3. What are negotiable instruments and its examples?

A negotiable instrument is a written contract for the payment of money, by its form intended as substitute
for money and intended to pass from hand to hand to give the holder in due course the right to hold the
same and collect the sum due.

There are three kinds of negotiable instruments, namely:

a. promissory note – an unconditional promise in writing made by one person to another, signed by the
maker, engaging to pay on demand, or at a fixed or determinable future time, a sum certain in money to
order or to bearer.
b. bill of exchange – an unconditional order in writing addressed by one person to another, signed by the
person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable
future time a sum certain in money to order or to bearer.
c. check – a bill of exchange drawn on a bank payable on demand.
e.g. Personal check, manager’s/cashier’s check, memorandum check, crossed check

http://sc.judiciary.gov.ph/jurisprudence/2006/july2006/G.R.%20No.%20148211.htm

4. Functions and uses of negotiable instruments:

Negotiable Instrument operates as a substitute for money; as a means of creating and transferring credit;
facilitates the sale of goods; increases the purchasing medium in circulation.

5. Instruments that are negotiable but not covered by the Negotiable Instruments Law:
Instruments which are negotiable but not covered by the Negotiable Instruments Law are document of title,
letter of credit, certificate of stock, pawn ticket, treasury warrant, and postal money order.

6. What is a legal tender?

A legal tender is that which a debtor may compel a creditor to accept in payment of a debt.

Only notes and coins issued by the Banko Sentral ng Pilipinas are considered legal tender. Checks are not
considered legal tender, but a check that has been cleared and credited to the account of the creditor shall
be equivalent to delivery to the creditor of cash in an amount equal to the amount credited to his account.

http://sc.judiciary.gov.ph/jurisprudence/2009/feb2009/184849.htm

A. NEGOTIABLE INSTRUMENTS IN GENERAL

a-1. Definition – is a written contract for the payment of money which by its form and on its face is intended
as a substitute for money and passes from hand to hand as money, so as to give the holder in due course
the right to hold the instrument and collect the sum for himself.
a-2. Essential Features
Negotiability
Accumulated of contracts
Provisional payment for obligation

a-3. Functions of negotiable instruments

1. Substitutes for money
2. Increases purchasing power in circulation
3. Increases credit circulation
4. Monetary equivalent
a-4. Requisites for negotiability [Section 1]

In writing signed by maker or drawer

Contains an unconditional promise or order to pay a sum certain in money
http://sc.judiciary.gov.ph/jurisprudence/2006/december2006/154469.htm
Difference between Negotiable Instruments from Non-Negotiable Instruments:
 Negotiable Instruments Non-negotiable Instruments

does not contain all the requisites of Sec. 1 of

Contains all the requisites of Sec. 1 of the NIL
the NIL

Transferred by negotiation transferred by assignment

Holder in due course may have better rights than

transferee acquires rights only of his transferor
transferor

Prior parties warrant payment prior parties merely warrant legality of title

Transferee has right of recourse against

transferee has no right of recourse
intermediate parties

Difference between Negotiable Instruments and Negotiable Documents of Title

Negotiable Instruments Negotiable Documents of Title

Have requisites of Sec. 1 of the NIL does not contain requisites of Sec. 1 of NIL

Have right of recourse against intermediate

no secondary liability of intermediate parties
parties who are secondarily liable

Holder in due course may have rights better transferee merely steps into the shoes of the
than transferor transferor

Subject is money subject is goods

instrument is merely evidence of title; thing of value

Instrument itself is property of value
are the goods mentioned in the document

Other Forms of Negotiable Instruments:

a. certificates of deposits

b. trade acceptances

c. bonds in the nature of promissory notes

d. drafts which are bills of exchange drawn by 1 bank to another

e. letters of credit
Trust Receipt – a security transaction intended to aid in the financing of importers and retailers who do not
have sufficient funds to finance their transaction and acquire credit except to use as collateral the
merchandise imported

2-a. Unconditional Promise or Order [Section 3]

1. An indication of a particular fund out of which reimbursement is to be made

2. An indication of a particular account to be debited with the amount

3. A statement of the transaction giving rise to the instrument

2-b. Sum Certain in Money [Section 2]

With interest

By stated installment

By stated installment with escalation clause

With exchange, whether at a fixed rate or at the current rate

a. see Ponce vs. Court of Appeals, 90 SCRA 533

b. see Kalalo vs. Luz, 34 SCRA 337

https://www.philstar.com/business/2014/09/30/1374625/electronic-negotiable-instrument-does-it-exist

https://www.lawphil.net/judjuris/juri2014/jun2014/gr_166018_2014.html

With costs of collection or an attorney’s fees in case of non-payment at maturity

2-c. Test of Negotiability: Whether or not the promise or order would give rise to a separate cause of action
for breach of contract if the additional act is not performed or done

2-d. Provisions Not Affecting Negotiability [Section 5]

1. Authorizes sale of collateral securities in case instrument is not paid at maturity

2. Authorizes confession of judgment if instrument is not paid at maturity

3. Waives benefit of any law intended for the advantage or protection of the obligor; or

4. Gives the holder an election to require something to be done in lieu of money

Payable on demand, or at a fixed, or determinable future time [Section 1]

3-a. Payable on Demand [Section 7]

Expressed to be payable on demand, at sight or presentation

No time for payment is expressed

Instrument is issued, accepted or indorsed when overdue with regards to the person issuing, accepting or
indorsing

3-b. Payable at a Determinable Future Time [Section 4]

Fixed period after date or sight

On or before a fixed or determinable future time

On or at a fixed period after occurrence of a specified event certain to happen

Payable to order or bearer

4-a. Payable to Order [Section 8]

1. To a Payee who is not the maker, drawer or drawee

2. The Maker or Drawer [To be complete, must be indorsed by maker or drawer, Section 184]

http://sc.judiciary.gov.ph/jurisprudence/2017/april2017/190432.pdf

3. The drawee

4. Two or more payees jointly

5. One or some of several payees

6. Holder of an office for the time being

4-b. Payable to Bearer [Section 9]

Expressed to be payable to bearer

Payable to named person or bearer

Payable to fictitious person and such fact is known to the person making it so payable

Name of payee does not purport to be a name of any person

Last indorsement is an indorsement in blank

Where instrument is addressed to a drawee, he must be named or otherwise indicated therein with
reasonable certainty

http://sc.judiciary.gov.ph/jurisprudence/2013/september2013/157943.pdf

5-a. May be addressed to two or more drawees jointly

5-b. But not to two or more drawees in the alternative or in succession [Section 128]

a-5. Forms
Promissory note

1-a. Definition – an unconditional promise in writing made by one person to another, signed by maker,
engaging to pay on demand, or at a fixed or determinable future time, a sum certain in money to order or
to bearer [Section 184]

http://sc.judiciary.gov.ph/jurisprudence/2013/february2013/164155.pdf

1-b. Option of the Holder

1. Bills of exchange where the drawer and the drawee are the same person

2. Bills of exchange where the drawee is a fictitious person

3. Bills of exchange where the drawee is a person not having capacity to contract [Section 130]

Bill of exchange

2-a. Definition – an unconditional order in writing addressed by one person to another, signed by the person
giving it, requiring the person to whom it is addressed to pay on demand, or at a fixed or determinable future
time a sum certain in money to order or to bearer [Section 126]

http://sc.judiciary.gov.ph/jurisprudence/2006/july2006/G.%20R.%20%20No.%20137002.htm

2-b. Kinds

1. Inland bill of exchange – one drawn and payable within the Philippines [Section 129]

2. Foreign bill of exchange – one drawn within the Philippines but payable outside, or one drawn outside
but payable within the Philippines [Ibid]

3. If instrument is ambiguous that there is doubt whether it is a bill of exchange or a promissory note, the
holder may treat it either at his election [Section 17(e); Bar, 1998]
a-6. Parties

Promissory note

1-a. Maker

1.b. Payee/indorser

1-c. Subsequent indorser

1-d. Holder

Bill of Exchange

2-a. Drawer

2-b. Drawee/Acceptor

1. Drawee is not liable on the bill unless and until he accepts the same [Section 127]

2. The moment he accepts the bill of exchange, he becomes an acceptor

2-c. Payee/indorser

2-d. Subsequent indorser

2-e. Referee in case of need [Section 131]

2-f. Holder

Difference between Promissory Note and Bill of Exchange

Promissory Note Bill of Exchange

Unconditional promise unconditional order

 Involves 2 parties involves 3 parties

Maker primarily liable drawer only secondarily liable

only 1 presentment – for payment generally 2 presentments – for acceptance and for payment

Distinctions between a Check and Bill of Exchange

CHECK BOE

– always drawn upon a bank or banker – may or may not be drawn against a bank

– may be payable on demand or at a fixed or

– always payable on demand
determinable future time

– necessary that it be presented for

– not necessary that it be presented for acceptance
acceptance

– drawn on a deposit – not drawn on a deposit

– the death of a drawer of a check, with knowledge by – the death of the drawer of the ordinary bill
the banks, revokes the authority of the banker pay of exchange does not

– must be presented for payment within a reasonable – may be presented for payment within a
time after its issue (6 months) reasonable time after its last negotiation.

Distinctions between a Promissory Note and Check

PN CHECK

– there are two (2) parties, the maker and the – there are three (3) parties, the drawer, the
payee drawee bank and the payee

– may be drawn against any person, not

– always drawn against a bank
necessarily a bank

– may be payable on demand or at a fixed or

-always payable on demand
determinable future time

– a promise to pay – an order to pay

B. ISSUANCE OF NEGOTIABLE INSTRUMENT

b-1. Issuance;definition – the first delivery of the instrument complete in form to a person who takes
it as a holder [Section 191]

JOHN DY,

Petitioner,

- versus -

PEOPLE OF THE PHILIPPINES and The HONORABLE COURT OF APPEALS,

FACTS:
John Dy was the distributor of the W.L. Foods. He pays, thru his driver, either money or blank check to the
latter.

Mainly, petitioner contends that the checks were ineffectively issued. He stresses that not only were the
checks blank, but also that W.L. Foods accountant had no authority to fill the amounts. Dy also claims
failure of consideration to negate any obligation to W.L. Foods. Ultimately, petitioner denies having
deceived Lim inasmuch as only the two checks bounced since he began dealing with him. He maintains
that it was his long established business relationship with Lim that enabled him to obtain the goods, and
not the checks issued in payment for them. Petitioner renounces personal liability on the checks since he
was absent when the goods were delivered.

The Office of the Solicitor General (OSG), for the State, avers that the delivery of the checks by Dy’s driver
to Maraca, constituted valid issuance. The OSG sustains Ongs prima facie authority to fill the checks based
on the value of goods taken. It observes that nothing in the records showed that W.L. Foods accountant
filled up the checks in violation of Dys instructions or their previous agreement. Finally, the OSG challenges
the present petition as an inappropriate remedy to review the factual findings of the trial court.

Section 191 of the Negotiable Instruments Law defines issue as the first delivery of an instrument, complete
in form, to a person who takes it as a holder. Significantly, delivery is the final act essential to the
negotiability of an instrument. Delivery denotes physical transfer of the instrument by the maker or drawer
coupled with an intention to convey title to the payee and recognize him as a holder. It means more than
handing over to another; it imports such transfer of the instrument to another as to enable the latter to hold
it for himself.

In this case, even if the checks were given to W.L. Foods in blank, this alone did not make its issuance
invalid. When the checks were delivered to Lim, through his employee, he became a holder with prima
facie authority to fill the blanks. This was, in fact, accomplished by Lim’s accountant.

The pertinent provisions of Section 14 of the Negotiable Instruments Law are instructive:
SEC. 14. Blanks; when may be filled. Where the instrument is wanting in any material particular, the person
in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And
a signature on a blank paper delivered by the person making the signature in order that the paper may be
converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any
amount.

Hence, the law merely requires that the instrument be in the possession of a person other than the drawer
or maker. From such possession, together with the fact that the instrument is wanting in a material
particular, the law presumes agency to fill up the blanks. Because of this, the burden of proving want of
authority or that the authority granted was exceeded, is placed on the person questioning such
authority. Petitioner failed to fulfill this requirement.
Next, petitioner claims failure of consideration. Nevertheless, in a letter[19] dated November 10, 1992, he
expressed willingness to pay W.L. Foods, or to replace the dishonored checks. This was a clear
acknowledgment of receipt of the goods, which gave rise to his duty to maintain or deposit sufficient funds
to cover the amount of the checks.
More significantly, we are not swayed by petitioners arguments that the single incident of dishonor and his
absence when the checks were delivered belie fraud. Indeed damage and deceit are essential elements of
the offense and must be established with satisfactory proof to warrant conviction. [20] Deceit as an element
of estafa is a specie of fraud. It is actual fraud which consists in any misrepresentation or contrivance where
a person deludes another, to his hurt. There is deceit when one is misled -- by guile, trickery or by other
means -- to believe as true what is really false.

ISIDRO PABLITO M. PALANA, G.R. No. 149995

Vs.
PEOPLE OF THE PHILIPPINES,

Private complainant Alex B. Carlos testified that sometime in September 1987, petitioner and his wife
borrowed money from him in the amount of P590,000.00. To secure the payment of the loan, petitioner
issued a postdated check for the same amount in favor of the complainant.[6] However, when the check
was presented for payment, it was dishonored by the bank for insufficiency of funds. Subsequent demand
notwithstanding, petitioner failed to make good the said dishonored check. [7]

Petitioner alleged that the amounts given to him by private complainant was an investment by the latter
who was his business partner. He argued that the subject check was not issued in September 1987 to
guarantee the payment of a loan since his checking account was opened only on December 1, 1987.[8] He
claimed that private complainant cajoled him to issue a check in his favor allegedly to be shown to a textile
supplier who would provide the partnership with the necessary raw materials. Petitioner alleged that when
the check was issued sometime in February 1988,[9]complainant knew that the same was not funded.

RULING:

Upon issuance of a check, in the absence of evidence to the contrary, it is presumed that the same was
issued for valuable consideration, which may consist either in some right, interest, profit or benefit accruing
to the party who makes the contract, or some forbearance, detriment, loss or some responsibility, to act, or
labor, or service given, suffered or undertaken by the other side. Since it was established that petitioner
received money from private complainant in various amounts,[24] petitioner cannot now claim that the
checks were not issued for value.[25]

The allegation that the check was intended to be shown to potential suppliers is not a valid
defense. In Cueme v. People,[26] the Court held thus:

The allegation of petitioner that the checks were merely intended to be shown to prospective investors of
her corporation is, to say the least, not a defense. The gravamen of the offense punished under B.P. Blg.
22 is the act of making or issuing a worthless check or a check that is dishonored upon its presentment for
payment. The law has made the mere act of issuing a bad check malum prohibitum, an act proscribed by
the legislature for being deemed pernicious and inimical to public welfare. Considering the rule in mala
prohibita cases, the only inquiry is whether the law has been breached. Criminal intent becomes
unnecessary where the acts are prohibited for reasons of public policy, and the defenses of good faith and
absence of criminal intent are unavailing.

The checks issued, even assuming they were not intended to be encashed or deposited in a bank, produce
the same effect as ordinary checks. What the law punishes is the issuance of a rubber check itself and not
the purpose for which the check was issued nor the terms and conditions relating to its issuance. This is
not without good reasons. To determine the purpose as well as the terms and conditions for which checks
are issued will greatly erode the faith the public reposes in the stability and commercial value of checks as
currency substitutes, and bring about havoc in the trading and banking communities. Besides, the law does
not make any distinction as to the kind of checks which are the subject of its provisions, hence, no such
distinction can be made by means of interpretation or application. What is important is the fact that petitioner
deliberately issued the checks in question and those checks were dishonored upon presentment for
payment.
Hence, the agreement surrounding the issuance of a check is irrelevant to the prosecution and conviction
of the petitioner.[27]

The alleged inconsistency in the date of issuance of the subject check is likewise immaterial. Issuance, as
defined under the Negotiable Instruments Law, is the first delivery of the check. [28] In the case at bar, the
Information alleged that the check was postdated February 15, 1988 although issued in or about September
1987. During trial, petitioner testified that the Checking Account was opened only on December 1, 1987 and
that the check was issued sometime in February 1988.

The rule is that a variance between the allegation in the information and proof adduced during trial shall be
fatal to the criminal case if it is material and prejudicial to the accused so much so that it affects his
substantial rights.[29] In a prosecution for violation of B.P. 22, the time of the issuance of the subject check
is material since it forms part of the second element of the offense that at the time of its issuance, petitioner
knew of the insufficiency of funds. However, it cannot be said that petitioner was prejudiced by such
variance nor was surprised by it. Records show that petitioner knew at the time he issued the check that
he does not have sufficient funds in the bank to cover the amount of the check. Yet, he proceeded to issue
the same claiming that the same would only be shown to prospective suppliers, a defense which is not
valid.

Moreover, there is no merit in petitioners allegation that private complainant knew that the check is not
funded. Both the trial court and the Court of Appeals found that the subject check was issued as guaranty
for payment of the loan hence, was intended to apply for account or for value. As such, it was incumbent
upon petitioner to see to it that the check is duly covered when presented for payment.

Pursuant to Supreme Court Administrative Circular No. 12-2000, as clarified by Administrative Circular No.
13-2001, the alternative penalty of fine may be imposed in lieu of imprisonment considering that the
prosecution failed to prove or allege that petitioner is not a first-time offender.[30] Hence, in lieu of
imprisonment, a fine of P200,000.00 shall be imposed upon petitioner.[31]
WHEREFORE, the assailed decision of the Court of Appeals in CA-G.R. CR No. 21879 dated September
17, 2001, finding petitioner ISIDRO PABLITO M. PALANA guilty of violating Batas Pambansa Blg. 22,
is AFFIRMED with MODIFICATION. Petitioner is ordered to pay private complainant the amount
of P590,000.00, representing the value of the check, with six (6%) percent interest from date of filing of the
Information until the finality of the decision, the amount of which, inclusive of the interest, is subject to twelve
percent (12%) interest, from finality of the decision until fully paid. In lieu of imprisonment, petitioner is
ordered to pay a fine of P200,000.00.

HI-CEMENT CORPORATION, G.R. No. 132403

Petitioner,

-versus-

INSULAR BANK OF ASIA AND AMERICA (later

PHILIPPINE COMMERCIAL INTERNATIONAL
BANK and now, EQUITABLE-PCI
BANK)
Respondent.

x----------------------x

E.T. HENRY & CO. and G.R. No. 132419

SPOUSES ENRIQUE TAN
and LILIA TAN,
Petitioners, Present:
PUNO, C.J., Chairperson,
SANDOVAL-GUTIERREZ,
- v e r s u s - CORONA,
AZCUNA and
GARCIA, JJ.

INSULAR BANK OF ASIA AND AMERICA (later

PHILIPPINE COMMERCIAL INTERNATIONAL
BANK and now, EQUITABLE-PCI
BANK),
Respondent.

Promulgated:

September 28, 2007

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

DECISION

CORONA, J.:

Petitioners Enrique Tan and Lilia Tan (spouses Tan) were the controlling stockholders of E.T.

Henry & Co., Inc. (E.T. Henry), a company engaged in the business of processing and distributing bunker

fuel.[2] Among E.T. Henry's customers were petitioner Hi-Cement Corporation (Hi-Cement),[3] Riverside

Mills Corporation (Riverside) and Kanebo Cosmetics Philippines, Inc. (Kanebo). For their purchases, these

corporations issued postdated checks to E.T. Henry.

Sometime in 1979, respondent Insular Bank of Asia and America (later PCIB and now Equitable

PCI-Bank) granted E.T. Henry a credit facility known as Purchase of Short Term Receivables. Through
this arrangement, E.T. Henry was able to encash, with pre-deducted interest, the postdated checks of its

clients. In other words, E.T. Henry and respondent were into re-discounting of checks.

For every transaction, respondent required E.T. Henry to execute a promissory note and a deed of

assignment bearing the conformity of the client to the re-discounting.[4]

From 1979 to 1981, E.T. Henry was able to re-discount its clients' checks (with deeds of

assignment) with respondent. However, in February 1981, 20 checks[5] of Hi-Cement (which were crossed

and which bore the restriction deposit to payees account only) were dishonored. So were the checks of

Riverside and Kanebo.[6]

Respondent filed a complaint for sum of money[7] in the then Court of First Instance of Rizal[8] against E.T.

Henry, the spouses Tan, Hi-Cement (including its general manager[9] and its treasurer [10] as signatories of

the postdated crossed checks), Riverside and Kanebo.[11]

RULING:

AUTHORITY OF HI-CEMENTS GENERAL

MANAGER AND TREASURER TO ISSUE
THE POSTDATED CROSSED CHECKS

Both the trial court and the CA concluded that Hi-Cement authorized its general manager and

treasurer to issue the subject postdated crossed checks. They both held that Hi-Cement was already estopped

from denying such authority since it never objected to the signatories' issuance of all previous checks to

E.T. Henry which the latter, in turn, was able to re-discount with respondent.

We agree with the lower courts that both the general manager and treasurer of Hi-Cement were

authorized to issue the subjects checks. However, notwithstanding such fact, respondent could not be

considered a holder in due course.

RESPONDENT BANK NOT A

HOLDER IN DUE COURSE
The Negotiable Instruments Law (NIL), specifically Section 191,[22] provides:

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

On the other hand, Section 52[23] states:

A holder in due course is a holder who has taken the instrument under the following
conditions: (a) it is complete and regular on its face; (b) he became the holder of it before
it was overdue, and without notice that it has previously been dishonored, if such was the
fact; (c) he took it in good faith and for value and (d) 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.

Absent any of the elements set forth in Section 52, the holder is not a holder in due course. In the case at

bar, the last two requirements were not met.

In Bataan Cigar and Cigarette Factory, Inc. (BCCF) v. CA,[24] we held that the holder of crossed

checks was not a holder in due course. There, the drawer (BCCF) issued postdated crossed checks in favor

of one of its suppliers (George King) who promised to deliver bales of tobacco leaf but failed. George King,

however, sold the checks on discount to State Investment House, Inc. (SIHI) and upon the latters

presentment to the drawee bank, BCCF ordered a stop payment. Thereafter, SIHI filed a collection case

against it. In ruling that SIHI was not a holder in due course, we explained:

In order to preserve the credit worthiness of checks, jurisprudence has pronounced

that crossing of a check should have the following effects: (a) the check may not be
encashed but only deposited in the bank; (b) the check may be negotiated only once to one
who has an account with a bank [and]; (c) the act of crossing the checks serves
as warning to the holder that the check has been issued for a definite purpose so that he
must inquire if he has received the check pursuant to that purpose, otherwise, he is not a
holder in due course.

Likewise, in Atrium Management Corporation v. CA,[25] where E.T. Henry, Hi-Cement and its

treasurer[26] again engaged in a legal scuffle over four postdated crossed checks, we held that Atrium (with

which the checks were re-discounted) was not a holder in due course. In that case, E.T. Henry was the payee
of four Hi-Cement postdated checks which it endorsed to Atrium. When the latter presented the

crossed checks to the drawee bank, Hi-Cement stopped payment.[27] We held that Atrium was not a holder

in due course:

In the instant case, the checks were crossed and specifically indorsed for deposit
to payees account only. From the beginning, Atrium was aware of the fact that the checks
were all for deposit only to payees account, meaning E.T. Henry. Clearly, then, Atrium
could not be considered a holder in due course.

In the case at bar, respondent's claim that it acted in good faith when it accepted and discounted Hi-Cements

postdated crossed checks from E.T. Henry (as payee therein) fails to convince us. Good faith becomes

inconsequential amidst proof of respondent's grossly negligent conduct in dealing with the subject checks.

Respondent was all too aware that subject checks were crossed and bore restrictions that they were for

deposit to payee's account only; hence, they could not be further negotiated to it. The records likewise

reveal that respondent completely disregarded a telling sign of irregularity in the re-discounting of the

checks when the general manager did not acquiesce to it as only the treasurer's signature appeared on the

deed of assignment. As a banking institution, it behooved respondent to act with extraordinary diligence

in every transaction.[28] Its business is impressed with public interest, thus, it was not expected to be careless

and negligent, specially so where the checks it dealt with were crossed. In Bataan Cigar and Cigarette

Factory, Inc.,[29] we ruled:

It is then settled that crossing of checks should put the holder on inquiry and upon
him devolves the duty to ascertain the indorsers title to the check or the nature of his
possession. Failing in this respect, the holder is declared guilty of gross negligence
amounting to legal absence of good faithand as such[,] the consensus of authority is to
the effect that the holder of the check is not a holder in due course. (emphasis supplied)

b-2. Requisites of Issuance

Delivery of the instrument

To a person who takes it as a holder

b-3. Delivery

1. Definition – transfer of possession with intent to transfer title thereto, thus making the transferee
a HOLDER of the instrument

2. Instances -

2-a. Complete delivered instrument

2-b. Incomplete delivered instrument [Section 14]

http://sc.judiciary.gov.ph/jurisprudence/resolutions/2014/12/213470.pdf

http://sc.judiciary.gov.ph/jurisprudence/2011/august2011/167398.htm

http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/167567.htm

http://sc.judiciary.gov.ph/jurisprudence/2009/june2009/170782.htm

http://sc.judiciary.gov.ph/jurisprudence/2008/november2008/160127.htm LUNARIA CASE

http://sc.judiciary.gov.ph/jurisprudence/2007/april2007/141181.htm THIS CASE IS SO HABA

1. Possessor is deemed to have prima facie authority to fill-up blanks

2. Personal defense to a holder for value

3. Holder in due course can enforce full payment

2-c. Complete undelivered instrument [Section 16]

1. Holder in due course, delivery conclusively presumed

2. Holder for value, personal defense

http://sc.judiciary.gov.ph/jurisprudence/2017/april2017/190432.pdf asia brewery

Republic of the Philippines

Supreme Court
Manila

SECOND DIVISION

RIZAL COMMERCIAL BANKING G.R. No. 192413

CORPORATION,
Petitioner, Present:

CARPIO, J., Chairperson,

versus BRION,
PEREZ,
SERENO, and
HI-TRI DEVELOPMENT REYES, JJ.
CORPORATION and LUZ R.
BAKUNAWA, Promulgated:
Respondents.
June 13, 2012
x--------------------------------------------------x

DECISION

SERENO, J.:

Before the Court is a Rule 45 Petition for Review on Certiorari filed by petitioner Rizal
Commercial Banking Corporation (RCBC) against respondents Hi-Tri Development Corporation
(Hi-Tri) and Luz R. Bakunawa (Bakunawa). Petitioner seeks to appeal from the 26 November
2009 Decision and 27 May 2010 Resolution of the Court of Appeals (CA), [1] which reversed and
set aside the 19 May 2008 Decision and 3 November 2008 Order of the Makati City Regional Trial
Court (RTC) in Civil Case No. 06-244.[2] The case before the RTC involved the Complaint for
Escheat filed by the Republic of the Philippines (Republic) pursuant to Act No. 3936, as amended
by Presidential Decree No. 679 (P.D. 679), against certain deposits, credits, and unclaimed
balances held by the branches of various banks in the Philippines. The trial court declared the
amounts, subject of the special proceedings, escheated to the Republic and ordered them deposited
with the Treasurer of the Philippines (Treasurer) and credited in favor of the Republic.[3] The
assailed RTC judgments included an unclaimed balance in the amount of ₱1,019,514.29,
maintained by RCBC in its Ermita Business Center branch.

We quote the narration of facts of the CA[4] as follows:

x x x Luz [R.] Bakunawa and her husband Manuel, now deceased (Spouses
Bakunawa) are registered owners of six (6) parcels of land covered by TCT Nos.
324985 and 324986 of the Quezon City Register of Deeds, and TCT Nos. 103724,
98827, 98828 and 98829 of the Marikina Register of Deeds. These lots were
sequestered by the Presidential Commission on Good Government [(PCGG)].

