1

G.R. No. L-39641 February 28, 1983 The trial court erred in not dismissing the complaint by finding
METROPOL (BACOLOD) FINANCING & INVESTMENT CORPORATION, plaintiff- defendant appellant Sambok Motors Company as assignor and a
appellee, qualified indorsee of the subject promissory note and in not holding it
vs. as only secondarily liable thereof.
SAMBOK MOTORS COMPANY and NG SAMBOK SONS MOTORS CO., Appellant Sambok argues that by adding the words "with recourse" in the indorsement of
LTD., defendants-appellants. the note, it becomes a qualified indorser that being a qualified indorser, it does not
Rizal Quimpo & Cornelio P. Revena for plaintiff-appellee. warrant that if said note is dishonored by the maker on presentment, it will pay the
Diosdado Garingalao for defendants-appellants. amount to the holder; that it only warrants the following pursuant to Section 65 of the
Negotiable Instruments Law: (a) that the instrument is genuine and in all respects what it
DE CASTRO, J.: purports to be; (b) that he has a good title to it; (c) that all prior parties had capacity to
The former Court of Appeals, by its resolution dated October 16, 1974 certified this case contract; (d) that he has no knowledge of any fact which would impair the validity of the
to this Court the issue issued therein being one purely of law. instrument or render it valueless.
On April 15, 1969 Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok The appeal is without merit.
Sons Motors Co., Ltd., in the amount of P15,939.00 payable in twelve (12) equal monthly A qualified indorsement constitutes the indorser a mere assignor of the title to the
installments, beginning May 18, 1969, with interest at the rate of one percent per month. instrument. It may be made by adding to the indorser's signature the words "without
It is further provided that in case on non-payment of any of the installments, the total recourse" or any words of similar import. 2 Such an indorsement relieves the indorser of
principal sum then remaining unpaid shall become due and payable with an additional the general obligation to pay if the instrument is dishonored but not of the liability arising
interest equal to twenty-five percent of the total amount due. from warranties on the instrument as provided in Section 65 of the Negotiable
On the same date, Sambok Motors Company (hereinafter referred to as Sambok), a Instruments Law already mentioned herein. However, appellant Sambok indorsed the
sister company of Ng Sambok Sons Motors Co., Ltd., and under the same management note "with recourse" and even waived the notice of demand, dishonor, protest and
as the former, negotiated and indorsed the note in favor of plaintiff Metropol Financing & presentment.
Investment Corporation with the following indorsement: "Recourse" means resort to a person who is secondarily liable after the default of the
Pay to the order of Metropol Bacolod Financing & Investment person who is primarily liable. 3 Appellant, by indorsing the note "with recourse" does not
Corporation with recourse. Notice of Demand; Dishonor; Protest; and make itself a qualified indorser but a general indorser who is secondarily liable, because
Presentment are hereby waived. by such indorsement, it agreed that if Dr. Villaruel fails to pay the note, plaintiff-appellee
SAMBOK can go after said appellant. The effect of such indorsement is that the note was indorsed
MOTORS CO. without qualification. A person who indorses without qualification engages that on due
(BACOLOD) presentment, the note shall be accepted or paid, or both as the case may be, and that if it
By: be dishonored, he will pay the amount thereof to the holder. 4 Appellant Sambok's
RODOLFO G. NONILLO Asst. General Manager intention of indorsing the note without qualification is made even more apparent by the
The maker, Dr. Villaruel defaulted in the payment of his installments when they became fact that the notice of demand, dishonor, protest and presentment were an waived. The
due, so on October 30, 1969 plaintiff formally presented the promissory note for payment words added by said appellant do not limit his liability, but rather confirm his obligation as
to the maker. Dr. Villaruel failed to pay the promissory note as demanded, hence plaintiff a general indorser.
notified Sambok as indorsee of said note of the fact that the same has been dishonored Lastly, the lower court did not err in not declaring appellant as only secondarily liable
and demanded payment. because after an instrument is dishonored by non-payment, the person secondarily liable
Sambok failed to pay, so on November 26, 1969 plaintiff filed a complaint for collection of thereon ceases to be such and becomes a principal debtor. 5 His liabiliy becomes the
a sum of money before the Court of First Instance of Iloilo, Branch I. Sambok did not same as that of the original obligor. 6 Consequently, the holder need not even proceed
deny its liability but contended that it could not be obliged to pay until after its co- against the maker before suing the indorser.
defendant Dr. Villaruel has been declared insolvent. WHEREFORE, the decision of the lower court is hereby affirmed. No costs.
During the pendency of the case in the trial court, defendant Dr. Villaruel died, hence, on SO ORDERED.
October 24, 1972 the lower court, on motion, dismissed the case against Dr. Villaruel Makasiar (Chairman), Concepcion, Jr., Guerrero and Escolin, JJ., concur.
pursuant to Section 21, Rule 3 of the Rules of Court. 1 Aquino, J., is on leave.
On plaintiff's motion for summary judgment, the trial court rendered its decision dated SECOND DIVISION
September 12, 1973, the dispositive portion of which reads as follows:
WHEREFORE, judgment is rendered:
(a) Ordering Sambok Motors Company to pay to the plaintiff the sum of ALLIED BANKING G.R. No. 133179
P15,939.00 plus the legal rate of interest from October 30, 1969; CORPORATION,
(b) Ordering same defendant to pay to plaintiff the sum equivalent to Petitioner, Present:
25% of P15,939.00 plus interest thereon until fully paid; and QUISUMBING, J., Chairperson,
(c) To pay the cost of suit. - versus - CARPIO MORALES,
Not satisfied with the decision, the present appeal was instituted, appellant Sambok TINGA,
raising a lone assignment of error as follows: VELASCO, JR., and
CHICO-NAZARIO,* JJ.
 2

LIM SIO WAN, METROPOLITAN managers check in the name of Lim Sio Wan was deposited in the account of FCC,
BANK AND TRUST CO., and Promulgated: purportedly representing the proceeds of FCCs money market placement with Producers
PRODUCERS BANK, Bank.[17] In other words, the Allied check was deposited with Metrobank in the account of
Respondents. March 27, 2008 FCC as Producers Banks payment of its obligation to FCC.
x-----------------------------------------------------------------------------------------x
To clear the check and in compliance with the requirements of the Philippine Clearing
DECISION House Corporation (PCHC) Rules and Regulations, Metrobank stamped a guaranty on
the check, which reads: All prior endorsements and/or lack of endorsement
VELASCO, JR., J.: guaranteed.[18]

To ingratiate themselves to their valued depositors, some banks at times bend The check was sent to Allied through the PCHC. Upon the presentment of the check,
over backwards that they unwittingly expose themselves to great risks. Allied funded the check even without checking the authenticity of Lim Sio Wans
The Case purported indorsement. Thus, the amount on the face of the check was credited to the
account of FCC.[19]
This Petition for Review on Certiorari under Rule 45 seeks to reverse the Court
of Appeals (CAs) Decision promulgated on March 18, 1998[1] in CA-G.R. CV No. 46290 On December 9, 1983, Lim Sio Wan deposited with Allied a second money market
entitled Lim Sio Wan v. Allied Banking Corporation, et al. The CA Decision modified the placement to mature on January 9, 1984.[20]
Decision dated November 15, 1993[2] of the Regional Trial Court (RTC), Branch 63
in Makati City rendered in Civil Case No. 6757. On December 14, 1983, upon the maturity date of the first money market placement, Lim
The Facts Sio Wan went to Allied to withdraw it.[21] She was then informed that the placement had
been pre-terminated upon her instructions. She denied giving any instructions and
The facts as found by the RTC and affirmed by the CA are as follows: receiving the proceeds thereof. She desisted from further complaints when she was
assured by the banks manager that her money would be recovered. [22]
On November 14, 1983, respondent Lim Sio Wan deposited with petitioner Allied
Banking Corporation (Allied) at its Quintin Paredes Branch in Manila a money market When Lim Sio Wans second placement matured on January 9, 1984, So called Lim Sio
placement of PhP 1,152,597.35 for a term of 31 days to mature on December 15, Wan to ask for the latters instructions on the second placement. Lim Sio Wan instructed
1983,[3] as evidenced by Provisional Receipt No. 1356 dated November 14, 1983.[4] So to roll-over the placement for another 30 days.[23] On January 24, 1984, Lim Sio Wan,
realizing that the promise that her money would be recovered would not materialize, sent
On December 5, 1983, a person claiming to be Lim Sio Wan called up Cristina So, an a demand letter to Allied asking for the payment of the first placement.[24] Allied refused
officer of Allied, and instructed the latter to pre-terminate Lim Sio Wans money market to pay Lim Sio Wan, claiming that the latter had authorized the pre-termination of the
placement, to issue a managers check representing the proceeds of the placement, and placement and its subsequent release to Santos.[25]
to give the check to one Deborah Dee Santos who would pick up the check. [5] Lim Sio
Wan described the appearance of Santos so that So could easily identify her.[6] Consequently, Lim Sio Wan filed with the RTC a Complaint dated February 13,
1984[26] docketed as Civil Case No. 6757 against Allied to recover the proceeds of her
Later, Santos arrived at the bank and signed the application form for a managers check first money market placement. Sometime in February 1984, she withdrew her second
to be issued.[7] The bank issued Managers Check No. 035669 for PhP 1,158,648.49, placement from Allied.
representing the proceeds of Lim Sio Wans money market placement in the name of Lim
Sio Wan, as payee.[8] The check was cross-checked For Payees Account Only and given Allied filed a third party complaint[27] against Metrobank and Santos. In turn, Metrobank
to Santos.[9] filed a fourth party complaint[28] against FCC. FCC for its part filed a fifth party
complaint[29] against Producers Bank. Summonses were duly served upon all the parties
Thereafter, the managers check was deposited in the account of Filipinas Cement except for Santos, who was no longer connected with Producers Bank.[30]
Corporation (FCC) at respondent Metropolitan Bank and Trust Co. (Metrobank), [10] with
the forged signature of Lim Sio Wan as indorser.[11] On May 15, 1984, or more than six (6) months after funding the check, Allied informed
Metrobank that the signature on the check was forged. [31] Thus, Metrobank withheld the
Earlier, on September 21, 1983, FCC had deposited a money market placement for PhP amount represented by the check from FCC. Later on, Metrobank agreed to release the
2 million with respondent Producers Bank. Santos was the money market trader amount to FCC after the latter executed an Undertaking, promising to indemnify
assigned to handle FCCs account.[12] Such deposit is evidenced by Official Receipt No. Metrobank in case it was made to reimburse the amount.[32]
317568[13] and a Letter dated September 21, 1983 of Santos addressed to Angie Lazo of
FCC, acknowledging receipt of the placement.[14] The placement matured on October 25, Lim Sio Wan thereafter filed an amended complaint to include Metrobank as a
1983 and was rolled-over until December 5, 1983 as evidenced by a Letter party-defendant, along with Allied.[33] The RTC admitted the amended complaint despite
dated October 25, 1983.[15] When the placement matured, FCC demanded the payment the opposition of Metrobank.[34] Consequently, Allieds third party complaint against
of the proceeds of the placement.[16] On December 5, 1983, the same date that So Metrobank was converted into a cross-claim and the latters fourth party complaint
received the phone call instructing her to pre-terminate Lim Sio Wans placement, the against FCC was converted into a third party complaint.[35]
 3

