBC comptroller, sent
a letter to the BIR requesting settlement of their tax obligations which
was granted
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June 26, 1986: RPN, IBC and BBC purchased from Traders 3 manager’s
checks to be used as payment for their tax liabilities
Traders, through Aida Nuñez, turned over the checks to Mrs. Vera
who was supposed to deliver them to the BIR in payment
September, 1988: BIR again assessed plaintiffs for their tax liabilities
for the years 1979-82. It was discovered the 3 managers checks were
never delivered nor paid to the BIR by Mrs. Vera. The checks were
presented for payment by unknown persons to Security Bank and
Trust Company (SBTC).
BIR issued warrants of levy, distraint and garnishment against them.
They were constrained to enter into a compromise and paid BIR
P18,962,225.25 in settlement
Traders sent letters to RPN and SBTC, demanding that the amounts
covered by the checks be reimbursed or credited to their account
RTC: favored Traders against RPN and SBTC
CA: absolved SBTC and held Traders solely liable
SBTC denies liability on the ground that it had no participation in the
negotiation of the checks
ISSUE: W/N Traders should solely bare the loss for its negligence
HELD: YES. CA affirmed.
if a bank pays a forged check, it must be considered as paying out of
its funds and cannot charge the amount so paid to the account of the
depositor
Despite the fraud, Traders paid the 3 checks in the total amount of
P9,790,716.87 primary duty of Traders to know that the check was
duly indorsed by the original payee and, where it pays the amount of
the check to a third person who has forged the signature of the
payee, the loss falls upon it who cashed the check.
only remedy is against the person to whom it paid the money
It should be noted further that one of the subject checks was
crossed.
The crossing of one of the subject checks should have put petitioner
on guard
it was duty-bound to ascertain the indorser’s title to the check or the
nature of his possession.
effects of a crossed check:
(a) the check may not be encashed but only deposited in the bank; (b)
the check may be negotiated only once to one who has an account
with a bank and
(c) the act of crossing the check serves as a warning to the holder that
the check has been issued for a definite purpose so that he must
inquire if he has received the check pursuant to that purpose,
otherwise, he is not a holder in due course
A collecting bank which indorses a check bearing a forged
indorsement and presents it to the drawee bank guarantees all prior
indorsements, including the forged indorsement itself, and ultimately
should be held liable therefor. However, it is doubtful if the subject
checks were ever presented to and accepted by SBTC so as to hold it
liable as a collecting bank, as held by the Court of Appeals
23 Ilusorio vs CA
FACTS:
Ilusorio was a businessman who was in charge of 20 or so
corporations. He was a depositor in good standing of Manila Banking
Corporation. As he was in charge of a big number of corporations, he
was usually out of the country for business. He then entrusted his
credit cards, checkbook, blank checks, passbooks, etc to his secretary,
Katherine Eugenio. Eugenio was also in charge of verifying and
reconciling the statements of Ilusorio’s checking account.
Eugenio was able to encash and deposit to her personal account
checks drawn against Ilusorio’s account with an aggregate amount of
119K. Ilusorio didn’t bother to check his statement of account until a
business partner informed him that he saw Eugenio using his credit
cards. Ilusorio then fired her and instituted criminal case of Estafa
thru falsification against Eugenio. Manila Banking Corp. also instituted
a complaint of estafa against Eugenio based on the affidavit of Dante
Razon, an employee. Razon stated that he personally examined and
scrutinized the encashed checks in accordance with their verification
procedures.
Manila Bank sought the expertise of NBI in determining the
genuineness of the checks but Ilusorio failed to submit specimen
signatures and thus, NBI could not conduct the examination.
Issue: W/N Manila Bank is liable for damages for failing to detect a
forged check
Held:
No. To be entitled to damages, Ilusorio has the burden of poving that
the bank was negligent in failing to detect the discrepancy in the
signatures on the checks. Ilusorio had to establish the fact of forgery
which he failed to do by failing to submit his specimen signatures for
NBI to conclusively establish forgery.
Furthermore, the Bank was not negligent in verifying the checks as
they verified the drawer’s signatures against their specimen
signatures and in doubt, referred to more experienced verifier for
further verification.
On the contrary, it was Ilusorio who was found to be negligent. He
accorded his secretary with an unusual degree of trust and
unrestricted access to his finances. Furthermore, despite the fact that
the bank was regularly sending statements of account, he failed to
check them until he found out that his secretary was using his credit
cards.
Sec. 23 of the Negotiable Instruments law provides that a forged
check is inoperative, meaning there was no right to enforce payment
against any party. But it also provides an exception: “unless the party
against whom it is sought enforce such right is precluded from setting
up the forgery or want of authority”. This case falls under the
exception since Ilusorio is precluded from setting up forgery due to
his own negligence considering that he allowed his secretary access
to his credit cards, checkbook, and allowed his secretary to verify his
statements of account.
24 Lee v Court of Appeals G.R. NO. 117913. February 1, 2002
Facts: Charles Lee, as President of MICO wrote private respondent
Philippine Bank of Communications (PBCom) requesting for a grant of
a discounting loan/credit line in the sum of Three Million Pesos
(P3,000,000.00) for the purpose of carrying out MICO’s line of
business as well as to maintain its volume of business. On the same
day, Charles Lee requested for another discounting loan/credit line of
Three Million Pesos (P3,000,000.00) from PBCom for the purpose of
opening letters of credit and trust receipts. nother loan of One Million
Pesos (P1,000,000.00) was availed of by MICO from PBCom which
was likewise later on renewed. Charles Lee, Chua Siok Suy,
Mariano Sio, Alfonso Yap and Richard Velasco, in their personal
capacities executed a Surety Agreement in favor of PBComwhereby
the petitioners jointly and severally, guaranteed the prompt payment
on due dates or at maturity of overdrafts, promissory notes,
discounts, drafts, letters of credit, bills of exchange, trust receipts,
and other obligations of every kind and nature, for which MICO may
be held accountable by PBCom. Charles Lee, in his capacity as
president of MICO, wrote PBCom and applied for an additional loan in
the sum of Four Million Pesos (P4,000,000.00). The loan was intended
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for the expansion and modernization of the company’s machineries.
Upon approval of the said application for loan, MICO availed of the
additional loan of Four Million Pesos (P4,000,000.00).
To secure the trust receipts transactions, MICO and Lee executed a
real estate mortgage in favor of PBCOM over several properties it
owns. Upon maturity of all credit availments obtained by MICO
from PBCom, the latter made a demand for payment.[For failure of
petitioner MICO to pay the obligations incurred despite repeated
demands, PBCom extrajudicially foreclosed MICO’s real estate
mortgage and sold the said mortgaged properties in a public auction
sale. Lee contends that the letters of credit, surety agreements and
loan transactions did not ripen into valid and binding contracts
since no part of the proceeds of the loan transactions were delivered
to MICO or to any of the petitioners-sureties. Petitioners-sureties
allege that Chua Siok Suy was the beneficiary of the proceeds of the
loans and that the latter made them sign the surety agreements in
blank. Thus, they maintain that they should not be held accountable
for any liability that might arise therefrom.
Issue:
1) whether or not the proceeds of the loans and letters of credit
transactions were ever delivered to MICO
2) whether or not the individual petitioners, as sureties, may be held
liable under the two (2) Surety Agreements
Held:
1) whether or not the proceeds of the loans and letters of credit
transactions were ever delivered to MICO
The letter of credita, as well as the security agreements, have not
merely created a prima facie case but have actually proved the
solidary obligation of MICO and the petitioners, as sureties of MICO,
in favor of respondent PBCom.
While the presumption found under the Negotiable Instruments Law
may not necessarily be applicable to trust receipts and letters of
credit, the presumption that the drafts drawn in connection with the
letters of credit have sufficient consideration. Under Section 3(r), Rule
131 of the Rules of Court there is also a presumption that sufficient
consideration was given in a contract.
Hence, petitioners should have presented credible evidence to rebut
that presumption as well as the evidence presented by private
respondent PBCom. The letters of credit show that the pertinent
materials/merchandise have been received by MICO. The drafts
signed by the beneficiary/suppliers in connection with the
corresponding letters of credit proved that said suppliers were paid
by PBCom for the account of MICO. On the other hand, aside from
their bare denials petitioners did not present sufficient and
competent evidence to rebut the evidence of private respondent
PBCom.
2) whether or not the individual petitioners, as sureties, may be held
liable under the two (2) Surety Agreements
A perusal of the By-Laws of MICO, however, shows that the power to
borrow money for the company and issue mortgages, bonds, deeds of
trust and negotiable instruments or securities, secured by mortgages
or pledges of property belonging to the company is not confined
solely to the president of the corporation. The Board of Directors of
MICO can also borrow money, arrange letters of credit, execute trust
receipts and promissory notes on behalf of the corporation.[35]
Significantly, this power of the Board of Directors according to the by-
laws of MICO, may be delegated to any of its standing committee,
officer or agent.[36] Hence, PBCom had every right to rely on the
Certification issued by MICO’s corporate secretary, P.B. Barrera, that
Chua Siok Suy was duly authorized by its Board of Directors to borrow
money and obtain credit facilities in behalf of MICO from PBCom.
25 scribd
26 Bautista V. Auto Plus Traders Inc (2008)
G.R. No. 166405 August 06, 2008
FACTS:
Claude P. Bautista, in his capacity as President and Presiding Officer of
Cruiser Bus Lines and Transport Corporation (Cruiser), purchased
various spare parts from Auto Plus Traders, Inc. (Auto Plus) and issued
2 postdated checks
The checks were subsequently dishonored
2 Informations for violation of BP Blg. 22 were filed with the MTCC
MTCC: Cruiser directed to pay the Auto Plus
CA Affirmed RTC: Bautista personally issued the check
According to Auto Plus, Bautista, by issuing his check to cover the
obligation of the corporation, became an accommodation party
ISSUE: W/N Bautista as an officer of the corporation, is personally and
civilly liable for the 2 checks
HELD: NO. petition is GRANTED. CA REVERSED and SET
ASIDE. Criminal Case DISMISSED
Section 29 of the Negotiable Instruments Law accommodation party
is liable on the instrument to a holder for value Private respondent
adds that petitioner should also be liable for the value of the
corporation check because instituting another civil action against the
corporation would result in multiplicity of suits and delay.
Generally this Court, in a petition for review on certiorari under Rule
45 of the Rules of Court, has no jurisdiction over questions of facts.
But, considering that the findings of the MTCC and the RTC are at
variance, we are compelled to settle this issue.
2 check return slips in conjunction with the Current Account
Statements would show that the check for P151,200 was drawn
against the current account of Claude Bautista while the check for
P97,500 was drawn against the current account of Cruiser Bus Lines
and Transport Corporation. Hence, we sustain the factual finding of
the RTC. Nonetheless, appellate court in error for affirming the
decision of the RTC holding petitioner liable for the value of the
checks considering that he was acquitted of the crime charged and
that the debts are clearly corporate debts for which only Cruiser Bus
Lines and Transport Corporation should be held liable.
There is no agreement that petitioner shall be held liable for the
corporation's obligations in his personal capacity. Hence, he cannot
be held liable for the value of the 2 checks issued in payment for the
corporation's obligation
Section 29 of the Negotiable Instruments Law
accommodation party a person "who has signed the instrument as
maker, drawer, acceptor, or indorser, without receiving value
therefor, and for the purpose of lending his name to some other
person
requisites
he must be a party to the instrument, signing as maker, drawer,
acceptor, or indorser -present
he must not receive value therefor - present
he must sign for the purpose of lending his name or credit to some
other person - lacking
Cruiser Bus Lines and Transport Corporation, however, remains liable
for the checks especially since there is no evidence that the debts
covered by the subject checks have been paid.
27 Negotiable Instruments Case Digest: Travel-On V. CA (1992)
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G.R. No. L-56169 June 26, 1992
FACTS:
Arturo S. Miranda had a revolving credit line with Travel-On. Inc.
(Travel-On), a travel agency selling airline tickets on commission basis
for and in behalf of different airline companies procured tickets from
Travel-On on behalf of airline passengers and derived commissions
therefrom.
June 14 1972: Travel-On filed bef. the CFI to collect 6 checks issued by
Miranda totaling P115,000.00
August 5 1969 - January 16 1970: Travel-On sold and delivered airline
tickets to Miranda w/ total price of P278,201.57 paid in cash and 6
checks = P115,000 - all dishonored by the drawee banks
March 1972: paid P10,000.00 reducing his debts to P105,000
Miranda: checks were issued for to "accommodate" Travel-On's
General Manager to show the BOD of Travel-On that their receivables
were still good
Travel-On's witness, Elita Montilla: related to situations where its
passengers needed money in Hongkong, and upon request of Travel-
On, Miranda would contact his friends in Hongkong to advance
Hongkong money to the passenger
CA affirmed CFI: ordered Travel-On to pay Miranda P8,894.91
representing net overpayments by private respondent, moral
damages of P10,000.00 (later increased to P50,000 by CFI and
reduced by CA to P20,000) 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 - decision was because Travel-On did not
show that Miranda had an outstanding balance of P115,000.00
ISSUE: W/N Miranda is liable for the 6 dishonored checks because
there was no accomodation
HELD: YES. GRANT due course to the Petition for Review
on Certiorari and to REVERSE and SET ASIDE the Decision of the CA
and trial court failed to give due importance the checks themselves
as evidence of the debt check which is regular on its face is
deemed prima facie to have been issued for a valuable consideration
and every person whose signature appears thereon is deemed to
have become a party thereto for value.
negotiable instrument is presumed to have been given or indorsed for
a sufficient consideration unless otherwise contradicted and
overcome by other competent evidence
Those checks in themselves constituted evidence of indebtedness of
Miranda, evidence not successfully overturned or rebutted by private
respondent.
While the Negotiable Instruments Law does refer to accommodation
transactions, no such transaction was here shown
Sec. 29. Liability of accommodation party. — An accommodation
party is one who has signed the instrument as maker, drawer,
acceptor, or indorser, without receiving value therefor, and for the
purpose of lending his name to some other person. Such a person is
liable on the instrument to a holder for value, notwithstanding such
holder, at the time of taking the instrument, knew him to be only an
accommodation party.
Having issued or indorsed the check, the accommodating party has
warranted to the holder in due course that he will pay the same
according to its tenor.
Travel-On obviously was not an accommodated party; it realized no
value on the checks which bounced.
28 Negotiable Instruments Case Digest: Agro Conglomerates Inc. V.
CA (2000) G.R. No. 117660 December 18, 2000
FACTS:
July 17, 1982: Agro Conglomerates, Inc. (Agro) sold 2 parcels of land
to Wonderland Food Industries, Inc (Wonderland) for P 5M under
terms and conditions:
P 1M Pesos shall be paid in cash upon the signing of the agreement
P 2M Pesos worth of common shares of stock of the Wonderland
Food Industries, Inc. balance of P2,000,000.00 shall be paid in 4 equal
installments, the first installment falling due, 180 days after the
signing of the agreement and every six months thereafter, with an
interest rate of 18% per annum, to be advanced by the vendee upon
the signing of the agreement
July 19, 1982: Agro, Wonderland and Regent Savings & Loan Bank
(Regent) (formerly Summa Savings & Loan Association) amended the
arrangement resulting to a revision - addedum was not notarized
Agro would secure a loan in the name of Agro Conglomerates Inc. for
the total amount of the initial payments, while the settlement of loan
would be assumed by Wonderland
Mario Soriano (of Agro) signed as maker several promissory
notes, payable to Regent in favor of Wonderland subsidiary contract
of suretyship had taken effect since Agro signed the promissory notes
as maker and accommodation party for the benefit of Wonderland
bank released the proceeds of the loan to Agro who failed to meet
their obligations as they fell due bank, experiencing financial turmoil,
gave Agro opportunity to settle their account by extending payment
due dates
Mario Soriano manifested his intention to re-structure the loan, yet
did not show up nor submit his formal written request
Regent filed 3 separate complaints before the RTC for Collection of
sums of money
CA affirmed Trial court: held Agro liable
ISSUE: W/N Agro should be liable because there was no
accomodation or surety
HELD: YES. CA affirmed.
First, there was no contract of sale that materialized. The
original agreement was that Wonderland would pay cash and
Agro would deliver possession of the farmlands. But this was
changed through an addendum, that Agro would instead secure a
loan and the settlement
of the same would be shouldered by Wonderland.
contract of surety between Woodland and petitioner was
extinguished by the rescission of the contract of sale of the farmland
With the rescission, there was confusion in the persons of the
principal debtor and surety. The addendum thereon likewise
lost its efficacy
accommodation party - NOT in this case because of recission
person who has signed the instrument as:
maker
acceptor
indorser
without receiving value therefor
for the purpose of lending his name to some other person is liable on
the instrument to a holder for value, notwithstanding such holder at
the time of taking the instrument knew (the signatory) to be an
accommodation party has the right, after paying the holder, to obtain
reimbursement from the party accommodated, since the relation
between them has in effect become one of principal and surety, the
accommodation party being the surety.
Suretyship relation which exists where:
6|nego
1 person has undertaken an obligation another person is also under
the obligation or other duty to the obligee, who is entitled to but one
performance
The surety’s liability to the creditor or promisee is directly and equally
bound with the principal and the creditor may proceed against any
one of the solidary debtors
Novation - NOT in this case extinguishment of an obligation by the
substitution or change of the obligation by a subsequent one which
extinguishes or modifies the first, either by changing the object or
principal conditions, or by substituting another in place of the
debtor, or by subrogating a third person in the rights of the creditor
never presumed and it must be clearly and unequivocally shown
requisites:
There must be a previous valid obligation - lacking
There must be an agreement of the parties concerned to a new
contract
There must be the extinguishment of the old contract; and
There must be the validity of the new contract
Sec. 22 of the Civil Code provides:
Every person who through an act of performance by another, or any
other means, acquires or comes into possession of something at the
expense of the latter without just or legal ground, shall return the
same to him.
Agro had no legal or just ground to retain the proceeds of the loan at
the expense of Wonderland.
Neither could Agro excuse themselves and hold Wonderland still
liable to pay the loan upon the rescission of their sales contract -
surety no effect because of the rescission
If Agro sustained damages as a result of the rescission, they should
have impleaded Wonderland and asked damages
The non-inclusion of a necessary party does not prevent the court
from proceeding in the action, and the judgment rendered therein
shall be without prejudice to the rights of such necessary party
But respondent appellate court did not err in holding that Agro are
duty-bound under the law to pay the claims of Regent from whom
they had obtained the loan proceeds
29 G.R. No. 163720 December 16, 2004
GENEVIEVE LIM vs. FLORENCIO SABAN
Before the Court is a Petition for Review on Certiorari assailing
the Decision1 dated October 27, 2003 of the Court of Appeals,
Seventh Division, in CA-G.R. V No. 60392.2
The late Eduardo Ybañez (Ybañez), the owner of a 1,000-square
meter lot in Cebu City (the "lot"), entered into anAgreement and
Authority to Negotiate and Sell (Agency Agreement) with respondent
Florencio Saban (Saban) on February 8, 1994. Under the Agency
Agreement, Ybañez authorized Saban to look for a buyer of the lot for
Two Hundred Thousand Pesos (P200,000.00) and to mark up the
selling price to include the amounts needed for payment of taxes,
transfer of title and other expenses incident to the sale, as well as
Saban’s commission for the sale.3
Through Saban’s efforts, Ybañez and his wife were able to sell the lot
to the petitioner Genevieve Lim (Lim) and the spouses Benjamin and
Lourdes Lim (the Spouses Lim) on March 10, 1994. The price of the lot
as indicated in the Deed of Absolute Sale is Two Hundred Thousand
Pesos (P200,000.00).4 It appears, however, that the vendees agreed
to purchase the lot at the price of Six Hundred Thousand Pesos
(P600,000.00), inclusive of taxes and other incidental expenses of the
sale. After the sale, Lim remitted to Saban the amounts of One
Hundred Thirteen Thousand Two Hundred Fifty Seven Pesos
(P113,257.00) for payment of taxes due on the transaction as well as
Fifty Thousand Pesos (P50,000.00) as broker’s commission.5 Lim also
issued in the name of Saban four postdated checks in the aggregate
amount of Two Hundred Thirty Six Thousand Seven Hundred Forty
Three Pesos (P236,743.00). These checks were Bank of the Philippine
Islands (BPI) Check No. 1112645 dated June 12, 1994 for P25,000.00;
BPI Check No. 1112647 dated June 19, 1994 for P18,743.00; BPI Check
No. 1112646 dated June 26, 1994 for P25,000.00; and Equitable PCI
Bank Check No. 021491B dated June 20, 1994 for P168,000.00.
Subsequently, Ybañez sent a letter dated June 10, 1994 addressed to
Lim. In the letter Ybañez asked Lim to cancel all the checks issued by
her in Saban’s favor and to "extend another partial payment" for the
lot in his (Ybañez’s) favor.6
After the four checks in his favor were dishonored upon presentment,
Saban filed a Complaint for collection of sum of money and damages
against Ybañez and Lim with the Regional Trial Court (RTC) of Cebu
City on August 3, 1994.7 The case was assigned to Branch 20 of the
RTC.
In his Complaint, Saban alleged that Lim and the Spouses Lim agreed
to purchase the lot for P600,000.00, i.e.,with a mark-up of Four
Hundred Thousand Pesos (P400,000.00) from the price set by Ybañez.
Of the total purchase price of P600,000.00, P200,000.00 went to
Ybañez, P50,000.00 allegedly went to Lim’s agent, andP113,257.00
was given to Saban to cover taxes and other expenses incidental to
the sale. Lim also issued four (4) postdated checks8 in favor of Saban
for the remaining P236,743.00.9
Saban alleged that Ybañez told Lim that he (Saban) was not entitled
to any commission for the sale since he concealed the actual selling
price of the lot from Ybañez and because he was not a licensed real
estate broker. Ybañez was able to convince Lim to cancel all four
checks.
Saban further averred that Ybañez and Lim connived to deprive him
of his sales commission by withholding payment of the first three
checks. He also claimed that Lim failed to make good the fourth check
which was dishonored because the account against which it was
drawn was closed.
In his Answer, Ybañez claimed that Saban was not entitled to any
commission because he concealed the actual selling price from him
and because he was not a licensed real estate broker.
Lim, for her part, argued that she was not privy to the agreement
between Ybañez and Saban, and that she issued stop payment orders
for the three checks because Ybañez requested her to pay the
purchase price directly to him, instead of coursing it through Saban.
She also alleged that she agreed with Ybañez that the purchase price
of the lot was only P200,000.00.
Ybañez died during the pendency of the case before the RTC. Upon
motion of his counsel, the trial court dismissed the case only against
him without any objection from the other parties.10
On May 14, 1997, the RTC rendered its Decision11 dismissing Saban’s
complaint, declaring the four (4) checks issued by Lim as stale and
non-negotiable, and absolving Lim from any liability towards Saban.
Saban appealed the trial court’s Decision to the Court of Appeals.
On October 27, 2003, the appellate court promulgated
its Decision12 reversing the trial court’s ruling. It held that Saban was
entitled to his commission amounting to P236,743.00.13
The Court of Appeals ruled that Ybañez’s revocation of his contract of
agency with Saban was invalid because the agency was coupled with
an interest and Ybañez effected the revocation in bad faith in order to
deprive Saban of his commission and to keep the profits for himself.14
The appellate court found that Ybañez and Lim connived to deprive
Saban of his commission. It declared that Lim is liable to pay Saban
7|nego
the amount of the purchase price of the lot corresponding to his
commission because she issued the four checks knowing that the
total amount thereof corresponded to Saban’s commission for the
sale, as the agent of Ybañez. The appellate court further ruled that, in
issuing the checks in payment of Saban’s commission, Lim acted as an
accommodation party. She signed the checks as drawer, without
receiving value therefor, for the purpose of lending her name to a
third person. As such, she is liable to pay Saban as the holder for
value of the checks.15
Lim filed a Motion for Reconsideration of the appellate
court’s Decision, but her Motion was denied by the Court of Appeals
in a Resolution dated May 6, 2004.16
Not satisfied with the decision of the Court of Appeals, Lim filed the
present petition.
Lim argues that the appellate court ignored the fact that after paying
her agent and remitting to Saban the amounts due for taxes and
transfer of title, she paid the balance of the purchase price directly to
Ybañez.17
She further contends that she is not liable for Ybañez’s debt to Saban
under the Agency Agreement as she is not privy thereto, and that
Saban has no one but himself to blame for consenting to the dismissal
of the case against Ybañez and not moving for his substitution by his
heirs.18
Lim also assails the findings of the appellate court that she issued the
checks as an accommodation party for Ybañez and that she connived
with the latter to deprive Saban of his commission.19
Lim prays that should she be found liable to pay Saban the amount of
his commission, she should only be held liable to the extent of one-
third (1/3) of the amount, since she had two co-vendees (the Spouses
Lim) who should share such liability.20
In his Comment, Saban maintains that Lim agreed to purchase the lot
for P600,000.00, which consisted of theP200,000.00 which would be
paid to Ybañez, the P50,000.00 due to her broker, the P113,257.00
earmarked for taxes and other expenses incidental to the sale and
Saban’s commission as broker for Ybañez. According to Saban, Lim
assumed the obligation to pay him his commission. He insists that Lim
and Ybañez connived to unjustly deprive him of his commission from
the negotiation of the sale.21
The issues for the Court’s resolution are whether Saban is entitled to
receive his commission from the sale; and, assuming that Saban is
entitled thereto, whether it is Lim who is liable to pay Saban his sales
commission.
The Court gives due course to the petition, but agrees with the result
reached by the Court of Appeals.
The Court affirms the appellate court’s finding that the agency was
not revoked since Ybañez requested that Lim make stop payment
orders for the checks payable to Saban only after the consummation
of the sale on March 10, 1994. At that time, Saban had already
performed his obligation as Ybañez’s agent when, through his
(Saban’s) efforts, Ybañez executed the Deed of Absolute Sale of the
lot with Lim and the Spouses Lim.
To deprive Saban of his commission subsequent to the sale which was
consummated through his efforts would be a breach of his contract of
agency with Ybañez which expressly states that Saban would be
entitled to any excess in the purchase price after deducting
the P200,000.00 due to Ybañez and the transfer taxes and other
incidental expenses of the sale.22
In Macondray & Co. v. Sellner,23 the Court recognized the right of a
broker to his commission for finding a suitable buyer for the seller’s
property even though the seller himself consummated the sale with
the buyer.24 The Court held that it would be in the height of injustice
to permit the principal to terminate the contract of agency to the
prejudice of the broker when he had already reaped the benefits of
the broker’s efforts.
In Infante v. Cunanan, et al.,25 the Court upheld the right of the
brokers to their commissions although the seller revoked their
authority to act in his behalf after they had found a buyer for his
properties and negotiated the sale directly with the buyer whom he
met through the brokers’ efforts. The Court ruled that the seller’s
withdrawal in bad faith of the brokers’ authority cannot unjustly
deprive the brokers of their commissions as the seller’s duly
constituted agents.
The pronouncements of the Court in the aforecited cases are
applicable to the present case, especially considering that Saban had
completely performed his obligations under his contract of agency
with Ybañez by finding a suitable buyer to preparing the Deed of
Absolute Sale between Ybañez and Lim and her co-vendees.
Moreover, the contract of agency very clearly states that Saban is
entitled to the excess of the mark-up of the price of the lot after
deducting Ybañez’s share of P200,000.00 and the taxes and other
incidental expenses of the sale.
However, the Court does not agree with the appellate court’s
pronouncement that Saban’s agency was one coupled with an
interest. Under Article 1927 of the Civil Code, an agency cannot be
revoked if a bilateral contract depends upon it, or if it is the means of
fulfilling an obligation already contracted, or if a partner is appointed
manager of a partnership in the contract of partnership and his
removal from the management is unjustifiable. Stated differently, an
agency is deemed as one coupled with an interest where it is
established for the mutual benefit of the principal and of the agent,
or for the interest of the principal and of third persons, and it cannot
be revoked by the principal so long as the interest of the agent or of a
third person subsists. In an agency coupled with an interest, the
agent’s interest must be in the subject matter of the power conferred
and not merely an interest in the exercise of the power because it
entitles him to compensation. When an agent’s interest is confined to
earning his agreed compensation, the agency is not one coupled with
an interest, since an agent’s interest in obtaining his compensation as
such agent is an ordinary incident of the agency relationship.26
Saban’s entitlement to his commission having been settled, the Court
must now determine whether Lim is the proper party against whom
Saban should address his claim.
Saban’s right to receive compensation for negotiating as broker for
Ybañez arises from the Agency Agreement between them. Lim is not
a party to the contract. However, the record reveals that she had
knowledge of the fact that Ybañez set the price of the lot
at P200,000.00 and that the P600,000.00—the price agreed upon by
her and Saban—was more than the amount set by Ybañez because it
included the amount for payment of taxes and for Saban’s
commission as broker for Ybañez.
According to the trial court, Lim made the following payments for the
lot: P113,257.00 for taxes, P50,000.00 for her broker,
and P400.000.00 directly to Ybañez, or a total of Five Hundred Sixty
Three Thousand Two Hundred Fifty Seven Pesos (P563,257.00).27 Lim,
on the other hand, claims that on March 10, 1994, the date of
execution of theDeed of Absolute Sale, she paid directly to Ybañez the
amount of One Hundred Thousand Pesos (P100,000.00) only, and
gave to Saban P113,257.00 for payment of taxes and P50,000.00 as
his commission,28 and One Hundred Thirty Thousand Pesos
(P130,000.00) on June 28, 1994,29 or a total of Three Hundred Ninety
8|nego
Three Thousand Two Hundred Fifty Seven Pesos (P393,257.00).
Ybañez, for his part, acknowledged that Lim and her co-vendees paid
him P400,000.00 which he said was the full amount for the sale of the
lot.30 It thus appears that he received P100,000.00 on March 10,
1994, acknowledged receipt (through Saban) of the P113,257.00
earmarked for taxes and P50,000.00 for commission, and received
the balance of P130,000.00 on June 28, 1994. Thus, a total
of P230,000.00 went directly to Ybañez. Apparently, although the
amount actually paid by Lim wasP393,257.00, Ybañez rounded off the
amount to P400,000.00 and waived the difference.
Lim’s act of issuing the four checks amounting to P236,743.00 in
Saban’s favor belies her claim that she and her co-vendees did not
agree to purchase the lot at P600,000.00. If she did not agree thereto,
there would be no reason for her to issue those checks which is the
balance of P600,000.00 less the amounts of P200,000.00 (due to
Ybañez), P50,000.00 (commission), and the P113,257.00 (taxes). The
only logical conclusion is that Lim changed her mind about agreeing
to purchase the lot at P600,000.00 after talking to Ybañez and
ultimately realizing that Saban’s commission is even more than what
Ybañez received as his share of the purchase price as vendor.
Obviously, this change of mind resulted to the prejudice of Saban
whose efforts led to the completion of the sale between the latter,
and Lim and her co-vendees. This the Court cannot countenance.
The ruling of the Court in Infante v. Cunanan, et al., cited earlier, is
enlightening for the facts therein are similar to the circumstances of
the present case. In that case, Consejo Infante asked Jose Cunanan
and Juan Mijares to find a buyer for her two lots and the house built
thereon for Thirty Thousand Pesos (P30,000.00) . She promised to pay
them five percent (5%) of the purchase price plus whatever overprice
they may obtain for the property. Cunanan and Mijares offered the
properties to Pio Noche who in turn expressed willingness to
purchase the properties. Cunanan and Mijares thereafter introduced
Noche to Infante. However, the latter told Cunanan and Mijares that
she was no longer interested in selling the property and asked them
to sign a document stating that their written authority to act as her
agents for the sale of the properties was already cancelled.
Subsequently, Infante sold the properties directly to Noche for Thirty
One Thousand Pesos (P31,000.00). The Court upheld the right of
Cunanan and Mijares to their commission, explaining that—
…[Infante] had changed her mind even if respondent had found a
buyer who was willing to close the deal, is a matter that would not
give rise to a legal consequence if [Cunanan and Mijares] agreed to
call off the transaction in deference to the request of [Infante]. But
the situation varies if one of the parties takes advantage of the
benevolence of the other and acts in a manner that would promote
his own selfish interest. This act is unfair as would amount to bad
faith. This act cannot be sanctioned without according the party
prejudiced the reward which is due him. This is the situation in which
[Cunanan and Mijares] were placed by [Infante]. [Infante] took
advantage of the services rendered by [Cunanan and Mijares], but
believing that she could evade payment of their commission, she
made use of a ruse by inducing them to sign the deed of
cancellation….This act of subversion cannot be sanctioned and cannot
serve as basis for [Infante] to escape payment of the commission
agreed upon.31
The appellate court therefore had sufficient basis for concluding that
Ybañez and Lim connived to deprive Saban of his commission by
dealing with each other directly and reducing the purchase price of
the lot and leaving nothing to compensate Saban for his efforts.
Considering the circumstances surrounding the case, and the
undisputed fact that Lim had not yet paid the balance of P200,000.00
of the purchase price of P600,000.00, it is just and proper for her to
pay Saban the balance of P200,000.00.
Furthermore, since Ybañez received a total of P230,000.00 from Lim,
or an excess of P30,000.00 from his asking price of P200,000.00,
Saban may claim such excess from Ybañez’s estate, if that remedy is
still available,32 in view of the trial court’s dismissal of Saban’s
complaint as against Ybañez, with Saban’s express consent, due to
the latter’s demise on November 11, 1994.33
The appellate court however erred in ruling that Lim is liable on the
checks because she issued them as an accommodation party. Section
29 of the Negotiable Instruments Law defines an accommodation
party as a person "who has signed the negotiable instrument as
maker, drawer, acceptor or indorser, without receiving value
therefor, for the purpose of lending his name to some other person."
The accommodation party is liable on the instrument to a holder for
value even though the holder at the time of taking the instrument
knew him or her to be merely an accommodation party. The
accommodation party may of course seek reimbursement from the
party accommodated.34
As gleaned from the text of Section 29 of the Negotiable Instruments
Law, the accommodation party is one who meets all these three
requisites, viz: (1) he signed the instrument as maker, drawer,
acceptor, or indorser; (2) he did not receive value for the signature;
and (3) he signed for the purpose of lending his name to some other
person. In the case at bar, while Lim signed as drawer of the checks
she did not satisfy the two other remaining requisites.
The absence of the second requisite becomes pellucid when it is
noted at the outset that Lim issued the checks in question on account
of her transaction, along with the other purchasers, with Ybañez
which was a sale and, therefore, a reciprocal contract. Specifically,
she drew the checks in payment of the balance of the purchase price
of the lot subject of the transaction. And she had to pay the agreed
purchase price in consideration for the sale of the lot to her and her
co-vendees. In other words, the amounts covered by the checks form
part of the cause or consideration from Ybañez’s end, as vendor,
while the lot represented the cause or consideration on the side of
Lim, as vendee.35 Ergo, Lim received value for her signature on the
checks.
Neither is there any indication that Lim issued the checks for the
purpose of enabling Ybañez, or any other person for that matter, to
obtain credit or to raise money, thereby totally debunking the
presence of the third requisite of an accommodation party.
WHEREFORE, in view of the foregoing, the petition is DISMISSED.
30 G.R. No. 180257 February 23, 2011
EUSEBIO GONZALES vs. PHILIPPINE COMMERCIAL AND
INTERNATIONAL BANK, EDNA OCAMPO, and ROBERTO NOCEDA
This is an appeal via a Petition for Review on Certiorari under Rule 45
from the Decision1 dated October 22, 2007 of the Court of Appeals
(CA) in CA-G.R. CV No. 74466, which denied petitioner’s appeal from
the December 10, 2001 Decision2 in Civil Case No. 99-1324 of the
Regional Trial Court (RTC), Branch 138 in Makati City. The RTC found
justification for respondents’ dishonor of petitioner’s check and found
petitioner solidarily liable with the spouses Jose and Jocelyn Panlilio
(spouses Panlilio) for the three promissory notes they executed in
favor of respondent Philippine Commercial and International Bank
(PCIB).
The Facts
9|nego
Petitioner Eusebio Gonzales (Gonzales) was a client of PCIB for a good
15 years before he filed the instant case. His account with PCIB was
handled by respondent Edna Ocampo (Ocampo) until she was
replaced by respondent Roberto Noceda (Noceda).
In October 1992, PCIB granted a credit line to Gonzales through the
execution of a Credit-On-Hand Loan Agreement3 (COHLA), in which
the aggregate amount of the accounts of Gonzales with PCIB served
as collateral for and his availment limit under the credit line. Gonzales
drew from said credit line through the issuance of check. At the
institution of the instant case, Gonzales had a Foreign Currency
Deposit (FCD) of USD 8,715.72 with PCIB.
On October 30, 1995, Gonzales and his wife obtained a loan for PhP
500,000. Subsequently, on December 26, 1995 and January 3, 1999,
the spouses Panlilio and Gonzales obtained two additional loans from
PCIB in the amounts of PhP 1,000,000 and PhP 300,000, respectively.
These three loans amounting to PhP 1,800,000 were covered by three
promissory notes.4 To secure the loans, a real estate mortgage (REM)
over a parcel of land covered by Transfer Certificate of Title (TCT) No.
38012 was executed by Gonzales and the spouses Panlilio. Notably,
the promissory notes specified, among others, the solidary liability of
Gonzales and the spouses Panlilio for the payment of the loans.
However, it was the spouses Panlilio who received the loan proceeds
of PhP 1,800,000.
The monthly interest dues of the loans were paid by the spouses
Panlilio through the automatic debiting of their account with PCIB.
But the spouses Panlilio, from the month of July 1998, defaulted in
the payment of the periodic interest dues from their PCIB account
which apparently was not maintained with enough deposits. PCIB
allegedly called the attention of Gonzales regarding the July 1998
defaults and the subsequent accumulating periodic interest dues
which were left still left unpaid.
In the meantime, Gonzales issued a check dated September 30, 1998
in favor of Rene Unson (Unson) for PhP 250,000 drawn against the
credit line (COHLA). However, on October 13, 1998, upon
presentment for payment by Unson of said check, it was dishonored
by PCIB due to the termination by PCIB of the credit line under COHLA
on October 7, 1998 for the unpaid periodic interest dues from the
loans of Gonzales and the spouses Panlilio. PCIB likewise froze the
FCD account of Gonzales.
Consequently, Gonzales had a falling out with Unson due to the
dishonor of the check. They had a heated argument in the premises
of the Philippine Columbian Association (PCA) where they are both
members, which caused great embarrassment and humiliation to
Gonzales. Thereafter, on November 5, 1998, Unson sent a demand
letter5 to Gonzales for the PhP 250,000. And on December 3, 1998,
the counsel of Unson sent a second demand letter 6 to Gonzales with
the threat of legal action. With his FCD account that PCIB froze,
Gonzales was forced to source out and pay the PhP 250,000 he owed
to Unson in cash.
On January 28, 1999, Gonzales, through counsel, wrote PCIB insisting
that the check he issued had been fully funded, and demanded the
return of the proceeds of his FCD as well as damages for the unjust
dishonor of the check.7 PCIB replied on March 22, 1999 and stood its
ground in freezing Gonzales’ accounts due to the outstanding dues of
the loans.8 On May 26, 1999, Gonzales reiterated his demand,
reminding PCIB that it knew well that the actual borrowers were the
spouses Panlilio and he never benefited from the proceeds of the
loans, which were serviced by the PCIB account of the spouses
Panlilio.9
PCIB’s refusal to heed his demands compelled Gonzales to file the
instant case for damages with the RTC, on account of the alleged
unjust dishonor of the check issued in favor of Unson.
The Ruling of the RTC
After due trial, on December 10, 2001, the RTC rendered a Decision in
favor of PCIB. The decretal portion reads:
WHEREFORE, judgment is rendered as follows –
(a) on the first issue, plaintiff is liable to pay defendant Bank as
principal under the promissory notes, Exhibits A, B and C;
(b) on the second issue, the Court finds that there is justification on
part of the defendant Bank to dishonor the check, Exhibit H;
(c) on the third issue, plaintiff and defendants are not entitled to
damages from each other.
No pronouncement as to costs.
