Blake v.

Weiden [1943]

In 1939, R. Weiden Sons, Inc., became a voluntary bankrupt and plaintiff qualified as its trustee. From the books of
the bankrupt corporation it appeared that there was a balance of $8,103.68 owing to it on open account from
defendant who was one of its stockholders and had been one of its officers from 1930 to 1938. The trustee sued
defendant. The latter's answer contained a number of counterclaims. Five of the counterclaims involved five
negotiable promissory notes, each for $5,000 and each given by the corporation in 1930 to Robert Weiden,
defendant's father who died in 1937. All of the notes remain unpaid. At some time between the father's death and
the bankruptcy, defendant's two brothers, Charles R. Weiden and Hermann J. Weiden, who were the executors of the
father's will, put on the back of each of the notes a form of indorsement, signed by the estate, by themselves as
executors, and worded thus: "Pay to the order of Charles R. Weiden, Hermann J. Weiden and Frank J. Weiden, share
and share alike, as tenants in common." Defendant is the third named indorsee. The brothers Charles and Hermann
Weiden filed in the bankruptcy proceedings proofs of claim on their purported individual shares of the five notes, as
indorsees. The record does not show whether those claims in bankruptcy have been allowed, or whether they were
contested by the trustee. Defendant attempted in his five counterclaims to use his purported share of the five notes
as a set-off against the debt for which the trustee is suing, defendant's share of the notes, including interest, being
larger in amount than the debt in suit. Whether defendant has an interest, available for such use, in the five notes, is
the only question before us. The facts are undisputed. At the close of plaintiff's case, which developed the facts as
above recited, plaintiff moved to dismiss the counterclaims and each side moved for a directed verdict. Plaintiff's
motion was granted and the counterclaims dismissed. The Appellate Division modified (in effect it reversed) by
denying plaintiff's motion to dismiss the counterclaims and by directing judgment for defendant in amount sufficient
to offset plaintiff's claim.

An analysis of section 62 of the Negotiable Instruments Law will, we think, lead us to the answer to the question we
have before us. That section, which is identical with section 31 of the "Uniform Negotiable Instruments Law" and is
found on the statute books of many of our states and of England, is as follows: "The indorsement must be an
indorsement of the entire instrument. An indorsement, which purports to transfer to the indorsee a part only of the
amount payable, or which purports to transfer the instrument to two or more indorsees severally, does not operate
as a negotiation of the instrument. But where the instrument has been paid in part, it may be indorsed as to the
residue."

The indorsement, or attempted indorsement, of the five notes described in the counterclaims, did not, of course,
offend against the first sentence of section 62, since the form of indorsement used applies to the whole of each note.
The third sentence of the section has no relevancy to this case. The second sentence, however, does deal with
indorsements like those here under scrutiny and provides that such a writing on the back of a note "does not operate
as a negotiation of the instrument." The meaning of that phrase has been examined in many opinions and texts.
Some of those authorities (see Martin v. Hayes, 44 N.C. 423; Conover v. Earl, 26 Iowa 167; Byles on Bills [20th ed.] p.
161; Brannan on Negotiable Instruments Law [5th ed.], pp. 426, 427) say, or seem to say, that such a purported
indorsement transfers to the indorsees no title at all, or at least no title on which they can sue at law. Other writers
give section 62 a narrower meaning and hold that, while such an indorsement "does not operate as a negotiation," it
does nevertheless convey to the indorsee not the rights of a holder in due course but a title of some kind to his share
of the note or, more precisely, to a non-negotiable chose in action, on which he may sue. ( Flint v. Flint, 6 Allen [88
Mass.] 34; Edgar v. Haines, 109 Ohio St. 159.) There seem to be no New York cases directly in point. Two decisions in
this State ( King v. King, 37 Misc. 63, affd. 73 App. Div. 547, appeal dismissed 172 N.Y. 604, and Barkley v. Muller, 164
App. Div. 351, 168 App. Div. 110) have a bearing. In the King case one of the beneficiaries of an estate took from the
executor a written assignment of a one-fifth part of a note belonging to the estate. In the Barclay case there had
been an indorsement to plaintiff of one half of a note. In both cases it was held that there could be no recovery, but it
is to be noted that in each of those cases the transfer (indorsement or assignment) covered only a part of the note
and did not, as in the present case, involve a transfer of the whole instrument in parts.
In our view, the better rule is that when there has been a purported indorsement of the whole instrument, in
separate parts to two or more transferees, the purported indorsees take legal title to their several shares and may
sue together, or any one or more may sue, provided all the other indorsees are brought in as parties. (In the case
before us defendant did bring in the other two indorsees, alleging without contradiction that they had refused to join
with him.)

We reject the view that section 62 makes such an indorsement a nullity. The language of that and other sections of
the Act compel a narrower meaning. The statement in section 62 that the indorsement does not "operate as a
negotiation" suggests that it is not entirely inoperative. "An instrument is negotiated" says section 60, "when it is
transferred from one person to another in such manner as to constitute the transferee the holder thereof." Reading
those two sections with the references to the word "holder" in other parts of the Act (see §§ 2, 52, 91) makes it clear
that the intent of section 62, so far as applicable here, is only to deprive the several indorsees of the special rights
which the Act gives to "holders" of properly negotiated instruments. Section 62 does not, we decide, deprive such
indorsees of the rights of ordinary assignees and the irregular indorsement may be treated as an assignment.
( Kenny v. Hinds,44 How. Pr. 7; Merchants' Nat. Bank v. Gregg, 107 Mich. 146.) No reason appears why the misguided
use of an indorsement form should put the purported indorsees entirely outside the protection of the courts. Surely
there was in this case at least a constructive delivery of the note to the three beneficiaries of the estate and, that
being so, the transferees would have taken title to the instrument or to the chose in action without any written
words of transfer at all. (Negotiable Instruments Law, § 79; Goshen Nat. Bank v. Bingham, 118 N.Y. 349,
355; Hooker v. Eagle Bank of Rochester, 30 N.Y. 83.) The use of an unrecognized form of indorsement should leave
them in no worse position.

A study of the history of, and reason for, section 62 leads to the same answer. The common law looked with disfavor
upon any indorsement that did not transfer the whole instrument at one time and to one person.
( Douglass v. Wilkeson, 6 Wend. 637.) Thus did the law conform to the "custom of merchants" which was that a
holder of a note could not "apportion such personal contract, for he cannot make a man liable to two actions, where
by the contract he is liable but to one." ( Hawkins v. Cardy, 1 Lord Raymond's Reports 360.) The last sentence in the
quoted excerpt from the Hawkins case gives us a valuable clue to such mystery as there is in section 62. The whole
purpose of the restrictions there embodied was to prevent a multiplicity of suits. (See Larson v. Lybyer, 312 Ill. App.
188.) So in earlier days in New York it was the rule at law that the assignee of part of a chose in action could bring no
separate action to collect his part. ( King v. King, supra.) Equity, as usual, was not so circumscribed and found a way to
give the assignee relief, by devising a practise of bringing in, as added parties, the co-owners of the claim.
( Risley v. Phenix Bank of City of New York, 83 N.Y. 318, 329; Dickinson v. Tysen, 125 App. Div. 735. ) Successive
revisions of our practice statutes achieved an assimilation of the practice in suits at law to the procedures invented
by equity.

The result is that under our present practice a suit for money only by a partial assignee of a claim may be brought at
law, provided the plaintiff bring in his co-assignees. ( Porter v. Lane Construction Corp., 212 App. Div. 528, affd. 244
N.Y. 523; Grosner v. Abramson, 162 Misc. 731, 733, affd. 248 App. Div. 575; Civ. Prac. Act, § 194.) "We think * * * that
the question is one of parties, and not one of jurisdictional facts." (CROUCH, J., in Porter v. Lane Construction Corp.,
supra, 212 App. Div. at p. 531.) This interpretation of defendant's rights leaves undisturbed the rule of section 62 that
the several indorsees do not have the rights of "holders" of negotiable instruments, the rule of section 79 that
delivery of a negotiable instrument transfers title with or without indorsement, and the rule against splitting causes
of action. Defendant as co-assignee of a non-negotiable chose in action had the right to maintain his counterclaims
so long as he brought his co-assignees into the action.

Even if the enforcement of these counterclaims did involve a splitting of each of the five causes of action on the
separate notes, such splitting could be justified in two ways. First, the record here at least suggests that the splitting
was really done by the other two purported assignees who filed separate proofs of claim in bankruptcy before this
suit was brought ( Gock v. Keneda, 29 Barb. 120; Jackson v. Moore, 94 App. Div. 504), and that plaintiff trustee, by
acquiescence, probably waived the benefits of the rule against splitting. (See Carrington v. Crocker, 37 N.Y.
336.) Second, the rule against splitting does not forbid the use of part of a claim as a set-off, retaining the rest for
later use. ( Gordon v. Van Cott, 38 App. Div. 564; Hett v. Lange, 139 App. Div. 743.) A fair application of that exception
permits defendant to use as a set-off an amount which was equal to the claim in suit but less than his one third of
the whole amount due on the notes.

Having held that defendant had legal title to, and causes of action at law on his share of the notes, we necessarily
conclude that he brings himself well within the Bankruptcy Act requirements as to set-offs, found in section 68 of
that Act (U.S. Code, tit. 11, § 108): "(a) In all cases of mutual debts or mutual credits between the estate of a
bankrupt and a creditor the account shall be stated and one debt shall be set off against the other, and the balance
only shall be allowed or paid. (b) A set-off or counterclaim shall not be allowed in favor of any debtor of the bankrupt
which [1] is not provable against the estate and allowable under subdivision g of section 93 of this title; or [2] was
purchased by or transferred to him after the filing of the petition or within four months before such filing, with a view
to such use and with knowledge or notice that such bankrupt was insolvent or had committed an act of bankruptcy."
Plaintiff's and defendant's claims are mutual and defendant's claim is by its nature one provable in bankruptcy.

Appellant urges as an authority against this set-off, Gray v. Rollo ( 85 U.S. 629). In Gray v. Rollo a bankrupt insurance
company held two promissory notes made jointly by Gray and another man, and was indebted on policy claims to a
partnership of which Gray was a member. Gray's partner was not a party to the notes held by the bankrupt. The
opinion says that the "joint" claim of the partnership could not be set off against Gray's individual liability to the
bankrupt estate. In Gray v. Rollo (as it was in Hopkins v. Lane, 87 N.Y. 501) the word "joint" seems not to be used in
the technical sense but as describing a claim against the bankrupt held by several persons who under local law were
tenants in common. (See Kiersted v. West, [N.Y.] 13 Weekly Digest 106.) Gray v. Rollo, nonetheless, does not go so far
as to hold that such a tenant in common may not use as a set-off his share of the claim against the bankrupt but only
that he may not "appropriate" to himself the claim that belongs to his partners as well as to himself: "equity will not
allow him to pay his separate debt out of the joint fund." (Opinion, at p. 635.) No such misappropriation has been
attempted by defendant here, since his separate, fractionally determined, share of the five notes was assigned to him
before bankruptcy, and in his counterclaims he is alleging, and using as set-offs, only his own share, not the whole of
the notes. (See discussion in Taylor v. Root, 4 Abb. N.Y. App. 382.)

The judgment should be affirmed, with costs.

LEHMAN, Ch. J., LOUGHRAN, RIPPEY, LEWIS, CONWAY and THACHER, JJ., concur.

PHILIPPINE NATIONAL BANK vs. BARTOLOME PICORNELL, ET AL. [September 26, 1922]
In a decision rendered January 9, 1922, and amended by an order of February 18th next, the Court of First Instance
of Manila sentenced the defendants to pay solidarily to the plaintiff bank of the sum of P28,790.72 with interest at
the rate of 9 per centum per annum from May 3, 1921, and costs; and the defendant Bartolome Picornell, to pay said
plaintiff the sum of P10,739.11 with interest at 9 per centum per annum, all as aforesaid, deducting the sum of
P6,708.82 from such amounts to be paid be the defendants.

This total sum which the defendants are required to pay represents the value of a bill of exchange drawn by
Bartolome Picornell in favor of the National Bank, plaintiff, against the firm of Hyndman, Tavera & Ventura, now
dissolved, its only successor being the defendant Joaquin Pardo de Tavera. The sum of P6,708.82, which the trial
court ordered deducted from the value of the bill of exchange, is the proceeds received by the bank from the sale of
a part of a certain quality of tobacco shipped by Picornell at Cebu to the Hyndman, Tavera & Ventura company at
Manila, the price of which, together with his commission, was received by him from the branch of the plaintiff bank
in Cebu, and in consideration whereof he drew the bill from the central office of said bank in Manila and against the
said Hyndman, Tavera & Ventura company, the consignee of the tobacco.

