Compiled NIL

FIRST DIVISION
BANK OF THE G.R. No. 136202

PHILIPPINE ISLANDS,
Petitioner, Present:
PUNO, C.J., Chairperson,

- versus - SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA, and
GARCIA, JJ.
COURT OF APPEALS,
ANNABELLE A. SALAZAR, and Promulgated:
JULIO R. TEMPLONUEVO,
Respondents. January 25, 2007
x-----------------------------------------------------------------------------------------x
DECISION
AZCUNA, J.:
This is a petition for review under Rule 45 of the Rules of Court seeking the
reversal of the Decision[1] dated April 3, 1998, and the Resolution[2] dated
November 9, 1998, of the Court of Appeals in CA-G.R. CV No. 42241.
The facts[3] are as follows:

A.A. Salazar Construction and Engineering Services filed an action for a sum
of money with damages against herein petitioner Bank of the Philippine Islands
(BPI) on December 5, 1991 before Branch 156 of the Regional Trial Court (RTC)
of Pasig City. The complaint was later amended by substituting the name of
Annabelle A. Salazar as the real party in interest in place of A.A. Salazar
Construction and Engineering Services. Private respondent Salazar prayed for the
recovery of the amount of Two Hundred Sixty-Seven Thousand, Seven Hundred
Seven Pesos and Seventy Centavos (P267,707.70) debited by petitioner BPI from
her account. She likewise prayed for damages and attorneys fees.
Petitioner BPI, in its answer, alleged that on August 31, 1991, Julio R.
Templonuevo, third-party defendant and herein also a private
respondent, demanded from the former payment of the amount of Two Hundred
Sixty-Seven Thousand, Six Hundred Ninety-Two Pesos and Fifty Centavos
(P267,692.50) representing the aggregate value of three (3) checks, which were
allegedly payable to him, but which were deposited with the petitioner bank to
private respondent Salazars account (Account No. 0203-1187-67) without his
knowledge and corresponding endorsement.
Accepting that Templonuevos claim was a valid one, petitioner BPI froze
Account No. 0201-0588-48 of A.A. Salazar and Construction and Engineering
Services, instead of Account No. 0203-1187-67 where the checks were deposited,
since this account was already closed by private respondent Salazar or had an
insufficient balance.
Private respondent Salazar was advised to settle the matter with

Templonuevo but they did not arrive at any settlement. As it appeared that private
respondent Salazar was not entitled to the funds represented by the checks which
were deposited and accepted for deposit, petitioner BPI decided to debit the amount
of P267,707.70 from her Account No. 0201-0588-48 and the sum of P267,692.50
was paid to Templonuevo by means of a cashiers check. The difference between the
value of the checks (P267,692.50) and the amount actually debited from her
account (P267,707.70) represented bank charges in connection with the issuance of
a cashiers check to Templonuevo.
In the answer to the third-party complaint, private respondent Templonuevo

admitted the payment to him of P267,692.50 and argued that said payment was to
correct the malicious deposit made by private respondent Salazar to her private
account, and that petitioner banks negligence and tolerance regarding the matter
was violative of the primary and ordinary rules of banking. He likewise contended
that the debiting or taking of the reimbursed amount from the account of private
respondent Salazar by petitioner BPI was a matter exclusively between said parties
and may be pursuant to banking rules and regulations, but did not in any way affect
him. The debiting from another account of private respondent Salazar, considering
that her other account was effectively closed, was not his concern.
After trial, the RTC rendered a decision, the dispositive portion of which
reads thus:
WHEREFORE, premises considered, judgment is hereby rendered in favor
of the plaintiff [private respondent Salazar] and against the defendant [petitioner
BPI] and ordering the latter to pay as follows:
1. The amount of P267,707.70 with 12% interest thereon

from September 16, 1991 until the said amount is fully paid;
2. The amount of P30,000.00 as and for actual damages;
3. The amount of P50,000.00 as and for moral damages;
4. The amount of P50,000.00 as and for exemplary damages;
5. The amount of P30,000.00 as and for attorneys fees; and
6. Costs of suit.
The counterclaim is hereby ordered DISMISSED for lack of factual basis.
The third-party complaint [filed by petitioner] is hereby likewise ordered