SO ORDERED.10
The RTC found Gonzales solidarily liable with the spouses Panlilio on
the three promissory notes relative to the outstanding REM loan. The
trial court found no fault in the termination by PCIB of the COHLA
with Gonzales and in freezing the latter’s accounts to answer for the
past due PhP 1,800,000 loan. The trial court ruled that the dishonor of
the check issued by Gonzales in favor of Unson was proper
considering that the credit line under the COHLA had already been
terminated or revoked before the presentment of the check.
Aggrieved, Gonzales appealed the RTC Decision before the CA.
The Ruling of the CA
On September 26, 2007, the appellate court rendered its Decision
dismissing Gonzales’ appeal and affirming in toto the RTC Decision.
The fallo reads:
WHEREFORE, in view of the foregoing, the decision, dated December
10, 2001, in Civil Case No. 99-1324 is hereby AFFIRMED in toto.
SO ORDERED.11
In dismissing Gonzales’ appeal, the CA, first, confirmed the RTC’s
findings that Gonzales was indeed solidarily liable with the spouses
Panlilio for the three promissory notes executed for the REM
loan; second, it likewise found neither fault nor negligence on the
part of PCIB in dishonoring the check issued by Gonzales in favor of
Unson, ratiocinating that PCIB was merely exercising its rights under
the contractual stipulations in the COHLA brought about by the
outstanding past dues of the REM loan and interests for which
Gonzales was solidarily liable with the spouses Panlilio to pay under
the promissory notes.
Thus, we have this petition.
The Issues
Gonzales, as before the CA, raises again the following assignment of
errors:
I - IN NOT CONSIDERING THAT THE LIABILITY ARISING FROM
PROMISSORY NOTES (EXHIBITS "A", "B" AND "C", PETITIONER;
EXHIBITS "1", "2" AND "3", RESPONDENT) PERTAINED TO BORROWER
JOSE MA. PANLILIO AND NOT TO APPELLANT AS RECOGNIZED AND
ACKNOWLEDGE[D] BY RESPONDENT PHILIPPINE COMMERCIAL &
INDUSTRIAL BANK (RESPONDENT BANK).
II - IN FINDING THAT THE RESPONDENTS WERE NOT AT FAULT NOR
GUILTY OF GROSS NEGLIGENCE IN DISHONORING PETITIONER’S
CHECK DATED 30 SEPTEMBER 1998 IN THE AMOUNT OF P250,000.00
FOR THE REASON "ACCOUNT CLOSED", INSTEAD OF MERELY "REFER
TO DRAWER" GIVEN THE FACT THAT EVEN AFTER DISHONOR,
RESPONDENT SIGNED A CERTIFICATION DATED 7 DECEMBER 1998
THAT CREDIT ON HAND (COH) LOAN AGREEMENT WAS STILL VALID
WITH A COLLATERAL OF FOREIGN CURRENCY DEPOSIT (FCD) OF [USD]
48,715.72.
10 | n e g o
III - IN NOT AWARDING DAMAGES AGAINST RESPONDENTS DESPITE
PRESENTATION OF CLEAR PROOF TO SUPPORT ACTION FOR
DAMAGES.12
The Court’s Ruling
The core issues can be summarized, as follows: first, whether
Gonzales is liable for the three promissory notes covering the PhP
1,800,000 loan he made with the spouses Panlilio where a REM over a
parcel of land covered by TCT No. 38012 was constituted as security;
and second, whether PCIB properly dishonored the check of Gonzales
drawn against the COHLA he had with the bank.
The petition is partly meritorious.
First Issue: Solidarily Liability on Promissory Notes
A close perusal of the records shows that the courts a quo correctly
found Gonzales solidarily liable with the spouses Panlilio for the three
promissory notes.
The promissory notes covering the PhP 1,800,000 loan show the
following:
(1) Promissory Note BD-090-1766-95,13 dated October 30, 1995, for
PhP 500,000 was signed by Gonzales and his wife, Jessica Gonzales;
(2) Promissory Note BD-090-2122-95,14 dated December 26, 1995, for
PhP 1,000,000 was signed by Gonzales and the spouses Panlilio; and
(3) Promissory Note BD-090-011-96,15 dated January 3, 1996, for PhP
300,000 was signed by Gonzales and the spouses Panlilio.
Clearly, Gonzales is liable for the loans covered by the above
promissory notes. First, Gonzales admitted that he is an
accommodation party which PCIB did not dispute. In his testimony,
Gonzales admitted that he merely accommodated the spouses
Panlilio at the suggestion of Ocampo, who was then handling his
accounts, in order to facilitate the fast release of the loan. Gonzales
testified:
ATTY. DE JESUS:
Now in this case you filed against the bank you mentioned there was
a loan also applied for by the Panlilio’s in the sum of P1.8 Million
Pesos. Will you please tell this Court how this came about?
GONZALES:
Mr. Panlilio requested his account officer . . . . at that time it is a
P42.0 Million loan and if he secures another P1.8 Million loan the
release will be longer because it has to pass to XO.
Q: After that what happened?
A: So as per suggestion since Mr. Panlilio is a good friend of mine and
we co-owned the property I agreed initially to use my name so that
the loan can be utilized immediately by Mr. Panlilio.
Q: Who is actually the borrower of this P1.8 Million Pesos?
A: Well, in paper me and Mr. Panlilio.
Q: Who received the proceeds of said loan?
A: Mr. Panlilio.
Q: Do you have any proof that it was Mr. Panlilio who actually
received the proceeds of this P1.8 Million Pesos loan?
A: A check was deposited in the account of Mr. Panlilio.16
xxxx
Q: By the way upon whose suggestion was the loan of Mr. Panlilio
also placed under your name initially?
A: Well it was actually suggested by the account officer at that time
Edna Ocampo.
Q: How about this Mr. Rodolfo Noceda?
A: As you look at the authorization aspect of the loan Mr. Noceda is
the boss of Edna so he has been familiar with my account ever since
its inception.
Q: So these two officers Ocampo and Noceda knew that this was
actually the account of Mr. Panlilio and not your account?
A: Yes, sir. In fact even if there is a change of account officer they are
always informing me that the account will be debited to Mr. Panlilio’s
account.17
Moreover, the first note for PhP 500,000 was signed by Gonzales and
his wife as borrowers, while the two subsequent notes showed the
spouses Panlilio sign as borrowers with Gonzales. It is, thus, evident
that Gonzales signed, as borrower, the promissory notes covering the
PhP 1,800,000 loan despite not receiving any of the proceeds.
Second, the records of PCIB indeed bear out, and was admitted by
Noceda, that the PhP 1,800,000 loan proceeds went to the spouses
Panlilio, thus:
ATTY. DE JESUS: [on Cross-Examination]
Is it not a fact that as far as the records of the bank [are] concerned
the proceeds of the 1.8 million loan was received by Mr. Panlilio?
NOCEDA:
Yes sir.18
The fact that the loans were undertaken by Gonzales when he signed
as borrower or co-borrower for the benefit of the spouses Panlilio—
as shown by the fact that the proceeds went to the spouses Panlilio
who were servicing or paying the monthly dues—is beside the point.
For signing as borrower and co-borrower on the promissory notes
with the proceeds of the loans going to the spouses Panlilio, Gonzales
has extended an accommodation to said spouses.
Third, as an accommodation party, Gonzales is solidarily liable with
the spouses Panlilio for the loans. In Ang v. Associated
Bank,19 quoting the definition of an accommodation party under
Section 29 of the Negotiable Instruments Law, the Court cited that an
accommodation party is a person "who has signed the instrument as
maker, drawer, acceptor, or indorser, without receiving value
therefor, and for the purpose of lending his name to some other
person."20 The Court further explained:
[A]n accommodation party is one who meets all the three requisites,
viz: (1) he must be a party to the instrument, signing as maker,
drawer, acceptor, or indorser; (2) he must not receive value therefor;
and (3) he must sign for the purpose of lending his name or credit to
some other person. An accommodation party lends his name to
enable the accommodated party to obtain credit or to raise money;
he receives no part of the consideration for the instrument but
assumes liability to the other party/ies thereto. The accommodation
party is liable on the instrument to a holder for value even though the
holder, at the time of taking the instrument, knew him or her to be
merely an accommodation party, as if the contract was not for
accommodation.
As petitioner acknowledged it to be, the relation between an
accommodation party and the accommodated party is one of
principal and surety—the accommodation party being the surety. As
such, he is deemed an original promisor and debtor from the
beginning; he is considered in law as the same party as the debtor in
relation to whatever is adjudged touching the obligation of the latter
since their liabilities are interwoven as to be inseparable. Although a
contract of suretyship is in essence accessory or collateral to a valid
principal obligation, the surety’s liability to the creditor
is immediate, primary and absolute; he is directly and equally bound
with the principal. As an equivalent of a regular party to the
undertaking, a surety becomes liable to the debt and duty of the
principal obligor even without possessing a direct or personal interest
in the obligations nor does he receive any benefit therefrom.21
Thus, the knowledge, acquiescence, or even demand by Ocampo for
an accommodation by Gonzales in order to extend the credit or loan
11 | n e g o
of PhP 1,800,000 to the spouses Panlilio does not exonerate Gonzales
from liability on the three promissory notes.
Fourth, the solidary liability of Gonzales is clearly stipulated in the
promissory notes which uniformly begin, "For value received, the
undersigned (the "BORROWER") jointly and severally promise to pay
x x x." Solidary liability cannot be presumed but must be established
by law or contract.22 Article 1207 of the Civil Code pertinently states
that "there is solidary liability only when the obligation expressly so
states, or when the obligation requires solidarity." This is true in the
instant case where Gonzales, as accommodation party, is
immediately, equally, and absolutely bound with the spouses Panlilio
on the promissory notes which indubitably stipulated solidary liability
for all the borrowers. Moreover, the three promissory notes serve as
the contract between the parties. Contracts have the force of law
between the parties and must be complied with in good faith.23
Second Issue: Improper Dishonor of Check
Having ruled that Gonzales is solidarily liable for the three promissory
notes, We shall now touch upon the question of whether it was
proper for PCIB to dishonor the check issued by Gonzales against the
credit line under the COHLA.
We answer in the negative.
As a rule, an appeal by certiorari under Rule 45 of the Rules of Court
is limited to review of errors of law.24 The factual findings of the trial
court, especially when affirmed by the appellate court, are generally
binding on us unless there was a misapprehension of facts or when
the inference drawn from the facts was manifestly mistaken. 25 The
instant case falls within the exception.
The courts a quo found and held that there was a proper dishonor of
the PhP 250,000 check issued by Gonzales against the credit line,
because the credit line was already closed prior to the presentment
of the check by Unson; and the closing of the credit line was likewise
proper pursuant to the stipulations in the promissory notes on the
bank’s right to set off or apply all moneys of the debtor in PCIB’s hand
and the stipulations in the COHLA on the PCIB’s right to terminate the
credit line on grounds of default by Gonzales.
Gonzales argues otherwise, pointing out that he was not informed
about the default of the spouses Panlilio and that the September 21,
1998 account statement of the credit line shows a balance of PhP
270,000 which was likewise borne out by the December 7, 1998
PCIB’s certification that he has USD 8,715.72 in his FCD account which
is more than sufficient collateral to guarantee the PhP 250,000 check,
dated September 30, 1998, he issued against the credit line.
A careful scrutiny of the records shows that the courts a
quo committed reversible error in not finding negligence by PCIB in
the dishonor of the PhP 250,000 check.
First. There was no proper notice to Gonzales of the default and
delinquency of the PhP 1,800,000 loan. It must be borne in mind that
while solidarily liable with the spouses Panlilio on the PhP 1,800,000
loan covered by the three promissory notes, Gonzales is only an
accommodation party and as such only lent his name and credit to
the spouses Panlilio. While not exonerating his solidary liability,
Gonzales has a right to be properly apprised of the default or
delinquency of the loan precisely because he is a co-signatory of the
promissory notes and of his solidary liability.
We note that it is indeed understandable for Gonzales to push the
spouses Panlilio to pay the outstanding dues of the PhP 1,800,000
loan, since he was only an accommodation party and was not
personally interested in the loan. Thus, a meeting was set by Gonzales
with the spouses Panlilio and the PCIB officers, Noceda and Ocampo,
in the spouses Panlilio’s jewelry shop in SM Megamall on October 5,
1998. Unfortunately, the meeting did not push through due to the
heavy traffic Noceda and Ocampo encountered.
Such knowledge of the default by Gonzales was, however, not enough
to properly apprise Gonzales about the default and the outstanding
dues. Verily, it is not enough to be merely informed to pay over a
hundred thousand without being formally apprised of the exact
aggregate amount and the corresponding dues pertaining to specific
loans and the dates they became due.
Gonzales testified that he was not duly notified about the outstanding
interest dues of the loan:
ATTY. DE JESUS:
Now when Mr. Panlilio’s was encountering problems with the bank
did the defendant bank [advise] you of any problem with the same
account?
GONZALES:
They never [advised] me in writing.
Q: How did you come to know that there was a problem?
A: When my check bounced sir.26
On the other hand, the PCIB contends otherwise, as Corazon
Nepomuceno testified:
ATTY. PADILLA:
Can you tell this Honorable Court what is it that you told Mr. Gonzales
when you spoke to him at the celphone?
NEPOMUCENO:
I just told him to update the interest so that we would not have to
cancel the COH Line and he could withdraw the money that was in
the deposit because technically, if an account is past due we are not
allowed to let the client withdraw funds because they are allowed to
offset funds so, just to help him get his money, just to update the
interest so that we could allow him to withdraw.
Q: Withdraw what?
A: His money on the COH, whatever deposit he has with us.
Q: Did you inform him that if he did not update the interest he would
not be able to withdraw his money?
A: Yes sir, we will be forced to hold on to any assets that he has with
us so that’s why we suggested just to update the interest because at
the end of everything, he would be able to withdraw more funds than
the interest that the money he would be needed to update the
interest.27
From the foregoing testimonies, between the denial of Gonzales and
the assertion by PCIB that Gonzales was properly apprised, we find
for Gonzales. We find the testimonies of the former PCIB employees
to be self-serving and tenuous at best, for there was no proper
written notice given by the bank. The record is bereft of any
document showing that, indeed, Gonzales was formally informed by
PCIB about the past due periodic interests.
PCIB is well aware and did not dispute the fact that Gonzales is an
accommodation party. It also acted in accordance with such fact by
releasing the proceeds of the loan to the spouses Panlilio and likewise
only informed the spouses Panlilio of the interest dues. The spouses
Panlilio, through their account28 with PCIB, were paying the periodic
interest dues and were the ones periodically informed by the bank of
the debiting of the amounts for the periodic interest payments.
Gonzales never paid any of the periodic interest dues. PCIB’s Noceda
admitted as much in his cross-examination:
ATTY. DE JESUS: [on Cross-Examination]
And there was no instance that Mr. Gonzales ever made even interest
for this loan, is it not, it’s always Mr. Panlilio who was paying the
interest for this loan?
NOCEDA:
12 | n e g o
Yes sir.29
Indeed, no evidence was presented tending to show that Gonzales
was periodically sent notices or notified of the various periodic
interest dues covering the three promissory notes. Neither do the
records show that Gonzales was aware of amounts for the periodic
interests and the payment for them. Such were serviced by the
spouses Panlilio.
Thus, PCIB ought to have notified Gonzales about the status of the
default or delinquency of the interest dues that were not paid starting
July 1998. And such notification must be formal or in written form
considering that the outstanding periodic interests became due at
various dates, i.e., on July 8, 17, and 28, 1998, and the various
amounts have to be certain so that Gonzales is not only properly
apprised but is given the opportunity to pay them being solidarily
liable for the loans covered by the promissory notes.
It is the bank which computes these periodic interests and such dues
must be put into writing and formally served to Gonzales if he were
asked to pay them, more so when the payments by the spouses
Panlilio were charged through the account of the spouses Panlilio
where the interest dues were simply debited. Such arrangement did
not cover Gonzales’ bank account with PCIB, since he is only an
accommodation party who has no personal interest in the PhP
1,800,000 loan. Without a clear and determinate demand through a
formal written notice for the exact periodic interest dues for the
loans, Gonzales cannot be expected to pay for them.
In business, more so for banks, the amounts demanded from the
debtor or borrower have to be definite, clear, and without ambiguity.
It is not sufficient simply to be informed that one must pay over a
hundred thousand aggregate outstanding interest dues without clear
and certain figures. Thus, We find PCIB negligent in not properly
informing Gonzales, who is an accommodation party, about the
default and the exact outstanding periodic interest dues. Without
being properly apprised, Gonzales was not given the opportunity to
properly act on them.
It was only through a letter30 sent by PCIB dated October 2, 1998 but
incongruously showing the delinquencies of the PhP 1,800,000 loan at
a much later date, i.e., as of October 31, 1998, when Gonzales was
formally apprised by PCIB. In it, the interest due was PhP 106,1616.71
and penalties for the unpaid interest due of PhP 64,766.66, or a total
aggregate due of PhP 171,383.37. But it is not certain and the records
do not show when the letter was sent and when Gonzales received it.
What is clear is that such letter was belatedly sent by PCIB and
received by Gonzales after the fact that the latter’s FCD was already
frozen, his credit line under the COHLA was terminated or suspended,
and his PhP 250,000 check in favor of Unson was dishonored.
And way much later, or on May 4, 1999, was a demand letter from
the counsel of PCIB sent to Gonzales demanding payment of the PhP
1,800,000 loan. Obviously, these formal written notices sent to
Gonzales were too late in the day for Gonzales to act properly on the
delinquency and he already suffered the humiliation and
embarrassment from the dishonor of his check drawn against the
credit line.
To reiterate, a written notice on the default and deficiency of the PhP
1,800,000 loan covered by the three promissory notes was required
to apprise Gonzales, an accommodation party. PCIB is obliged to
formally inform and apprise Gonzales of the defaults and the
outstanding obligations, more so when PCIB was invoking the solidary
liability of Gonzales. This PCIB failed to do.
Second. PCIB was grossly negligent in not giving prior notice to
Gonzales about its course of action to suspend, terminate, or revoke
the credit line, thereby violating the clear stipulation in the COHLA.
The COHLA, in its effectivity clause, clearly provides:
4. EFFECTIVITY — The COH shall be effective for a period of one (1)
year commencing from the receipt by the CLIENT of the COH
checkbook issued by the BANK, subject to automatic renewals for
same periods unless terminated by the BANK upon prior notice
served on CLIENT.31 (Emphasis ours.)
It is undisputed that the bank unilaterally revoked, suspended, and
terminated the COHLA without giving Gonzales prior notice as
required by the above stipulation in the COHLA. Noceda testified on
cross-examination on the Offering Ticket32 recommending the
termination of the credit line, thus:
ATTY. DE JESUS: [on Cross-Examination]
This Exhibit 8, you have not furnished at anytime a copy to the
plaintiff Mr. Gonzales is it not?
NOCEDA:
No sir but verbally it was relayed to him.
Q: But you have no proof that Mr. Gonzales came to know about this
Exhibit 8?
A: It was relayed to him verbally.
Q: But there is no written proof?
A: No sir.
Q: And it is only now that you claim that it was verbally relayed to
him, it’s only now when you testified in Court?
A: Before . . .
Q: To whom did you relay this information?
A: It was during the time that we were going to Megamall, it was
relayed by Liza that he has to pay his obligations or else it will
adversely affect the status of the account.33
On the other hand, the testimony of Corazon Nepomuceno shows:
ATTY. DE JESUS: [on Cross-Examination]
Now we go to the other credit facility which is the credit on hand
extended solely of course to Mr. Eusebio Gonzales who is the plaintiff
here, Mr. Panlilio is not included in this credit on hand facility. Did I
gather from you as per your Exhibit 7 as of October 2, 1998 you were
the one who recommended the cancellation of this credit on hand
facility?
NEPOMUCENO:
It was recommended by the account officer and I supported it.
Q: And you approved it?
A: Yes sir.
Q: Did you inform Mr. Gonzales that you have already cancelled his
credit on hand facility?
A: As far as I know, it is the account officer who will inform him.
Q: But you have no record that he was informed?
A: I don’t recall and we have to look at the folder to determine if they
were informed.
Q: If you will notice, this letter . . . what do you call this letter of
yours?
A: That is our letter advising them or reminding them of their unpaid
interest and that if he is able to update his interest he can extend the
promissory note or restructure the outstanding.
Q: Now, I call your attention madam witness, there is nothing in this
letter to the clients advising them or Mr. Gonzales that his credit on
hand facility was already cancelled?
A: I don’t know if there are other letters aside from this.
Q: So in this letter there is nothing to inform or to make Mr. Eusebio
aware that his credit on hand facility was already cancelled?
13 | n e g o
A: No actually he can understand it from the last sentence. "If you will
be able to update your outstanding interest, we can apply the
extention of your promissory note" so in other words we are saying
that if you don’t, you cannot extend the promissory note.
Q: You will notice that the subject matter of this October 2, 1998
letter is only the loan of 1.8 million is it not, as you can see from the
letter? Okay?
A: Ah . . .
Q: Okay. There is nothing there that will show that that also refers to
the credit on hand facility which was being utilized by Mr. Gonzales is
it not?
A: But I don’t know if there are other letters that are not presented to
me now.34
The foregoing testimonies of PCIB officers clearly show that not only
did PCIB fail to give prior notice to Gonzales about the Offering Ticket
for the process of termination, suspension, or revocation of the credit
line under the COHLA, but PCIB likewise failed to inform Gonzales of
the fact that his credit line has been terminated. Thus, we find PCIB
grossly negligent in the termination, revocation, or suspension of the
credit line under the COHLA. While PCIB invokes its right on the so-
called "cross default provisions," it may not with impunity ignore the
rights of Gonzales under the COHLA.
Indeed, the business of banking is impressed with public interest and
great reliance is made on the bank’s sworn profession of diligence
and meticulousness in giving irreproachable service. Like a common
carrier whose business is imbued with public interest, a bank should
exercise extraordinary diligence to negate its liability to the
depositors.35 In this instance, PCIB is sorely remiss in the diligence
required in treating with its client, Gonzales. It may not wantonly
exercise its rights without respecting and honoring the rights of its
clients.
Art. 19 of the New Civil Code clearly provides that "[e]very person
must, in the exercise of his rights and in the performance of his
duties, act with justice, give everyone his due, and observe honesty
and good faith." This is the basis of the principle of abuse of right
which, in turn, is based upon the maxim suum jus summa injuria (the
abuse of right is the greatest possible wrong).36
In order for Art. 19 to be actionable, the following elements must be
present: "(1) the existence of a legal right or duty, (2) which is
exercised in bad faith, and (3) for the sole intent of prejudicing or
injuring another."37 We find that such elements are present in the
instant case. The effectivity clause of the COHLA is crystal clear that
termination of the COH should be done only upon prior notice served
on the CLIENT. This is the legal duty of PCIB––to inform Gonzales of
the termination. However, as shown by the above testimonies, PCIB
failed to give prior notice to Gonzales.
Malice or bad faith is at the core of Art. 19. Malice or bad faith
"implies a conscious and intentional design to do a wrongful act for a
dishonest purpose or moral obliquity."38 In the instant case, PCIB was
able to send a letter advising Gonzales of the unpaid interest on the
loans39 but failed to mention anything about the termination of the
COHLA. More significantly, no letter was ever sent to him about the
termination of the COHLA. The failure to give prior notice on the part
of PCIB is already prima facie evidence of bad faith.40 Therefore, it is
abundantly clear that this case falls squarely within the purview of the
principle of abuse of rights as embodied in Art. 19.
Third. There is no dispute on the right of PCIB to suspend, terminate,
or revoke the COHLA under the "cross default provisions" of both the
promissory notes and the COHLA. However, these cross default
provisions do not confer absolute unilateral right to PCIB, as they are
qualified by the other stipulations in the contracts or specific
circumstances, like in the instant case of an accommodation party.
The promissory notes uniformly provide:
The lender is hereby authorized, at its option and without notice, to
set off or apply to the payment of this Note any and all moneys
which may be in its hands on deposit or otherwise belonging to the
Borrower. The Borrower irrevocably appoint/s the Lender, effective
upon the nonpayment of this Note on demand/at maturity or upon
the happening of any of the events of default, but without any
obligation on the Lender’s part should it choose not to perform this
mandate, as the attorney-in-fact of the Borrower, to sell and dispose
of any property of the Borrower, which may be in the Lender’s
possession by public or private sale, and to apply the proceeds
thereof to the payment of this Note; the Borrower, however, shall
remain liable for any deficiency.41 (Emphasis ours.)
The above provisos are indeed qualified with the specific
circumstance of an accommodation party who, as such, has not been
servicing the payment of the dues of the loans, and must first be
properly apprised in writing of the outstanding dues in order to
answer for his solidary obligation.
The same is true for the COHLA, which in its default clause provides:
16. DEFAULT — The CLIENT shall be considered in default under the
COH if any of the following events shall occur:
1. x x x
2. Violation of the terms and conditions of this Agreement or any
contract of the CLIENT with the BANK or any bank, persons,
corporations or entities for the payment of borrowed money, or any
other event of default in such contracts.42
The above pertinent default clause must be read in conjunction with
the effectivity clause (No. 4 of the COHLA, quoted above), which
expressly provides for the right of client to prior notice. The rationale
is simple: in cases where the bank has the right to terminate, revoke,
or suspend the credit line, the client must be notified of such intent in
order for the latter to act accordingly—whether to correct any ground
giving rise to the right of the bank to terminate the credit line and to
dishonor any check issued or to act in accord with such termination,
i.e., not to issue any check drawn from the credit line or to replace
any checks that had been issued. This, the bank—with gross
negligence—failed to accord Gonzales, a valued client for more than
15 years.
Fourth. We find the testimony43 of Ocampo incredible on the point
that the principal borrower of the PhP 1,800,000 loan covered by the
three promissory notes is Gonzales for which the bank officers had
special instructions to grant and that it was through the instructions
of Gonzales that the payment of the periodic interest dues were
debited from the account of the spouses Panlilio.
For one, while the first promissory note dated October 30, 1995
indeed shows Gonzales as the principal borrower, the other
promissory notes dated December 26, 1995 and January 3, 1996
evidently show that it was Jose Panlilio who was the principal
borrower with Gonzales as co-borrower. For another, Ocampo cannot
feign ignorance on the arrangement of the payments by the spouses
Panlilio through the debiting of their bank account. It is incredulous
that the payment arrangement is merely at the behest of Gonzales
and at a mere verbal directive to do so. The fact that the spouses
Panlilio not only received the proceeds of the loan but were servicing
the periodic interest dues reinforces the fact that Gonzales was only
an accommodation party.
Thus, due to PCIB’s negligence in not giving Gonzales—an
accommodation party—proper notice relative to the delinquencies in
14 | n e g o
the PhP 1,800,000 loan covered by the three promissory notes, the
unjust termination, revocation, or suspension of the credit line under
the COHLA from PCIB’s gross negligence in not honoring its obligation
to give prior notice to Gonzales about such termination and in not
informing Gonzales of the fact of such termination, treating Gonzales’
account as closed and dishonoring his PhP 250,000 check, was
certainly a reckless act by PCIB. This resulted in the actual injury of
PhP 250,000 to Gonzales whose FCD account was frozen and had to
look elsewhere for money to pay Unson.
With banks, the degree of diligence required is more than that of a
good father of the family considering that the business of banking is
imbued with public interest due to the nature of their function. The
law imposes on banks a high degree of obligation to treat the
accounts of its depositors with meticulous care, always having in
mind the fiduciary nature of banking.44 Had Gonzales been properly
notified of the delinquencies of the PhP 1,800,000 loan and the
process of terminating his credit line under the COHLA, he could have
acted accordingly and the dishonor of the check would have been
avoided.
Third Issue: Award of Damages
The banking system has become an indispensable institution in the
modern world and plays a vital role in the economic life of every
civilized society—banks have attained a ubiquitous presence among
the people, who have come to regard them with respect and even
gratitude and most of all, confidence, and it is for this reason, banks
should guard against injury attributable to negligence or bad faith on
its part.45
In the instant case, Gonzales suffered from the negligence and bad
faith of PCIB. From the testimonies of Gonzales’ witnesses,
particularly those of Dominador Santos46 and Freddy Gomez,47 the
embarrassment and humiliation Gonzales has to endure not only
before his former close friend Unson but more from the members
and families of his friends and associates in the PCA, which he
continues to experience considering the confrontation he had with
Unson and the consequent loss of standing and credibility among
them from the fact of the apparent bouncing check he issued. Credit
is very important to businessmen and its loss or impairment needs to
be recognized and compensated.48
The termination of the COHLA by PCIB without prior notice and the
subsequent dishonor of the check issued by Gonzales constitute acts
of contra bonus mores. Art. 21 of the Civil Code refers to such acts
when it says, "Any person who willfully causes loss or injury to
another in a manner that is contrary to morals, good customs or
public policy shall compensate the latter for damage."
Accordingly, this Court finds that such acts warrant the payment of
indemnity in the form of nominal damages.1avvphi1Nominal
damages "are recoverable where a legal right is technically violated
and must be vindicated against an invasion that has produced no
actual present loss of any kind x x x."49 We further explained the
nature of nominal damages in Almeda v. Cariño:
x x x Its award is thus not for the purpose of indemnification for a loss
but for the recognition and vindication of a right. Indeed, nominal
damages are damages in name only and not in fact. When granted by
the courts, they are not treated as an equivalent of a wrong inflicted
but simply a recognition of the existence of a technical injury. A
violation of the plaintiff’s right, even if only technical, is sufficient to
support an award of nominal damages. Conversely, so long as there is
a showing of a violation of the right of the plaintiff, an award of
nominal damages is proper.50 (Emphasis Ours.)
In the present case, Gonzales had the right to be informed of the
accrued interest and most especially, for the suspension of his
COHLA. For failure to do so, the bank is liable to pay nominal
damages. The amount of such damages is addressed to the sound
discretion of the court, taking into account the relevant
circumstances.51 In this case, the Court finds that the grant of PhP
50,000 as nominal damages is proper.
Moreover, as We held in MERALCO v. CA,52 failure to give prior notice
when required, such as in the instant case, constitutes a breach of
contract and is a clear violation of Art. 21 of the Code. In cases such
as this, Art. 2219 of the Code provides that moral damages may be
recovered in acts referred to in its Art. 21. Further, Art. 2220 of the
Code provides that "[w]illful injury to property may be a legal ground
for awarding moral damages if the court should find that, under the
circumstances, such damages are justly due. The same rule applies to
breaches of contract where the defendant acted fraudulently or in
bad faith." Similarly, "every person who, contrary to law, willfully or
negligently causes damage to another, shall indemnify the latter for
the same."53 Evidently, Gonzales is entitled to recover moral
damages.
Even in the absence of malice or bad faith, a depositor still has the
right to recover reasonable moral damages, if the depositor suffered
mental anguish, serious anxiety, embarrassment, and
humiliation.54 Although incapable of pecuniary estimation, moral
damages are certainly recoverable if they are the proximate result of
the defendant’s wrongful act or omission. The factual antecedents
bolstered by undisputed testimonies likewise show the mental
anguish and anxiety Gonzales had to endure with the threat of Unson
to file a suit. Gonzales had to pay Unson PhP 250,000, while his FCD
account in PCIB was frozen, prompting Gonzales to demand from
PCIB and to file the instant suit.
The award of moral damages is aimed at a restoration within the
limits of the possible, of the spiritual status quo ante—it must always
reasonably approximate the extent of injury and be proportional to
the wrong committed.55Thus, an award of PhP 50,000 is reasonable
moral damages for the unjust dishonor of the PhP 250,000 which was
the proximate cause of the consequent humiliation, embarrassment,
anxiety, and mental anguish suffered by Gonzales from his loss of
credibility among his friends, colleagues and peers.
Furthermore, the initial carelessness of the bank’s omission in not
properly informing Gonzales of the outstanding interest dues––
aggravated by its gross neglect in omitting to give prior notice as
stipulated under the COHLA and in not giving actual notice of the
termination of the credit line––justifies the grant of exemplary
damages of PhP 10,000. Such an award is imposed by way of example
or correction for the public good.
Finally, an award for attorney’s fees is likewise called for from PCIB’s
negligence which compelled Gonzales to litigate to protect his
interest. In accordance with Art. 2208(1) of the Code, attorney’s fees
may be recovered when exemplary damages are awarded. We find
that the amount of PhP 50,000 as attorney’s fees is reasonable.
WHEREFORE, this petition is PARTLY GRANTED. Accordingly, the CA
Decision dated October 22, 2007 in CA-G.R. CV No. 74466 is
hereby REVERSED and SET ASIDE. The Philippine Commercial and
International Bank (now Banco De Oro) is ORDERED to pay Eusebio
Gonzales PhP 50,000 as nominal damages, PhP 50,000 as moral
damages, PhP 10,000 as exemplary damages, and PhP 50,000 as
attorney’s fees.
No pronouncement as to costs.
31 Crisologo-Jose vs Court of Appeals (1989)
15 | n e g o
February 14, 2013 markerwins Corporation Law, Mercantile
Lawcorpo, merc
Facts: Plaintiff Ricardo S. Santos, Jr. was the vice-president of Mover
Enterprises, Inc. in-charge of marketing and sales; and the president
of the said corporation was Atty. Oscar Z. Benares. Atty. Benares, in
accommodation of his clients, the spouses Jaime and Clarita Ong,
issued check against Traders Royal Bank, payable to defendant
Ernestina Crisologo-Jose. Since the check was under the account of
Mover Enterprises, Inc., the same was to be signed by its president,
Atty. Oscar Z. Benares, and the treasurer of the said corporation.
However, since at that time, the treasurer of Mover Enterprises was
not available, Atty. Benares prevailed upon the plaintiff, Ricardo S.
Santos, Jr., to sign the aforesaid check. The check was issued to
defendant Ernestina Crisologo-Jose in consideration of the waiver or
quitclaim by said defendant over a certain property which the
Government Service Insurance System (GSIS) agreed to sell to the
spouses Jaime and Clarita Ong, with the understanding that upon
approval by the GSIS of the compromise agreement with the spouses
Ong, the check will be encashed accordingly. Since the compromise
agreement was not approved within the expected period of time, the
aforesaid check was replaced by Atty. Benares. This replacement
check was also signed by Atty. Oscar Z. Benares and by the plaintiff
Ricardo S. Santos, Jr. When defendant deposited this replacement
check with her account at Family Savings Bank, Mayon Branch, it was
dishonored for insufficiency of funds. The petitioner filed an action
against the corporation for accommodation party.
Issue: WON the corporation can be held liable as accommodation
party?
Held: No. Accommodation party liable on the instrument to a holder
for value, although such holder at the time of taking the instrument
knew him to be only an accommodation party, does not include nor
apply to corporations which are accommodation parties. This is
because the issue or indorsement of negotiable paper by a
corporation without consideration and for the accommodation of
another is ultra vires. Hence, one who has taken the instrument with
knowledge of the accommodation nature thereof cannot recover
against a corporation where it is only an accommodation party. If the
form of the instrument, or the nature of the transaction, is such as to
charge the indorsee with knowledge that the issue or indorsement of
the instrument by the corporation is for the accommodation of
another, he cannot recover against the corporation thereon. By way
of exception, an officer or agent of a corporation shall have the
power to execute or indorse a negotiable paper in the name of the
corporation for the accommodation of a third person only if
specifically authorized to do so. Corollarily, corporate officers, such
as the president and vice-president, have no power to execute for
mere accommodation a negotiable instrument of the corporation for
their individual debts or transactions arising from or in relation to
matters in which the corporation has no legitimate concern. Since
such accommodation paper cannot thus be enforced against the
corporation, especially since it is not involved in any aspect of the
corporate business or operations, the inescapable conclusion in law
and in logic is that the signatories thereof shall be personally liable
therefor, as well as the consequences arising from their acts in
connection therewith.
32 CASE DIGEST: FIDELIZA J. AGLIBOT, Petitioner, v. INGERSOL L.
SANTIA, Respondent.
FACTS: Engr. Ingersol L. Santia (Santia) loaned the amount of
P2,500,000.00 to Pacific Lending & Capital Corporation (PLCC),
through its Manager, petitioner Fideliza J. Aglibot (Aglibot). The loan
was evidenced by a promissory note. Allegedly as a guaranty for the
payment of the note, Aglibot issued and delivered to Santia eleven
(11) post-dated personal checks drawn from her own account
maintained at Metrobank. Upon presentment of the checks for
payment, they were dishonored by the bank for having been drawn
against insufficient funds or closed account. Santia thus demanded
payment from PLCC and Aglibot of the face value of the checks, but
neither of them heeded his demand. Consequently, eleven (11)
Informations for violation of B.P. 22 were filed before the MTCC.
MTCC acquitted Aglibot. On appeal, the RTC rendered a decision
absolving Aglibot and dismissing the civil aspect of the case on the
ground of “failure to fulfill a condition precedent of exhausting all
means to collect from the principal debtor.”
On appeal, the Court of Appeals ruled that the RTC erred when it
dismissed the civil aspect of the case. Hence, the CA ruled that Aglibot
is personally liable for the loan.
Thus, Aglibot filed this instant petition for certiorari. She argued that
she was merely a guarantor of the obligation and therefore, entitled
to the benefit of excussion under Article of the 2058 of the Civil Code.
She further posited that she is not personally liable on the checks
since she merely contracted the loan in behalf of PLCC.
ISSUES:
Is Aglibot entitled to the benefit of excussion?
Is Aglibot personally liable on the checks?
HELD: FIRST ISSUE: Aglibot cannot invoke the benefit of excussion. It
is settled that the liability of the guarantor is only subsidiary, and all
the properties of the principal debtor, the PLCC in this case, must first
be exhausted before the guarantor may be held answerable for the
debt. Thus, the creditor may hold the guarantor liable only after
judgment has been obtained against the principal debtor and the
latter is unable to pay, “for obviously the ‘exhaustion of the
principal’s property’ — the benefit of which the guarantor claims —
cannot even begin to take place before judgment has been obtained.”
This rule is contained in Article 2062 of the Civil Code, which provides
that the action brought by the creditor must be filed against the
principal debtor alone, except in some instances mentioned in Article
2059 when the action may be brought against both the guarantor and
the principal debtor.
The Court must, however, reject Aglibot’s claim as a mere guarantor
of the indebtedness of PLCC to Santia for want of proof, in view of
Article 1403(2) of the Civil Code, embodying the Statute of Frauds.
Under the above provision, concerning a guaranty agreement, which
is a promise to answer for the debt or default of another, the law
clearly requires that it, or some note or memorandum thereof, be in
writing. Otherwise, it would be unenforceable unless ratified,
although under Article 1358 of the Civil Code, a contract of guaranty
does not have to appear in a public document. Contracts are
generally obligatory in whatever form they may have been entered
into, provided all the essential requisites for their validity are present,
and the Statute of Frauds simply provides the method by which the
contracts enumerated in Article 1403(2) may be proved, but it does
not declare them invalid just because they are not reduced to writing.
Thus, the form required under the Statute is for convenience or
evidentiary purposes only.
On the other hand, Article 2055 of the Civil Code also provides that a
guaranty is not presumed, but must be express, and cannot extend to
more than what is stipulated therein. This is the obvious rationale
16 | n e g o
why a contract of guarantee is unenforceable unless made in writing
or evidenced by some writing.
SECOND ISSUE: Aglibot is an accommodation party and therefore
liable to Santia. The appellate court ruled that by issuing her own
post-dated checks, Aglibot thereby bound herself personally and
solidarily to pay Santia, and dismissed her claim that she issued her
said checks in her official capacity as PLCC’s manager merely to
guarantee the investment of Santia. The facts present a clear
situation where Aglibot, as the manager of PLCC, agreed to
accommodate its loan to Santia by issuing her own post-dated checks
in payment thereof. She is what the Negotiable Instruments Law calls
an accommodation party.