After trial, the RTC issued its Decision, holding as follows: The Honorable Court of Appeals erred in holding that Lim Sio
Wan did not authorize [Allied] to pre-terminate the initial placement and
WHEREFORE, judgment is hereby rendered as follows: to deliver the check to Deborah Santos.

1. Ordering defendant Allied Banking Corporation to pay plaintiff the The Honorable Court of Appeals erred in absolving Producers
amount of P1,158,648.49 plus 12% interest per annum from March 16, Bank of any liability for the reimbursement of amount adjudged
1984 until fully paid; demandable.
2. Ordering defendant Allied Bank to pay plaintiff the amount of
P100,000.00 by way of moral damages; The Honorable Court of Appeals erred in holding [Allied] liable
3. Ordering defendant Allied Bank to pay plaintiff the amount of to the extent of 60% of amount adjudged demandable in clear
P173,792.20 by way of attorneys fees; and, disregard to the ultimate liability of Metrobank as guarantor of all
4. Ordering defendant Allied Bank to pay the costs of suit. endorsement on the check, it being the collecting bank.[38]

Defendant Allied Banks cross-claim against defendant Metrobank is

DISMISSED. The petition is partly meritorious.

Likewise defendant Metrobanks third-party complaint as against A Question of Fact

Filipinas Cement Corporation is DISMISSED.
Allied questions the finding of both the trial and appellate courts that Allied was not
Filipinas Cement Corporations fourth-party complaint against authorized to release the proceeds of Lim Sio Wans money market placement
Producers Bank is also DISMISSED. to Santos.Allied clearly raises a question of fact. When the CA affirms the findings of fact
of the RTC, the factual findings of both courts are binding on this Court. [39]
SO ORDERED.[36]
We also agree with the CA when it said that it could not disturb the trial courts findings on
the credibility of witness So inasmuch as it was the trial court that heard the witness and
had the opportunity to observe closely her deportment and manner of testifying. Unless
The Decision of the Court of Appeals the trial court had plainly overlooked facts of substance or value, which, if considered,
might affect the result of the case,[40] we find it best to defer to the trial court on matters
Allied appealed to the CA, which in turn issued the assailed Decision on March 18, 1998, pertaining to credibility of witnesses.
modifying the RTC Decision, as follows: Additionally, this Court has held that the matter of negligence is also a factual
question.[41] Thus, the finding of the RTC, affirmed by the CA, that the respective parties
WHEREFORE, premises considered, the decision appealed from is were negligent in the exercise of their obligations is also conclusive upon this Court.
MODIFIED. Judgment is rendered ordering and sentencing defendant-
appellant Allied Banking Corporation to pay sixty (60%) percent and The Liability of the Parties
defendant-appellee Metropolitan Bank and Trust Company forty (40%)
of the amount of P1,158,648.49 plus 12% interest per annum from As to the liability of the parties, we find that Allied is liable to Lim Sio Wan. Fundamental
March 16, 1984 until fully paid. The moral damages, attorneys fees and familiar is the doctrine that the relationship between a bank and a client is one of
and costs of suit adjudged shall likewise be paid by defendant- debtor-creditor.
appellant Allied Banking Corporation and defendant-appellee
Metropolitan Bank and Trust Company in the same proportion of 60- Articles 1953 and 1980 of the Civil Code provide:
40. Except as thus modified, the decision appealed from is
AFFIRMED. Art. 1953. A person who receives a loan of money or any other
fungible thing acquires the ownership thereof, and is bound to pay to
SO ORDERED.[37] the creditor an equal amount of the same kind and quality.

Art. 1980. Fixed, savings, and current deposits of money in banks and
Hence, Allied filed the instant petition. similar institutions shall be governed by the provisions concerning
simple loan.
The Issues

Allied raises the following issues for our consideration: Thus, we have ruled in a line of cases that a bank deposit is in the nature of a
simple loan or mutuum.[42] More succinctly, in Citibank, N.A. (Formerly First National City
 4

Bank) v. Sabeniano, this Court ruled that a money market placement is a simple loan or such payment, is void, except as provided in Article 1241. Such
mutuum.[43] Further, we defined a money market in Cebu International Finance payment does not prejudice the creditor, and accrual of interest is
Corporation v. Court of Appeals, as follows: not suspended by it.[45](Emphasis supplied.)

[A] money market is a market dealing in standardized short-term Since there was no effective payment of Lim Sio Wans money market placement, the
credit instruments (involving large amounts) where lenders and bank still has an obligation to pay her at six percent (6%) interest from March 16,
borrowers do not deal directly with each other but through a middle 1984until the payment thereof.
man or dealer in open market. In a money market transaction, the
investor is a lender who loans his money to a borrower through a We cannot, however, say outright that Allied is solely liable to Lim Sio Wan.
middleman or dealer.
Allied claims that Metrobank is the proximate cause of the loss of Lim Sio Wans
In the case at bar, the money market transaction between the money. It points out that Metrobank guaranteed all prior indorsements inscribed on the
petitioner and the private respondent is in the nature of a loan. [44] managers check, and without Metrobanks guarantee, the present controversy would
never have occurred. According to Allied:

Lim Sio Wan, as creditor of the bank for her money market placement, is Failure on the part of the collecting bank to ensure that the proceeds of
entitled to payment upon her request, or upon maturity of the placement, or until the bank the check is paid to the proper party is, aside from being an efficient
is released from its obligation as debtor. Until any such event, the obligation of Allied to intervening cause, also the last negligent act, x x x contributory to the
Lim Sio Wan remains unextinguished. injury caused in the present case, which thereby leads to the
conclusion that it is the collecting bank, Metrobank that is the
Art. 1231 of the Civil Code enumerates the instances when obligations are proximate cause of the alleged loss of the plaintiff in the instant
considered extinguished, thus: case.[46]

Art. 1231. Obligations are extinguished: We are not persuaded.

(1) By payment or performance; Proximate cause is that cause, which, in natural and continuous sequence, unbroken by
(2) By the loss of the thing due; any efficient intervening cause, produces the injury and without which the result would
(3) By the condonation or remission of the debt; not have occurred.[47] Thus, there is an efficient supervening event if the event breaks the
(4) By the confusion or merger of the rights of sequence leading from the cause to the ultimate result. To determine the proximate
creditor and debtor; cause of a controversy, the question that needs to be asked is: If the event did not
(5) By compensation; happen, would the injury have resulted? If the answer is NO, then the event is the
(6) By novation. proximate cause.

Other causes of extinguishment of obligations, such as

annulment, rescission, fulfillment of a resolutory condition, and In the instant case, Allied avers that even if it had not issued the check payment, the
prescription, are governed elsewhere in this Code. (Emphasis money represented by the check would still be lost because of Metrobanks negligence in
supplied.) indorsing the check without verifying the genuineness of the indorsement thereon.