Sometime in 1990, a certain Teresita Millan (Millan), through her

representative, Jerry Montemayor, offered to buy said lots for ₱6,724,085.71, with
the promise that she will take care of clearing whatever preliminary obstacles there
may[]be to effect a completion of the sale. The Spouses Bakunawa gave to Millan
the Owners Copies of said TCTs and in turn, Millan made a down[]payment of
₱1,019,514.29 for the intended purchase. However, for one reason or another,
Millan was not able to clear said obstacles. As a result, the Spouses Bakunawa
rescinded the sale and offered to return to Millan her down[]payment of
₱1,019,514.29. However, Millan refused to accept back the ₱1,019,514.29
down[]payment. Consequently, the Spouses Bakunawa, through their company, the
Hi-Tri Development Corporation (Hi-Tri) took out on October 28, 1991, a
Managers Check from RCBC-Ermita in the amount of ₱1,019,514.29, payable to
Millans company Rosmil Realty and Development Corporation (Rosmil) c/o
Teresita Millan and used this as one of their basis for a complaint against Millan
and Montemayor which they filed with the Regional Trial Court of Quezon City,
Branch 99, docketed as Civil Case No. Q-91-10719 [in 1991], praying that:

1. That the defendants Teresita Mil[l]an and Jerry Montemayor

may be ordered to return to plaintiffs spouses the Owners Copies
of Transfer Certificates of Title Nos. 324985, 324986, 103724,
98827, 98828 and 98829;

2. That the defendant Teresita Mil[l]an be correspondingly

ordered to receive the amount of One Million Nineteen
Thousand Five Hundred Fourteen Pesos and Twenty Nine
Centavos (₱1,019,514.29);
 3. That the defendants be ordered to pay to plaintiffs spouses
moral damages in the amount of ₱2,000,000.00; and

4. That the defendants be ordered to pay plaintiffs attorneys fees

in the amount of ₱50,000.00.

Being part and parcel of said complaint, and consistent with their prayer in
Civil Case No. Q-91-10719 that Teresita Mil[l]an be correspondingly ordered to
receive the amount of One Million Nineteen Thousand Five Hundred Fourteen
Pesos and Twenty Nine [Centavos] (₱1,019,514.29)[], the Spouses Bakunawa,
upon advice of their counsel, retained custody of RCBC Managers Check No. ER
034469 and refrained from canceling or negotiating it.

All throughout the proceedings in Civil Case No. Q-91-10719, especially

during negotiations for a possible settlement of the case, Millan was informed that
the Managers Check was available for her withdrawal, she being the payee.

On January 31, 2003, during the pendency of the abovementioned case and
without the knowledge of [Hi-Tri and Spouses Bakunawa], x x x RCBC reported
the ₱1,019,514.29-credit existing in favor of Rosmil to the Bureau of Treasury as
among its unclaimed balances as of January 31, 2003. Allegedly, a copy of the
Sworn Statement executed by Florentino N. Mendoza, Manager and Head of
RCBCs Asset Management, Disbursement & Sundry Department (AMDSD) was
posted within the premises of RCBC-Ermita.

On December 14, 2006, x x x Republic, through the [Office of the Solicitor

General (OSG)], filed with the RTC the action below for Escheat [(Civil Case No.
06-244)].

On April 30, 2008, [Spouses Bakunawa] settled amicably their dispute with
Rosmil and Millan. Instead of only the amount of ₱1,019,514.29, [Spouses
Bakunawa] agreed to pay Rosmil and Millan the amount of ₱3,000,000.00, [which
is] inclusive [of] the amount of []₱1,019,514.29. But during negotiations and
evidently prior to said settlement, [Manuel Bakunawa, through Hi-Tri] inquired
from RCBC-Ermita the availability of the ₱1,019,514.29 under RCBC Managers
Check No. ER 034469. [Hi-Tri and Spouses Bakunawa] were however dismayed
when they were informed that the amount was already subject of the escheat
proceedings before the RTC.

On April 17, 2008, [Manuel Bakunawa, through Hi-Tri] wrote x x x

RCBC, viz:

We understand that the deposit corresponding to the amount of Php

1,019,514.29 stated in the Managers Check is currently the subject
of escheat proceedings pending before Branch 150 of the Makati
Regional Trial Court.
 Please note that it was our impression that the deposit would be
taken from [Hi-Tris] RCBC bank account once an order to debit is
issued upon the payees presentation of the Managers Check. Since
the payee rejected the negotiated Managers Check, presentation of
the Managers Check was never made.

Consequently, the deposit that was supposed to be allocated for the

payment of the Managers Check was supposed to remain part of the
Corporation[s] RCBC bank account, which, thereafter, continued to
be actively maintained and operated. For this reason, We hereby
demand your confirmation that the amount of Php 1,019,514.29
continues to form part of the funds in the Corporations RCBC bank
account, since pay-out of said amount was never ordered. We wish
to point out that if there was any attempt on the part of RCBC to
consider the amount indicated in the Managers Check separate from
the Corporations bank account, RCBC would have issued a
statement to that effect, and repeatedly reminded the Corporation
that the deposit would be considered dormant absent any fund
movement. Since the Corporation never received any statements of
account from RCBC to that effect, and more importantly, never
received any single letter from RCBC noting the absence of fund
movement and advising the Corporation that the deposit would be
treated as dormant.

On April 28, 2008, [Manuel Bakunawa] sent another letter to x x x RCBC

reiterating their position as above-quoted.

In a letter dated May 19, 2008, x x x RCBC replied and informed [Hi-Tri
and Spouses Bakunawa] that:

The Banks Ermita BC informed Hi-Tri and/or its principals

regarding the inclusion of Managers Check No. ER034469 in the
escheat proceedings docketed as Civil Case No. 06-244, as well as
the status thereof, between 28 January 2008 and 1 February 2008.

xxx xxx xxx

Contrary to what Hi-Tri hopes for, the funds covered by the

Managers Check No. ER034469 does not form part of the Banks
own account. By simple operation of law, the funds covered by the
managers check in issue became a deposit/credit susceptible for
inclusion in the escheat case initiated by the OSG and/or Bureau of
Treasury.

xxx xxx xxx

 Granting arguendo that the Bank was duty-bound to make good the
check, the Banks obligation to do so prescribed as early as October
2001.

(Emphases, citations, and annotations were omitted.)

The RTC Ruling

The escheat proceedings before the Makati City RTC continued. On 19 May 2008, the trial court
rendered its assailed Decision declaring the deposits, credits, and unclaimed balances subject of
Civil Case No. 06-244 escheated to the Republic. Among those included in the order of forfeiture
was the amount of ₱1,019,514.29 held by RCBC as allocated funds intended for the payment of
the Managers Check issued in favor of Rosmil. The trial court ordered the deposit of the escheated
balances with the Treasurer and credited in favor of the Republic. Respondents claim that they
were not able to participate in the trial, as they were not informed of the ongoing escheat
proceedings.

Consequently, respondents filed an Omnibus Motion dated 11 June 2008, seeking the
partial reconsideration of the RTC Decision insofar as it escheated the fund allocated for the
payment of the Managers Check. They asked that they be included as party-defendants or, in the
alternative, allowed to intervene in the case and their motion considered as an answer-in-
intervention. Respondents argued that they had meritorious grounds to ask reconsideration of the
Decision or, alternatively, to seek intervention in the case. They alleged that the deposit was subject
of an ongoing dispute (Civil Case No. Q-91-10719) between them and Rosmil since 1991, and that
they were interested parties to that case.[5]

On 3 November 2008, the RTC issued an Order denying the motion of respondents. The
trial court explained that the Republic had proven compliance with the requirements of publication
and notice, which served as notice to all those who may be affected and prejudiced by the
Complaint for Escheat. The RTC also found that the motion failed to point out the findings and
conclusions that were not supported by the law or the evidence presented, as required by Rule 37
of the Rules of Court. Finally, it ruled that the alternative prayer to intervene was filed out of time.

The CA Ruling

On 26 November 2009, the CA issued its assailed Decision reversing the 19 May 2008
Decision and 3 November 2008 Order of the RTC. According to the appellate court,[6] RCBC
failed to prove that the latter had communicated with the purchaser of the Managers Check (Hi-
Tri and/or Spouses Bakunawa) or the designated payee (Rosmil) immediately before the bank filed
its Sworn Statement on the dormant accounts held therein. The CA ruled that the banks failure to
notify respondents deprived them of an opportunity to intervene in the escheat proceedings and to
present evidence to substantiate their claim, in violation of their right to due process. Furthermore,
the CA pronounced that the Makati City RTC Clerk of Court failed to issue individual notices
directed to all persons claiming interest in the unclaimed balances, as well as to require them to
appear after publication and show cause why the unclaimed balances should not be deposited with
the Treasurer of the Philippines. It explained that the jurisdictional requirement of individual notice
by personal service was distinct from the requirement of notice by publication. Consequently, the
CA held that the Decision and Order of the RTC were void for want of jurisdiction.

Issue

After a perusal of the arguments presented by the parties, we cull the main issues as
follows:

I. Whether the Decision and Order of the RTC were void for failure to send
separate notices to respondents by personal service
 II. Whether petitioner had the obligation to notify respondents immediately
before it filed its Sworn Statement with the Treasurer

III. Whether or not the allocated funds may be escheated in favor of the Republic

Discussion

Petitioner bank assails[7] the CA judgments insofar as they ruled that notice by personal
service upon respondents is a jurisdictional requirement in escheat proceedings. Petitioner
contends that respondents were not the owners of the unclaimed balances and were thus not entitled
to notice from the RTC Clerk of Court. It hinges its claim on the theory that the funds represented
by the Managers Check were deemed transferred to the credit of the payee or holder upon its
issuance.

We quote the pertinent provision of Act No. 3936, as amended, on the rule on service of
processes, to wit:

Sec. 3. Whenever the Solicitor General shall be informed of such unclaimed

balances, he shall commence an action or actions in the name of the People of
the Republic of the Philippines in the Court of First Instance of the province or
city where the bank, building and loan association or trust corporation is located, in
which shall be joined as parties the bank, building and loan association or trust
corporation and all such creditors or depositors. All or any of such creditors or
depositors or banks, building and loan association or trust corporations may be
included in one action. Service of process in such action or actions shall be made
by delivery of a copy of the complaint and summons to the president, cashier,
or managing officer of each defendant bank, building and loan association or
trust corporation and by publication of a copy of such summons in a newspaper
of general circulation, either in English, in Filipino, or in a local dialect, published
in the locality where the bank, building and loan association or trust corporation is
situated, if there be any, and in case there is none, in the City of Manila, at such
time as the court may order. Upon the trial, the court must hear all parties who
have appeared therein, and if it be determined that such unclaimed balances
in any defendant bank, building and loan association or trust corporation are
unclaimed as hereinbefore stated, then the court shall render judgment in
favor of the Government of the Republic of the Philippines, declaring that said
 unclaimed balances have escheated to the Government of the Republic of the
Philippines and commanding said bank, building and loan association or trust
corporation to forthwith deposit the same with the Treasurer of the Philippines to
credit of the Government of the Republic of the Philippines to be used as the
National Assembly may direct.

At the time of issuing summons in the action above provided for, the clerk of
court shall also issue a notice signed by him, giving the title and number of said
action, and referring to the complaint therein, and directed to all persons, other
than those named as defendants therein, claiming any interest in any
unclaimed balance mentioned in said complaint, and requiring them to appear
within sixty days after the publication or first publication, if there are several, of
such summons, and show cause, if they have any, why the unclaimed balances
involved in said action should not be deposited with the Treasurer of the
Philippines as in this Act provided and notifying them that if they do not appear
and show cause, the Government of the Republic of the Philippines will apply
to the court for the relief demanded in the complaint. A copy of said notice shall
be attached to, and published with the copy of, said summons required to be
published as above, and at the end of the copy of such notice so published, there
shall be a statement of the date of publication, or first publication, if there are
several, of said summons and notice. Any person interested may appear in said
action and become a party thereto. Upon the publication or the completion of
the publication, if there are several, of the summons and notice, and the service
of the summons on the defendant banks, building and loan associations or trust
corporations, the court shall have full and complete jurisdiction in the Republic
of the Philippines over the said unclaimed balances and over the persons
having or claiming any interest in the said unclaimed balances, or any of them,
and shall have full and complete jurisdiction to hear and determine the issues
herein, and render the appropriate judgment thereon. (Emphasis supplied.)

Hence, insofar as banks are concerned, service of processes is made by delivery of a copy
of the complaint and summons upon the president, cashier, or managing officer of the defendant
bank.[8] On the other hand, as to depositors or other claimants of the unclaimed balances, service
is made by publication of a copy of the summons in a newspaper of general circulation in the
locality where the institution is situated.[9] A notice about the forthcoming escheat proceedings
must also be issued and published, directing and requiring all persons who may claim any interest
in the unclaimed balances to appear before the court and show cause why the dormant accounts
should not be deposited with the Treasurer.
 Accordingly, the CA committed reversible error when it ruled that the issuance of
individual notices upon respondents was a jurisdictional requirement, and that failure to effect
personal service on them rendered the Decision and the Order of the RTC void for want of
jurisdiction. Escheat proceedings are actions in rem,[10] whereby an action is brought against the
thing itself instead of the person.[11] Thus, an action may be instituted and carried to judgment
without personal service upon the depositors or other claimants.[12] Jurisdiction is secured by the
power of the court over the res.[13] Consequently, a judgment of escheat is conclusive upon persons
notified by advertisement, as publication is considered a general and constructive notice to all
persons interested.[14]

Nevertheless, we find sufficient grounds to affirm the CA on the exclusion of the funds
allocated for the payment of the Managers Check in the escheat proceedings.

Escheat proceedings refer to the judicial process in which the state, by virtue of its
sovereignty, steps in and claims abandoned, left vacant, or unclaimed property, without there being
an interested person having a legal claim thereto.[15] In the case of dormant accounts, the state
inquires into the status, custody, and ownership of the unclaimed balance to determine whether the
inactivity was brought about by the fact of death or absence of or abandonment by the
depositor.[16] If after the proceedings the property remains without a lawful owner interested to
claim it, the property shall be reverted to the state to forestall an open invitation to self-service by
the first comers.[17] However, if interested parties have come forward and lain claim to the
property, the courts shall determine whether the credit or deposit should pass to the claimants or
be forfeited in favor of the state.[18] We emphasize that escheat is not a proceeding to penalize
depositors for failing to deposit to or withdraw from their accounts. It is a proceeding whereby the
state compels the surrender to it of unclaimed deposit balances when there is substantial ground
for a belief that they have been abandoned, forgotten, or without an owner.[19]

Act No. 3936, as amended, outlines the proper procedure to be followed by banks and other
similar institutions in filing a sworn statement with the Treasurer concerning dormant accounts:
 Sec. 2. Immediately after the taking effect of this Act and within the month of
January of every odd year, all banks, building and loan associations, and trust
corporations shall forward to the Treasurer of the Philippines a statement,
under oath, of their respective managing officers, of all credits and deposits held
by them in favor of persons known to be dead, or who have not made further
deposits or withdrawals during the preceding ten years or more, arranged in
alphabetical order according to the names of creditors and depositors, and showing:

(a) The names and last known place of residence or post office addresses of the
persons in whose favor such unclaimed balances stand;

(b) The amount and the date of the outstanding unclaimed balance and whether
the same is in money or in security, and if the latter, the nature of the same;

(c) The date when the person in whose favor the unclaimed balance stands died,
if known, or the date when he made his last deposit or withdrawal; and

(d) The interest due on such unclaimed balance, if any, and the amount thereof.

A copy of the above sworn statement shall be posted in a conspicuous place in

the premises of the bank, building and loan association, or trust corporation
concerned for at least sixty days from the date of filing thereof: Provided,
That immediately before filing the above sworn statement, the bank, building
and loan association, and trust corporation shall communicate with the person in
whose favor the unclaimed balance stands at his last known place of residence
or post office address.

It shall be the duty of the Treasurer of the Philippines to inform the Solicitor
General from time to time the existence of unclaimed balances held by banks,
building and loan associations, and trust corporations. (Emphasis supplied.)

As seen in the afore-quoted provision, the law sets a detailed system for notifying
depositors of unclaimed balances. This notification is meant to inform them that their deposit could
be escheated if left unclaimed. Accordingly, before filing a sworn statement, banks and other
similar institutions are under obligation to communicate with owners of dormant accounts. The
purpose of this initial notice is for a bank to determine whether an inactive account has indeed
been unclaimed, abandoned, forgotten, or left without an owner. If the depositor simply does not
wish to touch the funds in the meantime, but still asserts ownership and dominion over the dormant
account, then the bank is no longer obligated to include the account in its sworn statement.[20] It is
not the intent of the law to force depositors into unnecessary litigation and defense of their rights,
as the state is only interested in escheating balances that have been abandoned and left without an
owner.

In case the bank complies with the provisions of the law and the unclaimed balances
are eventually escheated to the Republic, the bank shall not thereafter be liable to any person for
the same and any action which may be brought by any person against in any bank xxx for
unclaimed balances so deposited xxx shall be defended by the Solicitor General without cost to
such bank.[21] Otherwise, should it fail to comply with the legally outlined procedure to the
prejudice of the depositor, the bank may not raise the defense provided under Section 5 of Act No.
3936, as amended.

Petitioner asserts[22] that the CA committed a reversible error when it required RCBC to
send prior notices to respondents about the forthcoming escheat proceedings involving the funds
allocated for the payment of the Managers Check. It explains that, pursuant to the law, only those
whose favor such unclaimed balances stand are entitled to receive notices. Petitioner argues that,
since the funds represented by the Managers Check were deemed transferred to the credit of the
payee upon issuance of the check, the proper party entitled to the notices was the payee Rosmil
and not respondents. Petitioner then contends that, in any event, it is not liable for failing to send
a separate notice to the payee, because it did not have the address of Rosmil. Petitioner avers that
it was not under any obligation to record the address of the payee of a Managers Check.

In contrast, respondents Hi-Tri and Bakunawa allege[23] that they have a legal interest in
the fund allocated for the payment of the Managers Check. They reason that, since the funds were
part of the Compromise Agreement between respondents and Rosmil in a separate civil case, the
approval and eventual execution of the agreement effectively reverted the fund to the credit of
respondents. Respondents further posit that their ownership of the funds was evidenced by their
continued custody of the Managers Check.

An ordinary check refers to a bill of exchange drawn by a depositor (drawer) on a bank

(drawee),[24] requesting the latter to pay a person named therein (payee) or to the order of the payee
or to the bearer, a named sum of money.[25] The issuance of the check does not of itself operate as
an assignment of any part of the funds in the bank to the credit of the drawer.[26] Here, the bank
becomes liable only after it accepts or certifies the check.[27] After the check is accepted for
payment, the bank would then debit the amount to be paid to the holder of the check from the
account of the depositor-drawer.

There are checks of a special type called managers or cashiers checks. These are bills of
exchange drawn by the banks manager or cashier, in the name of the bank, against the bank
itself.[28] Typically, a managers or a cashiers check is procured from the bank by allocating a
particular amount of funds to be debited from the depositors account or by directly paying or
depositing to the bank the value of the check to be drawn. Since the bank issues the check in its
name, with itself as the drawee, the check is deemed accepted in advance.[29] Ordinarily, the check
becomes the primary obligation of the issuing bank and constitutes its written promise to pay upon
demand.[30]

Nevertheless, the mere issuance of a managers check does not ipso facto work as an
automatic transfer of funds to the account of the payee. In case the procurer of the managers or
cashiers check retains custody of the instrument, does not tender it to the intended payee, or fails
to make an effective delivery, we find the following provision on undelivered instruments under
the Negotiable Instruments Law applicable:[31]

Sec. 16. Delivery; when effectual; when presumed. Every contract on a

negotiable instrument is incomplete and revocable until delivery of the
instrument for the purpose of giving effect thereto. As between immediate
 parties and as regards a remote party other than a holder in due course, the delivery,
in order to be effectual, must be made either by or under the authority of the
party making, drawing, accepting, or indorsing, as the case may be; and, in such
case, the delivery may be shown to have been conditional, or for a special purpose
only, and not for the purpose of transferring the property in the instrument. But
where the instrument is in the hands of a holder in due course, a valid delivery
thereof by all parties prior to him so as to make them liable to him is conclusively
presumed. And where the instrument is no longer in the possession of a party whose
signature appears thereon, a valid and intentional delivery by him is presumed until
the contrary is proved. (Emphasis supplied.)

Petitioner acknowledges that the Managers Check was procured by respondents, and that the
amount to be paid for the check would be sourced from the deposit account of Hi-Tri.[32] When
Rosmil did not accept the Managers Check offered by respondents, the latter retained custody of
the instrument instead of cancelling it. As the Managers Check neither went to the hands of Rosmil
nor was it further negotiated to other persons, the instrument remained undelivered. Petitioner does
not dispute the fact that respondents retained custody of the instrument.[33]

Since there was no delivery, presentment of the check to the bank for payment did not
occur. An order to debit the account of respondents was never made. In fact, petitioner confirms
that the Managers Check was never negotiated or presented for payment to its Ermita Branch, and
that the allocated fund is still held by the bank.[34] As a result, the assigned fund is deemed to
remain part of the account of Hi-Tri, which procured the Managers Check. The doctrine that the
deposit represented by a managers check automatically passes to the payee is inapplicable, because
the instrument although accepted in advance remains undelivered. Hence, respondents should have
been informed that the deposit had been left inactive for more than 10 years, and that it may be
subjected to escheat proceedings if left unclaimed.

After a careful review of the RTC records, we find that it is no longer necessary to remand
the case for hearing to determine whether the claim of respondents was valid. There was no
contention that they were the procurers of the Managers Check. It is undisputed that there was no
effective delivery of the check, rendering the instrument incomplete. In addition, we have already
settled that respondents retained ownership of the funds. As it is obvious from their foregoing
actions that they have not abandoned their claim over the fund, we rule that the allocated deposit,
subject of the Managers Check, should be excluded from the escheat proceedings. We reiterate our
pronouncement that the objective of escheat proceedings is state forfeiture of unclaimed balances.
We further note that there is nothing in the records that would show that the OSG appealed the
assailed CA judgments. We take this failure to appeal as an indication of disinterest in pursuing
the escheat proceedings in favor of the Republic.

WHEREFORE the Petition is DENIED. The 26 November 2009 Decision and 27 May
2010 Resolution of the Court of Appeals in CA-G.R. SP No. 107261 are hereby AFFIRMED.

2-d. Incomplete undelivered instrument [Section 15; Bar 2000]

1. Real defense by maker/drawer

2. Binding to persons who became parties after its unauthorized completion and delivery

b-4. Consideration

1. Definition – any consideration sufficient to support a simple contract

Presumptions

2-a. Every negotiable instrument is deemed issued for a valuable consideration [Section 24]

2-b. Every person whose signature appears thereon is deemed a party for value [Section 24]

FIRST DIVISION

ENGR. JOSE E. CAYANAN,

Petitioner, G.R. No. 172954
 Present:

- versus -

CORONA, C.J.,

Chairperson,
NORTH STAR INTERNATIONAL
LEONARDO-DE CASTRO,
TRAVEL, INC.,
BERSAMIN,
Respondent.
DEL CASTILLO, and

VILLARAMA, JR., JJ.

Promulgated:

October 5, 2011
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

VILLARAMA, JR., J.:

Petitioner Engr. Jose E. Cayanan appeals the May 31, 2006 Decision[1] of the Court of Appeals
(CA) in CA-G.R. SP No. 65538 finding him civilly liable for the value of the five checks which
are the subject of Criminal Case Nos. 166549-53.

The antecedent facts are as follows:

North Star International Travel Incorporated (North Star) is a corporation engaged in the travel
agency business while petitioner is the owner/general manager of JEAC International Management
and Contractor Services, a recruitment agency.

On March 17,[2] 1994, Virginia Balagtas, the General Manager of North Star, in accommodation
and upon the instruction of its client, petitioner herein, sent the amount of US$60,000[3] to View
Sea Ventures Ltd., in Nigeria from her personal account in Citibank Makati. On March 29, 1994,
Virginia again sent US$40,000 to View Sea Ventures by telegraphic transfer,[4] with US$15,000
coming from petitioner. Likewise, on various dates, North Star extended credit to petitioner for the
airplane tickets of his clients, with the total amount of such indebtedness under the credit
extensions eventually reaching P510,035.47.[5]

To cover payment of the foregoing obligations, petitioner issued the following five checks to North
Star:

Check No : 246822
Drawn Against : Republic Planters Bank
Amount : P695,000.00
Dated/Postdated : May 15, 1994
Payable to : North Star International Travel, Inc.

Check No : 246823
Drawn Against : Republic Planters Bank
Amount : P278,000.00
Dated/Postdated : May 15, 1994
Payable to : North Star International Travel, Inc.

Check No : 246824
Drawn Against : Republic Planters Bank
Amount : P22,703.00
Dated/Postdated : May 15, 1994
Payable to : North Star International Travel, Inc.

Check No : 687803
Drawn Against : PCIB
Amount : P1,500,000.00
Dated/Postdated : April 14, 1994
Payable to : North Star International Travel, Inc.

Check No : 687804
Drawn Against : PCIB
Amount : P35,000.00
Dated/Postdated : April 14, 1994
Payable to : North Star International Travel, Inc.[6]

When presented for payment, the checks in the amount of P1,500,000 and P35,000 were
dishonored for insufficiency of funds while the other three checks were dishonored because of a
stop payment order from petitioner.[7] North Star, through its counsel, wrote
petitioner on September 14, 1994[8] informing him that the checks he issued had been
dishonored. North Star demanded payment, but petitioner failed to settle his obligations. Hence,
North Star instituted Criminal Case Nos. 166549-53 charging petitioner with violation of Batas
Pambansa Blg. 22, or the Bouncing Checks Law, before the Metropolitan Trial Court (MeTC) of
Makati City.

The Informations,[9] which were similarly worded except as to the check numbers, the dates and
amounts of the checks, alleged:

That on or about and during the month of March 1994 in the Municipality of
Makati, Metro Manila, Philippines, a place within the jurisdiction of this Honorable
Court, the above-named accused, being the authorized signatory of [JEAC] Intl Mgt
& Cont. Serv. did then and there willfully, unlawfully and feloniously make out[,]
draw and issue to North Star Intl. Travel Inc. herein rep. by Virginia D. Balagtas to
apply on account or for value the checks described below:

xxxx

said accused well knowing that at the time of issue thereof, did not have sufficient
funds in or credit with the drawee bank for the payment in full of the face amount
of such check upon its presentment, which check when presented for payment
within ninety (90) days from the date thereof was subsequently dishonored by the
drawee bank for the reason PAYMENT STOPPED/DAIF and despite receipt of
notice of such dishonor the accused failed to pay the payee the face amount of said
check or to make arrangement for full payment thereof within five (5) banking days
after receiving notice.

Contrary to law.

Upon arraignment, petitioner pleaded not guilty to the charges.

After trial, the MeTC found petitioner guilty beyond reasonable doubt of violation of B.P.
22. Thus:

WHEREFORE, finding the accused, ENGR. JOSE E. CAYANAN GUILTY

beyond reasonable doubt of Violation of Batas Pambansa Blg. 22 he is hereby
sentenced to suffer imprisonment of one (1) year for each of the offense committed.

Accused is likewise ordered to indemnify the complainant North Star

International Travel, Inc. represented in this case by Virginia Balagtas, the sum
of TWO MILLION FIVE HUNDRED THIRTY THOUSAND AND SEVEN
HUNDRED THREE PESOS (P2,530,703.00) representing the total value of
the checks in [question] plus FOUR HUNDRED EIGHTY[-]FOUR THOUSAND
SEVENTY[-]EIGHT PESOS AND FORTY[-]TWO CENTAVOS (P484,078.42)
as interest of the value of the checks subject matter of the instant case, deducting
therefrom the amount of TWO HUNDRED TWENTY THOUSAND PESOS
 (P220,000.00) paid by the accused as interest on the value of the checks duly
receipted by the complainant and marked as Exhibit FF of the record.

xxxx

SO ORDERED.[10]

On appeal, the Regional Trial Court (RTC) acquitted petitioner of the criminal charges. The
RTC also held that there is no basis for the imposition of the civil liability on petitioner. The
RTC ratiocinated that:

In the instant cases, the checks issued by the accused were presented beyond
the period of NINETY (90) DAYS and therefore, there is no violation of the
provision of Batas Pambansa Blg. 22 and the accused is not considered to have
committed the offense. There being no offense committed, accused is not
criminally liable and there would be no basis for the imposition of the civil liability
arising from the offense.[11]

Aggrieved, North Star elevated the case to the CA. On May 31, 2006, the CA reversed the
decision of the RTC insofar as the civil aspect is concerned and held petitioner civilly liable for
the value of the subject checks. The fallo of the CA decision reads:

WHEREFORE, the petition is GRANTED. The assailed Decision of the

RTC insofar as Cayanan's civil liability is concerned, is NULLIFIED and SET
ASIDE. The indemnity awarded by the MeTC in its September 1, 1999 Decision is
REINSTATED.