The relation between an accommodation party and the party
accommodated is, in effect, one of principal and surety — the
accommodation party being the surety. It is a settled rule that a
surety is bound equally and absolutely with the principal and is
deemed an original promisor and debtor from the beginning. The
liability is immediate and direct. It is not a valid defense that the
accommodation party did not receive any valuable consideration
when he executed the instrument; nor is it correct to say that the
holder for value is not a holder in due course merely because at the
time he acquired the instrument, he knew that the indorser was only
an accommodation party. Unlike in a contract of suretyship, the
liability of the accommodation party remains not only primary but
also unconditional to a holder for value, such that even if the
accommodated party receives an extension of the period for payment
without the consent of the accommodation party, the latter is still
liable for the whole obligation and such extension does not release
him because as far as a holder for value is concerned, he is a solidary
co-debtor.
DENIED
33 G.R. No. 170865 April 25, 2012
PHILIPPINE NATIONAL BANK vs. SPOUSES CHEAH CHEE CHONG and
OFELIA CAMACHO CHEAH
x-----------------------x
G.R. No. 170892
SPOUSES CHEAH CHEE CHONG and OFELIA CAMACHO CHEAH vs.
PHILIPPINE NATIONAL BANK,
Law favoreth diligence, and therefore, hateth folly and negligence.—
Wingate’s Maxim.
In doing a friend a favor to help the latter’s friend collect the
proceeds of a foreign check, a woman deposited the check in her and
her husband’s dollar account. The local bank accepted the check for
collection and immediately credited the proceeds thereof to said
spouses’ account even before the lapse of the clearing period. And
just when the money had been withdrawn and distributed among
different beneficiaries, it was discovered that all along, to the horror
of the woman whose intention to accommodate a friend’s friend
backfired, she and her bank had dealt with a rubber check.
These consolidated1 Petitions for Review on Certiorari filed by the
Philippine National Bank (PNB)2 and by the spouses Cheah Chee
Chong and Ofelia Camacho Cheah (spouses Cheah) 3 both assail the
August 22, 2005 Decision4 and December 21, 2005 Resolution5 of the
Court of Appeals (CA) in CA-G.R. CV No. 63948 which declared both
parties equally negligent and, hence, should equally suffer the
resulting loss. For its part, PNB questions why it was declared
blameworthy together with its depositors, spouses Cheah, for the
amount wrongfully paid the latter, while the spouses Cheah plead
that they be declared entirely faultless.
Factual Antecedents
On November 4, 1992, Ofelia Cheah (Ofelia) and her friend Adelina
Guarin (Adelina) were having a conversation in the latter’s office
when Adelina’s friend, Filipina Tuazon (Filipina), approached her to
ask if she could have Filipina’s check cleared and encashed for a
service fee of 2.5%. The check is Bank of America Check No.
1906under the account of Alejandria Pineda and Eduardo Rosales and
drawn by Atty. Eduardo Rosales against Bank of America Alhambra
Branch in California, USA, with a face amount of $300,000.00, payable
to cash. Because Adelina does not have a dollar account in which to
deposit the check, she asked Ofelia if she could accommodate
Filipina’s request since she has a joint dollar savings account with her
Malaysian husband Cheah Chee Chong (Chee Chong) under Account
No. 265-705612-2 with PNB Buendia Branch.
Ofelia agreed.
That same day, Ofelia and Adelina went to PNB Buendia Branch. They
met with Perfecto Mendiola of the Loans Department who referred
them to PNB Division Chief Alberto Garin (Garin). Garin discussed
with them the process of clearing the subject check and they were
told that it normally takes 15 days.7 Assured that the deposit and
subsequent clearance of the check is a normal transaction, Ofelia
deposited Filipina’s check. PNB then sent it for clearing through its
correspondent bank, Philadelphia National Bank. Five days later, PNB
received a credit advice8 from Philadelphia National Bank that the
proceeds of the subject check had been temporarily credited to PNB’s
account as of November 6, 1992. On November 16, 1992, Garin called
up Ofelia to inform her that the check had already been cleared.9 The
following day, PNB Buendia Branch, after deducting the bank charges,
credited $299,248.37 to the account of the spouses Cheah.10 Acting
on Adelina’s instruction to withdraw the credited amount, Ofelia that
day personally withdrew $180,000.00.11 Adelina was able to withdraw
the remaining amount the next day after having been authorized by
Ofelia.12 Filipina received all the proceeds.
In the meantime, the Cable Division of PNB Head Office in Escolta,
Manila received on November 16, 1992 a SWIFT13 message from
Philadelphia National Bank dated November 13, 1992 with
Transaction Reference Number (TRN) 46506218, informing PNB of the
return of the subject check for insufficient funds. 14 However, the PNB
Head Office could not ascertain to which branch/office it should
forward the same for proper action. Eventually, PNB Head Office sent
Philadelphia National Bank a SWIFT message informing the latter that
SWIFT message with TRN 46506218 has been relayed to PNB’s
various divisions/departments but was returned to PNB Head Office
as it seemed misrouted. PNB Head Office thus requested for
Philadelphia National Bank’s advice on said SWIFT message’s proper
disposition.15 After a few days, PNB Head Office ascertained that the
SWIFT message was intended for PNB Buendia Branch.
PNB Buendia Branch learned about the bounced check when it
received on November 20, 1992 a debit advice,16followed by a
letter17 on November 24, 1992, from Philadelphia National Bank to
which the November 13, 1992 SWIFT message was attached.
Informed about the bounced check and upon demand by PNB
Buendia Branch to return the money withdrawn, Ofelia immediately
contacted Filipina to get the money back. But the latter told her that
all the money had already been given to several people who asked for
the check’s encashment. In their effort to recover the money, spouses
Cheah then sought the help of the National Bureau of Investigation.
17 | n e g o
Said agency’s Anti-Fraud and Action Division was later able to
apprehend some of the beneficiaries of the proceeds of the check and
recover from them $20,000.00. Criminal charges were then filed
against these suspect beneficiaries.18
Meanwhile, the spouses Cheah have been constantly meeting with
the bank officials to discuss matters regarding the incident and the
recovery of the value of the check while the cases against the alleged
perpetrators remain pending. Chee Chong in the end signed a PNB
drafted19 letter20 which states that the spouses Cheah are offering
their condominium units as collaterals for the amount withdrawn.
Under this setup, the amount withdrawn would be treated as a loan
account with deferred interest while the spouses try to recover the
money from those who defrauded them. Apparently, Chee Chong
signed the letter after the Vice President and Manager of PNB
Buendia Branch, Erwin Asperilla (Asperilla), asked the spouses Cheah
to help him and the other bank officers as they were in danger of
losing their jobs because of the incident. Asperilla likewise assured
the spouses Cheah that the letter was a mere formality and that the
mortgage will be disregarded once PNB receives its claim for
indemnity from Philadelphia National Bank.
Although some of the officers of PNB were amenable to the
proposal,21 the same did not materialize. Subsequently, PNB sent a
demand letter to spouses Cheah for the return of the amount of the
check,22 froze their peso and dollar deposits in the amounts of
₱275,166.80 and $893.46,23 and filed a complaint24 against them for
Sum of Money with Branch 50 of the Regional Trial Court (RTC) of
Manila, docketed as Civil Case No. 94-71022. In said complaint, PNB
demanded payment of around ₱8,202,220.44, plus interests25 and
attorney’s fees, from the spouses Cheah.
As their main defense, the spouses Cheah claimed that the proximate
cause of PNB’s injury was its own negligence of paying a US dollar
denominated check without waiting for the 15-day clearing period, in
violation of its bank practice as mandated by its own bank circular,
i.e., PNB General Circular No. 52-101/88.26 Because of this, spouses
Cheah averred that PNB is barred from claiming what it had lost. They
further averred that it is unjust for them to pay back the amount
disbursed as they never really benefited therefrom. As counterclaim,
they prayed for the return of their frozen deposits, the recoupment of
₱400,000.00 representing the amount they had so far spent in
recovering the value of the check, and payment of moral and
exemplary damages, as well as attorney’s fees.
Ruling of the Regional Trial Court
The RTC ruled in PNB’s favor. The dispositive portion of its
Decision27 dated May 20, 1999 reads:
WHEREFORE, premises considered, judgment is hereby rendered in
favor of the plaintiff Philippine National Bank [and] against
defendants Mr. Cheah Chee Chong and Ms. Ofelia Camacho Cheah,
ordering the latter to pay jointly and severally the herein plaintiffs’
bank the amount:
1. of US$298,950.25 or its peso equivalent based on Central Bank
Exchange Rate prevailing at the time the proceeds of the BA Check
No. 190 were withdrawn or the prevailing Central Bank Rate at the
time the amount is to be reimbursed by the defendants to plaintiff or
whatever is lower. This is without prejudice however, to the rights of
the defendants (accommodating parties) to go against the group of
Adelina Guarin, Atty. Eduardo Rosales, Filipina Tuazon, etc.,
(Beneficiaries- accommodated parties) who are privy to the
defendants.
No pronouncement as to costs.
No other award of damages for non[e] has been proven.
SO ORDERED.28
The RTC held that spouses Cheah were guilty of contributory
negligence.
Because Ofelia trusted a friend’s friend whom she did not know and
considering the amount of the check made payable to cash, the RTC
opined that Ofelia showed lack of vigilance in her dealings. She should
have exercised due care by investigating the negotiability of the check
and the identity of the drawer. While the court found that the
proximate cause of the wrongful payment of the check was PNB’s
negligence in not observing the 15-day guarantee period rule, it ruled
that spouses Cheah still cannot escape liability to reimburse PNB the
value of the check as an accommodation party pursuant to Section 29
of the Negotiable Instruments Law.29 It likewise applied the principle
of solutio indebiti under the Civil Code. With regard to the award of
other forms of damages, the RTC held that each party must suffer the
consequences of their own acts and thus left both parties as they are.
Unwilling to accept the judgment, the spouses Cheah appealed to the
CA.
Ruling of the Court of Appeals
While the CA recognized the spouses Cheah as victims of a scam who
nevertheless have to suffer the consequences of Ofelia’s lack of care
and prudence in immediately trusting a stranger, the appellate court
did not hold PNB scot-free. It ruled in its August 22, 2005
Decision,30 viz:
As both parties were equally negligent, it is but right and just that
both parties should equally suffer and shoulder the loss. The scam
would not have been possible without the negligence of both parties.
As earlier stated, the complaint of PNB cannot be dismissed because
the Cheah spouses were negligent and Ms. Cheah took an active part
in the deposit of the check and the withdrawal of the subject
amounts. On the other hand, the Cheah spouses cannot entirely bear
the loss because PNB allowed her to withdraw without waiting for the
clearance of the check. The remedy of the parties is to go after those
who perpetrated, and benefited from, the scam.
WHEREFORE, the May 20, 1999 Decision of the Regional Trial Court,
Branch 5, Manila, in Civil Case No. 94-71022, is hereby REVERSED and
SET ASIDE and another one entered DECLARING both parties equally
negligent and should suffer and shoulder the loss.
Accordingly, PNB is hereby ordered to credit to the peso and dollar
accounts of the Cheah spouses the amount due to them.
SO ORDERED.31
In so ruling, the CA ratiocinated that PNB Buendia Branch’s non-
receipt of the SWIFT message from Philadelphia National Bank within
the 15-day clearing period is not an acceptable excuse. Applying the
last clear chance doctrine, the CA held that PNB had the last clear
opportunity to avoid the impending loss of the money and yet, it
glaringly exhibited its negligence in allowing the withdrawal of funds
without exhausting the 15-day clearing period which has always been
a standard banking practice as testified to by PNB’s own officers, and
as provided in its own General Circular No. 52/101/88. To the CA, PNB
cannot claim from spouses Cheah even if the latter are
accommodation parties under the law as the bank’s own negligence is
the proximate cause of the damage it sustained. Nevertheless, it also
found Ofelia guilty of contributory negligence. Thus, both parties
should be made equally responsible for the resulting loss.
Both parties filed their respective Motions for Reconsideration32 but
same were denied in a Resolution33 dated December 21, 2005.
Hence, these Petitions for Review on Certiorari.
Our Ruling
18 | n e g o
The petitions for review lack merit. Hence, we affirm the ruling of the
CA.
PNB’s act of releasing the proceeds of the check prior to the lapse of
the 15-day clearing period was the proximate cause of the
loss.1âwphi1
"Proximate cause is ‘that cause, which, in natural and continuous
sequence, unbroken by any efficient intervening cause, produces the
injury and without which the result would not have occurred.’ x x x To
determine the proximate cause of a controversy, the question that
needs to be asked is: If the event did not happen, would the injury
have resulted? If the answer is no, then the event is the proximate
cause."34
Here, while PNB highlights Ofelia’s fault in accommodating a
stranger’s check and depositing it to the bank, it remains mum in its
release of the proceeds thereof without exhausting the 15-day
clearing period, an act which contravened established banking rules
and practice.
It is worthy of notice that the 15-day clearing period alluded to is
construed as 15 banking days. As declared by Josephine Estella, the
Administrative Service Officer who was the bank’s Remittance
Examiner, what was unusual in the processing of the check was that
the "lapse of 15 banking days was not observed." 35 Even PNB’s
agreement with Philadelphia National Bank36 regarding the rules on
the collection of the proceeds of US dollar checks refers to "business/
banking days." Ofelia deposited the subject check on November 4,
1992. Hence, the 15th banking day from the date of said deposit
should fall on November 25, 1992. However, what happened was that
PNB Buendia Branch, upon calling up Ofelia that the check had been
cleared, allowed the proceeds thereof to be withdrawn on November
17 and 18, 1992, a week before the lapse of the standard 15-day
clearing period.
This Court already held that the payment of the amounts of checks
without previously clearing them with the drawee bank especially so
where the drawee bank is a foreign bank and the amounts involved
were large is contrary to normal or ordinary banking practice. 37 Also,
in Associated Bank v. Tan,38 wherein the bank allowed the withdrawal
of the value of a check prior to its clearing, we said that "[b]efore the
check shall have been cleared for deposit, the collecting bank can
only ‘assume’ at its own risk x x x that the check would be cleared and
paid out." The delay in the receipt by PNB Buendia Branch of the
November 13, 1992 SWIFT message notifying it of the dishonor of the
subject check is of no moment, because had PNB Buendia Branch
waited for the expiration of the clearing period and had never
released during that time the proceeds of the check, it would have
already been duly notified of its dishonor. Clearly, PNB’s disregard of
its preventive and protective measure against the possibility of being
victimized by bad checks had brought upon itself the injury of losing a
significant amount of money.
It bears stressing that "the diligence required of banks is more than
that of a Roman pater familias or a good father of a family. The
highest degree of diligence is expected."39 PNB miserably failed to do
its duty of exercising extraordinary diligence and reasonable business
prudence. The disregard of its own banking policy amounts to gross
negligence, which the law defines as "negligence characterized by the
want of even slight care, acting or omitting to act in a situation where
there is duty to act, not inadvertently but wilfully and intentionally
with a conscious indifference to consequences in so far as other
persons may be affected."40 With regard to collection or encashment
of checks, suffice it to say that the law imposes on the collecting bank
the duty to scrutinize diligently the checks deposited with it for the
purpose of determining their genuineness and regularity. "The
collecting bank, being primarily engaged in banking, holds itself out to
the public as the expert on this field, and the law thus holds it to a
high standard of conduct."41 A bank is expected to be an expert in
banking procedures and it has the necessary means to ascertain
whether a check, local or foreign, is sufficiently funded.
Incidentally, PNB obliges the spouses Cheah to return the withdrawn
money under the principle of solutio indebiti, which is laid down in
Article 2154 of the Civil Code:42
Art. 2154. If something is received when there is no right to demand
it, and it was unduly delivered through mistake, the obligation to
return it arises.
"[T]he indispensable requisites of the juridical relation known as
solutio indebiti, are, (a) that he who paid was not under obligation to
do so; and (b) that the payment was made by reason of an essential
mistake of fact.43
In the case at bench, PNB cannot recover the proceeds of the check
under the principle it invokes. In the first place, the gross negligence
of PNB, as earlier discussed, can never be equated with a mere
mistake of fact, which must be something excusable and which
requires the exercise of prudence. No recovery is due if the mistake
done is one of gross negligence.
The spouses Cheah are guilty of contributory negligence and are
bound to share the loss with the bank
"Contributory negligence is conduct on the part of the injured party,
contributing as a legal cause to the harm he has suffered, which falls
below the standard to which he is required to conform for his own
protection."44
The CA found Ofelia’s credulousness blameworthy. We agree. Indeed,
Ofelia failed to observe caution in giving her full trust in
accommodating a complete stranger and this led her and her
husband to be swindled. Considering that Filipina was not personally
known to her and the amount of the foreign check to be encashed
was $300,000.00, a higher degree of care is expected of Ofelia which
she, however, failed to exercise under the circumstances. Another
circumstance which should have goaded Ofelia to be more
circumspect in her dealings was when a bank officer called her up to
inform that the Bank of America check has already been cleared way
earlier than the 15-day clearing period. The fact that the check was
cleared after only eight banking days from the time it was deposited
or contrary to what Garin told her that clearing takes 15 days should
have already put Ofelia on guard. She should have first verified the
regularity of such hasty clearance considering that if something goes
wrong with the transaction, it is she and her husband who would be
put at risk and not the accommodated party. However, Ofelia chose
to ignore the same and instead actively participated in immediately
withdrawing the proceeds of the check. Thus, we are one with the CA
in ruling that Ofelia’s prior consultation with PNB officers is not
enough to totally absolve her of any liability. In the first place, she
should have shunned any participation in that palpably shady
transaction.
In any case, the complaint against the spouses Cheah could not be
dismissed. As PNB’s client, Ofelia was the one who dealt with PNB
and negotiated the check such that its value was credited in her and
her husband’s account. Being the ones in privity with PNB, the
spouses Cheah are therefore the persons who should return to PNB
the money released to them.
All told, the Court concurs with the findings of the CA that PNB and
the spouses Cheah are equally negligent and should therefore equally
19 | n e g o
suffer the loss. The two must both bear the consequences of their
mistakes.
WHEREFORE, premises considered, the Petitions for Review on
Certiorari in G.R. No. 170865 and in G.R. No. 170892 are both
DENIED. The assailed August 22, 2005 Decision and December 21,
2005 Resolution of the Court of Appeals in CA-G.R. CV No. 63948 are
hereby AFFIRMED in toto.
SO ORDERED.
34 Sesbreno vs. Court of Appeals GR 89252, 24 May 1993
FACTS:
Petitioner Sesbreno made a money market placement in the amount
of P300,000 with the Philippine Underwriters Finance Corporation
(PhilFinance), with a term of 32 days. PhilFinance issued to Sesbreno
the Certificate of Confirmation of Sale of a Delta Motor Corporation
Promissory Note, the Certificate of Securities Delivery Receipt
indicating the sale of the note with notation that said security was in
the custody of Pilipinas Bank, and postdated checks drawn against the
Insular Bank of Asia and America for P304,533.33 payable on March
13, 1981. The checks were dishonored for having been drawn against
insufficient funds. Pilipinas Bank never released the note, nor any
instrument related thereto, to Sesbreno; but Sesbreno learned that
the security which was issued on April 10, 1980, maturing on 6 April
1981, has a face value of P2,300,833.33 with PhilFinance as payee
and Delta Motors as maker; and was stamped “non-negotiable” on its
face. As Sesbreno was unable to collect his investment and interest
thereon, he filed an action for damages against Delta Motors and
Pilipinas Bank. Delta Motors contents that said promissory note was
not intended to be negotiated or otherwise transferred by Philfinance
as manifested by the word "non-negotiable" stamped across the face
of the Note.
ISSUE:
Whether the non-negotiability of a promissory note prevents its
assignment.
RULING:
A negotiable instrument, instead of being negotiated, may also be
assigned or transferred. The legal consequences of negotiation and
assignment of the instrument are different. A non-negotiable
instrument may not be negotiated but may be assigned or
transferred, absent an express prohibition against assignment or
transfer written in the face of the instrument. The subject promissory
note, while marked "non-negotiable," was not at the same time
stamped "non-transferable" or "non-assignable." It contained no
stipulation which prohibited Philfinance from assigning or transferring
such note, in whole or in part.
**A non-negotiable instrument may not be negotiated but may be
assigned or transferred, absent an express prohibition against
assignment or transfer written on the face of the instrument.
35 G.R. No. 156262 July 14, 2005
MARIA TUAZON, ALEJANDRO P. TUAZON, MELECIO P. TUAZON,
Spouses ANASTACIO and MARY T. BUENAVENTURA vs. HEIRS OF
BARTOLOME RAMOS
Stripped of nonessentials, the present case involves the collection of
a sum of money. Specifically, this case arose from the failure of
petitioners to pay respondents’ predecessor-in-interest. This fact was
shown by the non-encashment of checks issued by a third person, but
indorsed by herein Petitioner Maria Tuazon in favor of the said
predecessor. Under these circumstances, to enable respondents to
collect on the indebtedness, the check drawer need not be impleaded
in the Complaint. Thus, the suit is directed, not against the drawer,
but against the debtor who indorsed the checks in payment of the
obligation.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of
Court, challenging the July 31, 2002 Decision2 of the Court of Appeals
(CA) in CA-GR CV No. 46535. The decretal portion of the assailed
Decision reads:
"WHEREFORE, the appeal is DISMISSED and the appealed decision is
AFFIRMED."
On the other hand, the affirmed Decision3 of Branch 34 of the
Regional Trial Court (RTC) of Gapan, Nueva Ecija, disposed as follows:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs
and against the defendants, ordering the defendants spouses Leonilo
Tuazon and Maria Tuazon to pay the plaintiffs, as follows:
"1. The sum of ₱1,750,050.00, with interests from the filing of the
second amended complaint;
"2. The sum of ₱50,000.00, as attorney’s fees;
"3. The sum of ₱20,000.00, as moral damages
"4. And to pay the costs of suit.
x x x x x x x x x"4
The Facts
The facts are narrated by the CA as follows:
"[Respondents] alleged that between the period of May 2, 1988 and
June 5, 1988, spouses Leonilo and Maria Tuazon purchased a total of
8,326 cavans of rice from [the deceased Bartolome] Ramos
[predecessor-in-interest of respondents]. That of this [quantity,] x x x
only 4,437 cavans [have been paid for so far], leaving unpaid 3,889
cavans valued at ₱1,211,919.00. In payment therefor, the spouses
Tuazon issued x x x [several] Traders Royal Bank checks.
xxxxxxxxx
[B]ut when these [checks] were encashed, all of the checks bounced
due to insufficiency of funds. [Respondents] advanced that before
issuing said checks[,] spouses Tuazon already knew that they had no
available fund to support the checks, and they failed to provide for
the payment of these despite repeated demands made on them.
"[Respondents] averred that because spouses Tuazon anticipated that
they would be sued, they conspired with the other [defendants] to
defraud them as creditors by executing x x x fictitious sales of their
properties. They executed x x x simulated sale[s] [of three lots] in
favor of the x x x spouses Buenaventura x x x[,] as well as their
residential lot and the house thereon[,] all located at Nueva Ecija, and
another simulated deed of sale dated July 12, 1988 of a Stake Toyota
registered with the Land Transportation Office of Cabanatuan City on
September 7, 1988. [Co-petitioner] Melecio Tuazon, a son of spouses
Tuazon, registered a fictitious Deed of Sale on July 19, 1988 x x x over
a residential lot located at Nueva Ecija. Another simulated sale of a
Toyota Willys was executed on January 25, 1988 in favor of their
other son, [co-petitioner] Alejandro Tuazon x x x. As a result of the
said sales, the titles of these properties issued in the names of
spouses Tuazon were cancelled and new ones were issued in favor of
the [co-]defendants spouses Buenaventura, Alejandro Tuazon and
Melecio Tuazon. Resultantly, by the said ante-dated and simulated
sales and the corresponding transfers there was no more property
left registered in the names of spouses Tuazon answerable to
creditors, to the damage and prejudice of [respondents].
"For their part, defendants denied having purchased x x x rice from
[Bartolome] Ramos. They alleged that it was Magdalena Ramos, wife
of said deceased, who owned and traded the merchandise and Maria
Tuazon was merely her agent. They argued that it was Evangeline
Santos who was the buyer of the rice and issued the checks to Maria
20 | n e g o
Tuazon as payments therefor. In good faith[,] the checks were
received [by petitioner] from Evangeline Santos and turned over to
Ramos without knowing that these were not funded. And it is for this
reason that [petitioners] have been insisting on the inclusion of
Evangeline Santos as an indispensable party, and her non-inclusion
was a fatal error. Refuting that the sale of several properties were
fictitious or simulated, spouses Tuazon contended that these were
sold because they were then meeting financial difficulties but the
disposals were made for value and in good faith and done before the
filing of the instant suit. To dispute the contention of plaintiffs that
they were the buyers of the rice, they argued that there was no sales
invoice, official receipts or like evidence to prove this. They assert
that they were merely agents and should not be held answerable."5
The corresponding civil and criminal cases were filed by respondents
against Spouses Tuazon. Those cases were later consolidated and
amended to include Spouses Anastacio and Mary Buenaventura, with
Alejandro Tuazon and Melecio Tuazon as additional defendants.
Having passed away before the pretrial, Bartolome Ramos was
substituted by his heirs, herein respondents.
Contending that Evangeline Santos was an indispensable party in the
case, petitioners moved to file a third-party complaint against her.
Allegedly, she was primarily liable to respondents, because she was
the one who had purchased the merchandise from their predecessor,
as evidenced by the fact that the checks had been drawn in her name.
The RTC, however, denied petitioners’ Motion.
Since the trial court acquitted petitioners in all three of the
consolidated criminal cases, they appealed only its decision finding
them civilly liable to respondents.
Ruling of the Court of Appeals
Sustaining the RTC, the CA held that petitioners had failed to prove
the existence of an agency between respondents and Spouses
Tuazon. The appellate court disbelieved petitioners’ contention that
Evangeline Santos should have been impleaded as an indispensable
party. Inasmuch as all the checks had been indorsed by Maria Tuazon,
who thereby became liable to subsequent holders for the amounts
stated in those checks, there was no need to implead Santos.
Hence, this Petition.6
Issues
Petitioners raise the following issues for our consideration:
"1. Whether or not the Honorable Court of Appeals erred in ruling
that petitioners are not agents of the respondents.
"2. Whether or not the Honorable Court of Appeals erred in rendering
judgment against the petitioners despite x x x the failure of the
respondents to include in their action Evangeline Santos, an
indispensable party to the suit."7
The Court’s Ruling
The Petition is unmeritorious.
First Issue:
Agency
Well-entrenched is the rule that the Supreme Court’s role in a
petition under Rule 45 is limited to reviewing errors of law allegedly
committed by the Court of Appeals. Factual findings of the trial court,
especially when affirmed by the CA, are conclusive on the parties and
this Court.8 Petitioners have not given us sufficient reasons to deviate
from this rule.
In a contract of agency, one binds oneself to render some service or
to do something in representation or on behalf of another, with the
latter’s consent or authority.9 The following are the elements of
agency: (1) the parties’consent, express or implied, to establish the
relationship; (2) the object, which is the execution of a juridical act in
relation to a third person; (3) the representation, by which the one
who acts as an agent does so, not for oneself, but as a representative;
(4) the limitation that the agent acts within the scope of his or her
authority.10 As the basis of agency is representation, there must be,
on the part of the principal, an actual intention to appoint, an
intention naturally inferable from the principal’s words or actions. In
the same manner, there must be an intention on the part of the agent
to accept the appointment and act upon it. Absent such mutual
intent, there is generally no agency.11
This Court finds no reversible error in the findings of the courts a
quo that petitioners were the rice buyers themselves; they were not
mere agents of respondents in their rice dealership. The question of
whether a contract is one of sale or of agency depends on the
intention of the parties.12
The declarations of agents alone are generally insufficient to establish
the fact or extent of their authority.13 The law makes no presumption
of agency; proving its existence, nature and extent is incumbent upon
the person alleging it.14 In the present case, petitioners raise the fact
of agency as an affirmative defense, yet fail to prove its existence.
The Court notes that petitioners, on their own behalf, sued
Evangeline Santos for collection of the amounts represented by the
bounced checks, in a separate civil case that they sought to be
consolidated with the current one. If, as they claim, they were mere
agents of respondents, petitioners should have brought the suit
against Santos for and on behalf of their alleged principal, in
accordance with Section 2 of Rule 3 of the Rules on Civil
Procedure.15 Their filing a suit against her in their own names negates
their claim that they acted as mere agents in selling the rice obtained
from Bartolome Ramos.
Second Issue:
Indispensable Party
Petitioners argue that the lower courts erred in not allowing
Evangeline Santos to be impleaded as an indispensable party. They
insist that respondents’ Complaint against them is based on the
bouncing checks she issued; hence, they point to her as the person
primarily liable for the obligation.
We hold that respondents’ cause of action is clearly founded on
petitioners’ failure to pay the purchase price of the rice. The trial
court held that Petitioner Maria Tuazon had indorsed the questioned
checks in favor of respondents, in accordance with Sections 31 and 63
of the Negotiable Instruments Law.16 That Santos was the drawer of
the checks is thus immaterial to the respondents’ cause of action.
As indorser, Petitioner Maria Tuazon warranted that upon due
presentment, the checks were to be accepted or paid, or both,
according to their tenor; and that in case they were dishonored, she
would pay the corresponding amount.17 After an instrument is
dishonored by nonpayment, indorsers cease to be merely secondarily
liable; they become principal debtors whose liability becomes
identical to that of the original obligor. The holder of a negotiable
instrument need not even proceed against the maker before suing
the indorser.18 Clearly, Evangeline Santos -- as the drawer of the
checks -- is not an indispensable party in an action against Maria
Tuazon, the indorser of the checks.
Indispensable parties are defined as "parties in interest without
whom no final determination can be had."19 The instant case was
originally one for the collection of the purchase price of the rice
bought by Maria Tuazon from respondents’ predecessor. In this case,
it is clear that there is no privity of contract between respondents and
Santos. Hence, a final determination of the rights and interest of the
parties may be made without any need to implead her.
21 | n e g o
WHEREFORE, the Petition is DENIED and the assailed
Decision AFFIRMED. Costs against petitioners.
36 Natividad Gempesaw vs Court of Appeals
218 SCRA 682 – Mercantile Law – Negotiable Instruments Law –
Liabilities of Parties – Forgery – Forged Indorsements
Natividad Gempesaw is a businesswoman who entrusted to her
bookkeeper, Alicia Galang, the preparation of checks about to be
issued in the course of her business transactions. From 1984 to 1986,
82 checks amounting to P1,208,606.89, were prepared and were
supposed to be delivered to Gempesaw’s clients as payees named
thereon. However, through Galang, these checks were never
delivered to the supposed payees. Instead, the checks were
fraudulently indorsed to Alfredo Romero and Benito Lam.
ISSUE: Whether or not the bank should refund the money lost by
reason of the forged indorsements.
HELD: No. Gempesaw cannot set up the defense of forgery by reason
of her negligence. As a rule, a drawee bank (in this case the Philippine
Bank of Communications) who has paid a check on which an
indorsement has been forged cannot charge the drawer’s
(Gempesaw’s) account for the amount of said check. An exception to
this rule is where the drawer is guilty of such negligence which causes
the bank to honor such a check or checks. If a check is stolen from the
payee, it is quite obvious that the drawer cannot possibly discover the
forged indorsement by mere examination of his cancelled check. A
different situation arises where the indorsement was forged by an
employee or agent of the drawer, or done with the active
participation of the latter.
The negligence of a depositor which will prevent recovery of an
unauthorized payment is based on failure of the depositor to act as a
prudent businessman would under the circumstances. In the case at
bar, Gempesaw relied implicitly upon the honesty and loyalty of
Galang, and did not even verify the accuracy of amounts of the checks
she signed against the invoices attached thereto. Furthermore,
although she regularly received her bank statements, she apparently
did not carefully examine the same nor the check stubs and the
returned checks, and did not compare them with the same invoices.
Otherwise, she could have easily discovered the discrepancies
between the checks and the documents serving as bases for the
checks. With such discovery, the subsequent forgeries would not
have been accomplished. It was not until two years after Galang
commenced her fraudulent scheme that Gempesaw discovered that
eighty-two (82) checks were wrongfully charged to her account, at
which she notified the Philippine Bank of Communications.
37 Negotiable Instruments Digest: METROPOLITAN BANK AND
TRUST COMPANY (formerly ASIANBANK CORPORATION) V. BA
FINANCE CORPORATION and MALAYAN INSURANCE CO. INC.
METROPOLITAN BANK AND TRUST COMPANY (formerly ASIANBANK
CORPORATION) V. BA FINANCE CORPORATION and MALAYAN
INSURANCE CO. INC.
[G.R. No. 179952, Dec. 4, 2009] (607 SCRA 620)
FACTS:
Lamberto Bitanga (Bitanga) obtained from respondent BA
Finance Corporation (BA Finance) a loan to secure which, he
mortgaged his car to respondent BA Finance. Bitanga thus had the
mortgaged car insured by respondent Malayan Insurance Co., Inc.
(Malayan Insurance). The car was stolen. On Bitangas claim, Malayan
Insurance issued a check payable to the order of B.A. 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.
Without the indorsement or authority of his co-payee BA
Finance, Bitanga deposited the check to his account with the
Asianbank Corporation (Asianbank), now merged with petitioner
Metropolitan Bank and Trust Company (Metrobank). Bitanga
subsequently withdrew the entire proceeds of the check.
In the meantime, Bitangas loan became past due, but despite
demands, he failed to settle it. BA Finance thereupon demanded the
payment of the value of the check from Asianbank but to no avail,
prompting it to file a complaint for sum of money and
damages against Asianbank and Bitanga alleging that, inter alia, it is
entitled to the entire proceeds of the check.
On the issue of whether or not BA Finance has a cause of
action, Metrobank contends that 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. Absent the indispensable fact of
forgery or unauthorized indorsement, the payee may not recover
from the collecting bank.
ISSUE 1:
Whether BA Finance has a cause of action against Metrobank
even if the subject check had not been delivered to BA Finance by the
issuer itself?
HELD:
YES. Section 41 of the Negotiable Instruments Law provides:
Where an instrument is payable to the order of two or more
payees or indorsees who are not partners, all must indorse unless the
one indorsing has authority to indorse for the others.
Bitanga alone endorsed the crossed check, and petitioner
allowed the deposit and release of the proceeds thereof, despite the
absence of authority of Bitangas co-payee BA Finance to endorse it on
its behalf. Petitioners argument that since there was neither forgery,
nor unauthorized indorsement because Bitanga was a co-payee in the
subject check, the dictum in Associated Bank v. CA does not apply in
the present case fails. The payment of an instrument over a missing
indorsement is the equivalent of payment on a forged indorsement or
an unauthorized indorsement in itself in the case of joint payees.
Accordingly, one who credits the proceeds of a check to the
account of the indorsing payee is liable in conversion to the non-
indorsing payee for the entire amount of the check.
ISSUE 2:
Is Metrobank liable to BA Finance for the full value of the
check, under the Negotiable Instruments Law?
HELD:
YES. Section 68 of the Negotiable Instruments Law instructs
that joint payees who indorse are deemed to indorse jointly and
severally. When the maker dishonors the instrument, the holder
thereof can turn to those secondarily liable the indorser for recovery.
A collecting bank, Asianbank in this case, where a check is
deposited and which indorses the check upon presentment with the
drawee bank, is an indorser. his is because in indorsing a check to the
drawee bank, a collecting bank stamps the back of the check with the
phrase all prior endorsements and/or lack of endorsement
guaranteed and, for all intents and purposes, treats the check as a
negotiable instrument, hence, assumes the warranty of an indorser.
Petitioner, as the collecting bank or last indorser, generally
suffers the loss because it has the duty to ascertain the genuineness
of all prior indorsements considering that the act of presenting the
22 | n e g o
check for payment to the drawee is an assertion that the party
making the presentment has done its duty to ascertain the
genuineness of prior indorsements.
38 Bank of Philippine Islands vs Court of Appeals (February 2000)
326 SCRA 641 – Mercantile Law – Negotiable Instruments Law –
Negotiation – Indorsement – Withdrawal Slip
Benjamin Napiza maintains an account with the Bank of the Philippine
Islands (BPI). In 1987, Napiza was approached by Henry Chan and the
latter gave him a $2,500 Continental Bank Manager’s check. Chan
asked if Napiza can deposit the check to his (Napiza’s BPI account) by
way of accommodation and for the purpose of clearing the said
check. Napiza agreed and so he deposited the check on September 3,
1987. Napiza then delivered a signed blank withdrawal slip to Chan
with the condition that the $2,500.00 may only be withdrawn if the
check cleared. For some reason, the withdrawal slip ended up in the
hands of one Ruben Gayon who went to BPI and successfully
withdrew the $2,500.00. At the time of the withdrawal, the check was
not yet cleared. Then days later, BPI was notified by the drawee bank
named in the check that the check is actually a counterfeit.
ISSUE: Whether or not Napiza may be held liable to refund the
amount of the check.
HELD: No. The Supreme Court ruled that ordinarily, Napiza would
have been liable because he is an accommodation indorser. But due
to the attendant circumstances, Napiza is discharged from liability.
The withdrawal slip indicates as well as the rules promulgated by BPI
that withdrawal from the bank should be accompanied by the
presentment of the account holder’s (Napiza’s) savings bankbook.
This was not done so in the case at bar because Gayon was able to
withdraw without it. Further, BPI allowed the withdrawal even before
the check cleared. BPI already credited the $2,500.00 to Napiza’s
account even without the drawee bank clearing the check. This is
contrary to common banking practices and because of such
negligence and lack of diligence, BPI, as the collecting bank, shall
suffer the loss.
39 CELY YANG v. COURT OF APPEALS. G.R. No. 138074. August 15,
2003.
FACTS:
Cely Yang and Prem Chandiramani agreed to exchange the latter's
manager's check to two of Yang's checks both payable to the order of
Fernando David. They also agreed that Yang would secure a dollar
draft in exchange for Chandiramani's dollar draft.
At the time of exchange, Yang gave the checks to Danilo Ranigo.
Ranigo said that Chandaramani did not appear the rendezvous and
that he lost the checks and draft, but in fact, the exchange transpired.
Yang requested the respective banks to stop payment on the
instruments but was subsequently denied. Yang filed a complaint for
the return of the checks and for damages against Chandaramani and
David.
The lower court sided with David and was held as holder in due
course. The checks were complete in its face when they were
negotiated and that he had no notice that the checks were
dishonored and took the checks in good faith. The lower courts also
said that David had taken the necessary precautions to verify the
genuineness of the checks.
ISSUE: Whether David was a holder in due course.
RULING:
The SC held that David was a holder in due course and Yang's petition
is denied. Yang has the burden of proof to prove that David was not a
holder in due course which she failed to do so. It was noted that
David exchanged the checks for money when petitioner averred
otherwise.
The SC also agreed with the findings of the lower court. In relation to
the checks being crossed, the SC said that in Bataan Cigar v. CA, the
checks were negotiated while in this case it was only deposited
40 Violago V. BA Finance Corp. (2008) G.R. No. 158262 July 21, 2008
FACTS:
1983: Avelino Violago, President of Violago Motor Sales Corporation
(VMSC), offered to sell a Toyota Cressida Model 1983 to increase the
sales quota to his cousin, Pedro F. Violago and his wife, Florencia.
spouses would just have to pay a down payment of PhP 60.5K while
the balance would be financed by BA Finance.
The spouses would pay the monthly installments to BA Finance while
Avelino would take care of the documentation and approval of
financing of the car.
August 4, 1983: the spouses and Avelino signed a promissory note
under which they bound themselves to pay jointly and severally to
the order of VMSC the amount of PhP 209,601 in 36 monthly
installments of PhP 5,822.25 a month, the first installment to be due
and payable on September 16, 1983.
Avelino prepared a Disclosure Statement of Loan/Credit
Transportation which showed the net purchase price of the vehicle,
down payment, balance, and finance charges.
VMSC then issued a sales invoice in favor of the spouses with a
detailed description of the Toyota Cressida car.
In turn, the spouses executed a chattel mortgage over the car in favor
of VMSC as security for the amount of PhP 209,601.
VMSC, through Avelino, endorsed the promissory note to BA
Finance without recourse. After receiving the amount of PhP
209,601,
VMSC executed a Deed of Assignment of its rights and interests under
the promissory note and chattel mortgage in favor of BA
Finance. Meanwhile, the spouses remitted the amount of PhP 60,500
to VMSC through Avelino spouses were unaware that the same car
had already been sold in 1982 to Esmeraldo Violago, another cousin
of Avelino
Since VMSC failed to deliver the car, Pedro did not pay any monthly
amortization to BA Finance.