Section 66 in relation to Sec. 65 of the Negotiable Instruments Law provides:

From the factual findings of the trial and appellate courts that Lim Sio Wan did
not authorize the release of her money market placement to Santos and the bank had Section 66. Liability of general indorser.Every indorser who indorses
been negligent in so doing, there is no question that the obligation of Allied to pay Lim without qualification, warrants to all subsequent holders in due course;
Sio Wan had not been extinguished. Art. 1240 of the Code states that payment shall be
made to the person in whose favor the obligation has been constituted, or his successor a) The matters and things mentioned in
in interest, or any person authorized to receive it. As commented by Arturo Tolentino: subdivisions (a), (b) and (c) of the next preceding
section; and
Payment made by the debtor to a wrong party does not
extinguish the obligation as to the creditor, if there is no fault or b) That the instrument is at the time of his
negligence which can be imputed to the latter. Even when the debtor indorsement valid and subsisting;
acted in utmost good faith and by mistake as to the person of his
creditor, or through error induced by the fraud of a third person, the And in addition, he engages that on due presentment, it shall
payment to one who is not in fact his creditor, or authorized to receive be accepted or paid, or both, as the case may be according to its
 5

tenor, and that if it be dishonored, and the necessary proceedings on an impostor. Both banks were not able to overcome the presumption of
dishonor be duly taken, he will pay the amount thereof to the holder, or negligence in the selection and supervision of their employees. It was
to any subsequent indorser who may be compelled to pay it. the gross negligence of the employees of both banks which resulted in
the fraud and the subsequent loss. While it is true that petitioner BPIs
Section 65. Warranty where negotiation by delivery, so negligence may have been the proximate cause of the loss,
forth.Every person negotiating an instrument by delivery or by a respondent CBCs negligence contributed equally to the success of the
qualified indorsement, warrants: impostor in encashing the proceeds of the forged checks. Under these
circumstances, we apply Article 2179 of the Civil Code to the effect
a) That the instrument is genuine and in all that while respondent CBC may recover its losses, such losses are
respects what it purports to be; subject to mitigation by the courts. (See Phoenix Construction Inc. v.
b) That he has a good title of it; Intermediate Appellate Courts, 148 SCRA 353 [1987]).
c) That all prior parties had capacity to contract;
d) That he has no knowledge of any fact which would Considering the comparative negligence of the two (2) banks,
impair the validity of the instrument or render it we rule that the demands of substantial justice are satisfied by
valueless. allocating the loss of P2,413,215.16 and the costs of the arbitration
proceeding in the amount of P7,250.00 and the cost of litigation on a
But when the negotiation is by delivery only, the warranty 60-40 ratio.[52]
extends in favor of no holder other than the immediate transferee.

The provisions of subdivision (c) of this section do not apply Similarly, we ruled in Associated Bank v. Court of Appeals that the issuing institution and
to persons negotiating public or corporation securities, other than bills the collecting bank should equally share the liability for the loss of amount represented
and notes. (Emphasis supplied.) by the checks concerned due to the negligence of both parties:

The warranty that the instrument is genuine and in all respects what it purports to be The Court finds as reasonable, the proportionate sharing of fifty
covers all the defects in the instrument affecting the validity thereof, including a forged percent-fifty percent (50%-50%). Due to the negligence of the Province
indorsement. Thus, the last indorser will be liable for the amount indicated in the of Tarlac in releasing the checks to an unauthorized person (Fausto
negotiable instrument even if a previous indorsement was forged. We held in a line of Pangilinan), in allowing the retired hospital cashier to receive the
cases that a collecting bank which indorses a check bearing a forged indorsement and checks for the payee hospital for a period close to three years and in
presents it to the drawee bank guarantees all prior indorsements, including the forged not properly ascertaining why the retired hospital cashier was
indorsement itself, and ultimately should be held liable therefor. [48] collecting checks for the payee hospital in addition to the hospitals real
cashier, respondent Province contributed to the loss amounting to
However, this general rule is subject to exceptions. One such exception is when the P203,300.00 and shall be liable to the PNB for fifty (50%) percent
issuance of the check itself was attended with negligence. Thus, in the cases cited above thereof. In effect, the Province of Tarlac can only recover fifty percent
where the collecting bank is generally held liable, in two of the cases where the checks (50%) of P203,300.00 from PNB.
were negligently issued, this Court held the institution issuing the check just as liable as
or more liable than the collecting bank. The collecting bank, Associated Bank, shall be liable to PNB
for fifty (50%) percent of P203,300.00. It is liable on its warranties as
In isolated cases where the checks were deposited in an account other than that of the indorser of the checks which were deposited by Fausto Pangilinan,
payees on the strength of forged indorsements, we held the collecting bank solely liable having guaranteed the genuineness of all prior indorsements, including
for the whole amount of the checks involved for having indorsed the same. In Republic that of the chief of the payee hospital, Dr. Adena Canlas. Associated
Bank v. Ebrada,[49] the check was properly issued by the Bureau of Treasury. While Bank was also remiss in its duty to ascertain the genuineness of the
in Banco de Oro Savings and Mortgage Bank (Banco de Oro) v. Equitable Banking payees indorsement.[53]
Corporation,[50] Banco de Oro admittedly issued the checks in the name of the correct
payees. And in Traders Royal Bank v. Radio Philippines Network, Inc.,[51] the checks A reading of the facts of the two immediately preceding cases would reveal that the
were issued at the request of Radio Philippines Network, Inc. from Traders Royal Bank. reason why the bank or institution which issued the check was held partially liable for the
However, in Bank of the Philippine Islands v. Court of Appeals, we said that the drawee amount of the check was because of the negligence of these parties which resulted in
bank is liable for 60% of the amount on the face of the negotiable instrument and the the issuance of the checks.
collecting bank is liable for 40%. We also noted the relative negligence exhibited by two In the instant case, the trial court correctly found Allied negligent in issuing the managers
banks, to wit: check and in transmitting it to Santos without even a written authorization.[54] In fact,
Allied did not even ask for the certificate evidencing the money market placement or call
Both banks were negligent in the selection and supervision of up Lim Sio Wan at her residence or office to confirm her instructions. Both actions could
their employees resulting in the encashment of the forged checks by
 6

have prevented the whole fraudulent transaction from unfolding. Allieds negligence must money market placement and interest in Producers Bank. With such payment, Producers
be considered as the proximate cause of the resulting loss. Banks indebtedness to FCC was extinguished, thereby benefitting the former. Clearly,
Producers Bank was unjustly enriched at the expense of Lim Sio Wan. Based on the
To reiterate, had Allied exercised the diligence due from a financial institution, the check facts and circumstances of the case, Producers Bank should reimburse Allied and
would not have been issued and no loss of funds would have resulted. In fact, there Metrobank for the amounts the two latter banks are ordered to pay Lim Sio Wan.
would have been no issuance of indorsement had there been no check in the first place.
It cannot be validly claimed that FCC, and not Producers Bank, should be
The liability of Allied, however, is concurrent with that of Metrobank as the last indorser of considered as having been unjustly enriched. It must be remembered that FCCs money
the check. When Metrobank indorsed the check in compliance with the PCHC Rules and market placement with Producers Bank was already due and demandable; thus,
Regulations[55] without verifying the authenticity of Lim Sio Wans indorsement and when Producers Banks payment thereof was justified. FCC was entitled to such payment. As
it accepted the check despite the fact that it was cross-checked payable to payees earlier stated, the fact that the indorsement on the check was forged cannot be raised
account only,[56] its negligent and cavalier indorsement contributed to the easier release against FCC which was not a part in any stage of the negotiation of the check. FCC was
of Lim Sio Wans money and perpetuation of the fraud. Given the relative participation of not unjustly enriched.
Allied and Metrobank to the instant case, both banks cannot be adjudged as equally
liable. Hence, the 60:40 ratio of the liabilities of Allied and Metrobank, as ruled by the CA, From the facts of the instant case, we see that Santos could be the architect of
must be upheld. the entire controversy. Unfortunately, since summons had not been served on Santos,
the courts have not acquired jurisdiction over her.[60] We, therefore, cannot ascribe to her
FCC, having no participation in the negotiation of the check and in the forgery of Lim Sio liability in the instant case.
Wans indorsement, can raise the real defense of forgery as against both banks. [57]
Clearly, Producers Bank must be held liable to Allied and Metrobank for the
As to Producers Bank, Allied Banks argument that Producers Bank must be amount of the check plus 12% interest per annum, moral damages, attorneys fees, and
held liable as employer of Santos under Art. 2180 of the Civil Code is erroneous. Art. costs of suit which Allied and Metrobank are adjudged to pay Lim Sio Wan based on a
2180 pertains to the vicarious liability of an employer for quasi-delicts that an employee proportion of 60:40.
has committed. Such provision of law does not apply to civil liability arising from delict.
WHEREFORE, the petition is PARTLY GRANTED. The March 18, 1998 CA
One also cannot apply the principle of subsidiary liability in Art. 103 of the Decision in CA-G.R. CV No. 46290 and the November 15, 1993 RTC Decision in Civil
Revised Penal Code in the instant case. Such liability on the part of the employer for the Case No. 6757 are AFFIRMED with MODIFICATION.
civil aspect of the criminal act of the employee is based on the conviction of the
employee for a crime. Here, there has been no conviction for any crime. Thus, the CA Decision is AFFIRMED, the fallo of which is reproduced, as
follows:
As to the claim that there was unjust enrichment on the part of Producers Bank,
the same is correct. Allied correctly claims in its petition that Producers Bank should
reimburse Allied for whatever judgment that may be rendered against it pursuant to Art. WHEREFORE, premises considered, the decision appealed from is
22 of the Civil Code, which provides: Every person who through an act of performance by MODIFIED. Judgment is rendered ordering and sentencing defendant-
another, or any other means, acquires or comes into possession of something at the appellant Allied Banking Corporation to pay sixty (60%) percent and
expense of the latter without just cause or legal ground, shall return the same to him. defendant-appellee Metropolitan Bank and Trust Company forty (40%)
of the amount of P1,158,648.49 plus 12% interest per annum from
March 16, 1984 until fully paid. The moral damages, attorneys fees
The above provision of law was clarified in Reyes v. Lim, where we ruled that and costs of suit adjudged shall likewise be paid by defendant-
[t]here is unjust enrichment when a person unjustly retains a benefit to the loss of appellant Allied Banking Corporation and defendant-appellee
another, or when a person retains money or property of another against the fundamental Metropolitan Bank and Trust Company in the same proportion of 60-
principles of justice, equity and good conscience.[58] 40. Except as thus modified, the decision appealed from is
AFFIRMED.
In Tamio v. Ticson, we further clarified the principle of unjust enrichment, thus:
Under Article 22 of the Civil Code, there is unjust enrichment when (1) a person is SO ORDERED.
unjustly benefited, and (2) such benefit is derived at the expense of or with damages to
another.[59]
Additionally and by way of MODIFICATION, Producers Bank is hereby ordered
In the instant case, Lim Sio Wans money market placement in Allied Bank was to pay Allied and Metrobank the aforementioned amounts. The liabilities of the parties
pre-terminated and withdrawn without her consent. Moreover, the proceeds of the are concurrent and independent of each other.
placement were deposited in Producers Banks account in Metrobank without any
justification. In other words, there is no reason that the proceeds of Lim Sio Wans SO ORDERED.
placement should be deposited in FCCs account purportedly as payment for FCCs
 7