The P28,790.72, which the defendants are sentenced to pay solidarily to the plaintiff bank, constitutes the value of
the tobacco at the date when the bill fell due, as appraised for the purpose.

The reasoning of the trial court for fixing the respective responsibilities of the defendants is given in its decision and
is as follows:

. . . The defendant Pardo de Tavera, successor to Hyndman, Tavera & Ventura, by his having accepted the bill
and denied payment thereof, notwithstanding the existence of a consideration which is the real value of the
tobacco, and the defendant Picornell by his having drawn such bill and received its value from the branch of
the plaintiff bank in Cebu, became liable upon the same bill, the defendant Picornell to its full value, and the
defendant Pardo de Tavera to the extent of the value of the tobacco.

From this judgment the defendants appealed.

Joaquin Pardo de Tavera alleged that the bill in question was without consideration and that judgment should not
have been rendered against him. The appellant Picornell contended that it should have been taken into account that
he merely acted as an agent of Hyndman, Tavera & Ventura in all these transactions; that the tobacco was not of
inferior quality, as alleged by the said company; that the condition "D/P" attached to the transaction was not
modified; that he had the right to complain because the bank consented to the said company taking possession of
the tobacco before the payment of the bill; that the bank held the tobacco as a deposit; that the bank was not
authorized to sell the tobacco, said sale not being allowed either by law or by the circumstances that he should not
have been ordered to pay the value of the bill without proof that he was notified of its dishonor, as required by
section 89 of the Negotiable Instruments Law.

The appellee bank maintains that the appellants have no right to discuss issues of fact in this instance for not having
complied with the requirements enumerated in paragraph (a) of Rule 16 of the Rules of the Courts of First Instance.
The rule cited refers to special proceedings. Moreover, we believe, we believe that the necessary requirements in
order that this court may pass upon questions of fact have been complied with by the appellants.

The following facts are proved: That Bartolome Picornell, following instruction of Hyndman, Tavera & Ventura,
bought in Cebu 1,735 bales of tobacco; that Picornell obtained from the branch of the National Bank in Cebu the sum
of P39,529.83, the value of the tobacco, together with his commission of 1 real per quintal (according to stipulation
Exhibit 4), having, in turn, drawn the following bill of exchange, Exhibit A:

No. 2-A. Cebu, 28 febrero, 1920. For P39,529.83

At treinta (30) days sight please pay this first of exchange (second unpaid) to the order of Philippine National
Bank treinta y nueve mil quinientos veintinueve pesos con 83/100. Value received.

To Sres. HYNDMAN, TAVERA Y VENTURA

Calle Soler 26 y 28.
 (Sgd.) B. PICORNELL

This instrument was delivered to the branch of the National Bank in Cebu, together with the invoice and bill of lading
of the tobacco, which was shipped in the boat Don Ildefonso, on February 27, 1920, consigned to Hyndman, Tavera &
Ventura at Manila. The invoice and bill of lading were delivered to the National Bank with the understanding that the
bank should not delivered them to Hyndman, Tavera & Ventura except upon payment of the bill; which condition was
expressed by the well-known formula "D/P" (documents for [against] payment).

The central office of the National Bank in Manila received the bill and the aforesaid documents annexed thereto; and
on March 3, 1920, presented the bill to Hyndman, Tavera & Ventura, who accepted it stating on the face thereof the
following:

Accepted, 3d March, 1920. Due, 2d April, 1920. Hyndman, Tavera & Ventura, by (Sgd.) J. Pardo de Tavera,
member of the firm.

The tobacco having arrived at Manila, the firm of Tambunting, owner of the ship Don Ildefonso, that brought the
shipment, requested Hyndman, Tavera & Ventura to send for the goods, which was done by the company without the
knowledge of the National Bank which retained and always had in its possession the invoice and bill of lading of the
tobacco, until it presented them as evidence at the trial.

Hyndman, Tavera & Ventura proceeded to the examination of the tobacco, which was deposited in their warehouses,
and wrote and cable to Bartolome Picornell, notifying him that of the tobacco received, there was a certain portion
which was no use and was damaged. To these communications, Picornell answered, sending the following letter:

Cebu, March 13, 1920.

Messrs. HYNDMAN, TAVERA & VENTURA,

Manila.

TABACO

DEAR SIRS: Your letters of the 3d and 9th, and your telegram of the 5th, inst, received and the sample of
tobacco sent through the captain of the boat Don Ildefonso.

I wired to the seller asking him to come over and I hope he will do so at the first opportunity.

It would be well that you should inform me of the exact number of bales deteriorated and useless, and if
possible that said information should be furnished by the Bureau of Internal Revenue. Moreover, it would be
well also that you should not sell any bale of said shipment until the matter is settled.

Yours very truly,

(Sgd.) B. PICORNELL

Through these communications, therefore, Picornell learned that Hyndman, Tavera & Ventura had in their possession
the tobacco aforementioned.

In view of the question raised by the said company as to the quality of the aforesaid tobacco, more correspondence
was exchange between the company and Picornell, who, upon the suggestion of the former, wrote on March 26,
1920, this letter:

Messrs. Philippine National Bank,

Cebu.

DEAR SIRS: I would be obliged to you if you would wire your central office at Manila to extend thirty days the
time for payment of the bill for P39,529.83 against Messrs. Hyndman, Tavera & Ventura of Manila.
 Awaiting your favor, I remain,

Yours very truly,

(Sgd.) B. PICORNELL

The bank granted this request of the defendants; wherefore Hyndman, Tavera & Ventura reaccepted the bill in the
following terms:

Accepted for thirty days. Due May 2d, 1920. Hyndman, Tavera & Ventura, By (Sgd.) J Pardo de Tavera,
member of the firm.

May 2, 1920, arrived and the bill was not paid. On the 4th of the same month, Hyndman, Tavera & Ventura sent a
letter to the plaintiff bank as follows:

DEAR SIRS: We very much regret to have to inform you that we absolutely refuse to pay draft No. 2 for thirty-
nine thousand five hundred and twenty-nine pesos and eighty-three cents (P39,529.83), referring to
1,871,235 quintals of Leaf Tobacco Barili, owing to noncompliance of the contract by the drawer.

We, therefore, beg to notify you that the said Lead Tobacco is at the disposal of your goodselves at our go-
down No. 26-36 Calle Soler.

The bank protested the bill, tool possession of the tobacco, and had it appraised on the 12th of the same month, its
value having been fixed at P28,790.72. That this valuation was just, reasonable and exact is not questioned by the
parties.

The bank brought this action, and about September, 1921, sold the tobacco, obtaining from the sale P6,708.82.

This action is for the recovery of the value of the bill of exchange above-mentioned. The Hyndman, Tavera & Ventura
company accepted it unconditionally, but did not pay it at its maturity; wherefore its responsibility, or that of its
successor, J. Pardo de Tavera, to pay the same, is clear. (Sec. 62, Negotiable Instruments Law.)

The question whether or not the tobacco was worth the value of the bill, does not concern the plaintiff bank. Such
partial want of consideration, if it was, does not exist with respect to the bank which paid to Picornell the full value of
said bill of exchange. The bank was a holder in due course, and was such for value full and complete. The Hyndman,
Tavera & Ventura company cannot escape liability in view of section 28 of the Negotiable Instruments Law.

. . . The drawee by acceptance becomes liable to the payee or his indorsee, and also to the drawer himself.
But the drawer and acceptor are the immediate parties to the consideration, and if the acceptance be
without consideration, the drawer cannot recover of the acceptor. The payee holds a different relation; he is
a stranger to the transaction between the drawer and the acceptor, and is, therefore, in a legal sense a
remote party. In a suit by him against the acceptor, the question as to the consideration between the drawer
and the acceptor cannot be inquired into. The payee or holder gives value to the drawer, and if he is ignorant
of the equities between the drawer and the acceptor, he is in the position on a bona fide indorsee. Hence, it
is no defense to a suit against the acceptor of a draft which has been discounted, and upon which money has
been advance by the plaintiff, that the draft was accepted or the accommodation of the drawer. . . . (3 R. C.
L., pp. 1143, 1144, par, 358.)

As to Bartolome Picornell, he warranted, as drawer of the bill, that it would be accepted upon proper presentment
and paid in due course, and as it was not paid, he became liable to the payment of its value to the holder thereof,
which is the plaintiff bank. (Sec. 61, Negotiable Instruments Law.)

The fact that Picornell was a commission agent of Hyndman, Tavera & Ventura, in the purchase of the tobacco, does
not necessarily make him an agent of the company in its obligations arising from the drawing of the bill by him. His
acts in negotiating the bill constitute a different contract from that made by his having purchased the tobacco on
behalf of Hyndman, Tavera & Ventura. Furthermore, he cannot exempt himself from responsibility by the fact of his
having been a mere agent of this company, because nothing to this effect was indicated or added to his signature on
signing the bill. (Sec. 20, Negotiable Instruments Law.)

The fact that the tobacco was or was not of inferior quality does not affect the responsibility of Picornell, because
while it may an effect upon the contract between him and the firm of Hyndman, Tavera & Ventura, yet it cannot have
upon the responsibility of both to the bank, upon the bill drawn and accepted as above stated.

As to the instruction "D/P" appearing on the instrument, it was not violated by the bank, which, as above stated, kept
possession of the invoice and the bill of lading of the tobacco. By virtue of this circumstance, the bank had the right
to deal with that tobacco as a security in case of non-payment of the bill, and this was admitted by Hyndman, Tavera
& Ventura when, upon their refusal to pay the bill, they placed the tobacco at the disposal of the bank.

Neither does the fact of Hyndman, Tavera & Ventura having been given possession of the tobacco before the
payment of the bill affect the liability of the defendants to the bank thereon.

The title of the bank to the tobacco in question by reason of the condition "D/P" was that a pledgee, and its
possession after its delivery to it by Hyndman, Tavera & Ventura was of the same nature -- a discount security, which
it was authorized to accept and retail. (Act No. 2938.)

The appellants question the power of the bank to sell, as it did, the tobacco in question. Taking into account the
circumstances of the case, we fold that the bank did not violate the law in making such sale without notice. We hold
that it is one of those cases provided for by law (sec. 33, Act. No. 2938), wherein a previous notice of the sale is not
indispensable. Besides, as to the price obtained in the sale, no question is made that it was the best obtainable.

Concerning the notice to Picornell of the dishonor of the bill, it appears from Exhibit C, which is to protest for the
non-payment thereof, that a copy of such protest was sent by mail in good season addressed to Bartolome Picornell,
the presumption, now conclusive, that the latter received it (secs. 105, 106, Negotiable Instruments Law), not having
been rebutted, or at least, contradicted.

Upon the non-payment of the bill by the drawee-acceptor, the bank had the right of recourse, which it exercised,
against the drawer. (Sec. 84, Negotiable Instruments Law.)

The drawee, the Hyndman, Tavera & Ventura company, or its successors, J. Pardo de Tavera, accepted the bill and is
primarily liable for the value of the negotiable instrument, while the drawer, Bartolome Picornell, is secondarily
liable. (3. R. C. L., pp. 1144, 1145.) However, no question has been raised about this aspect of the responsibility of the
defendants.

We are of the opinion that the appellants are liable to the National Bank for the value of the bill of exchange Exhibit
A, deducting therefrom P6,708.82 the proceeds of the sale of the tobacco. But the bank, not having appealed from
the judgment of the lower court, we cannot alter it in favor of said party, which, by its omission to appeal, has shown
full conformity with the judgment rendered.

For the foregoing, the judgment appealed from is affirmed, with costs against the defendants. So ordered.

EQUITABLE PCI BANK vs. ROWENA ONG [September 15, 2006]

On 29 November 1991, Warliza Sarande deposited in her account at Philippine Commercial International (PCI) Bank
Magsaysay Avenue, Santa Ana District, Davao City Branch, under Account No. 8502-00347-6, a PCI Bank General
Santos City Branch, TCBT1 Check No. 0249188 in the amount of P225,000.00. Upon inquiry by Serande at PCI Bank on
5 December 1991 on whether TCBT Check No. 0249188 had been cleared, she received an affirmative answer.
Relying on this assurance, she issued two checks drawn against the proceeds of TCBT Check No. 0249188. One of
these was PCI Bank Check No. 073661 dated 5 December 1991 for P132,000.00 which Sarande issued to respondent
Rowena Ong Owing to a business transaction. On the same day, Ong presented to PCI Bank Magsaysay Avenue
Branch said Check No. 073661, and instead of encashing it, requested PCI Bank to convert the proceeds thereof into
a manager's check, which the PCI Bank obliged. Whereupon, Ong was issued PCI Bank Manager's Check No. 10983
dated 5 December 1991 for the sum of P132,000.00, the value of Check No. 073661.