March 1, 1984: BA Finance filed with the RTC a complaint for
Replevin with Damages against the spouses
RTC: favored BA finance , however, declared that they are entitled to
be indemnified by Avelino
CA: affirmed - promissory note was a negotiable instrument and that
BA Finance was a holder in due course
ISSUE: W/N the holder of an invalid promissory note may be
considered a holder in due course
HELD: YES. CA reversed because Avelino and VMSC are the same
negotiable:
Section 1. Form of Negotiable Instruments. – An instrument to be
negotiable must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum
certain in money;
(c) Must be payable on demand, or at a fixed or determinable
future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be
named or otherwise indicated therein with reasonable certainty.
23 | n e g o
Section 52. What constitutes a holder in due course.––A holder in due
course is a holder who has taken the instrument under the following
conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and
without notice that it had been previously dishonored, if such was the
fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any
infirmity in the instrument or defect in the title of the person
negotiating it.
(a) the “Promissory Note”, Exhibit “A”, is complete and regular; (b)
the “Promissory Note” was endorsed by the VMSC in favor of the
Appellee; (c) the Appellee, when it accepted the Note, acted in good
faith and for value; (d) the Appellee was never informed, before and
at the time the “Promissory Note” was endorsed to the Appellee, that
the vehicle sold to the Defendants-Appellants was not delivered to
the latter and that VMSC had already previously sold the vehicle to
Esmeraldo Violago. Although Jose Olvido mortgaged the vehicle to
Generoso Lopez, who assigned his rights to the BA Finance
Corporation (Cebu Branch), the same occurred only on May 8, 1987,
much later than August 4, 1983, when VMSC assigned its rights over
the “Chattel Mortgage” by the Defendants-Appellants to the
Appellee. Hence, Appellee was a holder in due course
Since BA Finance is a holder in due course, petitioners cannot raise
the defense of non-delivery of the object and nullity of the sale
against the corporation.
VMSC is a family-owned corporation of which Avelino was
president. Avelino committed fraud in selling the vehicle to
petitioners, a vehicle that was previously sold to Avelino’s other
cousin, Esmeraldo
Avelino clearly defrauded petitioners. His actions were the proximate
cause of petitioners’ loss. He cannot now hide behind the separate
corporate personality of VMSC to escape from liability for the amount
adjudged by the trial court in favor of petitioners.
obligation was incurred in the name of the corporation, the petitioner
[Arcilla] would still be personally liable therefor because for all legal
intents and purposes, he and the corporation are one and the same
41 Negotiable Instruments Case Digest: Consolidated Plywood
Industries, Inc V. IFC Leasing And Acceptance Corp. (1987)
G.R. No. 72593 April 30, 1987
FACTS: Consolidated (buyer pays promossor note) > IPM (seller-
assignor who violated warranty) > IFC (holder in due course or merely
an assignee?)
Consolidated Plywood Industries, Inc (Consolidated) is a corporation
engaged in the logging business
For the purpose of opening of additional roads and simultaneous
logging operations along the route of roads, it needed 2 additional
units of tractors
Atlantic Gulf & Pacific Company of Manila, through its sister company
and marketing arm, Industrial Products Marketing (IPM) (seller-
assignor) offered to sell 2 "Used" Allis Crawler Tractors
IPM inspected the job site and assured that the tractors were fit for
the job and gave a 90-days performance warranty of the machines
and availability of parts.
Consolidated purchased on installment.
It paid the down payment of P210,000
April 5, 1978: IPM issued the sales invoice and the deed of sale with
chattel mortgage with promissory note was executed
IPM, by means of a deed of assignment, assigned its rights and
interest in the chattel mortgage in favor of IFC Leasing and
Acceptance Corp. (IFC)
After 14 days, one of the tractors broke down and after another 9
days, the other tractor too
Because of the breaking down of the tractors, the road building and
simultaneous logging operations were delayed
Consolidated unilaterally rescinded the contract w/ IPM
April 7, 1979: Wee of Consolidated asked IPM to pull out the units
and have them reconditioned, and thereafter to offer them for sale.
The proceeds were to be given to IFC and the excess will be divided
between:
IPM
Consolidated which offered to bear one-half 1/2 of the reconditioning
cost
IPM didn't do anything
IFC filed against Consolidated for the recovery of the principal
sum P1,093,789.71, interest and attorney's fees
RTC and CA: favored IFC breach of warranty if any, is not a defense
available to Consolidated either to withdraw from the contract
and/or demand a proportionate reduction of the price with damages
in either case
ISSUE: W/N IFC is a holder in due course of the negotiable promissory
note so as to bar completely all the available defenses of the
Consolidated against IPM
HELD: CA reversed and set aside
Consolidated is a victim of warranrty
The Civil Code provides that:
ART. 1561. The vendor shall be responsible for warranty against the
hidden defects which the thing sold may have, should they render it
unfit for the use for which it is intended, or should they diminish its
fitness for such use to such an extent that, had the vendee been
aware thereof, he would not have acquired it or would have given a
lower price for it; but said vendor shall not be answerable for patent
defects or those which may be visible, or for those which are not
visible if the vendee is an expert who, by reason of his trade or
profession, should have known
them.chanroblesvirtualawlibrary chanrobles virtual law library
ART. 1562. In a sale of goods, there is an implied warranty or
condition as to the quality or fitness of the goods, as follows:
(1) Where the buyer, expressly or by implication makes known to the
seller the particular purpose for which the goods are acquired, and it
appears that the buyer relies on the sellers skill or judge judgment
(whether he be the grower or manufacturer or not), there is an
implied warranty that the goods shall be reasonably fit for such
purpose;
xxx xxx xxx chanrobles virtual law library
ART. 1564. An implied warranty or condition as to the quality or
fitness for a particular purpose may be annexed by the usage of
trade.chanroblesvirtualawlibrary chanrobles virtual law library
xxx xxx xxx chanrobles virtual law library
ART. 1566. The vendor is responsible to the vendee for any hidden
faults or defects in the thing sold even though he was not aware
thereof.
This provision shall not apply if the contrary has been stipulated, and
the vendor was not aware of the hidden faults or defects in the thing
sold. (Emphasis supplied).
GR: extends to the corporation to whom it assigned its rights and
interests
24 | n e g o
EX: assignee is a holder in due course of the promissory note
assuming the note is negotiable
Consolidated's defenses may not prevail against it.
Articles 1191 and 1567 of the Civil Code provide that:
ART. 1191. The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation with the payment of damages in either
case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become
impossible.chanroblesvirtualawlibrary chanrobles virtual law library
xxx xxx xxx chanrobles virtual law library
ART. 1567. In the cases of articles 1561, 1562, 1564, 1565 and
1566, the vendee may elect between withdrawing from the contract
and demanding a proportionate reduction of the price, with damages
in either case. (Emphasis supplied)
Consolidated, having unilaterally and extrajudicially rescinded its
contract with the seller-assignor, can no longer sue IPM except by
way of counterclaim if IPM sues it because of the rescission
Considering that paragraph (d), Section 1 of the Negotiable
Instruments Law requires that a promissory note "must be payable to
order or bearer" - in this case it is non-negotiable
= expression of consent that the instrument may be transferred
consent is indispensable since a maker assumes greater risk under a
negotiable instrument than under a non-negotiable one
When instrument is payable to order
SEC. 8. WHEN PAYABLE TO ORDER. - The instrument is payable to
order where it is drawn payable to the order of a specified person or
to him or his order. . . .
Without the words "or order" or"to the order of, "the instrument is
payable only to the person designated therein and is therefore non-
negotiable.
Any subsequent purchaser thereof will not enjoy the advantages of
being a holder of a negotiable instrument but will merely "step into
the shoes" of the person designated in the instrument and will thus
be open to all defenses available against the latter
Even conceding for purposes of discussion that the promissory note in
question is a negotiable instrument, the IFC cannot be a holder in due
course due to absence of GF for knowing that the tractors were
defective
SEC. 52. WHAT CONSTITUTES A HOLDER IN DUE COURSE. - A holder in
due course is a holder who has taken the instrument under the
following conditions: chanrobles virtual law library
xxx xxx xxx chanrobles virtual law library
xxx xxx xxx chanrobles virtual law library
(c) That he took it in good faith and for value
(d) That the time it was negotiated by him he had no notice of any
infirmity in the instrument of deffect in the title of the person
negotiating it
SEC. 56. WHAT CONSTITUTES NOTICE OF DEFFECT. - To constitute
notice of an infirmity in the instrument or defect in the title of the
person negotiating the same, the person to whom it is negotiated
must have had actual knowledge of the infirmity or defect, or
knowledge of such facts that his action in taking the instrument
amounts to bad faith. (Emphasis supplied)
We believe the finance company is better able to bear the risk of the
dealer's insolvency than the buyer and in a far better position to
protect his interests against unscrupulous and insolvent dealers. . .
42 Atrium Management Corporation v. Court of Appeals, G.R. No.
109491, February 28, 2001.
Facts:
Hi-Cement Corporation through its corporate signatories, petitioner
Lourdes M. de Leon, treasurer, and the late Antonio de las Alas,
Chairman, issued checks in favor of E.T. Henry and Co. Inc., as payee.
E.T. Henry and Co., Inc., in turn, endorsed the four checks to Atrium
for valuable consideration. Enrique Tan of E.T. Henry approached
Atrium for financial assistance, offering to discount four RCBC checks
in the total amount of P2 million, issued by Hi-Cement in favor of E.T.
Henry. Atrium agreed to discount the checks, provided it be allowed
to confirm with Hi-Cement the fact that the checks represented
payment for petroleum products which E.T. Henry delivered to Hi-
Cement. Upon presentment for payment, the drawee bank
dishonored all four checks for the common reason “payment
stopped”. As a result thereof, Atrium filed an action for collection of
the proceeds of 4 PDC in the total amount of 2M with RTC Manila.
Judgment was rendered in favor of Atrium ordering Lourdes and
Rafael de Leon, E.T. Henry and Co., and Hi-Cement to pay Atrium the
said amount plus interest and attorneys fees. CA absolved Hi-cement
Corporation from liability. It also ruled that since Lourdes was not
authorized to issue the subjects checks in favor of E.T. Henry Inc., the
said act was ultra vires.
Issue: Whether the issuance of the questioned checks was an ultra
vires act;
Ruling: Yes.
An ultra vires act is one committed outside the object for which a
corporation is created as defined by the law of its organization and
therefore beyond the power conferred upon it by law. The
term “ultra vires” is “distinguished from an illegal act for the former is
merely voidable which may be enforced by performance, ratification,
or estoppel, while the latter is void and cannot be validated.
Personal liability of a corporate director, trustee or officer along
(although not necessarily) with the corporation may so validly attach,
as a rule, only when:
He assents (a) to a patently unlawful act of the corporation, or (b) for
bad faith or gross negligence in directing its affairs, or (c) for conflict
of interest, resulting in damages to the corporation, its stockholders
or other persons;
He consents to the issuance of watered down stocks or who, having
knowledge thereof, does not forthwith file with the corporate
secretary his written objection thereto;
He agrees to hold himself personally and solidarily liable with the
corporation; or
He is made, by a specific provision of law, to personally answer for his
corporate action.
In the case at bar, Lourdes M. de Leon and Antonio de las Alas as
treasurer and Chairman of Hi-Cement were authorized to issue the
checks. However, Ms. de Leon was negligent when she signed the
confirmation letter requested by Mr. Yap of Atrium and Mr. Henry of
E.T. Henry for the rediscounting of the crossed checks issued in favor
of E.T. Henry. She was aware that the checks were strictly endorsed
for deposit only to the payee’s account and not to be further
negotiated. What is more, the confirmation letter contained a clause
that was not true, that is, “that the checks issued to E.T. Henry were
in payment of Hydro oil bought by Hi-Cement from E.T. Henry”. Her
negligence resulted in damage to the corporation. Hence, Ms. de
Leon may be held personally liable therefor.
43 G.R. No. 170912 April 19, 2010
25 | n e g o
ROBERT DINO vs. MARIA LUISA JUDAL-LOOT, joined by her husband
VICENTE LOOT,
The Case
This is a petition for review1 of the 16 August 2005 Decision2 and 30
November 2005 Resolution3 of the Court of Appeals in CA-G.R. CV No.
57994. The Court of Appeals affirmed the decision of the Regional
Trial Court, 7th Judicial Region, Branch 56, Mandaue City (trial court),
with the deletion of the award of interest, moral damages, attorney’s
fees and litigation expenses. The trial court ruled that respondents
Maria Luisa Judal-Loot and Vicente Loot are holders in due course of
Metrobank Check No. C-MA 142119406 CA and ordered petitioner
Robert Dino as drawer, together with co-defendant Fe Lobitana as
indorser, to solidarily pay respondents the face value of the check,
among others.
The Facts
Sometime in December 1992, a syndicate, one of whose members
posed as an owner of several parcels of land situated in Canjulao,
Lapu-lapu City, approached petitioner and induced him to lend the
group ₱3,000,000.00 to be secured by a real estate mortgage on the
properties. A member of the group, particularly a woman pretending
to be a certain Vivencia Ompok Consing, even offered to execute a
Deed of Absolute Sale covering the properties, instead of the usual
mortgage contract.4 Enticed and convinced by the syndicate’s offer,
petitioner issued three Metrobank checks totaling ₱3,000,000.00, one
of which is Check No. C-MA-142119406-CA postdated 13 February
1993 in the amount of ₱1,000,000.00 payable to Vivencia Ompok
Consing and/or Fe Lobitana.5
Upon scrutinizing the documents involving the properties, petitioner
discovered that the documents covered rights over government
properties. Realizing he had been deceived, petitioner advised
Metrobank to stop payment of his checks. However, only the
payment of Check No. C-MA- 142119406-CA was ordered stopped.
The other two checks were already encashed by the payees.
Meanwhile, Lobitana negotiated and indorsed Check No. C-MA-
142119406-CA to respondents in exchange for cash in the sum of
₱948,000.00, which respondents borrowed from Metrobank and
charged against their credit line. Before respondents accepted the
check, they first inquired from the drawee bank, Metrobank, Cebu-
Mabolo Branch which is also their depositary bank, if the subject
check was sufficiently funded, to which Metrobank answered in the
positive. However, when respondents deposited the check with
Metrobank, Cebu-Mabolo Branch, the same was dishonored by the
drawee bank for reason "PAYMENT STOPPED."
Respondents filed a collection suit6 against petitioner and Lobitana
before the trial court. In their Complaint, respondents alleged, among
other things, that they are holders in due course and for value of
Metrobank Check No. C-MA-142119406-CA and that they had no
prior information concerning the transaction between defendants.
In his Answer, petitioner denied respondents’ allegations that "on the
face of the subject check, no condition or limitation was imposed"
and that respondents are holders in due course and for value of the
check. For her part, Lobitana denied the allegations in the complaint
and basically claimed that the transaction leading to the issuance of
the subject check is a sale of a parcel of land by Vivencia Ompok
Consing to petitioner and that she was made a payee of the check
only to facilitate its discounting.
The trial court ruled in favor of respondents and declared them due
course holders of the subject check, since there was no privity
between respondents and defendants. The dispositive portion of the
14 March 1996 Decision of the trial court reads:
In summation, this Court rules for the Plaintiff and against the
Defendants and hereby orders:
1.) defendants to pay to Plaintiff, and severally, the amount of
₱1,000,000.00 representing the face value of subject Metrobank
check;
2.) to pay to Plaintiff herein, jointly and severally, the sum of
₱101,748.00 for accrued and paid interest;
3.) to pay to Plaintiff, jointly and severally, moral damages in the
amount of ₱100,000.00;
4.) to pay to Plaintiff, jointly and severally, the sum of ₱200,000.00 for
attorney’s fees; and
5.) to pay to Plaintiff, jointly and severally, litigation expenses in the
sum of ₱10,000.00 and costs of the suit.
SO ORDERED.7
Only petitioner filed an appeal. Lobitana did not appeal the trial
court’s judgment.
The Ruling of the Court of Appeals
The Court of Appeals affirmed the trial court’s finding that
respondents are holders in due course of Metrobank Check No. C-
MA- 142119406-CA. The Court of Appeals pointed out that
petitioner’s own admission that respondents were never parties to
the transaction among petitioner, Lobitana, Concordio Toring, Cecilia
Villacarlos, and Consing, proved respondents’ lack of knowledge of
any infirmity in the instrument or defect in the title of the person
negotiating it. Moreover, respondents verified from Metrobank
whether the check was sufficiently funded before they accepted it.
Therefore, respondents must be excluded from the ambit of
petitioner’s stop payment order.
The Court of Appeals modified the trial court’s decision by deleting
the award of interest, moral damages, attorney’s fees and litigation
expenses. The Court of Appeals opined that petitioner "was only
exercising (although incorrectly), what he perceived to be his right to
stop the payment of the check which he rediscounted." The Court of
Appeals ruled that petitioner acted in good faith in ordering the
stoppage of payment of the subject check and thus, he must not be
made liable for those amounts.
In its 16 August 2005 Decision, the Court of Appeals affirmed the trial
court’s decision with modifications, thus:
WHEREFORE, premises considered, finding no reversible error in the
decision of the lower court, WE hereby DISMISS the appeal and
AFFIRM the decision of the court a quo with modifications that the
award of interest, moral damages, attorney’s fees and litigation
expenses be deleted.
No pronouncement as to costs.
SO ORDERED.8
In its 30 November 2005 Resolution, the Court of Appeals denied
petitioner’s motion for reconsideration.
In denying the petitioner’s motion for reconsideration, the Court of
Appeals noted that petitioner raised the defense that the check is a
crossed check for the first time on appeal (particularly in the motion
for reconsideration). The Court of Appeals rejected such defense
considering that to entertain the same would be offensive to the
basic rules of fair play, justice, and due process.
Hence, this petition.
The Issues
Petitioner raises the following issues:
I. THE COURT OF APPEALS ERRED IN HOLDING THAT THE
RESPONDENTS WERE HOLDERS IN DUE COURSE. THE FACT THAT
METROBANK CHECK NO. 142119406 IS A CROSSED CHECK
CONSTITUTES SUFFICIENT WARNING TO THE RESPONDENTS TO
26 | n e g o
EXERCISE EXTRAORDINARY DILIGENCE TO DETERMINE THE TITLE OF
THE INDORSER.
II. THE COURT OF APPEALS ERRED IN DENYING PETITIONER’S MOTION
FOR RECONSIDERATION UPON THE GROUND THAT THE ARGUMENTS
RELIED UPON HAVE ONLY BEEN RAISED FOR THE FIRST TIME. EQUITY
DEMANDS THAT THE COURT OF APPEALS SHOULD HAVE MADE AN
EXCEPTION TO PREVENT THE COMMISSION OF MANIFEST WRONG
AND INJUSTICE UPON THE PETITIONER.9
The Ruling of this Court
The petition is meritorious.
Respondents point out that petitioner raised the defense that
Metrobank Check No. C-MA-142119406-CA is a crossed check for the
first time in his motion for reconsideration before the Court of
Appeals. Respondents insist that issues not raised during the trial
cannot be raised for the first time on appeal as it would be offensive
to the elementary rules of fair play, justice and due process.
Respondents further assert that a change of theory on appeal is
improper.
In his Answer, petitioner specifically denied, among others, (1)
Paragraph 4 of the Complaint, concerning the allegation that on the
face of the subject check, no condition or limitation was imposed, and
(2) Paragraph 8 of the Complaint, regarding the allegation that
respondents were holders in due course and for value of the subject
check. In his "Special Affirmative Defenses," petitioner claimed that
"for want or lack of the prestation," he could validly stop the payment
of his check, and that by rediscounting petitioner’s check,
respondents "took the risk of what might happen on the check."
Essentially, petitioner maintained that respondents are not holders in
due course of the subject check, and as such, respondents could not
recover any liability on the check from petitioner.
Indeed, petitioner did not expressly state in his Answer or raise during
the trial that Metrobank Check No. C-MA-142119406-CA is a crossed
check. It must be stressed, however, that petitioner consistently
argues that respondents are not holders in due course of the subject
check, which is one of the possible effects of crossing a check. The act
of crossing a check serves as a warning to the holder that the check
has been issued for a definite purpose so that the holder thereof
must inquire if he has received the check pursuant to that purpose;
otherwise, he is not a holder in due course.10 Contrary to
respondents’ view, petitioner never changed his theory, that
respondents are not holders in due course of the subject check, as
would violate fundamental rules of justice, fair play, and due process.
Besides, the subject check was presented and admitted as evidence
during the trial and respondents did not and in fact cannot deny that
it is a crossed check.
In any event, the Court is clothed with ample authority to entertain
issues or matters not raised in the lower courts in the interest of
substantial justice.11 In Casa Filipina Realty v. Office of the
President,12 the Court held:
[T]he trend in modern-day procedure is to accord the courts broad
discretionary power such that the appellate court may consider
matters bearing on the issues submitted for resolution which the
parties failed to raise or which the lower court ignored. Since rules of
procedure are mere tools designed to facilitate the attainment of
justice, their strict and rigid application which would result in
technicalities that tend to frustrate rather than promote substantial
justice, must always be avoided. Technicality should not be allowed to
stand in the way of equitably and completely resolving the rights and
obligations of the parties.13
Having disposed of the procedural issue, the Court shall now proceed
to the merits of the case. The main issue is whether respondents are
holders in due course of Metrobank Check No. C-MA 142119406 CA
as to entitle them to collect the face value of the check from its
drawer or petitioner herein.
Section 52 of the Negotiable Instruments Law defines a holder in due
course, thus:
A holder in due course is a holder who has taken the instrument
under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and
without notice that it has been previously dishonored, if such was the
fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no notice of any
infirmity in the instrument or defect in the title of the person
negotiating it.
In the case of a crossed check, as in this case, the following principles
must additionally be considered: A crossed check (a) may not be
encashed but only deposited in the bank; (b) may be negotiated only
once — to one who has an account with a bank; and (c) warns the
holder that it has been issued for a definite purpose so that the
holder thereof must inquire if he has received the check pursuant to
that purpose; otherwise, he is not a holder in due course.14
Based on the foregoing, respondents had the duty to ascertain the
indorser’s, in this case Lobitana’s, title to the check or the nature of
her possession. This respondents failed to do. Respondents’
verification from Metrobank on the funding of the check does not
amount to determination of Lobitana’s title to the check. Failing in
this respect, respondents are guilty of gross negligence amounting to
legal absence of good faith,15 contrary to Section 52(c) of the
Negotiable Instruments Law. Hence, respondents are not deemed
holders in due course of the subject check.16
State Investment House v. Intermediate Appellate Court17 squarely
applies to this case. There, New Sikatuna Wood Industries, Inc. sold at
a discount to State Investment House three post-dated crossed
checks, issued by Anita Peña Chua naming as payee New Sikatuna
Wood Industries, Inc. The Court found State Investment House not a
holder in due course of the checks. The Court also expounded on the
effect of crossing a check, thus:
Under usual practice, crossing a check is done by placing two parallel
lines diagonally on the left top portion of the check. The crossing may
be special wherein between the two parallel lines is written the name
of a bank or a business institution, in which case the drawee should
pay only with the intervention of that bank or company, or crossing
may be general wherein between two parallel diagonal lines are
written the words "and Co." or none at all as in the case at bar, in
which case the drawee should not encash the same but merely accept
the same for deposit.
The effect therefore of crossing a check relates to the mode of its
presentment for payment. Under Section 72 of the Negotiable
Instruments Law, presentment for payment to be sufficient must be
made (a) by the holder, or by some person authorized to receive
payment on his behalf x x x As to who the holder or authorized
person will be depends on the instructions stated on the face of the
check.
The three subject checks in the case at bar had been crossed
generally and issued payable to New Sikatuna Wood Industries, Inc.
which could only mean that the drawer had intended the same for
deposit only by the rightful person, i.e., the payee named therein.
27 | n e g o
Apparently, it was not the payee who presented the same for
payment and therefore, there was no proper presentment, and the
liability did not attach to the drawer.
Thus, in the absence of due presentment, the drawer did not become
liable. Consequently, no right of recourse is available to petitioner
against the drawer of the subject checks, private respondent wife,
considering that petitioner is not the proper party authorized to make
presentment of the checks in question.
In this case, there is no question that the payees of the check,
Lobitana or Consing, were not the ones who presented the check for
payment. Lobitana negotiated and indorsed the check to respondents
in exchange for ₱948,000.00. It was respondents who presented the
subject check for payment; however, the check was dishonored for
reason "PAYMENT STOPPED." In other words, it was not the payee
who presented the check for payment; and thus, there was no proper
presentment. As a result, liability did not attach to the drawer.
Accordingly, no right of recourse is available to respondents against
the drawer of the check, petitioner herein, since respondents are not
the proper party authorized to make presentment of the subject
check.
However, the fact that respondents are not holders in due course
does not automatically mean that they cannot recover on the
check.18 The Negotiable Instruments Law does not provide that a
holder who is not a holder in due course may not in any case recover
on the instrument. 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.19 Among such defenses is the absence or
failure of consideration,20 which petitioner sufficiently established in
this case. Petitioner issued the subject check supposedly for a loan in
favor of Consing’s group, who turned out to be a syndicate defrauding
gullible individuals. Since there is in fact no valid loan to speak of,
there is no consideration for the issuance of the check. Consequently,
petitioner cannot be obliged to pay the face value of the
check.1avvphi1
Respondents can collect from the immediate indorser,21 in this case
Lobitana. Significantly, Lobitana did not appeal the trial court’s
decision, finding her solidarily liable to pay, among others, the face
value of the subject check. Therefore, the trial court’s judgment has
long become final and executory as to Lobitana.
WHEREFORE, we GRANT the petition. We SET ASIDE the 16 August
2005 Decision and 30 November 2005 Resolution of the Court of
Appeals in CA-G.R. CV No. 57994.
44 Prudencio V. CA (1986) G.R. No. L-34539 July 14, 1986
FACTS:
Oct 7 1954: Eulalio and Elisa Prudencios, registered owners of a parcel
of land mortgaged to Philippine National Bank (PNB) to guarantee a
loan of P1,000.00 extended to Domingo Prudencio
1955: Concepcion & Tamayo Construction Company (Concepcion) had
a pending contract with the Bureau of Public Works (Bureau) for the
construction of the municipal building in Puerto Princess, Palawan
amounting to P36,800.00
In need of funds, Jose Toribio, Concepcions' relative, and attorney-in-
fact of the Company, approached PNB to mortgage their property to
secure the loan of P10,000.00 w/ PNB.
The terms and conditions of the original mortgage for Pl,000.00 were
made integral part of the new mortgage for P10,000.00 and both
documents were registered with the Register of Deeds
Dec 23 1955:
promissory note covering the loan of P10,000.00 dated Dec 29 1955,
maturing on Apr 27 1956, was signed by Jose Toribio, as attorney-in-
fact of the Company, and by the Prudencios'
Deed of Assignment assigning all payments to be made by the Bureau
to the Co. on account of the contract for the construction in favor of
the PNB.
PNB approved the Bureau's release of 3 payments directly to
Concepcion for material and labor instead of paying the same to the
Bank on account of the contract price totalling P11,234.40 without
the knowledge of the Prudencios'
PNB did not apply the initial and subsequent payments to the
Prudencios' debt as provided for in the deed of assignment
Jun 30 1956: Concepcion abandoned their work so Bureau rescinded
the construction contract and assumed the work of completing
Jun 27 1959: Concepcion filed to cancelled their mortgage
complaint was amended to exclude the Company as defendant, it
having been shown that its life as a partnership had already expired
and, in lieu thereof, Ramon Concepcion and Manuel M. Tamayo,
partners of the defunct Company, were impleaded in their private
capacity as defendants.
CA affirmed RTC: Denied
no stipulation in the deed making it obligatory on the part of the PNB
to notify the petitioners everytime it authorizes payment to the
Company
Prudencios' contend that as accommodation makers, the nature of
their liability is only that of mere sureties instead of solidary co-
debtors such that "a material alteration in the principal contract,
effected by the creditor without the knowledge and consent of the
sureties, completely discharges the sureties from all liability on the
contract of suretyship.
ISSUE:
W/N the Prudencios' as accomodating party are liable as solidary
debtors so real estate mortgage executed by them CANNOT be
cancelled
W/N PNB was a holder in due course
HELD: Petition is Granted. CA reversed.
1. YES
Section 29 of the Negotiable Instrument Law
Liability of accommodation party. —An accommodation party is one
who has signed the instrument as maker, drawer, acceptor, or
indorser, without receiving value therefor, and for the purpose of
lending his name to some other person. Such a person is liable on the
instrument to a holder for value, notwithstanding such holder at the
time of taking the instrument knew him to be only an
accommodation party.
Philippine Bank of Commerce v. Aruego: liability of the
accommodation party remains not only primary but also
unconditional to a holder for value
remedy is a matter of concern exclusively between accommodation
indorser and accommodated party
2. NO
payee PNB is an immediate party and, therefore, is NOT a holder in
due course and stands on no better footing than a mere assignee
holder in due course - payee either acquired the note from another
holder or has not directly dealt with the maker thereof
PNB, in effect, waived payments of the first three releases
PNB can not be regarded as having acted in good faith which is also
one of the requisites of a holder in due course under Section 52 of the
Negotiable Instruments Law
28 | n e g o
It was only when the deed of assignment was shown to the spouses
that they consented to the mortgage and signed the promissory note
in the Bank's favor.
45 Metropolitan Bank And Trust Co. V. Cablizo (2006) G.R. No.
154469 December 6, 2006
FACTS:
November 12,1994: Renato D. Cabilzo (Cabilzo) issued a Metrobank
Check payable to "CASH" and postdated on November 24, 1994 in the
amount of P1,000 drawn against his Metrobank account to Mr.
Marquez, as his sales commission check was presented to Westmont
Bank for payment who indorsed it to Metrobank for appropriate
clearing
After the entries thereon were examined, including the availability of
funds and the authenticity of the signature of the drawer, Metrobank
cleared the check for encashment in accordance with the Philippine
Clearing House Corporation (PCHC) Rules
November 16, 1994: Cabilzo’s representative was at Metrobank when
he was asked by a bank personnel if Cabilzo had issued a check in the
amount of P91K to which he replied in negative
That afternoon: Cabilzo called Metrobank to reiterate that he did not
issue the check
He later discovered that the check of P1K was altered to P91K and
date was changed from Nov 24 to Nov 14.
Cabilzo demanded that Metrobank re-credit the amount
of P91,000.00 to his account
June 30, 1995: Through counsel sent a letter-demand for the amount
of P90K
CA affirmed RTC: Favored Cablizo
ISSUE: W/N Cablizo can recover from Metrobank
HELD: YES. CA Affirmed
material alteration
changes the items which are required to be stated under Section 1 of
the Negotiable Instruments Law
Section 1. Form of negotiable instruments. - An instrument to be
negotiable must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum
certain in money;
(c) Must be payable on demand or at a fixed determinable future
time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be
named or otherwise indicated therein with reasonable certainty.
changes the effect of the instrument
Section 125. What constitutes material alteration. – Any alteration
which changes:
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment;
(d) The number or the relation of the parties;
(e) The medium or currency in which payment is to be made;
Or which adds a place of payment where no place of payment is
specified, or any other change or addition which alters the effect of
the instrument in any respect is a material alteration.
In the case at bar, the check was altered so that the amount was
increased from P1,000.00 to P91,000.00 and the date was changed
from 24 November 1994 to 14 November 1994.
Section 124. Alteration of instrument; effect of. – Where a negotiable
instrument is materially altered without the assent of all parties liable
thereon, it is avoided, except as against a party who has
himself made, authorized,and assented to the
alteration and subsequent indorsers.
But when the instrument has been materially altered and is in the
hands of a holder in due course not a party to the alteration, he may
enforce the payment thereof according to its original tenor.
Cabilzo was not the one who made nor authorized the alteration.
Neither did he assent to the alteration by his express or implied acts
There is no showing that he failed to exercise such reasonable degree
of diligence required of a prudent man which could have otherwise
prevented the loss.
bank must be a high degree of diligence, if not the utmost diligence
Surprisingly, however, Metrobank failed to detect the above
alterations which could not escape the attention of even an ordinary
person
"NINETY" is also typed differently and with a lighter ink
only 2 asterisks were placed before the amount in figures, while 3
asterisks were placed after such amount
"NINETY" are likewise a little bigger when compared with the letters
of the words "ONE THOUSAND PESOS ONLY"
When the drawee bank pays a materially altered check, it violates the
terms of the check, as well as its duty to charge its client’s account
only for bona fide disbursements he had made.
The corollary liability of Westmont Ban's indorsement, if any, is
separate and independent from the liability of Metrobank to Cabilzo.
46 Charles Fossum vs Fernandez Hermanos et al
44 Phil 713 – Commercial Law – Negotiable Instruments Law –
Presumption as to who is a “Holder in Due Course”
In 1919, the Fernandez Hermanos (FH) contracted with the American
Iron Products Company, Inc. (AIP), for the latter to build a shaft for
one of the ships managed by FH. In consideration thereof, a time
draft with the Philippine National Bank (PNB), a negotiable
instrument, was executed by FH in the amount of $2,250.00 payable
in 60 days. But later, FH dishonored the draft because AIP was not
able to comply with the specifications of the shaft ordered by FH.
Nevertheless, Charles Fossum, the agent of AIP here in the Philippines
and the person with whom FH was transacting with, was able to
obtain the draft from the bank without consideration (for free).
Fossum then instituted an action against FH to recover the amount
covered by the draft.
Fossum maintains that he is a holder in due course; that he inherited
that status from the previous holder (PNB, named payee in the draft);
that as such, he is entitled to payment.
ISSUE: Whether or not Fossum is a holder in due course.
HELD: No. In the first place, Fossum, as an agent of AIP, is well aware
that the draft is unenforceable because it has no consideration, the
shaft being substandard. AIP did not comply with its obligation thus
the draft was dishonored – and Fossum was well aware of this as part
of the original party.
Under Sec. 59 of the Negotiable Instruments Law, there is indeed a
presumption that every holder is a holder in due course, this covers a
payee or an indorsee (for bearer instruments, the bearer). This
presumption does not apply to Fossum because he was not a payee
nor an indorsee. He’s not an indorsee because the bank merely
delivered the draft to him and the delivery was even without
consideration.
But if the presumption previously applied to PNB, wasn’t that
acquired by Fossum?
No. The presumption only covers the present holder, and not the
previous holder. When a holder delivers/indorses the instrument, he
loses that presumption. It will then become incumbent upon the
29 | n e g o
person who received the instrument to prove that the previous
holder is a holder in due course especially in this case when the
current holder, Fossum, cannot be granted the presumption in Sec.
59, which is merely prima facie by the way, because of the fact that
he was an original party fully notified of the failure of the
consideration.
At any rate, PNB itself is not a holder in due course due to the timely
dishonor of the draft by FH.
Further even assuming PNB is a holder in due course, there is a well-
known rule of law that if the original payee of a note unenforceable
for lack of consideration repurchases (in this case, the draft was not
even repurchased, it was merely delivered back) the instrument after
transferring it to a holder in due course, the paper again becomes
subject in the payee’s hands to the same defenses to which it would
have been subject if the paper had never passed through the hands of
a holder in due course. The same is true where the instrument is re-
transferred to an agent of the payee
47
BATAAN CIGAR AND CIGARETTE FACTORY, INC. v. THE COURT OF
APPEALS. G.R. No. 93048. March 3, 1994.
FACTS:
Bataan Cigar & Cigarette Factory, Inc. (BCCFI), engaged with King Tim
Pua George, to deliver 2,000 bales of tobacco leaf. BCCFI issued post
dated crossed checks in exchange. Trusting King's words, BCCFI issued
another post-dated cross check for another purchase of tobacco
leaves.
During these time, King was dealing with State Investment House Inc..
On two separate occasions King sold the post-dated cross checks to
SIHI, that was drawn by BCCFI in favor of King.
Because King failed to deliver the leaves, BCFI issued a stop payment
to all the checks, including those sold to SIHI.
The RTC held that SIHI had a valid claim of being a holder in due
course and to collect the
checks issued by BCCFI.
ISSUE: Whether SIHI is a holder in due course.
RULING:
The SC held that SIHI is not a holder in due course thus granting the
petition of BCCFI. The purpose of cross checks is to avoid those
bouncing or encashing of forged checks. Cross checks have the
following effects: it cannot be encashed but only deposited in a bank;
it can only be negotiated on its respective bank once; it serves as a
warning to the hiolder that it has been issued for a defienite purpose
thus making SIHI not a holder in due course.
Still, SIHI can collect from the immediate indorser, in this case,
George King.
48 Philippine Commercial International Bank vs Court of Appeals
(2001)
March 9, 2012
350 SCRA 446 – Mercantile Law – Negotiable Instruments Law –
Rights of the Holder – What Constitutes a Holder in Due Course –
Negligence of the Collecting Bank and the Drawee Bank
There are three cases consolidated here: G.R. No. 121413 (PCIB vs CA
and Ford and Citibank), G.R. No. 121479 (Ford vs CA and Citibank and
PCIB), and G.R. No. 128604 (Ford vs Citibank and PCIB and CA).
G.R. No. 121413/G.R. No. 121479
In October 1977, Ford Philippines drew a Citibank check in the
amount of P4,746,114.41 in favor of the Commissioner of the Internal
Revenue (CIR). The check represents Ford’s tax payment for the third
quarter of 1977. On the face of the check was written “Payee’s
account only” which means that the check cannot be encashed and
can only be deposited with the CIR’s savings account (which is with
Metrobank). The said check was however presented to PCIB and PCIB
accepted the same. PCIB then indorsed the check for clearing to
Citibank. Citibank cleared the check and paid PCIB P4,746,114.41. CIR
later informed Ford that it never received the tax payment.
An investigation ensued and it was discovered that Ford’s accountant
Godofredo Rivera, when the check was deposited with PCIB, recalled
the check since there was allegedly an error in the computation of the
tax to be paid. PCIB, as instructed by Rivera, replaced the check with
two of its manager’s checks.
It was further discovered that Rivera was actually a member of a
syndicate and the manager’s checks were subsequently deposited
with the Pacific Banking Corporation by other members of the
syndicate. Thereafter, Rivera and the other members became
fugitives of justice.
G.R. No. 128604
In July 1978 and in April 1979, Ford drew two checks in the amounts
of P5,851,706.37 and P6,311,591.73 respectively. Both checks are
again for tax payments. Both checks are for “Payee’s account only” or
for the CIR’s bank savings account only with Metrobank. Again, these
checks never reached the CIR.
In an investigation, it was found that these checks were embezzled by
the same syndicate to which Rivera was a member. It was established
that an employee of PCIB, also a member of the syndicate, created a
PCIB account under a fictitious name upon which the two checks,
through high end manipulation, were deposited. PCIB unwittingly
endorsed the checks to Citibank which the latter cleared. Upon
clearing, the amount was withdrawn from the fictitious account by
syndicate members.
ISSUE: What are the liabilities of each party?
HELD: G.R. No. 121413/G.R. No. 121479
PCIB is liable for the amount of the check (P4,746,114.41). PCIB, as a
collecting bank has been negligent in verifying the authority of Rivera
to negotiate the check. It failed to ascertain whether or not Rivera
can validly recall the check and have them be replaced with PCIB’s
manager’s checks as in fact, Ford has no knowledge and did not
authorize such. A bank (in this case PCIB) which cashes a check drawn
upon another bank (in this case Citibank), without requiring proof as
to the identity of persons presenting it, or making inquiries with
regard to them, cannot hold the proceeds against the drawee when
the proceeds of the checks were afterwards diverted to the hands of
a third party. Hence, PCIB is liable for the amount of the embezzled
check.
G.R. No. 128604
PCIB and Citibank are liable for the amount of the checks on a 50-50
basis.
As a general rule, a bank is liable for the negligent or tortuous act of
its employees within the course and apparent scope of their
employment or authority. Hence, PCIB is liable for the fraudulent act
of its employee who set up the savings account under a fictitious
name.