FIRST DIVISION WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff
G.R. No. 136202 January 25, 2007 [private respondent Salazar] and against the defendant [petitioner BPI] and ordering the
BANK OF THE PHILIPPINE ISLANDS, Petitioner, latter to pay as follows:
vs. 1. The amount of P267,707.70 with 12% interest thereon from September 16,
COURT OF APPEALS, ANNABELLE A. SALAZAR, and JULIO R. 1991 until the said amount is fully paid;
TEMPLONUEVO, Respondents 2. The amount of P30,000.00 as and for actual damages;
DECISION 3. The amount of P50,000.00 as and for moral damages;
AZCUNA, J.: 4. The amount of P50,000.00 as and for exemplary damages;
This is a petition for review under Rule 45 of the Rules of Court seeking the reversal of 5. The amount of P30,000.00 as and for attorney’s fees; and
the Decision1 dated April 3, 1998, and the Resolution2 dated November 9, 1998, of the 6. Costs of suit.
Court of Appeals in CA-G.R. CV No. 42241. The counterclaim is hereby ordered DISMISSED for lack of factual basis.
The facts3 are as follows: The third-party complaint [filed by petitioner] is hereby likewise ordered DISMISSED for
A.A. Salazar Construction and Engineering Services filed an action for a sum of money lack of merit.
with damages against herein petitioner Bank of the Philippine Islands (BPI) on December Third-party defendant’s [i.e., private respondent Templonuevo’s] counterclaim is hereby
5, 1991 before Branch 156 of the Regional Trial Court (RTC) of Pasig City. The likewise DISMISSED for lack of factual basis.
complaint was later amended by substituting the name of Annabelle A. Salazar as the SO ORDERED.4
real party in interest in place of A.A. Salazar Construction and Engineering Services. On appeal, the Court of Appeals (CA) affirmed the decision of the RTC and held that
Private respondent Salazar prayed for the recovery of the amount of Two Hundred Sixty- respondent Salazar was entitled to the proceeds of the three (3) checks notwithstanding
Seven Thousand, Seven Hundred Seven Pesos and Seventy Centavos (P267,707.70) the lack of endorsement thereon by the payee. The CA concluded that Salazar and
debited by petitioner BPI from her account. She likewise prayed for damages and Templonuevo had previously agreed that the checks payable to JRT Construction and
attorney’s fees. Trading5 actually belonged to Salazar and would be deposited to her account, with
Petitioner BPI, in its answer, alleged that on August 31, 1991, Julio R. Templonuevo, petitioner acquiescing to the arrangement.6
third-party defendant and herein also a private respondent, demanded from the former Petitioner therefore filed this petition on these grounds:
payment of the amount of Two Hundred Sixty-Seven Thousand, Six Hundred Ninety-Two I.
Pesos and Fifty Centavos (P267,692.50) representing the aggregate value of three (3) The Court of Appeals committed reversible error in misinterpreting Section 49 of the
checks, which were allegedly payable to him, but which were deposited with the Negotiable Instruments Law and Section 3 (r and s) of Rule 131 of the New Rules on
petitioner bank to private respondent Salazar’s account (Account No. 0203-1187-67) Evidence.
without his knowledge and corresponding endorsement. II.
Accepting that Templonuevo’s claim was a valid one, petitioner BPI froze Account No. The Court of Appeals committed reversible error in NOT applying the provisions of
0201-0588-48 of A.A. Salazar and Construction and Engineering Services, instead of Articles 22, 1278 and 1290 of the Civil Code in favor of BPI.
Account No. 0203-1187-67 where the checks were deposited, since this account was III.
already closed by private respondent Salazar or had an insufficient balance. The Court of Appeals committed a reversible error in holding, based on a
Private respondent Salazar was advised to settle the matter with Templonuevo but they misapprehension of facts, that the account from which BPI debited the amount
did not arrive at any settlement. As it appeared that private respondent Salazar was not of P267,707.70 belonged to a corporation with a separate and distinct personality.
entitled to the funds represented by the checks which were deposited and accepted for IV.
deposit, petitioner BPI decided to debit the amount of P267,707.70 from her Account No. The Court of Appeals committed a reversible error in holding, based entirely on
0201-0588-48 and the sum of P267,692.50 was paid to Templonuevo by means of a speculations, surmises or conjectures, that there was an agreement between SALAZAR
cashier’s check. The difference between the value of the checks (P267,692.50) and the and TEMPLONUEVO that checks payable to TEMPLONUEVO may be deposited by
amount actually debited from her account (P267,707.70) represented bank charges in SALAZAR to her personal account and that BPI was privy to this agreement.
connection with the issuance of a cashier’s check to Templonuevo. V.
In the answer to the third-party complaint, private respondent Templonuevo admitted the The Court of Appeals committed reversible error in holding, based entirely on
payment to him of P267,692.50 and argued that said payment was to correct the speculation, surmises or conjectures, that SALAZAR suffered great damage and
malicious deposit made by private respondent Salazar to her private account, and that prejudice and that her business standing was eroded.
petitioner bank’s negligence and tolerance regarding the matter was violative of the VI.
primary and ordinary rules of banking. He likewise contended that the debiting or taking The Court of Appeals erred in affirming instead of reversing the decision of the lower
of the reimbursed amount from the account of private respondent Salazar by petitioner court against BPI and dismissing SALAZAR’s complaint.
BPI was a matter exclusively between said parties and may be pursuant to banking rules VII.
and regulations, but did not in any way affect him. The debiting from another account of The Honorable Court erred in affirming the decision of the lower court dismissing the
private respondent Salazar, considering that her other account was effectively closed, third-party complaint of BPI.7
was not his concern. The issues center on the propriety of the deductions made by petitioner from private
After trial, the RTC rendered a decision, the dispositive portion of which reads thus: respondent Salazar’s account. Stated otherwise, does a collecting bank, over the
objections of its depositor, have the authority to withdraw unilaterally from such
 8