The next day, 6 December 1991, Ong deposited PCI Bank Manager's Check No. 10983 in her account with Equitable
Banking Corporation Davao City Branch. On 9 December 1991, she received a check return-slip informing her that PCI
Bank had stopped the payment of the said check on the ground of irregular issuance. Despite several demands made
by her to PCI Bank for the payment of the amount in PCI Bank Manager's Check No. 10983, the same was met with
refusal; thus, Ong was constrained to file a Complaint for sum of money, damages and attorney's fees against PCI
Bank.2

From PCI Bank's version, TCBT-General Santos City Check No. 0249188 was returned on 5 December 1991 at 5:00 pm
on the ground that the account against which it was drawn was already closed. According to PCI Bank, it immediately
gave notice to Sarande and Ong about the return of Check No. 0249188 and requested Ong to return PCI Bank
Manager's Check No. 10983 inasmuch as the return of Check No. 0249188 on the ground that the account from
which it was drawn had already been closed resulted in a failure or want of consideration for the issuance of PCI Bank
Manager's Check No. 10983.3

After the pre-trial conference, Ong filed a motion for summary judgment. 4 Though they were duly furnished with a
copy of the motion for summary judgment, PCI Bank and its counsel failed to appear at the scheduled
hearing.5Neither did they file any written comment or opposition thereto. The trial court thereafter ordered Ong to
formally offer her exhibits in writing, furnishing copies of the same to PCI Bank which was directed to file its
comment or objection.6

Ong complied with the Order of the trial court, but PCI Bank failed to file any comment or objection within the period
given to it despite receipt of the same order. 7 The trial court then granted the motion for summary judgment and in
its Order dated 2 March 1995, it held:

IN THE LIGHT OF THE FOREGOING, the motion for summary judgment is GRANTED, ordering defendant
Philippine Commercial International Bank to pay the plaintiff the amount of ONE HUNDRED THIRTY-TWO
THOUSAND PESOS (P132,000.00) equivalent to the amount of PCIB Manager's Check No. 10983.

Set the reception of the plaintiff's evidence with respect to the damages claimed in the complaint. 8

PCI Bank filed a Motion for Reconsideration which the trial court denied in its Order dated 11 April 1996. 9 After the
reception of Ong's evidence in support of her claim for damages, the trial court rendered its Decision 10 dated 3 May
1999 wherein it ruled:

IN LIGHT OF THE FOREGOIN CONSIDERATION, and as plaintiff has preponderantly established by competent
evidence her claims in the Complaint, judgment in hereby rendered for the plaintiff against the defendant-
bank ordering the latter:

1. To pay the plaintiff the sum of FIFTY THOUSAND PESOS (P50,000.00) in the concept of moral
damages;

2. To pay the plaintiff the sum of TWENTY THOUSAND PESOS (P20,000.00) as exemplary damages;

3. To pay the plaintiff the sum of THREE THOUSAND FIVE HUNDRED PESOS (P3,500.00) representing
actual expenses;

4. To pay the plaintiff the sum of TWENTY THOUSAND PESOS (P20,000.00) as and for attorney's fee's;
and

5. To pay the costs.11

From this decision, PCI Bank sought recourse before the Court of Appeals. In a Decision 12 dated 29 October 2002, the
appellate court denied the appeal of PCI Bank and affirmed the orders and decision of the trial court.

Unperturbed, PCI Bank then filed the present petition for review before this Court and raised the following issues:

1. WHETHER OR NOT THE COURT OF APPEALS COMMITTED A GRAVE AND REVERSIBLE ERROR WHEN IT
SUSTAINED THE LOWER COURT'S ORDER DATED 2 MARCH 1999 GRANTING RESPONDENT'S MOTION FOR
SUMMARY JUDGMENT NOTWITHSTANDING THE GLARING FACT THAT THERE ARE GENUINE, MATERIAL AND
FACTUAL ISSUES WHICH REQUIRE THE PRESENTATION OF EVIDENCE.

2. WHETHER OR NOT THE COURT OF APPEALS WAS IN ERROR WHEN IT SUSTAINED THE LOWER COURT'S
DECISION DATED 3 MAY 1999 GRANTING THE RELIEFS PRAYED FOR IN RESPONDENT ONG'S COMPLAINT
INSPITE OF THE FACT THAT RESPONDENT ONG WOULD BE "UNJUSTLY ENRICHED" AT THE EXPENSE OF
PETITIONER BANK, IF PETITIONER BANK WOULD BE REQUIRED TO PAY AN UNFUNDED CHECK.

3. WHETHER OR NOT THE COURT OF APPEALS COMMITTED REVERSIBLE ERRORS WHEN IT AFFIRMED THE
COURT A QUO'S DECISIION DATED 3 MAY 1999 AWARDING DAMAGES TO RESPONDENT ONG AND HOLDING
THAT RESPONDENT ONG HAD PREPONDERANTLY ESTABLISHED BY COMPETENT EVIDENCE HER CLAIMS IN
THE COMPLAINT INSPITE OF THE FACT THAT THE EVIDENCE ON RECORD DOES NOT JUSTIFY THE AWARD OF
DAMAGES.

4. WHETHER OR NOT THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT AFFIRMED THE
LOWER COURT'S FACTUAL FINDING IN ITS DECISION DATED 3 MAY 1999 HOLDING RESPONDENT ONG A
"HOLDER IN DUE COURSE" INSPITE OF THE FACT THAT THE REQUISITE OF "GOOD FAITH" AND FOR VALUE IS
LACKING AND DESPITE THE ABSENCE OF A PROPER TRIAL TO DETERMINE SUCH FACTUAL ISSUE.

5. WHETHER OR NOT THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT UPHELD THE
LOWER COURT'S DECISION DATED 3 MAY 1999 DENYING PETITIONER EPCI BANK'S COUNTERCLAIM INSPITE
OF THE FACT THAT IT WAS SHOWN THAT RESPONDENT ONG'S COMPLAINT LACKS MERIT. 13

We affirm the Decision of the trial court and the Court of Appeals.

The provision on summary judgment is found in Section 1, Rule 35 of the 1997 Rules of Court:

SECTION 1. Summary judgment for claimant. – A party seeking to recover upon a claim, counterclaim, or
cross-claim or to obtain a declaratory relief may, at any time after the pleading in answer thereto has been
served, move with supporting affidavits, depositions or admissions for a summary judgment in his favor upon
all or any part thereof.

Thus, it has been held that a summary judgment is proper where, upon a motion filed after the issues had been
joined and on the basis of the pleadings and papers filed, the court finds that there is no genuine issue as to any
material fact to except as to the amount of damages. A genuine issue has been defined as an issue of fact which calls
for the presentation of evidence, as distinguished from an issue which is sham, fictitious, contrived and patently
unsubstantial so as not to constitute a genuine issue for trial. 14

A court may grant summary judgment to settle expeditiously a case if, on motion of either party, there appears from
the pleadings, depositions, admissions, and affidavits that no important issues of fact are involved, except the
amount of damages.15 Rule 35, Section 3, of the Rules of Court provides two requisites for summary judgment to be
proper: (1) there must be no genuine issue as to any material fact, except for the amount of damages; and (2) the
party presenting the motion for summary judgment must be entitled to a judgment as a matter of law. 16

Certainly, when the facts as pleaded appear uncontested or undisputed, then there's no real or genuine issue or
question as to the facts, and summary judgment is called for. 17

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. Under the circumstances, we find that summary
judgment was proper and a hearing would serve no purpose. That summary judgment is appropriate was incisively
expounded by the trial court when it made the following observation:

[D]efendant-bank had certified plaintiff's PCIB Check No. 073661 and since certification is equivalent to
acceptance, defendant-bank as drawee bank is bound on the instrument upon certification and it is
immaterial to such liability in favor of the plaintiff who is a holder in due course whether the drawer (Warliza
Sarande) had funds or not with the defendant-bank (Security vs. State Bank, 154 N.W. 282) or the drawer was
indebted to the bank for more than the amount of the check (Nat. Bank vs. Schmelz, Nat. Bank, 116 S.E. 880)
as the certifying bank as all the liabilities under Sec. 62 of the Negotiable Instruments Law which refers to
liability of acceptor (Title Guarantee vs. Emadee Realty Corp., 240 N.Y. 36).

It may be true that plaintiff's PCIB Check No. 073661 for P132,000.00 which was paid to her by Warliza
Sarande was actually not funded but since plaintiff became a holder in due course, defendant-bank cannot
interpose a defense of want or lack of consideration because that defense is equitable or personal and
cannot prosper against a holder in due course pursuant to Section 28 of the Negotiable Instruments Law.
Therefore, when the aforementioned check was endorsed and presented by the plaintiff and certified to and
accepted by defendant-bank in the purchase of PCIB Manager's Check No. 1983 in the amount
of P132,000.00, there was a valid consideration. 18

The property of summary judgment was further explained by this Court when it pronounced that:

The theory of summary judgment is that although an answer may on its face appear to tender issues –
requiring trial – yet if it is demonstrated by affidavits, depositions, or admissions that those issues are not
genuine, but sham or fictitious, the Court is unjustified in dispensing with the trial and rendering summary
judgment for plaintiff. The court is expected to act chiefly on the basis of the affidavits, depositions,
admissions submitted by the movant, and those of the other party in opposition thereto. The hearing
contemplated (with 10-day notice) is for the purpose of determining whether the issues are genuine or not,
not to receive evidence on the issues set up in the pleadings. A hearing is not thus de riguer. The matter may
be resolved, and usually is, on the basis of affidavits, depositions, admissions. This is not to say that a hearing
may be regarded as a superfluity. It is not, and the Court has plenary discretion to determine the necessity
therefore.19

The second and fourth issues are inter-related and so they shall be resolved together. The second issue has reference
to PCI Bank's claim of unjust enrichment on the part of Ong if it would be compelled to make good the manager's
check it had issued. As asserted by PCI Bank under the fourth issue, Ong is not a holder in due course because the
manager's check was drawn against a closed account; therefore, the same was issued without consideration.

On the matter of unjust enrichment, the fundamental doctrine of unjust enrichment is the transfer of value without
just cause or consideration. The elements of this doctrine are: enrichment on the part of the defendant;
impoverishment on the part of the plaintiff; and lack of cause. The main objective is to prevent one to enrich himself
at the expense of another. 20 It is based on the equitable postulate that it is unjust for a person to retain benefit
without paying for it.21 It is well to stress that the check of Sarande had been cleared by the PCI Bank for which
reason the former issued the check to Ong. A check which has been cleared and credited to the account of the
creditor shall be equivalent to a delivery to the creditor of cash in an amount equal to the amount credited to his
account.22

Having cleared the check earlier, PCI Bank, therefore, became liable to Ong and it cannot allege want or failure of
consideration between it and Sarande. Under settled jurisprudence, Ong is a stranger as regards the transaction
between PCI Bank and Sarande.23

PCI Bank next insists that since there was no consideration for the issuance of the manager's check, ergo, Ong is not a
holder in due course. This claim is equally without basis. Pertinent provisions of the Negotiable Instruments Law are
hereunder quoted:

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.

Easily discernible is that what Ong obtained from PCI Bank was not just any ordinary check but a manager's check. A
manager's check is an order of the bank to pay, drawn upon itself, committing in effect its total resources, integrity
and honor behind its issuance. By its peculiar character and general use in commerce, a manager's check is regarded
substantially to be as good as the money it represents. 24

A manager's check stands on the same footing as a certified check. 25 The effect of certification is found in Section
187, Negotiable Instruments Law.

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.26

The effect of issuing a manager's check was incontrovertibly elucidated when we declared that:

A manager's check is one drawn by the bank's manager upon the bank itself. It is similar to a cashier's check
both as to effect and use. A cashier's check is a check of the bank's cashier on his own or another check. In
effect, it is a bill of exchange drawn by the cashier of a bank upon the bank itself, and accepted in advance by
the act of its issuance. It is really the bank's own check and may be treated as a promissory note with the
bank as a maker. The check becomes the primary obligation of the bank which issues it and constitutes its
written promise to pay upon demand. The mere issuance of it is considered an acceptance thereof. x x x. 27

In the case of New Pacific Timber & Supply Co., Inc. v. Seneris 28:

[S]ince the said check had been certified by the drawee bank, by the certification, the funds represented by
the check are transferred from the credit of the maker to that of the payee or holder, and for all intents and
purposes, the latter becomes the depositor of the drawee bank, with rights and duties of one in such
situation. Where a check is certified by the bank on which it is drawn, the certification is equivalent to
acceptance. Said certification "implies that the check is drawn upon sufficient funds in the hands of the
drawee, that they have been set apart for its satisfaction, and that they shall be so applied whenever the
check is presented for payment. It is an understanding that the check is good then, and shall continue good,
and this agreement is as binding on the bank as its notes circulation, a certificate of deposit payable to the
order of depositor, or any other obligation it can assume. The object of certifying a check, as regards both
parties, is to enable the holder to use it as money." When the holder procures the check to be certified, "the
check operates as an assignment of a part of the funds to the creditors." Hence, the exception to the rule
 enunciated under 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" shall apply in this case x x x.