Citibank is likewise liable because it was negligent in the performance
of its obligations with respect to its agreement with Ford. The checks
which were drawn against Ford’s account with Citibank clearly states
that they are payable to the CIR only yet Citibank delivered said
payments to PCIB. Citibank however argues that the checks were
indorsed by PCIB to Citibank and that the latter has nothing to do but
to pay it. The Supreme Court cited Section 62 of the Negotiable
Instruments Law which mandates the Citibank, as an acceptor of the
checks, to engage in paying the checks according to the tenor of the
30 | n e g o
acceptance which is to deliver the payment to the “payee’s account
only”.
But the Supreme Court ruled that in the consolidated cases, that PCIB
and Citibank are not the only negligent parties. Ford is also negligent
for failing to examine its passbook in a timely manner which could
have avoided further loss. But this negligence is not the proximate
cause of the loss but is merely contributory. Nevertheless, this
mitigates the liability of PCIB and Citibank hence the rate of interest,
with which PCIB and Citibank is to pay Ford, is lowered from 12% to
6% per annum.
49 Chan Wan vs Tan Kim et al
109 Phil 706 – Commercial Law – Negotiable Instruments Law –
Negotiation after Dishonor – Holder in Due Course
Tan Kim and her husband (Chen So) issued 11 checks payable to “cash
or bearer” to be drawn against their account with the Equitable
Banking Corporation. The checks were negotiated to the White House
Shoe Supply (company). White House then deposited the checks to
their China Bank account. China Bank then presented the checks to
Equitable Bank but the checks were returned because Equitable Bank
then had no funds to cover the checks. China Bank then stamped the
checks with “Account Closed” and “Non negotiable – China Bank
Corporation”.
But somehow, Chan Wan got hold of these checks (Chan Wan was not
able to explain in court how he got hold of the checks). Chan Wan
now wants to encash the checks but Equitable Bank refused accept
the said checks.
ISSUE: Whether or not Chan Wan is a holder in due course.
HELD: No. As a general rule, a dishonored check/instrument may still
be negotiated either by indorsement or delivery and the holder may
be a holder in due course provided that he received no notice
regarding the dishonor of the instrument. In this case, the checks
were already crossed on their face hence Chan Wan was properly
notified of the dishonor of the checks at the time of his acquisition.
But may Chan Wan still recover?
Yes. The Negotiable Instruments Law does not provide that a
holder who is not a holder in due course, may not in any case, recover
on the instrument. The holder may recover directly from the drawee,
in this case Tan Kim and Chen So, unless the drawees have a valid
excuse in refusing payment. The only disadvantage of a holder who is
not a holder in due course is that the negotiable instrument is subject
to defense as if it were non- negotiable. The case was remanded to
the lower court for a proper determination as to how Chan Wan
acquired the checks and to determine if he is indeed entitled to
payment based on some other transactions involving those checks.
50 Philippine Commercial International Bank vs Court of Appeals
(2001)
350 SCRA 446 – Mercantile Law – Negotiable Instruments Law –
Rights of the Holder – What Constitutes a Holder in Due Course –
Negligence of the Collecting Bank and the Drawee Bank
There are three cases consolidated here: G.R. No. 121413 (PCIB vs CA
and Ford and Citibank), G.R. No. 121479 (Ford vs CA and Citibank and
PCIB), and G.R. No. 128604 (Ford vs Citibank and PCIB and CA).
G.R. No. 121413/G.R. No. 121479
In October 1977, Ford Philippines drew a Citibank check in the
amount of P4,746,114.41 in favor of the Commissioner of the Internal
Revenue (CIR). The check represents Ford’s tax payment for the third
quarter of 1977. On the face of the check was written “Payee’s
account only” which means that the check cannot be encashed and
can only be deposited with the CIR’s savings account (which is with
Metrobank). The said check was however presented to PCIB and PCIB
accepted the same. PCIB then indorsed the check for clearing to
Citibank. Citibank cleared the check and paid PCIB P4,746,114.41. CIR
later informed Ford that it never received the tax payment.
An investigation ensued and it was discovered that Ford’s accountant
Godofredo Rivera, when the check was deposited with PCIB, recalled
the check since there was allegedly an error in the computation of the
tax to be paid. PCIB, as instructed by Rivera, replaced the check with
two of its manager’s checks.
It was further discovered that Rivera was actually a member of a
syndicate and the manager’s checks were subsequently deposited
with the Pacific Banking Corporation by other members of the
syndicate. Thereafter, Rivera and the other members became
fugitives of justice.
G.R. No. 128604
In July 1978 and in April 1979, Ford drew two checks in the amounts
of P5,851,706.37 and P6,311,591.73 respectively. Both checks are
again for tax payments. Both checks are for “Payee’s account only” or
for the CIR’s bank savings account only with Metrobank. Again, these
checks never reached the CIR.
In an investigation, it was found that these checks were embezzled by
the same syndicate to which Rivera was a member. It was established
that an employee of PCIB, also a member of the syndicate, created a
PCIB account under a fictitious name upon which the two checks,
through high end manipulation, were deposited. PCIB unwittingly
endorsed the checks to Citibank which the latter cleared. Upon
clearing, the amount was withdrawn from the fictitious account by
syndicate members.
ISSUE: What are the liabilities of each party?
HELD: G.R. No. 121413/G.R. No. 121479
PCIB is liable for the amount of the check (P4,746,114.41). PCIB, as a
collecting bank has been negligent in verifying the authority of Rivera
to negotiate the check. It failed to ascertain whether or not Rivera
can validly recall the check and have them be replaced with PCIB’s
manager’s checks as in fact, Ford has no knowledge and did not
authorize such. A bank (in this case PCIB) which cashes a check drawn
upon another bank (in this case Citibank), without requiring proof as
to the identity of persons presenting it, or making inquiries with
regard to them, cannot hold the proceeds against the drawee when
the proceeds of the checks were afterwards diverted to the hands of
a third party. Hence, PCIB is liable for the amount of the embezzled
check.
G.R. No. 128604
PCIB and Citibank are liable for the amount of the checks on a 50-50
basis.
As a general rule, a bank is liable for the negligent or tortuous act of
its employees within the course and apparent scope of their
employment or authority. Hence, PCIB is liable for the fraudulent act
of its employee who set up the savings account under a fictitious
name.
Citibank is likewise liable because it was negligent in the performance
of its obligations with respect to its agreement with Ford. The checks
which were drawn against Ford’s account with Citibank clearly states
that they are payable to the CIR only yet Citibank delivered said
payments to PCIB. Citibank however argues that the checks were
indorsed by PCIB to Citibank and that the latter has nothing to do but
to pay it. The Supreme Court cited Section 62 of the Negotiable
Instruments Law which mandates the Citibank, as an acceptor of the
checks, to engage in paying the checks according to the tenor of the
acceptance which is to deliver the payment to the “payee’s account
only”.
31 | n e g o
But the Supreme Court ruled that in the consolidated cases, that PCIB
and Citibank are not the only negligent parties. Ford is also negligent
for failing to examine its passbook in a timely manner which could
have avoided further loss. But this negligence is not the proximate
cause of the loss but is merely contributory. Nevertheless, this
mitigates the liability of PCIB and Citibank hence the rate of interest,
with which PCIB and Citibank is to pay Ford, is lowered from 12% to
6% per annum.
51 Ang Tiong vs Lorenzo Ting et al
22 SCRA 713 – Commercial Law – Negotiable Instruments Law –
Accommodation Party – General Indorser
In August 1960, Lorenzo Ting issued a check in the amount of
P4,000.00 payable to cash or bearer. At the back of the check, Felipe
Ang affixed his signature. The check later on ended up in the hands of
Ang Tiong. When Tiong presented the check with the bank, it was
dishonored. Tiong then sued Lorenzo and Felipe. Tiong won the
collection suit. Felipe appealed on the ground that he should be
allowed to recover from Lorenzo because Felipe is a guarantor and
not an indorser. Felipe also avers, in the alternative, that he is a mere
accommodation party and that fact is known by Tiong. As such, Tiong
should make Lorenzo the person directly and primarily liable, not
Felipe.
ISSUE: Whether or not Felipe’s arguments are correct.
HELD: No. The check is a negotiable instrument. What governs the
transaction is the Negotiable Instruments Law (NIL) and not the Civil
Code provisions on guaranty. Felipe is not a guarantor. Under Section
63 of the NIL a person signing in blank a negotiable instrument, such
as the check in this case, is considered as a general indorser. All Felipe
did is to affix his signature at the back of the check – such already
qualifies as a blank indorsement.
A person placing his signature upon an instrument otherwise than as
maker, drawer or acceptor” is a general indorser, — “unless he clearly
indicates plaintiff appropriate words his intention to be bound in
some other capacity,” which he did not do. And section 66 ordains
that “every indorser who indorses without qualification, warrants to
all subsequent holders in due course” (a) that the instrument is
genuine and in all respects what it purports to be; (b) that he has a
good title to it; (c) that all prior parties have capacity to contract; and
(d) that the instrument is at the time of his indorsement valid and
subsisting. In addition, “he engages that on due presentment, it shall
be accepted or paid, or both, as the case may be, and that if it be
dishonored, he will pay the amount thereof to the holder.”
Anent Felipe’s alternative allegation that he is exempt as an
accommodation party, the same is not tenable. Section 29 of the NIL
is clear when it states that an accommodation party is “liable on the
instrument to a holder for value, notwithstanding that such holder at
the time of taking the instrument knew him to be only an
accommodation party.”
Further, whether or not Felipe should be allowed to recover from the
maker, Lorenzo, does not affect Tiong’s right to recover from any of
them (Lorenzo the maker, or Felipe the indorser).
52 Republic Bank vs. Ebrada GR L-40796, 31 July 1975
FACTS:
Respondent Ebrada encashed a back pay check dated January 15,
1963 at Republic Bank. The Bureau of Treasury, which issued the
check advised the bank that the alleged indorsement of the check by
one “Martin Lorenzo” was a forgery as the latter has been dead since
14 July 1952; and requested that it be refunded he sum deducted
from its account. The bank refunded the amount to the Bureau and
demanded upon Ebrada the sum in question, who refused.
ISSUES:
1) Whether the bank can recover from Ebrada who was the
last indorser of the check with the forged indorsement.
2) Whether the existence of one forged signature in the check
will render void all the other negotiations of the check with respect to
the other parties whose signature are genuine.
RULING:
1) Republic Bank should suffer the loss when it paid the
amount of the check in question to Ebrada but it has the remedy to
recover from the latter the amount it paid to her because as last
indorser of the check, she has warranted that she has good title to it
even if in fact she did not because the payee of the check was already
dead 11 years before the check was issued.
2) The negotiation of the check in question from Martin
Lorenzo, the original payee whose indorsement was forged, to the
second indorser, should be declared of no affect, but the negotiation
of the aforesaid check from the second indorser to the third indorser,
and from the third indorser to Ebrada who did not know of the
forgery, should be considered valid and enforceable, barring any
claim of forgery.
**The existence of one forged signature in the check will not render
void all the other negotiations of the check with respect to the other
parties whose signature are genuine. As last indorser of the check,
petitioner warranted that she has good title to it even if in fact she did
not because the payee of the check was already dead 11 years before
the check was issued.
53 BPI vs. Court of Appeals and Napiza G.R. No. 112392. February 29,
2000, 326 scra 641
FACTS:
A certain Henry Chan owned a Continental Bank Manager’s Check
payable to "cash" in the amount of Two Thousand Five Hundred
Dollars ($2,500.00). Chan went to the office of Benjamin Napiza and
requested him to deposit the check in his dollar account by way of
accommodation and for the purpose of clearing the same. Private
respondent acceded, and agreed to deliver to Chan a signed blank
withdrawal slip, with the understanding that as soon as the check is
cleared, both of them would go to the bank to withdraw the amount
of the check upon private respondent’s presentation to the bank of
his passbook. Napiza thus endorsed the check and deposited it in a
Foreign Currency Deposit Unit (FCDU) Savings Account he maintained
with BPI. Using the blank withdrawal slip given by private respondent
to Chan, one Ruben Gayon, Jr. was able to withdraw the amount of
$2,541.67 from Napiza's FCDU account. It turned out that said check
deposited by private respondent was a counterfeit check.
*When BPI demanded the return of $2,500.00, private respondent
claimed that he deposited the check "for clearing purposes" only to
accommodate Chan.
**Petitioner claims that private respondent, having affixed his
signature at the dorsal side of the check, should be liable for the
amount stated therein in accordance with the provision of the
Negotiable Instruments Law on the liability of a general indorser (Sec.
66).
ISSUE:*
Whether private respondent is obliged to return the money paid out
by BPI on a counterfeit check even if he deposited the check "for
clearing purposes" only to accommodate Chan.
ISSUE:**
Whether or not respondent Napiza is liable under his warranties as a
general indorser.
32 | n e g o
RULING:
Ordinarily private respondent may be held liable as an indorser of the
check or even as an accommodation party. However, petitioner BPI,
in allowing the withdrawal of private respondent’s deposit, failed to
exercise the diligence of a good father of a family. BPI violated its
own rules by allowing the withdrawal of an amount that is definitely
over and above the aggregate amount of private respondent’s dollar
deposits that had yet to be cleared. The proximate cause of the
eventual loss of the amount of $2,500.00 on BPI's part was its
personnel’s negligence in allowing such withdrawal in disregard of its
own rules and the clearing requirement in the banking system. In so
doing, BPI assumed the risk of incurring a loss on account of a forged
or counterfeit foreign check and hence, it should suffer the resulting
damage.
54 Bank of America, NT and SA vs. Associated Citizens Bank G.R. No.
141001, May 21, 2009
The Bank is under strict liability, based on the contract between the
bank and its customer (drawer), to pay the check only to the payee
or the payee’s order. The drawer’s instructions are reflected on the
face and by the terms of the check. When the drawee bank pays a
person other than the payee named on the check, it does not comply
with the terms of the check and violates its duty to charge the
drawer’s account only for properly payable items.
Facts: BA-Finance Corporation (BA Finance) and Miller Offset Press,
Inc. (Miller) entered into a credit line facility agreement whereby
Miller can discount and assign its trade receivables with the BA
Finance. At the same time, Uy Kiat Chung, Ching Uy Seng, and Uy
Chung Guan Seng, acting for Miller, executed a Continuing Suretyship
Agreement with BA-Finance. Under the agreement, they jointly and
severally guaranteed the full and prompt payment of any and all
indebtedness which Miller may incur with BA-Finance.
Miller discounted and assigned several trade receivables to BA-
Finance by executing Deeds of Assignment in favor of the latter. In
consideration thereof, BA-Finance issued four checks payable to the
order of Miller with the notation “For Payee’s Account Only.” These
checks were drawn against Bank of America. The four checks were
deposited by Ching Uy Seng in Associated Citizens Bank with his joint
account with Uy Chung Seng. Associated Bank stamped the checks
and guaranteed all prior endorsements and/or lack of endorsements
and sent them through clearing. Later, Bank of America as drawee
bank honored the checks and paid the proceeds to Associated Bank
as the collecting bank. When Miller failed to deliver to BA-Finance the
proceeds of the assigned trade receivables, BA-Finance filed a
collection suit against Miller and impleaded the three representative
of the latter.
Bank of America filed a third party complaint against Associated Bank.
In its answer to the third party complaint, Associated Bank admitted
having received the four checks for deposit in the joint account of
Ching Uy Seng and Uy Chung Guan Seng, but alleged that Ching Uy
Seng, being one of the corporate officers of Miller, was duly
authorized to act for and on behalf of Miller.
Issues: Whether or not Bank of America is liable to pay BA-Finance
and whether or not Associated Bank should reimburse Bank of
America the amount of the four checks.
Held: The bank on which a check is drawn, known as the drawee
bank, is under strict liability, based on the contract between the bank
and its customer (drawer), to pay the check only to the payee or the
payee’s order. The drawer’s instructions are reflected on the face and
by the terms of the check. When the drawee bank pays a person
other than the payee named on the check, it does not comply with
the terms of the check and violates its duty to charge the drawer’s
account only for properly payable items. On the part of Associated
Bank, the law imposes a duty of diligence on the collecting bank to
scrutinize checks deposited with it for the purpose of determining
their genuineness and regularity. The collecting bank being primarily
engaged in banking holds itself out to the public as the expert and the
law holds it to a high standard of conduct. In presenting the checks
for clearing and for payment, the defendant [collecting bank] made
an express guarantee on the validity of “all prior endorsements.”
Thus, stamped at the back of the checks are the defendant’s clear
warranty. As the warranty has proven to be false and inaccurate,
Associated Bank is liable for any damage arising out of the falsity of its
representation.
Held: A bank that regularly processes checks that are neither
payable to the customer nor duly indorsed by the payee is apparently
grossly negligent in its operations. This Court has recognized the
unique public interest possessed by the banking industry and the
need for the people to have full trust and confidence in their banks.
For this reason, banks are minded to treat their customer’s accounts
with utmost care, confidence, and honesty. In a checking transaction,
the drawee bank has the duty to verify the genuineness of the
signature of the drawer and to pay the check strictly in accordance
with the drawer’s instructions, i.e., to the named payee in the check.
It should charge to the drawer’s accounts only the payables
authorized by the latter. Otherwise, the drawee will be violating the
instructions of the drawer and it shall be liable for the amount
charged to the drawer’s account. Rodriguez checks are payable to
order since the bank failed to prove that the named payees therein
are fictitious.
Hence, the fictitious-payee rule which will make the instrument
payable to bearer does not apply. PNB accepted the 69 checks for
deposit to the PEMSLA account even without any indorsement from
the named payees. It bears stressing that order instruments can only
be negotiated with a valid indorsement.
55 Tuazon vs. Heirs of Ramos GR No. 156262July 14, 2005
Facts
:Respondents alleged that on certain dates, spouses Maria and
Leonilo Tuazon purchased cavans of rice from their predecessor-in-
interest, Bartolome Ramos. Only a portion of the purchased cavans of
rice was paid. The checks that spouses Tuazon issued for payment of
the unpaid portion were dishonored. Respondents alleged that since
spouses Tuazon anticipated that they would be sued, they made
fictitious sales of their properties. For their defense, spouses Tuazon
denied buying from Bartolome and that it was his wife, Magdalena,
who they bought the product from. They alleged that Maria was
Magdalena’s agent, and they argued that the real buyer of the cavans
of rice was Evangeline Santos. According to them, it was Evangeline
who issued the checks and that Maria received these checks in
good faith before indorsing them over to Ramos.
Issue
:Whether or not the CA erred in ruling that the petitioners are not
agents of the respondents.
Held
:The petition is unmeritorious. In a contract of agency, one binds
oneself to act as the representative of another with the latter’s
authority or consent. Since the basis of agency is representation,
there must be an actual intention on the part of the principal to
appoint and an intention on the part of the agent to accept the
appointment and act on it. Absent such mutual intent, there is
generally no agency. The declarations of the agents alone are
33 | n e g o
insufficient to establish the fact or extent of their authority.
The burden to prove the existence of agency lies on the person
alleging it which in the present case, the petitioners failed to do so by
their actions. The petitioners filed a suit against Evangeline Santos for
the dishonored checks on their own names. This act on their part
negates their claim that they were acting as mere agents for Ramos.
If, as they claim, they were mere agents of respondent, they instead
should have filed the suit on behalf of their alleged principal in
accordance with Section 2 of Rule 3 of the Rules on Civil procedure.
56 Areza vs. Express Savings Bank (G.R. No. 176697, September 10,
2014)
Doctrines: A depositary/collecting bank where a check is deposited,
and which endorses the check upon presentment with the drawee
bank, is an endorser. Under Section 66 of the Negotiable Instruments
Law, an endorser warrants “that the instrument is genuine and in all
respects what it purports to be; that he has good title to it; that all
prior parties had capacity to contract; and that the instrument is at
the time of his endorsement valid and subsisting.”
It is well-settled that the relationship of the depositors and the Bank
or similar institution is that of creditor-debtor. Article 1980 of the
New Civil Code provides that fixed, savings and current deposits of
money in banks and similar institutions shall be governed by the
provisions concerning simple loans. The bank is the debtor and the
depositor is the creditor. The depositor lends the bank money and the
bank agrees to pay the depositor on demand. The savings deposit
agreement between the bank and the depositor is the contract that
determines the rights and obligations of the parties.
Facts: Petitioners received an order for the purchase of a motor
vehicle from Gerry Mambuay where the latter paid petitioners with
nine (9) Philippine Veterans Affairs Office (PVAO) checks payable to
different payees and drawn against the Philippine Veterans Bank
(drawee), each valued at Two Hundred Thousand Pesos
(₱200,000.00). Petitioners deposited the said checks in their savings
account with the Express Savings Bank which, in turn, deposited the
checks with its depositary bank, Equitable-PCI Bank and the latter
presented the checks to the drawee, the Philippine Veterans Bank,
which honored the checks. However, the subject checks were
returned by PVAO to the drawee on the ground that the amount on
the face of the checks was altered from the original amount
of ₱4,000.00 to ₱200,000.00. After informing Express Savings Bank
that the drawee dishonored the checks, Equitable-PCI Bank debited
the deposit account of ESB in the amount of P1.8M. Express Savings
Bank then withdrew the amount of P1.8M representing the returned
checks from petitioners saving account.
Issue: Whether or not Express Savings Bank had the right to
debit₱1,800,000.00 from petitioners’ accounts.
Held: No, Express Savings Bank cannot debit the savings account of
petitioners. A depositary/collecting bank where a check is deposited,
and which endorses the check upon presentment with the drawee
bank, is an endorser. Under Section 66 of the Negotiable Instruments
Law, an endorser warrants “that the instrument is genuine and in all
respects what it purports to be; that he has good title to it; that all
prior parties had capacity to contract; and that the instrument is at
the time of his endorsement valid and subsisting.” As collecting bank,
Express Savings Bank is liable for the amount of the materially altered
checks. It cannot further pass the liability back to the petitioners
absent any showing in the negligence on the part of the petitioners
which substantially contributed to the loss from alteration.
57 METROPOLITAN BANK AND TRUST COMPANY (formerly
ASIANBANK CORPORATION) V. BA FINANCE CORPORATION and
MALAYAN INSURANCE CO. INC.
[G.R. No. 179952, Dec. 4, 2009] (607 SCRA 620)
FACTS:
Lamberto Bitanga (Bitanga) obtained from respondent BA
Finance Corporation (BA Finance) a loan to secure which, he
mortgaged his car to respondent BA Finance. Bitanga thus had the
mortgaged car insured by respondent Malayan Insurance Co., Inc.
(Malayan Insurance). The car was stolen. On Bitangas claim, Malayan
Insurance issued a check payable to the order of B.A. 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.
Without the indorsement or authority of his co-payee BA
Finance, Bitanga deposited the check to his account with the
Asianbank Corporation (Asianbank), now merged with petitioner
Metropolitan Bank and Trust Company (Metrobank). Bitanga
subsequently withdrew the entire proceeds of the check.
In the meantime, Bitangas loan became past due, but despite
demands, he failed to settle it. BA Finance thereupon demanded the
payment of the value of the check from Asianbank but to no avail,
prompting it to file a complaint for sum of money and
damages against Asianbank and Bitanga alleging that, inter alia, it is
entitled to the entire proceeds of the check.
On the issue of whether or not BA Finance has a cause of
action, Metrobank contends that 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. Absent the indispensable fact of
forgery or unauthorized indorsement, the payee may not recover
from the collecting bank.
ISSUE 1:
Whether BA Finance has a cause of action against Metrobank
even if the subject check had not been delivered to BA Finance by the
issuer itself?
HELD:
YES. Section 41 of the Negotiable Instruments Law provides:
Where an instrument is payable to the order of two or more
payees or indorsees who are not partners, all must indorse unless the
one indorsing has authority to indorse for the others.
Bitanga alone endorsed the crossed check, and petitioner
allowed the deposit and release of the proceeds thereof, despite the
absence of authority of Bitangas co-payee BA Finance to endorse it on
its behalf. Petitioners argument that since there was neither forgery,
nor unauthorized indorsement because Bitanga was a co-payee in the
subject check, the dictum in Associated Bank v. CA does not apply in
the present case fails. The payment of an instrument over a missing
indorsement is the equivalent of payment on a forged indorsement or
an unauthorized indorsement in itself in the case of joint payees.
Accordingly, one who credits the proceeds of a check to the
account of the indorsing payee is liable in conversion to the non-
indorsing payee for the entire amount of the check.
ISSUE 2:
Is Metrobank liable to BA Finance for the full value of the
check, under the Negotiable Instruments Law?
HELD:
YES. Section 68 of the Negotiable Instruments Law instructs
that joint payees who indorse are deemed to indorse jointly and
34 | n e g o

severally. When the maker dishonors the instrument, the holder payable to New Sikatuna Wood Industries, Inc. all postdated
thereof can turn to those secondarily liable the indorser for recovery. December 22, 1980 as follows:
A collecting bank, Asianbank in this case, where a check is
DRAWEE CHECK NO. DATE AMOUNT
deposited and which indorses the check upon presentment with the
BANK
drawee bank, is an indorser. his is because in indorsing a check to the
drawee bank, a collecting bank stamps the back of the check with the
1. China 589053 Dec. 22, P98,750.00
phrase all prior endorsements and/or lack of endorsement
Banking 1980
guaranteed and, for all intents and purposes, treats the check as a
Corporation
negotiable instrument, hence, assumes the warranty of an indorser.
Petitioner, as the collecting bank or last indorser, generally 2. 04045549 Dec. 22, 102,313.00
suffers the loss because it has the duty to ascertain the genuineness International 1980
of all prior indorsements considering that the act of presenting the Corporate
check for payment to the drawee is an assertion that the party Bank
making the presentment has done its duty to ascertain the
genuineness of prior indorsements. 3. 036512 Dec. 22, 98,387.00
58 International Corporate Bank vs. Gueco (351 SCRA 516) Metropolitan 1980
FACTS: Bank & Trust
The respondents obtained a loan from the petitioner to purchase a Co.
motor vehicle (car). The respondents defaulted in payment of
installments. A civil case was filed by the petitioner which resulted The total value of the three (3) postdated checks amounted to P
later into negotiations in lowering the remaining unpaid balance from 299,450.00.
P184,000.00 to P150,000.00, detaining the car until payment thereof. Subsequently, New Sikatuna Wood Industries, Inc. entered into an
Respondent delivered a manager’s check but petitioner insisted on agreement with herein petitioner State Investment House, Inc.
the signing of “Joint Motion to Dismiss”, still holding the motor whereby for and in consideration of the sum of Pl,047,402.91 under a
vehicle. Respondent initiated civil action for damages before MTC deed of sale, the former assigned and discounted with petitioner
but the case was dismissed for lack of merit. On appeal to RTC, the eleven (11) postdated checks including the aforementioned three (3)
decision of MTC was reversed ordering herein petitioners to postdated checks issued by herein private respondent-wife Anita
indemnify the respondents. The Court of Appeals likewise affirmed Peña Chua to New Sikatuna Wood Industries, Inc.
the decision of the RTC. When the three checks issued by private respondent Anita Pena Chua
ISSUE: were allegedly deposited by petitioner, these checks were dishonored
Whether or not the respondents are entitled of indemnification for by reason of "insufficient funds", "stop payment" and "account
damages. closed", respectively. Petitioner claims that despite demands on
RULING: private respondent Anita Peña to make good said checks, the latter
NO. Petitioner’s act of requiring respondents to sign the Joint Motion failed to pay the same necessitating the former to file an action for
to Dismiss can not be said to be a deliberate attempt on the part of collection against the latter and her husband Harris Chua before the
petitioner to renege on the compromise agreement of the parties. Regional Trial Court of Manila, Branch XXXVII docketed as Civil Case
The law presumes good faith. In fact, the act of petitioner bank in No. 82-10547.
lowering the debt of respondent from P184,000.00 to P150,000.00 is Private respondents-defendants filed a third party complaint against
indicative of its good faith and sincere desire to settle the case. New Sikatuna Wood Industries, Inc. for reimbursement and
The decision of the Court of Appeals affirming the decision of the RTC indemnification in the event that they be held liable to petitioner-
was set aside. Respondents were ordered to pay the original plaintiff. For failure of third party defendant to answer the third party
obligation amounting to P150,000.00 to the petitioner upon complaint despite due service of summons, the latter was declared in
surrender or cancellation of the manager’s check in the latter’s default.
possession, afterwhich, petitioner is to return the subject motor On April 30, 1984, the lower court 1 rendered judgment against
vehicle in good working condition herein private respondents spouses, the dispositive portion of which
59 G.R. No. 72764 July 13, 1989 reads:
STATE INVESTMENT HOUSE vs. INTERMEDIATE APPELLATE COURT, WHEREFORE, judgment is hereby rendered in favor of the plaintiff or
ANITA PEÑA CHUA and HARRIS CHUA, against the defendants ordering the defendants to pay jointly and
Petitioner State Investment House seeks a review of the decision of severally to the plaintiff the following amounts:
respondent Intermediate Appellate Court (now Court of Appeals) in 1. P 229,450.00 with interest at the rate of 12% per annum from
AC-G.R. CV No. 04523 reversing the decision of the Regional Trial February 24,1981 until fully paid;
Court of Manila, Branch XXXVII dated April 30, 1984 and dismissing 2. P 29,945.00 as and for attorney's fees; and
the complaint for collection filed by petitioner against private 3. the costs of suit.
respondents Spouses Anita Pena Chua and Harris Chua. On the third party complaint, third party defendant New Sikatuna
It appears that shortly before September 5, 1980, New Sikatuna Wood Industries, Inc. is ordered to pay third party plaintiffs Anita
Wood Industries, Inc. requested for a loan from private respondent Pena Chua and Harris Chua all amounts said defendants' third- party
Harris Chua. The latter agreed to grant the same subject to the plaintiffs may pay to the plaintiff on account of this case. 2
condition that the former should wait until December 1980 when he On appeal filed by private respondents in AC-G.R. CV No. 04523, the
would have the money. In view of this agreement, private Intermediate Appellate Court 3 (now Court of Appeals) reversed the
respondent-wife, Anita Pena Chua issued three (3) crossed checks lower court's judgment in the now assailed decision, the dispositive
portion of which reads:
35 | n e g o
WHEREFORE, finding this appeal meritorious, We Reverse and Set
Aside the appealed judgment, dated April 30, 1984 and a new
judgment is hereby rendered dismissing the complaint, with costs
against plaintiff-appellee. 4
Hence, this petition.
The pivotal issue in this case is whether or not petitioner is a holder in
due course as to entitle it to proceed against private respondents for
the amount stated in the dishonored checks.
Section 52(c) of the Negotiable Instruments Law defines a holder in
due course as one who takes the instrument "in good faith and for
value". On the other hand, Section 52(d) provides that in order that
one may be a holder in due course, it is necessary that "at the time
the instrument was negotiated to him he had no notice of any x x x
defect in the title of the person negotiating it." However, under
Section 59 every holder is deemed prima facie to be a holder in due
course.
Admittedly, the Negotiable Instruments Law regulating the issuance
of negotiable checks as well as the lights and liabilities arising
therefrom, does not mention "crossed checks". But this Court has
taken cognizance of the practice that a check with two parallel lines in
the upper left hand corner means that it could only be deposited and
may not be converted into cash. Consequently, such circumstance
should put the payee on inquiry and upon him devolves the duty to
ascertain the holder's title to the check or the nature of his
possession. Failing in this respect, the payee is declared guilty of gross
negligence amounting to legal absence of good faith and as such the
consensus of authority is to the effect that the holder of the check is
not a holder in good faith. 5
Petitioner submits that at the time of the negotiation and
endorsement of the checks in question by New Sikatuna Wood
Industries, it had no knowledge of the transaction and/or
arrangement made between the latter and private respondents.
We agree with respondent appellate court.
Relying on the ruling in Ocampo v. Gatchalian (supra), the
Intermediate Appellate Court (now Court of Appeals), correctly
elucidated that the effects of crossing a check are: the check may not
be encashed but only deposited in the bank; the check may be
negotiated only once to one who has an account with a bank; and the
act of crossing the check serves as a warning to the holder that the
check has been issued for a definite purpose so that he must inquire if
he has received the check pursuant to that purpose, otherwise he is
not a holder in due course. Further, the appellate court said:
It results therefore that when appellee rediscounted the check
knowing that it was a crossed check he was knowingly violating the
avowed intention of crossing the check. Furthermore, his failure to
inquire from the holder, party defendant New Sikatuna Wood
Industries, Inc., the purpose for which the three checks were cross
despite the warning of the crossing, prevents him from being
considered in good faith and thus he is not a holder in due course.
Being not a holder in due course, plaintiff is subject to personal
defenses, such as lack of consideration between appellants and New
Sikatuna Wood Industries. Note that under the facts the checks were
postdated and issued only as a loan to New Sikatuna Wood
Industries, Inc. if and when deposits were made to back up the
checks. Such deposits were not made, hence no loan was made,
hence the three checks are without consideration (Sec. 28, Negotiable
Instruments Law).
Likewise New Sikatuna Wood Industries negotiated the three checks
in breach of faith in violation of Article (sic) 55, Negotiable
Instruments Law, which is a personal defense available to the drawer
of the check.6
In addition, such instruments are mentioned in Section 541 of the
Negotiable Instruments Law as follows:
Sec. 541. The maker or any legal holder of a check shall be entitled to
indicate therein that it be paid to a certain banker or institution,
which he shall do by writing across the face the name of said banker
or institution, or only the words "and company."
The payment made to a person other than the banker or institution
shall not exempt the person on whom it is drawn, if the payment was
not correctly made.
Under usual practice, crossing a check is done by placing two parallel
lines diagonally on the left top portion of the check. The crossing may
be special wherein between the two parallel lines is written the name
of a bank or a business institution, in which case the drawee should
pay only with the intervention of that bank or company, or crossing
may be general wherein between two parallel diagonal lines are
written the words "and Co." or none at all as in the case at bar, in
which case the drawee should not encash the same but merely accept
the same for deposit.
The effect therefore of crossing a check relates to the mode of its
presentment for payment. Under Section 72 of the Negotiable
Instruments Law, presentment for payment to be sufficient must be
made (a) by the holder, or by some person authorized to receive
payment on his behalf ... As to who the holder or authorized person
will be depends on the instructions stated on the face of the check.
The three subject checks in the case at bar had been crossed
generally and issued payable to New Sikatuna Wood Industries, Inc.
which could only mean that the drawer had intended the same for
deposit only by the rightful person, i.e., the payee named therein.
Apparently, it was not the payee who presented the same for
payment and therefore, there was no proper presentment, and the
liability did not attach to the drawer.
Thus, in the absence of due presentment, the drawer did not become
liable. 7 Consequently, no right of recourse is available to petitioner
against the drawer of the subject checks, private respondent wife,
considering that petitioner is not the proper party authorized to make
presentment of the checks in question.
Yet it does not follow as a legal proposition that simply because
petitioner was not a holder in due course as found by the appellate
court for having taken the instruments in question with notice that
the same is for deposit only to the account of payee named in the
subject checks, petitioner could not recover on the checks. The
Negotiable Instruments Law does not provide that a holder who is not
a holder in due course may not in any case recover on the instrument
for in the case at bar, petitioner may recover from the New Sikatuna
Wood Industries, Inc. if the latter has no valid excuse for refusing
payment. 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. 8
That the subject checks had been issued subject to the condition that
private respondents on due date would make the back up deposit for
said checks but which condition apparently was not made, thus
resulting in the non-consummation of the loan intended to be
granted by private respondents to New Sikatuna Wood Industries,
Inc., constitutes a good defense against petitioner who is not a holder
in due course.
WHEREFORE, the decision appealed from is hereby AFFIRMED with
costs against petitioner.
60 PAULINO GULLAS V. PNB (G.R. NO. L-43191)
36 | n e g o
Facts:
Petitioner Gullas maintains a current account with herein respondent
PNB. He together with one Pedro Lopez signed as endorsers of a
Warrant issued by the US Veterans Bureau payable to the order of
one Francisco Bacos. PNB cashed the check but was subsequently
dishonored by the Insular Treasurer. PNB then sent notices to
petitioner which could not be delivered to him at the time because he
was in Manila. PNB in the letter informed the petitioner the
outstanding balance on his account was applied to the part payment
of the dishonored check. Upon petitioner’s return, he received the
notice of dishonor and immediately paid the unpaid balance of the
warrant. As a consequence of these, petitioner was inconvenienced
when his insurance was not paid due to lack of funds and was
publicized widely at his area to his mortification.
Issue:
Whether or not PNB has the right to apply petitioner’s deposit to his
debt to the bank.
Ruling: NO.
As a general rule, a bank has a right of set off of the deposits in its
hands for the payment of any indebtedness to it on the part of a
depositor. The Civil Code contains provisions regarding compensation
(set off) and deposit. The portions of Philippine law provide that
compensation shall take place when two persons are reciprocally
creditor and debtor of each other. In this connection, it has been held
that the relation existing between a depositor and a bank is that of
creditor and debtor. [General Rule]
Starting, therefore, from the premise that the Philippine National
Bank had with respect to the deposit of Gullas a right of set off, we
next consider if that remedy was enforced properly. The fact we
believe is undeniable that prior to the mailing of notice of dishonor,
and without waiting for any action by Gullas, the bank made use of
the money standing in his account to make good for the treasury
warrant.
Gullas was merely an indorser and had issued in good faith. As to an
indorser, the situation is different and notice should actually have
been given him in order that he might protect his interests. We
accordingly are of the opinion that the action of the bank was
prejudicial to Gullas.
61 G.R. No. 152071 May 8, 2009
PRODUCERS BANK OF THE PHILIPPINES vs. EXCELSA INDUSTRIES,
INC.,
This is a petition for review on certiorari1 under Rule 43 of the 1997
Rules of Civil Procedure, assailing the decision 2 and resolution3 of the
Court of Appeals in CA-G.R. CV No. 59931. The Court of Appeals’
decision4reversed the decision of the Regional Trial Court (RTC),
Branch 73, Antipolo, Rizal, upholding the extrajudicial foreclosure of
the mortgage on respondent’s properties, while the resolution denied
petitioner’s motion for reconsideration.5
As borne by the records of the case, the following factual antecedents
appear:
Respondent Excelsa Industries, Inc. is a manufacturer and exporter of
fuel products, particularly charcoal briquettes, as an alternative fuel
source. Sometime in January 1987, respondent applied for a packing
credit line or a credit export advance with petitioner Producers Bank
of the Philippines, a banking institution duly organized and existing
under Philippines laws.6
The application was supported by Letter of Credit No.
M3411610NS2970 dated 14 October 1986. Kwang Ju Bank, Ltd. of
Seoul, Korea issued the letter of credit through its correspondent
bank, the Bank of the Philippine Islands, in the amount of
US$23,000.00 for the account of Shin Sung Commercial Co., Ltd., also
located in Seoul, Korea. T.L. World Development Corporation was the
original beneficiary of the letter of credit. On 05 December 1986, for
value received, T.L. World transferred to respondent all its rights and
obligations under the said letter of credit. Petitioner approved
respondent’s application for a packing credit line in the amount of
₱300,000.00, of which about ₱96,000.00 in principal remained
outstanding.7 Respondent executed the corresponding promissory
notes evidencing the indebtedness.8
Prior to the application for the packing credit line, respondent had
obtained a loan from petitioner in the form of a bill discounted and
secured credit accommodation in the amount of ₱200,000.00, of
which ₱110,000.00 was outstanding at the time of the approval of the
packing credit line. The loan was secured by a real estate mortgage
dated 05 December 1986 over respondent’s properties covered by
Transfer Certificates of Titles (TCT) No. N-68661, N-68662, N-68663,
N-68664, N-68665 and N-68666, all issued by the Register of Deeds of
Marikina.9
Significantly, the real estate mortgage contained the following clause:
For and in consideration of those certain loans, overdraft and/or
other credit accommodations on this date obtained from the
MORTGAGEE, and to secure the payment of the same, the principal of
all of which is hereby fixed at FIVE HUNDRED THOUSAND PESOS ONLY
(₱500,000.00) Pesos, Philippine Currency, as well as those that the
MORTGAGEE may hereafter extend to the MORTGAGOR, including
interest and expenses or any other obligation owing to the
MORTGAGEE, the MORTGAGOR does hereby transfer and convey by
way of mortgage unto the MORTGAGEE, its successors or assigns, the
parcel(s) of land which is/are described in the list inserted on the back
of this document, and/or appended hereto, together with all the
buildings and improvements now existing or which may hereafter be
erected or constructed thereon, of which the MORTGAGOR declares
that he/it is the absolute owner, free from all liens and
encumbrances.10
On 17 March 1987, respondent presented for negotiation to
petitioner drafts drawn under the letter of credit and the
corresponding export documents in consideration for its drawings in
the amounts of US$5,739.76 and US$4,585.79. Petitioner purchased
the drafts and export documents by paying respondent the peso
equivalent of the drawings. The purchase was subject to the
conditions laid down in two separate undertakings by respondent
dated 17 March 1987 and 10 April 1987.11
On 24 April 1987, Kwang Ju Bank, Ltd. notified petitioner through
cable that the Korean buyer refused to pay respondent’s export
documents on account of typographical discrepancies. Kwang Ju
Bank, Ltd. returned to petitioner the export documents.12
Upon learning about the Korean importer’s non-payment, respondent
sent petitioner a letter dated 27 July 1987, informing the latter that
respondent had brought the matter before the Korea Trade Court and
that it was ready to liquidate its past due account with petitioner.