depositor’s account the amount it had previously paid upon certain unendorsed order (e) That Templonuevo only protested the purportedly unauthorized encashment
instruments deposited by the depositor to another account that she later closed? of the checks after the lapse of one year from the date of the last check.10
Petitioner argues thus: Petitioner concedes that when it credited the value of the checks to the account of private
1. There is no presumption in law that a check payable to order, when found in respondent Salazar, it made a mistake because it failed to notice the lack of
the possession of a person who is neither a payee nor the indorsee thereof, has endorsement thereon by the designated payee. The CA, however, did not lend credence
been lawfully transferred for value. Hence, the CA should not have presumed to this claim and concluded that petitioner’s actions were deliberate, in view of its
that Salazar was a transferee for value within the contemplation of Section 49 of admission that the "mistake" was committed three times on three separate occasions,
the Negotiable Instruments Law,8 as the latter applies only to a holder defined indicating acquiescence to the internal arrangement between Salazar and Templonuevo.
under Section 191of the same.9 The CA explained thus:
2. Salazar failed to adduce sufficient evidence to prove that her possession of It was quite apparent that the three checks which appellee Salazar deposited were not
the three checks was lawful despite her allegations that these checks were indorsed. Three times she deposited them to her account and three times the amounts
deposited pursuant to a prior internal arrangement with Templonuevo and that borne by these checks were credited to the same. And in those separate occasions, the
petitioner was privy to the arrangement. bank did not return the checks to her so that she could have them indorsed. Neither did
3. The CA should have applied the Civil Code provisions on legal compensation the bank question her as to why she was depositing the checks to her account
because in deducting the subject amount from Salazar’s account, petitioner was considering that she was not the payee thereof, thus allowing us to come to the
merely rectifying the undue payment it made upon the checks and exercising its conclusion that defendant-appellant BPI was fully aware that the proceeds of the three
prerogative to alter or modify an erroneous credit entry in the regular course of checks belong to appellee.
its business. For if the bank was not privy to the agreement between Salazar and Templonuevo, it is
4. The debit of the amount from the account of A.A. Salazar Construction and most unlikely that appellant BPI (or any bank for that matter) would have accepted the
Engineering Services was proper even though the value of the checks had been checks for deposit on three separate times nary any question. Banks are most finicky
originally credited to the personal account of Salazar because A.A. Salazar over accepting checks for deposit without the corresponding indorsement by their payee.
Construction and Engineering Services, an unincorporated single proprietorship, In fact, they hesitate to accept indorsed checks for deposit if the depositor is not one they
had no separate and distinct personality from Salazar. know very well.11
5. Assuming the deduction from Salazar’s account was improper, the CA should The CA likewise sustained Salazar’s position that she received the checks from
not have dismissed petitioner’s third-party complaint against Templonuevo Templonuevo pursuant to an internal arrangement between them, ratiocinating as
because the latter would have the legal duty to return to petitioner the proceeds follows:
of the checks which he previously received from it. If there was indeed no arrangement between Templonuevo and the plaintiff over the
6. There was no factual basis for the award of damages to Salazar. three questioned checks, it baffles us why it was only on August 31, 1991 or more than a
The petition is partly meritorious. year after the third and last check was deposited that he demanded for the refund of the
First, the issue raised by petitioner requires an inquiry into the factual findings made by total amount of P267,692.50.
the CA. The CA’s conclusion that the deductions from the bank account of A.A. Salazar A prudent man knowing that payment is due him would have demanded payment by his
Construction and Engineering Services were improper stemmed from its finding that debtor from the moment the same became due and demandable. More so if the sum
there was no ineffective payment to Salazar which would call for the exercise of involved runs in hundreds of thousand of pesos. By and large, every person, at the very
petitioner’s right to set off against the former’s bank deposits. This finding, in turn, was moment he learns that he was deprived of a thing which rightfully belongs to him, would
drawn from the pleadings of the parties, the evidence adduced during trial and upon the have created a big fuss. He would not have waited for a year within which to do so. It is
admissions and stipulations of fact made during the pre-trial, most significantly the most inconceivable that Templonuevo did not do this.12
following: Generally, only questions of law may be raised in an appeal by certiorari under Rule 45
(a) That Salazar previously had in her possession the following checks: of the Rules of Court.13Factual findings of the CA are entitled to great weight and
(1) Solid Bank Check No. CB766556 dated January 30, 1990 in the respect, especially when the CA affirms the factual findings of the trial court. 14 Such
amount of P57,712.50; questions on whether certain items of evidence should be accorded probative value or
(2) Solid Bank Check No. CB898978 dated July 31, 1990 in the weight, or rejected as feeble or spurious, or whether or not the proofs on one side or the
amount of P55,180.00; and, other are clear and convincing and adequate to establish a proposition in issue, are
(3) Equitable Banking Corporation Check No. 32380638 dated August questions of fact. The same holds true for questions on whether or not the body of proofs
28, 1990 for the amount of P154,800.00; presented by a party, weighed and analyzed in relation to contrary evidence submitted by
(b) That these checks which had an aggregate amount of P267,692.50 were the adverse party may be said to be strong, clear and convincing, or whether or not
payable to the order of JRT Construction and Trading, the name and style under inconsistencies in the body of proofs of a party are of such gravity as to justify refusing to
which Templonuevo does business; give said proofs weight – all these are issues of fact which are not reviewable by the
(c) That despite the lack of endorsement of the designated payee upon such Court.15
checks, Salazar was able to deposit the checks in her personal savings account This rule, however, is not absolute and admits of certain exceptions, namely: a) when the
with petitioner and encash the same; conclusion is a finding grounded entirely on speculations, surmises, or conjectures; b)
(d) That petitioner accepted and paid the checks on three (3) separate when the inference made is manifestly mistaken, absurd, or impossible; c) when there is
occasions over a span of eight months in 1990; and a grave abuse of discretion; d) when the judgment is based on a misapprehension of
facts; e) when the findings of fact are conflicting; f) when the CA, in making its findings,
 9

went beyond the issues of the case and the same are contrary to the admissions of both The presumption under Section 131(s) of the Rules of Court stating that a negotiable
appellant and appellee; g) when the findings of the CA are contrary to those of the trial instrument was given for a sufficient consideration will not inure to the benefit of Salazar
court; h) when the findings of fact are conclusions without citation of specific evidence on because the term "given" does not pertain merely to a transfer of physical possession of
which they are based; i) when the finding of fact of the CA is premised on the supposed the instrument. The phrase "given or indorsed" in the context of a negotiable instrument
absence of evidence but is contradicted by the evidence on record; and j) when the CA refers to the manner in which such instrument may be negotiated. Negotiable
manifestly overlooked certain relevant facts not disputed by the parties and which, if instruments are negotiated by "transfer to one person or another in such a manner as to
properly considered, would justify a different conclusion. 16 constitute the transferee the holder thereof. If payable to bearer it is negotiated by
In the present case, the records do not support the finding made by the CA and the trial delivery. If payable to order it is negotiated by the indorsement completed by
court that a prior arrangement existed between Salazar and Templonuevo regarding the delivery."22The present case involves checks payable to order. Not being
transfer of ownership of the checks. This fact is crucial as Salazar’s entitlement to the a payee or indorsee of the checks, private respondent Salazar could not be
value of the instruments is based on the assumption that she is a transferee within the a holder thereof.
contemplation of Section 49 of the Negotiable Instruments Law. It is an exception to the general rule for a payee of an order instrument to transfer the
Section 49 of the Negotiable Instruments Law contemplates a situation whereby the instrument without indorsement. Precisely because the situation is abnormal, it is but fair
payee or indorsee delivers a negotiable instrument for value without indorsing it, thus: to the maker and to prior holders to require possessors to prove without the aid of an
Transfer without indorsement; effect of- Where the holder of an instrument payable to his initial presumption in their favor, that they came into possession by virtue of a legitimate
order transfers it for value without indorsing it, the transfer vests in the transferee such transaction with the last holder.23 Salazar failed to discharge this burden, and the return
title as the transferor had therein, and the transferee acquires in addition, the right to of the check proceeds to Templonuevo was therefore warranted under the circumstances
have the indorsement of the transferor. But for the purpose of determining whether the despite the fact that Templonuevo may not have clearly demonstrated that he never
transferee is a holder in due course, the negotiation takes effect as of the time when the authorized Salazar to deposit the checks or to encash the same. Noteworthy also is the
indorsement is actually made. 17 fact that petitioner stamped on the back of the checks the words: "All prior endorsements
It bears stressing that the above transaction is an equitable assignment and the and/or lack of endorsements guaranteed," thereby making the assurance that it had
transferee acquires the instrument subject to defenses and equities available among ascertained the genuineness of all prior endorsements. Having assumed the liability of a
prior parties. Thus, if the transferor had legal title, the transferee acquires such title and, general indorser, petitioner’s liability to the designated payee cannot be denied.
in addition, the right to have the indorsement of the transferor and also the right, as Consequently, petitioner, as the collecting bank, had the right to debit Salazar’s account
holder of the legal title, to maintain legal action against the maker or acceptor or other for the value of the checks it previously credited in her favor. It is of no moment that the
party liable to the transferor. The underlying premise of this provision, however, is that a account debited by petitioner was different from the original account to which the
valid transfer of ownership of the negotiable instrument in question has taken place. proceeds of the check were credited because both admittedly belonged to Salazar, the
Transferees in this situation do not enjoy the presumption of ownership in favor of former being the account of the sole proprietorship which had no separate and distinct
holders since they are neither payees nor indorsees of such instruments. The weight of personality from her, and the latter being her personal account.
authority is that the mere possession of a negotiable instrument does not in itself The right of set-off was explained in Associated Bank v. Tan:24
conclusively establish either the right of the possessor to receive payment, or of the right A bank generally has a right of set-off over the deposits therein for the payment of any
of one who has made payment to be discharged from liability. Thus, something more withdrawals on the part of a depositor. The right of a collecting bank to debit a client's
than mere possession by persons who are not payees or indorsers of the instrument is account for the value of a dishonored check that has previously been credited has fairly
necessary to authorize payment to them in the absence of any other facts from which the been established by jurisprudence. To begin with, Article 1980 of the Civil Code provides
authority to receive payment may be inferred.18 that "[f]ixed, savings, and current deposits of money in banks and similar institutions shall
The CA and the trial court surmised that the subject checks belonged to private be governed by the provisions concerning simple loan."
respondent Salazar based on the pre-trial stipulation that Templonuevo incurred a one- Hence, the relationship between banks and depositors has been held to be that of
year delay in demanding reimbursement for the proceeds of the same. To the Court’s creditor and debtor. Thus, legal compensation under Article 1278 of the Civil Code may
mind, however, such period of delay is not of such unreasonable length as to estop take place "when all the requisites mentioned in Article 1279 are present," as follows:
Templonuevo from asserting ownership over the checks especially considering that it (1) That each one of the obligors be bound principally, and that he be at the
was readily apparent on the face of the instruments 19 that these were crossed checks. same time a principal creditor of the other;
In State Investment House v. IAC,20 the Court enumerated the effects of crossing a (2) That both debts consist in a sum of money, or if the things due are
check, thus: (1) that the check may not be encashed but only deposited in the bank; (2) consumable, they be of the same kind, and also of the same quality if the latter
that the check may be negotiated only once - to one who has an account with a bank; has been stated;
and (3) that the act of crossing the check serves as a warning to the holder that the (3) That the two debts be due;
check has been issued for a definite purpose so that such holder must inquire if the (4) That they be liquidated and demandable;
check has been received pursuant to that purpose. (5) That over neither of them there be any retention or controversy, commenced
Thus, even if the delay in the demand for reimbursement is taken in conjunction with by third persons and communicated in due time to the debtor.
Salazar’s possession of the checks, it cannot be said that the presumption of ownership While, however, it is conceded that petitioner had the right of set-off over the amount it
in Templonuevo’s favor as the designated payee therein was sufficiently overcome. This paid to Templonuevo against the deposit of Salazar, the issue of whether it acted
is consistent with the principle that if instruments payable to named payees or to their judiciously is an entirely different matter.25 As businesses affected with public interest,
order have not been indorsed in blank, only such payees or their indorsees can be and because of the nature of their functions, banks are under obligation to treat the
holders and entitled to receive payment in their own right.21 accounts of their depositors with meticulous care, always having in mind the fiduciary
 10