SO ORDERED.[12]

The CA ruled that although Cayanan was acquitted of the criminal charges, he may still be
held civilly liable for the checks he issued since he never denied having issued the five postdated
checks which were dishonored.

Petitioner now assails the CA decision raising the lone issue of whether the CA erred in holding
him civilly liable to North Star for the value of the checks.[13]

Petitioner argues that the CA erred in holding him civilly liable to North Star for the value
of the checks since North Star did not give any valuable consideration for the checks. He insists
that the US$85,000 sent to View Sea Ventures was not sent for the account of North Star but for
the account of Virginia as her investment. He points out that said amount was taken from Virginias
personal dollar account in Citibank and not from North Stars corporate account.

Respondent North Star, for its part, counters that petitioner is liable for the value of the five
subject checks as they were issued for value. Respondent insists that petitioner owes North
Star P2,530,703 plus interest of P264,078.45, and that the P220,000 petitioner paid to North Star
is conclusive proof that the checks were issued for value.

The petition is bereft of merit.

We have held that upon issuance of a check, in the absence of evidence to the contrary, it
is presumed that the same was issued for valuable consideration which may consist either in some
right, interest, profit or benefit accruing to the party who makes the contract, or some forbearance,
detriment, loss or some responsibility, to act, or labor, or service given, suffered or undertaken by
the other side.[14] Under the Negotiable Instruments Law, it is presumed that every party to an
instrument acquires the same for a consideration or for value.[15] As petitioner alleged that there
was no consideration for the issuance of the subject checks, it devolved upon him to present
convincing evidence to overthrow the presumption and prove that the checks were in fact issued
without valuable consideration.[16] Sadly, however, petitioner has not presented any credible
evidence to rebut the presumption, as well as North Stars assertion, that the checks were issued as
payment for the US$85,000 petitioner owed.

Notably, petitioner anchors his defense of lack of consideration on the fact that he did not
personally receive the US$85,000 from Virginia. However, we note that in his pleadings, he never
denied having instructed Virginia to remit the US$85,000 to View Sea Ventures. Evidently,
Virginia sent the money upon the agreement that petitioner will give to North Star the peso
equivalent of the amount remitted plus interest. As testified to by Virginia, Check No.
246822 dated May 15, 1994 in the amount of P695,000.00 is equivalent to US$25,000; Check No.
246823 dated May 15, 1994 in the amount of P278,000 is equivalent to US$10,000; Check No.
246824 in the amount of P22,703 represents the one month interest for P695,000 and P278,000 at
the rate of twenty-eight (28%) percent per annum;[17] Check No. 687803 dated April 14, 1994 in
the amount of P1,500,000 is equivalent to US$50,000 and Check No. 687804 dated 14 April 1994
in the amount of P35,000 represents the one month interest for P1,500,000 at the rate of twenty-
eight (28%) percent per annum.[18] Petitioner has not substantially refuted these averments.
 Concomitantly, petitioners assertion that the dollars sent to Nigeria was for the account of
Virginia Balagtas and as her own investment with View Sea Ventures deserves no
credence.Virginia has not been shown to have any business transactions with View Sea Ventures
and from all indications, she only remitted the money upon the request and in accordance with
petitioners instructions. The evidence shows that it was petitioner who had a contract with View
Sea Ventures as he was sending contract workers to Nigeria; Virginia Balagtass participation was
merely to send the money through telegraphic transfer in exchange for the checks issued by
petitioner to North Star. Indeed, the transaction between petitioner and North Star is actually in
the nature of a loan and the checks were issued as payment of the principal and the interest.

As aptly found by the trial court:

It is to be noted that the checks subject matter of the instant case were issued in the
name of North Star International Inc., represented by private complainant Virginia
Balagtas in replacement of the amount of dollars remitted by the latter to Vie[w]
Sea Ventures in Nigeria. x x x But Virginia Balagtas has no business transaction
with Vie[w] Sea Ventures where accused has been sending his contract workers
and the North Star provided the trip tickets for said workers sent by the
accused. North Star International has no participation at all in the transaction
between accused and the Vie[w] Sea Ventures except in providing plane ticket used
by the contract workers of the accused upon its understanding with the latter. The
contention of the accused that the dollars were sent by Virginia Balagtas to Nigeria
as business investment has not been shown by any proof to set aside the foregoing
negative presumptions, thus negates accused contentions regarding the absence of
consideration for the issuance of checks. x x x[19]

Petitioner claims that North Star did not give any valuable consideration for the checks
since the US$85,000 was taken from the personal dollar account of Virginia and not the corporate
funds of North Star. The contention, however, deserves scant consideration. The subject checks,
bearing petitioners signature, speak for themselves. The fact that petitioner himself specifically
named North Star as the payee of the checks is an admission of his liability to North Star and not
to Virginia Balagtas, who as manager merely facilitated the transfer of funds. Indeed, it is highly
inconceivable that an experienced businessman like petitioner would issue various checks in
sizeable amounts to a payee if these are without consideration. Moreover, we note that Virginia
Balagtas averred in her Affidavit[20] that North Star caused the payment of the US$60,000 and
US$25,000 to View Sea Ventures to accommodate petitioner, which statement petitioner failed to
refute. In addition, petitioner did not question the Statement of Account No. 8639[21] dated August
31, 1994 issued by North Star which contained itemized amounts including the US$60,000 and
US$25,000 sent through telegraphic transfer to View Sea Ventures per his instruction. Thus, the
inevitable conclusion is that when petitioner issued the subject checks to North Star as payee, he
did so to settle his obligation with North Star for the US$85,000. And since the only payment
petitioner made to North Star was in the amount of P220,000.00, which was applied to interest
due, his liability is not extinguished. Having failed to fully settle his obligation under the checks,
the appellate court was correct in holding petitioner liable to pay the value of the five checks he
issued in favor of North Star.

WHEREFORE, the present appeal by way of a petition for review on certiorari is DENIED for
lack of merit. The Decision dated May 31, 2006 of the Court of Appeals in CA-G.R. SP No.
65538 is AFFIRMED.

SIAIN ENTERPRISES, INC., G.R. No. 170782

Petitioner,
Present:

YNARES-SANTIAGO, J.,
Chairperson,
- versus - CHICO-NAZARIO,
VELASCO, JR.,
NACHURA, and
PERALTA, JJ.

CUPERTINO REALTY CORP. Promulgated:

and EDWIN R. CATACUTAN,
Respondents. June 22, 2009

x------------------------------------------------------------------------------------x

DECISION

NACHURA, J.:

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the
decision of the Court of Appeals in CA-G.R. CV No. 71424[1] which affirmed the decision of the
Regional Trial Court, Branch 29, Iloilo City in Civil Case No. 23244.[2]

On April 10, 1995, petitioner Siain Enterprises, Inc. obtained a loan of P37,000,000.00 from
respondent Cupertino Realty Corporation (Cupertino) covered by a promissory note signed by both
petitioners and Cupertinos respective presidents, Cua Le Leng and Wilfredo Lua. The promissory
note authorizes Cupertino, as the creditor, to place in escrow the loan proceeds of P37,000,000.00
with Metropolitan Bank & Trust Company to pay off petitioners loan obligation with Development
Bank of the Philippines (DBP). To secure the loan, petitioner, on the same date, executed a real
estate mortgage over two (2) parcels of land and other immovables, such as equipment and
machineries.

Two (2) days thereafter, or on April 12, 1995, the parties executed an amendment to promissory
note which provided for a seventeen percent (17%) interest per annum on the P37,000,000.00
loan.[3] The amendment to promissory note was likewise signed by Cua Le Leng and Wilfredo Lua
on behalf of petitioner and Cupertino, respectively.

On August 16, 1995, Cua Le Leng signed a second promissory note in favor
of Cupertino for P160,000,000.00. Cua Le Leng signed the second promissory note as maker, on
behalf of petitioner, and as co-maker, liable to Cupertino in her personal capacity. This second
promissory note provides:

PROMISSORY NOTE

AMOUNT DATE: AUGUST 16, 1995

ONE HUNDRED SIXTY MILLION PESOS
(PHP 160,000,000.00)

FOR VALUE RECEIVED, after one (1) year from this date on or August 16, 1996,
WE, SIAIN ENTERPRISES INC. with Metro Manila office address at 306 J.P.
Rizal St., Mandaluyong City, represented herein by its duly authorized President,
Ms. LELENG CUA, (a copy of her authority is hereto attached as Annex A) and
Ms. LELENG CUA in her personal capacity, a resident of ILOILO CITY, jointly
and severally, unconditionally promise to pay CUPERTINO REALTY
CORPORATION, or order, an existing corporation duly organized under
Philippine laws, the amount/sum of ONE HUNDRED SIXTY MILLION PESOS
(PHP 160,000,000.00), Philippine Currency, without further need of any demand,
at the office of CUPERTINO REALTY CORPORATION;

The amount/sum of ONE HUNDRED SIXTY MILLION PESOS (PHP

160,000,000.00) shall earn a compounding interest of 30% per annum which
interest shall be payable to CUPERTINO REALTY CORPORATION at its above
given address ON THE FIRST DAY OF EVERY MONTH WITHOUT THE
NEED OF DEMAND.

In case We fail to pay the principal amount of this note at maturity or in the event
of bankruptcy or insolvency, receivership, levy of execution, garnishment or
attachment or in case of conviction for a criminal offense carrying with it the
penalty of civil interdiction or in any of the cases covered by Article 1198 of the
Civil Code of the Philippines, then the entire principal of this note and other
interests and penalties due thereon shall, at the option of CUPERTINO REALTY
CORPORATION, immediately become due and payable and We jointly and
severally agree to pay additionally a penalty at the rate of THREE PERCENT (3%)
per month on the total amount/sum due until fully paid. Furthermore, We jointly
and severally agree to pay an additional sum equivalent to 20% of the total amount
due but in no case less than PHP 100,000.00 as and for attorneys fees in addition to
expenses and costs of suit.

We hereby authorize and empower CUPERTINO REALTY CORPORATION at

its option at any time, without notice, to apply to the payment of this note and or
any other particular obligation or obligations of all or any one of us to CUPERTINO
REALTY CORPORATION, as it may select, irrespective of the dates of maturity,
whether or not said obligations are then due, any and all moneys, checks, securities
and things of value which are now or which may hereafter be in its hand on deposit
or otherwise to the credit of, or belonging to, both or any one of us, and
CUPERTINO REALTY CORPORATION is hereby authorized to sell at public or
private sale such checks, securities, or things of value for the purpose of applying
the proceeds thereof to such payments of this note.

We hereby expressly consent to any extension and/or renewals hereof in whole or

in part and/or partial payment on account which may be requested by and granted
to us or any one of us for the payment of this note as long as the remaining unpaid
balance shall earn an interest of THREE percent (3%) a month until fully paid. Such
renewals or extensions shall, in no case, be understood as a novation of this note or
any provision thereof and We will thereby continue to be liable for the payment of
this note.

We submit to the jurisdiction of the Courts of the City of Manila or of the place of
execution of this note, at the option of CUPERTINO REALTY CORPORATION
without divesting any other court of the its jurisdiction, for any legal action which
may arise out of this note. In case of judical execution of this obligation, or any part
of it, we hereby waive all our rights under the provisions of Rule 39, section 12 of
the Rules of Court.

We, who are justly indebted to CUPERTINO REALTY CORPORATION, agree

to execute respectively a real estate mortgage and a pledge or a chattel mortgage
covering securities to serve as collaterals for this loan and to execute likewise an
irrevocable proxy to allow representatives of the creditor to be able to monitor acts
of management so as to prevent any premature call of this loan. We further
undertake to execute any other kind of document which CUPERTINO REALTY
CORPORATION may solely believe is necessary in order to effect any security
over any collateral.
 For this purpose, Ms. LELENG CUA, upon the foregoing promissory note, has this
16th day of Aug 1995, pledged her shares of stocks in SIAIN ENTERPRISES, INC.,
worth PHP 1,800,000.00 which she hereby confesses as representing 80% of the
total outstanding shares of the said company.

In default of payment of said note or any part thereof at maturity, Ms. LELENG
CUA hereby authorizes CUPERTINO REALTY CORPORATION or its assigns,
to dispose of said security or any part thereof at public sale. The proceeds of such
sale or sales shall, after payment of all expenses and commissions attending said
sale or sales, be applied to this promissory note and the balance, if any, after
payment of this promissory note and interest thereon, shall be returned to the
undersigned, her heirs, successors and administrators; it shall be optional for the
owner of the promissory note to bid for and purchase the securities or any part
thereof.

(signed)
SIAIN ENTERPRISES, INC. LELENG CUA
In her personal capacity
CO-MAKER

By:
(signed)
LELENG CUA
MAKER

WITNESSES:

(signed)
EDGARDO LUA

(signed)
ROSE MARIE RAGODON[4]

Parenthetically, on even date, the parties executed an amendment of real estate mortgage,
providing in pertinent part:

WHEREAS, on 10 April 1995, the [petitioner] executed, signed and delivered a

Real Estate Mortgage to and in favor of [Cupertino] on certain real estate properties
to secure the payment to [Cupertino] of a loan in the amount of THIRTY SEVEN
MILLION PESOS (P37,000,000.00) Philippine Currency, granted by [Cupertino]
was ratified (sic) on 10 April 1995 before Constancio Mangoba, Jr., Notary Public
 in Makati City, as Doc. No. 242; in Page No. 50; Book No., XVI; Series of 1995,
and duly recorded in the Office of the Register of Deeds for the said City of Iloilo;

WHEREAS, the [petitioner] has increased its loan payable to [Cupertino] which
now amounts to ONE HUNDRED NINETY SEVEN MILLION PESOS
(197,000,000.00); and

WHEREAS, the [petitioner] and [Cupertino] intend to amend the said Real Estate
Mortgage in order to reflect the current total loan secured by the said Real Estate
Mortgage;

NOW, THEREFORE, for and in consideration of the foregoing premises, the

parties hereto have agreed and by these presents do hereby agree to amend said
Real Estate Mortgage dated 10 April 1995 mentioned above by substituting the total
amount of the loan secured by said Real Estate Mortgage from P37,000,000.00
to P197,000,000.00.

It is hereby expressly understood that with the foregoing amendment, all other
terms and conditions of said Real Estate Mortgage dated 10 April 1995 are hereby
confirmed, ratified and continued to be in full force and effect, and that this
agreement be made an integral part of said Real Estate Mortgage.[5]

Curiously however, and contrary to the tenor of the foregoing loan documents, petitioner, on
March 11, 1996, through counsel, wrote Cupertino and demanded the release of
the P160,000,000.00 loan increase covered by the amendment of real estate mortgage.[6] In the
demand letter, petitioners counsel stated that despite repeated verbal demands, Cupertino had yet
to release the P160,000,000.00 loan. On May 17, 1996, petitioner demanded anew
from Cupertino the release of the P160,000,000.00 loan.[7]

In complete refutation, Cupertino, likewise through counsel, responded and denied that it had yet
to release the P160,000,000.00 loan. Cupertino maintained that petitioner had long obtained the
proceeds of the aforesaid loan. Cupertino declared petitioners demand as made to abscond from a
just and valid obligation, a mere afterthought, following Cupertinos letter demanding payment of
the P37,000,000.00 loan covered by the first promissory note which became overdue on March 5,
1996.

Not surprisingly, Cupertino instituted extrajudicial foreclosure proceedings over the properties
subject of the amended real estate mortgage. The auction sale was scheduled on October 11,
1996with respondent Notary Public Edwin R. Catacutan commissioned to conduct the same. This
prompted petitioner to file a complaint with a prayer for a restraining order to enjoin Notary Public
Catacutan from proceeding with the public auction.
The following are the parties conflicting claims, summarized by the RTC, and quoted verbatim by
the CA in its decision:

The verified complaint alleges that [petitioner] is engaged in the

manufacturing and retailing/wholesaling business. On the other hand, Cupertino is
engaged in the realty business. That on April 10, 1995, [petitioner] executed a Real
Estate Mortgage over its real properties covered by Transfer Certificates of title Nos.
T-75109 and T-73481 (the mortgage properties) of the Register of Deeds of Iloilo
in favor of Cupertino to secure the formers loan obligation to the latter in the amount
of Php37,000,000.00. That it has been the agreement between [petitioner]
and Cupertino that the aforesaid loan will be non-interest bearing. Accordingly, the
parties saw to it that the promissory note (evidencing their loan agreement) did not
provide any stipulation with respect to interest. On several occasions thereafter,
[petitioner] made partial payments to Cupertino in respect of the aforesaid loan
obligation by the former to the latter in the total amount of Php7,985,039.08, thereby
leaving a balance of Php29,014,960.92. On August 16, 1995, [petitioner]
and Cupertino executed an amendment of Real Estate Mortgage (Annex C)
increasing the total loan covered by the aforesaid REM from Php37,000,000.00 to
P197,000,000.00. This amendment to REM was executed preparatory to the
promised release by Cupertino of additional loan proceeds to [petitioner] in the total
amount of Php160,000,000.00. However, despite the execution of the said
amendment to REM and its subsequent registration with the Register of Deeds of
Iloilo City and notwithstanding the clear agreement between [petitioner] and
Cupertino and the latter will release and deliver to the former the aforesaid
additional loan proceeds of P160,000,000.00 after the signing of pertinent
documents and the registration of the amendment of REM, Cupertino failed and
refused to release the said additional amount for no apparent reason at all, contrary
to its repeated promises which [petitioner] continuously relied on. On account
of Cupertinos unfulfilled promises, [petitioner] repeatedly demanded
from Cupertino the release and/or delivery of the said Php160,000,000.00 to the
former. However, Cupertino still failed and refused and continuously fails and
refuses to release and/or deliver the Php160,000,000.00 to [petitioner]. When
[petitioner] tendered payment of the amount of Php29,014,960.92 which is the
remaining balance of the Php37,000,000.00 loan subject of the REM, in order to
discharge the same, Cupertino unreasonably and unjustifiably refused acceptance
thereof on the ground that the previous payment amounting to Php7,985,039.08, was
applied by Cupertino to alleged interests and not to principal amount, despite the
fact that, as earlier stated, the aforesaid loan by agreement of the parties, is non-
interest bearing. Worst, unknown to [petitioner], Cupertino was already making
arrangements with [respondent] Notary Public for the extrajudicial sale of the
mortgage properties even as [petitioner] is more than willing to pay the
Php29,014,960.92 which is the remaining balance of the Php37,000,000.00 loan and
notwithstanding Cupertinos unjustified refusal and failure to deliver to [petitioner]
 the amount of Php160,000,000.00. In fact, a notarial sale of the mortgaged
properties is already scheduled on 04 October 1996 by [respondent] Notary Public
at his office located at Rm. 100, Iloilo Casa Plaza, Gen Luna St., Iloilo City. In view
of the foregoing, Cupertino has no legal right to foreclose the mortgaged properties.
In any event, Cupertino cannot extrajudicially cause the foreclosure by notarial sale
of the mortgage properties by [respondent] Notary Public as there is nothing in the
REM (dated 10 April 1995) or in the amendment thereto that grants Cupertino the
said right.

xxxx
[Respondents] finally filed an answer to the complaint, alleging that the loan
have (sic) an interest of 17% per annum: that no payment was ever made by
[petitioner], that [petitioner] has already received the amount of the loan prior to the
execution of the promissory note and amendment of Real Estate Mortgage, xxx.

[Petitioner] filed a supplemental complaint alleging subsequent acts made by

defendants causing the subsequent auction sale and registering the Certificates of
Auction Sale praying that said auction sale be declared null and void and ordering
the Register of Deeds to cancel the registration and annotation of the Certificate of
Notarial Sale.

Thereafter, the Pre-Trial conference was set. Both parties submitted their
respective Brief and the following facts were admitted, viz:

1. Execution of the mortgage dated April 10, 1995;

2. Amendment of Real Estate Mortgage dated August 16, 1995;
3. Execution of an Extra-Judicial Foreclosure by the [Cupertino];
4. Existence of two (2) promissory notes;
5. Existence but not the contents of the demand letter March 11,
1996 addressed to Mr. Wilfredo Lua and receipt of the same by
[Cupertino]; and
6. Notice of Extra-Judicial Foreclosure Sale.

For failing to arrive at an amicable settlement, trial on the merits ensued.

The parties presented oral and documentary evidence to support their claims and
contentions. [Petitioner] insisted that she never received the proceeds of
Php160,000,000.00, thus, the foreclosure of the subject properties is null and void.
[Cupertino] on the other hand claimed otherwise.[8]

After trial, the RTC rendered a decision dismissing petitioners complaint and ordering it to pay
Cupertino P100,000.00 each for actual and exemplary damages, and P500,000.00 as attorneys
fees. The RTC recalled and set aside its previous order declaring the notarial foreclosure of the
mortgaged properties as null and void. On appeal, the CA, as previously adverted to, affirmed the
RTCs ruling.
 In dismissing petitioners complaint and finding for Cupertino, both the lower courts upheld
the validity of the amended real estate mortgage. The RTC found, as did the CA, that although the
amended real estate mortgage fell within the exceptions to the parol evidence rule under Section
9, Rule 130 of the Rules of Court, petitioner still failed to overcome and debunk Cupertinos
evidence that the amended real estate mortgage had a consideration, and petitioner did receive the
amount of P160,000,000.00 representing its incurred obligation to Cupertino. Both courts ruled
that as between petitioners bare denial and negative evidence of non-receipt of
the P160,000,000.00, and Cupertinos affirmative evidence on the existence of the consideration,
the latter must be given more weight and value. In all, the lower courts gave credence to Cupertinos
evidence that the P160,000,000.00 proceeds were the total amount received by petitioner and its
affiliate companies over the years from Wilfredo Lua, Cupertinos president. In this regard, the
lower courts applied the doctrine of piercing the veil of corporate fiction to preclude petitioner
from disavowing receipt of the P160,000,000.00 and paying its obligation under the amended real
estate mortgage.

Undaunted, petitioner filed this appeal insisting on the nullity of the amended real estate
mortgage. Petitioner is adamant that the amended real estate mortgage is void as it did not receive
the agreed consideration therefor i.e. P160,000,000.00. Petitioner avers that the amended real
estate mortgage does not accurately reflect the agreement between the parties as, at the time it
signed the document, it actually had yet to receive the amount of P160,000,000.00. Lastly,
petitioner asseverates that the lower courts erroneously applied the doctrine of piercing the veil of
corporate fiction when both gave credence to Cupertinos evidence showing that petitioners
affiliates were the previous recipients of part of the P160,000,000.00 indebtedness of petitioner to
Cupertino.

We are in complete accord with the lower courts rulings.

Well-entrenched in jurisprudence is the rule that factual findings of the trial court,
especially when affirmed by the appellate court, are accorded the highest degree of respect and are
considered conclusive between the parties.[9] A review of such findings by this Court is not
warranted except upon a showing of highly meritorious circumstances, such as: (1) when the
findings of a trial court are grounded entirely on speculation, surmises or conjectures; (2) when a
lower courts inference from its factual findings is manifestly mistaken, absurd or impossible; (3)
when there is grave abuse of discretion in the appreciation of facts; (4) when the findings of the
appellate court go beyond the issues of the case, or fail to notice certain relevant facts which, if
properly considered, will justify a different conclusion; (5) when there is a misappreciation of
facts; (6) when the findings of fact are conclusions without mention of the specific evidence on
which they are based, are premised on the absence of evidence, or are contradicted by evidence on
record.[10] None of these exceptions necessitating a reversal of the assailed decision obtains in this
instance.

Conversely, we cannot subscribe to petitioners faulty reasoning.

First. All the loan documents, on their face, unequivocally declare petitioners indebtedness
to Cupertino:

1. Promissory Note dated April 10, 1995, prefaced with a [f]or value received, and the
escrow arrangement for the release of the P37,000,000.00 obligation in favor of DBP, another
creditor of petitioner.

2. Mortgage likewise dated April 10, 1995 executed by petitioner to secure

its P37,000,000.00 loan obligation with Cupertino.

3. Amendment to Promissory Note for P37,000,000.00 dated April 12, 1995 which
tentatively sets the interest rate at seventeen percent (17%) per annum.

4. Promissory Note dated August 16, 1995, likewise prefaced with [f]or value received,
and unconditionally promising to pay Cupertino P160,000,000.00 with a stipulation on
compounding interest at thirty percent (30%) per annum. The Promissory Note requires, among
others, the execution of a real estate mortgage to serve as collateral therefor. In case of default in
payment, petitioner, specifically, through its president, Cua Le Leng, authorizes Cupertino to
dispose of said security or any part thereof at [a] public sale.

5. Amendment of Real Estate Mortgage also dated August 16, 1995 with a recital that the
mortgagor, herein petitioner, has increased its loan payable to the mortgagee, Cupertino,
from P37,000,000.00 to P197,000,000.00. In connection with the increase in loan obligation, the
parties confirmed and ratified the Real Estate Mortgage dated April 10, 1995.

Unmistakably, from the foregoing chain of transactions, a presumption has arisen that the
loan documents were supported by a consideration.
Rule 131, Section 3 of the Rules of Court specifies that a disputable presumption is satisfactory if
uncontradicted and not overcome by other evidence. Corollary thereto, paragraphs (r) and (s)
thereof and Section 24 of the Negotiable Instruments Law read:

SEC. 3. Disputable presumptions. The following presumptions are satisfactory if

uncontradicted, but may be contradicted and overcome by other evidence:

xxxx

(r) That there was sufficient consideration for a contract;

(s) That a negotiable instrument was given or indorsed for a sufficient

consideration;

xxx

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.

Second. The foregoing notwithstanding, petitioner insists that the Amended Real Estate Mortgage
was not supported by a consideration, asserting non-receipt of the P160,000,000.00 loan increase
reflected in the Amended Real Estate Mortgage. However, petitioners bare-faced assertion does
not even dent, much less, overcome the aforesaid presumptions on consideration for a contract. As
deftly pointed out by the trial court:

x x x In this case, this Court finds that the [petitioner] has not been able to establish
its claim of non-receipt by a preponderance of evidence. Rather, the Court is
inclined to give more weight and credence to the affirmative and straightforward
testimony of [Cupertino] explaining in plain and categorical words that the
Php197,000,000.00 loan represented by the amended REM was the total sum of the
debit memo, the checks, the real estate mortgage and the amended real estate
mortgage, the pledges of jewelries, the trucks and the condominiums plus the
interests that will be incurred which all in all amounted to Php197,000,000.00. It is
a basic axiom in this jurisdiction that as between the plaintiffs negative evidence of
denial and the defendants affirmative evidence on the existence of the
consideration, the latter must be given more weight and value. Moreover,
[Cupertinos] foregoing testimony on the existence of the consideration of the
Php160,000,000.00 promissory note has never been refuted nor denied by the
[petitioner], who while initially having manifested that it will present rebuttal
evidence eventually failed to do so, despite all available opportunities accorded to
it. By such failure to present rebutting evidence, [Cupertinos] testimony on the
 existence of the consideration of the amended real estate mortgage does not only
become impliedly admitted by the [petitioner], more significantly, to the mind of
this Court, it is a clear indication that [petitioner] has no counter evidence to
overcome and defeat the [Cupertinos] evidence on the matter. Otherwise, there is
no logic for [petitioner] to withhold it if available. Assuming that indeed it exists,
it may be safely assumed that such evidence having been willfully suppressed is
adverse if produced.

The presentation by [petitioner] of its cash Journal Receipt Book as proof that it did
not receive the proceeds of the Php160,000,000.00 promissory note does not
likewise persuade the Court. In the first place, the subject cash receipt journal only
contained cash receipts for the year 1995. But as appearing from the various checks
and debit memos issued by Wilfredo Lua and his wife, Vicky Lua and from the
formers unrebutted testimony in Court, the issuance of the checks, debit memos,
pledges of jewelries, condominium units, trucks and the other components of the
Php197,000,000.00 amended real estate mortgage had all taken place prior to the
year 1995, hence, they could not have been recorded therein. What is more, the said
cash receipt journal appears to be prepared solely at the behest of the [petitioner],
hence, can be considered as emanating from a poisonous tree therefore self-serving
and cannot be given any serious credibility.[11]

Significantly, petitioner asseverates that the parol evidence rule, which excludes other evidence,
apart from the written agreement, to prove the terms agreed upon by the parties contained
therein,[12] is not applicable to the Amended Real Estate Mortgage. Both the trial and appellate
courts agreed with petitioner and did not apply the parol evidence rule. Yet, despite the allowance
to present evidence and prove the invalidity of the Amended Real Estate Mortgage, petitioner still
failed to substantiate its claim of non-receipt of the proceeds of the P160,000,000.00 loan increase.