Respondent sent another letter dated 08 September 1987, reiterating
the same assurance. In a letter 05 October 1987, Kwang Ju Bank, Ltd.
informed petitioner that it would be returning the export documents
on account of the non-acceptance by the importer.13
Petitioner demanded from respondent the payment of the peso
equivalent of the export documents, plus interest and other charges,
and also of the other due and unpaid loans. Due to respondent’s
failure to heed the demand, petitioner moved for the extrajudicial
foreclosure on the real estate mortgage over respondent’s
properties.
37 | n e g o
Per petitioner’s computation, aside from charges for attorney’s fees
and sheriff’s fees, respondent had a total due and demandable
obligation of ₱573,225.60, including interest, in six different accounts,
namely:
1) EBP-PHO-87-1121 (US$4,585.97 x 21.212) = ₱119,165.06
2) EBP-PHO-87-1095 (US$ 5,739.76 x 21.212) = 151,580.97
3) BDS-001-87 = 61,777.78
4) BDS-030/86 A = 123,555.55
5) BDS-PC-002-/87 = 55,822.91
6) BDS-005/87 = 61,323.33
₱573,225.6014
The total approved bid price, which included the attorney’s fees and
sheriff fees, was pegged at ₱752,074.63. At the public auction held on
05 January 1988, the Sheriff of Antipolo, Rizal issued a Certificate of
Sale in favor of petitioner as the highest bidder.15 The certificate of
sale was registered on 24 March 1988.16
On 12 June 1989, petitioner executed an affidavit of consolidation
over the foreclosed properties after respondent failed to redeem the
same. As a result, the Register of Deeds of Marikina issued new
certificates of title in the name of petitioner.17
On 17 November 1989, respondent instituted an action for the
annulment of the extrajudicial foreclosure with prayer for preliminary
injunction and damages against petitioner and the Register of Deeds
of Marikina. Docketed as Civil Case No. 1587-A, the complaint was
raffled to Branch 73 of the RTC of Antipolo, Rizal. The complaint
prayed, among others, that the defendants be enjoined from causing
the transfer of ownership over the foreclosed properties from
respondent to petitioner.18
On 05 April 1990, petitioner filed a petition for the issuance of a writ
of possession, docketed as LR Case No. 90-787, before the same
branch of the RTC of Antipolo, Rizal. The RTC ordered the
consolidation of Civil Case No, 1587-A and LR Case No. 90-787.19
On 18 December 1997, the RTC rendered a decision upholding the
validity of the extrajudicial foreclosure and ordering the issuance of a
writ of possession in favor of petitioner, to wit:
WHEREFORE, in Case No. 1587-A, the court hereby rules that the
foreclosure of mortgage for the old and new obligations of the
plaintiff Excelsa Industries Corp., which has remained unpaid up to
the time of foreclosure by defendant Producers Bank of the
Philippines was valid, legal and in order; In Case No. 787-A, the court
hereby orders for the issuance of a writ of possession in favor of
Producer’s Bank of the Philippines after the properties of Excelsa
Industries Corp., which were foreclosed and consolidated in the name
of Producers Bank of the Philippines under TCT No. 169031, 169032,
169033, 169034 and 169035 of the Register of Deeds of Marikina.
SO ORDERED.20
The RTC held that petitioner, whose obligation consisted only of
receiving, and not of collecting, the export proceeds for the purpose
of converting into Philippine currency and remitting the same to
respondent, cannot be considered as respondent’s agent. The RTC
also held that petitioner cannot be presumed to have received the
export proceeds, considering that respondent executed undertakings
warranting that the drafts and accompanying documents were
genuine and accurately represented the facts stated therein and
would be accepted and paid in accordance with their tenor.21
Furthermore, the RTC concluded that petitioner had no obligation to
return the export documents and respondent could not expect their
return prior to the payment of the export advances because the
drafts and export documents were the evidence that respondent
received export advances from petitioner.22
The RTC also found that by its admission, respondent had other loan
obligations obtained from petitioner which were due and
demandable; hence, petitioner correctly exercised its right to
foreclose the real estate mortgage, which provided that the same
secured the payment of not only the loans already obtained but also
the export advances.231avvphi1
Lastly, the RTC found respondent guilty of laches in questioning the
foreclosure sale considering that petitioner made several demands
for payment of respondent’s outstanding loans as early as July 1987
and that respondent acknowledged the failure to pay its loans and
advances.24
The RTC denied respondent’s motion for reconsideration.25 Thus,
respondent elevated the matter to the Court of Appeals, reiterating
its claim that petitioner was not only a collection agent but was
considered a purchaser of the export
On 30 May 2001, the Court of Appeals rendered the assailed decision,
reversing the RTC’s decision, thus:
WHEREFORE, the appeal is hereby GRANTED. The decision of the trial
court dated December 18, 1997 is REVERSED and SET ASIDE.
Accordingly, the foreclosure of mortgage on the properties of
appellant is declared as INVALID. The issuance of the writ of
possession in favor of appellee is ANNULLED. The following damages
are hereby awarded in favor of appellant:
(a) Moral damages in the amount of ₱100,000.00;
(b) Exemplary damages in the amount of ₱100,000.00; and
(c) Costs.
SO ORDERED.26
The Court of Appeals held that respondent should not be faulted for
the dishonor of the drafts and export documents because the
obligation to collect the export proceeds from Kwang Ju Bank, Ltd.
devolved upon petitioner. It cited the testimony of petitioner’s
manager for the foreign currency department to the effect that
petitioner was respondent’s agent, being the only entity authorized
under Central Bank Circular No. 491 to collect directly from the
importer the export proceeds on respondent’s behalf and converting
the same to Philippine currency for remittance to respondent. The
appellate court found that respondent was not authorized and even
powerless to collect from the importer and it appeared that
respondent was left at the mercy of petitioner, which kept the export
documents during the time that respondent attempted to collect
payment from the Korean importer.
The Court of Appeals disregarded the RTC’s finding that the export
documents were the only evidence of respondent’s export advances
and that petitioner was justified in refusing to return them. It opined
that granting petitioner had no obligation to return the export
documents, the former should have helped respondent in the
collection efforts instead of augmenting respondent’s dilemma.
Furthermore, the Court of Appeals found petitioner’s negligence as
the cause of the refusal by the Korean buyer to pay the export
proceeds based on the following: first, petitioner had a hand in
preparing and scrutinizing the export documents wherein the
discrepancies were found; and, second, petitioner failed to advise
respondent about the warning from Kwang Ju Bank, Ltd. that the
export documents would be returned if no explanation regarding the
discrepancies would be made.
The Court of Appeals invalidated the extrajudicial foreclosure of the
real estate mortgage on the ground that the posting and publication
of the notice of extrajudicial foreclosure proceedings did not comply
with
38 | n e g o
the personal notice requirement under paragraph 1227 of the real
estate mortgage executed between petitioner and respondent. The
Court of Appeals also overturned the RTC’s finding that respondent
was guilty of estoppel by laches in questioning the extrajudicial
foreclosure sale.
Petitioner’s motion for reconsideration28 was denied in a Resolution
dated 29 January 2002. Hence, the instant petition, arguing that the
Court of Appeals erred in finding petitioner as respondent’s agent,
which was liable for the discrepancies in the export documents, in
invalidating the foreclosure sale and in declaring that respondent was
not estopped from questioning the foreclosure sale.29
The validity of the extrajudicial foreclosure of the mortgage is
dependent on the following issues posed by petitioner: (1) the
coverage of the "blanket mortgage clause;" (2) petitioner’s failure to
furnish personal notice of the foreclosure to respondent; and (3)
petitioner’s obligation as negotiating bank under the letter of credit.
Notably, the errors cited by petitioners are factual in nature. Although
the instant case is a petition for review under Rule 45 which, as a
general rule, is limited to reviewing errors of law, findings of fact
being conclusive as a matter of general principle, however,
considering the conflict between the factual findings of the RTC and
the Court of Appeals, there is a need to review the factual issues as an
exception to the general rule.30
Much of the discussion has revolved around who should be liable for
the dishonor of the draft and export documents. In the two
undertakings executed by respondent as a condition for the
negotiation of the drafts, respondent held itself liable if the drafts
were not accepted. The two undertakings signed by respondent are
similarly-worded and contained respondent’s express warranties, to
wit:
In consideration of your negotiating the above described draft(s), we
hereby warrant that the said draft(s) and accompanying documents
thereon are valid, genuine and accurately represent the facts stated
therein, and that such draft(s) will be accepted and paid in
accordance with its/their tenor. We further undertake and agree,
jointly and severally, to defend and hold you free and harmless from
any and all actions, claims and demands whatsoever, and to pay on
demand all damages actual or compensatory including attorney’s
fees, costs and other awards or be adjudged to pay, in case of suit,
which you may suffer arising from, by reason, or on account of your
negotiating the above draft(s) because of the following discrepancies
or reasons or any other discrepancy or reason whatever.
We hereby undertake to pay on demand the full amount of the
above draft(s) or any unpaid balance thereof, the Philippine perso
equivalent converted at the prevailing selling rate (or selling rate
prevailing at the date you negotiate our draft, whichever is higher)
allowed by the Central Bank with interest at the rate prevailing today
from the date of negotiation, plus all charges and expenses
whatsoever incurred in connection therewith. You shall neither be
obliged to contest or dispute any refusal to accept or to pay the
whole or any part of the above draft(s), nor proceed in any way
against the drawee, the issuing bank or any endorser thereof, before
making a demand on us for the payment of the whole or any unpaid
balance of the draft(s).(Emphasis supplied)31
In Velasquez v. Solidbank Corporation,32 where the drawer therein
also executed a separate letter of undertaking in consideration for
the bank’s negotiation of its sight drafts, the Court held that the
drawer can still be made liable under the letter of undertaking even if
he is discharged due to the bank’s failure to protest the non-
acceptance of the drafts. The Court explained, thus:
Petitioner, however, can still be made liable under the letter of
undertaking. It bears stressing that it is a separate contract from the
sight draft. The liability of petitioner under the letter of undertaking is
direct and primary. It is independent from his liability under the sight
draft. Liability subsists on it even if the sight draft was dishonored for
non-acceptance or non-payment.
Respondent agreed to purchase the draft and credit petitioner its
value upon the undertaking that he will reimburse the amount in case
the sight draft is dishonored. The bank would certainly not have
agreed to grant petitioner an advance export payment were it not for
the letter of undertaking. The consideration for the letter of
undertaking was petitioner’s promise to pay respondent the value of
the sight draft if it was dishonored for any reason by the Bank of
Seoul.33
Thus, notwithstanding petitioner’s alleged failure to comply with the
requirements of notice of dishonor and protest under Sections
8934 and 152,35 respectively, of the Negotiable Instruments Law,
respondent may not escape its liability under the separate
undertakings, where respondent promised to pay on demand the full
amount of the drafts.
The next question, therefore, is whether the real estate mortgage
also served as security for respondent’s drafts that were not accepted
and paid by the Kwang Ju Bank, Ltd.
Respondent executed a real estate mortgage containing a "blanket
mortgage clause," also known as a "dragnet clause." It has been
settled in a long line of decisions that mortgages given to secure
future advancements are valid and legal contracts, and the amounts
named as consideration in said contracts do not limit the amount for
which the mortgage may stand as security if from the four corners of
the instrument the intent to secure future and other indebtedness
can be gathered.36
In Union Bank of the Philippines v. Court of Appeals,37 the nature of a
dragnet clause was explained, thus:
Is one which is specifically phrased to subsume all debts of past and
future origins. Such clauses are "carefully scrutinized and strictly
construed." Mortgages of this character enable the parties to provide
continuous dealings, the nature or extent of which may not be known
or anticipated at the time, and they avoid the expense and
inconvenience of executing a new security on each new transaction. A
"dragnet clause" operates as a convenience and accommodation to
the borrowers as it makes available additional funds without their
having to execute additional security documents, thereby saving time,
travel, loan closing costs, costs of extra legal services, recording
fees, et cetera.38
xxx
Petitioner, therefore, was not precluded from seeking the foreclosure
of the real estate mortgage based on the unpaid drafts drawn by
respondent. In any case, respondent had admitted that aside from
the unpaid drafts, respondent also had due and demandable loans
secured from another account as evidenced by Promissory Notes (PN
Nos.) BDS-001-87, BDS-030/86 A, BDS-PC-002-/87 and BDS-005/87.
However, the Court of Appeals invalidated the extrajudicial
foreclosure of the mortgage on the ground that petitioner had failed
to furnish respondent personal notice of the sale contrary to the
stipulation in the real estate mortgage.
Petitioner, on the other hand, claims that under paragraph 1239 of the
real estate mortgage, personal notice of the foreclosure sale is not a
requirement to the validity of the foreclosure sale.
A perusal of the records of the case shows that a notice of sheriff’s
sale40 was sent by registered mail to respondent and received in due
39 | n e g o
course.41 Yet, respondent claims that it did not receive the notice but
only learned about it from petitioner. In any event, paragraph 12 of
the real estate mortgage requires petitioner merely to furnish
respondent with the notice and does not oblige petitioner to ensure
that respondent actually receives the notice. On this score, the Court
holds that petitioner has performed its obligation under paragraph 12
of the real estate mortgage.
As regards the issue of whether respondent may still question the
foreclosure sale, the RTC held that the sale was conducted according
to the legal procedure, to wit:
Plaintiff is estopped from questioning the foreclosure. The plaintiff is
guilty of laches and cannot at this point in time question the
foreclosure of the subject properties. Defendant bank made demands
against the plaintiff for the payment of plaintiff’s outstanding loans
and advances with the defendant as early as July 1997. Plaintiff
acknowledged such outstanding loans and advances to the defendant
bank and committed to liquidate the same. For failure of the plaintiff
to pay its obligations on maturity, defendant bank foreclosed the
mortgage on subject properties on January 5, 1988 the certificate of
sale was annotated on March 24, 1988 and there being no
redemption made by the plaintiff, title to said properties were
consolidated in the name of defendant in July 1989. Undeniably,
subject foreclosure was done in accordance with the prescribed rules
as may be borne out by the exhibits submitted to this Court which are
Exhibit "33," a notice of extrajudicial sale executed by the Sheriff of
Antipolo, Exhibit "34" certificate posting of extrajudicial sale, Exhibit
"35" return card evidencing receipt by plaintiff of the notice of
extrajudicial sale and Exhibit "21" affidavit of publication.
The Court adopts and approves the aforequoted findings by the RTC,
the same being fully supported by the evidence on record.
WHEREFORE, the instant petition for review on certiorari is GRANTED
and the decision and resolution of the Court of Appeals in CA-G.R. CV
No. 59931 are REVERSED and SET ASIDE. The decision of the Regional
Trial Court Branch 73, Antipolo, Rizal in Civil Case No. 1587-A and LR
Case No. 90-787 is REINSTATED.
62 Negotiable Instruments Case Digest: Ang V. Associated Bank
(2007) G.R. No. 146511 September 5, 2007
FACTS:
August 28, 1990: Associated Bank (formerly Associated Banking
Corporation and now known as United Overseas Bank Philippines)
filed a collection suit against Antonio Ang Eng Liong (principal debtor)
and petitioner Tomas Ang (co-maker) for the 2 promissory notes
October 3 and 9, 1978: obtained a loan of
P50,000 and P30,000 evidenced by promissory note payable, jointly
and severally, on January 31, 1979 and December 8, 1978
Despite repeated demands for payment, the latest on September 13,
1988 and September 9, 1986, they failed to settle their obligations
totalling to P539,638.96 as of July 31, 1990
Antonio Ang Eng Liong only admitted to have secured a loan
amounting to P80,000
Tomas Ang: bank is not the real party in interest as it is not the holder
of the promissory notes, much less a holder for value or a holder in
due course; the bank knew that he did not receive any valuable
consideration for affixing his signatures on the notes but merely lent
his name as an accommodation party
bank granted his co-defendant successive extensions of time within
which to pay, without his knowledge and consent
the bank imposed new and additional stipulations on interest,
penalties, services charges and attorney's fees more onerous than the
terms of the notes, without his knowledge and consent
he should be reimbursed by his co-defendant any and all sums that he
may be adjudged liable to pay, plus P30,000, P20,000 and P50,000 for
moral and exemplary damages, and attorney's fees, respectively.
October 19, 1990: RTC held Antonio Ang Eng Liong was ordered to
pay the principal amount of P80,000 plus 14% interest per annum and
2% service charge per annum
Lower Court: Granted against the bank, dismissing the complaint for
lack of cause of action.
CA: ordered Ang to pay the bank - bank is a holder
CA observed that the bank, as the payee, did not indorse the notes to
the Asset Privatization Trust despite the execution of the Deeds of
Transfer and Trust Agreement and that the notes continued to
remain with the bank until the institution of the collection suit.
With the bank as the "holder" of the promissory notes, the Court of
Appeals held that Tomas Ang is accountable therefor in his capacity
as an accommodation party.
Tomas Ang cannot validly set up the defense that he did not receive
any consideration therefor as the fact that the loan was granted to
the principal debtor already constitutes a sufficient consideration.
ISSUE: W/N Ang is liable as accomodation party even without
consideration and his co-accomodation party was granted
accomodation w/o his knowledge
HELD: CA AFFIRMED
At the time the complaint was filed in the trial court, it was the Asset
Privatization Trust which had the authority to enforce its claims
against both debtors
accommodation party as a person "who has signed the instrument as
maker, drawer, acceptor, or indorser, without receiving value
therefor, and for the purpose of lending his name to some other
person." As gleaned from the text, an accommodation party is one
who meets all the three requisites, viz: (1) he must be a party to the
instrument, signing as maker, drawer, acceptor, or indorser; (2) he
must not receive value therefor; and (3) he must sign for the purpose
of lending his name or credit to some other person
petitioner signed the promissory note as a solidary co-maker and not
as a guarantor. This is patent even from the first sentence of the
promissory note which states as follows:
"Ninety one (91) days after date, for value received, I/we, JOINTLY
and SEVERALLY promise to pay to the PHILIPPINE BANK OF
COMMUNICATIONS at its office in the City of Cagayan de Oro,
Philippines the sum of FIFTY THOUSAND ONLY (P50,000.00) Pesos,
Philippine Currency, together with interest x x x at the rate of SIXTEEN
(16) per cent per annum until fully paid."
immaterial so far as the bank is concerned whether one of the
signers, particularly petitioner, has or has not received anything in
payment of the use of his name.
since the liability of an accommodation party remains not
only primary but also unconditional to a holder for value, even if the
accommodated party receives an extension of the period for payment
without the consent of the accommodation party, the latter is still
liable for the whole obligation and such extension does not release
him because as far as a holder for value is concerned, he is a solidary
co-debtor.
63 PHILIPPINE NATIONAL BANK VS. COURT OF APPEALS
GR. NO. 107508 April 25, 1996
FACTS:
Ministry of Education Culture issued a check payable to Abante
Marketing and drawn against Philippine National Bank (PNB). Abante
Marketing, deposited the questioned check in its savings account with
Capitol City Development Bank (CAPITOL). In turn, Capitol deposited
40 | n e g o
the same in its account with the Philippine Bank of Communications
(PBCom) which, in turn, sent the check to PNB for clearing. PNB
cleared the check as good and thereafter, PBCom credited Capitol's
account for the amount stated in the check. However, PNB returned
the check to PBCom and debited PBCom's account for the amount
covered by the check, the reason being that there was a "material
alteration" of the check number. PBCom, as collecting agent of
Capitol, then proceeded to debit the latter's account for the same
amount, and subsequently, sent the check back to petitioner. PNB,
however, returned the check to PBCom. On the other hand, Capitol
could not in turn, debit Abante Marketing's account since the latter
had already withdrawn the amount of the check. Capitol sought
clarification from PBCom and demanded the re-crediting of the
amount. PBCom followed suit by requesting an explanation and re-
crediting from PNB. Since the demands of Capitol were not heeded, it
filed a civil suit against PBCom which in turn, filed a third-party
complaint against PNB for reimbursement/indemnity with respect to
the claims of Capitol. PNB, on its part, filed a fourth-party complaint
against Abante Marketing.
The Trial Court rendered its decision, ordering PBCom to re-credit or
reimburse; PNB to reimburse and indemnify PBCom for whatever
amount PBCom pays to Capitol; Abante Marketing to reimburse and
indemnify PNB for whatever amount PNB pays to PBCom. The court
dismissed the counterclaims of PBCom and PNB. The appellate court
modified the appealed judgment by ordering PNB to honor the check.
After the check shall have been honored by PNB, the court ordered
PBCom to re-credit Capitol's account with it the amount. PNB filed
the petition for review on certiorari averring that under Section 125
of the NIL, any change that alters the effect of the instrument is a
material alteration.
ISSUE:
WON an alteration of the serial number of a check is a material
alteration under the NIL.
HELD:
NO, alteration of a serial number of a check is not a material
alteration contemplated under Sec. 125 of the NIL.
RATIO:
An alteration is said to be material if it alters the effect of the
instrument. It means an unauthorized change in an instrument that
purports to modify in any respect the obligation of a party or an
unauthorized addition of words or numbers or other change to an
incomplete instrument relating to the obligation of a party. In other
words, a material alteration is one which changes the items which are
required to be stated under Section 1 of the Negotiable Instruments
Law.
In the present case what was altered is the serial number of the check
in question, an item which is not an essential requisite for
negotiability under Section 1 of the Negotiable Instruments Law. The
aforementioned alteration did not change the relations between the
parties. The name of the drawer and the drawee were not altered.
The intended payee was the same. The sum of money due to the
payee remained the same. The check's serial number is not the sole
indication of its origin. The name of the government agency which
issued the subject check was prominently printed therein. The check's
issuer was therefore insufficiently identified, rendering the referral to
the serial number redundant and inconsequential
64 G.R. No. 154469 December 6, 2006
METROPOLITAN BANK AND TRUST COMPANY vs.
RENATO D. CABILZO,
Before this Court is a Petition for Review on Certiorari, filed by
petitioner Metropolitan Bank and Trust Company (Metrobank)
seeking to reverse and set aside the Decision1 of the Court of Appeals
dated 8 March 2002 and its Resolution dated 26 July 2002 affirming
the Decision of the Regional Trial Court (RTC) of Manila, Branch 13
dated 4 September 1998. The dispositive portion of the Court of
Appeals Decision reads:
WHEREFORE, the assailed decision dated September 4, 1998 is
AFFIRMED with modifications (sic) that the awards for exemplary
damages and attorney’s fees are hereby deleted.
Petitioner Metrobank is a banking institution duly organized and
existing as such under Philippine laws.2
Respondent Renato D. Cabilzo (Cabilzo) was one of Metrobank’s
clients who maintained a current account with Metrobank Pasong
Tamo Branch.3
On 12 November 1994, Cabilzo issued a Metrobank Check No.
985988, payable to "CASH" and postdated on 24 November 1994 in
the amount of One Thousand Pesos (P1,000.00). The check was
drawn against Cabilzo’s Account with Metrobank Pasong Tamo
Branch under Current Account No. 618044873-3 and was paid by
Cabilzo to a certain Mr. Marquez, as his sales commission. 4
Subsequently, the check was presented to Westmont Bank for
payment. Westmont Bank, in turn, indorsed the check to Metrobank
for appropriate clearing. After the entries thereon were examined,
including the availability of funds and the authenticity of the
signature of the drawer, Metrobank cleared the check for
encashment in accordance with the Philippine Clearing House
Corporation (PCHC) Rules.
On 16 November 1994, Cabilzo’s representative was at Metrobank
Pasong Tamo Branch to make some transaction when he was asked
by a bank personnel if Cabilzo had issued a check in the amount
of P91,000.00 to which the former replied in the negative. On the
afternoon of the same date, Cabilzo himself called Metrobank to
reiterate that he did not issue a check in the amount of P91,000.00
and requested that the questioned check be returned to him for
verification, to which Metrobank complied.5
Upon receipt of the check, Cabilzo discovered that Metrobank Check
No. 985988 which he issued on 12 November 1994 in the amount
of P1,000.00 was altered to P91,000.00 and the date 24 November
1994 was changed to 14 November 1994.6
Hence, Cabilzo demanded that Metrobank re-credit the amount
of P91,000.00 to his account. Metrobank, however, refused reasoning
that it has to refer the matter first to its Legal Division for appropriate
action. Repeated verbal demands followed but Metrobank still failed
to re-credit the amount of P91,000.00 to Cabilzo’s account.7
On 30 June 1995, Cabilzo, thru counsel, finally sent a letter-
demand8 to Metrobank for the payment ofP90,000.00, after
deducting the original value of the check in the amount of P1,000.00.
Such written demand notwithstanding, Metrobank still failed or
refused to comply with its obligation.
Consequently, Cabilzo instituted a civil action for damages against
Metrobank before the RTC of Manila, Branch 13. In his Complaint
docketed as Civil Case No. 95-75651, Renato D. Cabilzo v.
Metropolitan Bank and Trust Company, Cabilzo prayed that in
addition to his claim for reimbursement, actual and moral damages
plus costs of the suit be awarded in his favor.9
For its part, Metrobank countered that upon the receipt of the said
check through the PCHC on 14 November 1994, it examined the
genuineness and the authenticity of the drawer’s signature appearing
thereon and the technical entries on the check including the amount
41 | n e g o
in figures and in words to determine if there were alterations,
erasures, superimpositions or intercalations thereon, but none was
noted. After verifying the authenticity and propriety of the aforesaid
entries, including the indorsement of the collecting bank located at
the dorsal side of the check which stated that, "all prior indorsements
and lack of indorsement guaranteed," Metrobank cleared the check.10
Anent thereto, Metrobank claimed that as a collecting bank and the
last indorser, Westmont Bank should be held liable for the value of
the check. Westmont Bank indorsed the check as the an unqualified
indorser, by virtue of which it assumed the liability of a general
indorser, and thus, among others, warranted that the instrument is
genuine and in all respect what it purports to be.
In addition, Metrobank, in turn, claimed that Cabilzo was partly
responsible in leaving spaces on the check, which, made the
fraudulent insertion of the amount and figures thereon, possible. On
account of his negligence in the preparation and issuance of the
check, which according to Metrobank, was the proximate cause of the
loss, Cabilzo cannot thereafter claim indemnity by virtue of the
doctrine of equitable estoppel.
Thus, Metrobank demanded from Cabilzo, for payment in the amount
of P100,000.00 which represents the cost of litigation and attorney’s
fees, for allegedly bringing a frivolous and baseless suit. 11
On 19 April 1996, Metrobank filed a Third-Party Complaint12 against
Westmont Bank on account of its unqualified indorsement stamped
at the dorsal side of the check which the former relied upon in
clearing what turned out to be a materially altered check.
Subsequently, a Motion to Dismiss13 the Third-Party Complaint was
then filed by Westmont bank because another case involving the
same cause of action was pending before a different court. The said
case arose from an action for reimbursement filed by Metrobank
before the Arbitration Committee of the PCHC against Westmont
Bank, and now the subject of a Petition for Review before the RTC of
Manila, Branch 19.
In an Order14 dated 4 February 1997, the trial court granted the
Motion to Dismiss the Third-Party Complaint on the ground of litis
pendentia.
On 4 September 1998, the RTC rendered a Decision15 in favor of
Cabilzo and thereby ordered Metrobank to pay the sum
of P90,000.00, the amount of the check. In stressing the fiduciary
nature of the relationship between the bank and its clients and the
negligence of the drawee bank in failing to detect an apparent
alteration on the check, the trial court ordered for the payment of
exemplary damages, attorney’s fees and cost of litigation. The
dispositive portion of the Decision reads:
WHEREFORE, judgment is rendered ordering defendant Metropolitan
Bank and Trust Company to pay plaintiff Renato Cabilzo the sum
of P90,000 with legal interest of 6 percent per annum from November
16, 1994 until payment is made plus P20,000 attorney’s fees,
exemplary damages of P50,000, and costs of the suit.16
Aggrieved, Metrobank appealed the adverse decision to the Court of
Appeals reiterating its previous argument that as the last indorser,
Westmont Bank shall bear the loss occasioned by the fraudulent
alteration of the check. Elaborating, Metrobank maintained that by
reason of its unqualified indorsement, Westmont Bank warranted
that the check in question is genuine, valid and subsisting and that
upon presentment the check shall be accepted according to its tenor.
Even more, Metrobank argued that in clearing the check, it was not
remiss in the performance of its duty as the drawee bank, but rather,
it exercised the highest degree of diligence in accordance with the
generally accepted banking practice. It further insisted that the
entries in the check were regular and authentic and alteration could
not be determined even upon close examination.
In a Decision17 dated 8 March 2002, the Court of Appeals affirmed
with modification the Decision of the court a quo, similarly finding
Metrobank liable for the amount of the check, without prejudice,
however, to the outcome of the case between Metrobank and
Westmont Bank which was pending before another tribunal. The
decretal portion of the Decision reads:
WHEREFORE, the assailed decision dated September 4, 1998 is
AFFIRMED with the modifications (sic) that the awards for exemplary
damages and attorney’s fees are hereby deleted.18
Similarly ill-fated was Metrobank’s Motion for Reconsideration which
was also denied by the appellate court in its Resolution19 issued on 26
July 2002, for lack of merit.
Metrobank now poses before this Court this sole issue:
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING
METROBANK, AS DRAWEE BANK, LIABLE FOR THE ALTERATIONS ON
THE SUBJECT CHECK BEARING THE AUTHENTIC SIGNATURE OF THE
DRAWER THEREOF.
We resolve to deny the petition.
An alteration is said to be material if it changes the effect of the
instrument. It means that an unauthorized change in an instrument
that purports to modify in any respect the obligation of a party or an
unauthorized addition of words or numbers or other change to an
incomplete instrument relating to the obligation of a party.20 In other
words, a material alteration is one which changes the items which are
required to be stated under Section 1 of the Negotiable Instruments
Law.
Section 1 of the Negotiable Instruments Law provides:
Section 1. Form of negotiable instruments. - An instrument to be
negotiable must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum
certain in money;
(c) Must be payable on demand or at a fixed determinable future
time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be
named or otherwise indicated therein with reasonable certainty.
Also pertinent is the following provision in the Negotiable Instrument
Law which states:
Section 125. What constitutes material alteration. – Any alteration
which changes:
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment;
(d) The number or the relation of the parties;
(e) The medium or currency in which payment is to be made;
Or which adds a place of payment where no place of payment is
specified, or any other change or addition which alters the effect of
the instrument in any respect is a material alteration.
In the case at bar, the check was altered so that the amount was
increased from P1,000.00 to P91,000.00 and the date was changed
from 24 November 1994 to 14 November 1994. Apparently, since the
entries altered were among those enumerated under Section 1 and
125, namely, the sum of money payable and the date of the check,
the instant controversy therefore squarely falls within the purview of
material alteration.
Now, having laid the premise that the present petition is a case of
material alteration, it is now necessary for us to determine the effect
42 | n e g o
of a materially altered instrument, as well as the rights and
obligations of the parties thereunder. The following provision of the
Negotiable Instrument Law will shed us some light in threshing out
this issue:
Section 124. Alteration of instrument; effect of. – Where a negotiable
instrument is materially altered without the assent of all parties liable
thereon, it is avoided, except as against a party who has
himself made,authorized, and assented to the
alteration and subsequent indorsers.
But when the instrument has been materially altered and is in the
hands of a holder in due course not a party to the alteration, he may
enforce the payment thereof according to its original tenor.
(Emphasis ours.)
Indubitably, Cabilzo was not the one who made nor authorized the
alteration. Neither did he assent to the alteration by his express or
implied acts. There is no showing that he failed to exercise such
reasonable degree of diligence required of a prudent man which
could have otherwise prevented the loss. As correctly ruled by the
appellate court, Cabilzo was never remiss in the preparation and
issuance of the check, and there were no indicia of evidence that
would prove otherwise. Indeed, Cabilzo placed asterisks before and
after the amount in words and figures in order to forewarn the
subsequent holders that nothing follows before and after the amount
indicated other than the one specified between the asterisks.
The degree of diligence required of a reasonable man in the exercise
of his tasks and the performance of his duties has been faithfully
complied with by Cabilzo. In fact, he was wary enough that he filled
with asterisks the spaces between and after the amounts, not only
those stated in words, but also those in numerical figures, in order to
prevent any fraudulent insertion, but unfortunately, the check was
still successfully altered, indorsed by the collecting bank, and cleared
by the drawee bank, and encashed by the perpetrator of the fraud, to
the damage and prejudice of Cabilzo.
Verily, Metrobank cannot lightly impute that Cabilzo was negligent
and is therefore prevented from asserting his rights under the
doctrine of equitable estoppel when the facts on record are bare of
evidence to support such conclusion. The doctrine of equitable
estoppel states that when one of the two innocent persons, each
guiltless of any intentional or moral wrong, must suffer a loss, it must
be borne by the one whose erroneous conduct, either by omission or
commission, was the cause of injury.21 Metrobank’s reliance on
this dictum, is misplaced. For one, Metrobank’s representation that it
is an innocent party is flimsy and evidently, misleading. At the same
time, Metrobank cannot asseverate that Cabilzo was negligent and
this negligence was the proximate cause22 of the loss in the absence
of even a scintilla proof to buttress such claim. Negligence is not
presumed but must be proven by the one who alleges it. 23
Undoubtedly, Cabilzo was an innocent party in this instant
controversy. He was just an ordinary businessman who, in order to
facilitate his business transactions, entrusted his money with a bank,
not knowing that the latter would yield a substantial amount of his
deposit to fraud, for which Cabilzo can never be faulted.
We never fail to stress the remarkable significance of a banking
institution to commercial transactions, in particular, and to the
country’s economy in general. The banking system is an indispensable
institution in the modern world and plays a vital role in the economic
life of every civilized nation. Whether as mere passive entities for the
safekeeping and saving of money or as active instruments of business
and commerce, banks have become an ubiquitous presence among
the people, who have come to regard them with respect and even
gratitude and, most of all, confidence.24
Thus, even the humble wage-earner does not hesitate to entrust his
life's savings to the bank of his choice, knowing that they will be safe
in its custody and will even earn some interest for him. The ordinary
person, with equal faith, usually maintains a modest checking account
for security and convenience in the settling of his monthly bills and
the payment of ordinary expenses. As for a businessman like the
respondent, the bank is a trusted and active associate that can help in
the running of his affairs, not only in the form of loans when needed
but more often in the conduct of their day-to-day transactions like
the issuance or encashment of checks.25
In every case, the depositor expects the bank to treat his account
with the utmost fidelity, whether such account consists only of a few
hundred pesos or of millions. The bank must record every single
transaction accurately, down to the last centavo, and as promptly as
possible. This has to be done if the account is to reflect at any given
time the amount of money the depositor can dispose of as he sees fit,
confident that the bank will deliver it as and to whomever he
directs.26
The point is that as a business affected with public interest and
because of the nature of its functions, the bank is under obligation to
treat the accounts of its depositors with meticulous care, always
having in mind the fiduciary nature of their relationship. The
appropriate degree of diligence required of a bank must be a high
degree of diligence, if not the utmost diligence.27
In the present case, it is obvious that Metrobank was remiss in that
duty and violated that relationship. As observed by the Court of
Appeals, there are material alterations on the check that are visible to
the naked eye. Thus:
x x x The number "1" in the date is clearly imposed on a white figure
in the shape of the number "2". The appellant’s employees who
examined the said check should have likewise been put on guard as to
why at the end of the amount in words, i.e., after the word "ONLY",
there are 4 asterisks, while at the beginning of the line or before said
phrase, there is none, even as 4 asterisks have been placed before
and after the word "CASH" in the space for payee. In addition, the 4
asterisks before the words "ONE THOUSAND PESOS ONLY" have
noticeably been erased with typing correction paper, leaving white
marks, over which the word "NINETY" was superimposed. The same
can be said of the numeral "9" in the amount "91,000", which is
superimposed over a whitish mark, obviously an erasure, in lieu of the
asterisk which was deleted to insert the said figure. The appellant’s
employees should have again noticed why only 2 asterisks were
placed before the amount in figures, while 3 asterisks were placed
after such amount. The word "NINETY" is also typed differently and
with a lighter ink, when compared with the words "ONE THOUSAND
PESOS ONLY." The letters of the word "NINETY" are likewise a little
bigger when compared with the letters of the words "ONE
THOUSAND PESOS ONLY".28
Surprisingly, however, Metrobank failed to detect the above
alterations which could not escape the attention of even an ordinary
person. This negligence was exacerbated by the fact that, as found by
the trial court, the check in question was examined by the cash
custodian whose functions do not include the examinations of checks
indorsed for payment against drawer’s accounts.29 Obviously, the
employee allowed by Metrobank to examine the check was not verse
and competent to handle such duty. These factual findings of the trial
court is conclusive upon this court especially when such findings was
affirmed the appellate court.30
43 | n e g o
Apropos thereto, we need to reiterate that by the very nature of their
work the degree of responsibility, care and trustworthiness expected
of their employees and officials is far better than those of ordinary
clerks and employees. Banks are expected to exercise the highest
degree of diligence in the selection and supervision of their
employees.31
In addition, the bank on which the check is drawn, known as the
drawee bank, is under strict liability to pay to the order of the payee
in accordance with the drawer’s instructions as reflected on the face
and by the terms of the check. Payment made under materially
altered instrument is not payment done in accordance with the
instruction of the drawer.
When the drawee bank pays a materially altered check, it violates the
terms of the check, as well as its duty to charge its client’s account
only for bona fide disbursements he had made. Since the drawee
bank, in the instant case, did not pay according to the original tenor
of the instrument, as directed by the drawer, then it has no right to
claim reimbursement from the drawer, much less, the right to deduct
the erroneous payment it made from the drawer’s account which it
was expected to treat with utmost fidelity.
Metrobank vigorously asserts that the entries in the check were
carefully examined: The date of the instrument, the amount in words
and figures, as well as the drawer’s signature, which after verification,
were found to be proper and authentic and was thus cleared. We are
not persuaded. Metrobank’s negligence consisted in the omission of
that degree of diligence required of a bank owing to the fiduciary
nature of its relationship with its client. Article 1173 of the Civil Code
provides:
The fault or negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of the time and
of the place. x x x.
Beyond question, Metrobank failed to comply with the degree
required by the nature of its business as provided by law and
jurisprudence. If indeed it was not remiss in its obligation, then it
would be inconceivable for it not to detect an evident alteration
considering its vast knowledge and technical expertise in the
intricacies of the banking business. This Court is not completely
unaware of banks’ practices of employing devices and techniques in
order to detect forgeries, insertions, intercalations, superimpositions
and alterations in checks and other negotiable instruments so as to
safeguard their authenticity and negotiability. Metrobank cannot now
feign ignorance nor claim diligence; neither can it point its finger at
the collecting bank, in order to evade liability.
Metrobank argues that Westmont Bank, as the collecting bank and
the last indorser, shall bear the loss. Without ruling on the matter
between the drawee bank and the collecting bank, which is already
under the jurisdiction of another tribunal, we find that Metrobank
cannot rely on such indorsement, in clearing the questioned check.