nature of their relationship.26In this regard, petitioner was clearly remiss in its duty to damages are not meant to enrich a complainant at the expense of defendant. It is only
private respondent Salazar as its depositor. intended to alleviate the moral suffering she has undergone. The award of exemplary
To begin with, the irregularity appeared plainly on the face of the checks. Despite the damages is justified, on the other hand, when the acts of the bank are attended by
obvious lack of indorsement thereon, petitioner permitted the encashment of these malice, bad faith or gross negligence. The award of reasonable attorney’s fees is proper
checks three times on three separate occasions. This negates petitioner’s claim that it where exemplary damages are awarded. It is proper where depositors are compelled to
merely made a mistake in crediting the value of the checks to Salazar’s account and litigate to protect their interest.32
instead bolsters the conclusion of the CA that petitioner recognized Salazar’s claim of WHEREFORE, the petition is partially GRANTED. The assailed Decision dated April 3,
ownership of checks and acted deliberately in paying the same, contrary to ordinary 1998 and Resolution dated April 3, 1998 rendered by the Court of Appeals in CA-G.R.
banking policy and practice. It must be emphasized that the law imposes a duty of CV No. 42241 are MODIFIED insofar as it ordered petitioner Bank of the Philippine
diligence on the collecting bank to scrutinize checks deposited with it, for the purpose of Islands to return the amount of Two Hundred Sixty-seven Thousand Seven Hundred and
determining their genuineness and regularity. The collecting bank, being primarily Seven and 70/100 Pesos (P267,707.70) to respondent Annabelle A. Salazar, which
engaged in banking, holds itself out to the public as the expert on this field, and the law portion is REVERSED and SET ASIDE. In all other respects, the same are AFFIRMED.
thus holds it to a high standard of conduct.27 The taking and collection of a check without No costs.
the proper indorsement amount to a conversion of the check by the bank. 28 SO ORDERED.
More importantly, however, solely upon the prompting of Templonuevo, and with full SECOND DIVISION
knowledge of the brewing dispute between Salazar and Templonuevo, petitioner debited
the account held in the name of the sole proprietorship of Salazar without even serving G.R. No. 97753 August 10, 1992
due notice upon her. This ran contrary to petitioner’s assurances to private respondent CALTEX (PHILIPPINES), INC., petitioner,
Salazar that the account would remain untouched, pending the resolution of the vs.
controversy between her and Templonuevo.29 In this connection, the CA cited the letter COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.
dated September 5, 1991 of Mr. Manuel Ablan, Senior Manager of petitioner bank’s Bito, Lozada, Ortega & Castillo for petitioners.
Pasig/Ortigas branch, to private respondent Salazar informing her that her account had Nepomuceno, Hofileña & Guingona for private.
been frozen, thus:
From the tenor of the letter of Manuel Ablan, it is safe to conclude that Account No. 0201- REGALADO, J.:
0588-48 will remain frozen or untouched until herein [Salazar] has settled matters with This petition for review on certiorari impugns and seeks the reversal of the decision
Templonuevo. But, in an unexpected move, in less than two weeks (eleven days to be promulgated by respondent court on March 8, 1991 in CA-G.R. CV No. 23615 1 affirming
precise) from the time that letter was written, [petitioner] bank issued a cashier’s check in with modifications, the earlier decision of the Regional Trial Court of Manila, Branch
the name of Julio R. Templonuevo of the J.R.T. Construction and Trading for the sum XLII, 2 which dismissed the complaint filed therein by herein petitioner against
of P267,692.50 (Exhibit "8") and debited said amount from Ms. Arcilla’s account No. respondent bank.
0201-0588-48 which was supposed to be frozen or controlled. Such a move by BPI is, to The undisputed background of this case, as found by the court a quo and adopted by
Our minds, a clear case of negligence, if not a fraudulent, wanton and reckless disregard respondent court, appears of record:
of the right of its depositor. 1. On various dates, defendant, a commercial banking institution,
The records further bear out the fact that respondent Salazar had issued several checks through its Sucat Branch issued 280 certificates of time deposit (CTDs)
drawn against the account of A.A. Salazar Construction and Engineering Services prior in favor of one Angel dela Cruz who deposited with herein defendant
to any notice of deduction being served. The CA sustained private respondent Salazar’s the aggregate amount of P1,120,000.00, as follows: (Joint Partial
claim of damages in this regard: Stipulation of Facts and Statement of Issues, Original Records, p. 207;
The act of the bank in freezing and later debiting the amount of P267,692.50 from the Defendant's Exhibits 1 to 280);
account of A.A. Salazar Construction and Engineering Services caused plaintiff-appellee CTD CTD
great damage and prejudice particularly when she had already issued checks drawn Dates Serial Nos. Quantity Amount
against the said account. As can be expected, the said checks bounced. To prove this, 22 Feb. 82 90101 to 90120 20 P80,000
plaintiff-appellee presented as exhibits photocopies of checks dated September 8, 1991, 26 Feb. 82 74602 to 74691 90 360,000
October 28, 1991, and November 14, 1991 (Exhibits "D", "E" and "F" respectively) 30 2 Mar. 82 74701 to 74740 40 160,000
These checks, it must be emphasized, were subsequently dishonored, thereby causing 4 Mar. 82 90127 to 90146 20 80,000
private respondent Salazar undue embarrassment and inflicting damage to her standing 5 Mar. 82 74797 to 94800 4 16,000
in the business community. Under the circumstances, she was clearly not given the 5 Mar. 82 89965 to 89986 22 88,000
opportunity to protect her interest when petitioner unilaterally withdrew the above amount 5 Mar. 82 70147 to 90150 4 16,000
from her account without informing her that it had already done so. 8 Mar. 82 90001 to 90020 20 80,000
For the above reasons, the Court finds no reason to disturb the award of damages 9 Mar. 82 90023 to 90050 28 112,000
granted by the CA against petitioner. This whole incident would have been avoided had 9 Mar. 82 89991 to 90000 10 40,000
petitioner adhered to the standard of diligence expected of one engaged in the banking 9 Mar. 82 90251 to 90272 22 88,000
business. A depositor has the right to recover reasonable moral damages even if the ——— ————
bank’s negligence may not have been attended with malice and bad faith, if the former Total 280 P1,120,000
suffered mental anguish, serious anxiety, embarrassment and humiliation. 31 Moral ===== ========
 11