By accepting PCI Bank Check No. 073661 issued by Sarande to Ong and issuing in turn a manager's check in exchange
thereof, PCI Bank assumed the liabilities of an acceptor under Section 62 of the Negotiable Instruments Law which
states:

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.

With the above jurisprudential basis, the issues on Ong being not a holder in due course and failure or want of
consideration for PCI Bank's issuance of the manager's check is out of sync.

Section 2, of Republic Act No. 8791, The General Banking Law of 2000 decrees:

SEC. 2. Declaration of Policy. – The State recognizes the vital role of banks in providing an environment
conducive to the sustained development of the national economy and the fiduciary nature of banking that
requires high standards of integrity and performance. In furtherance thereof, the State shall promote and
maintain a stable and efficient banking and financial system that is globally competitive, dynamic and
responsive to the demands of a developing economy.

In Associated Bank v. Tan,29 it was reiterated:

"x x x the degree of diligence required of banks is more than that of a good father of a family where the
fiduciary nature of their relationship with their depositors is concerned." Indeed, the banking business is
vested with the trust and confidence of the public; hence the "appropriate standard of diligence must be
very high, if not the highest degree of diligence."

Measured against these standards, the next question that needs to be addressed is: Did PCI Bank exercise the
requisite degree of diligence required of it? From all indications, it did not. PCI Bank distinctly made the following
uncontested admission:

1. On 29 November 1991, one Warliza Sarande deposited to her savings account with PCI Bank's Magsaysay
Avenue Branch, TCBT-General Santos Branch Check No. 0249188 for P225,000.00. Said check, however, was
inadvertently sent by PCI Bank through local clearing when it should have been sent through inter-regional
clearing since the check was drawn at TCBT-General Santos City.

2. On 5 December 1991, Warliza Sarande inquired whether TCBT Check No. 0249188 had been cleared. Not
having received any advice from the drawee bank within the regular clearing period for the return of locally
cleared checks, and unaware then of the error of not having sent the check through inter-regional clearing,
PCI Bank advised her that Check No. 024188 is treated as cleared. x x x. 30 (Emphasis supplied.)

From the foregoing, it is palpable and readily apparent that PCI Bank failed to exercise the highest degree of
care31required of it under the law.

In the case of Philippine National Bank v. Court of Appeals,32 we declared:

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. Whether as mere passive entities for the safe-keeping and saving of
money or as active instruments of business and commerce, banks have attained an ubiquitous presence
 among the people, who have come to regard them with respect and even gratitude and, most of all,
confidence.

Having settled the other issues, we now resolve the question on the award of moral and exemplary damages by the
trial court to the respondent.

Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded
feelings, moral shock, social humiliation, and similar injury. Though incapable of pecuniary computation, moral
damages may be recovered if they are the proximate result of the defendant's wrongful act or omission. 33 The
requisites for an award of moral damages are well-defined, thus, firstly, evidence of besmirched reputation or
physical, mental or psychological suffering sustained by the claimant; secondly, a culpable act or omission factually
established; thirdly, proof that the wrongful act or omission of the defendant is the proximate cause of the damages
sustained by the claimant; and fourthly, that the case is predicated on any of the instances expressed or envisioned
by Article 221934 and Article 222035 of the Civil Code. All these elements are present in the instant case. 36

In the first place, by refusing to make good the manager's check it has issued, Ong suffered embarrassment and
humiliation arising from the dishonor of the said check. 37 Secondly, the culpable act of PCI Bank in having cleared the
check of Serande and issuing the manager's check to Ong is undeniable. Thirdly, the proximate cause of the loss is
attributable to PCI Bank. Proximate cause is defined as 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.38 In this case, the proximate cause of the loss is the act of PCI Bank in having cleared the check of Sarande
and its failure to exercise that degree of diligence required of it under the law which resulted in the loss to Ong.

On exemplary damages, Article 2229 of the Civil Code states:

Art. 2229. Exemplary or corrective damages are imposed, by way of example or correction for the public
good, in addition to the moral, temperate, liquidated or compensatory damages.

The law allows the grant of exemplary damages to set an example for the public good. 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. Whether as mere passive entities for the safe-keeping and saving of money or as active instruments of
business and commerce, banks have attained an ubiquitous presence among the people, who have come to regard
them with respect and even gratitude and most of all, confidence. For this reason, banks should guard against injury
attributable to negligence or bad faith on its part. 39 Without a doubt, it has been repeatedly emphasized that since
the banking business is impressed with public interest, of paramount importance thereto is the trust and confidence
of the public in general. Consequently, the highest degree of diligence is expected, and high standards of integrity
and performance are even required of it. 40 Having failed in this respect, the award of exemplary damages is
warranted.

Article 2216 of the Civil Code provides:

ART. 2216. No proof of pecuniary loss is necessary in order that moral, nominal, temperate, liquidated or
exemplary damages may be adjudicated. The assessment of such damages, except liquidated ones, is left to
the discretion of the court, according to the circumstances of each case.

Based on the above provision, the determination of the amount to be awarded (except liquidated damages) is left to
the sound discretion of the court according to the circumstances of each case. 41 In the case before us, we find that
the award of moral damages in the amount of P50,000.00 and exemplary damages in the amount of P20,000.00 is
reasonable and justified.

With the above disquisition, there is no necessity of further discussing the last issue on the PCI Bank's counterclaim
based on the supposed lack of merit of Ong's complaint.

WHEREFORE, premises considered, the Petition is DENIED and the Decision of the Court of Appeals dated 29 October
2002 in CA-G.R. CV No. 65000 affirming the Decision dated 3 may 1999, of the Regional Trial Court of Davao City,
Branch 14, in Civil Case No. 21458-92, are AFFIRMED.
SO ORDERED.

FAR EAST BANK & TRUST COMPANY vs. GOLD PALACE JEWELLERY CO. [August 20, 2008]

{CHECK DIGESTED CASES - INDORSEMENT}

ANG TIONG vs. LORENZO TING [February 22, 1968]

On August 15, 1960 Lorenzo Ting issued Philippine Bank of Communications check K-81618, for the sum of
P4,000, payable to "cash or bearer". With Felipe Ang's signature (indorsement in blank) at the back thereof, the
instrument was received by the plaintiff Ang Tiong who thereafter presented it to the drawee bank for payment. The
bank dishonored it. The plaintiff then made written demands on both Lorenzo Ting and Felipe Ang that they make
good the amount represented by the check. These demands went unheeded; so he filed in the municipal court of
Manila an action for collection of the sum of P4,000, plus P500 attorney's fees. On March 6, 1962 the municipal court
adjudged for the plaintiff against the two defendants.
 Only Felipe Ang appealed to the Court of First Instance of Manila (civil case 50018), which rendered judgment
on July 31, 1962, amended by an order dated August 9, 1962, directing him to pay to the plaintiff "the sum of P4,000,
with interest at the legal rate from the date of the filing of the complaint, a further sum of P400 as attorney's fees,
and costs."

Felipe Ang then elevated the case to the Court of Appeals, which certified it to this Court because the issues
raised are purely of law.

The appellant imputes to the court a quo three errors, namely, (1) that it refused to apply article 2071 of the
new Civil Code to the case at bar; (2) that it adjudged him a general indorser under the Negotiable Instruments Law
(Act 2031); and (3) that it held that he "cannot obtain his release from the contract of suretyship or obtain security to
protect himself against any proceedings on the part of the creditor and against the danger of insolvency of the
principal debtor," because he is "jointly and severally liable on the instrument."

This, appeal is absolutely without merit.

1. The genuineness and due execution of the instrument are not controverted. That the appellee is a holder
thereof for value is admitted.

Having arisen from a bank check which is indisputably a negotiable instrument, the present case is, therefore, in
so far as the indorsee is concerned vis-a-vis the indorser, governed solely plaintiff the Negotiable Instruments Law
(see secs. 1 and 185). Article 2071 of the new Civil Code, invoked by the appellant, the pertinent portion of which
states, "The guarantor, even before been paid, may proceed against the principal debtor; (1) when he is sued for the
payment; . . . the action of the guarantor is to obtain release from the guaranty, to demand a security that shall
protect him from any proceedings by the creditor . . .," is here completely irrelevant and can have no application
whatsoever.

We are in agreement with the trial judge that nothing in the check in question indicates that the appellant is
not a general indorser within the purview of section 63 of the Negotiable Instruments Law which makes "a person
placing his signature upon an instrument otherwise than as maker, drawer or acceptor" 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." 1

2. Even on the assumption that the appellant is a mere accommodation party, as he professes to be, he is
nevertheless, by the clear mandate of section 29 of the Negotiable Instruments Law, yet "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." To paraphrase, the accommodation party is liable to a holder for value as if the contract was
not for accommodation. 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. 2

3. That the appellant, again assuming him to be an accommodation indorser, may obtain security from the
maker to protect himself against the danger of insolvency of the latter, cannot in any manner affect his liability to the
appellee, as the said remedy is a matter of concern exclusively between accommodation indorser and
accommodated party. So that the fact that the appellant stands only as a surety in relation to the maker, granting this
to be true for the sake of argument, is immaterial to the claim of the appellee, and does not a whit diminish nor
defeat the rights of the latter who is a holder for value. The liability of the appellant remains primary and
unconditional. To sanction the appellant's theory is to give unwarranted legal recognition to the patent absurdity of a
situation where an indorser, when sued on an instrument by a holder in due course and for value, can escape liability
on his indorsement by the convenient expedient of interposing the defense that he is a mere accomodation indorser.
 ACCORDINGLY, the judgment a quo is affirmed in toto, at appellant's cost.

PEOPLE OF THE PHILIPPINES vs. JULIA MANIEGO [February 27, 1987]

Application of the established rule in this jurisdiction, that the acquittal of an accused on reasonable doubt is not
generally an impediment to the imposition, in the same criminal action, of civil liability for damages on said accused,
is what is essentially called into question by the appellant in this case.

The information which initiated the instant criminal proceedings in the Court of First Instance of Rizal indicted three
(3) persons — Lt. Rizalino M. Ubay, Mrs. Milagros Pamintuan, and Mrs. Julia T. Maniego — for the crime of
MALVERSATION committed as follows:
 That on or about the period covering the month of May, 1957 up to and including the month of
August, 1957, in Quezon City, Philippines, the above-named accused, conspiring together,
confederating with and helping one another, with intent of gain and without authority of law, did,
then and there, willfully, unlawfully and feloniously malverse, misappropriate and misapply public
funds in the amount of P 66,434.50 belonging to the Republic of the Philippines, in the following
manner, to wit: the accused, Lt. RIZALINO M. Ubay, a duly appointed officer in the Armed Forces of
the Philippines in active duty, who, during the period specified above, was designated as Disbursing
Officer in the Office of the Chief of Finance, GHQ, Camp Murphy, Quezon City, and as such was
entrusted with and had under his custody and control public funds, conspiring and confederating
with co-accused, MILAGROS T. PAMINTUAN and JULIA T. MANIEGO, did then and there, unlawfully,
willfully and feloniously, with intent of gain and without authority of law, and in pursuance of their
conspiracy, take, receive, and accept from his said co-accused several personal checks drawn against
the Philippine National Bank and the Bank of the Philippine Islands, of which the accused, MILAGROS
T. PAMINTUAN is the drawer and the accused, JULIA T. MANIEGO, is the indorser, in the total amount
of P66,434.50, cashing said checks and using for this purpose the public funds entrusted to and
placed under the custody and control of the said Lt. Rizalino M. Ubay, all the said accused knowing
fully well that the said checks are worthless and are not covered by funds in the aforementioned
banks, for which reason the same were dishonored and rejected by the said banks when presented
for encashment, to the damage and prejudice of the Republic of the Philippines, in the amount of
P66,434.50, Philippine currency. 1

Only Lt. Ubay and Mrs. Maniego were arraigned, Mrs. Pamintuan having apparently fled to the United States in
August, 1962. 2 Both Ubay and Maniego entered a plea of not guilty. 3

After trial judgment was rendered by the Court of First Instance, 4 the dispositive part whereof reads:

There being sufficient evidence beyond reasonable doubt against the accused, Rizalino M. Ubay, the
Court hereby convicts him of the crime of malversation and sentences him to suffer the penalty of
reclusion temporal of TWELVE (12) YEARS, ONE (1) DAY to FOURTEEN (14) YEARS, EIGHT (8) MONTHS,
and a fine of P57,434.50 which is the amount malversed, and to suffer perpetual special
disqualification.