The corollary liability of such indorsement, if any, is separate and
independent from the liability of Metrobank to Cabilzo.
The reliance made by Metrobank on Westmont Bank’s indorsement is
clearly inconsistent, if not totally offensive to the dictum that being
impressed with public interest, banks should exercise the highest
degree of diligence, if not utmost diligence in dealing with the
accounts of its own clients. It owes the highest degree fidelity to its
clients and should not therefore lightly rely on the judgment of other
banks on occasions where its clients money were involve, no matter
how small or substantial the amount at stake.
Metrobank’s contention that it relied on the strength of collecting
bank’s indorsement may be merely a lame excuse to evade liability,
or may be indeed an actual banking practice. In either case, such act
constitutes a deplorable banking practice and could not be allowed by
this Court bearing in mind that the confidence of public in general is
of paramount importance in banking business.
What is even more deplorable is that, having been informed of the
alteration, Metrobank did not immediately re-credit the amount that
was erroneously debited from Cabilzo’s account but permitted a full
blown litigation to push through, to the prejudice of its client.
Anyway, Metrobank is not left with no recourse for it can still run
after the one who made the alteration or with the collecting bank,
which it had already done. It bears repeating that the records are
bare of evidence to prove that Cabilzo was negligent. We find no
justifiable reason therefore why Metrobank did not immediately
reimburse his account. Such ineptness comes within the concept of
wanton manner contemplated under the Civil Code which warrants
the imposition of exemplary damages, "by way of example or
correction for the public good," in the words of the law. It is expected
that this ruling will serve as a stern warning in order to deter the
repetition of similar acts of negligence, lest the confidence of the
public in the banking system be further eroded. 32
WHEREFORE, premises considered, the instant Petition is DENIED.
The Decision dated 8 March 2002 and the Resolution dated 26 July
2002 of the Court of Appeals are AFFIRMED with modification that
exemplary damages in the amount of P50,000.00 be awarded. Costs
against the petitioner.
65 International Corporate Bank, Inc vs Court of Appeals
501 SCRA 20 [G.R. No. 129910 September 5, 2006]
Facts: The Ministry of Education and Culture issued 15 checks drawn
against respondent which petitioner accepted for deposit on various
dates. After 24 hours from submission of the checks to respondent
for clearing, petitioner paid the value of the checks and allowed the
withdrawals of the deposits. However, on 14 October 1981,
respondent returned all the checks to petitioner without clearing
them on the ground that they were materially altered. Thus,
petitioner instituted an action for collection of sums of money against
respondent to recover the value of the checks.
Issue: Whether the alterations in the serial numbers of the check is a
material alteration.
Held: No. Sections 124 and 125 of Act No. 2031, otherwise known as
the Negotiable Instruments Law, provide:
SEC. 124. Alteration of instrument; effect of. ― Where a negotiable
instrument is materially altered without the assent of all parties liable
thereon, it is avoided, except as against a party who has himself
made, authorized, or assented to the alteration and subsequent
indorsers. But when an instrument has been materially altered and is
in the hands of a holder in due course, not a party to the alteration,
he may enforce payment thereof according to its original tenor.
SEC. 125. What constitutes a material alteration. ― Any alteration
which changes: (a) The date; (b) The sum payable, either for principal
or interest; (c) The time or place of payment; (d) The number or the
relations of the parties; (e) The medium or currency in which
payment is to be made; or which adds a place of payment where no
place of payment is specified, or any other change or addition which
alters the effect of the instrument in any respect, is a material
alteration.
An alteration is said to be material if it alters the effect of the
instrument. It means an unauthorized change in an instrument that
purports to modify in any respect the obligation of a party or an
44 | n e g o
unauthorized addition of words or numbers or other change to an
incomplete instrument relating to the obligation of a party. In other
words, a material alteration is one which changes the items which are
required to be stated under Section 1 of the Negotiable Instruments
Law.
The case at the bench is unique in the sense that what was altered is
the serial number of the check in question, an item which, it can
readily be observed, is not an essential requisite for negotiability
under Section 1 of the Negotiable Instruments Law. The
aforementioned alteration did not change the relations between the
parties. The name of the drawer and the drawee were not altered.
The intended payee was the same. The sum of money due to the
payee remained the same
66 G.R. No. 137002 July 27, 2006
BANK OF THE PHILIPPINE ISLANDS vs. COMMISSIONER OF INTERNAL
REVENUE
This is a Petition for Review on Certiorari under Rule 45 of the 1997
Rules of Court, as amended, seeking to set aside a Decision1 of the
Court of Appeals dated 14 August 2004 ordering the petitioner to pay
respondent Commissioner of Internal Revenue (CIR) deficiency
documentary stamp tax of P690,030 for the year 1986, inclusive of
surcharge and compromise penalty, plus 20% annual interest until
fully paid. The Court of Appeals in its assailed Decision affirmed the
Decision2 of the Court of Tax Appeals (CTA) dated 31 May 1994.
From 28 February 1986 to 8 October 1986, petitioner Bank of the
Philippine Islands (BPI) sold to the Central Bank of the Philippines
(now Bangko Sentral ng Pilipinas) U.S. dollars for P1,608,541,900.00.
BPI instructed, by cable, its correspondent bank in New York to
transfer U.S. dollars deposited in BPI's account therein to the Federal
Reserve Bank in New York for credit to the Central Bank's account
therein. Thereafter, the Federal Reserve Bank sent to the Central
Bank confirmation that such funds had been credited to its account
and the Central Bank promptly transferred to the petitioner's account
in the Philippines the corresponding amount in Philippine pesos.3
During the period starting 11 June 1985 until 9 March 1987, the
Central Bank enjoyed tax exemption privileges pursuant to Resolution
No. 35-85 dated 3 May 1985 of the Fiscal Incentive Review Board.
However, in 1985, Presidential Decree No. 1994 -- An Act Further
Amending Certain Provisions of the National Internal Revenue Code
was enacted. This law amended Section 222 (now 173) of the
National Internal Revenue Code (NIRC), by adding the foregoing:
[W]henever one party to the taxable document enjoys exemption
from the tax herein imposed, the other party thereto who is not
exempt shall be the one directly liable for the tax.
In 1988, respondent CIR ordered an investigation to be made on BPI's
sale of foreign currency. As a result thereof, the CIR issued a pre-
assessment notice informing BPI that in accordance with Section 195
(now Section 182)4 of the NIRC, BPI was liable for documentary stamp
tax at the rate of P0.30 per P200.00 on all foreign exchange sold to
the Central Bank. Total tax liability was assessed at P3,016,316.06,
which consists of a documentary stamp tax liability of P2,412,812.85,
a 25% surcharge of P603,203.21, and a compromise penalty
ofP300.00.5
BPI disputed the findings contained in the pre-assessment notice.
Nevertheless, the CIR issued Assessment No. FAS-5-86-88-003022,
dated 30 September 1988, which BPI received on 11 October 1988.
BPI formally protested the assessment, but the protest was denied.
On 10 July 1990, BPI received the final notice and demand for
payment of its 1986 assessment for deficiency documentary stamp
tax in the amount of P3,016,316.06. Consequently, a petition for
review was filed with the CTA on 9 August 1990.6
On 31 May 1994, the CTA rendered the Decision holding BPI liable for
documentary stamp tax in connection with the sale of foreign
exchange to the Central Bank from the period 29 July 1986 to 8
October 1986 only, thus substantially reducing the CIR's original
assessment. The dispositive portion of the said Decision reads:
WHEREFORE, premises considered, petitioner is hereby ordered to
pay respondent Commissioner of Internal Revenue, the amount
of P690,030 inclusive of surcharge and compromise penalty, plus 20%
annual interest until fully paid pursuant to Section 249 (cc) (sic) (3) of
the Tax Code.7
The CTA ruled that BPI's instructions to its correspondent bank in the
U.S. to pay to the Federal Reserve Bank in New York, for the account
of the Central Bank, a sum of money falls squarely within the scope of
Section 51 of The Revised Documentary Stamp Tax Regulations
(Regulations No. 26), dated 26 March 1924, the implementing rules to
the earlier provisions on documentary stamp tax, which provides
that: 8
What may be regarded as telegraphic transfer. — a local bank cables
to a certain bank in a foreign country with which bank said local bank
has a credit, and directs that foreign bank to pay to another bank or
person in the same locality a certain sum of money, the document for
and in respect such transaction will be regarded as a telegraphic
transfer, taxable under the provisions of Section 1449(i) of the
Administrative Code.
Nevertheless, the CTA also noted that although Presidential Decree
No. 1994, the law which passes the liability on to the non-exempt
party, was published in the Official Gazette issue of 2 December 1985,
the same was released to the public only on 18 June 1986, as certified
by the National Printing Office. Therefore, Presidential Decree No.
1994 took effect only in July 1986 or 15 days after the issue of Official
Gazette where the law was actually published, that is, circulated to
the public. As a result of the delay, BPI's transactions prior to the
effectivity of Presidential Decree No. 1994 were not subject to
documentary stamp tax. Hence, the CTA reduced the assessment
from P3,016,316.06 to P690,030.00, plus 20% annual interest until
fully paid pursuant to Section 249(c) of the NIRC.9
Both parties filed their respective Motions for Reconsideration, which
the CTA denied in a Resolution dated 26 September 1994. BPI filed a
Petition for Review with the Court of Appeals on 11 November 1994.
On 14 August 1998, the Court of Appeals affirmed the Decision of the
CTA. The Court of Appeals ruled that the documentary stamp tax
imposed under Section 195 (now Section 182) is not limited only to
foreign bills of exchange and letters of credit but also includes the
orders made by telegraph or by any other means for the payment of
money made by any person drawn in but payable out of the
Philippines. The Court of Appeals also maintained that telegraphic
transfers, such as the one BPI sent to its correspondent bank in the
U.S., are proper subjects for the imposition of documentary stamp tax
under Section 195 (now Section 182) and Section 51 of Revenue
Regulation No. 26. The Court of Appeals likewise affirmed the CTA's
Decision imposing a 20% delinquency on the reduced assessment, in
accordance with Section 24(c)(3) of the NIRC and the case
of Philippine Refining Company v. Court of Appeals.10
Petitioner filed a Partial Motion for Reconsideration on 9 September
1998, which the Court of Appeals denied on 29 December 1998.11
Hence this petition, wherein the petitioner raised the following
issues:
I
45 | n e g o
WHETHER OR NOT, THE COURT OF APPEALS GRIEVOUSLY ERRED IN
HOLDING THAT SALES OF FOREIGN EXCHANGE (SPOT CASH), AS
DISTINGUISHED FROM SALES OF FOREIGN BILLS OF EXCHANGE, ARE
SUBJECT TO DOCUMENTARY STAMP TAX UNDER SECTION 182 OF THE
TAX CODE
II
WHETHER OR NOT, THE COURT OF APPEALS GRIEVOUSLY ERRED IN
AFFIRMING THE IMPOSITION OF A DELINQUENCY INTEREST OF 20%
ON THE REVISED DEFICIENCY STAMP ASSESSMENT DESPITE A
REDUCTION THEREOF BY THE COUR T OF TAX APPEALS WHICH ERRED
IN ITS ORIGINAL ASSESSMENT.12
The first issue raised by the petitioner is whether BPI is liable for
documentary stamp taxes in connection with its sale of foreign
exchange to the Central Bank in 1986 under Section 195 (now Section
182) of the NIRC, quoted hereunder:
Sec. 182. Stamp tax on foreign bills of exchange and letters of credit.
On all foreign bills of exchange and letters of credit (including orders,
by telegraph or otherwise, for the payment of money issued by
express or steamship companies or by any person or persons) drawn
in but payable out of the Philippines in a set of three or more
according to the custom of merchants and bankers, there shall be
collected a documentary stamp tax of thirty centavos on each two
hundred pesos, or fractional part thereof, of the face value of such bill
of exchange or letter of credit, or the Philippine equivalent of such
face value, if expressed in foreign country.
To determine what is being taxed under this section, a discussion on
the nature of the acts covered by Section 195 (now Section 182) of
the NIRC is indispensable. This section imposes a documentary stamp
tax on (1) foreign bills of exchange, (2) letters of credit, and (3)
orders, by telegraph or otherwise, for the payment of money issued
by express or steamship companies or by any person or persons. This
enumeration is further limited by the qualification that they should
be drawn in the Philippines and payable outside of the Philippines.
A definition of a "bill of exchange" is provided by Section 39 of
Regulations No. 26, the rules governing documentary taxes
promulgated by the Bureau of Internal Revenue (BIR) in 1924:
Sec. 39. Definition of "bill of exchange". The term bill of exchange
denotes checks, drafts, and all other kinds of orders for the payment
of money, payable at sight, or on demand or after a specific period
after sight or from a stated date.
Section 126 of The Negotiable Instruments Law (Act No. 2031)
reiterates that it is an "order for the payment of money" and specifies
the particular requisites that make it negotiable.
Sec. 126. Bill of exchange defined. – A bill of exchange is an
unconditional order in writing addressed by one person to another,
signed by the person giving it, requiring the person to whom it is
addressed to pay on demand or at fixed or determinable future time
a sum certain in money to order or to bearer.
Section 129 of the same law classifies bills of exchange as inland and
foreign, the distinction is laid down by where the bills are drawn and
paid. Thus, a "foreign bill of exchange" may be drawn outside the
Philippines, payable outside the Philippines, or both drawn and
payable outside of the Philippines.
Sec. 129. Inland and foreign bills of exchange. -- An inland bill of
exchange is a bill which is, or on its face purports to be, both drawn
and payable within the Philippines. Any other bill is a foreign bill. x x x
The Code of Commerce loosely defines a "letter of credit" and
provides for its essential conditions, thus:
Art. 567. Letters of credit are those issued by one merchant to
another or for the purpose of attending to a commercial transaction.
Art 568. The essential conditions of letters of credit shall be:
1. To be issued in favor of a definite person and not to order.
2. To be limited to a fixed and specified amount, or to one or more
undetermined amounts, but within a maximum the limits of which
has to be stated exactly.
A more explicit definition of a letter of credit can be found in the
commentaries:
A letter of credit is one whereby one person requests some other
person to advance money or give credit to a third person, and
promises that he will repay the same to the person making the
advancement, or accept the bills drawn upon himself for the like
amount.13
A bill of exchange and a letter of credit may differ as to their
negotiability, and as to who owns the funds used for the payment at
the time payment is made. However, in both bills of exchange and
letters of credit, a person orders another to pay money to a third
person.
The phrase "orders, by telegraph or otherwise, for the payment of
money" used in reference to documentary stamp taxes may be found
in an earlier documentary tax provision, Section 1449(i) of the
Administrative Code of 1917, which was substantially reproduced in
Section 195 (now Section 182) of the NIRC. Regulations No. 26, which
provided the rules and guidelines for the documentary stamp tax
imposed under the Administrative Code of 1917, contains an
explanation for the phrase "orders, by telegraph or otherwise, for the
payment of money":
What may be regarded as telegraphic transfer. — a local bank cables
to a certain bank in a foreign country with which bank said local bank
has a credit, and directs that foreign bank to pay to another bank or
person in the same locality a certain sum of money, the document for
and in respect such transaction will be regarded as a telegraphic
transfer, taxable under the provisions of Section 1449(i) of the
Administrative Code.
In this case, BPI ordered its correspondent bank in the U.S. to pay the
Federal Reserve Bank in New York a sum of money, which is to be
credited to the account of the Central Bank. These are the same acts
described under Section 51 of Regulations No. 26, interpreting the
documentary stamp tax provision in the Administrative Code of 1917,
which is substantially identical to Section 195 (now Section 182) of
the NIRC. These acts performed by BPI incidental to its sale of foreign
exchange to the Central Bank are included among those taxed under
Section 195 (now Section 182) of the NIRC.
BPI alleges that the assailed decision must be reversed since the sale
between BPI and the Central Bank of foreign exchange, as
distinguished from foreign bills of exchange, is not subject to the
documentary stamp taxes prescribed in Section 195 (now Section
182) of the NIRC. This argument leaves much to be desired. In this
case, it is not the sale of foreign exchange per se that is being taxed
under Section 195 of the NIRC. This section refers to a documentary
stamp tax, which is an excise upon the facilities used in the
transaction of the business separate and apart from the business
itself.14 It is not a tax upon the business itself which is so transacted,
but it is a duty upon the facilities made use of and actually employed
in the transaction of the business, and separate and apart from the
business itself.15
Section 195 (now Section 182) of the NIRC covers foreign bills of
exchange, letters of credit, and orders of payment for money, drawn
in Philippines, but payable outside the Philippines. From this
enumeration, two common elements need to be present: (1) drawing
the instrument or ordering a drawee, within the Philippines; and (2)
46 | n e g o
ordering that drawee to pay another person a specified amount of
money outside the Philippines. What is being taxed is the facility that
allows a party to draw the draft or make the order to pay within the
Philippines and have the payment made in another country.
A perusal of the facts contained in the record in this case shows that
BPI, while in the Philippines, ordered its correspondent bank by cable
to make a payment, and that payment is to be made to the Federal
Reserve Bank in New York. Thus, BPI made use of the aforementioned
facility. As a result, BPI need not have sent a representative to New
York, nor did the Federal Reserve Bank have to go to the Philippines
to collect the funds which were to be credited to the Central Bank's
account with them. The transaction was made at the shortest time
possible and at the greatest convenience to the parties. The tax was
laid upon this privilege or facility used by the parties in their
transactions, transactions which they may effect through our courts,
and which are regulated and protected by our government.
BPI further alleges that since the funds transferred to the Federal
Reserve Bank were taken from BPI's account with the correspondent
bank, this is not the transaction contemplated under Section 51 of
Regulations No. 26. BPI argues that Section 51 of Regulations No. 26,
in using the phrase "with which local bank has credit," involves
transactions wherein the drawee bank pays with its own funds and
excludes from the coverage of the law situations wherein the funds
paid out by the correspondent bank are owned by the drawer. In the
case of Republic of the Philippines v. Philippine National Bank,16 the
Court equated "credit" with the term "deposits," and identified the
depositor as the creditor and the bank as the debtor.
And as correctly stated by the trial court, the term "credit" in its usual
meaning is a sum credited on the books of a company to a person
who appears to be entitled to it. It presupposes a creditor-debtor
relationship, and may be said to imply ability, by reason of property
or estates, to make a promised payment. It is the correlative to debt
or indebtedness, and that which is due to any person, as
distinguished from that which he owes. The same is true with the
term "deposits" in banks where the relationship created between the
depositor and the bank is that of creditor and debtor.
By this definition of "credit," BPI's deposit account with its
correspondent bank is much the same as the "credit" referred to in
Section 51 of Regulations No. 26. Thus, the fact that the funds
transferred to the Central Bank's account with the Federal Reserve
Bank are from BPI's deposit account with the correspondent bank can
only underline that the present case is the same situation described
under Section 51 of Regulations No. 26.
Moreover, the fact that the funds belong to BPI and were not
advanced by the correspondent bank will not remove the transaction
from the coverage of Section 195 (now Section 182) of the NIRC.
There are transactions covered by this section wherein funds
belonging to the drawer are used for payment. A bill of exchange,
when drawn in the Philippines but payable in another country, would
surely be covered by this section. And in the case of a bill of
exchange, the funds may belong to the drawer and need not be
advanced by the drawee, as in the case of a check or a draft. In the
description of a draft provided hereunder, the drawee is in possession
of funds belonging to the drawer of the bill:
A draft is a form of a bill of exchange used mainly in transactions
between persons physically remote from each other. It is an order
made by one person, say the buyer of goods, addressed to a person
having in his possession funds of such buyer ordering the addressee
to pay the purchase price to the seller of the goods. Where the order
is made by one bank to another, it is referred to as a bank draft.17
BPI argues that the foreign exchange sold was deposited and
transferred within the U.S. and is therefore outside Philippine
territory. This argument is unsubstantial. The documentary stamp tax
is not imposed on the sale of foreign exchange, rather it is an excise
tax on the privilege or facility which the parties used in their
transaction. In the case of Allied Thread Co., Inc. v. City Mayor of
Manila,18 the Court explained the scope encompassed by the power
to levy an excise tax:
The tax imposition here is upon the performance of an act,
enjoyment of a privilege, or the engaging in an occupation, and hence
is in the nature of an excise tax.
The power to levy an excise upon the performance of an act or the
engaging in an occupation does not depend upon the domicile of the
person subject to the excise, nor upon the physical location of the
property and in connection with the act or occupation taxed, but
depends upon the place in which the act is performed or occupation
engaged in (Emphasis supplied).
In this case, the act of BPI instructing the correspondent bank to
transfer the funds to the Federal Reserve Bank was performed in the
Philippines. Therefore, the excise tax may be levied by the Philippine
government. Section 195 (now Section 182) of the NIRC would be
rendered invalid if the fact that the payment was made outside of the
country can be used as a basis for nonpayment of the tax.
The second issue is whether the delinquency interest of 20% per
annum, as provided under Section 249(c)(3) of the NIRC, is applicable
in this case.
In the case of Philippine Refining Company v. Court of Appeals,19 this
Court categorically ruled that even if an assessment was later reduced
by the courts, a delinquency interest should still be imposed from the
time demand was made by the CIR.
As correctly pointed out by the Solicitor General, the deficiency tax
assessment in this case, which was the subject of the demand letter
of respondent Commissioner dated April 11, 1989, should have been
paid within thirty (30) days from receipt thereof. By reason of
petitioner's default thereon, the delinquency penalties of 25%
surcharge and interest of 20% accrued from April 11, 1989. The fact
that petitioner appealed the assessment to the CTA and that the
same was modified does not relieve petitioner of the penalties
incident to delinquency. The reduced amount of P237,381.25 is but a
part of the original assessment of P1,892,584.00.
This doctrine is consistent with the earlier decisions of this Court
justifying the imposition of additional charges and interests incident
to delinquency by explaining that the nature of additional charges is
compensatory and not a penalty.
The above legal provision makes no distinctions nor does it establish
exceptions. It directs the collection of the surcharge and interest at
the stated rate upon any sum or sums due and unpaid after the dates
prescribed in subsections (b), (c), and (d) of the Act for the payment
of the amounts due. The provision therefore is mandatory in case of
delinquency. This is justified because the intention of the law is
precisely to discourage delay in the payment of taxes due to the State
and, in this sense, the surcharge and interest charged are not penal
but compensatory in nature – they are compensation to the State for
the delay in payment, or for the concomitant use of the funds by the
taxpayer beyond the date he is supposed to have paid them to the
State.20
The same principle was used in Ross v. U.S.21 when the U.S. Supreme
Court ruled that it was only equitable for the government to collect
interest from a taxpayer who, by the government's error, received a
refund which was not due him.
47 | n e g o
Even though [the] taxpayer here did not request the refund made to
him, and the situation is entirely due to an error on the part of the
government, taxpayer and not the government has had the use of the
money during the period involved and it is not unjustly penalizing
taxpayer to require him to pay compensation for this use of money.
Based on established doctrine, these charges incident to delinquency
are compensatory in nature and are imposed for the taxpayers' use of
the funds at the time when the State should have control of said
funds. Collecting such charges is mandatory. Therefore, the Decision
of the Court of Appeals imposing a 20% delinquency interest over the
assessment reduced by the CTA was justified and in accordance with
Section 249(c)(3) of the NIRC.
WHEREFORE, premises considered, this Court DENIES this petition
and AFFIRMS the Decision of the Court of Appeals in CA-G.R. SP No.
57362 dated 14 August 1998, ordering that petitioner Bank of the
Philippine Islands to pay Respondent Commissioner of Internal
Revenue the deficiency documentary stamp tax in the amount
ofP690,030.00 inclusive of surcharge and compromise penalty, plus
20% annual interest from 7 June 1990 until fully paid. Costs against
the petitioner.
67 Negotiable Instruments Case Digest: Allied Banking Corp. V. CA
(Jan - Dec 2006)
G.R. No. 125851 July 11, 2006
FACTS:
January 6, 1981: Allied Bank (Allied) purchased Export Bill of $20,085
from G.G. Sportswear Mfg. Corporation (GGS)
The bill, drawn under a letter of credit covered Men's Valvoline
Training Suit that was in transit to West Germany
The export bill was issued by Chekiang First Bank Ltd., Hongkong.
With the purchase of the bill, ALLIED credited GGS the peso
equivalent of the bill amounting to P151,474.52
Nari Gidwani and Alcron International Ltd. (Alcron) executed their
respective Letters of Guaranty, holding themselves liable on the
export bill if it should be dishonored or retired by the drawee for any
reason.
spouses Leon and Leticia de Villa and Nari Gidwani also executed a
Continuing Guaranty/Comprehensive Surety (surety), guaranteeing
payment of any and all such credit accommodations which ALLIED
may extend to GGS
When ALLIED negotiated the export bill to Chekiang, payment was
refused due to some material discrepancies in the documents
submitted by GGS relative to the exportation covered by the letter of
credit.
ALLIED demanded payment
GGS and Nari Gidwani: signed blank forms of the Letters of Guaranty
and the Surety, and the blanks were only filled up by ALLIED after
they had affixed their signatures. They also added that the documents
did not cover the transaction involving the subject export bill.
spouses de Villa: not aware of the existence of the export bill; they
signed blank forms of the surety; and averred that the guaranty was
not meant to secure the export bill
Alcron: foreign corporation doing business in the Philippines, its
branch in the Philippines is merely a liaison office; neither its liaison
office in the Philippines nor its then representative, Hans-Joachim
Schloer, had the authority to issue Letters of Guaranty for and in
behalf of local entities and persons
RTC: in favor of Allied
CA: modified holding GGS liable to reimburse Allied, but it exonerated
the guarantors from their liabilities under the Letters of Guaranty
ISSUE: W/N Gidwani, Alcron and Spouses Villa can be held jointly and
severally liable becuase of their capacity as guarantors and surety in
the absence of protest on the bill in accordance with Section 152 of
the Negotiable Instruments Law?
HELD: YES. CA modified. Nari Gidwani, and Spouses Leon and Leticia
de Villa are jointly and severally liable together with G.G. Sportswear
Art. 2047. By guaranty a person, called the guarantor, binds himself
to the creditor to fulfill the obligation of the principal debtor in case
the latter should fail to do so.
If a person binds himself solidarily with the principal debtor, the
provisions of Section 4, Chapter 3, Title I of this Book shall be
observed. In such case the contract is called a suretyship.
Section 152 of the Negotiable Instruments Law pertaining to
indorsers, relied on by respondents, is not pertinent to this case.
There are well-defined distinctions between the contract of an
indorser and that of a guarantor/surety of a commercial paper, which
is what is involved in this case.
The contract of indorsement is primarily that of transfer, while the
contract of guaranty is that of personal security
The liability of a guarantor/surety is broader than that of an indorser.
Unless the bill is promptly presented for payment at maturity and due
notice of dishonor given to the indorser within a reasonable time, he
will be discharged from liability thereon. On the other hand, except
where required by the provisions of the contract of suretyship, a
demand or notice of default is not required to fix the surety's liability.
Therefore, no protest on the export bill is necessary to charge all the
respondents jointly and severally liable
having affixed their consenting signatures in several documents
executed at different times, it is safe to presume that they had full
knowledge of its terms and conditions, hence, they are precluded
from asserting ignorance of the legal effects of the undertaking they
assumed thereunder
68 Philippine Airlines v. Court of Appeals [G.R. No. L-49188. January
30, 1990]
FACTS
Amelia Tan was found to have been wronged by Philippine Air Lines
(PAL). She filed her complaint in 1967. After ten (10) years of
protracted litigation in the Court of First Instance and the Court of
Appeals, Ms. Tan won her case. Almost twenty-two (22) years later,
Ms. Tan has not seen a centavo of what the courts have solemnly
declared as rightfully hers. Through absolutely no fault of her own,
Ms. Tan has been deprived of what, technically, she should have been
paid from the start, before 1967, without need of her going to court
to enforce her rights. And all because PAL did not issue the checks
intended for her, in her name. Petitioner PAL filed a petition for
review on certiorari the decision of Court of Appeals dismissing the
petition for certiorari against the order of the Court of First Instance
(CFI) which issued an alias writ of execution against them. Petitioner
alleged that the payment in check had already been effected to the
absconding sheriff, satisfying the judgment.
ISSUE
Whether or not payment by check to the sheriff extinguished the
judgment debt.
RULING
NO. The payment made by the petitioner to the absconding sheriff
was not in cash or legal tender but in checks. The checks were not
payable to Amelia Tan or Able Printing Press but to the
absconding sheriff.In the absence of an agreement, either express or
implied, payment means the discharge of a debt or obligation in
money and unless the parties so agree, a debtor has no rights, except
48 | n e g o
at his own peril, to substitute something in lieu of cash as medium of
payment of his debt. Strictly speaking, the acceptance by the sheriff
of the petitioner’s checks, in the case at bar, does not, per se, operate
as a discharge of the judgment debt. The check as a negotiable
instrument is only a substitute for money and not money, the delivery
of such an instrument does not, by itself, operate as payment. A
check, whether a manager’s check or ordinary cheek, is not legal
tender, and an offer of a check in payment of a debt is not a valid
tender of payment and may be refused receipt by the obligee or
creditor. Mere delivery of checks does not discharge the obligation
under a judgment. The obligation is not extinguished and remains
suspended until the payment by commercial document is actually
realized (Art. 1249, Civil Code, par. 3).
69 G.R. No. 208321 July 30, 2014
WESLEYAN UNIVERSITY PHILIPPINES vs. NOWELLA REYES
Nature of the Case
The issue in this petition boils down to the legality of respondent
Nowella Reyes' termination as University Treasurer of petitioner
Wesleyan University - Philippines (WUP) on the ground of loss of trust
and confidence. Petitioner prays in this recourse that We reverse the
February 28, 2013 Decision of the Court of Appeals (CA) in CA-G.R. SP
No. 122536 which declared respondent's termination illegal.
The Facts
On March 16, 2004, respondent Nowella Reyes was appointed as
WUP's University Treasurer on probationary basis. A little over a year
after, she was appointed as full time University Treasurer.
On April 27, 2009, a new WUP Board of Trustees was constituted.
Among its first acts was to engage the services of Nepomuceno Suner
& Associates Accounting Firm (External Auditor) to investigate
circulating rumors on alleged anomalies in the contracts entered into
by petitioner and in its finances.
Discovered following an audit were irregularities in the handling of
petitioner’s finances, mainly, the encashment by its Treasury
Department of checks issued to WUP personnel, a practice
purportedly in violation of the imprest system of cash management,
and the encashment of various crossed checks payable to the
University Treasurer by Chinabank despite management’s intention
to merelyhave the funds covered thereby transferred from one of
petitioner’s bankaccounts to another. The External Auditor’s report
embodied the following findings and recommendations:1
Treasury Department (Cash Management):
Findings:
1. It was noted that checks consisting of various checks payable to
teachers, staffs and other third parties had been the subject of
encashment directly with the Treasury Department under the
stewardship of Mrs. Nowella A. Reyes,the University Treasurer. This
practice is a clear violation of imprest system of cash management,
hence, resulting to unsound accounting practice. This laxity in cash
management of those checks were paid as intended for them.
Recommendations:
For internal control reasons, the treasury should not accept any check
encashment from its daily collections. Checks are being issued for
encashment with our depository bank for security reasons. The mere
acceptance of checks from the collections is tantamount to cash
disbursement out of collections.
Findings:
2. It was also noted that various checks payable to the Treasurer of
WUP x x x had been negotiated for encashment directly to China Bank
– Cabanatuan Branch, while the intention of the management for
these checks were merely for fund transfer with the other account
maintained at China Bank. This practice is a violation not only in the
practice of accounting/cash custodianship but had been mingled with
spurious elements. Unfortunately, check vouchers relating to this
exception are nowhere to be found or not on file.
Findings:
3. A crossed check payable to the Treasurer – [WUP] x x x had been
negotiated for encashment to China Bank – Cabanatuan Branch
despite of the restriction indicated in the face of the check.
Unfortunately, the used check was no longer found on file.
As a result of said audit, petitioner served respondent a Show Cause
Order and placed her under preventive suspension.2 The said Show
Cause Order required her to explain the following matters found by
the External Auditors:
(a) your encashment of Php300,000.00 ofa crossed check you issued
payable to yourself (Chinabank Check No. 000873613 dated 26
November 2008) x x x;
(b) the encashment of various checks without any supporting
vouchers x x x;
(c) unliquidated cash advances in the aggregate amount of Php9.7
million x x x.3
On June 18, 2009, respondent submitted her Explanation. Following
which, WUP’s Human Resources Development Office (HRDO)
conducted an investigation. Finding respondent’s Explanation
unsatisfactory, the HRDO, on July 2, 2009, submitted an Investigation
Report4 to the University President containing its findings and
recommending respondent’s dismissal as University Treasurer.
Upon receipt of her notice of termination on July 9, 2009, respondent
post-haste filed a complaint for illegal dismissal with the Arbitration
Branch of the National Labor Relations Commission. She contended
that her dismissal was illegal, void and unjust, for the following
reasons:
First,her 60-day preventive suspension violated the Labor Code
provisions prohibiting such suspensions tolast for more than thirty
(30) days. Thus, the fact that she was not reinstated to her former
position before the lapse of thirty (30) days, amounted to
constructive dismissal;5 Second,there was a violation of her right to
substantive and procedural due process, as evidencedby petitioner’s
failure to apply the pertinent due process provisions under its
Administrative and Personnel Policy Manual;6 and
Finally,the charges against her werebased on mere suspicion and
speculations and unsupported by evidence.7
Petitioner, for its part, predicated its defense on the contention that
respondent was a highly confidential employee who handled
significant amounts of money as University Treasurer and that the
irregularities attributed to her in the performance ofher duties justify
her dismissal on the basis of loss of trust and confidence.8
Petitioner also averred that the 60-day preventive suspension thus
imposed does not necessarily make suchsuspension void, inasmuch as
the law merely requires that after a 30-day preventive suspension,
the affected employee shall automatically be reinstated. But in the
case of respondent, there was no need for her automatic
reinstatement inasmuch as she was duly terminated within the 30-
day period of her preventive suspension.9Moreover, respondent was
duly afforded her right to due process since WUP substantially
complied with the twin-notice rule.
Ruling of the Labor Arbiter
On December 15, 2010, Labor Arbiter Reynaldo V. Abdon rendered a
Decision finding for respondent. The dispositive portion of the Labor
Arbiter Decision reads:
49 | n e g o
WHEREFORE, premises considered, judgment is hereby rendered,
DECLARING that complainant Nowella Reyes x x x [was] illegally
dismissed by respondent Wesleyan University Philippines.
Accordingly, respondent Wesleyan University Philippines through its
President is hereby DIRECTED to:
(1) Reinstate complainant Nowella Reyes to her former or equivalent
position without loss of seniority right;
(1.1) Since reinstatement is immediately executory, to render a
Report of Compliance to this Office within ten (10) days from receipt
of this Decision.
(2) Pay complainant Reyes her backwages, from the time of her
dismissal until reinstatement, the present sum of which is
₱429,000.00;
(3) Pay complainant Reyes, her 13th month pay in the sum of
₱52,000; her shared (sic) in related learning experience fee,
₱12,000.00; clothing allowance, ₱6,000.00; Honorarium as member
of standing committees, ₱4,000.00; and her vacation leave credits in
the sum of ₱17,862.59;
(4) Pay complainant Reyes, moral damages in the sum of
₱150,000.00, exemplary damages in the amount of ₱100,000.00, and
10% attorney’s fees in the sum of ₱77,086.25;
xxxx
SO ORDERED.10
The Labor Artbiter noted, as respondent has insisted, that the charges
against the latter were based on mere rumors and speculations. As
observed too by the Labor Arbiter, petitioner itself was in the wrong
because it had no proper policies on its accounting and financial
procedures and that the encashment and accommodation of checks
to personnel, especially after banking hours, had been the practice of
its previous and present administrations. Thus, it was unfair to put all
the blame on respondent without any evidence that her actionswere
highly irregular, unfair or unjustified.11
As regards petitioner’sfindings on the alterations in the Check
Disbursement Voucher (CDV), unliquidated cash advances and
duplicate checks, the Labor Arbiter found and wrote:
Anent the alleged finding of the university that there was material
alteration on the documents as regards the Check Disbursement
Voucher (CDV), for allegedly there was an absence of Board
Resolution entry in the CDV filed in the Accounting while the copy
submitted by the Treasurer has a Board Resolution entry as well as
the word ATM on the payee portion on the photocopy as crossed out
while in the original it was not crossed out, respondent cannot
summarily state that complainant was at fault. The Human Resource
should have conducted an in-depth investigation on this matter.
Unfortunately, respondent just followed the twin-notice rule, and did
not conduct a thorough administrative investigation in accordance
with their own internal rules and policies in the Manual.
Consequently, this Office has serious doubt that such matter was the
fault of the complainant for the blame may fall on the accounting
personnel who is handling the CDV.
With respect to the unliquidated cash advances, it is not likewise the
fault of the complainant. She pointed out that follow ups of the
liquidation is [sic] being handled by the auditor, while respondent
claims that she was previously handling the same before it was
transferred to Accounting Office in August 2008. We see no evidence
to prove that the liquidation is being handled by the complainant
prior to August 2008. Moreover, it is common practice thatthe
Treasurer disburses the funds such as cash advances but the
liquidation must be done by the beneficiary of the fund, and the
responsible people who should follow up the liquidation is the
accounting office.
With respect to the duplicate checks, the same were done by a
syndicate or individuals not connectedwith the University. The bank
has already admitted responsibility in the encashment of these
checks and had returned the amounts to the respondent University,
thus complainant has no fault about this incident.12
Ruling of the NLRC
Petitioner filed an appeal withthe National Labor Relations
Commission (NLRC) which was granted in the tribunal’s Decision
dated July 11, 2011, declaring that respondentwas legally dismissed.
However, petitioner was ordered to pay respondent her
proportionate 13th month pay, the monetary value of her vacation
leave, and attorney’s fees.
Adopting a stance entirely opposite to that of the Labor Arbiter, the
NLRC held that respondent failed to controvert and disprove the
established charges of petitioner (as appellant-respondent) and
insteadconveniently put the blame on other departments for her
inculpatory acts. The NLRC opined that her termination was not
motivated by the change of petitioner’s officers but by the
University’s goal to promote the economy and efficiency of its
Treasury Department.13
In net effect, the NLRC found petitioner’s contention of loss of trust
and confidence in respondent with sufficient basis. While respondent,
so the NLRC notes, may not have been guilty ofwillful breach of trust,
the fact that she held a highly confidential position, and considering
that anomalous transactions transpired under her command
responsibility, provided petitioner with ample ground todistrust and
dismiss her.14 The NLRC explained:
In this case, complainant-appellee [herein respondent] may not have
been guilty of willful breach of trust. But as Treasurer of [WUP] who
handles and supervises all monetary transactions in the University
and being a highly confidential employee at that, holding trust and
confidence and after considering the series of irregular and
anomalous transactions that transpired under complainant-appellee’s
command responsibility, respondent has basis or ample reason to
distrust complainant-appellee. Thus, we cannot justly deny [WUP] the
authority to dismiss complainant-appellee.
The principle of respondent (sic) superior or command responsibility
may be cited as basis for the termination of employment of
managerial employees based on loss of trust and confidence. In the
Etcuban case (Ibid) the Supreme Court in upholding the validity of
petitioner-employee’s dismissal on the ground of loss of trust and
confidence, ruled that even if the employee x x x had no actual and
direct participation in the alleged anomalies, his failure to detect any
anomaly that would normally fall withinthe scope of his work reflects
his ineffectiveness and amounts to gross negligence and
incompetence which are likewise justifiable grounds for his
irregularity, for what is material is that his actuations were more than
sufficient to sow in his employer the seed of mistrust and loss of
confidence.
As found by the External Auditor, complainant-appellee should have
implemented an imprest system of cash management in order to
secure the indicated payees in those checks and they were paid of the
checks as intended for them. It appears that checks payable to
teachers, staffs and other third parties had beenthe subject of
encashment directly with the Treasury Department x x x and this is an
unsound accounting practice.