Moreover, petitioner was the plaintiff in the trial court, the party that brought suit against
respondent. Accordingly, it had the burden of proof, the duty to present a preponderance of
evidence to establish its claim.[13] However, petitioners evidence consisted only of a barefaced
denial of receipt and a vaguely drawn theory that in their previous loan transaction with respondent
covered by the first promissory note, it did not receive the proceeds of the P37,000,000.00.
Petitioner conveniently ignores that this particular promissory note secured by the real estate
mortgage was under an escrow arrangement and taken out to pay its obligation to DBP. Thus,
petitioner, quite obviously, would not be in possession of the proceeds of the loan. Contrary to
petitioners contention, there is no precedent to explain its stance that respondent undertook to
release the P160,000,000.00 loan only after it had first signed the Amended Real Estate Mortgage.
Third. Petitioner bewails the lower courts application of the doctrine of piercing the veil of
corporate fiction.

As a general rule, a corporation will be deemed a separate legal entity until sufficient reason to the
contrary appears.[14] But the rule is not absolute. A corporations separate and distinct legal
personality may be disregarded and the veil of corporate fiction pierced when the notion of legal
entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime.[15]

In this case, Cupertino presented overwhelming evidence that petitioner and its affiliate
corporations had received the proceeds of the P160,000,000.00 loan increase which was then made
the consideration for the Amended Real Estate Mortgage. We quote with favor the RTCs and the
CAs disquisitions on this matter:

That the checks, debit memos and the pledges of the jewelries, condominium units
and trucks were constituted not exclusively in the name of [petitioner] but also
either in the name of Yuyek Manufacturing Corporation, Siain Transport, Inc., Cua
Leleng and Alberto Lim is of no moment. For the facts established in the case at
bar has convinced the Court of the propriety to apply the principle known as
piercing the veil of the corporate entity by virtue of which, the juridical
personalities of the various corporations involved are disregarded and the ensuing
liability of the corporation to attach directly to its responsible officers and
stockholders. x x x

xxxx

The conjunction of the identity of the [petitioner] corporation in relation to Siain

Transport, Inc. (Siain Transport), Yuyek Manufacturing Corp. (Yuyek), as well as
the individual personalities of Cua Leleng and Alberto Lim has been indubitably
shown in the instant case by the following established considerations, to wit:

1. Siain and Yuyek have [a] common set of [incorporators],

stockholders and board of directors;

2. They have the same internal bookkeeper and accountant in the

person of Rosemarie Ragodon;

3. They have the same office address at 306 Jose Rizal

St., Mandaluyong City;

4. They have the same majority stockholder and president in the

person of Cua Le Leng; and
 5. In relation to Siain Transport, Cua Le Leng had the unlimited
authority by and on herself, without authority from the Board of
Directors, to use the funds of Siain Trucking to pay the obligation
incurred by the [petitioner] corporation.

Thus, it is crystal clear that [petitioner] corporation, Yuyek and

Siain Transport are characterized by oneness of operations vested
in the person of their common president, Cua Le Leng, and unity in
the keeping and maintenance of their corporate books and records
through their common accountant and bookkeeper, Rosemarie
Ragodon. Consequently, these corporations are proven to be the
mere alter-ego of their president Cua Leleng, and considering that
Cua Leleng and Alberto Lim have been living together as common
law spouses with three children, this Court believes that while
Alberto Lim does not appear to be an officer of Siain and Yuyek,
nonetheless, his receipt of certain checks and debit memos from
Willie Lua and Victoria Lua was actually for the account of his
common-law wife, Cua Leleng and her alter ego corporations.
While this Court agrees with Siain that a corporation has a
personality separate and distinct from its individual stockholders or
members, this legal fiction cannot, however, be applied to its benefit
in this case where to do so would result to injustice and evasion of
a valid obligation, for well settled is the rule in this jurisdiction that
the veil of corporate fiction may be pierced when it is used as a
shield to further an end subversive of justice, or for purposes that
could not have been intended by the law that created it; or to justify
wrong, or for evasion of an existing obligation. Resultantly, the
obligation incurred and/or the transactions entered into either by
Yuyek, or by Siain Trucking, or by Cua Leleng, or by Alberto Lim
with Cupertino are deemed to be that of the [petitioner] itself.

The same principle equally applies to Cupertino. Thus, while it appears that the
issuance of the checks and the debit memos as well as the pledges of the
condominium units, the jewelries, and the trucks had occurred prior to March 2,
1995, the date when Cupertino was incorporated, the same does not affect the
validity of the subject transactions because applying again the principle of piercing
the corporate veil, the transactions entered into by Cupertino Realty Corporation, it
being merely the alter ego of Wilfredo Lua, are deemed to be the latters personal
transactions and vice-versa.[16]

xxxx

x x x Firstly. As can be viewed from the extant record of the instant case, Cua
Leleng is the majority stockholder of the three (3) corporations namely, Yuyek
Manufacturing Corporation, Siain Transport, Inc., and Siain Enterprises Inc., at the
same time the President thereof. Second. Being the majority stockholder and the
 president, Cua Le leng has the unlimited power, control and authority without the
approval from the board of directors to obtain for and in behalf of the [petitioner]
corporation from [Cupertino] thereby mortgaging her jewelries, the condominiums
of her common law husband, Alberto Lim, the trucks registered in the name of
[petitioner] corporations sister company, Siain Transport Inc., the subject lots
registered in the name of [petitioner] corporation and her oil mill property at Iloilo
City. And, to apply the proceeds thereof in whatever way she wants, to the prejudice
of the public.

As such, [petitioner] corporation is now estopped from denying the above apparent
authorities of Cua Le Leng who holds herself to the public as possessing the power
to do those acts, against any person who dealt in good faith as in the case
of Cupertino.[17]

WHEREFORE, premises considered, the petition is DENIED. The Decision of the Court of
Appeals in CA-G.R. CV No. 71424 is AFFIRMED. Costs against the petitioner.

SECOND DIVISION

JAMES SVENDSEN, G.R. No. 175381

Petitioner,
Present:

QUISUMBING, J., Chairperson,

CARPIO,
-versus- CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.

PEOPLE OF THE PHILIPPINES,

Respondent. Promulgated:

February 26, 2008

x--------------------------------------------------x

DECISION

CARPIO MORALES, J.:

 Assailed via Petition for Review on Certiorari is the Court of Appeals Decision[1] of
November 16, 2006 denying petitioners appeal from the December 22, 2005 Decision[2] of the
Regional Trial Court (RTC) of Manila, Branch 14 which affirmed the December 17, 2003
Judgment[3] of the Metropolitan Trial Court (MeTC) of Manila, Branch 5, finding
James Svendsen(petitioner) guilty of violation of Batas Pambansa Blg. (B.P. Blg.) 22 or the
Bouncing Checks Law.

In October 1997, Cristina Reyes (Cristina) extended a loan to petitioner in the amount
of P200,000, to bear interest at 10% a month. After petitioner had partially paid his obligation, he
failed to settle the balance thereof which had reached P380,000 inclusive of interest.[4]

Cristina thus filed a collection suit against petitioner, which was eventually settled when
petitioner paid her P200,000[5] and issued in her favor an International Exchange Bank check
postdated February 2, 1999 (the check) in the amount of P160,000 representing interest.[6] The
check was co-signed by one Wilhelm Bolton.

When the check was presented for payment on February 9, 1999, it was dishonored for having
been Drawn Against Insufficient Funds (DAIF).[7]

Cristina, through counsel, thus sent a letter to petitioner by registered mail informing him that the
check was dishonored by the drawee bank, and demanding that he make it good within five (5)
days from receipt thereof.[8]

No settlement having been made by petitioner, Cristina filed a complaint dated March 1,
1999 against him and his co-signatory to the check, Bolton, for violation of B.P. Blg. 22 before
the City Prosecutors Office of Manila. No counter-affidavit was submitted by petitioner and his
co-respondent. An Information dated April 13, 1999 for violation of B.P. Blg. No. 22 was
thus filed on April 29, 1999 before the MeTC of Manila against the two, the accusatory portion of
which reads:

That sometime in December 1998 the said accused did then and there willfully,
unlawfully, and feloniously and jointly make or draw and issue to CRISTINA C.
REYES to apply on account or for value INTERNATIONAL EXCHANGE BANK
check no. 0000009118 dated February 2, 1999 payable to CRISTINA REYES in
the amount of P160,000.00 said accused well knowing that at the time of issue
she/he/they did not have sufficient funds and/or credit with the drawee bank for
payment of such check in full upon its presentment, which check after having been
 deposited in the City of Manila, Philippines, and upon being presented for payment
within ninety (90) days from the date thereof was subsequently dishonored by
the drawee bank for INSUFFICIENCY OF FUNDS and despite receipt of notice of
such dishonor, said accused failed to pay said CRISTINA C. REYES the amount
of the check or to make arrangement for full payment of the same within five (5)
banking days after receiving said notice.

CONTRARY TO LAW.[9]

Bolton having remained at large, the trial court never acquired jurisdiction over his person.[10]

By Judgment of December 17, 2003, Branch 5 of the Manila MeTC found petitioner guilty as
charged, disposing as follows:

WHEREFORE, this Court finds accused James

Robert Svendson [sic] GUILTY beyond reasonable doubt of a violation of
Batas Pambansa Blg. 22 (Bouncing Checks Law) and imposes upon him to
pay a fine of ONE HUNDRED SIXTY THOUSAND PESOS (P160,000.00),
with subsidiary imprisonment in case of insolvency.

Accused is also made liable to pay private complainant Cristina C. Reyes civil
indemnity in the total amount of ONE HUNDRED SIXTY THOUSAND PESOS
(P160,000.00) representing his civil obligation covered by subject check.

Meantime, considering that other accused Wilhelm Bolton remains at large, let a
warrant of arrest against him ISSUE. Pending his apprehension, let the case against
him be sent to the ARCHIVES. (Emphasis in the original; underscoring supplied)

As priorly stated, the RTC affirmed the MeTC judgment and the Court of Appeals denied
petitioners appeal.

Hence, the present petition for review.

Petitioner argues that the appellate court erred in finding that the first element of violation
of B.P. Blg. 22 the making, drawing, and issuance of any check to apply on account or for value
was present, as the obligation to pay interest is void, the same not being in writing and the 10%
monthly interest is unconscionable; in holding him civilly liable in the amount of P160,000 to
private complainant, notwithstanding the invalidity of the interest stipulation; and in violating his
right to due process when it convicted him, notwithstanding the absence of proof of receipt by him
of a written notice of dishonor.

The petition is impressed with merit.

Section 1 of B.P. Blg. 22 or the Bouncing Checks Law reads:

SECTION 1. Checks without sufficient funds. Any person who makes or draws and
issues any check to apply on account or for value, knowing at the time of issue that
he does not have sufficient funds in or credit with the drawee bank for the payment
of such check in full upon its presentment, which check is subsequently dishonored
by the drawee bank for insufficiency of funds or credit or would have been
dishonored for the same reason had not the drawer, without any valid reason,
ordered the bank to stop payment, shall be punished by imprisonment of not less
than thirty days but not more than one (1) year or by fine of not less than but not
more than double the amount of the check which fine shall in no case exceed Two
Hundred Thousand pesos, or both such fine and imprisonment at the discretion of
the court.

The same penalty shall be imposed upon any person who, having sufficient funds
in or credit with the drawee bank when he makes or draws and issues a check, shall
fail to keep sufficient funds or to maintain a credit to cover the full amount of the
check if presented within a period of ninety (90) days from the date appearing
thereon, for which reason it is dishonored by the drawee bank. Where the check is
drawn by a corporation, company or entity, the person or persons who actually
signed the check in behalf of such drawer shall be liable under this Act.

For petitioner to be validly convicted of the crime under B.P. Blg. 22, the following requisites
must thus concur: (1) the making, drawing and issuance of any check to apply for account or for
value; (2) the knowledge of the maker, drawer, or issuer that at the time of issue he does not have
sufficient funds in or credit with the drawee bank for the payment of the check in full upon its
presentment; and (3) the subsequent dishonor of the check by the drawee bank for insufficiency of
funds or credit or dishonor for the same reason had not the drawer, without any valid cause, ordered
the bank to stop payment.[11]

Petitioner admits having issued the postdated check to Cristina. The check, however, was
dishonored when deposited for payment in Banco de Oro due to DAIF. Hence, the first and the
third elements obtain in the case.
As for the second element, Section 2 of B.P. Blg. 22 provides that

[t]he making, drawing and issuance of a check payment of which is refused by

the drawee because of insufficient funds in or credit with such bank, when
presented within ninety (90) days from the date of the check, shall be prima
facie evidence of knowledge of such insufficiency of funds or credit unless such
maker or drawer pays the holder thereof the amount due thereon, or makes
arrangements for payment in full by the drawee of such check within five (5)
banking days after receiving notice that such check has not been paid by the drawee.

In Rico v. People of the Philippines,[12] this Court held:

x x x [I]f x x x notice of non-payment by the drawee bank is not sent to the

maker or drawer of the bum check, or if there is no proof as to when such notice
was received by the drawer, then the presumption of knowledge as provided in
Section 2 of B.P. 22 cannot arise, since there would simply be no way of reckoning
the crucial five-day period.

x x x In recent cases, we had the occasion to emphasize that not only must
there be a written notice of dishonor or demand letters actually received by the
drawer of a dishonored check, but there must also be proof of receipt thereof that
is properly authenticated, and not mere registered receipt and/or return receipt.

Thus, as held in Domagsang vs. Court of Appeals, while Section 2 of B.P.

22 indeed does not state that the notice of dishonor be in writing, this must be taken
in conjunction with Section 3 of the law, i.e., that where there are no sufficient
funds in or credit with such drawee bank, such fact shall always be explicitly stated
in the notice of dishonor or refusal. A mere oral notice or demand to pay would
appear to be insufficient for conviction under the law. In our view, both the spirit
and letter of the Bouncing Checks Law require for the act to be
punished thereunder not only that the accused issued a check that is dishonored, but
also that the accused has actually been notified in writing of the fact of
dishonor. This is consistent with the rule that penal statues must be construed
strictly against the state and liberally in favor of the accused. x x x

In fine, the failure of the prosecution to prove the existence and receipt by
petitioner of the requisite written notice of dishonor and that he was given at least
five banking days within which to settle his account constitutes sufficient ground
for his acquittal.[13] (Italics in the original; emphasis and underscoring supplied)

The evidence for the prosecution failed to prove the second element. While the registry
receipt,[14] which is said to cover the letter-notice of dishonor and of demand sent to petitioner,
was presented, there is no proof that he or a duly authorized agent received the same. Receipts for
registered letters including return receipts do not themselves prove receipt; they must be properly
authenticated to serve as proof of receipt of the letters.[15] Thus in Ting v. Court of Appeals,[16] this
Court observed:

x x x All that we have on record is an illegible signature on the registry

receipt as evidence that someone received the letter. As to whether this signature is
that of one of the petitioners or of their authorized agent remains a mystery. From
the registry receipt alone, it is possible that petitioners or their authorized agent did
receive the demand letter. Possibilities, however, cannot replace proof beyond
reasonable doubt.[17]

For failure then to prove all the elements of violation of B.P. Blg. 22, petitioners acquittal is in
order.

Petitioner is civilly liable, however. For in a criminal case, the social injury is sought to be
repaired through the imposition of the corresponding penalty, whereas with respect to the personal
injury of the victim, it is sought to be compensated through indemnity, which is civil in nature.[18]

The decision of the MeTC, which was affirmed on appeal by the RTC and the appellate court,
ordering petitioner to pay private complainant Cristina C. Reyes civil indemnity in the total amount
of ONE HUNDRED SIXTY THOUSAND PESOS (P160,000) representing his civil obligation
covered by subject check, deserves circumspect examination, however, given that the obligation
of petitioner to pay 10% interest per month on the loan is unconscionable and against public policy.

The P160,000 check petitioner issued to Cristina admittedly represented unpaid interest. By
Cristinas information, the interest was computed at a fixed rate of 10% per month.[19]

While the Usury Law ceiling on interest rates was lifted by Central Bank Circular No. 905, nothing
therein grants lenders carte blanche to raise interest rates to levels which will either enslave their
borrowers or lead to a hemorrhaging of their assets.[20] Stipulations authorizing such interest
are contra bonos mores, if not against the law. They are, under Article 1409[21] of the New Civil
Code, inexistent and void from the beginning.[22]

The interest rate of 10% per month agreed upon by the parties in this case being clearly excessive,
iniquitous and unconscionable cannot thus be
sustained. In Macalalag v. People,[23] Dio v. Jardines,[24] and in Cuaton v. Salud,[25] this Court,
finding the 10% per month interest rate to be unconscionable, reduced it to 12% per annum. And
in other cases[26] where the interest rates stipulated were even less than that involved herein, the
Court equitably reduced them.

This Court deems it fair and reasonable then, consistent with existing jurisprudence, to
adjust the civil indemnity to P16,000, the equivalent of petitioners unpaid interest on the P200,000
loan at 12% percent per annum as of February 2, 1999, the date of the check, plus 12% per
annum interest to be computed from April 29, 1999, the date of judicial demand (date of the filing
of the Information) up to the finality of this judgment. After the judgment becomes final
and executory until the obligation is satisfied, the total amount due shall bear interest at 12% per
annum.[27]

Respecting petitioners claim that since the promissory note incorporating the stipulated 10%
interest per month was not presented, there is no written proof thereof, hence, his obligation to pay
the same must be void, the same fails. As reflected above, Cristina admitted such stipulation.

In any event, the presentation of the promissory note may be dispensed with in a
prosecution for violation of B.P. Blg. 22 as the purpose for the issuance of such check is irrelevant
in the determination of the accuseds criminal liability. It is for the purpose of determining his civil
liability that the document bears significance. Notably, however, Section 24 of the Negotiable
Instruments Law provides that 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. It was incumbent then on petitioner to prove that the check was
not for a valuable consideration. This he failed to discharge.

WHEREFORE, the Court of Appeals Decision of November 16, 2006 is REVERSED and SET
ASIDE.

Petitioner, James Svendsen, is acquitted of the crime charged for failure of the prosecution to prove
his guilt beyond reasonable doubt.

He is, however, ordered to pay private complainant, Cristina C. Reyes, the amount of
SIXTEEN THOUSAND PESOS (P16,000) representing civil indemnity, plus 12% interest per
annum computed from April 29, 1999 up to the finality of this judgment. After the judgment
becomes final and executory until the obligation is satisfied, the total amount due shall earn
interest at 12% per annum.

SO ORDERED.

LEODEGARIO BAYANI, G.R. No. 155619

Petitioner,

Present:

YNARES-SANTIAGO, J.,
- versus - Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.
PEOPLE OF THE
PHILIPPINES, Promulgated:
Respondent. August 14, 2007
x----------------------------------------------x

DECISION

AUSTRIA-MARTINEZ, J.:

Leodegario Bayani (petitioner) was charged with Violation of Batas Pambansa Blg. 22 in an
Information, to wit:

That on or about the 20th day of August 1992, in the Municipality of Candelaria,
Province of Quezon, Philippines, and within the jurisdiction of this Honorable
Court, the above-named accused did then and there willfully, unlawfully and
feloniously issue and make out Check No. 054924 dated August 26, 1992, in the
amount of TEN THOUSAND PESOS (P10,000.00) Philippine Currency, drawn
against the PS Bank, Candelaria Branch, Candelaria, Quezon, payable to Cash and
give the said check to one Dolores Evangelista in exchange for cash although the
said accused knew fully well at the time of issuance of said check that he did not
have sufficient funds in or credit with the drawee bank for payment, the same was
 dishonored and refused payment for the reason that the drawer thereof, the herein
accused, had no sufficient funds therein, and that despite due notice said accused
failed to deposit the necessary amount to cover said check, or to pay in full the
amount of said check, to the damage and prejudice of said Dolores Evangelista in
the aforesaid amount.

Contrary to law.[1]
After trial, petitioner was convicted by the Regional Trial Court (RTC) of Lucena City, Branch
55, in a Decision rendered on November 20, 1995, the dispositive portion of which reads:

WHEREFORE, in view of the foregoing considerations, this Court finds the

accused Leodegario S. Bayani, GUILTY beyond reasonable doubt of violating
Section 1, Batas Pambansa Blg. 22, and hereby sentences him to suffer one (1) year
imprisonment and a fine of Five Thousand (P5,000.00) Pesos, with subsidiary
imprisonment in case of insolvency. He shall likewise pay the complaining witness,
Dolores Evangelista, the sum of P10,000.00, the value of Check No. 054924 he
issued and drew against PS Bank, Candelaria Branch, which was subsequently
dishonored by the said drawee bank for insufficiency of funds.

The accused Leodegario Bayani is further ordered to pay Dolores Evangelista the
amount of P5,000.00 representing attorney's fees. He shall also pay double the cost
of this suit.

SO ORDERED.[2]

In convicting petitioner, the trial court made the following findings of facts:

1. That the Philippine Savings Bank, Candelaria Branch, has issued to the accused
check booklet (Exh. C) on December 12, 1991, with the Check No. 054924 as one
of those included in said booklet of checks;

2. That the said Check No. 054924 dated August 26, 1992, was drawn and issued
payable to Cash in the amount of P10,000.00; said drawn check was made to apply
to the account of the accused, Leodegario S. Bayani whose name appears therein in
bold print at the upper portion of the said check;

3. That said Check No. 054924, is a post-dated check, was subsequently dishonored
by the drawee bank, PS Bank, Candelaria Branch, for insufficiency of funds;
4. That the checking account of the accused Leodegario S. Bayani with PS Bank,
Candelaria Branch, was closed on September 1, 1992 (Exh. B-3), which at the time
had only remaining deposit in the amount of P2,414.96 (Exh. B-4).[3]

The trial court also made the following findings:

 The check in question is postdated, issued and drawn on August 20, 1992, and
dated August 26, 1992. It was presented to complaining witness, Dolores
Evangelista, for encashment by Alicia Rubia whom the former knows. After the
check was deposited with the bank, it was returned to Evangelista for insufficiency
of funds (Exh. A-5). Thereafter, she pursued the following events to demand
payment of the value of the check:

xxxx

After the confrontation at the office of Atty. Emmanuel Velasco,

Evangelista has had another confrontation with the accused Bayani and Alicia
Rubia at Candelaria municipal building before Brgy. Captain Nestor Baera, but
again the accused and Rubia pointed to each other for the settlement of the amount
involved in the check in question.

Of these two (2) confrontations Evangelista had with the accused Bayani
and Alicia Rubia, including the chances to have met or known the complaining
witness Evangelista since 1977 up to the filing of the instant case in the Municipal
Trial Court of Candelaria, all what the accused Leodegario Bayani could say were
flat denials of having talked with, or otherwise met Evangelista, regarding the
latters claim of payment of the value of Check No. 054924, admittedly from the
check booklet of the said accused Bayani issued by PS Bank, Candelaria Branch.[4]

On appeal, the Court of Appeals (CA)[5] affirmed in toto the trial courts decision. The CAs
Decision dated January 30, 2002 provides for the following dispositive portion:

WHEREFORE, and it appearing from the circumstances of both the offense and
the offender which does not indicate good faith or a clear mistake of fact in
accordance with the Administrative Circular No. 13-2001, the judgment appealed
from is AFFIRMED in toto, with costs.

SO ORDERED.[6]

Thus, herein petition for review on certiorari under Rule 45, Rules of Court, with the following
assignment of errors:

THE COURT OF APPEALS, WITH DUE RESPECT, ERRED IN REFUSING TO

ACQUIT THE ACCUSED DESPITE THE CONVICTION OF THE TRIAL
COURT IS UTTERLY BASED ON HEARSAY EVIDENCE;
 THE COURT OF APPEALS ERRED IN CONVICTING THE ACCUSED
DESPITE THE CONSIDERATION FOR THE ISSUANCE OF THE CHECK
WAS NOT DULY ESTABLISHED;

THE TRIAL COURT AND THE COURT OF APPEALS ERRED WHEN THEY
CONVICTED THE ACCUSED BASED ON THE WEAKNESS OF THE
LATTER'S EVIDENCE AND NOT ON THE STRENGTH OF PROSECUTION'S
EVIDENCE;

THE TRIAL COURT AND THE COURT OF APPEALED (sic) ERRED IN

CONVICTING THE ACCUSED SOLELY ON THE BASES OF
PRESUMPTIONS.[7]

On the other hand, the Office of the Solicitor General (OSG), representing respondent, argues that:
(1) petitioners denial of his liability for Check No. 05492 cannot overcome the primordial fact that
his signature appears on the face of such check; (2) want of consideration is a personal defense
and is not available against a holder in due course; and (3) the constitutional presumption of
innocence was overcome by the requisite quantum of proof.[8]

Well-settled is the rule that the factual findings and conclusions of the trial court and the CA are
entitled to great weight and respect, and will not be disturbed on appeal in the absence of any clear
showing that the trial court overlooked certain facts or circumstances which would substantially
affect the disposition of the case. Jurisdiction of this Court over cases elevated from the CA is
limited to reviewing or revising errors of law ascribed to the CA, whose factual findings are
conclusive and carry even more weight when said court affirms the findings of the trial court,
absent any showing that the findings are totally devoid of support in the record or that they are so
glaringly erroneous as to constitute serious abuse of discretion.[9]

The Court sustains the CA in affirming petitioners conviction by the RTC.

Petitioner denies having issued the check subject of this case. He argues that the evidence
pinpointing him as the signatory on the check is merely hearsay.

Section 36 of Rule 130 of the Rules of Court provides for the rule on hearsay evidence, to wit:
 Sec. 36. Testimony generally confined to personal knowledge; hearsay
excluded. - A witness can testify only to those facts which he knows of his personal
knowledge; that is, which are derived from his own perception, except as otherwise
provided in these rules.

Under the above rule, any evidence whether oral or documentary is hearsay if its probative value
is not based on the personal knowledge of the witness, but on that of some other person who is not
on the witness stand. Hence, information that is relayed to the former by the latter before it reaches
the court is considered hearsay.[10]

In the present case, complainant Evangelista testified that she was approached by Alicia Rubia
who told her that she was requested by petitioner to have the check exchanged for cash, as he
needed money badly.[11] Obviously, Evangelistas testimony is hearsay since she had no personal
knowledge of the fact that petitioner indeed requested Rubia to have the check exchanged for cash,
as she was not personally present when petitioner supposedly made this request. What she testified
to, therefore, was a matter that was not derived from her own perception but from Rubias.

However, petitioner is barred from questioning the admission of Evangelistas testimony even if
the same is hearsay. Section 34, Rule 132 of the Rules of Court requires that the trial court shall
not consider any evidence which has not been finally offered. Section 35 of the same Rule provides
that as regards the testimony of a witness, the offer must be made at the time the witness is asked
to testify. And under Section 36 of the same Rule, objection to a question propounded in the course
of the oral examination of a witness shall be made as soon as the ground therefor becomes
reasonably apparent.

Thus, it has been held that in failing to object to the testimony on the ground that it was
hearsay, the evidence offered may be admitted.[12] Since no objection to the admissibility of
Evangelistas testimony was timely made from the time her testimony was offered[13] and up to the
time her direct examination was conducted[14] then petitioner has effectively waived[15] any
objection to the admissibility thereof and his belated attempts to have her testimony excluded for
being hearsay has no ground to stand on.
While Evangelistas statement may be admitted in evidence, it does not necessarily follow that the
same should be given evidentiary weight. Admissibility of evidence should not be equated with
weight of evidence.[16] In this regard, it has been held that although hearsay evidence may be
admitted because of lack of objection by the adverse partys counsel, it is nonetheless without
probative value,[17] unless the proponent can show that the evidence falls within the exception to
the hearsay evidence rule.[18]

In this case, Evangelistas testimony may be considered as an independently relevant statement, an

exception to the hearsay rule, the purpose of which is merely to establish the fact that the statement
was made or the tenor of such statement. Independent of the truth or the falsity of the statement,
the fact that it has been made is relevant.[19] When Evangelista said that Rubia told her that it was
petitioner who requested that the check be exchanged for cash, Evangelista was only testifying
that Rubia told her of such request. It does not establish the truth or veracity of Rubias statement
since it is merely hearsay, as Rubia was not presented in court to attest to such utterance. On this
score, evidence regarding the making of such independently relevant statement is not secondary
but primary, because the statement itself may (a) constitute a fact in issue or (2) be circumstantially
relevant as to the existence of that fact.[20] Indeed, independent of its truth or falsehood,
Evangelistas statement is relevant to the issues of petitioners falsehood, his authorship of the check
in question and consequently, his culpability of the offense charged.