In the absence of evidence against accused Julia T. Maniego, the Court hereby acquits her, but both
she and Rizal T. Ubay are hereby ordered to pay jointly and severally the amount of P57,434.50 to the
government. 5

Maniego sought reconsideration of the judgment, praying that she be absolved from civil liability or, at the very least,
that her liability be reduced to P46,934.50. 6 The Court declined to negate her civil liability, but did reduce the
amount thereof to P 46,934.50. 7 She appealed to the Court of Appeals 8 as Ubay had earlier done. 9

Ubay's appeal was subsequently dismissed by the Appellate Court because of his failure to file brief. 10 On the other
hand, Maniego submitted her brief in due course, and ascribed three (3) errors to the Court a quo, to wit:

1) The Lower Court erred in holding her civilly liable to indemnify the Government for the value of
the cheeks after she had been found not guilty of the crime out of which the civil liability arises.

2) Even assuming arguendo that she could properly be held civilly liable after her acquittal, it was
error for the lower Court to adjudge her liable as an indorser to indemnify the government for the
amount of the cheeks.

3) The Lower Court erred in declaring her civilly liable jointly and severally with her co-defendant
Ubay, instead of absolving her altogether. 11

Because, in the Appellate Court's view, Maniego's brief raised only questions of law, her appeal was later certified to
this Court pursuant to Section 17, in relation to Section 31, of the Judiciary Act, as amended, and Section 3, Rule 50
of the Rules of Court. 12
The verdict must go against the appellant.

Well known is the principle that "any person criminally hable for felony is also civilly liable." 13 But a person adjudged
not criminally responsible may still be held to be civilly liable. A person's acquittal of a crime on the ground that his
guilt has not been proven beyond reasonable doubt 14 does not bar a civil action for damages founded on the same
acts involved in the offense. 15 Extinction of the penal action does not carry with it extinction of the civil unless the
extinction proceeds from a declaration in a final judgment that the fact from which the civil might arise did not
exist. 16

Rule III SEC. 3(b) — Extinction of the penal action does not carry with it extinction of the civil, unless
the extinction proceeds from a declaration in a final judgment that the fact from which the civil
might arise did not exist. In other cases, the person entitled to the civil action may institute it in the
jurisdiction and in the manner provided by law against the person who may be liable for restitution
of the thing and reparation of indemnity for the damage suffered. (1985 Rules on Criminal
Procedure).

Hence, contrary to her submission, 17 Maniego's acquittal on reasonable doubt of the crime of Malversation imputed
to her and her two (2) co-accused did not operate to absolve her from civil liability for reimbursement of the amount
rightfully due to the Government as owner thereof. Her liability therefor could properly be adjudged, as it was so
adjudged, by the Trial Court on the basis of the evidence before it, which adequately establishes that she was an
indorser of several checks drawn by her sister, which were dishonored after they had been exchanged with cash
belonging to the Government, then in the official custody of Lt. Ubay.

Appellant's contention that as mere indorser, she may not be made liable on account of the dishonor of the checks
indorsed by her, is likewise untenable. Under the law, the holder or last indorsee of a negotiable instrument has the
right to "enforce payment of the instrument for the full amount thereof against all parties liable thereon." 18 Among
the "parties liable thereon" is an indorser of the instrument i.e., "a person placing his signature upon an instrument
otherwise than as maker, drawer, or acceptor ** unless he clearly indicates by appropriate words his intention to be
bound in some other capacity. " 19 Such an indorser "who indorses without qualification," inter alia "engages that on
due presentment, ** (the instrument) shall be accepted or paid, or both, as the case may be, according to its tenor,
and that if it be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount
thereof to the holder, or to any subsequent indorser who may be compelled to pay it." 20 Maniego may also be
deemed an "accommodation party" in the light of the facts, i.e., 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." 21 As such, she is under the law "liable on the instrument to a holder for value, notwithstanding such
holder at the time of taking the instrument knew ** (her) to be only an accommodation party," 22 although she has
the right, after paying the holder, to obtain reimbursement from the party accommodated, "since the relation
between them is in effect that of principal and surety, the accommodation party being the surety." 23

One last word. The Trial Court acted correctly in adjudging Maniego to be civilly liable in the same criminal action in
which she had been acquitted of the felony of Malversation ascribed to her, dispensing with the necessity of having a
separate civil action subsequently instituted against her for the purpose. 24

WHEREFORE, the judgment of the Trial Court, being entirely in accord with the facts and the law, is hereby

THE PHILIPPINE BANK OF COMMERCE vs. JOSE ARUEGO [January 31, 1981]

The defendant, Jose M. Aruego, appealed to the Court of Appeals from the order of the Court of First Instance of
Manila, Branch XIII, in Civil Case No. 42066 denying his motion to set aside the order declaring him in default, 1 and
from the order of said court in the same case denying his motion to set aside the judgment rendered after he was
declared in default. 2 These two appeals of the defendant were docketed as CA-G.R. NO. 27734-R and CA-G.R. NO.
27940-R, respectively.

Upon motion of the defendant on July 25, 1960, 3 he was allowed by the Court of Appeals to file one consolidated
record on appeal of CA-G.R. NO. 27734-R and CA-G.R. NO. 27940-R. 4
In a resolution promulgated on March 1, 1966, the Court of Appeals, First Division, certified the consolidated appeal
to the Supreme Court on the ground that only questions of law are involved. 5

On December 1, 1959, the Philippine Bank of Commerce instituted against Jose M. Aruego Civil Case No. 42066 for
the recovery of the total sum of about P35,000.00 with daily interest thereon from November 17, 1959 until fully
paid and commission equivalent to 3/8% for every thirty (30) days or fraction thereof plus attorney's fees equivalent
to 10% of the total amount due and costs. 6 The complaint filed by the Philippine Bank of Commerce contains twenty-
two (22) causes of action referring to twenty-two (22) transactions entered into by the said Bank and Aruego on
different dates covering the period from August 28, 1950 to March 14, 1951. 7 The sum sought to be recovered
represents the cost of the printing of "World Current Events," a periodical published by the defendant. To facilitate
the payment of the printing the defendant obtained a credit accommodation from the plaintiff. Thus, for every
printing of the "World Current Events," the printer, Encal Press and Photo Engraving, collected the cost of printing by
drawing a draft against the plaintiff, said draft being sent later to the defendant for acceptance. As an added security
for the payment of the amounts advanced to Encal Press and Photo-Engraving, the plaintiff bank also required
defendant Aruego to execute a trust receipt in favor of said bank wherein said defendant undertook to hold in trust
for plaintiff the periodicals and to sell the same with the promise to turn over to the plaintiff the proceeds of the sale
of said publication to answer for the payment of all obligations arising from the draft. 8

Aruego received a copy of the complaint together with the summons on December 2, 1959. 9 On December 14, 1959
defendant filed an urgent motion for extension of time to plead, and set the hearing on December 16, 1959. 10At the
hearing, the court denied defendant's motion for extension. Whereupon, the defendant filed a motion to dismiss the
complaint on December 17, 1959 on the ground that the complaint states no cause of action because:

a) When the various bills of exchange were presented to the defendant as drawee for acceptance, the amounts
thereof had already been paid by the plaintiff to the drawer (Encal Press and Photo Engraving), without knowledge or
consent of the defendant drawee.

b) In the case of a bill of exchange, like those involved in the case at bar, the defendant drawee is an accommodating
party only for the drawer (Encal Press and Photo-Engraving) and win be liable in the event that the accommodating
party (drawer) fails to pay its obligation to the plaintiff. 11

The complaint was dismissed in an order dated December 22, 1959, copy of which was received by the defendant on
December 24, 1959. 12

On January 13, 1960, the plaintiff filed a motion for reconsideration. 13 On March 7, 1960, acting upon the motion for
reconsideration filed by the plaintiff, the trial court set aside its order dismissing the complaint and set the case for
hearing on March 15, 1960 at 8:00 in the morning. 14 A copy of the order setting aside the order of dismissal was
received by the defendant on March 11, 1960 at 5:00 o'clock in the afternoon according to the affidavit of the deputy
sheriff of Manila, Mamerto de la Cruz. On the following day, March 12, 1960, the defendant filed a motion to
postpone the trial of the case on the ground that there having been no answer as yet, the issues had not yet been
joined. 15 On the same date, the defendant filed his answer to the complaint interposing the following defenses: That
he signed the document upon which the plaintiff sues in his capacity as President of the Philippine Education
Foundation; that his liability is only secondary; and that he believed that he was signing only as an accommodation
party. 16

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

On May 9, 1960 the defendant filed a notice of appeal from the order dated March 25, 1961 denying his motion to
set aside the order declaring him in default, an appeal bond in the amount of P60.00, and his record on appeal. The
plaintiff filed his opposition to the approval of defendant's record on appeal on May 13, 1960. The following day, May
14, 1960, the lower court dismissed defendant's appeal from the order dated March 25, 1960 denying his motion to
set aside the order of default. 22 On May 19, 1960, the defendant filed a motion for reconsideration of the trial court's
order dismissing his appeal. 23 The plaintiff, on May 20, 1960, opposed the defendant's motion for reconsideration of
the order dismissing appeal. 24 On May 21, 1960, the trial court reconsidered its previous order dismissing the appeal
and approved the defendant's record on appeal. 25 On May 30, 1960, the defendant received a copy of a notice from
the Clerk of Court dated May 26, 1960, informing the defendant that the record on appeal filed ed by the defendant
was forwarded to the Clerk of Court of Appeals. 26

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

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

THE LOWER COURT ERRED IN HOLDING THAT THE DEFENDANT WAS IN DEFAULT.

II

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

III

THE LOWER COURT ERRED IN DENYING DEFENDANT'S PETITION FOR RELIEF OF ORDER OF DEFAULT
AND FROM JUDGMENT BY DEFAULT AGAINST DEFENDANT. 31

It has been held that to entitle a party to relief from a judgment taken against him through his mistake, inadvertence,
surprise or excusable neglect, he must show to the court that he has a meritorious defense. 32 In other words, in
order to set aside the order of default, the defendant must not only show that his failure to answer was due to fraud,
accident, mistake or excusable negligence but also that he has a meritorious defense.

The record discloses that Aruego received a copy of the complaint together with the summons on December 2, 1960;
that on December 17, 1960, the last day for filing his answer, Aruego filed a motion to dismiss; that on December 22,
1960 the lower court dismissed the complaint; that on January 23, 1960, the plaintiff filed a motion for
reconsideration and on March 7, 1960, acting upon the motion for reconsideration, the trial court issued an order
setting aside the order of dismissal; that a copy of the order was received by the defendant on March 11, 1960 at
5:00 o'clock in the afternoon as shown in the affidavit of the deputy sheriff; and that on the following day, March 12,
1960, the defendant filed his answer to the complaint.
The failure then of the defendant to file his answer on the last day for pleading is excusable. The order setting aside
the dismissal of the complaint was received at 5:00 o'clock in the afternoon. It was therefore impossible for him to
have filed his answer on that same day because the courts then held office only up to 5:00 o'clock in the afternoon.
Moreover, the defendant immediately filed his answer on the following day.

However, while the defendant successfully proved that his failure to answer was due to excusable negligence, he has
failed to show that he has a meritorious defense. The defendant does not have a good and substantial defense.

Defendant Aruego's defenses consist of the following:

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

b) The defendant signed these bills of exchange not as principal obligor, but as accommodation or additional party
obligor, to add to the security of said plaintiff bank. The reason for this statement is that unlike real bills of exchange,
where payment of the face value is advanced to the drawer only upon acceptance of the same by the drawee, in the
case in question, payment for the supposed bills of exchange were made before acceptance; so that in effect,
although these documents are labelled bills of exchange, legally they are not bills of exchange but mere instruments
evidencing indebtedness of the drawee who received the face value thereof, with the defendant as only additional
security of the same. 33

The first defense of the defendant is that he signed the supposed bills of exchange as an agent of the Philippine
Education Foundation Company where he is president. Section 20 of the Negotiable Instruments Law provides that
"Where the instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a
principal or in a representative capacity, he is not liable on the instrument if he was duly authorized; but the mere
addition of words describing him as an agent or as filing a representative character, without disclosing his principal,
does not exempt him from personal liability."