DISMISSED for lack of merit.
Third-party defendants [i.e., private respondent Templonuevos]

counterclaim is hereby likewise DISMISSED for lack of factual basis.
SO ORDERED.[4]
On appeal, the Court of Appeals (CA) affirmed the decision of the RTC and
held that respondent Salazar was entitled to the proceeds of the three (3) checks
notwithstanding the lack of endorsement thereon by the payee. The CA concluded
that Salazar and Templonuevo had previously agreed that the checks payable to
JRT Construction and Trading[5] actually belonged to Salazar and would be
deposited to her account, with petitioner acquiescing to the arrangement.[6]
Petitioner therefore filed this petition on these grounds:
I.
The Court of Appeals committed reversible error in misinterpreting Section 49 of
the Negotiable Instruments Law and Section 3 (r and s) of Rule 131 of the New
Rules on Evidence.
II.
The Court of Appeals committed reversible error in NOT applying the provisions
of Articles 22, 1278 and 1290 of the Civil Code in favor of BPI.
III.
The Court of Appeals committed a reversible error in holding, based on a
misapprehension of facts, that the account from which BPI debited the amount
of P267,707.70 belonged to a corporation with a separate and distinct personality.
IV.
The Court of Appeals committed a reversible error in holding, based entirely on
speculations, surmises or conjectures, that there was an agreement between
SALAZAR and TEMPLONUEVO that checks payable to TEMPLONUEVO
may be deposited by SALAZAR to her personal account and that BPI was privy
to this agreement.
V.
The Court of Appeals committed reversible error in holding, based entirely on
speculation, surmises or conjectures, that SALAZAR suffered great damage and
prejudice and that her business standing was eroded.
VI.
The Court of Appeals erred in affirming instead of reversing the decision of the
lower court against BPI and dismissing SALAZARs complaint.
VII.
The Honorable Court erred in affirming the decision of the lower court
dismissing the third-party complaint of BPI.[7]
The issues center on the propriety of the deductions made by petitioner from
private respondent Salazars account. Stated otherwise, does a collecting bank, over
the objections of its depositor, have the authority to withdraw unilaterally from
such depositors account the amount it had previously paid upon certain unendorsed
order instruments deposited by the depositor to another account that she later
closed?
Petitioner argues thus:
1. There is no presumption in law that a check payable to order, when

found in the possession of a person who is neither a payee nor the
indorsee thereof, has been lawfully transferred for value. Hence, the
CA should not have presumed that Salazar was a transferee for value
within the contemplation of Section 49 of the Negotiable Instruments
Law,[8] as the latter applies only to a holder defined under Section
191of the same.[9]
2. Salazar failed to adduce sufficient evidence to prove that her

possession of the three checks was lawful despite her allegations that
these checks were deposited pursuant to a prior internal arrangement
with Templonuevo and that petitioner was privy to the arrangement.
3. The CA should have applied the Civil Code provisions on legal

compensation because in deducting the subject amount from Salazars
account, petitioner was merely rectifying the undue payment it made
upon the checks and exercising its prerogative to alter or modify an
erroneous credit entry in the regular course of its business.
4. The debit of the amount from the account of A.A. Salazar
Construction and Engineering Services was proper even though the
value of the checks had been originally credited to the personal
account of Salazar because A.A. Salazar Construction and
Engineering Services, an unincorporated single proprietorship, had no
separate and distinct personality from Salazar.
5. Assuming the deduction from Salazars account was improper, the CA

should not have dismissed petitioners third-party complaint against
Templonuevo because the latter would have the legal duty to return to
petitioner the proceeds of the checks which he previously received
from it.
6. There was no factual basis for the award of damages to Salazar.
The petition is partly meritorious.
First, the issue raised by petitioner requires an inquiry into the factual
findings made by the CA. The CAs conclusion that the deductions from the bank
account of A.A. Salazar Construction and Engineering Services were improper
stemmed from its finding that there was no ineffective payment to Salazar which
would call for the exercise of petitioners right to set off against the formers bank
deposits. This finding, in turn, was drawn from the pleadings of the parties, the
evidence adduced during trial and upon the admissions and stipulations of fact
made during the pre-trial, most significantly the following:
(a) That Salazar previously had in her possession the following checks:
(1) Solid Bank Check No. CB766556 dated January 30, 1990 in the amount
of P57,712.50;
(2) Solid Bank Check No. CB898978 dated July 31, 1990 in the amount
of P55,180.00; and,
(3) Equitable Banking Corporation Check No. 32380638 dated August 28,
1990 for the amount of P154,800.00;
(b) That these checks which had an aggregate amount of P267,692.50