In any event, petitioners conviction did not rest solely on Evangelistas testimony. There are other
pieces of evidence on record that established his guilt, to wit: the subject check was included in
the booklet of checks issued by the PSBank to petitioner; the subject check was made to apply to
the account of petitioner whose name appears on the upper portion of the said check; and most
telling is that petitioner never categorically denied that the signature appearing on the check was
his. What petitioner claimed was that the signature on the check was similar to his signature,
although there were differences, viz.:

Q: I am showing to you a certain document purpurting (sic) to be PSB Check No.

054924, will you please look at this particular document and tell this
Honorable Court if this particular check is one of those issued to you by the
Philippine Savings Bank?
 A: Yes, sir.

Q: Now, there appears a signature above a line located at the bottom of the said
check which appears to be Leodegario Bayani, please tell this Honorable
Court if you know this particular signature?
A: Although it is similar to my signature I could not tell if this is my signature, sir.

Q: Please explain to this Honorable Court why is it so?

A: Because there are some differences, sir.

Q: Please tell this Honorable Court the particular differences you are referring to?
A: At the middle of the signature I usually put my middle initial and also the
beginning of my family name is almost connected with each other, sir.[21]

Neither did petitioner claim that the signature was a forgery. Had he done so, then a forensic
examination of the signature in appearing on the check and his signature would have been made
in order to determine the genuineness or authenticity of the signature appearing on the check.

All these pieces of evidence, taken together, inevitably support the finding of petitioners guilt
beyond reasonable doubt of the offense charged.

Petitioner also argues that he cannot be convicted due to the prosecutions failure to prove that the
subject check was issued to apply on account or for value.

The elements of the offense penalized by Batas Pambansa Blg. 22 are:

(1) the making, drawing, and issuance of any check to apply for account or for
value;

(2) the knowledge of the maker, drawer, or issuer that at the time of issue there are
no sufficient funds in or credit with the drawee bank for the payment of such
check in full upon its presentment; and

(3) the subsequent dishonor of the check by the drawee bank for insufficiency of
funds or credit or dishonor for the same reason had not the drawer, without
any valid cause, ordered the bank to stop payment.[22]
As regards the first element, it is presumed, upon issuance of the checks and in the absence of
evidence to the contrary, that the same was issued for valuable consideration.[23] Under the
Negotiable Instruments Law, it is presumed that every party to an instrument acquired the same
for a consideration or for value.[24] In alleging that there was no consideration for the subject check,
it devolved upon petitioner to present convincing evidence to overthrow the

presumption and prove that the check was issued without consideration.

Valuable consideration may consist either of some right, interest, profit or benefit accruing to the
party who makes the contract; or some forbearance, detriment, loss of some responsibility to act;
or labor or service given, suffered or undertaken by the other side. It is an obligation to do or not
to do, in favor of the party who makes the contract, such as the maker or indorser.[25] It was shown
in this case that the check was issued and exchanged for cash. This was the valuable consideration
for which the check was issued.

At any rate, what the law punishes is the mere act of issuing a bouncing check, not the purpose for
which it was issued or the terms and conditions relating to its issuance. The law does not make any
distinction on whether the checks within its contemplation are issued in payment of an obligation
or to merely guarantee the obligation. The thrust of the law is to prohibit the making of worthless
checks and putting them in circulation.[26]

Thus, the Court cannot sustain petitioners stance that the prosecution failed to prove his guilt. As
ruled in Lee v. Court of Appeals:

Proof beyond reasonable doubt does not mean absolute certainty. Suffice it to say
the law requires only moral certainty or that degree of proof which produces
conviction in a prejudiced mind.[27]
After going over the evidence presented by the prosecution and the defense in this case, the Court
finds no reason to overturn the judgment of conviction rendered by the RTC, as affirmed by the
CA, as the prosecution sufficiently proved petitioner's guilt beyond reasonable doubt.

WHEREFORE, the petition is DENIED.

3. Effect of Want of consideration

3-a. What constitutes

Absence

Failure

a. Total

b. Partial, a defense pro tanto [Section 28]

3-b. Effect : Personal defense

3-c. Exception: Accommodation party [Section 29]

1. Nature of Accommodation [Bar, 1952]

a. Lends name to others without any consideration

b. Liability is either primary or secondary. He is a surety of the party accommodated

FIRST DIVISION

PHILIPPINE NATIONAL BANK, G.R. No. 170865

 Petitioner,

- versus -

SPOUSES CHEAH CHEE CHONG

and OFELIA CAMACHO CHEAH,
Respondents.
x--------------------------------x

SPOUSES CHEAH CHEE CHONG G.R. No. 170892

and OFELIA CAMACHO CHEAH,
Petitioners, Present:

CORONA, C.J., Chairperson,

LEONARDO-DE CASTRO,
- versus - BERSAMIN,
DEL CASTILLO, and
VILLARAMA, JR., JJ.

PHILIPPINE NATIONAL BANK, Promulgated:

Respondent. April 25, 2012
x-------------------------------------------------------------------x

DECISION

DEL CASTILLO, J.:

Law favoreth diligence, and therefore, hateth folly and negligence.Wingates Maxim.

In doing a friend a favor to help the latters friend collect the proceeds of a foreign check, a woman
deposited the check in her and her husbands dollar account. The local bank accepted the check for collection
and immediately credited the proceeds thereof to said spouses account even before the lapse of the clearing
period. And just when the money had been withdrawn and distributed among different beneficiaries, it was
discovered that all along, to the horror of the woman whose intention to accommodate a friends friend
backfired, she and her
bank had dealt with a rubber check.

These consolidated[1] Petitions for Review on Certiorari filed by the Philippine National Bank
(PNB)[2] and by the spouses Cheah Chee Chong and Ofelia Camacho Cheah (spouses Cheah)[3] both assail
the August 22, 2005 Decision[4] and December 21, 2005 Resolution[5]of the Court of Appeals (CA) in CA-
G.R. CV No. 63948 which declared both parties equally negligent and, hence, should equally suffer the
resulting loss. For its part, PNB questions why it was declared blameworthy together with its depositors,
spouses Cheah, for the amount wrongfully paid the latter, while the spouses Cheah plead that they be
declared entirely faultless.

Factual Antecedents

On November 4, 1992, Ofelia Cheah (Ofelia) and her friend Adelina Guarin (Adelina) were having
a conversation in the latters office when Adelinas friend, Filipina Tuazon (Filipina), approached her to ask
if she could have Filipinas check cleared and encashed for a service fee of 2.5%. The check is Bank of
America Check No. 190[6] under the account of Alejandria Pineda and Eduardo Rosales and drawn by Atty.
Eduardo Rosales against Bank of America Alhambra Branch in California, USA, with a face amount of
$300,000.00, payable to cash. Because Adelina does not have a dollar account in which to deposit the
check, she asked Ofelia if she could accommodate Filipinas request since she has a joint dollar savings
account with her Malaysian husband Cheah Chee Chong (Chee Chong) under Account No. 265-705612-
2 with PNB Buendia Branch.
Ofelia agreed.

That same day, Ofelia and Adelina went to PNB Buendia Branch. They met with Perfecto
Mendiola of the Loans Department who referred them to PNB Division Chief Alberto Garin (Garin). Garin
discussed with them the process of clearing the subject check and they were told that it normally takes 15
days.[7] Assured that the deposit and subsequent clearance of the check is a normal transaction, Ofelia
deposited Filipinas check. PNB then sent it for clearing through its correspondent bank, Philadelphia
National Bank. Five days later, PNB received a credit advice[8] from Philadelphia National Bank that the
proceeds of the subject check had been temporarily credited to PNBs account as of November 6,
1992. On November 16, 1992, Garin called up Ofelia to inform her that the check had already been
cleared.[9]The following day, PNB Buendia Branch, after deducting the bank charges, credited $299,248.37
to the account of the spouses Cheah.[10] Acting on Adelinas instruction to withdraw the credited amount,
Ofelia that day personally withdrew $180,000.00.[11] Adelina was able to withdraw the remaining amount
the next day after having been authorized by Ofelia.[12] Filipina received all the proceeds.

In the meantime, the Cable Division of PNB Head Office in Escolta, Manila received on November
16, 1992 a SWIFT[13] message from Philadelphia National Bank dated November 13, 1992 with
Transaction Reference Number (TRN) 46506218, informing PNB of the return of the subject check for
insufficient funds.[14] However, the PNB Head Office could not ascertain to which branch/office it should
forward the same for proper action. Eventually, PNB Head Office sent Philadelphia National Bank a
SWIFT message informing the latter that SWIFT message with TRN 46506218 has been relayed to PNBs
various divisions/departments but was returned to PNB Head Office as it seemed misrouted. PNB Head
Office thus requested for Philadelphia National Banks advice on said SWIFT messages proper
disposition.[15] After a few days, PNB Head Office ascertained that the SWIFT message was intended for
PNB Buendia Branch.

PNB Buendia Branch learned about the bounced check when it received on November 20, 1992 a
debit advice,[16] followed by a letter[17] on November 24, 1992, from Philadelphia National Bank to which
the November 13, 1992 SWIFT message was attached. Informed about the bounced check and upon
demand by PNB Buendia Branch to return the money withdrawn, Ofelia immediately contacted Filipina
to get the money back. But the latter told her that all the money had already been given to several people
who asked for the checks encashment. In their effort to recover the money, spouses Cheah then sought the
help of the National Bureau of Investigation. Said agencys Anti-Fraud and Action Division was later able
to apprehend some of the beneficiaries of the proceeds of the check and recover from them $20,000.00.
Criminal charges were then filed against these suspect beneficiaries.[18]

Meanwhile, the spouses Cheah have been constantly meeting with the bank officials to discuss
matters regarding the incident and the recovery of the value of the check while the cases against the alleged
perpetrators remain pending. Chee Chong in the end signed a PNB drafted[19] letter[20] which states that the
spouses Cheah are offering their condominium units as collaterals for the amount withdrawn. Under this
setup, the amount withdrawn would be treated as a loan account with deferred interest while the spouses
try to recover the money from those who defrauded them. Apparently, Chee Chong signed the letter after
the Vice President and Manager of PNB Buendia Branch, Erwin Asperilla (Asperilla), asked the spouses
Cheah to help him and the other bank officers as they were in danger of losing their jobs because of the
incident. Asperilla likewise assured the spouses Cheah that the letter was a mere formality and that the
mortgage will be disregarded once PNB receives its claim for indemnity from Philadelphia National Bank.

Although some of the officers of PNB were amenable to the proposal,[21] the same did not
materialize. Subsequently, PNB sent a demand letter to spouses Cheah for the return of the amount of the
check,[22] froze their peso and dollar deposits in the amounts of P275,166.80 and $893.46,[23] and filed a
complaint[24] against them for Sum of Money with Branch 50 of the Regional Trial Court (RTC) of Manila,
docketed as Civil Case No. 94-71022. In said complaint, PNB demanded payment of
around P8,202,220.44, plus interests[25] and attorneys fees, from the spouses Cheah.
 As their main defense, the spouses Cheah claimed that the proximate cause of PNBs injury was its
own negligence of paying a US dollar denominated check
without waiting for the 15-day clearing period, in violation of its bank practice as mandated by its own bank
circular, i.e., PNB General Circular No. 52-101/88.[26] Because of this, spouses Cheah averred that PNB is
barred from claiming what it had lost. They further averred that it is unjust for them to pay back the amount
disbursed as they never really benefited therefrom. As counterclaim, they prayed for the return of their
frozen deposits, the recoupment of P400,000.00 representing the amount they had so far spent in recovering
the value of the check, and payment of moral and exemplary damages, as well as attorneys fees.

Ruling of the Regional Trial Court

The RTC ruled in PNBs favor. The dispositive portion of its Decision[27] dated May 20, 1999 reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff

Philippine National Bank [and] against defendants Mr. Cheah Chee Chong and Ms. Ofelia
Camacho Cheah, ordering the latter to pay jointly and severally the herein plaintiffs bank
the amount:

1. of US$298,950.25 or its peso equivalent based on Central Bank

Exchange Rate prevailing at the time the proceeds of the BA Check No. 190 were
withdrawn or the prevailing Central Bank Rate at the time the amount is to be reimbursed
by the defendants to plaintiff or whatever is lower. This is without prejudice however, to
the rights of the defendants (accommodating parties) to go against the group of Adelina
Guarin, Atty. Eduardo Rosales, Filipina Tuazon, etc., (Beneficiaries- accommodated
parties) who are privy to the defendants.

No pronouncement as to costs.

No other award of damages for non[e] has been proven.

SO ORDERED.[28]

The RTC held that spouses Cheah were guilty of contributory negligence.
Because Ofelia trusted a friends friend whom she did not know and considering the amount of the check
made payable to cash, the RTC opined that Ofelia showed lack of vigilance in her dealings. She should
have exercised due care by investigating the negotiability of the check and the identity of the drawer. While
the court found that the proximate cause of the wrongful payment of the check was PNBs negligence in not
observing the 15-day guarantee period rule, it ruled that spouses Cheah still cannot escape liability to
reimburse PNB the value of the check as an accommodation party pursuant to Section 29 of the Negotiable
Instruments Law.[29] It likewise applied the principle of solutio indebiti under the Civil Code. With regard
to the award of other forms of damages, the RTC held that each party must suffer the consequences of their
own acts and thus left both parties as they are.

Unwilling to accept the judgment, the spouses Cheah appealed to the CA.

Ruling of the Court of Appeals

While the CA recognized the spouses Cheah as victims of a scam who nevertheless have to suffer
the consequences of Ofelias lack of care and prudence in immediately trusting a stranger, the appellate court
did not hold PNB scot-free. It ruled in its August 22, 2005 Decision,[30] viz:

As both parties were equally negligent, it is but right and just that both parties
should equally suffer and shoulder the loss. The scam would not have been possible
without the negligence of both parties. As earlier stated, the complaint of PNB cannot be
dismissed because the Cheah spouses were negligent and Ms. Cheah took an active part in
the deposit of the check and the withdrawal of the subject amounts. On the other hand, the
Cheah spouses cannot entirely bear the loss because PNB allowed her to withdraw without
waiting for the clearance of the check. The remedy of the parties is to go after those who
perpetrated, and benefited from, the scam.
WHEREFORE, the May 20, 1999 Decision of the Regional Trial Court, Branch
5, Manila, in Civil Case No. 94-71022, is hereby REVERSED and SET ASIDE and
another one entered DECLARING both parties equally negligent and should suffer and
shoulder the loss.

Accordingly, PNB is hereby ordered to credit to the peso and dollar accounts of the Cheah
spouses the amount due to them.

SO ORDERED.[31]

In so ruling, the CA ratiocinated that PNB Buendia Branchs non-receipt of the SWIFT message from
Philadelphia National Bank within the 15-day clearing period is not an acceptable excuse. Applying the
last clear chance doctrine, the CA held that PNB had the last clear opportunity to avoid the impending loss
of the money and yet, it glaringly exhibited its negligence in allowing the withdrawal of funds without
exhausting the 15-day clearing period which has always been a standard banking practice as testified to by
PNBs own officers, and as provided in its own General Circular No. 52/101/88. To the CA, PNB cannot
claim from spouses Cheah even if the latter are accommodation parties under the law as the banks own
negligence is the proximate cause of the damage it sustained. Nevertheless, it also found Ofelia guilty of
contributory negligence. Thus, both parties should be made equally responsible for the resulting loss.
 Both parties filed their respective Motions for Reconsideration[32] but same were denied in a
Resolution[33] dated December 21, 2005.

Hence, these Petitions for Review on Certiorari.

Our Ruling

The petitions for review lack merit. Hence, we affirm the ruling of the CA.
PNBs act of releasing the proceeds of the check prior to
the lapse of the 15-day clearing period was the proximate
cause of the loss.

Proximate cause is that cause, which, in natural and continuous sequence, unbroken by any efficient
intervening cause, produces the injury and without which the result would not have occurred. x x x To
determine the proximate cause of a controversy, the question that needs to be asked is: If the event did not
happen, would the injury have resulted? If the answer is no, then the event is the proximate cause.[34]

Here, while PNB highlights Ofelias fault in accommodating a strangers check and depositing it to
the bank, it remains mum in its release of the proceeds thereof without exhausting the 15-day clearing
period, an act which contravened established banking rules and practice.

It is worthy of notice that the 15-day clearing period alluded to is construed as 15 banking days. As
declared by Josephine Estella, the Administrative Service Officer who was the banks Remittance
Examiner, what was unusual in the processing of the check was that the lapse of 15 banking days was not
observed.[35] Even PNBs agreement with Philadelphia National Bank[36] regarding the rules on the
collection of the proceeds of US dollar checks refers to business/ banking days. Ofelia deposited the subject
check on November 4, 1992. Hence, the 15th banking day from the date of said deposit should fall
on November 25, 1992. However, what happened was that PNB Buendia Branch, upon calling up Ofelia
that the check had been cleared, allowed the proceeds thereof to be withdrawn on November 17 and 18,
1992, a week before the lapse of the standard 15-day clearing period.

This Court already held that the payment of the amounts of checks without previously clearing
them with the drawee bank especially so where the drawee bank is a foreign bank and the amounts involved
were large is contrary to normal or ordinary banking practice.[37] Also, in Associated Bank v.
Tan,[38] wherein the bank allowed the withdrawal of the value of a check prior to its clearing, we said that
[b]efore the check shall have been cleared for deposit, the collecting bank can only assume at its own risk
x x x that the check would be cleared and paid out. The delay in the receipt by PNB Buendia Branch of the
November 13, 1992 SWIFT message notifying it of the dishonor of the subject check is of no moment,
because had PNB Buendia Branch waited for the expiration of the clearing period and had never released
during that time the proceeds of the check, it would have already been duly notified of its dishonor. Clearly,
PNBs disregard of its preventive and protective measure against the possibility of being victimized by bad
checks had brought upon itself the injury of losing a significant amount of money.

It bears stressing that the diligence required of banks is more than that of a Roman pater familias or
a good father of a family. The highest degree of diligence is expected.[39] PNB miserably failed to do its
duty of exercising extraordinary diligence and reasonable business prudence. The disregard of its own
banking policy amounts to gross negligence, which the law defines as negligence characterized by the want
of even slight care, acting or omitting to act in a situation where there is duty to act, not inadvertently but
wilfully and intentionally with a conscious indifference to consequences in so far as other persons may be
affected.[40] With regard to collection or encashment of checks, suffice it to say that the law imposes on the
collecting bank the duty to scrutinize diligently the checks deposited with it for the purpose of determining
their genuineness and regularity. The collecting bank, being primarily engaged in banking, holds itself out
to the public as the expert on this field, and the law thus holds it to a high standard of conduct.[41] A bank is
expected to be an expert in banking procedures and it has the necessary means to ascertain whether a check,
local or foreign, is sufficiently funded.

Incidentally, PNB obliges the spouses Cheah to return the withdrawn money under the principle of solutio
indebiti, which is laid down in Article 2154 of the Civil Code:[42]

Art. 2154. If something is received when there is no right to demand it, and it was
unduly delivered through mistake, the obligation to return it arises.

[T]he indispensable requisites of the juridical relation known as solutio indebiti, are, (a) that he who
paid was not under obligation to do so; and (b) that the payment was made by reason of an essential mistake
of fact.[43]

In the case at bench, PNB cannot recover the proceeds of the check under the principle it invokes. In
the first place, the gross negligence of PNB, as earlier discussed, can never be equated with a mere mistake
of fact, which must be something excusable and which requires the exercise of prudence. No recovery is
due if the mistake done is one of gross negligence.
The spouses Cheah are guilty of contributory negligence
and are bound to share the loss with the bank

Contributory negligence is conduct on the part of the injured party,

contributing as a legal cause to the harm he has suffered, which falls below the standard to which he is
required to conform for his own protection.[44]

The CA found Ofelias credulousness blameworthy. We agree. Indeed, Ofelia failed to observe
caution in giving her full trust in accommodating a complete stranger and this led her and her husband to
be swindled. Considering that Filipina was not personally known to her and the amount of the foreign check
to be encashed was $300,000.00, a higher degree of care is expected of Ofelia which she, however, failed
to exercise under the circumstances. Another circumstance which should have goaded Ofelia to be more
circumspect in her dealings was when a bank officer called her up to inform that the Bank of America check
has already been cleared way earlier than the 15-day clearing period. The fact that the check was cleared
after only eight banking days from the time it was deposited or contrary to what Garin told her that clearing
takes 15 days should have already put Ofelia on guard. She should have first verified the regularity of such
hasty clearance considering that if something goes wrong with the transaction, it is she and her husband
who would be put at risk and not the accommodated party. However, Ofelia chose to ignore the same and
instead actively participated in immediately withdrawing the proceeds of the check. Thus, we are one with
the CA in ruling that Ofelias prior consultation with PNB officers is not enough to totally absolve her of
any liability. In the first place, she should have shunned any participation in that palpably shady transaction.

In any case, the complaint against the spouses Cheah could not be dismissed. As PNBs client,
Ofelia was the one who dealt with PNB and negotiated the check such that its value was credited in her and
her husbands account. Being the ones in privity with PNB, the spouses Cheah are therefore the persons
who should return to PNB the money released to them.

All told, the Court concurs with the findings of the CA that PNB and the spouses Cheah are equally
negligent and should therefore equally suffer the loss. The two must both bear the consequences of their
mistakes.

WHEREFORE, premises considered, the Petitions for Review on Certiorari in G.R. No. 170865
and in G.R. No. 170892 are both DENIED. The assailed August 22, 2005 Decision and December 21,
2005 Resolution of the Court of Appeals in CA-G.R. CV No. 63948 are hereby AFFIRMED in toto.

FIRST DIVISION
EUSEBIO GONZALES, G.R. No. 180257
Petitioner,
Present:

- versus - CORONA, C.J., Chairperson,

VELASCO, JR.,
NACHURA,*
DEL CASTILLO, and
PHILIPPINE COMMERCIAL AND PEREZ, JJ.
INTERNATIONAL BANK, EDNA
OCAMPO, and ROBERTO NOCEDA, Promulgated:
Respondents.
February 23, 2011
x-----------------------------------------------------------------------------------------x

DECISION

VELASCO, JR., J.:

The Case

This is an appeal via a Petition for Review on Certiorari under Rule 45 from the
Decision[1] dated October 22, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 74466, which
denied petitioners appeal from the December 10, 2001 Decision[2] in Civil Case No. 99-1324 of
the Regional Trial Court (RTC), Branch 138 in Makati City. The RTC found justification for
respondents dishonor of petitioners check and found petitioner solidarily liable with the
spouses Jose and Jocelyn Panlilio (spouses Panlilio) for the three promissory notes they executed
in favor of respondent Philippine Commercial and International Bank (PCIB).

The Facts

Petitioner Eusebio Gonzales (Gonzales) was a client of PCIB for a good 15 years before
he filed the instant case. His account with PCIB was handled by respondent Edna Ocampo
(Ocampo) until she was replaced by respondent Roberto Noceda (Noceda).

In October 1992, PCIB granted a credit line to Gonzales through the execution of a Credit-
On-Hand Loan Agreement[3] (COHLA), in which the aggregate amount of the accounts of
Gonzales with PCIB served as collateral for and his availment limit under the credit line. Gonzales
drew from said credit line through the issuance of check. At the institution of the instant case,
Gonzales had a Foreign Currency Deposit (FCD) of USD 8,715.72 with PCIB.

On October 30, 1995, Gonzales and his wife obtained a loan for PhP
500,000. Subsequently, on December 26, 1995 and January 3, 1999, the spouses Panlilio and
Gonzales obtained two additional loans from PCIB in the amounts of PhP 1,000,000 and PhP
300,000, respectively. These three loans amounting to PhP 1,800,000 were covered by three
promissory notes.[4] To secure the loans, a real estate mortgage (REM) over a parcel of land
covered by Transfer Certificate of Title (TCT) No. 38012 was executed by Gonzales and the
spouses Panlilio. Notably, the promissory notes specified, among others, the solidary liability of
Gonzales and the spouses Panlilio for the payment of the loans. However, it was the spouses
Panlilio who received the loan proceeds of PhP 1,800,000.

The monthly interest dues of the loans were paid by the spouses Panlilio through the
automatic debiting of their account with PCIB. But the spouses Panlilio, from the month of July
1998, defaulted in the payment of the periodic interest dues from their PCIB account which
apparently was not maintained with enough deposits. PCIB allegedly called the attention of
Gonzales regarding the July 1998 defaults and the subsequent accumulating periodic interest dues
which were left still left unpaid.

In the meantime, Gonzales issued a check dated September 30, 1998 in favor of Rene
Unson (Unson) for PhP 250,000 drawn against the credit line (COHLA). However, on October 13,
1998, upon presentment for payment by Unson of said check, it was dishonored by PCIB due to
the termination by PCIB of the credit line under COHLA on October 7, 1998 for the unpaid
periodic interest dues from the loans of Gonzales and the spouses Panlilio. PCIB likewise froze
the FCD account of Gonzales.

Consequently, Gonzales had a falling out with Unson due to the dishonor of the
check. They had a heated argument in the premises of the Philippine Columbian Association
(PCA) where they are both members, which caused great embarrassment and humiliation to
Gonzales. Thereafter, on November 5, 1998, Unson sent a demand letter[5] to Gonzales for the PhP
250,000. And on December 3, 1998, the counsel of Unson sent a second demand letter[6] to
Gonzales with the threat of legal action. With his FCD account that PCIB froze, Gonzales was
forced to source out and pay the PhP 250,000 he owed to Unson in cash.
 On January 28, 1999, Gonzales, through counsel, wrote PCIB insisting that the check he
issued had been fully funded, and demanded the return of the proceeds of his FCD as well as
damages for the unjust dishonor of the check.[7] PCIB replied on March 22, 1999 and stood its
ground in freezing Gonzales accounts due to the outstanding dues of the loans.[8] On May 26, 1999,
Gonzales reiterated his demand, reminding PCIB that it knew well that the actual borrowers were
the spouses Panlilio and he never benefited from the proceeds of the loans, which were serviced
by the PCIB account of the spouses Panlilio.[9]

PCIBs refusal to heed his demands compelled Gonzales to file the instant case for damages
with the RTC, on account of the alleged unjust dishonor of the check issued in favor of Unson.

The Ruling of the RTC

After due trial, on December 10, 2001, the RTC rendered a Decision in favor of PCIB. The
decretal portion reads:

WHEREFORE, judgment is rendered as follows

(a) on the first issue, plaintiff is liable to pay defendant Bank as principal
under the promissory notes, Exhibits A, B and C;

(b) on the second issue, the Court finds that there is justification on part of
the defendant Bank to dishonor the check, Exhibit H;

(c) on the third issue, plaintiff and defendants are not entitled to damages
from each other.

No pronouncement as to costs.
SO ORDERED.[10]

The RTC found Gonzales solidarily liable with the spouses Panlilio on the three promissory
notes relative to the outstanding REM loan. The trial court found no fault in the termination by
PCIB of the COHLA with Gonzales and in freezing the latters accounts to answer for the past due
PhP 1,800,000 loan. The trial court ruled that the dishonor of the check issued by Gonzales in
favor of Unson was proper considering that the credit line under the COHLA had already been
terminated or revoked before the presentment of the check.
Aggrieved, Gonzales appealed the RTC Decision before the CA.
The Ruling of the CA
 On September 26, 2007, the appellate court rendered its Decision dismissing Gonzales
appeal and affirming in toto the RTC Decision. The fallo reads:

WHEREFORE, in view of the foregoing, the decision, dated December 10,

2001, in Civil Case No. 99-1324 is hereby AFFIRMED in toto.

SO ORDERED.[11]

In dismissing Gonzales appeal, the CA, first, confirmed the RTCs findings that Gonzales
was indeed solidarily liable with the spouses Panlilio for the three promissory notes executed for
the REM loan; second, it likewise found neither fault nor negligence on the part of PCIB in
dishonoring the check issued by Gonzales in favor of Unson, ratiocinating that PCIB was merely
exercising its rights under the contractual stipulations in the COHLA brought about by the
outstanding past dues of the REM loan and interests for which Gonzales was solidarily liable with
the spouses Panlilio to pay under the promissory notes.