Moreover, the External Auditors found that various checks payable to
the Treasurer of Wesleyan University has been negotiated for
50 | n e g o
encashment directly to China Bank-Cabanatuan Branch while the
intention of the management for those checks weremerely for fund
transfer with the other account maintained at China Bank. That this
practice violated accounting or cash custodianship and check
vouchers are nowhere to be found.
Further, the crossed check payable to the Treasurer
(complainantappellee) in the amount of ₱300,000.00 dated 26
November 2008 had been negotiated for encashment to China Bank –
Cabanatuan Branch despite of restriction indicated in the face of the
check and that the used check was no longer found on file. There is a
need for a clear policy when to issue crossed-checks or otherwise and
the use of debit/credit memo to transfer one account to another with
the same bank. That these acts of violation of cash and check
custodianship by complainant-appellee resulted in the loss of
respondent-appellant thus affecting the economy of the respondent-
appellant institution.
In view of our finding that respondents-appellants (sic) has validly
terminated complainant-appellee the latter’s claim for damages and
attorney’s fees lacks sufficient factual and legal basis. Accordingly, the
Labor Arbiter’s decision directing the reinstatement of
complainantappellee with full backwages ishereby vacated and set
aside.15
The NLRC denied respondent’s motion for reconsideration in a
Resolution dated September 29, 2011.Therefrom, respondent went
on Certiorari to the CA, inCA-G.R. SP No. 122536.
Ruling of the Court of Appeals
On February 28, 2013, the CA, through its assailed Decision,16 found
the NLRC’s ruling tainted with grave abuse of discretion and
reinstated the Decision of the Labor Arbiter. The fallo of the CA
Decision reads:
WHEREFORE, premises considered, the assailed Decision and
Resolution of the National Labor Relations Commission dated July 11,
2011 and September 29, 2011 are REVERSED and SET ASIDE. The
Decision of the Labor Arbiter dated December 15, 2010 is hereby
REINSTATED, subject to the modification that if reinstatement is no
longer feasible, petitioner shall be awarded separation pay equivalent
to one month salary for every year ofservice reckoned from the time
of employment to the finality of this decision.17
Holding that respondent’s termination was unjust, the CA, in virtual
restoration of the findings and conclusions of the Labor Arbiter,
pointed out, among others, that: (1) respondent sufficiently
countered all charges against her; (2) it had been the practice of the
previous and present administrations of petitioner to encash and
accommodate checks of WUP personnel; thus, it would be unjust to
penalize respondent for observing a practice already in place when
she assumed office; (3) the duty to liquidate cash advances is
assigned to the internal auditor; (4) it has been established that the
encashments of spurious duplicate checks were perpetrated by
individuals not connected with WUP, and that the bank admitted
responsibility therefor and had returned the amount involved to
petitioner; (5) there was no imputation of any violation of the
University’s Administration and Personnel Policy Manual; (6) while
the acts complained of violated the imprest system of cash
management, there was no showing that the said system had been
adopted and observed in the school’s accounting and financial
procedures; and (7) there was no showing that respondent had the
responsibility to implement changes in petitioner’s accounting system
even if it were not in accordance with the generally accepted
principles of accounting.18
Hence, the instant petition.
The Issues
For consideration herein are the following issues raised by petitioner:
1. Whether or not the CA over-reached its power of review under
Rule 65 of the Rules of Court when it reversed the judgment of the
NLRC; and
2. Whether or not the CA erred in finding respondent illegally
dismissed by petitioner on the ground of loss of trust and confidence.
The Court’s Ruling
The petition is impressed with merit. The CA erred in reinstating the
Labor Arbiter’s Decision and in finding that respondent was illegally
dismissed.
The CA’s power of review
We first resolve the procedural issue raised in this recourse.
Petitioner contends that the CA over-reached its power of review
under Rule 65 when it substituted its own judgment over errors of
judgment that it found in the NLRC Decision, stressing that the
province of a writ of certiorari is to correct only errors of jurisdiction
and not errors of judgment.
This contention is misplaced. It is settled that under Section 9 of Batas
Pambansa Blg.129,19 as amended by Republic Act No. 7902,20 the CA,
pursuant to the exercise of its original jurisdiction over petitions for
certiorari, is specifically given the power to pass upon the evidence, if
and when necessary, to resolve factual issues. Sec. 9 clearly states:
The Court of Appeals shall have the power to try cases and conduct
hearings, receive evidence and perform any and all acts necessary to
resolve factual issues raised in cases falling within its original and
appellate jurisdiction, including the power to grant and conduct new
trials or further proceedings. x x x
Hence, the appellate court acted within its sound discretion when it
re-evaluated the NLRC’s factual findings and substituted the latter’s
own judgment.
Loss of trust and confidence as a ground for termination
We now proceed to the substantive issue on the propriety of
respondent’s dismissal due to loss of trust and confidence.As
provided in Art. 282(c) of Presidential Decree No. 442, otherwise
known as the Labor Code of the Philippines:
Article 282. Termination by employer.An employer may terminate an
employment for any of the following causes:
xxxx
c. Fraud or willful breach by the employee of the trust reposed in him
by his employer or duly authorized representative;
We explained in M+W Zander Philippines, Inc. v. Enriquez 21 the
requisites of a valid dismissal based on loss of trust and confidence.
As the case elucidates:
Article 282 (c) of the Labor Code allows an employer to terminate the
services of an employee for loss of trust and confidence. Certain
guidelines must be observed for the employer to terminate an
employee for loss of trust and confidence. We held in General Bank
and Trust Company v. Court of Appeals, viz.:
[L]oss of confidence should not be simulated. It should not be used as
a subterfuge for causes which are improper, illegal, or unjustified.
Loss of confidence may not be arbitrarily asserted in the face of
overwhelming evidence to the contrary. It must be genuine, not a
mere afterthought tojustify earlier action taken in bad faith.
The first requisite for dismissal on the ground of loss of trust and
confidence is that the employee concerned must be one holding a
position of trust and confidence.
There are two classes of positions of trust: managerial employees and
fiduciary rank-and-file employees.
51 | n e g o
Managerial employees are defined as those vested with the powers
or prerogatives to lay down management policies and to hire,
transfer, suspend, lay-off, recall, discharge,assign or discipline
employees or effectively recommend such managerialactions. They
refer to those whose primary duty consists of the management of the
establishment in which they are employed or of a department or a
subdivision thereof, and to other officers or members of the
managerialstaff. Officers and members of the managerial staff
perform work directlyrelated to management policies of their
employer and customarily and regularly exercise discretion and
independent judgment.
The second class or fiduciary rank-and-file employees consist of
cashiers, auditors, property custodians, etc., or those who, in the
normal exercise of their functions, regularlyhandle significant
amounts of money or property. These employees, though rank-and-
file, are routinely charged with the care and custody of the
employer’s money or property, and are thus classified as occupying
positions of trust and confidence.22
xxxx
The second requisite of terminating an employee for loss of trust and
confidence is that there must be an act that would justify the loss of
trust and confidence. To be a valid cause for dismissal, the loss of
confidence must be based on a willful breach of trust and founded on
clearly established facts.23
To summarize, the first requisite is that the employee concerned
must be one holding a position of trust and confidence, thus, one
who is either: (1) a managerial employee; or (2) a fiduciary rank-and-
file employee, who, in the normal exercise of his or her functions,
regularly handles significant amounts of money or property of the
employer. The secondrequisite is that the loss of confidence must be
based on a willful breach of trust and founded on clearly established
facts.
In Lima Land, Inc. v. Cuevas,24 We discussed the difference between
the criteria for determining the validity of invoking loss of trust and
confidence as a ground for terminating a managerial employee on the
one hand and a rank-and-file employee on the other. In the said case,
We held that with respect to rank-and-file personnel, loss of trust and
confidence, as ground for valid dismissal,requires proof of
involvement in the alleged events in question, and that mere
uncorroborated assertions and accusations by the employer would
not suffice. Withrespect to a managerial employee, the mere
existence of a basis for believing that such employee has breached
the trust of his employer would suffice for his dismissal. The following
excerpts from Lima Land are instructive:
As firmly entrenched in our jurisprudence, loss of trust and
confidence, as a just cause for termination of employment, is
premised on the fact that an employee concerned holds a position
where greater trust is placed by management and from whom greater
fidelity to duty is correspondingly expected. This includes managerial
personnel entrusted with confidence on delicate matters, such as the
custody, handling, or care and protection of the employer’s
property.The betrayal of this trust is the essence of the offense for
which an employee is penalized.
It must be noted, however, that ina plethora of cases, this Court has
distinguished the treatment of managerial employees from that of
rank-and-file personnel, insofar as the application of the doctrine of
loss of trust and confidence is concerned. Thus, with respect to rank-
and-file personnel, loss of trust and confidence, as ground for valid
dismissal, requires proof of involvement in the alleged events in
question, and that mere uncorroborated assertions and accusations
by the employer will not be sufficient. But as regards a managerial
employee, the mere existence of a basis for believing that such
employee has breached the trust of his employer would suffice for his
dismissal. Hence, in the case of managerial employees, proof beyond
reasonable doubt is not required, it being sufficient that there is some
basis for such loss of confidence, such as when the employer has
reasonableground to believe that the employee concerned is
responsible for the purported misconduct, and the nature of his
participation therein renders him unworthy of the trust and
confidence demanded of his position.
On the other hand, loss of trust and confidence as a ground of
dismissal has never been intended to afford an occasion for abuse
because of its subjective nature. It should not be used as a subterfuge
for causes which are illegal, improper, and unjustified. It must be
genuine, not a mere afterthought intended to justify an earlier action
taken in bad faith. Let it not be forgotten that what is at stake is the
means of livelihood, the name, and the reputation of the employee.
To countenance an arbitrary exercise of that prerogative is to negate
the employee’s constitutional right to security of tenure.25
Respondent’s employment classification is irrelevant in light of her
proven willful breach
There is no doubt that respondent held a position of trust; thus,
greater fidelity is expected of her. She was not an ordinary rank-and-
file employee but an employee occupying a very sensitive position. As
University Treasurer, she handled and supervised all monetary
transactions and was the highest custodian of funds belonging to
WUP.26 To be sure, in the normal exercise of her functions, she
regularly handled significant amounts of money of her employer and
managed a critical department.
The presence of the first requisite iscertain. So is as regards the
second requisite. Indeed, the Court finds that petitioner adequately
proved respondent’s dismissal was for a just cause, based on a willful
breach of trust and founded on clearly established facts as required
by jurisprudence. At the end of the day, the question of whether she
was a managerial or rank-andfile employee does not matter in this
case because not only is there basis for believing that she breached
the trust of her employer, her involvement in the irregularities
attending to petitioner’sfinances has also been proved.
To recall, petitioner, per its account, allegedly lost trust and
confidence in respondent owing to any or an interplay of the
following events: (1) she encashed a check payable to the University
Treasurer in the amount of three hundred thousand pesos (PhP
300,000); (2) she encashed crossed checks payable to the University
Treasurer, when the intention of management in this regard was to
merely transfer funds from one of petitioner’s accounts to another in
the same bank; (3) she allowed the Treasury Department to encash
the checks issued to WUP personnel rather than requiring the latter
to have said checks encashed by the bank, in violation of the imprest
system of accounting; (4) she caused the disbursement of checks
without supporting check vouchers; (5) there were unliquidated cash
advances; and (6) spurious duplicate checks bearing her signature
were encashed causing damage to petitioner.
We disagree with the CA’s finding that respondent has sufficiently
countered all inculpatory allegations and accusations against her. On
the contrary, We find that here, there was anadmitted, actual and
real breach of duty committed by respondent, which translates into a
breach of trust and confidence in her. For perspective, respondent’s
explanation as to the charges against her is as follows:
1. That the alleged crossed check issued by her payable to THE
TREASURER – WUP was done in the exercise of her duty and function
52 | n e g o
as such, and not with her name and not to herself and personal favor,
and that said check had been prepared passing through the usual
system; 2. That the University heads were the beneficiaries of said
amount who strongly requested that their love giftbe given, hence,
the encashment;
3. That the amount of the check was properly disposed of as
evidenced by the document bearing the signatures of recipients;
4. That the Office to pointto if vouchers and supporting documents
will have to be checked concerning payments made is the Accounting
Office;
5. That cash advances to various University personnel pass through
her office in the exercise of her duties assuch but the office who
follow up the liquidation of payments received is the Office of the
University Auditor;
6. That respondent Reyes adopted her reply on the show-cause order
in the investigation previously conducted by Dr. Jeremias Garcia
about the duplicated checks alleging among others:
a) She and her staff confirmed that only the checks issued to General
Capulong and Leodigario David were encashed by the University
Teller;
b) The check issued to Norma de Jesus was encashed by the Pick-up
Chinabank Teller on December 5, 2008 while collecting deposits from
the University with the assistance of the University teller;
c) That the check issued to Mercedes was not encashed with the
University teller but with WEMCOOP;
d) As to the encashment and accommodation of checks to personnel,
it has been the practice of previousand present administration
moreso when employees cannot anymore go to Chinabank to
transact business as it is mostly beyond banking hours when checks
are ready for disbursement;
e) That Respondent’s department has no control over fraudulent
transactions done outside the University, that it is the Bank’s duty to
protect its clients as tothe proper procedures to secure our account;
f) That the computer system program of the University’s depository
bank has very limited capabilities to detect fraudulent entries;
g) That the signature verifier also had been remiss in carefully
checking the authenticity ofprevious signatories.27
a. Respondent’s encashment of checks
As it were, respondent did not deny, in fact admitted, the
encashment of the three hundred thousand peso (PhP 300,000)
crossed check payable to the University Treasurer which covered the
total amount of the "love gift" for administrative and academic
officials of WUP. Neither did she deny the fact that the Treasury
Department encashed checks issued to WUP personnel rather than
requiring them to have the checks encashed by the bank. Instead, she
explained that the beneficiaries of the amounts strongly requested
that their love gifts be given in cash, hence the encashment of the
PhP 300,000 crossed check and, thereafter, the accommodation and
encashment of their checks directly by the Treasury Department.
Moreover, she submitted a document bearing the signatures of the
recipients of the "love gift" as proof that the amount was disposed
properly.28 She further insisted that this was the usual practice of the
University and that she merely accommodated the requests of WUP
personnel especially when Chinabank was already closed.
Jurisprudence has pronounced that the crossing of a check means
that the check may not be encashed but only deposited in the
bank.29 As Treasurer, respondent knew or is at least expected to be
aware of and abide by this basic banking practice and commercial
custom. Clearly, the issuance of a crossed check reflects
management’s intention to safeguard the funds covered thereby, its
special instruction to have the same deposited to another account
and its restriction on its encashment.
Here, respondent, as aptly detailed inthe auditor’s report,
disregarded management’s intentions and ignored the measures in
place to secure the handling of WUP’s funds. By encashing the
crossed checks, respondent put the funds covered thereby under the
riskof being lost, stolen, co-mingled with other funds or spent for
other purposes. Furthermore, the accommodation and encashment
by the Treasury Department of checks issued to WUP personnel were
highly irregular. First, WUP, not being a bank, had no business
encashing the checks of its personnel. 30 More importantly, in
encashing the said checks, the Treasury Department made
disbursements contrary to the wishes ofmanagement because, in
issuing said checks, management has madeclear its intention that
monies therefor would be sourced from petitioner’s deposit with
Chinabank, under a specific account, and not from the cash available
in the Treasury Department.
That the encashment of crossed checks and payment of checks
directly to WUP personnel had been the practice of the previous and
present administration of petitioner is of no moment. To Our mind,
this was simply respondent’s convenient excuse, a poorlydisguised
afterthought, when her unbecoming carelessness in managing WUP’s
finances was exposed. Moreover, the prevalence of this practice
could have been contained if only respondent consistently observed
the regular procedure for encashing crossed checks and properly
handled requests for accommodation of checks issued to the WUP
personnel.
b. Unliquidated cash advances
On the matter of unliquidated cash advances in the aggregate
amount of nine million seven hundred thousand pesos (PhP
9,700,000), respondent explained that while it was true that cash
advances to WUP personnel passed through her office in the exercise
of her duties as University Treasurer, the office that follows up the
liquidation of advances received is the office of the University
Auditor.31 However, granting that the responsibility of handling the
liquidation of cash advances is no longer lodged in her office, there is
proof showing that before the Treasury Department was relieved of
said responsibility, the total unliquidated cash advances was even
bigger, amounting to eleven million five hundred thirty-three
thousand two hundred thirty pesos and thirty-seven centavos (PhP
11,533,230.37). There is nothing in the records before us showing
that respondent denied the following findings in the Investigation
Report of the WUP’s Human Resource Development Office (HRDO)on
this matter, to wit:
In the matter of unliquidated cash advances in the aggregate amount
of Php9.7million as found by the External Auditors, respondent’s
contention was that cash advances tovarious University personnel
pass through her office in the exercise of her duties as such but the
office who follows up the liquidation of payments received is the
Office of the University Auditor.
On the inquiry done x x x of the Internal Auditor, Treasury and
Accounting officer on July 1, 2009, it was found out that the
responsibility of handling cash advances and liquidation report was
transferred from Treasury Office to Accounting Office on August
2008, when Ms. Luzviminda Torres, the personnel handling the same
detailed at the Treasury Office went on leave. It was transferred to
Ms. Julieta Mateo. What was surprising was that as per certification
and summary submitted by Ms. Mateo, the amount of unliquidated
cash advances previous to August 2008, when the same was under
the responsibility of the Treasury Office, was even bigger with the
53 | n e g o
total amount of ELEVEN MILLION FIVE HUNDRED THIRTY THREE
THOUSAND, TWO HUNDRED THIRTY PESOS AND THIRTY SEVEN
CENTAVOS (Attached as Annex "G")
Even if there is truth in the contention of herein Respondent that she
was no longer the one in charge of the liquidation proceedings, the
same would not absolve her from gross negligence of duties. The fact
that the said function was with her office until August 2008, with
unliquidated cash advances even bigger, still showed that she
reneged in her duties which she had overlooked for so long. She now
mistakenly points the responsibility to the Office of the University
Auditor. These informations are enough to be considered as
Respondent’s acts constitutive of breach of trust and confidence.32
xxx
c. Other irregularities inrespondent’s performance
In all, We find the Investigation Report of the HRDO a credible,
extensive and thorough account of respondent’s involvementin
incidents which are sufficient grounds for petitioner’s loss of trust and
confidence in her, to wit:
Respondent Nowella C. Reyes has committed breach of trust and
confidence in the conduct of her office.
In her answer, Respondent admitted the encashment of the crossed
check with the defense that the same was done in the performance
of her duty, not for her personal use but because of the request of
University heads who wanted their love gifts begiven. She
alsoadmitted habitual encashment of checks issued by the University
to its personnel on the basis of practice of previous administration.
The charge against Respondent of the act of improper encashment of
a check, which aside from being irregular is clearly violative of imprest
system of cash management. Moreover, the same being a crossed
check, should not be negotiated for encashment to Chinabank –
Cabanatuan Branch because of the restriction indicated on its face,
which Mrs. Reyes, by reason of her office knew very well.
During the investigation conducted, it was revealed that the check
disbursement voucher attached by Respondent on her answer to
justify the regularity of its issuance and eventual encashment was not
exactly the same as the one filed at the Accounting Office. It showed
that the photocopy of the original CDV which was attached by
Respondent (attached as Annex "E"of this report) bear some material
alterations, namely:
1. The absence of entry of the Board Resolution which was reflected
as a sort of inquiry by the Internal Auditor, and which at present was
left blank on the original, as compared to the photocopy submitted by
respondent bearing an entry of the Board Resolution number;
2. The word ATM on the payee portion of the CDV in the original as
compared to the photocopy wherein the entry ATM was crossed out.
During a discussion with the external auditors, it was categorically
stated by them that during the courseof external audit, said
document was inexistent in the records presented by the Accounting
and Treasurer’s Offices. The production of the photocopy by
Respondent already altered only after the suspension was effected
cast doubt on the regularity of its issuance, negating her otherwise
claim. Another significant observation was that the original copy of
CDV (attached as Annex "F" of this report) and corresponding
signatures of administrative heads who received payments showed
folded marks halfways, with the fastener holes unmatched, showing
that those two documents were not really filed together, as regularly
done, and the same were not filed in the regular course and must
have been kept previously on a different manner in possession of
person other than the office which must file the same.
xxxx
On the last charge in the show cause order specifically the existence
of duplicate checks in the account of the University amounting to Php
1.050 Million, included in Respondent’s defenses were that among
the checks duplicated, only two of them were encashed with the
University Teller, and the check originally named to Norma de Jesus
as payee was paid by the pick-up teller only through the assistance of
the University teller.
Again, Respondent’s defense were void of truth and merit. The act of
encashing checks issued by the Treasury Office, clearly violative of
imprest system of cash management which Mrs. Reyes by reason of
her office knew very well, showed that Respondent directly reneged
in her duty to observe economic security measures.
As found on the documents attachedto the Investigation report of Dr.
Garcia which had been expressly adopted by herein respondent in her
answer is an Affidavit of Norma de Jesus stating that she actually
encashed the check with the personnel of the Treasury Office
particularly Shirley Punay, who gave her the amountequivalent days
after the check was handed to the Treasury office.
However noble the intention of herein Respondent in helping her
fellow workers in the University by her acts of accommodation by
encashing their checks directly withthe Treasury Office when
Chinabank was already closed, the same still reneged in her duty to
protect the economic security of the University. An act of misconduct
which caused [sic]33
An employer cannot be compelled toretain an employee who is guilty
of acts inimical to the interests of the employer. A company has the
right to dismiss its employees if only as a measure of self-protection.
This is all the more true in the case of supervisors or personnel
occupying positions of responsibility.34 In this case, let it be
remembered that respondent was not an ordinary rank-and-file
employee as she was no less the Treasurer who was in charge of the
coffers of the University. It would be oppressive to require petitioner
to retain in their management an officer who has admitted to
knowingly and intentionally committing acts which jeopardized its
finances and who was untrustworthy in the handling and custody of
University funds.
WHEREFORE, premises considered, we GRANTthe petition. The
assailed Decision of the Court of Appeals in CA-G.R. SP No. 122536 is,
thus, SET ASIDE. The Decision of the National Labor Relations
Commission in NLRC RAB III Case No. 07-15131-09 is REINSTATED.
70 Papa v. Valencia G.R. No. 105188 January 23, 1998
Facts:
1. The case arose from a sale of a parcel of land allegedly made to
private respondent Penarroyo by petitioner acting as attorney-in-fact
of Anne Butte. The purchaser, through Valencia, made a check
payment in the amount of P40,000 and in cash, P5,000. Both were
accepted by petitioner as evidenced by various receipts. It appeared
that the said property has already been mortgaged to the bank
previously together with other properties of Butte.
2. When Butte passed away, the private respondent Penarroyo now
demanded that the title to the property be conveyed to him, however
the bank refused. Hence, the filing of a suit for specific performance
by private respondents against the petitioner. The lower court ruled
in favor of the private respondents and ordered herein petitioner the
conveyance or the property or if not, its payment. The petitioner
appealed the lower court's decision alleging that the sale was not
consummated as he never encashed the check given as part of the
purchase price.
54 | n e g o
3. The Court of Appeals affirmed with modifications the lower court's
decision. It held that there was a consummated sale of the subject
property despite.
Issue: Whether or not the check is a valid tender of
payment/Whether or not there was a valid sale of the subject
property
RULING: Yes. While it is true that the delivery of check produces
payment only when encashed (pursuant to Art. 1249, Civil Code), the
rule is otherwise if the debtor is prejudiced by the delay in
presentment. (Here in this case, the petitioner now alleges that he
did not present the check, ten years after the same was paid to him
as part of the purchase price of the property.)
Check acceptance implied an undertaking of due diligence in
presenting it for payment. If the person who receives it sustains loss
by want of this diligence, this will operated as actual payment of the
debt or obligation for which the check was given. The debtor cannot
now be held liable if non-presentment of the check was through the
fault of the creditor.
71 NEW PACIFIC TIMBER & SUPPLY CO. INC. VS. SENERIS
10 SCRA 686
FACTS: Petitioner, New Pacific Timber & Supply Co. Inc. was the
defendant in a complaint for collection of money filed by private
respondent, Ricardo A. Tong. In this complaint, respondent Judge
rendered a compromise judgment based on the amicable settlement
entered by the parties wherein petitioner will pay to private
respondent P54,500.00 at 6% interest per annum and P6,000.00 as
attorney’s fee of which P5,000.00 has been paid. Upon failure of the
petitioner to pay the judgment obligation, a writ of execution worth
P63,130.00 was issued levied on the personal properties of the
petitioner. Before the date of the auction sale, petitioner deposited
with the Clerk of Court in his capacity as the Ex-Officio Sheriff
P50,000.00 in Cashier’s Check of the Equitable Banking Corporation
and P13,130.00 in cash for a total of P63,130.00. Private respondent
refused to accept the check and the cash and requested for the
auction sale to proceed. The properties were sold for P50,000.00 to
the highest bidder with a deficiency of P13,130.00. Petitioner
subsequently filed an ex-parte motion for issuance of certificate of
satisfaction of judgment which was denied by the respondent Judge.
Hence this present petition, alleging that the respondent Judge
capriciously and whimsically abused his discretion in not granting the
requested motion for the reason that the judgment obligation was
fully satisfied before the auction sale with the deposit made by the
petitioner to the Ex-Officio Sheriff. In upholding the refusal of the
private respondent to accept the check, the respondent Judge cited
Article 1249 of the New Civil Code which provides that payments of
debts shall be made in the currency which is the legal tender of the
Philippines and Section 63 of the Central Bank Act which provides
that checks representing deposit money do not have legal tender
power. In sustaining the contention of the private respondent to
refuse the acceptance of the cash, the respondent Judge cited Article
1248 of the New Civil Code which provides that creditor cannot be
compelled to accept partial payment unless there is an express
stipulation to the contrary.
ISSUE: Can the check be considered a valid payment of the judgment
obligation?
RULING: Yes. It is to be emphasized that it is a well-known and
accepted practice in the business sector that a Cashier’s Check is
deemed cash. Moreover, since the check has been certified by the
drawee bank, this certification implies that the check is sufficiently
funded in the drawee bank and the funds will be applied whenever
the check is presented for payment. The object of certifying a check is
to enable the holder to use it as money. When the holder procures
the check to be certified, it operates as an assignment of a part of the
funds to the creditors. Hence, the exception provided in Section 63 of
the Central Bank Act which states that checks which have been
cleared and credited to the account of the creditor shall be equivalent
to a delivery to the creditor in cash the amount equal to that which is
credited to his account. The Cashier’s Check and the cash are valid
payment of the obligation of the petitioner. The private respondent
has no valid reason to refuse the acceptance of the check and cash as
full payment of the obligation
72 Security Bank V. Rizal Commercial (2009) G.R. No. 170984
January 30, 2009
FACTS:
January 9, 1981: Security Bank and Trust Company (SBTC) issued a
manager’s check for P 8M, payable to "CASH," as proceeds of the loan
granted to Guidon Construction and Development Corporation
(GCDC)
deposited by Continental Manufacturing Corporation (CMC) in its
Current Account with Rizal Commercial Banking Corporation (RCBC)
Immediately, RCBC honored the P8M check and allowed CMC to
withdraw
January 12, 1981: GCDC issued a "Stop Payment Order" to SBTC
claiming that the P 8M check was released to a 3rd party by mistake
SBTC dishonored and returned the manager’s check to RCBC
February 13, 1981: RCBC filed a complaint for damages against SBTC
with CFI then transferred to RTC
Following the rules of the Philippine Clearing House, RCBC and SBTC
stopped returning the checks to each other.
By way of a temporary arrangement pending resolution of the case,
the P 8 M check was equally divided between RCBC and SBTC
May 9, 2000: RTC in favor of RCBC
CA: affirmed with modification RTC decision by adding interest
ISSUE: W/N SBTC should be held liable for its manager's check
HELD: YES. CA affirmed.
At the outset, it must be noted that the questioned check issued by
SBTC is not just an ordinary check but a manager’s check.
manager’s check
one drawn by a bank’s manager upon the bank itself
same footing as a certified check which is deemed to have been
accepted by the bank that certified it
As the bank’s own check, a manager’s check becomes the primary
obligation of the bank and is accepted in advance by the act of its
issuance
RCBC, in immediately crediting the amount of P8 million to CMC’s
account, relied on the integrity and honor of the check as it is
regarded in commercial transactions
July 9, 1980 Memorandum: banks were given the discretion to allow
immediate drawings on uncollected deposits of manager’s checks,
among others
important that banks should guard against injury attributable to
negligence or bad faith on its part
banking business is impressed with public interest, the trust and
confidence of the public in it is of paramount importance
highest degree of diligence is expected, and high standards of
integrity and performance are required of it
73 Luis Wong vs Court of Appeals
351 SCRA 100 – Mercantile Law – Negotiable Instruments Law – Batas
Pambansa 22 – Knowledge of Insufficiency
55 | n e g o
Luis Wong is a collector of Limtong Press, Inc., a company which
prints calendars. Wong was assigned to collect check payments from
LPI’ clients. One time, six of LPI’s clients were not able to give the
check payments to Wong. Wong then made arrangements with LPI so
that for the meantime, Wong can use his personal checks to
guarantee the calendar orders of the LPI’s clients. LPI however has a
policy of not accepting personal checks of its agents. LPI instead
proposed that the personal checks should be used to cover Wong’s
debt with LPI which arose from unremitted checks by Wong in the
past. Wong agreed. So he issued 6 checks dated December 30, 1985.
Before the maturity of the checks, Wong persuaded LPI not to deposit
the checks because he said he’ll be replacing them within 30 days. LPI
complied however Wong reneged on the payment. On June 5, 1986
or 157 days from date of issue, LPI presented the check to RCBC but
the checks were dishonored (account closed). On June 20, 1986, LPI
sent Wong a notice of dishonor. Wong failed to make good the
amount of the checks within five banking days from his receipt of the
notice. LPI then sued Wong for violations of Batas Pambansa Blg. 22.
Among others, Wong argued that he’s not guilty of the crime of
charged because one of the elements of the crime is missing, that
is, prima facie presumption of “knowledge of lack of funds” against
the drawer. According to Wong, this element is lost by reason of the
belated deposit of the checks by LPI which was 157 days after the
checks were issued; that he is not expected to keep his bank account
active beyond the 90-day period – 90 days being the period required
for the prima facie presumption of knowledge of lack of fund to arise.
ISSUE: Whether or not Wong is guilty of the crime charged.
HELD: Yes. Wong is guilty of violating BP 22. The elements of violation
of BP 22 pertinent to this case are:
1. The making, drawing and issuance of any check to apply for
account or for value;
2. The knowledge of the maker, drawer, or issuer that at the time of
issue he does not have sufficient funds in or credit with the drawee
bank for the payment of such check in full upon its presentment; and
3. The subsequent dishonor of the check by the drawee bank for
insufficiency of funds or credit or dishonor for the same reason had
not the drawer, without any valid cause, ordered the bank to stop
payment.
Under the second element, the presumption of knowledge of the
insufficiency arises if the check is presented within 90 days from the
date of issue of the check. This presumption is lost, as in the case at
bar, by failure of LPI to present it within 90 days. But this does not
mean that the second element was not attendant with respect to
Wong. The presumption is lost but lack of knowledge can still be
proven, LPI did not deposit the checks because of the reassurance of
Wong that he would issue new checks. Upon his failure to do so, LPI
was constrained to deposit the said checks. After the checks were
dishonored, Wong was duly notified of such fact but failed to make
arrangements for full payment within five (5) banking days thereof.
There is, on record, sufficient evidence that Wong had knowledge of
the insufficiency of his funds in or credit with the drawee bank at the
time of issuance of the checks.
The Supreme Court also noted that under Section 186 of the
Negotiable Instruments Law, “a check must be presented for payment
within a reasonable time after its issue or the drawer will be
discharged from liability thereon to the extent of the loss caused by
the delay.” By current banking practice, a check becomes stale after
more than six (6) months, or 180 days. LPI deposited the checks 157
days after the date of the check. Hence said checks cannot be
considered stale
74 Equitable PCI Bank V. Ong G.R. No. 156207 September 15, 2006
FACTS:
Warliza Sarande deposited in her account at Philippine Commercial
International (PCI) Bank a PCI Bank TCBT Check of P225K.
December 5 1991: Upon inquiry by Serande at PCI Bank on whether
the TCBT Check had been cleared, she received an affirmative
answer.
Relying on this assurance, she issued 2 checks drawn against the
proceeds of TCBT Check.
PCI Bank Check No. 073661 dated 5 December 1991 for P132K which
Sarande issued to respondent Rowena Ong owing to a business
transaction.
On the same day, Ong presented to PCI Bank requesting PCI Bank to
convert the proceeds into a manager's check, which the PCI Bank
obliged.
December 6 1991: Ong deposited PCI Bank Manager's Check in her
account with Equitable Banking Corporation
December 9 1991: she received a check return-slip informing her that
PCI Bank had stopped the payment of the check on the ground of
irregular issuance.
Despite several demands made, it was refused
Ong was constrained to file a Complaint for sum of money, damages
and attorney's fees against PCI Bank
CA affirmed RTC: favored Ong
ISSUE: W/N Ong can hold PCI liable
HELD: YES. Petition is DENIED. CA affirmed.
By admitting it committed an error, clearing the check of Sarande and
issuing in favor of Ong not just any check but a manager's check for
that matter, PCI Bank's liability is fixed
certification = acceptance,
Equitable PCI as drawee bank is bound on the instrument upon
certification and it is immaterial to such liability in favor of Ong who is
a holder in due course whether the drawer (Warliza Sarande) had
funds or not with the Equitable PCI Bank
No unjust enrichment
SECTION 52. What constitutes a holder in due course. – A holder in
due course is a holder who has taken the instrument under the
following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and
without notice it had been previously dishonored, if such was the
fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no notice of any
infirmity in the instrument or defect in the title of the person
negotiating it.
The same law provides further:
Sec. 24. Presumption of consideration. – Every negotiable instrument
is deemed prima facie to have been issued for a valuable
consideration; and every person whose signature appears thereon to
have become a party thereto for value.
Sec. 26. What constitutes holder for value. – Where value has at any
time been given for the instrument, the holder is deemed a holder for
value in respect to all parties who become such prior to that time.
Sec. 28. Effect of want of consideration. – Absence or failure of
consideration is a matter of defense as against any person not a
holder in due course; and partial failure of consideration is a
defense pro tanto, whether the failure is an ascertained and
liquidated amount or otherwise.
manager's check
56 | n e g o
an order of the bank to pay, drawn upon itself, committing in effect
its total resources, integrity and honor behind its issuance
regarded substantially to be as good as the money it represents
same footing as a certified check
The object of certifying a check, as regards both parties, is to enable
the holder to use it as money.
check operates as an assignment of a part of the funds to the
creditors
Sec. 187. Certification of check; effect of. – Where a check is certified
by the bank on which it is drawn, the certification is equivalent to an
acceptance
Section 63 of the Central Bank Act to the effect "that a check which
has been cleared and credited to the account of the creditor shall be
equivalent to a delivery to the creditor in cash in an amount equal to
the amount credited to his account
Sec. 62. Liability of acceptor. – The acceptor by accepting the
instruments engages that he will pay it according to the tenor of his
acceptance; and admits –
(a) The existence of the drawer, the genuineness of his signature, and
his capacity and authority to draw the instrument; and
(b) The existence of the payee and his then capacity to indorse.
75 SINCERE Z. VILLANUEVA v. MARLYN P. NITE. G.R. No. 148211. July
25, 2006.
FACTS:
Marlyn Nite took out a loan of P409,000 from Sincere Villanueva. Nite
issued an Asian Bank Corporation (ABC) check worth P325,500. The
check was dishonored due to material alteration. Then, throughNite's
representative, she remitted P235,000 to Villanueva as partial
payment. The other balance was to be paid on a much later date.
A few days later, Villanueva filed an action for a sum of money and
damages against ABC for the full amount of the dishonored check.
The RTC ruled in his favor but when Nite was to withdraw money
from her account, she was unable to do so because the RTC had
ordered ABC to pay Villanueva the P325,000 check.
ABC then remitted to the sheriff the check which Villanueva received.
Nite filed a petition to seek to annul the RTC's decision. The CA held in
favor Nite and was ordered to pay Nite a sum of money for extrinsic
fraud.
ISSUE: Whether the receipt of the check was legal.
RULING:
The SC ruled in favor of Nite and that Villanueva was fraudulent. The
SC pointed out Villanueva's action of having to file his complaint
against the bank days after he received the P235,000 payment. By
filing a complaint against the bank and Nite not impleaded within, it
show his intent to prevent her from opposing his action.
Still, the RTC decision was to be annulled becasue as the NIL provides,
the drawee cannot be held liable unless he accepts the check. There
was no privity between ABC and Villanueva.
76 Lim vs. CA G.R. No. 107898. December 19, 1995
Manuel and Rosita Lim, spouses, and president and treasurer
respectively of Rigi Bilt Industries, Inc., allegedly issued 7 Solidbank
checks as payment for goods purchased from and delivered by Linton
Commercial Company, Inc. When deposited with Rizal Commercial
Banking Corporation, said checks were dishonored for “insufficiency
of funds” with the additional notation “payment stopped” stamped
thereon. Despite demand, spouses Lim refused to make good the
checks or pay the value of the deliveries. The RTC held spouses Lim
guilty of estafa and violation of BP22. On appeal, the CA acquitted
accused-appellants of estafa on the ground that the checks were not
made in payment of an obligation contracted at the time of their
issuance but affirmed the finding that they were guilty of having
violated B.P. Blg. 22. In the present case, petitioners maintain that the
prosecution failed to prove that any of the essential elements of the
crime punishable under B.P. Blg. 22 was committed within the
jurisdiction of RTC-Malabon claiming that what was proved was that
all the elements of the offense were committed in Kalookan City.
Issue: Whether or not the place of “issue” should be the place where
checks were dishonored.
RULING:
Under Sec. 191 NIL, the term “issue” means the first delivery of the
instrument complete in form to a person who takes it as a holder. On
the other hand, the term “holder” refers to the payee or indorsee of a
bill or note who is in possession of it or the bearer thereof. Although
LINTON sent a collector who received the checks from petitioners at
their place of business in Kalookan City, they were actually issued and
delivered to LINTON at its place of business in Balut, Navotas. The
receipt of the checks by the collector of LINTON is not the issuance
and delivery to the payee in contemplation of law. The collector was
not the person who could take the checks as a holder, i.e., as a payee
or indorsee thereof, with the intent to transfer title thereto. Neither
could the collector be deemed an agent of LINTON with respect to
the checks because he was a mere employee.
Section 2 of B.P. Blg. 22 establishes a prima facie evidence of
knowledge of insufficient funds as follows
The making, drawing and issuance of a check payment of which is
refused by the bank because of insufficient funds in or credit with
such bank, when presented within ninety (90) days from the date of
the check, shall be prima facie evidence of knowledge of such
insufficiency of funds or credit unless such maker or drawer pays the
holder thereof the amount due thereon, or makes arrangement for
payment in full by the drawee of such check within five (5) banking
days after receiving notice that such check has not been paid by the
drawee.
The prima facie evidence has not been overcome by petitioners in the
cases before us because they did not pay LINTON the amounts due on
the checks; neither did they make arrangements for payment in full
by the drawee bank within five (5) banking days after receiving
notices that the checks had not been paid by the drawee bank.
In People v. Grospe citing People v. Manzanilla we held that “. . .
knowledge on the part of the maker or drawer of the check of the
insufficiency of his funds is by itself a continuing eventuality, whether
the accused be within one territory or another.” Consequently, venue
or jurisdiction lies either in the RTC of Kalookan City or Malabon.
Moreover, we ruled in the same Grospe and Manzanilla cases as
reiterated in Lim v. Rodrigo that venue or jurisdiction is determined
by the allegations in the Information. The Informations in the cases
under consideration allege that the offenses were committed in the
Municipality of Navotas which is controlling and sufficient to vest
jurisdiction upon the Regional Trial Court of Malabon. We therefore
sustain likewise the conviction of petitioners by RTC-Malabon for
violation of BP22