were payable to the order of JRT Construction and Trading, the name and style
under which Templonuevo does business;
(c) That despite the lack of endorsement of the designated payee upon
such checks, Salazar was able to deposit the checks in her personal savings account
with petitioner and encash the same;
(d) That petitioner accepted and paid the checks on three (3) separate
occasions over a span of eight months in 1990; and
(e) That Templonuevo only protested the purportedly unauthorized
encashment of the checks after the lapse of one year from the date of the last
check.[10]
Petitioner concedes that when it credited the value of the checks to the
account of private respondent Salazar, it made a mistake because it failed to notice
the lack of endorsement thereon by the designated payee. The CA, however, did
not lend credence to this claim and concluded that petitioners actions were
deliberate, in view of its admission that the mistake was committed three times on
three separate occasions, indicating acquiescence to the internal arrangement
between Salazar and Templonuevo. The CA explained thus:
It was quite apparent that the three checks which appellee Salazar
deposited were not indorsed. Three times she deposited them to her account and
three times the amounts borne by these checks were credited to the same. And in
those separate occasions, the bank did not return the checks to her so that she
could have them indorsed. Neither did the bank question her as to why she was
depositing the checks to her account considering that she was not the payee
thereof, thus allowing us to come to the conclusion that defendant-appellant BPI
was fully aware that the proceeds of the three checks belong to appellee.
For if the bank was not privy to the agreement between Salazar and
Templonuevo, it is most unlikely that appellant BPI (or any bank for that matter)
would have accepted the checks for deposit on three separate times nary any
question. Banks are most finicky over accepting checks for deposit without the
corresponding indorsement by their payee. In fact, they hesitate to accept indorsed
checks for deposit if the depositor is not one they know very well.[11]
The CA likewise sustained Salazars position that she received the checks
from Templonuevo pursuant to an internal arrangement between them, ratiocinating
as follows:
If there was indeed no arrangement between Templonuevo and the plaintiff

over the three questioned checks, it baffles us why it was only on August 31,
1991 or more than a year after the third and last check was deposited that he
demanded for the refund of the total amount of P267,692.50.
A prudent man knowing that payment is due him would have demanded
payment by his debtor from the moment the same became due and demandable.
More so if the sum involved runs in hundreds of thousand of pesos. By and large,
every person, at the very moment he learns that he was deprived of a thing which
rightfully belongs to him, would have created a big fuss. He would not have
waited for a year within which to do so. It is most inconceivable that Templonuevo
did not do this.[12]
Generally, only questions of law may be raised in an appeal

by certiorari under Rule 45 of the Rules of Court.[13]Factual findings of the CA are
entitled to great weight and respect, especially when the CA affirms the factual
findings of the trial court.[14] Such questions on whether certain items of evidence
should be accorded probative value or weight, or rejected as feeble or spurious, or
whether or not the proofs on one side or the other are clear and convincing and
adequate to establish a proposition in issue, are questions of fact. The same holds
true for questions on whether or not the body of proofs presented by a party,
weighed and analyzed in relation to contrary evidence submitted by the adverse
party may be said to be strong, clear and convincing, or whether or not
inconsistencies in the body of proofs of a party are of such gravity as to justify
refusing to give said proofs weight all these are issues of fact which are not
reviewable by the Court.[15]
This rule, however, is not absolute and admits of certain exceptions, namely:
a) when the conclusion is a finding grounded entirely on speculations, surmises, or
conjectures; b) when the inference made is manifestly mistaken, absurd, or
impossible; c) when there is 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, went beyond the issues of the case and the
same are contrary to the admissions of both appellant and appellee; g) when the
findings of the CA are contrary to those of the trial court; h) when the findings of
fact are conclusions without citation of specific evidence on which they are based;
i) when the finding of fact of the CA is premised on the supposed absence of
evidence but is contradicted by the evidence on record; and j) when the CA
manifestly overlooked certain relevant facts not disputed by the parties and which,
if properly considered, would justify a different conclusion.[16]
In the present case, the records do not support the finding made by the CA
and the trial court that a prior arrangement existed between Salazar and
Templonuevo regarding the transfer of ownership of the checks. This fact is crucial
as Salazars entitlement to the value of the instruments is based on the assumption
that she is a transferee within the contemplation of Section 49 of the Negotiable
Instruments Law.
Section 49 of the Negotiable Instruments Law contemplates a situation