2. Angel dela Cruz delivered the said certificates of time (CTDs) to On appeal, as earlier stated, respondent court affirmed the lower court's dismissal of the
herein plaintiff in connection with his purchased of fuel products from complaint, hence this petition wherein petitioner faults respondent court in ruling (1) that
the latter (Original Record, p. 208). the subject certificates of deposit are non-negotiable despite being clearly negotiable
3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo instruments; (2) that petitioner did not become a holder in due course of the said
Tiangco, the Sucat Branch Manger, that he lost all the certificates of certificates of deposit; and (3) in disregarding the pertinent provisions of the Code of
time deposit in dispute. Mr. Tiangco advised said depositor to execute Commerce relating to lost instruments payable to bearer. 4
and submit a notarized Affidavit of Loss, as required by defendant The instant petition is bereft of merit.
bank's procedure, if he desired replacement of said lost CTDs (TSN, A sample text of the certificates of time deposit is reproduced below to provide a better
February 9, 1987, pp. 48-50). understanding of the issues involved in this recourse.
4. On March 18, 1982, Angel dela Cruz executed and delivered to SECURITY BANK
defendant bank the required Affidavit of Loss (Defendant's Exhibit AND TRUST COMPANY
281). On the basis of said affidavit of loss, 280 replacement CTDs 6778 Ayala Ave., Makati No. 90101
were issued in favor of said depositor (Defendant's Exhibits 282-561). Metro Manila, Philippines
5. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan SUCAT OFFICEP 4,000.00
from defendant bank in the amount of Eight Hundred Seventy Five CERTIFICATE OF DEPOSIT
Thousand Pesos (P875,000.00). On the same date, said depositor Rate 16%
executed a notarized Deed of Assignment of Time Deposit (Exhibit Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____
562) which stated, among others, that he (de la Cruz) surrenders to This is to Certify that B E A R E R has deposited in
defendant bank "full control of the indicated time deposits from and this Bank the sum of PESOS: FOUR THOUSAND
after date" of the assignment and further authorizes said bank to pre- ONLY, SECURITY BANK SUCAT OFFICE P4,000 &
terminate, set-off and "apply the said time deposits to the payment of 00 CTS Pesos, Philippine Currency, repayable to
whatever amount or amounts may be due" on the loan upon its said depositor 731 days. after date, upon
maturity (TSN, February 9, 1987, pp. 60-62). presentation and surrender of this certificate, with
6. Sometime in November, 1982, Mr. Aranas, Credit Manager of interest at the rate of 16% per cent per annum.
plaintiff Caltex (Phils.) Inc., went to the defendant bank's Sucat branch (Sgd. Illegible) (Sgd. Illegible)
and presented for verification the CTDs declared lost by Angel dela —————————— ———————————
Cruz alleging that the same were delivered to herein plaintiff "as AUTHORIZED SIGNATURES 5
security for purchases made with Caltex Philippines, Inc." by said Respondent court ruled that the CTDs in question are non-negotiable instruments,
depositor (TSN, February 9, 1987, pp. 54-68). nationalizing as follows:
7. On November 26, 1982, defendant received a letter (Defendant's . . . While it may be true that the word "bearer" appears rather boldly in
Exhibit 563) from herein plaintiff formally informing it of its possession the CTDs issued, it is important to note that after the word "BEARER"
of the CTDs in question and of its decision to pre-terminate the same. stamped on the space provided supposedly for the name of the
8. On December 8, 1982, plaintiff was requested by herein defendant depositor, the words "has deposited" a certain amount follows. The
to furnish the former "a copy of the document evidencing the document further provides that the amount deposited shall be
guarantee agreement with Mr. Angel dela Cruz" as well as "the details "repayable to said depositor" on the period indicated. Therefore, the
of Mr. Angel dela Cruz" obligation against which plaintiff proposed to text of the instrument(s) themselves manifest with clarity that they are
apply the time deposits (Defendant's Exhibit 564). payable, not to whoever purports to be the "bearer" but only to the
9. No copy of the requested documents was furnished herein specified person indicated therein, the depositor. In effect, the appellee
defendant. bank acknowledges its depositor Angel dela Cruz as the person who
10. Accordingly, defendant bank rejected the plaintiff's demand and made the deposit and further engages itself to pay said depositor the
claim for payment of the value of the CTDs in a letter dated February amount indicated thereon at the stipulated date. 6
7, 1983 (Defendant's Exhibit 566). We disagree with these findings and conclusions, and hereby hold that the CTDs in
11. In April 1983, the loan of Angel dela Cruz with the defendant bank question are negotiable instruments. Section 1 Act No. 2031, otherwise known as the
matured and fell due and on August 5, 1983, the latter set-off and Negotiable Instruments Law, enumerates the requisites for an instrument to become
applied the time deposits in question to the payment of the matured negotiable, viz:
loan (TSN, February 9, 1987, pp. 130-131). (a) It must be in writing and signed by the maker or drawer;
12. In view of the foregoing, plaintiff filed the instant complaint, praying (b) Must contain an unconditional promise or order to pay a sum
that defendant bank be ordered to pay it the aggregate value of the certain in money;
certificates of time deposit of P1,120,000.00 plus accrued interest and (c) Must be payable on demand, or at a fixed or determinable future
compounded interest therein at 16% per annum, moral and exemplary time;
damages as well as attorney's fees. (d) Must be payable to order or to bearer; and
After trial, the court a quo rendered its decision dismissing the instant (e) Where the instrument is addressed to a drawee, he must be named
complaint. 3 or otherwise indicated therein with reasonable certainty.
 12

The CTDs in question undoubtedly meet the requirements of the law for negotiability. stated in the CTDs. Hence, the situation would require any party dealing with the CTDs
The parties' bone of contention is with regard to requisite (d) set forth above. It is noted to go behind the plain import of what is written thereon to unravel the agreement of the
that Mr. Timoteo P. Tiangco, Security Bank's Branch Manager way back in 1982, testified parties thereto through facts aliunde. This need for resort to extrinsic evidence is what is
in open court that the depositor reffered to in the CTDs is no other than Mr. Angel de la sought to be avoided by the Negotiable Instruments Law and calls for the application of
Cruz. the elementary rule that the interpretation of obscure words or stipulations in a contract
xxx xxx xxx shall not favor the party who caused the obscurity. 12
Atty. Calida: The next query is whether petitioner can rightfully recover on the CTDs. This time, the
q In other words Mr. Witness, you are saying that per answer is in the negative. The records reveal that Angel de la Cruz, whom petitioner
books of the bank, the depositor referred (sic) in chose not to implead in this suit for reasons of its own, delivered the CTDs amounting to
these certificates states that it was Angel dela Cruz? P1,120,000.00 to petitioner without informing respondent bank thereof at any time.
witness: Unfortunately for petitioner, although the CTDs are bearer instruments, a valid
a Yes, your Honor, and we have the record to show negotiation thereof for the true purpose and agreement between it and De la Cruz, as
that Angel dela Cruz was the one who cause (sic) ultimately ascertained, requires both delivery and indorsement. For, although petitioner
the amount. seeks to deflect this fact, the CTDs were in reality delivered to it as a security for De la
Atty. Calida: Cruz' purchases of its fuel products. Any doubt as to whether the CTDs were delivered
q And no other person or entity or company, Mr. as payment for the fuel products or as a security has been dissipated and resolved in
Witness? favor of the latter by petitioner's own authorized and responsible representative himself.
witness: In a letter dated November 26, 1982 addressed to respondent Security Bank, J.Q.
a None, your Honor. 7 Aranas, Jr., Caltex Credit Manager, wrote: ". . . These certificates of deposit were
xxx xxx xxx negotiated to us by Mr. Angel dela Cruz to guarantee his purchases of fuel products"
Atty. Calida: (Emphasis ours.) 13 This admission is conclusive upon petitioner, its protestations
q Mr. Witness, who is the depositor identified in all of notwithstanding. Under the doctrine of estoppel, an admission or representation is
these certificates of time deposit insofar as the bank rendered conclusive upon the person making it, and cannot be denied or disproved as
is concerned? against the person relying thereon. 14 A party may not go back on his own acts and
witness: representations to the prejudice of the other party who relied upon them. 15 In the law of
a Angel dela Cruz is the depositor. 8 evidence, whenever a party has, by his own declaration, act, or omission, intentionally
xxx xxx xxx and deliberately led another to believe a particular thing true, and to act upon such belief,
On this score, the accepted rule is that the negotiability or non-negotiability of an he cannot, in any litigation arising out of such declaration, act, or omission, be permitted
instrument is determined from the writing, that is, from the face of the instrument to falsify it. 16
itself.9 In the construction of a bill or note, the intention of the parties is to control, if it can If it were true that the CTDs were delivered as payment and not as security, petitioner's
be legally ascertained. 10 While the writing may be read in the light of surrounding credit manager could have easily said so, instead of using the words "to guarantee" in
circumstances in order to more perfectly understand the intent and meaning of the the letter aforequoted. Besides, when respondent bank, as defendant in the court below,
parties, yet as they have constituted the writing to be the only outward and visible moved for a bill of particularity therein 17 praying, among others, that petitioner, as
expression of their meaning, no other words are to be added to it or substituted in its plaintiff, be required to aver with sufficient definiteness or particularity (a) the due date or
stead. The duty of the court in such case is to ascertain, not what the parties may have dates of payment of the alleged indebtedness of Angel de la Cruz to plaintiff and (b)
secretly intended as contradistinguished from what their words express, but what is the whether or not it issued a receipt showing that the CTDs were delivered to it by De la
meaning of the words they have used. What the parties meant must be determined by Cruz as payment of the latter's alleged indebtedness to it, plaintiff corporation opposed
what they said. 11 the motion. 18 Had it produced the receipt prayed for, it could have proved, if such truly
Contrary to what respondent court held, the CTDs are negotiable instruments. The was the fact, that the CTDs were delivered as payment and not as security. Having
documents provide that the amounts deposited shall be repayable to the depositor. And opposed the motion, petitioner now labors under the presumption that evidence willfully
who, according to the document, is the depositor? It is the "bearer." The documents do suppressed would be adverse if produced. 19
not say that the depositor is Angel de la Cruz and that the amounts deposited are Under the foregoing circumstances, this disquisition in Intergrated Realty Corporation, et
repayable specifically to him. Rather, the amounts are to be repayable to the bearer of al. vs. Philippine National Bank, et al. 20 is apropos:
the documents or, for that matter, whosoever may be the bearer at the time of . . . Adverting again to the Court's pronouncements in Lopez, supra,
presentment. we quote therefrom:
If it was really the intention of respondent bank to pay the amount to Angel de la Cruz The character of the transaction between the parties
only, it could have with facility so expressed that fact in clear and categorical terms in the is to be determined by their intention, regardless of
documents, instead of having the word "BEARER" stamped on the space provided for what language was used or what the form of the
the name of the depositor in each CTD. On the wordings of the documents, therefore, the transfer was. If it was intended to secure the
amounts deposited are repayable to whoever may be the bearer thereof. Thus, payment of money, it must be construed as a
petitioner's aforesaid witness merely declared that Angel de la Cruz is the depositor pledge; but if there was some other intention, it is not
"insofar as the bank is concerned," but obviously other parties not privy to the transaction a pledge. However, even though a transfer, if
between them would not be in a position to know that the depositor is not the bearer regarded by itself, appears to have been absolute,
 13