An inspection of the drafts accepted by the defendant shows that nowhere has he disclosed that he was signing as a
representative of the Philippine Education Foundation Company. 34 He merely signed as follows: "JOSE ARUEGO
(Acceptor) (SGD) JOSE ARGUEGO For failure to disclose his principal, Aruego is personally liable for the drafts he
accepted.

The defendant also contends that he signed the drafts only as an accommodation party and as such, should be made
liable only after a showing that the drawer is incapable of paying. This contention is also without merit.

An accommodation party is one who has signed the instrument as maker, drawer, indorser, without receiving value
therefor and for the purpose of lending his name to some other person. Such person is liable on the instrument to a
holder for value, notwithstanding such holder, at the time of the taking of the instrument knew him to be only an
accommodation party.35 In lending his name to the accommodated party, the accommodation party is in effect a
surety for the latter. He lends his name to enable the accommodated party to obtain credit or to raise money. He
receives no part of the consideration for the instrument but assumes liability to the other parties thereto because he
wants to accommodate another. In the instant case, the defendant signed as a drawee/acceptor. Under the
Negotiable Instrument Law, a drawee is primarily liable. Thus, if the defendant who is a lawyer, he should not have
signed as an acceptor/drawee. In doing so, he became primarily and personally liable for the drafts.

The defendant also contends that the drafts signed by him were not really bills of exchange but mere pieces of
evidence of indebtedness because payments were made before acceptance. This is also without merit. Under the
Negotiable Instruments Law, a bill of exchange is an unconditional order in writting addressed by one person to
another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed
or determinable future time a sum certain in money to order or to bearer. 36 As long as a commercial paper conforms
with the definition of a bill of exchange, that paper is considered a bill of exchange. The nature of acceptance is
important only in the determination of the kind of liabilities of the parties involved, but not in the determination of
whether a commercial paper is a bill of exchange or not.
It is evident then that the defendant's appeal can not prosper. To grant the defendant's prayer will result in a new
trial which will serve no purpose and will just waste the time of the courts as well as of the parties because the
defense is nil or ineffective. 37

WHEREFORE, the order appealed from in Civil Case No. 42066 of the Court of First Instance of Manila denying the
petition for relief from the judgment rendered in said case is hereby affirmed, without pronouncement as to costs.

SO ORDERED.

R. N. CLARK vs. GEORGE SELLNER [November 22, 1921]

The defendant, in conjunction with two other persons, signed the following note in favor of the plaintiff:

P12,000.00 MANILA, July 1, 1914.

Six months after date, for value received, we jointly and severally promise to pay to the order of R. N.
Clark at his office in the city of Manila, the sum of twelve thousand pesos, Philippine currency, with
interest thereon in like currency from date until paid at the rate of ten per cent per annum, payable
quarterly.
 If suit is necessary to collect this note, we hereby agree to pay as attorney's fees ten per centum of
the amount found due.

(Sgd.) W. H. CLARKE,
[INTERNAL REVENUE JOHN MAYE. STAMP.] By W. H. CLARKE, his attorney.
GEO. C. SELLNER."

The note matured, but its amount was not paid.

Counsel for the defendant allege that the latter did not receive in that transaction either the whole or any part of the
amount of the debt; that the instrument was not presented to the defendant for payment; and that the defendant,
being an accommodation party, is not liable unless the note is negotiated, which was not done, as shown by the
evidence.

With regard to the first point, the liability of the defendant, as one of the signers of the note, is not dependent on
whether he has, or has not, received any part of the amount of the debt. The defendant is really and expressly one of
the joint and several debtors on the note, and as such he is liable under the provisions of section 60 of Act No. 2031,
entitled The Negotiable Instruments Law, which provisions should be applied in this case in view of the character of
the instrument.

As to presentment for payment, such action is not necessary in order to charge the person primarily liable, as is the
defendant. (Sec. 70, Act No. 2031.)

And as to whether or not the defendant is an accommodation party, it should be taken into account that by putting
his signature to the note, he lent his name, not to the creditor, but to those who signed with him placing himself with
respect to the creditor in the same position and with the same liability as the said signers. It should be noted that the
phrase "without receiving value therefor," as used in section 29 of the aforesaid Act, means "without receiving value
by virtue of the instrument" and not, as it apparently is supposed to mean, "without receiving payment for lending
his name." If, as in the instant case, a sum of money was received by virtue of the note, it is immaterial, so far as the
creditor is concerned, whether one of the singers has, or has not, received anything in payment of the use of his
name. In reality the legal situation of the defendant in this case may properly be regarded as that of a joint surety
rather than that of an accommodation party. The defendant, as a joint surety, may, upon the maturity of the note,
pay the debt, demand the collateral security and dispose of it to his benefit; but there is no proof whatever that this
was done. As to the plaintiff, he is the "holder for value," under the phrase of said section 29, for he had paid the
money to the signers at the time the note was executed and delivered to him. Who is the "holder" is defined in
section 191 of the said law thus:

"Holder" means the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof.

And as such holder, he has the right to demand payment of the debt from the signer of the note, even though he
knows that said person is merely an accommodation party (section 29 above cited), assuming the defendant to be
such, which, as has been stated, is not the case.

The trial judge took into account the fact that at the time of the maturity of the note, the collateral security given to
guarantee the payment was worth more than what was due on the note, but it depreciated to such an extent that, at
the time of the institution of this action, it was entirely valueless. And taking this circumstance, together with the fact
that this case was not commenced until after the lapse of four years from the date on which the payment fell due,
and with the further fact that the defendant had not received any part of the amount mentioned in the note, he was
of the opinion, and so decided, that the defendant could not be held liable. The theory of the judge a quo was that
the plaintiff's failure to enforce the guaranty for the payment of the debt, and his delay in instituting this action
constitute laches, which had the effect of extinguishing his right of action.

We see no sufficient ground for applying such a theory to the case before us. As stated, the defendant's position
being, as it is, that of a joint surety, he may, at any time after the maturity of the note, make payment, thus
subrogating himself in the place of the creditor with the right to enforce the guaranty against the other signers of the
note for the reimbursement of what he is entitled to recover from them. The mere delay of the creditor in enforcing
the guaranty has not by any means impaired his action against the defendant. It should not be lost sight of that the
defendant's signature on the note is an assurance to the creditor that the collateral guaranty will remain good, and
that otherwise, he, the defendant, will be personally responsible for the payment.

True, that if the creditor had done any act whereby the guaranty was impaired in its value, or discharged, such an act
would have wholly or partially released the surety; but it must be born in mind that it is a recognized doctrine in the
matter of suretyship that with respect to the surety, the creditor is under no obligation to display any diligence in the
enforcement of his rights as a creditor. His mere inaction, indulgence, passiveness, or delay in proceeding against the
principal debtor, or the fact that he did not enforce the guaranty or apply on the payment of such funds as were
available, constitute no defense at all for the surety, unless the contract expressly requires diligence and promptness
on the part of the creditor, which is not the case in the present action. There is in some decisions a tendency toward
holding that the creditor's laches may discharge the surety, meaning by laches a negligent forbearance. This theory,
however, is not generally accepted and the courts almost universally consider it essentially inconsistent with the
relation of the parties to the note. (21 R. C. L., 1032-1034.)

We find that in the judgment appealed from there were committed the errors assigned, and that the defendant is
under obligation to pay the plaintiff the amount of the debt, as prayed for in the complaint.lawphil.net

The judgment appealed from must, therefore, be, as is hereby, reversed. Let an order be issued to the effect that the
plaintiff have and recover from the defendant the sum of twelve thousand pesos (P12,000), as principal debt, plus
one thousand two hundred pesos (P1,200), the sum agreed upon as attorney's fees, and 10 per cent interest on the
principal debt from July 1, 1914, until it is fully paid, deducting therefrom the sum of three hundred pesos (P300)
already paid on account, as stated in the complaint.

This decision is rendered without special pronouncement as to costs. So ordered.

FERNANDO MAULINI, ET AL. vs. ANTONIO SERRANO [December 16, 1914]

This is an appeal from a judgment of the Court of First Instance of the city of Manila in favor of the plaintiff for the
sum of P3,000, with interest thereon at the rate of
1½ per cent month from September 5, 1912, together with the costs.

The action was brought by the plaintiff upon the contract of indorsement alleged to have been made in his favor by
the defendant upon the following promissory note:

3,000. Due 5th of September, 1912.

 We jointly and severally agree to pay to the order of Don Antonio G. Serrano on or before the 5th day of
September, 1912, the sum of three thousand pesos (P3,000) for value received for commercial operations.
Notice and protest renounced. If the sum herein mentioned is not completely paid on the 5th day of
September, 1912, this instrument will draw interest at the rate of 1½ per cent per month from the date when
due until the date of its complete payment. The makers hereof agree to pay the additional sum of P500 as
attorney's fees in case of failure to pay the note.

Manila, June 5, 1912.

(Sgd.) For Padern, Moreno & Co., by F. Moreno, member of the firm. For Jose Padern, by F. Moreno. Angel
Gimenez.

The note was indorsed on the back as follows:

Pay note to the order of Don Fernando Maulini, value received. Manila, June 5, 1912. (Sgd.) A.G. Serrano.

The first question for resolution on this appeal is whether or not, under the Negotiable Instruments Law, an indorser
of a negotiable promissory note may, in an action brought by his indorsee, show, by parol evidence, that the
indorsement was wholly without consideration and that, in making it, the indorser acted as agent for the indorsee, as
a mere vehicle of transfer of the naked title from the maker to the indorsee, for which he received no consideration
whatever.

The learned trial court, although it received parol evidence on the subject provisionally, held, on the final decision of
the case, that such evidence was not admissible to alter, very, modify or contradict the terms of the contract of
indorsement, and, therefore, refused to consider the evidence thus provisionally received, which tended to show
that, by verbal agreement between the indorser and the indorsee, the indorser, in making the indorsement, was
acting as agent for the indorsee, as a mere vehicle for the transference of naked title, and that his indorsement was
wholly without consideration. The court also held that it was immaterial whether there was a consideration for the
transfer or not, as the indorser, under the evidence offered, was an accommodation indorser.

We are of the opinion that the trial court erred in both findings.1awphil.net

In the first place, the consideration of a negotiable promissory note, or of any of the contracts connected therewith,
like that of any other written instrument, is, between the immediate parties to the contract, open to attack, under
proper circumstances, for the purpose of showing an absolute lack or failure of consideration.

It seems, according to the parol evidence provisionally admitted on the trial, that the defendant was a broker doing
business in the city of Manila and that part of his business consisted in looking up and ascertaining persons who had
money to loan as well as those who desired to borrow money and, acting as a mediary, negotiate a loan between the
two. He had done much business with the plaintiff and the borrower, as well as with many other people in the city of
Manila, prior to the matter which is the basis of this action, and was well known to the parties interested. According
to his custom in transactions of this kind, and the arrangement made in this particular case, the broker obtained
compensation for his services of the borrower, the lender paying nothing therefor. Sometimes this was a certain per
cent of the sum loaned; at other times it was a part of the interest which the borrower was to pay, the latter paying
1½ per cent and the broker ½ per cent. According to the method usually followed in these transactions, and the
procedure in this particular case, the broker delivered the money personally to the borrower, took note in his own
name and immediately transferred it by indorsement to the lender. In the case at bar this was done at the special
request of the indorsee and simply as a favor to him, the latter stating to the broker that he did not wish his name to
appear on the books of the borrowing company as a lender of money and that he desired that the broker take the
note in his own name, immediately transferring to him title thereto by indorsement. This was done, the note
being at once transferred to the lender.

According to the evidence referred to, there never was a moment when Serrano was the real owner of the note. It
was always the note of the indorsee, Maulini, he having furnished the money which was the consideration for the
note directly to the maker and being the only person who had the slightest interest therein, Serrano, the broker,
acting solely as an agent, a vehicle by which the naked title to the note passed fro the borrower to the lender. The
only payment that the broker received was for his services in negotiating the loan. He was paid absolutely nothing for
becoming responsible as an indorser on the paper, nor did the indorsee lose, pay or forego anything, or alter his
position thereby.

Nor was the defendant an accommodation indorser. The learned trial court quoted that provision of the Negotiable
Instruments Law which defines an accommodation party as "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 the same to be only an accommodation party." (Act No. 2031, sec. 29.)