whereby the payee or indorsee delivers a negotiable instrument for value without
indorsing it, thus:
Transfer without indorsement; effect of- Where the holder of an instrument

payable to his order transfers it for value without indorsing it, the transfer vests in
the transferee such title as the transferor had therein, and the transferee acquires in
addition, the right to have the indorsement of the transferor. But for the purpose of
determining whether the transferee is a holder in due course, the negotiation takes
effect as of the time when the indorsement is actually made. [17]
It bears stressing that the above transaction is an equitable assignment and

the transferee acquires the instrument subject to defenses and equities available
among prior parties. Thus, if the transferor had legal title, the transferee acquires
such title and, in addition, the right to have the indorsement of the transferor and
also the right, as holder of the legal title, to maintain legal action against the maker
or acceptor or other party liable to the transferor. The underlying premise of this
provision, however, is that a valid transfer of ownership of the negotiable
instrument in question has taken place.
Transferees in this situation do not enjoy the presumption of ownership in

favor of holders since they are neither payees nor indorsees of such instruments.
The weight of authority is that the mere possession of a negotiable instrument does
not in itself conclusively establish either the right of the possessor to receive
payment, or of the right of one who has made payment to be discharged from
liability. Thus, something more than mere possession by persons who are not
payees or indorsers of the instrument is necessary to authorize payment to them in
the absence of any other facts from which the authority to receive payment may be
inferred.[18]
The CA and the trial court surmised that the subject checks belonged to
private respondent Salazar based on the pre-trial stipulation that Templonuevo
incurred a one-year delay in demanding reimbursement for the proceeds of the
same. To the Courts mind, however, such period of delay is not of such
unreasonable length as to estop Templonuevo from asserting ownership over the
checks especially considering that it was readily apparent on the face of the
instruments[19] that these were crossed checks.
In State Investment House v. IAC,[20] the Court enumerated the effects of
crossing a check, thus: (1) that the check may not be encashed but only deposited
in the bank; (2) that the check may be negotiated only once - to one who has an
account with a bank; and (3) that the act of crossing the check serves as a warning
to the holder that the check has been issued for a definite purpose so that such
holder must inquire if the check has been received pursuant to that purpose.
Thus, even if the delay in the demand for reimbursement is taken in

conjunction with Salazars possession of the checks, it cannot be said that the
presumption of ownership in Templonuevos favor as the designated payee therein
was sufficiently overcome. This is consistent with the principle that if instruments
payable to named payees or to their order have not been indorsed in blank, only
such payees or their indorsees can be holders and entitled to receive payment in
their own right.[21]
The presumption under Section 131(s) of the Rules of Court stating that a
negotiable instrument was given for a sufficient consideration will not inure to the
benefit of Salazar because the term given does not pertain merely to a transfer of
physical possession of the instrument. The phrase given or indorsed in the context
of a negotiable instrument refers to the manner in which such instrument may be
negotiated. Negotiable instruments are negotiated by transfer to one person or
another in such a manner as to constitute the transferee the holder thereof. If
payable to bearer it is negotiated by delivery. If payable to order it is negotiated by
the indorsement completed by delivery.[22] The present case involves checks
payable to order. Not being a payee or indorsee of the checks, private respondent
Salazar could not be a holder thereof.
It is an exception to the general rule for a payee of an order instrument to