Thus, we have this petition.

The Issues

Gonzales, as before the CA, raises again the following assignment of errors:

I - IN NOT CONSIDERING THAT THE LIABILITY ARISING FROM

PROMISSORY NOTES (EXHIBITS A, B AND C, PETITIONER; EXHIBITS 1,
2 AND 3, RESPONDENT) PERTAINED TO BORROWER JOSE MA.
PANLILIO AND NOT TO APPELLANT AS RECOGNIZED AND
ACKNOWLEDGE[D] BY RESPONDENT PHILIPPINE COMMERCIAL &
INDUSTRIAL BANK (RESPONDENT BANK).

II - IN FINDING THAT THE RESPONDENTS WERE NOT AT FAULT NOR

GUILTY OF GROSS NEGLIGENCE IN DISHONORING PETITIONERS
CHECK DATED 30 SEPTEMBER 1998 IN THE AMOUNT OF P250,000.00
FOR THE REASON ACCOUNT CLOSED, INSTEAD OF MERELY REFER TO
DRAWER GIVEN THE FACT THAT EVEN AFTER DISHONOR,
RESPONDENT SIGNED A CERTIFICATION DATED 7 DECEMBER 1998
THAT CREDIT ON HAND (COH) LOAN AGREEMENT WAS STILL VALID
WITH A COLLATERAL OF FOREIGN CURRENCY DEPOSIT (FCD) OF
[USD] 48,715.72.
 III - IN NOT AWARDING DAMAGES AGAINST RESPONDENTS DESPITE
PRESENTATION OF CLEAR PROOF TO SUPPORT ACTION FOR
DAMAGES.[12]

The Courts Ruling

The core issues can be summarized, as follows: first, whether Gonzales is liable for the
three promissory notes covering the PhP 1,800,000 loan he made with the spouses Panlilio where
a REM over a parcel of land covered by TCT No. 38012 was constituted as security; and second,
whether PCIB properly dishonored the check of Gonzales drawn against the COHLA he had with
the bank.

The petition is partly meritorious.

First Issue: Solidarily Liability on Promissory Notes

A close perusal of the records shows that the courts a quo correctly found Gonzales
solidarily liable with the spouses Panlilio for the three promissory notes.

The promissory notes covering the PhP 1,800,000 loan show the following:

(1) Promissory Note BD-090-1766-95,[13] dated October 30, 1995, for PhP 500,000
was signed by Gonzales and his wife, Jessica Gonzales;
(2) Promissory Note BD-090-2122-95,[14] dated December 26, 1995, for PhP 1,000,000
was signed by Gonzales and the spouses Panlilio; and

(3) Promissory Note BD-090-011-96,[15] dated January 3, 1996, for PhP 300,000
was signed by Gonzales and the spouses Panlilio.

Clearly, Gonzales is liable for the loans covered by the above promissory notes. First,
Gonzales admitted that he is an accommodation party which PCIB did not dispute. In his
testimony, Gonzales admitted that he merely accommodated the spouses Panlilio at the suggestion
of Ocampo, who was then handling his accounts, in order to facilitate the fast release of the
loan. Gonzales testified:

ATTY. DE JESUS:
Now in this case you filed against the bank you mentioned there was a loan also
applied for by the Panlilios in the sum of P1.8 Million Pesos. Will you please tell
this Court how this came about?

GONZALES:
 Mr. Panlilio requested his account officer . . . . at that time it is a P42.0 Million loan
and if he secures another P1.8 Million loan the release will be longer because it has
to pass to XO.

Q: After that what happened?

A: So as per suggestion since Mr. Panlilio is a good friend of mine and we co-
owned the property I agreed initially to use my name so that the loan can be
utilized immediately by Mr. Panlilio.

Q: Who is actually the borrower of this P1.8 Million Pesos?

A: Well, in paper me and Mr. Panlilio.

Q: Who received the proceeds of said loan?

A: Mr. Panlilio.

Q: Do you have any proof that it was Mr. Panlilio who actually received the
proceeds of this P1.8 Million Pesos loan?
A: A check was deposited in the account of Mr. Panlilio.[16]

xxxx

Q: By the way upon whose suggestion was the loan of Mr. Panlilio also placed
under your name initially?
A: Well it was actually suggested by the account officer at that time Edna Ocampo.
Q: How about this Mr. Rodolfo Noceda?
A: As you look at the authorization aspect of the loan Mr. Noceda is the boss of
Edna so he has been familiar with my account ever since its inception.

Q: So these two officers Ocampo and Noceda knew that this was actually the
account of Mr. Panlilio and not your account?
A: Yes, sir. In fact even if there is a change of account officer they are always
informing me that the account will be debited to Mr. Panlilios account.[17]

Moreover, the first note for PhP 500,000 was signed by Gonzales and his wife as borrowers,
while the two subsequent notes showed the spouses Panlilio sign as borrowers with Gonzales. It
is, thus, evident that Gonzales signed, as borrower, the promissory notes covering the PhP
1,800,000 loan despite not receiving any of the proceeds.

Second, the records of PCIB indeed bear out, and was admitted by Noceda, that the PhP
1,800,000 loan proceeds went to the spouses Panlilio, thus:

ATTY. DE JESUS: [on Cross-Examination]

Is it not a fact that as far as the records of the bank [are] concerned the proceeds of
the 1.8 million loan was received by Mr. Panlilio?

NOCEDA:
 Yes sir.[18]

The fact that the loans were undertaken by Gonzales when he signed as borrower or co-
borrower for the benefit of the spouses Panlilioas shown by the fact that the proceeds went to the
spouses Panlilio who were servicing or paying the monthly duesis beside the point. For signing as
borrower and co-borrower on the promissory notes with the proceeds of the loans going to the
spouses Panlilio, Gonzales has extended an accommodation to said spouses.

Third, as an accommodation party, Gonzales is solidarily liable with the spouses Panlilio
for the loans. In Ang v. Associated Bank,[19] quoting the definition of an accommodation party
under Section 29 of the Negotiable Instruments Law, the Court cited that an accommodation party
is a person who has signed the instrument as maker, drawer, acceptor, or indorser, without
receiving value therefor, and for the purpose of lending his name to some other person.[20] The
Court further explained:

[A]n accommodation party is one who meets all the three requisites, viz: (1)
he must be a party to the instrument, signing as maker, drawer, acceptor, or
indorser; (2) he must not receive value therefor; and (3) he must sign for the purpose
of lending his name or credit to some other person. An accommodation party lends
his name to enable the accommodated party to obtain credit or to raise money; he
receives no part of the consideration for the instrument but assumes liability to the
other party/ies thereto. The accommodation party is liable on the instrument to a
holder for value even though the holder, at the time of taking the instrument, knew
him or her to be merely an accommodation party, as if the contract was not for
accommodation.

As petitioner acknowledged it to be, the relation between an

accommodation party and the accommodated party is one of principal and suretythe
accommodation party being the surety. As such, he is deemed an original promisor
and debtor from the beginning; he is considered in law as the same party as the
debtor in relation to whatever is adjudged touching the obligation of the latter since
their liabilities are interwoven as to be inseparable. Although a contract of
suretyship is in essence accessory or collateral to a valid principal obligation, the
suretys liability to the creditor is immediate, primary and absolute; he
is directly and equally bound with the principal. As an equivalent of a regular party
to the undertaking, a surety becomes liable to the debt and duty of the principal
obligor even without possessing a direct or personal interest in the obligations nor
does he receive any benefit therefrom.[21]

Thus, the knowledge, acquiescence, or even demand by Ocampo for an accommodation by

Gonzales in order to extend the credit or loan of PhP 1,800,000 to the spouses Panlilio does not
exonerate Gonzales from liability on the three promissory notes.
 Fourth, the solidary liability of Gonzales is clearly stipulated in the promissory notes which
uniformly begin, For value received, the undersigned (the BORROWER) jointly and
severally promise to pay x x x. Solidary liability cannot be presumed but must be established by
law or contract.[22] Article 1207 of the Civil Code pertinently states that there is solidary liability
only when the obligation expressly so states, or when the obligation requires solidarity. This is
true in the instant case where Gonzales, as accommodation party, is immediately, equally, and
absolutely bound with the spouses Panlilio on the promissory notes which indubitably stipulated
solidary liability for all the borrowers. Moreover, the three promissory notes serve as the contract
between the parties. Contracts have the force of law between the parties and must be complied
with in good faith.[23]

Second Issue: Improper Dishonor of Check

Having ruled that Gonzales is solidarily liable for the three promissory notes, We shall now
touch upon the question of whether it was proper for PCIB to dishonor the check issued by
Gonzales against the credit line under the COHLA.

We answer in the negative.

As a rule, an appeal by certiorari under Rule 45 of the Rules of Court is limited to review
of errors of law.[24] The factual findings of the trial court, especially when affirmed by the appellate
court, are generally binding on us unless there was a misapprehension of facts or when the
inference drawn from the facts was manifestly mistaken.[25] The instant case falls within the
exception.

The courts a quo found and held that there was a proper dishonor of the PhP 250,000 check
issued by Gonzales against the credit line, because the credit line was already closed prior to the
presentment of the check by Unson; and the closing of the credit line was likewise proper pursuant
to the stipulations in the promissory notes on the banks right to set off or apply all moneys of the
debtor in PCIBs hand and the stipulations in the COHLA on the PCIBs right to terminate the credit
line on grounds of default by Gonzales.

Gonzales argues otherwise, pointing out that he was not informed about the default of the
spouses Panlilio and that the September 21, 1998 account statement of the credit line shows a
balance of PhP 270,000 which was likewise borne out by the December 7, 1998 PCIBs certification
that he has USD 8,715.72 in his FCD account which is more than sufficient collateral to guarantee
the PhP 250,000 check, dated September 30, 1998, he issued against the credit line.

A careful scrutiny of the records shows that the courts a quo committed reversible error in
not finding negligence by PCIB in the dishonor of the PhP 250,000 check.

First. There was no proper notice to Gonzales of the default and delinquency of the PhP
1,800,000 loan. It must be borne in mind that while solidarily liable with the spouses Panlilio on
the PhP 1,800,000 loan covered by the three promissory notes, Gonzales is only an accommodation
party and as such only lent his name and credit to the spouses Panlilio. While not exonerating his
solidary liability, Gonzales has a right to be properly apprised of the default or delinquency of the
loan precisely because he is a co-signatory of the promissory notes and of his solidary liability.

We note that it is indeed understandable for Gonzales to push the spouses Panlilio to pay
the outstanding dues of the PhP 1,800,000 loan, since he was only an accommodation party and
was not personally interested in the loan. Thus, a meeting was set by Gonzales with the spouses
Panlilio and the PCIB officers, Noceda and Ocampo, in the spouses Panlilios jewelry shop in SM
Megamall on October 5, 1998. Unfortunately, the meeting did not push through due to the heavy
traffic Noceda and Ocampo encountered.

Such knowledge of the default by Gonzales was, however, not enough to properly apprise
Gonzales about the default and the outstanding dues. Verily, it is not enough to be merely informed
to pay over a hundred thousand without being formally apprised of the exact aggregate amount
and the corresponding dues pertaining to specific loans and the dates they became due.

Gonzales testified that he was not duly notified about the outstanding interest dues of the
loan:

ATTY. DE JESUS:
Now when Mr. Panlilios was encountering problems with the bank did the
defendant bank [advise] you of any problem with the same account?

GONZALES:
They never [advised] me in writing.

Q: How did you come to know that there was a problem?

A: When my check bounced sir.[26]

On the other hand, the PCIB contends otherwise, as Corazon Nepomuceno testified:

ATTY. PADILLA:
Can you tell this Honorable Court what is it that you told Mr. Gonzales when you
spoke to him at the celphone?

NEPOMUCENO:
I just told him to update the interest so that we would not have to cancel the COH
Line and he could withdraw the money that was in the deposit because technically,
if an account is past due we are not allowed to let the client withdraw funds because
they are allowed to offset funds so, just to help him get his money, just to update
the interest so that we could allow him to withdraw.
Q: Withdraw what?
A: His money on the COH, whatever deposit he has with us.
 Q: Did you inform him that if he did not update the interest he would not be able to
withdraw his money?
A: Yes sir, we will be forced to hold on to any assets that he has with us so thats
why we suggested just to update the interest because at the end of
everything, he would be able to withdraw more funds than the interest that
the money he would be needed to update the interest.[27]

From the foregoing testimonies, between the denial of Gonzales and the assertion by PCIB
that Gonzales was properly apprised, we find for Gonzales. We find the testimonies of the former
PCIB employees to be self-serving and tenuous at best, for there was no proper written notice
given by the bank. The record is bereft of any document showing that, indeed, Gonzales was
formally informed by PCIB about the past due periodic interests.

PCIB is well aware and did not dispute the fact that Gonzales is an accommodation party. It
also acted in accordance with such fact by releasing the proceeds of the loan to the spouses Panlilio
and likewise only informed the spouses Panlilio of the interest dues. The spouses Panlilio, through
their account[28] with PCIB, were paying the periodic interest dues and were the ones periodically
informed by the bank of the debiting of the amounts for the periodic interest payments. Gonzales
never paid any of the periodic interest dues. PCIBs Noceda admitted as much in his cross-
examination:

ATTY. DE JESUS: [on Cross-Examination]

And there was no instance that Mr. Gonzales ever made even interest for this loan,
is it not, its always Mr. Panlilio who was paying the interest for this loan?

NOCEDA:
Yes sir.[29]

Indeed, no evidence was presented tending to show that Gonzales was periodically sent
notices or notified of the various periodic interest dues covering the three promissory
notes. Neither do the records show that Gonzales was aware of amounts for the periodic interests
and the payment for them. Such were serviced by the spouses Panlilio.

Thus, PCIB ought to have notified Gonzales about the status of the default or delinquency
of the interest dues that were not paid starting July 1998. And such notification must be formal or
in written form considering that the outstanding periodic interests became due at various dates, i.e.,
on July 8, 17, and 28, 1998, and the various amounts have to be certain so that Gonzales is not
only properly apprised but is given the opportunity to pay them being solidarily liable for the loans
covered by the promissory notes.
 It is the bank which computes these periodic interests and such dues must be put into
writing and formally served to Gonzales if he were asked to pay them, more so when the payments
by the spouses Panlilio were charged through the account of the spouses Panlilio where the interest
dues were simply debited. Such arrangement did not cover Gonzales bank account with PCIB,
since he is only an accommodation party who has no personal interest in the PhP 1,800,000
loan. Without a clear and determinate demand through a formal written notice for the exact
periodic interest dues for the loans, Gonzales cannot be expected to pay for them.

In business, more so for banks, the amounts demanded from the debtor or borrower have
to be definite, clear, and without ambiguity. It is not sufficient simply to be informed that one must
pay over a hundred thousand aggregate outstanding interest dues without clear and certain
figures. Thus, We find PCIB negligent in not properly informing Gonzales, who is an
accommodation party, about the default and the exact outstanding periodic interest dues. Without
being properly apprised, Gonzales was not given the opportunity to properly act on them.

It was only through a letter[30] sent by PCIB dated October 2, 1998 but incongruously
showing the delinquencies of the PhP 1,800,000 loan at a much later date, i.e., as of October 31,
1998, when Gonzales was formally apprised by PCIB. In it, the interest due was PhP 106,1616.71
and penalties for the unpaid interest due of PhP 64,766.66, or a total aggregate due of PhP
171,383.37.But it is not certain and the records do not show when the letter was sent and when
Gonzales received it. What is clear is that such letter was belatedly sent by PCIB and received by
Gonzales after the fact that the latters FCD was already frozen, his credit line under the COHLA
was terminated or suspended, and his PhP 250,000 check in favor of Unson was dishonored.

And way much later, or on May 4, 1999, was a demand letter from the counsel of PCIB
sent to Gonzales demanding payment of the PhP 1,800,000 loan. Obviously, these formal written
notices sent to Gonzales were too late in the day for Gonzales to act properly on the delinquency
and he already suffered the humiliation and embarrassment from the dishonor of his check drawn
against the credit line.

To reiterate, a written notice on the default and deficiency of the PhP 1,800,000 loan
covered by the three promissory notes was required to apprise Gonzales, an accommodation
party. PCIB is obliged to formally inform and apprise Gonzales of the defaults and the outstanding
obligations, more so when PCIB was invoking the solidary liability of Gonzales. This PCIB failed
to do.

Second. PCIB was grossly negligent in not giving prior notice to Gonzales about its course
of action to suspend, terminate, or revoke the credit line, thereby violating the clear stipulation in
the COHLA.

The COHLA, in its effectivity clause, clearly provides:

4. EFFECTIVITY The COH shall be effective for a period of one (1) year
commencing from the receipt by the CLIENT of the COH checkbook issued by the
 BANK, subject to automatic renewals for same periods unless terminated by the
BANK upon prior notice served on CLIENT.[31] (Emphasis ours.)

It is undisputed that the bank unilaterally revoked, suspended, and terminated the COHLA
without giving Gonzales prior notice as required by the above stipulation in the COHLA. Noceda
testified on cross-examination on the Offering Ticket[32] recommending the termination of the
credit line, thus:

ATTY. DE JESUS: [on Cross-Examination]

This Exhibit 8, you have not furnished at anytime a copy to the plaintiff Mr.
Gonzales is it not?

NOCEDA:
No sir but verbally it was relayed to him.

Q: But you have no proof that Mr. Gonzales came to know about this Exhibit 8?
A: It was relayed to him verbally.

Q: But there is no written proof?

A: No sir.

Q: And it is only now that you claim that it was verbally relayed to him, its only
now when you testified in Court?
A: Before . . .

Q: To whom did you relay this information?

A: It was during the time that we were going to Megamall, it was relayed by Liza
that he has to pay his obligations or else it will adversely affect the status of
the account.[33]

On the other hand, the testimony of Corazon Nepomuceno shows:

ATTY. DE JESUS: [on Cross-Examination]

Now we go to the other credit facility which is the credit on hand extended solely
of course to Mr. Eusebio Gonzales who is the plaintiff here, Mr. Panlilio is not
included in this credit on hand facility. Did I gather from you as per your Exhibit 7
as of October 2, 1998 you were the one who recommended the cancellation of this
credit on hand facility?

NEPOMUCENO:
It was recommended by the account officer and I supported it.

Q: And you approved it?

A: Yes sir.
 Q: Did you inform Mr. Gonzales that you have already cancelled his credit on hand
facility?
A: As far as I know, it is the account officer who will inform him.

Q: But you have no record that he was informed?

A: I dont recall and we have to look at the folder to determine if they were informed.

Q: If you will notice, this letter . . . what do you call this letter of yours?
A: That is our letter advising them or reminding them of their unpaid interest and
that if he is able to update his interest he can extend the promissory note or
restructure the outstanding.

Q: Now, I call your attention madam witness, there is nothing in this letter to the
clients advising them or Mr. Gonzales that his credit on hand facility was
already cancelled?
A: I dont know if there are other letters aside from this.

Q: So in this letter there is nothing to inform or to make Mr. Eusebio aware that his
credit on hand facility was already cancelled?
A: No actually he can understand it from the last sentence. If you will be able to
update your outstanding interest, we can apply the extention of your
promissory note so in other words we are saying that if you dont, you cannot
extend the promissory note.

Q: You will notice that the subject matter of this October 2, 1998 letter is only the
loan of 1.8 million is it not, as you can see from the letter? Okay?
A: Ah . . .

Q: Okay. There is nothing there that will show that that also refers to the credit on
hand facility which was being utilized by Mr. Gonzales is it not?
A: But I dont know if there are other letters that are not presented to me now.[34]

The foregoing testimonies of PCIB officers clearly show that not only did PCIB fail to give
prior notice to Gonzales about the Offering Ticket for the process of termination, suspension, or
revocation of the credit line under the COHLA, but PCIB likewise failed to inform Gonzales of
the fact that his credit line has been terminated. Thus, we find PCIB grossly negligent in the
termination, revocation, or suspension of the credit line under the COHLA. While PCIB invokes
its right on the so-called cross default provisions, it may not with impunity ignore the rights of
Gonzales under the COHLA.

Indeed, the business of banking is impressed with public interest and great reliance is made
on the banks sworn profession of diligence and meticulousness in giving irreproachable service.
Like a common carrier whose business is imbued with public interest, a bank should exercise
extraordinary diligence to negate its liability to the depositors.[35] In this instance, PCIB is sorely
remiss in the diligence required in treating with its client, Gonzales. It may not wantonly exercise
its rights without respecting and honoring the rights of its clients.

Art. 19 of the New Civil Code clearly provides that [e]very person must, in the exercise of
his rights and in the performance of his duties, act with justice, give everyone his due, and observe
honesty and good faith. This is the basis of the principle of abuse of right which, in turn, is based
upon the maxim suum jus summa injuria (the abuse of right is the greatest possible wrong).[36]

In order for Art. 19 to be actionable, the following elements must be present: (1) the
existence of a legal right or duty, (2) which is exercised in bad faith, and (3) for the sole intent of
prejudicing or injuring another.[37] We find that such elements are present in the instant case. The
effectivity clause of the COHLA is crystal clear that termination of the COH should be done
only upon prior notice served on the CLIENT. This is the legal duty of PCIBto inform Gonzales
of the termination. However, as shown by the above testimonies, PCIB failed to give prior notice
to Gonzales.

Malice or bad faith is at the core of Art. 19. Malice or bad faith implies a conscious and
intentional design to do a wrongful act for a dishonest purpose or moral obliquity.[38] In the instant
case, PCIB was able to send a letter advising Gonzales of the unpaid interest on the loans [39] but
failed to mention anything about the termination of the COHLA. More significantly, no letter was
ever sent to him about the termination of the COHLA. The failure to give prior notice on the part
of PCIB is already prima facie evidence of bad faith.[40] Therefore, it is abundantly clear that this
case falls squarely within the purview of the principle of abuse of rights as embodied in Art. 19.

Third. There is no dispute on the right of PCIB to suspend, terminate, or revoke the
COHLA under the cross default provisions of both the promissory notes and the
COHLA. However, these cross default provisions do not confer absolute unilateral right to PCIB,
as they are qualified by the other stipulations in the contracts or specific circumstances, like in the
instant case of an accommodation party.

The promissory notes uniformly provide:

The lender is hereby authorized, at its option and without notice, to set
off or apply to the payment of this Note any and all moneys which may be in
its hands on deposit or otherwise belonging to the Borrower. The Borrower
irrevocably appoint/s the Lender, effective upon the nonpayment of this Note on
demand/at maturity or upon the happening of any of the events of default, but
without any obligation on the Lenders part should it choose not to perform this
mandate, as the attorney-in-fact of the Borrower, to sell and dispose of any property
of the Borrower, which may be in the Lenders possession by public or private sale,
and to apply the proceeds thereof to the payment of this Note; the Borrower,
however, shall remain liable for any deficiency.[41] (Emphasis ours.)
 The above provisos are indeed qualified with the specific circumstance of an
accommodation party who, as such, has not been servicing the payment of the dues of the loans,
and must first be properly apprised in writing of the outstanding dues in order to answer for his
solidary obligation.

The same is true for the COHLA, which in its default clause provides:

16. DEFAULT The CLIENT shall be considered in default under the COH if any
of the following events shall occur:

1. x x x
2. Violation of the terms and conditions of this Agreement or any contract of the
CLIENT with the BANK or any bank, persons, corporations or entities for
the payment of borrowed money, or any other event of default in such
contracts.[42]

The above pertinent default clause must be read in conjunction with the effectivity clause
(No. 4 of the COHLA, quoted above), which expressly provides for the right of client to prior
notice. The rationale is simple: in cases where the bank has the right to terminate, revoke, or
suspend the credit line, the client must be notified of such intent in order for the latter to act
accordinglywhether to correct any ground giving rise to the right of the bank to terminate the credit
line and to dishonor any check issued or to act in accord with such termination, i.e., not to issue
any check drawn from the credit line or to replace any checks that had been issued. This, the
bankwith gross negligencefailed to accord Gonzales, a valued client for more than 15 years.

Fourth. We find the testimony[43] of Ocampo incredible on the point that the principal
borrower of the PhP 1,800,000 loan covered by the three promissory notes is Gonzales for which
the bank officers had special instructions to grant and that it was through the instructions of
Gonzales that the payment of the periodic interest dues were debited from the account of the
spouses Panlilio.

For one, while the first promissory note dated October 30, 1995 indeed shows Gonzales as
the principal borrower, the other promissory notes dated December 26, 1995 and January 3, 1996
evidently show that it was Jose Panlilio who was the principal borrower with Gonzales as co-
borrower. For another, Ocampo cannot feign ignorance on the arrangement of the payments by the
spouses Panlilio through the debiting of their bank account. It is incredulous that the payment
arrangement is merely at the behest of Gonzales and at a mere verbal directive to do so. The fact
that the spouses Panlilio not only received the proceeds of the loan but were servicing the periodic
interest dues reinforces the fact that Gonzales was only an accommodation party.
 Thus, due to PCIBs negligence in not giving Gonzalesan accommodation partyproper
notice relative to the delinquencies in the PhP 1,800,000 loan covered by the three promissory
notes, the unjust termination, revocation, or suspension of the credit line under the COHLA from
PCIBs gross negligence in not honoring its obligation to give prior notice to Gonzales about such
termination and in not informing Gonzales of the fact of such termination, treating Gonzales
account as closed and dishonoring his PhP 250,000 check, was certainly a reckless act by
PCIB. This resulted in the actual injury of PhP 250,000 to Gonzales whose FCD account was
frozen and had to look elsewhere for money to pay Unson.

With banks, the degree of diligence required is more than that of a good father of the family
considering that the business of banking is imbued with public interest due to the nature of their
function. The law imposes on banks a high degree of obligation to treat the accounts of its
depositors with meticulous care, always having in mind the fiduciary nature of banking.[44] Had
Gonzales been properly notified of the delinquencies of the PhP 1,800,000 loan and the process of
terminating his credit line under the COHLA, he could have acted accordingly and the dishonor of
the check would have been avoided.

Third Issue: Award of Damages

The banking system has become an indispensable institution in the modern world and plays
a vital role in the economic life of every civilized societybanks have attained a ubiquitous presence
among the people, who have come to regard them with respect and even gratitude and most of all,
confidence, and it is for this reason, banks should guard against injury attributable to negligence
or bad faith on its part.[45]

In the instant case, Gonzales suffered from the negligence and bad faith of PCIB. From the
testimonies of Gonzales witnesses, particularly those of Dominador Santos[46] and Freddy
Gomez,[47] the embarrassment and humiliation Gonzales has to endure not only before his former
close friend Unson but more from the members and families of his friends and associates in the
PCA, which he continues to experience considering the confrontation he had with Unson and the
consequent loss of standing and credibility among them from the fact of the apparent bouncing
check he issued. Credit is very important to businessmen and its loss or impairment needs to be
recognized and compensated.[48]

The termination of the COHLA by PCIB without prior notice and the subsequent dishonor
of the check issued by Gonzales constitute acts of contra bonus mores. Art. 21 of the Civil Code
refers to such acts when it says, Any person who willfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy shall compensate the latter for
damage.

Accordingly, this Court finds that such acts warrant the payment of indemnity in the form
of nominal damages. Nominal damages are recoverable where a legal right is technically violated
and must be vindicated against an invasion that has produced no actual present loss of any kind x
x x.[49] We further explained the nature of nominal damages in Almeda v. Cario:

x x x Its award is thus not for the purpose of indemnification for a loss but
for the recognition and vindication of a right. Indeed, nominal damages are
damages in name only and not in fact. When granted by the courts, they are not
treated as an equivalent of a wrong inflicted but simply a recognition of the
existence of a technical injury. A violation of the plaintiffs right, even if only
technical, is sufficient to support an award of nominal damages. Conversely, so
long as there is a showing of a violation of the right of the plaintiff, an award
of nominal damages is proper.[50] (Emphasis Ours.)

In the present case, Gonzales had the right to be informed of the accrued interest and most
especially, for the suspension of his COHLA. For failure to do so, the bank is liable to pay nominal
damages. The amount of such damages is addressed to the sound discretion of the court, taking
into account the relevant circumstances.[51] In this case, the Court finds that the grant of PhP 50,000
as nominal damages is proper.