We are of the opinion that the trial court misunderstood this definition. The accommodation to which reference is
made in the section quoted is not one to the person who takes the note — that is, the payee or indorsee, but one to
the maker or indorser of the note. It is true that in the case at bar it was an accommodation to the plaintiff, in a
popular sense, to have the defendant indorse the note; but it was not the accommodation described in the law, but,
rather, a mere favor to him and one which in no way bound Serrano. In cases of accommodation indorsement the
indorser makes the indorsement for the accommodation of the maker. Such an indorsement is generally for the
purpose of better securing the payment of the note — that is, he lend his name to the maker, not to the holder.
Putting it in another way: An accommodation note is one to which the accommodation party has put his name,
without consideration, for the purpose of accommodating some other party who is to use it and is expected to pay it.
The credit given to the accommodation part is sufficient consideration to bind the accommodation maker. Where,
however, an indorsement is made as a favor to the indorsee, who requests it, not the better to secure payment, but
to relieve himself from a distasteful situation, and where the only consideration for such indorsement passes from
the indorser to the indorsee, the situation does not present one creating an accommodation indorsement, nor one
where there is a consideration sufficient to sustain an action on the indorsement.

The prohibition in section 285 of the Code of Civil Procedure does not apply to a case like the one before us. The
purpose of that prohibition is to prevent alternation, change, modification or contradiction of the terms of a written
instrument, admittedly existing, by the use of parol evidence, except in the cases specifically named in the section.
The case at bar is not one where the evidence offered varies, alters, modifies or contradicts the terms of the contract
of indorsement admittedly existing. The evidence was not offered for that purpose. The purpose was to show that no
contract of indorsement ever existed; that the minds of the parties never met on the terms of such contract; that
they never mutually agreed to enter into such a contract; and that there never existed a consideration upon which
such an agreement could be founded. The evidence was not offered to vary, alter, modify, or contradict the terms of
an agreement which it is admitted existed between the parties, but to deny that there ever existed any agreement
whatever; to wipe out all apparent relations between the parties, and not to vary, alter or contradict the terms of a
relation admittedly existing; in other words, the purpose of the parol evidence was to demonstrate, not that the
indorser did not intend to make the particular indorsement which he did make; not that he did not intend to make
the indorsement in the terms made; but, rather, to deny the reality of any indorsement; that a relation of any kind
whatever was created or existed between him and the indorsee by reason of the writing on the back of the
instrument; that no consideration ever passed to sustain an indorsement of any kind whatsoever.

The contention has some of the appearances of a case in which an indorser seeks prove forgery. Where an indorser
claims that his name was forged, it is clear that parol evidence is admissible to prove that fact, and, if he proves it, it
is a complete defense, the fact being that the indorser never made any such contract, that no such relation ever
existed between him and the indorsee, and that there was no consideration whatever to sustain such a contract. In
the case before us we have a condition somewhat similar. While the indorser does not claim that his name was
forged, he does claim that it was obtained from him in a manner which, between the parties themselves, renders,
the contract as completely inoperative as if it had been forged.

Parol evidence was admissible for the purpose named.1awphil.net

There is no contradiction of the evidence offered by the defense and received provisionally by the court. Accepting it
as true the judgment must be reversed.

The judgment appealed from is reversed and the complaint dismissed on the merits; no special finding as to costs.
Arellano, C.J., Johnson and Trent, JJ., concur.

PHILIPPINE NATIONAL BANK vs. RAMON MAZA and FRANCISCO MECENAS [November 3, 1925]

The Philippine National Bank is suing Ramon Maza and Francisco Mecenas on five promissory notes of ten thousand
pesos (P10,000) each.

Maza and Mecenas executed two of the promissory notes on January 20, 1921, due three months after date. The
three other notes due four months after date. The three other notes due four months after date were executed by
the same parties on January 21, 1921. One of the above-mentioned notes, typical of the rest reads as follows:
 P10,000 ILOILO, I.F. Jan. 20, 1921.

A los tres meses de la fecha, pagaremos mancomunada y solidariamente a la orden del Philippine
National Bank, Iloilo, Iloilo, I. F., la cantidad de diez mil (P10,000) pesos en el Philippine National
Bank.

Iloilo, I. F.

Valor Recibido.

No. 340 Pagadero el 4/20/21

(Fdos.) RAMOS MAZA

FRANCISCO MECENAS

The notes were not taken up by Maza and Mecenas at maturity. The obligations with accumulated interest totaled
P65,207.73 on September 22, 1924.

To recover the amounts stated on the face of the notes with back interest, action was begun by the Philippine
National Bank in the court of first instance of Iloilo against Ramon Maza and Francisco Mecenas. The special defense
interposed by the defendants was that the promissory notes were sent in blank to them by Enrique Echaus with the
request that they sign them so that he, Echaus, might negotiate them with the Philippine National Bank in case of
need; that the defendants have not negotiated the promissory notes with the bank, nor have they received the value
thereof, or delivered them to the bank in payment of any preexisting debt; and that it was Enrique Echaus who
negotiated the noted with the bank and who is accordingly the real party in interest and the party liable for the
payment of the notes. Defendants also moved that Echaus be ordered included as one of the defendants. The trial
judge denied the motion. Judgment was rendered in favor of the plaintiff and against the defendants jointly and
severally for a total of P65,207.73, with interest at 9 per cent on twenty thousand pesos (P5) a day, and with interest
at 9 per cent on thirty thousand pesos (P30,000) from September 23, 1924, or at the rate of P7.5 a day, and with
costs.

Four errors are assigned by the defendants on appeal. The first error relates to the order of the trial judge refusing to
require Enrique Echaus to become a party to the action. As the defendants failed to duly except to the order, they are
not now entitled to ask this court to review the ruling. Moreover, it is not evident that Echaus was an indispensable
party. The other three error go to the merits and rest on the same foundation as the special defense.

From the pleadings and the stipulation of facts, it is deduced that the defendants admit the genuineness and due
execution of the instruments sued on . Neither do the appellants point out any mistake in regard to the amount and
interest that the lower court sentenced them to pay to the plaintiff bank. Predicated on these premises, from
whatever point of view we look at the case, we arrive at the same conclusion — that the defendants are liable.

On the first assumption that Maza and Mecenas were the principals and Echaus the agent, as argued by counsel for
the appellee, the principals must fulfill their obligations. On another assumption, which is a fact, that the defendants
are exactly what they appear to be, the makers of the negotiable instruments, then they must keep their
engagement and must pay as promised. Their liability on the instruments is primary and unconditional.

The most plausible and reasonable stand for the defendants is that they are accommodation parties. but as
accommodation parties, the defendants having signed the instruments without receiving value therefor and for the
purpose of lending their names to some other person, are still liable on the instruments. The law now is that the
accommodation party can claim no benefit as such, but he is liable according to the face of his undertaking, the same
as if he were himself financially interested in the transaction.lawph!1.net

The defense is made to the action that the defendants never received the value of the promissory notes. it is, of
course, fundamental that an instrument given without consideration does not create any obligation at law or in
equity in favor of the payee. However, to fasten liability upon an accommodation maker, it is not necessary that any
consideration should move to him. The consideration which supports the promise of the accommodation maker is
that parted with by the person taking the note and received by the person accommodated.

While perhaps unnecessary to this decision, it may properly be remarked that when the accommodation parties
make payment to the holder of the notes, they have the right to sue the accommodated party for reimbursement,
since the relation between them is in effect that of principal and sureties, the accommodation parties being the
sureties.

Judgment affirmed with costs.

TOWN SAVINGS AND LOAN BANK, INC. vs. CA, SPOUSES MIGUELITO AND ALICIA HIPOLITO [June 17, 1993]

This is a petition for review on certiorari to set aside the decision dated March 12, 1992, of the Court of Appeals in
CA-G.R. CV No. 29475 entitled, "Town Savings and Loan Bank, Inc. vs. Spouses Miguel Hipolito and Alicia N. Hipolito"
reversing the decision dated September 14, 1990 of the Regional Trial Court of Bulacan which declared that the
Hipolitos were accommodation parties on the promissory note and holding them liable to pay Town Savings And
Loan Bank the sum of P1,392, 600.00.
On or about May 4, 1983, the Hipolitos applied for, and were granted, a loan in the amount of P700,000.00 with
interest of 24% per annum for which they executed and delivered to Town Savings and Loan Bank (or TSLB) a
promissory note with a maturity period of three (3) years and an acceleration clause upon default in the payment of
any amortization, plus a penalty of 36% and 10% attorney's fees, if the note were referred to an attorney for
collection. For failure to keep current their monthly payments on the account, the obligors were deemed to have
defaulted on May 24, 1984. Notices of past due account and demands for payment were sent but ignored. At the
time of the institution of the action on March 12, 1986, the unpaid obligation amounted to P1,114,983.40.

The Hipolitos denied being personally liable on the P700,000.00 promissory note which they executed. The loan was
allegedly for the account of Pilarita H. Reyes, the sister of Miguel Hipolito. She was the real party-in-interest. The
Hipolitos, not having received any part of the loan, were mere guarantors for Pilarita. They allegedly signed the
promissory note because they were persuaded to do so by Joey Santos, President of TSLB. When they received the
demand letters, they confronted him but they were told that the Bank had to observe the formality of sending
notices and demand letters. The real purpose was only to pressure Pilarita to comply with her undertaking.

Insisting that they were mere guarantors, the Hipolitos vehemently protested against being dragged into the
litigation as principal parties. As a result of the unfounded suit, they allegedly incurred actual damages estimated at
P200,000.00 and attorney's fees of P30,000.00.

In a decision dated September 14, 1990, Judge Zotico A. Toleto of the RTC of Malolos, Branch 18, held the
respondents (then defendants) spouses Miguel and Alicia Hipolito, liable as accommodation parties on the
promissory note.

The spouses appealed to the Court of Appeals. In a decision dated March 12, 1992, the Court of Appeals found that
the Hipolitos did not accommodate Pilarita but the TSLB, whose lending authority was restricted by the size of its
loan portfolio. The Hipolitos were relieved from any liability to TSLB.

Hence, this petition for review by TSLB.

The lone issue in this case is whether the Hipolitos are liable on the promissory note which they executed in favor of
the petitioner.

We hold for the petitioner.

An accommodation party is one who has signed the instrument as marker, drawer, indorser, without
receiving value therefor and for the purpose of lending his name to some other person. Such person
is liable on the instrument to a holder for value, notwithstanding such holder, at the time of the
taking of the instrument knew him to be only an accommodation party. In lending his name to the
accommodated party, the accommodation party is in effect a surety for the latter. He lends his name
to enable the accommodated party to obtain credit or to raise money. He receives no part of the
consideration for the instrument but assumes liability to the other parties thereto because he wants
to accommodate another. (The Phil. Bank of Commerce vs. Aruego, 102 SCRA 530, 539, 540.)

In this case, there is no question that the private respondents signed the promissory note in order to enable Pilarita
H. Reyes, who is Miguel Hipolito's sister, to borrow the total sum of P1.4 million from TSLB. As observed by both the
trial court and the appellate court, the actual beneficiary of the loan was Pilarita H. Reyes and no other. The Hipolitos
accommodated her by signing a promissory note for half of the loan that she applied for because TSLB may not lend
any single borrower more than the authorized limit of its loan portfilio. Under Section 29 of the Negotiable
Instruments Law, the Hipolitos are liable to the bank on the promissory note that they signed to accommodate
Pilarita.

Respondent appellate court erred in giving credence to Hipolito's allegation that it was the bank's president who
induced him to sign the promissory note so that the bank would not violate the Central Bank's regulation limiting the
amount that TSLB could lend out. Besides being self-serving, Hipolito's testimony was uncorroborated by any other
evidence on record, therefore, it should have been received with extreme caution. The Court is convinced that the
intention of respondents Hipolitos in signing the promissory note was not so much to enable the Bank to grant a loan
to Pilarita but for the latter to be able to obtain the full amount of the loan that she needed at the time.

It is not credible that a Bank would want so much to lend money to a borrower that it would go out of its way to
convince another person (respondent Miguel Hipolito) to accommodate the borrower (Pilarita H. Reyes). In the
ordinary course of things, the borrower, Pilarita, not the Bank, would have requested her brother Miguel to
accommodate her so she could have the P1.4 million that she wanted to borrow from the Bank.

The case of Maulini vs. Serrano (28 Phil. 640), relied upon by the appellate court in reversing the decision of the trial
court, is not applicable to this case. In that case, the evidence showed that the indorser (the loan broker Serrano) in
making the indorsement to the lender, Maulini, was acting as agent for the latter or, as a mere vehicle for the
transference of the naked title from the borrower or maker of the note (Moreno). Furthermore, his indorsement was
wholly without consideration. We ruled that Serrano was not an accommodation indorser; he was not liable on the
note.