transfer the instrument without indorsement. Precisely because the situation is
abnormal, it is but fair to the maker and to prior holders to require possessors to
prove without the aid of an initial presumption in their favor, that they came into
possession by virtue of a legitimate transaction with the last holder. [23] Salazar
failed to discharge this burden, and the return of the check proceeds to
Templonuevo was therefore warranted under the circumstances despite the fact that
Templonuevo may not have clearly demonstrated that he never authorized Salazar
to deposit the checks or to encash the same. Noteworthy also is the fact that
petitioner stamped on the back of the checks the words: "All prior endorsements
and/or lack of endorsements guaranteed," thereby making the assurance that it had
ascertained the genuineness of all prior endorsements. Having assumed the liability
of a general indorser, petitioners liability to the designated payee cannot be denied.
Consequently, petitioner, as the collecting bank, had the right to debit
Salazars account for the value of the checks it previously credited in her favor. It is
of no moment that the account debited by petitioner was different from the original
account to which the proceeds of the check were credited because both admittedly
belonged to Salazar, the former being the account of the sole proprietorship which
had no separate and distinct personality from her, and the latter being her personal
account.
The right of set-off was explained in Associated Bank v. Tan:[24]
A bank generally has a right of set-off over the deposits therein for the
payment of any withdrawals on the part of a depositor. The right of a collecting
bank to debit a client's account for the value of a dishonored check that has
previously been credited has fairly been established by jurisprudence. To begin
with, Article 1980 of the Civil Code provides that "[f]ixed, savings, and current
deposits of money in banks and similar institutions shall be governed by the
provisions concerning simple loan.
Hence, the relationship between banks and depositors has been held to be
that of creditor and debtor. Thus, legal compensation under Article 1278 of the
Civil Code may take place "when all the requisites mentioned in Article 1279 are
present," as follows:
(1) That each one of the obligors be bound principally, and that he
be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due
are consumable, they be of the same kind, and also of the
same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due
time to the debtor.
While, however, it is conceded that petitioner had the right of set-off over
the amount it paid to Templonuevo against the deposit of Salazar, the issue of
whether it acted judiciously is an entirely different matter.[25] As businesses affected
with public interest, and because of the nature of their functions, banks are under
obligation to treat the accounts of their depositors with meticulous care, always
having in mind the fiduciary nature of their relationship. [26] In this regard, petitioner
was clearly remiss in its duty to private respondent Salazar as its depositor.
To begin with, the irregularity appeared plainly on the face of the checks.
Despite the obvious lack of indorsement thereon, petitioner permitted the
encashment of these checks three times on three separate occasions. This negates
petitioners claim that it merely made a mistake in crediting the value of the checks
to Salazars account and instead bolsters the conclusion of the CA that petitioner
recognized Salazars claim of ownership of checks and acted deliberately in paying
the same, contrary to ordinary banking policy and practice. It must be emphasized
that the law imposes a duty of diligence on the collecting bank to scrutinize checks
deposited with it, for the purpose of determining their genuineness and regularity.
The collecting bank, being primarily engaged in banking, holds itself out to the
public as the expert on this field, and the law thus holds it to a high standard of
conduct.[27] The taking and collection of a check without the proper indorsement
amount to a conversion of the check by the bank.[28]
More importantly, however, solely upon the prompting of Templonuevo, and