Moreover, as We held in MERALCO v. CA,[52] failure to give prior notice when required,
such as in the instant case, constitutes a breach of contract and is a clear violation of Art. 21 of the
Code. In cases such as this, Art. 2219 of the Code provides that moral damages may be recovered
in acts referred to in its Art. 21. Further, Art. 2220 of the Code provides that [w]illful injury to
property may be a legal ground for awarding moral damages if the court should find that, under
the circumstances, such damages are justly due. The same rule applies to breaches of contract
where the defendant acted fraudulently or in bad faith. Similarly, every person who, contrary to
law, willfully or negligently causes damage to another, shall indemnify the latter for the
same.[53]Evidently, Gonzales is entitled to recover moral damages.

Even in the absence of malice or bad faith, a depositor still has the right to recover
reasonable moral damages, if the depositor suffered mental anguish, serious anxiety,
embarrassment, and humiliation.[54] Although incapable of pecuniary estimation, moral damages
are certainly recoverable if they are the proximate result of the defendants wrongful act or
omission. The factual antecedents bolstered by undisputed testimonies likewise show the mental
anguish and anxiety Gonzales had to endure with the threat of Unson to file a suit. Gonzales had
to pay Unson PhP 250,000, while his FCD account in PCIB was frozen, prompting Gonzales to
demand from PCIB and to file the instant suit.

The award of moral damages is aimed at a restoration within the limits of the possible, of
the spiritual status quo anteit must always reasonably approximate the extent of injury and be
proportional to the wrong committed.[55] Thus, an award of PhP 50,000 is reasonable moral
damages for the unjust dishonor of the PhP 250,000 which was the proximate cause of the
consequent humiliation, embarrassment, anxiety, and mental anguish suffered by Gonzales from
his loss of credibility among his friends, colleagues and peers.
 Furthermore, the initial carelessness of the banks omission in not properly informing
Gonzales of the outstanding interest duesaggravated by its gross neglect in omitting to give prior
notice as stipulated under the COHLA and in not giving actual notice of the termination of the
credit linejustifies the grant of exemplary damages of PhP 10,000. Such an award is imposed by
way of example or correction for the public good.

Finally, an award for attorneys fees is likewise called for from PCIBs negligence which
compelled Gonzales to litigate to protect his interest. In accordance with Art. 2208(1) of the Code,
attorneys fees may be recovered when exemplary damages are awarded. We find that the amount
of PhP 50,000 as attorneys fees is reasonable.

WHEREFORE, this petition is PARTLY GRANTED. Accordingly, the CA Decision

dated October 22, 2007 in CA-G.R. CV No. 74466 is hereby REVERSED and SET ASIDE. The
Philippine Commercial and International Bank (now Banco De Oro) is ORDERED to pay
Eusebio Gonzales PhP 50,000 as nominal damages, PhP 50,000 as moral damages, PhP 10,000 as
exemplary damages, and PhP 50,000 as attorneys fees.

No pronouncement as to costs.

SECOND DIVISION

CLAUDE P. BAUTISTA, G.R. No. 166405

Petitioner,
Present:
QUISUMBING, J., Chairperson,
PUNO, C.J.,
- versus - TINGA,
VELASCO, JR., and
BRION, JJ.

AUTO PLUS TRADERS, Promulgated:

INCORPORATED and COURT OF
APPEALS (Twenty-First Division), August 6, 2008
Respondents.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION
QUISUMBING, J.:
 This petition for review on certiorari assails the Decision[1] dated August 10, 2004 of the
Court of Appeals in CA-G.R. CR No. 28464 and the Resolution[2] dated October 29, 2004, which
denied petitioners motion for reconsideration. The Court of Appeals affirmed the February 24,
2004 Decision and May 11, 2004 Order of the Regional Trial Court (RTC), Davao City, Branch
16, in Criminal Case Nos. 52633-03 and 52634-03.

The antecedent facts are as follows:

Petitioner Claude P. Bautista, in his capacity as President and Presiding Officer of Cruiser
Bus Lines and Transport Corporation, purchased various spare parts from private respondent Auto
Plus Traders, Inc. and issued two postdated checks to cover his purchases. The checks were
subsequently dishonored. Private respondent then executed an affidavit-complaint for violation
of Batas Pambansa Blg. 22[3] against petitioner. Consequently, two Informations for violation
of BP Blg. 22 were filed with the Municipal Trial Court in Cities (MTCC) of Davao City against
the petitioner. These were docketed as Criminal Case Nos. 102,004-B-2001 and 102,005-B-
2001. The Informations[4] read:

Criminal Case No. 102,004-B-2001:

The undersigned accuses the above-named accused for violation of Batas
Pambansa Bilang 22, committed as follows:
That on or about December 15, 2000, in the City of Davao, Philippines, and
within the jurisdiction of this Honorable Court, the above-mentioned accused,
knowing fully well that he had no sufficient funds and/or credit with the drawee
bank, wilfully, unlawfully and feloniously issued and made out Rural Bank of
Digos, Inc. Check No. 058832, dated December 15, 2000, in the amount
of P151,200.00, in favor of Auto Plus Traders, Inc., but when said check was
presented to the drawee bank for encashment, the same was dishonored for the
reason DRAWN AGAINST INSUFFICIENT FUNDS and despite notice of
dishonor and demands upon said accused to make good the check, accused failed
and refused to make payment to the damage and prejudice of herein complainant.
CONTRARY TO LAW.

Criminal Case No. 102,005-B-2001:

The undersigned accuses the above-named accused for violation of Batas
Pambansa Bilang 22, committed as follows:
That on or about October 30, 2000, in the City of Davao, Philippines, and
within the jurisdiction of this Honorable Court, the above-mentioned accused,
knowing fully well that he had no sufficient funds and/or credit with the drawee
bank, wilfully, unlawfully and feloniously issued and made out Rural Bank of
 Digos, Inc. Check No. 059049, dated October 30, 2000, in the amount
of P97,500.00, in favor of Auto Plus Traders, [Inc.], but when said check was
presented to the drawee bank for encashment, the same was dishonored for the
reason DRAWN AGAINST INSUFFICIENT FUNDS and despite notice of
dishonor and demands upon said accused to make good the check, accused failed
and refused to make payment, to the damage and prejudice of herein complainant.
CONTRARY TO LAW.

Petitioner pleaded not guilty. Trial on the merits ensued. After the presentation of the
prosecutions evidence, petitioner filed a demurrer to evidence. On April 21, 2003, the MTCC
granted the demurrer, thus:

WHEREFORE, the demurrer to evidence is granted, premised on

reasonable doubt as to the guilt of the accused. Cruiser Bus Line[s] and Transport
Corporation, through the accused is directed to pay the complainant the sum
of P248,700.00 representing the value of the two checks, with interest at the rate of
12% per annum to be computed from the time of the filing of these cases in Court,
until the account is paid in full; ordering further Cruiser Bus Line[s] and Transport
Corporation, through the accused, to reimburse complainant the expense
representing filing fees amounting to P1,780.00 and costs of litigation which this
Court hereby fixed at P5,000.00.
SO ORDERED.[5]

Petitioner moved for partial reconsideration but his motion was denied. Thereafter, both
parties appealed to the RTC. On February 24, 2004, the trial court ruled:
WHEREFORE, the assailed Order dated April 21, 2003 is hereby
MODIFIED to read as follows: Accused is directed to pay and/or reimburse the
complainant the following sums: (1) P248,700.00 representing the value of the two
checks, with interest at the rate of 12% per annum to be computed from the time of
the filing of these cases in Court, until the account is paid in full; (2) P1,780.00 for
filing fees and P5,000.00 as cost of litigation.
SO ORDERED.[6]

Petitioner moved for reconsideration, but his motion was denied on May 11,
2004. Petitioner elevated the case to the Court of Appeals, which affirmed the February 24, 2004
Decision and May 11, 2004 Order of the RTC:
WHEREFORE, premises considered, the instant petition is DENIED. The
assailed Decision of the Regional Trial Court, Branch 16, Davao City,
dated February 24, 2004 and its Order dated May 11, 2004are AFFIRMED.
SO ORDERED.[7]
Petitioner now comes before us, raising the sole issue of whether the Court of Appeals erred in
upholding the RTCs ruling that petitioner, as an officer of the corporation, is personally and civilly
liable to the private respondent for the value of the two checks.[8]

Petitioner asserts that BP Blg. 22 merely pertains to the criminal liability of the accused
and that the corporation, which has a separate personality from its officers, is solely liable for the
value of the two checks.

Private respondent counters that petitioner should be held personally liable for both
checks. Private respondent alleged that petitioner issued two postdated checks: a personal check
in his name for the amount of P151,200 and a corporation check under the account of Cruiser Bus
Lines and Transport Corporation for the amount of P97,500. According to private respondent,
petitioner, by issuing his check to cover the obligation of the corporation, became an
accommodation party. Under Section 29[9] of the Negotiable Instruments Law, an accommodation
party is liable on the instrument to a holder for value. Private respondent adds that petitioner should
also be liable for the value of the corporation check because instituting another civil action against
the corporation would result in multiplicity of suits and delay.

At the outset, we note that private respondents allegation that petitioner issued a personal
check disputes the factual findings of the MTCC. The MTCC found that the two checks belong to
Cruiser Bus Lines and Transport Corporation while the RTC found that one of the checks was a
personal check of the petitioner. Generally this Court, in a petition for review on certiorari under
Rule 45 of the Rules of Court, has no jurisdiction over questions of facts. But, considering that the
findings of the MTCC and the RTC are at variance,[10] we are compelled to settle this issue.

A perusal of the two check return slips[11] in conjunction with the Current Account
Statements[12] would show that the check for P151,200 was drawn against the current account of
Claude Bautista while the check for P97,500 was drawn against the current account of Cruiser Bus
Lines and Transport Corporation. Hence, we sustain the factual finding of the RTC.

Nonetheless, we find the appellate court in error for affirming the decision of the RTC
holding petitioner liable for the value of the checks considering that petitioner was acquitted of the
crime charged and that the debts are clearly corporate debts for which only Cruiser Bus Lines and
Transport Corporation should be held liable.
 Juridical entities have personalities separate and distinct from its officers and the persons
composing it.[13] Generally, the stockholders and officers are not personally liable for the
obligations of the corporation except only when the veil of corporate fiction is being used as a
cloak or cover for fraud or illegality, or to work injustice.[14] These situations, however, do not
exist in this case. The evidence shows that it is Cruiser Bus Lines and Transport Corporation that
has obligations to Auto Plus Traders, Inc. for tires. There is no agreement that petitioner shall be
held liable for the corporations obligations in his personal capacity. Hence, he cannot be held liable
for the value of the two checks issued in payment for the corporations obligation in the total amount
of P248,700.

Likewise, contrary to private respondents contentions, petitioner cannot be considered liable as an

accommodation party for Check No. 58832. Section 29 of the Negotiable Instruments Law defines
an accommodation party as a person who has signed the instrument as maker, drawer, acceptor,
or indorser, without receiving value therefor, and for the purpose of lending his name to some
other person. As gleaned from the text, an accommodation party is one who meets all the three
requisites, viz: (1) he must be a party to the instrument, signing as maker, drawer, acceptor,
or indorser; (2) he must not receive value therefor; and (3) he must sign for the purpose of lending
his name or credit to some other person.[15] An accommodation party lends his name to enable the
accommodated party to obtain credit or to raise money; he receives no part of the consideration
for the instrument but assumes liability to the other party/ies thereto.[16] The first two elements are
present here, however there is insufficient evidence presented in the instant case to show the
presence of the third requisite. All that the evidence shows is that petitioner signed Check No.
58832, which is drawn against his personal account. The said check, dated December 15, 2000,
corresponds to the value of 24 sets of tires received by Cruiser Bus Lines and Transport
Corporation on August 29, 2000.[17] There is no showing of when petitioner issued the check and
in what capacity. In the absence of concrete evidence it cannot just be assumed that petitioner
intended to lend his name to the corporation. Hence, petitioner cannot be considered as an
accommodation party.

Cruiser Bus Lines and Transport Corporation, however, remains liable for the checks especially
since there is no evidence that the debts covered by the subject checks have been paid.

WHEREFORE, the petition is GRANTED. The Decision dated August 10, 2004 and the
Resolution dated October 29, 2004 of the Court of Appeals in CA-G.R. CR No. 28464
are REVERSED and SET ASIDE. Criminal Case Nos. 52633-03 and 52634-03
are DISMISSED, without prejudice to the right of private respondent Auto Plus Traders, Inc., to
file the proper civil action against Cruiser Bus Lines and Transport Corporation for the value of
the two checks.

No pronouncement as to costs.

SO ORDERED.

FIRST DIVISION

TOMAS ANG, G.R. No. 146511

Petitioner,
Present:
PUNO, C.J., Chairperson,
- versus - SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA, and
GARCIA, JJ.
ASSOCIATED BANK AND
ANTONIO ANG ENG LIONG, Promulgated:
Respondents.
September 5, 2007

X -------------------------------------------------------------------------------------- X

DECISION

AZCUNA, J.:

This petition for certiorari under Rule 45 of the Rules on Civil Procedure seeks to review
the October 9, 2000 Decision[1] and December 26, 2000 Resolution[2] of the Court of Appeals in
CA-G.R. CV No. 53413 which reversed and set aside the January 5, 1996 Decision[3] of the
Regional Trial Court, Branch 16, Davao City, in Civil Case No. 20,299-90, dismissing the
complaint filed by respondents for collection of a sum of money.

On August 28, 1990, respondent Associated Bank (formerly Associated Banking

Corporation and now known as United Overseas Bank Philippines) filed a collection suit against
Antonio Ang Eng Liong and petitioner Tomas Ang for the two (2) promissory notes that they
executed as principal debtor and co-maker, respectively.

In the Complaint,[4] respondent Bank alleged that on October 3 and 9, 1978, the defendants
obtained a loan of P50,000, evidenced by a promissory note bearing PN-No. DVO-78-382,
and P30,000, evidenced by a promissory note bearing PN-No. DVO-78-390. As agreed, the loan
would be payable, jointly and severally, on January 31, 1979 and December 8, 1978, respectively.
In addition, subsequent amendments[5] to the promissory notes as well as the disclosure
statements[6] stipulated that the loan would earn 14% interest rate per annum, 2% service charge
per annum, 1% penalty charge per month from due date until fully paid, and attorneys fees
equivalent to 20% of the outstanding obligation.

Despite repeated demands for payment, the latest of which were on September 13,
1988 and September 9, 1986, on Antonio Ang Eng Liong and Tomas Ang, respectively,
respondent Bank claimed that the defendants failed and refused to settle their obligation, resulting
in a total indebtedness of P539,638.96 as of July 31, 1990, broken down as follows:

PN-No. DVO-78-382 PN-No. DVO-78-390

Outstanding Balance P50,000.00 P30,000.00

Add Past due charges for 4,199 days Past due charges for 4,253 days
(from 01-31-79 to 07-31-90) (from 12-8-78 to 07-31-90)
14% Interest P203,538.98 P125,334.41
2% Service Charge P11,663.89 P7,088.34
12% Overdue Charge P69,983.34 P42,530.00
Total P285,186.21 P174,952.75
Less: Charges paid P500.00 None
Amount Due P334,686.21 P204,952.75

In his Answer,[7] Antonio Ang Eng Liong only admitted to have secured a loan amounting
to P80,000. He pleaded though that the bank be ordered to submit a more reasonable computation
considering that there had been no correct and reasonable statement of account sent to him by the
bank, which was allegedly collecting excessive interest, penalty charges, and attorneys fees despite
knowledge that his business was destroyed by fire, hence, he had no source of income for several
years.
 For his part, petitioner Tomas Ang filed an Answer with Counterclaim and Cross-
claim.[8] He interposed the affirmative defenses that: the bank is not the real party in interest as it
is not the holder of the promissory notes, much less a holder for value or a holder in due course;
the bank knew that he did not receive any valuable consideration for affixing his signatures on the
notes but merely lent his name as an accommodation party; he accepted the promissory notes in
blank, with only the printed provisions and the signature of Antonio Ang Eng Liong appearing
therein; it was the bank which completed the notes upon the orders, instructions, or representations
of his co-defendant; PN-No. DVO-78-382 was completed in excess of or contrary to the authority
given by him to his co-defendant who represented that he would only borrow P30,000 from the
bank; his signature in PN-No. DVO-78-390 was procured through fraudulent means when his co-
defendant claimed that his first loan did not push through; the promissory notes did not indicate in
what capacity he was intended to be bound; the bank granted his co-defendant successive
extensions of time within which to pay, without his (Tomas Ang) knowledge and consent; the bank
imposed new and additional stipulations on interest, penalties, services charges and attorneys fees
more onerous than the terms of the notes, without his knowledge and consent, in the absence of
legal and factual basis and in violation of the Usury Law; the bank caused the inclusion in the
promissory notes of stipulations such as waiver of presentment for payment and notice of dishonor
which are against public policy; and the notes had been impaired since they were never presented
for payment and demands were made only several years after they fell due when his co-defendant
could no longer pay them.

Regarding his counterclaim, Tomas Ang argued that by reason of the banks acts or
omissions, it should be held liable for the amount of P50,000 for attorneys fees and expenses of
litigation. Furthermore, on his cross-claim against Antonio Ang Eng Liong, he averred that he
should be reimbursed by his co-defendant any and all sums that he may be adjudged liable to pay,
plus P30,000, P20,000 and P50,000 for moral and exemplary damages, and attorneys fees,
respectively.

In its Reply,[9] respondent Bank countered that it is the real party in interest and is the
holder of the notes since the Associated Banking Corporation and Associated Citizens Bank are
its predecessors-in-interest. The fact that Tomas Ang never received any moneys in consideration
of the two (2) loans and that such was known to the bank are immaterial because, as an
accommodation maker, he is considered as a solidary debtor who is primarily liable for the
payment of the promissory notes. Citing Section 29 of the Negotiable Instruments Law (NIL), the
bank posited that absence or failure of consideration is not a matter of defense; neither is the fact
that the holder knew him to be only an accommodation party.
 Respondent Bank likewise retorted that the promissory notes were completely filled up at
the time of their delivery. Assuming that such was not the case, Sec. 14 of the NIL provides that
the bank has the prima facie authority to complete the blank form. Moreover, it is presumed that
one who has signed as a maker acted with care and had signed the document with full knowledge
of its content. The bank noted that Tomas Ang is a prominent businessman in Davao City who has
been engaged in the auto parts business for several years, hence, certainly he is not so nave as to
sign the notes without knowing or bothering to verify the amounts of the loans covered by them.
Further, he is already in estoppel since despite receipt of several demand letters there was not a
single protest raised by him that he signed for only one note in the amount of P30,000.

It was denied by the bank that there were extensions of time for payment accorded to
Antonio Ang Eng Liong. Granting that such were the case, it said that the same would not relieve
Tomas Ang from liability as he would still be liable for the whole obligation less the share of his
co-debtor who received the extended term.

The bank also asserted that there were no additional or new stipulations imposed other than
those agreed upon. The penalty charge, service charge, and attorneys fees were reflected in the
amendments to the promissory notes and disclosure statements. Reference to the Usury Law was
misplaced as usury is legally non-existent; at present, interest can be charged depending on the
agreement of the lender and the borrower.

Lastly, the bank contended that the provisions on presentment for payment and notice of
dishonor were expressly waived by Tomas Ang and that such waiver is not against public policy
pursuant to Sections 82 (c) and 109 of the NIL. In fact, there is even no necessity therefor since
being a solidary debtor he is absolutely required to pay and primarily liable on both promissory
notes.

On October 19, 1990, the trial court issued a preliminary pre-trial order directing the parties
to submit their respective pre-trial guide.[10] When Antonio Ang Eng Liong failed to submit his
brief, the bank filed an ex-parte motion to declare him in default.[11] Per Order of November 23,
1990, the court granted the motion and set the ex-parte hearing for the presentation of the banks
evidence.[12] Despite Tomas Angs motion[13] to modify the Order so as to exclude or cancel the ex-
parte hearing based on then Sec. 4, Rule 18 of the old Rules of Court (now Sec. 3[c.], Rule 9 of
the Revised Rules on Civil Procedure), the hearing nonetheless proceeded.[14]
Eventually, a decision[15] was rendered by the trial court on February 21, 1991. For his supposed
bad faith and obstinate refusal despite several demands from the bank, Antonio Ang Eng Liong
was ordered to pay the principal amount of P80,000 plus 14% interest per annum and 2% service
charge per annum. The overdue penalty charge and attorneys fees were, however, reduced for
being excessive, thus:

WHEREFORE, judgment is rendered against defendant Antonio Ang Eng

Liong and in favor of plaintiff, ordering the former to pay the latter:

On the first cause of action:

1) the amount of P50,000.00 representing the principal

obligation with 14% interest per annum from June 27, 1983 with 2%
service charge and 6% overdue penalty charges per annum until
fully paid;

2) P11,663.89 as accrued service charge; and

3) P34,991.67 as accrued overdue penalty charge.

On the second cause of action:

1) the amount of P50,000.00 (sic) representing the principal

account with 14% interest from June 27, 1983 with 2% service
charge and 6% overdue penalty charges per annum until fully paid;
2) P7,088.34 representing accrued service charge;
3) P21,265.00 as accrued overdue penalty charge;
4) the amount of P10,000.00 as attorneys fees; and
5) the amount of P620.00 as litigation expenses and to pay the
costs.

SO ORDERED.[16]

The decision became final and executory as no appeal was taken therefrom. Upon the
banks ex-parte motion, the court accordingly issued a writ of execution on April 5, 1991.[17]

Thereafter, on June 3, 1991, the court set the pre-trial conference between the bank and
Tomas Ang,[18] who, in turn, filed a Motion to Dismiss[19] on the ground of lack of jurisdiction
over the case in view of the alleged finality of the February 21, 1991 Decision. He contended that
Sec. 4, Rule 18 of the old Rules sanctions only one judgment in case of several defendants, one of
whom is declared in default. Moreover, in his Supplemental Motion to Dismiss,[20] Tomas Ang
maintained that he is released from his obligation as a solidary guarantor and accommodation party
because, by the banks actions, he is now precluded from asserting his cross-claim against Antonio
Ang Eng Liong, upon whom a final and executory judgment had already been issued.

The court denied the motion as well as the motion for reconsideration thereon.[21] Tomas
Ang subsequently filed a petition for certiorari and prohibition before this Court, which, however,
resolved to refer the same to the Court of Appeals.[22] In accordance with the prayer of Tomas Ang,
the appellate court promulgated its Decision on January 29, 1992 in CA G.R. SP No. 26332, which
annulled and set aside the portion of the Order dated November 23, 1990 setting the ex-
parte presentation of the banks evidence against Antonio Ang Eng Liong, the Decision dated
February 21, 1991 rendered against him based on such evidence, and the Writ of Execution issued
on April 5, 1991.[23]

Trial then ensued between the bank and Tomas Ang. Upon the latters motion during the pre-trial
conference, Antonio Ang Eng Liong was again declared in default for his failure to answer the
cross-claim within the reglementary period.[24]

When Tomas Ang was about to present evidence in his behalf, he filed a Motion for Production of
Documents,[25] reasoning:

xxx

2. That corroborative to, and/or preparatory or incident to his testimony[,]

there is [a] need for him to examine original records in the custody and possession
of plaintiff, viz:

a. original Promissory Note (PN for brevity) # DVO-78-382

dated October 3, 1978[;]
b. original of Disclosure Statement in reference to PN # DVO-
78-382;
c. original of PN # DVO-78-390 dated October 9, 1978;
d. original of Disclosure Statement in reference to PN # DVO-
78-390;
e. Statement or Record of Account with the Associated Banking
Corporation or its successor, of Antonio Ang in CA No. 470 (cf.
Exh. O) including bank records, withdrawal slips, notices, other
papers and relevant dates relative to the overdraft of Antonio Eng
Liong in CA No. 470;
f. Loan Applications of Antonio Ang Eng Liong or borrower
relative to PN Nos. DVO-78-382 and DVO-78-390 (supra);
g. Other supporting papers and documents submitted by Antonio
Ang Eng Liong relative to his loan application vis--vis PN. Nos.
 DVO-78-382 and DVO-78-390 such as financial statements, income
tax returns, etc. as required by the Central Bank or bank rules and
regulations.

3. That the above matters are very material to the defenses of defendant
Tomas Ang, viz:

- the bank is not a holder in due course when it accepted the

[PNs] in blank.
- The real borrower is Antonio Ang Eng Liong which fact is
known to the bank.
- That the PAYEE not being a holder in due course and
knowing that defendant Tomas Ang is merely an accommodation
party, the latter may raise against such payee or holder or successor-
in-interest (of the notes) PERSONAL and EQUITABLE
DEFENSES such as FRAUD in INDUCEMENT, DISCHARGE
ON NOTE, Application of [Articles] 2079, 2080 and 1249 of the
Civil Code, NEGLIGENCE in delaying collection despite Eng
Liongs OVERDRAFT in C.A. No. 470, etc.[26]

In its Order dated May 16, 1994,[27] the court denied the motion stating that the promissory
notes and the disclosure statements have already been shown to and inspected by Tomas Ang
during the trial, as in fact he has already copies of the same; the Statements or Records of Account
of Antonio Ang Eng Liong in CA No. 470, relative to his overdraft, are immaterial since, pursuant
to the previous ruling of the court, he is being sued for the notes and not for the overdraft which is
personal to Antonio Ang Eng Liong; and besides its non-existence in the banks records, there
would be legal obstacle for the production and inspection of the income tax return of Antonio Ang
Eng Liong if done without his consent.
When the motion for reconsideration of the aforesaid Order was denied, Tomas Ang filed a petition
for certiorari and prohibition with application for preliminary injunction and restraining order
before the Court of Appeals docketed as CA G.R. SP No. 34840.[28] On August 17, 1994, however,
the Court of Appeals denied the issuance of a Temporary Restraining Order.[29]

Meanwhile, notwithstanding its initial rulings that Tomas Ang was deemed to have waived his
right to present evidence for failure to appear during the pendency of his petition before the Court
of Appeals, the trial court decided to continue with the hearing of the case.[30]

After the trial, Tomas Ang offered in evidence several documents, which included a copy of the
Trust Agreement between the Republic of the Philippines and the Asset Privatization Trust, as
certified by the notary public, and news clippings from the Manila Bulletin dated May 18,
1994 and May 30, 1994.[31] All the documentary exhibits were admitted for failure of the bank to
submit its comment to the formal offer.[32] Thereafter, Tomas Ang elected to withdraw his petition
in CA G.R. SP No. 34840 before the Court of Appeals, which was then granted.[33]

On January 5, 1996, the trial court rendered judgment against the bank, dismissing the
complaint for lack of cause of action.[34] It held that:

Exh. 9 and its [sub-markings], the Trust Agreement dated 27 February 1987
for the defense shows that: the Associated Bank as of June 30, 1986 is one of DBPs
or Development Bank of the [Philippines] non-performing accounts for transfer; on
February 27, 1987 through Deeds of Transfer executed by and between the
Philippine National Bank and Development Bank of the Philippines and the
National Government, both financial institutions assigned, transferred and
conveyed their non-performing assets to the National Government; the National
Government in turn and as TRUSTOR, transferred, conveyed and assigned by way
of trust unto the Asset Privatization Trust said non-performing assets, [which] took
title to and possession of, [to] conserve, provisionally manage and dispose[,] of said
assets identified for privatization or disposition; one of the powers and duties of the
APT with respect to trust properties consisting of receivables is to handle the
administration, collection and enforcement of the receivables; to bring suit to
enforce payment of the obligations or any installment thereof or to settle or
compromise any of such obligations, or any other claim or demand which the
government may have against any person or persons[.]

The Manila Bulletin news clippings dated May 18, 1994 and May 30, 1994,
Exh. 9-A, 9-B, 9-C, and 9-D, show that the Monetary Board of the Bangko Sentral
ng Pilipinas approved the rehabilitation plan of the Associated Bank. One main
feature of the rehabilitation plan included the financial assistance for the bank by
the Philippine Deposit Insurance Corporation (PDIC) by way of the purchase of
AB Assets worth P1.3945 billion subject to a buy-back arrangement over a 10 year
period. The PDIC had approved of the rehab scheme, which included the purchase
of ABs bad loans worth P1.86 at 25% discount. This will then be paid by AB within
a 10-year period plus a yield comparable to the prevailing market rates x x x.