. . . Where, however, an indorsement is made as a favor to the indorsee, who requests it, not the
better to secure payment, but to relieve himself from a distasteful situation, and where the only
consideration for such indorsement passes from the indorser to the indorsee, the situation does not
present one creating an accommodation indorsement, nor one where there is a consideration
sufficient to sustain an action on the indorsement. (p. 644.)

Unlike the Maulini case, there was no agreement here, written or verbal, that in signing the promissory note, Miguel
and Alicia Hipolito were acting as agents for the money lender the Bank. The consideration of the note signed by the
Hipolitos was received by them through Pilarita. They acted as agents of Pilarita, not of the bank. They signed the
promissory note as favor to Pilarita, to help her raise the funds that she needed. It was Pilarita whom they
accommodated, not the bank, contrary to the erroneous finding of the appellate court.

WHEREFORE, the petition for review is GRANTED. The appealed decision of the Court of Appeals is hereby REVERSED
and that of the trial court is REINSTATED. Costs against the private respondents.

SO ORDERED.

MELVA THERESA ALVIAR GONZALES vs. RIZAL COMMERCIAL BANKING CORPORATION [November 29, 2006]

An action for a sum of money originating from the Regional Trial Court (RTC) of Makati City, Branch 61, thereat
docketed as Civil Case No. 88-1502, was decided in favor of therein plaintiff, now respondent Rizal Commercial
Banking Corporation (RCBC). On appeal to the Court of Appeals (CA) in CA-G.R. CV No. 48596, that court, in a
decision1 dated August 30, 2002, affirmed the RTC minus the award of attorney’s fees. Upon the instance of herein
petitioner Melva Theresa Alviar Gonzales, the case is now before this Court via this petition for review on certiorari,
based on the following undisputed facts as unanimously found by the RTC and the CA, which the latter summarized
as follows:

Gonzales was an employee of Rizal Commercial Banking Corporation (or RCBC) as New Accounts Clerk in the Retail
Banking Department at its Head Office.

A foreign check in the amount of $7,500 was drawn by Dr. Don Zapanta of the Ade Medical Group with address at
569 Western Avenue, Los Angeles, California, against the drawee bank Wilshire Center Bank, N.A., of Los Angeles,
California, U.S.A., and payable to Gonzales’ mother, defendant Eva Alviar (or Alviar). Alviar then endorsed this check.
Since RCBC gives special accommodations to its employees to receive the check’s value without awaiting the clearing
period, Gonzales presented the foreign check to Olivia Gomez, the RCBC’s Head of Retail Banking. After examining
this, Olivia Gomez requested Gonzales to endorse it which she did. Olivia Gomez then acquiesced to the early
encashment of the check and signed the check but indicated thereon her authority of "up to ₱17,500.00 only".
Afterwards, Olivia Gomez directed Gonzales to present the check to RCBC employee Carlos Ramos and procure his
signature. After inspecting the check, Carlos Ramos also signed it with an "ok" annotation. After getting the said
signatures Gonzales presented the check to Rolando Zornosa, Supervisor of the Remittance section of the Foreign
Department of the RCBC Head Office, who after scrutinizing the entries and signatures therein authorized its
encashment. Gonzales then received its peso equivalent of ₱155,270.85.

RCBC then tried to collect the amount of the check with the drawee bank by the latter through its correspondent
bank, the First Interstate Bank of California, on two occasions dishonored the check because of "END. IRREG" or
irregular indorsement. Insisting, RCBC again sent the check to the drawee bank, but this time the check was returned
due to "account closed". Unable to collect, RCBC demanded from Gonzales the payment of the peso equivalent of
the check that she received. Gonzales settled the matter by agreeing that payment be made thru salary deduction.
This temporary arrangement for salary deductions was communicated by Gonzales to RCBC through a letter dated
November 27, 1987 xxx

xxx xxx xxx

The deductions was implemented starting October 1987. On March 7, 1988 RCBC sent a demand letter to Alviar for
the payment of her obligation but this fell on deaf ears as RCBC did not receive any response from Alviar. Taking
further action to collect, RCBC then conveyed the matter to its counsel and on June 16, 1988, a letter was sent to
Gonzales reminding her of her liability as an indorser of the subject check and that for her to avoid litigation she has
to fulfill her commitment to settle her obligation as assured in her said letter. On July 1988 Gonzales resigned from
RCBC. What had been deducted from her salary was only ₱12,822.20 covering ten months.

It was against the foregoing factual backdrop that RCBC filed a complaint for a sum of money against Eva Alviar,
Melva Theresa Alviar-Gonzales and the latter’s husband Gino Gonzales. The spouses Gonzales filed an Answer with
Counterclaim praying for the dismissal of the complaint as well as payment of ₱10,822.20 as actual damages,
₱20,000.00 as moral damages, ₱20,000.00 as exemplary damages, and ₱20,000.00 as attorney’s fees and litigation
expenses. Defendant Eva Alviar, on the other hand, was declared in default for having filed her Answer out of time.

After trial, the RTC, in its three-page decision, 2 held two of the three defendants liable as follows:

WHEREFORE, premises above considered and plaintiff having established its case against the defendants as above
stated, judgment is hereby rendered for plaintiff and as against defendant EVA. P. ALVIAR as principal debtor and
defendants MELVA THERESA ALVIAR GONZLAES as guarantor as follows:

1. To pay plaintiff the amount of ₱142,648.65 (₱155,270.85 less the amount of ₱12,622.20, as salary
deduction of [Gonzales]), representing the outstanding obligation of the defendants with interest of 12% per
annum starting February 1987 until fully paid;

2. To pay the amount of ₱40,000.00 as and for attorney’s fees; and to

3. Pay the costs of this suit.

SO ORDERED.

On appeal, the CA, except for the award of attorney’s fees, affirmed the RTC judgment.

Hence, this recourse by the petitioner on her submission that the CA erred

XXX IN FINDING [PETITIONER], AN ACCOMMODATION PARTY TO A CHECK SUBSEQUENTLY ENDORSED

PARTIALLY, LIABLE TO RCBC AS GUARANTOR;

XXX IN FINDING THAT THE SIGNATURE OF GOMEZ, AN RCBC EMPLOYEE, DOES NOT CONSTITUTE AS AN
ENDORSEMENT BUT ONLY AN INTER-BANK APPROVAL OF SIGNATURE NECESSARY FOR THE ENCASHMENT OF
THE CHECK;

XXX IN NOT FINDING RCBC LIABLE ON THE COUNTERCLAIMS OF [THE PETITIONER].

The recourse is impressed with merit.

The dollar-check3 in question in the amount of $7,500.00 drawn by Don Zapanta of Ade Medical Group (U.S.A.)
against a Los Angeles, California bank, Wilshire Center Bank N.A., was dishonored because of "End. Irregular," i.e., an
irregular endorsement. While the foreign drawee bank did not specifically state which among the four signatures
found on the dorsal portion of the check made the check irregularly endorsed, it is absolutely undeniable that only
the signature of Olivia Gomez, an RCBC employee, was a qualified endorsement because of the phrase "up to
₱17,500.00 only." There can be no other acceptable explanation for the dishonor of the foreign check than this
signature of Olivia Gomez with the phrase "up to ₱17,500.00 only" accompanying it. This Court definitely agrees with
the petitioner that the foreign drawee bank would not have dishonored the check had it not been for this signature
of Gomez with the same phrase written by her.

The foreign drawee bank, Wilshire Center Bank N.A., refused to pay the bearer of this dollar-check drawn by Don
Zapanta because of the defect introduced by RCBC, through its employee, Olivia Gomez. It is, therefore, a useless
piece of paper if returned in that state to its original payee, Eva Alviar.

There is no doubt in the mind of the Court that a subsequent party which caused the defect in the instrument cannot
have any recourse against any of the prior endorsers in good faith. Eva Alviar’s and the petitioner’s liability to
subsequent holders of the foreign check is governed by the Negotiable Instruments Law as follows:

Sec. 66. Liability of general indorser. - Every indorser who indorses without qualification, warrants to all subsequent
holders in due course;

(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section; and

(b) That the instrument is, at the time of his indorsement, valid and subsisting;

And, in addition, he engages that, on due presentment, it shall be accepted or paid, or both, as the case may be,
according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will
pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it.

The matters and things mentioned in subdivisions (a), (b) and (c) of Section 65 are the following:

(a) That the instrument is genuine and in all respects what it purports to be;

(b) That he has a good title to it;

(c) That all prior parties had capacity to contract;

Under Section 66, the warranties for which Alviar and Gonzales are liable as general endorsers in favor of subsequent
endorsers extend only to the state of the instrument at the time of their endorsements, specifically, that the
instrument is genuine and in all respects what it purports to be; that they have good title thereto; that all prior
parties had capacity to contract; and that the instrument, at the time of their endorsements, is valid and subsisting.
This provision, however, cannot be used by the party which introduced a defect on the instrument, such as
respondent RCBC in this case, which qualifiedly endorsed the same, to hold prior endorsers liable on the instrument
because it results in the absurd situation whereby a subsequent party may render an instrument useless and inutile
and let innocent parties bear the loss while he himself gets away scot-free. It cannot be over-stressed that had it not
been for the qualified endorsement ("up to ₱17,500.00 only") of Olivia Gomez, who is the employee of RCBC, there
would have been no reason for the dishonor of the check, and full payment by drawee bank therefor would have
taken place as a matter of course.

Section 66 of the Negotiable Instruments Law which further states that the general endorser additionally engages
that, on due presentment, the instrument shall be accepted or paid, or both, as the case may be, according to its
tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay the amount
thereof to the holder, or to any subsequent endorser who may be compelled to pay it, must be read in the light of
the rule in equity requiring that those who come to court should come with clean hands. The holder or subsequent
endorser who tries to claim under the instrument which had been dishonored for "irregular endorsement" must not
be the irregular endorser himself who gave cause for the dishonor. Otherwise, a clear injustice results when any
subsequent party to the instrument may simply make the instrument defective and later claim from prior endorsers
who have no knowledge or participation in causing or introducing said defect to the instrument, which thereby
caused its dishonor.

Courts in this jurisdiction are not only courts of law but also of equity, and therefore cannot unqualifiedly apply a
provision of law so as to cause clear injustice which the framers of the law could not have intended to so deliberately
cause. In Carceller v. Court of Appeals,4 this Court had occasion to stress:

Courts of law, being also courts of equity, may not countenance such grossly unfair results without doing violence to
its solemn obligation to administer fair and equal justice for all.

RCBC, which caused the dishonor of the check upon presentment to the drawee bank, through the qualified
endorsement of its employee, Olivia Gomez, cannot hold prior endorsers, Alviar and Gonzales in this case, liable on
the instrument.

Moreover, it is a well-established principle in law that as between two parties, he who, by his acts, caused the loss
shall bear the same.5 RCBC, in this instance, should therefore bear the loss.

Relative to the petitioner’s counterclaim against RCBC for the amount of ₱12,822.20 which it admittedly deducted
from petitioner’s salary, the Court must order the return thereof to the petitioner, with legal interest of 12% per
annum, notwithstanding the petitioner’s apparent acquiescence to such an arrangement. It must be noted that
petitioner is not any ordinary client or depositor with whom RCBC had this isolated transaction. Petitioner was a
rank-and-file employee of RCBC, being a new accounts clerk thereat. It is easy to understand how a vulnerable
Gonzales, who is financially dependent upon RCBC, would rather bite the bullet, so to speak, and expectedly opt for
salary deduction rather than lose her job and her entire salary altogether. In this sense, we cannot take petitioner’s
apparent acquiescence to the salary deduction as being an entirely free and voluntary act on her part. Additionally,
under the obtaining facts and circumstances surrounding the present complaint for collection of sum of money by
RCBC against its employee, which may be deemed tantamount to harassment, and the fact that RCBC itself was the
one, acting through its employee, Olivia Gomez, which gave reason for the dishonor of the dollar-check in question,
RCBC may likewise be held liable for moral and exemplary damages and attorney’s fees by way of damages, in the
amount of ₱20,000.00 for each.

WHEREFORE, the assailed CA Decision dated August 30, 2002 is REVERSED and SET ASIDE and the Complaint in this
case DISMISSED for lack of merit. Petitioner’s counterclaim is GRANTED, ordering the respondent RCBC to reimburse
petitioner the amount ₱12,822.20, with legal interest computed from the time of salary deduction up to actual
payment, and to pay petitioner the total amount of ₱60,000.00 as moral and exemplary damages, and attorney’s
fees.

Costs against the respondent.

SO ORDERED.