with full 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 due notice upon her. This ran contrary to petitioners
assurances to private respondent Salazar that the account would remain untouched,
pending the resolution of the controversy between her and Templonuevo. [29] In this
connection, the CA cited the letter dated September 5, 1991 of Mr. Manuel Ablan,
Senior Manager of petitioner banks Pasig/Ortigas branch, to private respondent
Salazar informing her that her account had been frozen, thus:
From the tenor of the letter of Manuel Ablan, it is safe to conclude that
Account No. 0201-0588-48 will remain frozen or untouched until herein [Salazar]
has settled matters with Templonuevo. But, in an unexpected move, in less than
two weeks (eleven days to be precise) from the time that letter was written,
[petitioner] bank issued a cashiers check in the name of Julio R. Templonuevo of
the J.R.T. Construction and Trading for the sum of P267,692.50 (Exhibit 8) and
debited said amount from Ms. Arcillas account No. 0201-0588-48 which was
supposed to be frozen or controlled. Such a move by BPI is, to Our minds, a clear
case of negligence, if not a fraudulent, wanton and reckless disregard of the right
of its depositor.
The records further bear out the fact that respondent Salazar had issued
several checks drawn against the account of A.A. Salazar Construction and
Engineering Services prior to any notice of deduction being served. The CA
sustained private respondent Salazars claim of damages in this regard:
The act of the bank in freezing and later debiting the amount
of P267,692.50 from the account of A.A. Salazar Construction and Engineering
Services caused plaintiff-appellee great damage and prejudice particularly when
she had already issued checks drawn against the said account. As can be expected,
the said checks bounced. To prove this, plaintiff-appellee presented as exhibits
photocopies of checks dated September 8, 1991, October 28, 1991, and November
14, 1991 (Exhibits D, E and F respectively)[30]
These checks, it must be emphasized, were subsequently dishonored,

thereby causing private respondent Salazar undue embarrassment and inflicting
damage to her standing in the business community. Under the circumstances, she
was clearly not given the opportunity to protect her interest when petitioner
unilaterally withdrew the above amount from her account without informing her
that it had already done so.
For the above reasons, the Court finds no reason to disturb the award of
damages granted by the CA against petitioner. This whole incident would have
been avoided had petitioner adhered to the standard of diligence expected of one
engaged in the banking business. A depositor has the right to recover reasonable
moral damages even if the banks negligence may not have been attended with
malice and bad faith, if the former suffered mental anguish, serious anxiety,
embarrassment and humiliation.[31] Moral damages are not meant to enrich a
complainant at the expense of defendant. It is only intended to alleviate the moral
suffering she has undergone. The award of exemplary damages is justified, on the
other hand, when the acts of the bank are attended by malice, bad faith or gross
negligence. The award of reasonable attorneys fees is proper where exemplary
damages are awarded. It is proper where depositors are compelled to litigate to
protect their interest.[32]
WHEREFORE, the petition is partially GRANTED. The assailed Decision

dated April 3, 1998 and Resolution dated April 3, 1998 rendered by the Court of
Appeals in CA-G.R. CV No. 42241 are MODIFIED insofar as it ordered
petitioner Bank of the Philippine Islands to return the amount of Two Hundred
Sixty-seven Thousand Seven Hundred and Seven and 70/100 Pesos
(P267,707.70) to respondent Annabelle A. Salazar, which portion
is REVERSED and SET ASIDE. In all other respects, the same are AFFIRMED.
No costs.
SO ORDERED.
ADOLFO S. AZCUNA
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Chairperson
Chief Justice
ANGELINA SANDOVAL-GUTIERREZ RENATO C. CORONA