its object and character might still be qualified and Art. 1625. An assignment of credit, right or action shall produce no
explained by contemporaneous writing declaring it to effect as against third persons, unless it appears in a public instrument,
have been a deposit of the property as collateral or the instrument is recorded in the Registry of Property in case the
security. It has been said that a transfer of property assignment involves real property.
by the debtor to a creditor, even if sufficient on its Respondent bank duly complied with this statutory requirement. Contrarily, petitioner,
face to make an absolute conveyance, should be whether as purchaser, assignee or lien holder of the CTDs, neither proved the amount of
treated as a pledge if the debt continues in its credit or the extent of its lien nor the execution of any public instrument which could
inexistence and is not discharged by the transfer, affect or bind private respondent. Necessarily, therefore, as between petitioner and
and that accordingly the use of the terms ordinarily respondent bank, the latter has definitely the better right over the CTDs in question.
importing conveyance of absolute ownership will not Finally, petitioner faults respondent court for refusing to delve into the question of
be given that effect in such a transaction if they are whether or not private respondent observed the requirements of the law in the case of
also commonly used in pledges and mortgages and lost negotiable instruments and the issuance of replacement certificates therefor, on the
therefore do not unqualifiedly indicate a transfer of ground that petitioner failed to raised that issue in the lower court. 28
absolute ownership, in the absence of clear and On this matter, we uphold respondent court's finding that the aspect of alleged
unambiguous language or other circumstances negligence of private respondent was not included in the stipulation of the parties and in
excluding an intent to pledge. the statement of issues submitted by them to the trial court. 29 The issues agreed upon
Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the by them for resolution in this case are:
Negotiable Instruments Law, an instrument is negotiated when it is transferred from one 1. Whether or not the CTDs as worded are negotiable instruments.
person to another in such a manner as to constitute the transferee the holder 2. Whether or not defendant could legally apply the amount covered by
thereof, 21 and a holder may be the payee or indorsee of a bill or note, who is in the CTDs against the depositor's loan by virtue of the assignment
possession of it, or the bearer thereof. 22 In the present case, however, there was no (Annex "C").
negotiation in the sense of a transfer of the legal title to the CTDs in favor of petitioner in 3. Whether or not there was legal compensation or set off involving the
which situation, for obvious reasons, mere delivery of the bearer CTDs would have amount covered by the CTDs and the depositor's outstanding account
sufficed. Here, the delivery thereof only as security for the purchases of Angel de la Cruz with defendant, if any.
(and we even disregard the fact that the amount involved was not disclosed) could at the 4. Whether or not plaintiff could compel defendant to preterminate the
most constitute petitioner only as a holder for value by reason of his lien. Accordingly, a CTDs before the maturity date provided therein.
negotiation for such purpose cannot be effected by mere delivery of the instrument since, 5. Whether or not plaintiff is entitled to the proceeds of the CTDs.
necessarily, the terms thereof and the subsequent disposition of such security, in the 6. Whether or not the parties can recover damages, attorney's fees
event of non-payment of the principal obligation, must be contractually provided for. and litigation expenses from each other.
The pertinent law on this point is that where the holder has a lien on the instrument As respondent court correctly observed, with appropriate citation of some doctrinal
arising from contract, he is deemed a holder for value to the extent of his lien. 23 As such authorities, the foregoing enumeration does not include the issue of negligence on the
holder of collateral security, he would be a pledgee but the requirements therefor and the part of respondent bank. An issue raised for the first time on appeal and not raised timely
effects thereof, not being provided for by the Negotiable Instruments Law, shall be in the proceedings in the lower court is barred by estoppel. 30 Questions raised on appeal
governed by the Civil Code provisions on pledge of incorporeal rights, 24 which must be within the issues framed by the parties and, consequently, issues not raised in
inceptively provide: the trial court cannot be raised for the first time on appeal. 31
Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . Pre-trial is primarily intended to make certain that all issues necessary to the disposition
may also be pledged. The instrument proving the right pledged shall be of a case are properly raised. Thus, to obviate the element of surprise, parties are
delivered to the creditor, and if negotiable, must be indorsed. expected to disclose at a pre-trial conference all issues of law and fact which they intend
Art. 2096. A pledge shall not take effect against third persons if a to raise at the trial, except such as may involve privileged or impeaching matters. The
description of the thing pledged and the date of the pledge do not determination of issues at a pre-trial conference bars the consideration of other questions
appear in a public instrument. on appeal. 32
Aside from the fact that the CTDs were only delivered but not indorsed, the factual To accept petitioner's suggestion that respondent bank's supposed negligence may be
findings of respondent court quoted at the start of this opinion show that petitioner failed considered encompassed by the issues on its right to preterminate and receive the
to produce any document evidencing any contract of pledge or guarantee agreement proceeds of the CTDs would be tantamount to saying that petitioner could raise on
between it and Angel de la Cruz. 25 Consequently, the mere delivery of the CTDs did not appeal any issue. We agree with private respondent that the broad ultimate issue of
legally vest in petitioner any right effective against and binding upon respondent bank. petitioner's entitlement to the proceeds of the questioned certificates can be premised on
The requirement under Article 2096 aforementioned is not a mere rule of adjective law a multitude of other legal reasons and causes of action, of which respondent bank's
prescribing the mode whereby proof may be made of the date of a pledge contract, but a supposed negligence is only one. Hence, petitioner's submission, if accepted, would
rule of substantive law prescribing a condition without which the execution of a pledge render a pre-trial delimitation of issues a useless exercise. 33
contract cannot affect third persons adversely. 26 Still, even assuming arguendo that said issue of negligence was raised in the court
On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of below, petitioner still cannot have the odds in its favor. A close scrutiny of the provisions
respondent bank was embodied in a public instrument. 27 With regard to this other mode of the Code of Commerce laying down the rules to be followed in case of lost instruments
of transfer, the Civil Code specifically declares: payable to bearer, which it invokes, will reveal that said provisions, even assuming their
 14

applicability to the CTDs in the case at bar, are merely permissive and not mandatory.
The very first article cited by petitioner speaks for itself.
Art 548. The dispossessed owner, no matter for what cause it may
be, may apply to the judge or court of competent jurisdiction, asking
that the principal, interest or dividends due or about to become due, be
not paid a third person, as well as in order to prevent the ownership of
the instrument that a duplicate be issued him. (Emphasis ours.)
xxx xxx xxx
The use of the word "may" in said provision shows that it is not mandatory but
discretionary on the part of the "dispossessed owner" to apply to the judge or court of
competent jurisdiction for the issuance of a duplicate of the lost instrument. Where the
provision reads "may," this word shows that it is not mandatory but discretional. 34 The
word "may" is usually permissive, not mandatory. 35 It is an auxiliary verb indicating
liberty, opportunity, permission and possibility. 36
Moreover, as correctly analyzed by private respondent, 37 Articles 548 to 558 of the Code
of Commerce, on which petitioner seeks to anchor respondent bank's supposed
negligence, merely established, on the one hand, a right of recourse in favor of a
dispossessed owner or holder of a bearer instrument so that he may obtain a duplicate of
the same, and, on the other, an option in favor of the party liable thereon who, for some
valid ground, may elect to refuse to issue a replacement of the instrument. Significantly,
none of the provisions cited by petitioner categorically restricts or prohibits the issuance a
duplicate or replacement instrument sans compliance with the procedure outlined
therein, and none establishes a mandatory precedent requirement therefor.
WHEREFORE, on the modified premises above set forth, the petition is DENIED and the
appealed decision is hereby AFFIRMED.
SO ORDERED.
Narvasa, C.J., Padilla and Nocon, JJ., concur.