Based then on the evidence presented by the defendant Tomas Ang, it would
readily appear that at the time this suit for Sum of Money was filed which was on
August [28], 1990, the notes were held by the Asset Privatization Trust by virtue
of the Deeds of Transfer and Trust Agreement, which was empowered to bring suit
to enforce payment of the obligations. Consequently, defendant Tomas Ang has
sufficiently established that plaintiff at the time this suit was filed was not the holder
of the notes to warrant the dismissal of the complaint.[35]
 Respondent Bank then elevated the case to the Court of Appeals. In the appellants brief
captioned, ASSOCIATED BANK, Plaintiff-Appellant versus ANTONIO ANG ENG LIONG and
TOMAS ANG, Defendants, TOMAS ANG, Defendant-Appellee, the following errors were alleged:

I.

THE LOWER COURT ERRED IN NOT HOLDING DEFENDANT ANTONIO

ANG ENG LIONG AND DEFENDANT-APPELLEE TOMAS ANG LIABLE TO
PLAINTIFF-APPELLANT ON THEIR UNPAID LOANS DESPITE THE
LATTERS DOCUMENTARY EXHIBITS PROVING THE SAID
OBLIGATIONS.

II.

THE LOWER COURT ERRED IN DISMISSING PLAINTIFF-

APPELLANTS COMPLAINT ON THE BASIS OF NEWSPAPER CLIPPINGS
WHICH WERE COMPLETELY HEARSAY IN CHARACTER AND
IMPROPER FOR JUDICIAL NOTICE.[36]

The bank stressed that it has established the causes of action outlined in its Complaint by
a preponderance of evidence. As regards the Deed of Transfer and Trust Agreement, it contended
that the same were never authenticated by any witness in the course of the trial; the Agreement,
which was not even legible, did not mention the promissory notes subject of the Complaint; the
bank is not a party to the Agreement, which showed that it was between the Government of the
Philippines, acting through the Committee on Privatization represented by the Secretary of Finance
as trustor and the Asset Privatization Trust, which was created by virtue of Proclamation No. 50;
and the Agreement did not reflect the signatures of the contracting parties. Lastly, the bank averred
that the news items appearing in the Manila Bulletin could not be the subject of judicial notice
since they were completely hearsay in character.[37]

On October 9, 2000, the Court of Appeals reversed and set aside the trial courts ruling. The
dispositive portion of the Decision[38] reads:

WHEREFORE, premises considered, the Decision of

the Regional Trial Court of Davao City, Branch 16, in Civil Case No. 20,299-90 is
hereby REVERSED AND SET ASIDE and another one entered ordering
defendant-appellee Tomas Ang to pay plaintiff-appellant Associated Bank the
following:
 1. P50,000.00 representing the principal amount of the loan
under PN-No. DVO-78-382 plus 14% interest thereon per annum computed
from January 31, 1979 until the full amount thereof is paid;

2. P30,000.00 representing the principal amount of the loan

under PN-No. DVO-78-390 plus 14% interest thereon per annum computed
from December 8, 1978 until the full amount thereof is paid;

All other claims of the plaintiff-appellant are DISMISSED for lack of legal
basis. Defendant-appellees counterclaim is likewise DISMISSED for lack of legal
and factual bases.

No pronouncement as to costs.

SO ORDERED.[39]

The appellate court disregarded the banks first assigned error for being irrelevant in the
final determination of the case and found its second assigned error as not meritorious. Instead, it
posed for resolution the issue of whether the trial court erred in dismissing the complaint for
collection of sum of money for lack of cause of action as the bank was said to be not the holder of
the notes at the time the collection case was filed.

In answering the lone issue, the Court of Appeals held that the bank is a holder under Sec.
191 of the NIL. It concluded that despite the execution of the Deeds of Transfer and Trust
Agreement, the Asset Privatization Trust cannot be declared as the holder of the subject promissory
notes for the reason that it is neither the payee or indorsee of the notes in possession thereof nor is
it the bearer of said notes. The Court of Appeals observed that the bank, as the payee, did not
indorse the notes to the Asset Privatization Trust despite the execution of the Deeds of Transfer
and Trust Agreement and that the notes continued to remain with the bank until the institution of
the collection suit.

With the bank as the holder of the promissory notes, the Court of Appeals held that Tomas
Ang is accountable therefor in his capacity as an accommodation party. Citing Sec. 29 of the NIL,
he is liable to the bank in spite of the latters knowledge, at the time of taking the notes, that he is
only an accommodation party. Moreover, as a co-maker who agreed to be jointly and severally
liable on the promissory notes, Tomas Ang cannot validly set up the defense that he did not receive
any consideration therefor as the fact that the loan was granted to the principal debtor already
constitutes a sufficient consideration.
Further, the Court of Appeals agreed with the bank that the experience of Tomas Ang in business
rendered it implausible that he would just sign the promissory notes as a co-maker without even
checking the real amount of the debt to be incurred, or that he merely acted on the belief that the
first loan application was cancelled. According to the appellate court, it is apparent that he was
negligent in falling for the alibi of Antonio Ang Eng Liong and such fact would not serve to
exonerate him from his responsibility under the notes.

Nonetheless, the Court of Appeals denied the claims of the bank for service, penalty and
overdue charges as well as attorneys fees on the ground that the promissory notes made no mention
of such charges/fees.

In his motion for reconsideration,[40] Tomas Ang raised for the first time the assigned errors as
follows:

xxx

2) Related to the above jurisdictional issues, defendant-appellee Tomas Ang has

recently discovered that upon the filing of the complaint on August 28,
1990, under the jurisdictional rule laid down in BP Blg. 129, appellant bank
fraudulently failed to specify the amount of compounded interest at 14% per
annum, service charges at 2% per annum and overdue penalty charges at
12% per annum in the prayer of the complaint as of the time of its filing,
paying a total of only P640.00(!!!) as filing and court docket fees although
the total sum involved as of that time was P647,566.75 including 20%
attorneys fees. In fact, the stated interest in the body of the complaint alone
amount to P328,373.39 (which is actually compounded and capitalized) in
both causes of action and the total service and overdue penalties and charges
and attorneys fees further amount to P239,193.36 in both causes of action,
as of July 31, 1990, the time of filing of the complaint. Significantly,
appellant fraudulently misled the Court, describing the 14% imposition as
interest, when in fact the same was capitalized as principal by appellant
bank every month to earn more interest, as stated in the notes. In view
thereof, the trial court never acquired jurisdiction over the case and the same
may not be now corrected by the filing of deficiency fees because the causes
of action had already prescribed and more importantly, the jurisdiction of
the Municipal Trial Court had been increased to P100,000.00 in principal
claims last March 20, 1999, pursuant to SC Circular No. 21-99, section 5 of
RA No. 7691, and section 31, Book I of the 1987 Administrative Code. In
other words, as of today, jurisdiction over the subject falls within the
exclusive jurisdiction of the MTC, particularly if the bank foregoes
capitalization of the stipulated interest.
 3) BY FAILING TO GIVE NOTICE OF ITS APPEAL AND APPEAL BRIEF TO
APPELLEE ANG ENG LIONG, THE APPEALED JUDGMENT OF THE
TRIAL COURT WHICH LEFT OUT TOMAS ANGS CROSS-CLAIM
AGAINST ENG LIONG (BECAUSE IT DISMISSED THE MAIN
CLAIM), HAD LONG BECOME FINAL AND EXECUTORY, AS
AGAINST ENG LIONG. Accordingly, Tomas Angs right of subrogation
against Ang Eng Liong, expressed in his cross-claim, is now SEVERAL
TIMES foreclosed because of the fault or negligence of appellant bank since
1979 up to its insistence of an ex-parte trial, and now when it failed to serve
notice of appeal and appellants brief upon him. Accordingly, appellee
Tomas Ang should be released from his suretyship obligation pursuant to
Art. 2080 of the Civil Code. The above is related to the issues above-stated.

4) This Court may have erred in ADDING or ASSIGNING its own bill of error for
the benefit of appellant bank which defrauded the judiciary by the payment
of deficient docket fees.[41]

Finding no cogent or compelling reason to disturb the Decision, the Court of Appeals
denied the motion in its Resolution dated December 26, 2000.[42]
Petitioner now submits the following issues for resolution:

1. Is [A]rticle 2080 of the Civil Code applicable to discharge petitioner

Tomas Ang as accommodation maker or surety because of the failure of
[private] respondent bank to serve its notice of appeal upon the principal
debtor, respondent Eng Liong?

2. Did the trial court have jurisdiction over the case at all?

3. Did the Court of Appeals [commit] error in assigning its own error
and raising its own issue?

4. Are petitioners other real and personal defenses such as successive

extensions coupled with fraudulent collusion to hide Eng Liongs default,
the payees grant of additional burdens, coupled with the insolvency of the
principal debtor, and the defense of incomplete but delivered instrument,
meritorious?[43]

Petitioner allegedly learned after the promulgation of the Court of Appeals decision that,
pursuant to the parties agreement on the compounding of interest with the principal amount (per
month in case of default), the interest on the promissory notes as of July 31, 1990 should have
been only P81,647.22 for PN No. DVO-78-382 (instead of P203,538.98) and P49,618.33 for PN
No. DVO-78-390 (instead of P125,334.41) while the principal debt as of said date should increase
to P647,566.75 (instead of P539,638.96). He submits that the bank carefully and shrewdly hid the
fact by describing the amounts as interest instead of being part of either the principal or penalty in
order to pay a lesser amount of docket fees. According to him, the total fees that should have been
paid at the time of the filing of the complaint on August 28, 1990 was P2,216.30 and not P614.00
or a shortage of 71%. Petitioner contends that the bank may not now pay the deficiency because
the last demand letter sent to him was dated September 9, 1986, or more than twenty years have
elapsed such that prescription had already set in. Consequently, the banks claim must be dismissed
as the trial court loses jurisdiction over the case.

Petitioner also argues that the Court of Appeals should not have assigned its own error and
raised it as an issue of the case, contending that no question should be entertained on appeal unless
it has been advanced in the court below or is within the issues made by the parties in the pleadings.
At any rate, he opines that the appellate courts decision that the bank is the real party in interest
because it is the payee named in the note or the holder thereof is too simplistic since: (1) the power
and control of Asset Privatization Trust over the bank are clear from the explicit terms of the duly
certified trust documents and deeds of transfer and are confirmed by the newspaper clippings; (2)
even under P.D. No. 902-A or the General Banking Act, where a corporation or a bank is under
receivership, conservation or rehabilitation, it is only the representative (liquidator, receiver,
trustee or conservator) who may properly act for said entity, and, in this case, the bank was held
by Asset Privatization Trust as trustee; and (3) it is not entirely accurate to say that the payee who
has not indorsed the notes in all cases is the real party in interest because the rights of the payee
may be subject of an assignment of incorporeal rights under Articles 1624 and 1625 of the Civil
Code.

Lastly, petitioner maintains that when respondent Bank served its notice of appeal and
appellants brief only on him, it rendered the judgment of the trial court final and executory with
respect to Antonio Ang Eng Liong, which, in effect, released him (Antonio Ang Eng Liong) from
any and all liability under the promissory notes and, thereby, foreclosed petitioners cross-claims.
By such act, the bank, even if it be the holder of the promissory notes, allegedly discharged a
simple contract for the payment of money (Sections 119 [d] and 122, NIL [Act No. 2031]),
prevented a surety like petitioner from being subrogated in the shoes of his principal (Article 2080,
Civil Code), and impaired the notes, producing the effect of payment (Article 1249, Civil Code).

The petition is unmeritorious.

Procedurally, it is well within the authority of the Court of Appeals to raise, if it deems
proper under the circumstances obtaining, error/s not assigned on an appealed case. In Mendoza v.
Bautista,[44] this Court recognized the broad discretionary power of an appellate court to waive the
lack of proper assignment of errors and to consider errors not assigned, thus:

As a rule, no issue may be raised on appeal unless it has been brought before
the lower tribunal for its consideration. Higher courts are precluded from
entertaining matters neither alleged in the pleadings nor raised during the
proceedings below, but ventilated for the first time only in a motion for
reconsideration or on appeal.

However, as with most procedural rules, this maxim is subject to

exceptions. Indeed, our rules recognize the broad discretionary power of an
appellate court to waive the lack of proper assignment of errors and to consider
errors not assigned. Section 8 of Rule 51 of the Rules of Court provides:

SEC. 8. Questions that may be decided. No error which does not affect the
jurisdiction over the subject matter or the validity of the judgment appealed from
or the proceedings therein will be considered, unless stated in the assignment of
errors, or closely related to or dependent on an assigned error and properly argued
in the brief, save as the court may pass upon plain errors and clerical errors.
Thus, an appellate court is clothed with ample authority to review rulings
even if they are not assigned as errors in the appeal in these instances: (a) grounds
not assigned as errors but affecting jurisdiction over the subject matter; (b) matters
not assigned as errors on appeal but are evidently plain or clerical errors within
contemplation of law; (c) matters not assigned as errors on appeal but consideration
of which is necessary in arriving at a just decision and complete resolution of the
case or to serve the interests of justice or to avoid dispensing piecemeal justice; (d)
matters not specifically assigned as errors on appeal but raised in the trial court and
are matters of record having some bearing on the issue submitted which the parties
failed to raise or which the lower court ignored; (e) matters not assigned as errors
on appeal but closely related to an error assigned; and (f) matters not assigned as
errors on appeal but upon which the determination of a question properly assigned
is dependent. (Citations omitted)[45]

To the Courts mind, even if the Court of Appeals regarded petitioners two assigned errors
as irrelevant and not meritorious, the issue of whether the trial court erred in dismissing the
complaint for collection of sum of money for lack of cause of action (on the ground that the bank
was not the holder of the notes at the time of the filing of the action) is in reality closely related
toand determinant of the resolution of whether the lower court correctly ruled in not holding
Antonio Ang Eng Liong and petitioner Tomas Ang liable to the bank on their unpaid loans despite
documentary exhibits allegedly proving their obligations and in dismissing the complaint based on
newspaper clippings. Hence, no error could be ascribed to the Court of Appeals on this point.
 Now, the more relevant question is: who is the real party in interest at the time of the
institution of the complaint, is it the bank or the Asset Privatization Trust?

To answer the query, a brief history on the creation of the Asset Privatization Trust is
proper.

Taking into account the imperative need of formally launching a program for the
rationalization of the government corporate sector, then President Corazon C. Aquino issued
Proclamation No. 50[46] on December 8, 1986. As one of the twin cornerstones of the program was
to establish the privatization of a good number of government corporations, the proclamation
created the Asset Privatization Trust, which would, for the benefit of the National Government,
take title to and possession of, conserve, provisionally manage and dispose of transferred assets
that were identified for privatization or disposition.[47]

In accordance with the provisions of Section 23[48] of the proclamation, then President
Aquino subsequently issued Administrative Order No. 14 on February 3, 1987, which approved
the identification of and transfer to the National Government of certain assets (consisting of loans,
equity investments, accrued interest receivables, acquired assets and other assets) and liabilities
(consisting of deposits, borrowings, other liabilities and contingent guarantees) of
the Development Bank of the Philippines (DBP) and the Philippine National Bank (PNB). The
transfer of assets was implemented through a Deed of Transfer executed on February 27,
1987 between the National Government, on one hand, and the DBP and PNB, on the other. In turn,
the National Government designated the Asset Privatization Trust to act as its trustee through a
Trust Agreement, whereby the non-performing accounts of DBP and PNB, including, among
others, the DBPs equity with respondent Bank, were entrusted to the Asset Privatization
Trust.[49] As provided for in the Agreement, among the powers and duties of the Asset Privatization
Trust with respect to the trust properties consisting of receivables was to handle their
administration and collection by bringing suit to enforce payment of the obligations or any
installment thereof or settling or compromising any of such obligations or any other claim or
demand which the Government may have against any person or persons, and to do all acts, institute
all proceedings, and to exercise all other rights, powers, and privileges of ownership that an
absolute owner of the properties would otherwise have the right to do.[50]
 Incidentally, the existence of the Asset Privatization Trust would have expired five (5)
years from the date of issuance of Proclamation No. 50.[51] However, its original term was
extended from December 8, 1991 up to August 31, 1992,[52] and again from December 31, 1993
until June 30, 1995,[53] and then from July 1, 1995 up to December 31, 1999,[54] and further from
January 1, 2000 until December 31, 2000.[55] Thenceforth, the Privatization and Management
Office was established and took over, among others, the powers, duties and functions of the Asset
Privatization Trust under the proclamation.[56]

Based on the above backdrop, respondent Bank does not appear to be the real party in interest
when it instituted the collection suit on August 28, 1990 against Antonio Ang Eng Liong and
petitioner Tomas Ang. At the time the complaint was filed in the trial court, it was the Asset
Privatization Trust which had the authority to enforce its claims against both debtors. In fact,
during the pre-trial conference, Atty. Roderick Orallo, counsel for the bank, openly admitted that
it was under the trusteeship of the Asset Privatization Trust.[57] The Asset Privatization Trust,
which should have been represented by the Office of the Government Corporate Counsel, had the
authority to file and prosecute the case.

The foregoing notwithstanding, this Court can not, at present, readily subscribe to petitioners
insistence that the case must be dismissed. Significantly, it stands without refute, both in the
pleadings as well as in the evidence presented during the trial and up to the time this case reached
the Court, that the issue had been rendered moot with the occurrence of a supervening event the
buy-back of the bank by its former owner, Leonardo Ty, sometime in October 1993. By such re-
acquisition from the Asset Privatization Trust when the case was still pending in the lower court,
the bank reclaimed its real and actual interest over the unpaid promissory notes; hence, it could
rightfully qualify as a holder[58] thereof under the NIL.

Notably, Section 29 of the NIL defines an accommodation party as a person "who has
signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor,
and for the purpose of lending his name to some other person." As gleaned from the text, an
accommodation party is one who meets all the three requisites, viz: (1) he must be a party to the
instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not receive value therefor;
and (3) he must sign for the purpose of lending his name or credit to some other person.[59] An
accommodation party lends his name to enable the accommodated party to obtain credit or to raise
money; he receives no part of the consideration for the instrument but assumes liability to the other
party/ies thereto.[60] The accommodation party is liable on the instrument to a holder for value even
though the holder, at the
time of taking the instrument, knew him or her to be merely an
accommodation party, as if the contract was not for accommodation.[61]

As petitioner acknowledged it to be, the relation between an accommodation party and the
accommodated party is one of principal and surety the accommodation party being the surety.[62]As
such, he is deemed an original promisor and debtor from the beginning;[63] he is considered in law
as the same party as the debtor in relation to whatever is adjudged touching the obligation of the
latter since their liabilities are interwoven as to be inseparable.[64] Although a contract of suretyship
is in essence accessory or collateral to a valid principal obligation, the surety's liability to the
creditor is immediate, primary and absolute; he is directly and equally bound with the
principal.[65] As an equivalent of a regular party to the undertaking, a surety becomes liable to the
debt and duty of the principal obligor even without possessing a direct or personal interest in the
obligations nor does he receive any benefit therefrom.[66]

Contrary to petitioners adamant stand, however, Article 2080[67] of the Civil Code does not
apply in a contract of suretyship.[68] Art. 2047 of the Civil Code states that if a person binds himself
solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I, Book IV of the
Civil Code must be observed. Accordingly, Articles 1207 up to 1222 of the Code (on joint and
solidary obligations) shall govern the relationship of petitioner with the bank.

The case of Inciong, Jr. v. CA[69] is illuminating:

Petitioner also argues that the dismissal of the complaint against Naybe, the
principal debtor, and against Pantanosas, his co-maker, constituted a release of his
obligation, especially because the dismissal of the case against Pantanosas was
upon the motion of private respondent itself. He cites as basis for his argument,
Article 2080 of the Civil Code which provides that:

"The guarantors, even though they be solidary, are released from their
obligation whenever by come act of the creditor, they cannot be subrogated to the
rights, mortgages, and preferences of the latter."

It is to be noted, however, that petitioner signed the promissory note as a

solidary co-maker and not as a guarantor. This is patent even from the first sentence
of the promissory note which states as follows:

"Ninety one (91) days after date, for value received, I/we, JOINTLY and
SEVERALLY promise to pay to the PHILIPPINE BANK OF
COMMUNICATIONS at its office in the City of Cagayan de Oro, Philippines the
sum of FIFTY THOUSAND ONLY (P50,000.00) Pesos, Philippine Currency,
 together with interest x x x at the rate of SIXTEEN (16) per cent per annum until
fully paid."

A solidary or joint and several obligation is one in which each debtor is

liable for the entire obligation, and each creditor is entitled to demand the whole
obligation. On the other hand, Article 2047 of the Civil Code states:

"By guaranty a person, called the guarantor, binds himself to the creditor to
fulfill the obligation of the principal debtor in case the latter should fail to do so.

If a person binds himself solidarily with the principal debtor, the provisions
of Section 4, Chapter 3, Title I of this Book shall be observed. In such a case the
contract is called a suretyship." (Italics supplied.)

While a guarantor may bind himself solidarily with the principal debtor, the
liability of a guarantor is different from that of a solidary debtor. Thus, Tolentino
explains:

"A guarantor who binds himself in solidum with the principal debtor under
the provisions of the second paragraph does not become a solidary co-debtor to all
intents and purposes. There is a difference between a solidary co-debtor, and
a fiador in solidum (surety). The later, outside of the liability he assumes to pay the
debt before the property of the principal debtor has been exhausted, retains all the
other rights, actions and benefits which pertain to him by reason of rights of
the fiansa; while a solidary co-debtor has no other rights than those bestowed upon
him in Section 4, Chapter 3, title I, Book IV of the Civil Code."
Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on
joint and several obligations. Under Art. 1207 thereof, when there are two or more
debtors in one and the same obligation, the presumption is that obligation is joint
so that each of the debtors is liable only for a proportionate part of the debt. There
is a solidarily liability only when the obligation expressly so states, when the law
so provides or when the nature of the obligation so requires.
Because the promissory note involved in this case expressly states that the
three signatories therein are jointly and severally liable, any one, some or all of
them may be proceeded against for the entire obligation. The choice is left to the
solidary creditor to determine against whom he will enforce collection. (Citations
omitted)[70]

In the instant case, petitioner agreed to be jointly and severally liable under the two
promissory notes that he co-signed with Antonio Ang Eng Liong as the principal debtor. This
being so, it is completely immaterial if the bank would opt to proceed only against petitioner or
Antonio Ang Eng Liong or both of them since the law confers upon the creditor the prerogative to
choose whether to enforce the entire obligation against any one, some or all of the debtors.
Nonetheless, petitioner, as an accommodation party, may seek reimbursement from Antonio Ang
Eng Liong, being the party accommodated.[71]

It is plainly mistaken for petitioner to say that just because the bank failed to serve the
notice of appeal and appellants brief to Antonio Ang Eng Liong, the trial courts judgment, in effect,
became final and executory as against the latter and, thereby, bars his (petitioners) cross-claims
against him: First, although no notice of appeal and appellants brief were served to Antonio Ang
Eng Liong, he was nonetheless impleaded in the case since his name appeared in the caption of
both the notice and the brief as one of the defendants-appellees;[72] Second, despite including in
the caption of the appellees brief his co-debtor as one of the defendants-appellees, petitioner did
not also serve him a copy thereof;[73] Third, in the caption of the Court of Appeals decision,
Antonio Ang Eng Liong was expressly named as one of the defendants-appellees;[74] and Fourth,
it was only in his motion for reconsideration from the adverse judgment of the Court of Appeals
that petitioner belatedly chose to serve notice to the counsel of his co-defendant-appellee.[75]

Likewise, this Court rejects the contention of Antonio Ang Eng Liong, in his special
appearance through counsel, that the Court of Appeals, much less this Court, already lacked
jurisdiction over his person or over the subject matter relating to him because he was not a party
in CA-G.R. CV No. 53413. Stress must be laid of the fact that he had twice put himself in default
one, in not filing a pre-trial brief and another, in not filing his answer to petitioners cross-claims.
As a matter of course, Antonio Ang Eng Liong, being a party declared in default, already waived
his right to take part in the trial proceedings and had to contend with the judgment rendered by the
court based on the evidence presented by the bank and petitioner. Moreover, even without
considering these default judgments, Antonio Ang Eng Liong even categorically admitted having
secured a loan totaling P80,000. In his Answer to the complaint, he did not deny such liability but
merely pleaded that the bank be ordered to submit a more reasonable computation instead of
collecting excessive interest, penalty charges, and attorneys fees. For failing to tender an issue and
in not denying the material allegations stated in the complaint, a judgment on the
pleadings[76] would have also been proper since not a single issue was generated by the Answer he
filed.

As the promissory notes were not discharged or impaired through any act or omission of
the bank, Sections 119 (d)[77] and 122[78] of the NIL as well as Art. 1249[79] of the Civil Code would
necessarily find no application. Again, neither was petitioners right of reimbursement barred nor
was the banks right to proceed against Antonio Ang Eng Liong expressly renounced by the
omission to serve notice of appeal and appellants brief to a party already declared in default.
 Consequently, in issuing the two promissory notes, petitioner as accommodating party
warranted to the holder in due course that he would pay the same according to its tenor.[80] It is no
defense to state on his part that he did not receive any value therefor[81] because the phrase "without
receiving value therefor" used in Sec. 29 of the NIL means "without receiving value by virtue of
the instrument" and not as it is apparently supposed to mean, "without receiving payment for
lending his name."[82] Stated differently, when a third person advances the face value of the note
to the accommodated party at the time of its creation, the consideration for the note as regards its
maker is the money advanced to the accommodated party. It is enough that value was given for
the note at the time of its creation.[83] As in the instant case, a sum of money was received by virtue
of the notes, hence, it is immaterial so far as the bank is concerned whether one of the signers,
particularly petitioner, has or has not received anything in payment of the use of his name.[84]

Under the law, upon the maturity of the note, a surety may pay the debt, demand the
collateral security, if there be any, and dispose of it to his benefit, or, if applicable, subrogate
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.[85] Regrettably, none
of these were prudently done by petitioner. When he was first notified by the bank sometime in
1982 regarding his accountabilities under the promissory notes, he lackadaisically relied on
Antonio Ang Eng Liong, who represented that he would take care of the matter, instead of directly
communicating with the bank for its settlement.[86] Thus, petitioner cannot now claim that he was
prejudiced by the supposed extension of time given by the bank to his co-debtor.

Furthermore, since the liability of an accommodation party remains not only primary but
also unconditional to a holder for value, even if the accommodated party receives an extension of
the period for payment without the consent of the accommodation party, the latter is still liable for
the whole obligation and such extension does not release him because as far as a holder for value
is concerned, he is a solidary co-debtor.[87] In Clark v. Sellner,[88] this Court held:

x x x 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)[89]

Neither can petitioner benefit from the alleged insolvency of Antonio Ang Eng Liong for
want of clear and convincing evidence proving the same. Assuming it to be true, he also did not
exercise diligence in demanding security to protect himself from the danger thereof in the event
that he (petitioner) would eventually be sued by the bank. Further, whether petitioner may or may
not obtain security from Antonio Ang Eng Liong cannot in any manner affect his liability to the
bank; the said remedy is a matter of concern exclusively between themselves as accommodation
party and accommodated party. The fact that petitioner stands only as a surety in relation to
Antonio Ang Eng Liong is immaterial to the claim of the bank and does not a whit diminish nor
defeat the rights of the latter as a holder for value. To sanction his theory is to give unwarranted
legal recognition to the patent absurdity of a situation where a co-maker, when sued on an
instrument by a holder in due course and for value, can escape liability by the convenient expedient
of interposing the defense that he is a merely an accommodation party.[90]

In sum, as regards the other issues and errors alleged in this petition, the Court notes that
these were the very same questions of fact raised on appeal before the Court of Appeals, although
at times couched in different terms and explained more lengthily in the petition. Suffice it to say
that the same, being factual, have been satisfactorily passed upon and considered both by the trial
and appellate courts. It is doctrinal that only errors of law and not of fact are reviewable by this
Court in petitions for review on certiorari under Rule 45 of the Rules of Court. Save for the most
cogent and compelling reason, it is not our function under the rule to examine, evaluate or weigh
the probative value of the evidence presented by the parties all over again.[91]

WHEREFORE, the October 9, 2000 Decision and December 26, 2000 Resolution of the
Court of Appeals in CA-G.R. CV No. 53413 are AFFIRMED. The petition is DENIED for lack
of merit.