Associate Justice Associate Justice
CANCIO C. GARCIA
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that
the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice
[1]
CA Rollo, pp. 100-116.
[2]
Rollo, p. 57.
[3]
[4]
Records, pp. 323-324.
[5]
Private respondent Templonuevo admitted that he was doing business under the name and style, JRT
Construction and Trading. See Records, p.179.
[6]
Rollo, p. 106.
[7]
Id. at 12-13.
[8]
Infra note 17.
[9]
Sec. 191. Definition and meaning of terms. - In this Act, unless the contract otherwise requires:
xxx
"Holder" means the payee or indorsee of a bill or note who is in possession of it, or the bearer thereof;
xxx
[10]
[11]
[12]
Id. at 107.
[13]
Madrigal v. CA, G.R. No. 142944, April 15, 2005, 456 SCRA 247; Bernardo v. CA, G.R. No. 101680, December
7, 1992, 216 SCRA 224; Remalante v. Tibe, G.R. No. L-59514, February 25,1988, 158 SCRA 138.
[14]
Borromeo v. Sun, G.R. No. 75908, October 22, 1999, 317 SCRA 176.
[15]
Paterno v. Paterno, G.R. No. 63680, March 23, 1990, 183 SCRA 630.
[16]
Arcaba v. Tabancura, 421 Phil. 1096 (2001); Martinez v. CA, G.R. No. 123547, May 21, 2001, 358 SCRA 38.
[17]
Act No. 2031 (1911).
[18]
11 Am Jur 2d, 988, citing Doubleday v. Kress, 50 NY 410, Hoffmaster v. Black, 84 NE 423, and First Nat. Bank
v. Gorman, 21 P2d 549.
[19]
[20]
G.R. No. 72764, July 13, 1989, 175 SCRA 310.
[21]
Supra note 18.
[22]
Negotiable Instruments Law, Section 30.
[23]
Campos Jr. and Lopez Campos, Notes and Selected Cases on Negotiable Instruments Law, p. 108, (1994).
[24]
G.R. No. 156940, December 14, 2004, 446 SCRA 282.
[25]
Id.
[26]
Prudential Bank v. CA, G.R. No. 125536, March 16, 2000, 328 SCRA 264; Simex International [Manila], Inc. v.
CA, G.R. No.88013, March 19, 1990, 183 SCRA 360; BPI v. IAC, G.R. No. 69162, February 21, 1992, 206
SCRA 408.
[27]
Banco de Oro Savings and Mortgage Bank v. Equitable Banking Corp., G.R. No. L-74917, January 20,1988, 157
SCRA 188.
[28]
Associated Bank v. CA, G.R. No. 89802, May 7, 1992, 208 SCRA 465; City Trust Banking Corp. v. IAC, G.R. No.
84281, May 27, 1994, 232 SCRA 559.
[29]
CA rollo, p. 112; Transcript of Stenographic Notes dated November 9, 1992, pp. 8-9.
[30]
CA rollo, pp. 111.
[31]
Civil Code, Article 2217.
[32]
Prudential Bank v. CA, supra note 26.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 97753 August 10, 1992

CALTEX (PHILIPPINES), INC., petitioner,
vs.
COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.
Bito, Lozada, Ortega & Castillo for petitioners.
Nepomuceno, Hofileña & Guingona for private.
REGALADO, J.:
This petition for review on certiorari impugns and seeks the reversal of the decision promulgated by
respondent court on March 8, 1991 in CA-G.R. CV No. 23615 affirming with modifications, the
1
earlier decision of the Regional Trial Court of Manila, Branch XLII, which dismissed the complaint
2
filed therein by herein petitioner against respondent bank.
The undisputed background of this case, as found by the court a quo and adopted by respondent
court, appears of record:
1. On various dates, defendant, a commercial banking institution, through its Sucat

Branch issued 280 certificates of time deposit (CTDs) in favor of one Angel dela Cruz
who deposited with herein defendant the aggregate amount of P1,120,000.00, as
follows: (Joint Partial Stipulation of Facts and Statement of Issues, Original Records,
p. 207; Defendant's Exhibits 1 to 280);
CTD CTD
Dates Serial Nos. Quantity Amount
22 Feb. 82 90101 to 90120 20 P80,000

26 Feb. 82 74602 to 74691 90 360,000
2 Mar. 82 74701 to 74740 40 160,000
4 Mar. 82 90127 to 90146 20 80,000
5 Mar. 82 74797 to 94800 4 16,000
5 Mar. 82 89965 to 89986 22 88,000
5 Mar. 82 70147 to 90150 4 16,000
8 Mar. 82 90001 to 90020 20 80,000
9 Mar. 82 90023 to 90050 28 112,000
9 Mar. 82 89991 to 90000 10 40,000
9 Mar. 82 90251 to 90272 22 88,000
——— ————
Total 280 P1,120,000
===== ========
2. Angel dela Cruz delivered the said certificates of time (CTDs) to herein plaintiff in
connection with his purchased of fuel products from the latter (Original Record, p.
208).
3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo Tiangco, the
Sucat Branch Manger, that he lost all the certificates of time deposit in dispute. Mr.
Tiangco advised said depositor to execute and submit a notarized Affidavit of Loss,
as required by defendant bank's procedure, if he desired replacement of said lost
CTDs (TSN, February 9, 1987, pp. 48-50).
4. On March 18, 1982, Angel dela Cruz executed and delivered to defendant bank
the required Affidavit of Loss (Defendant's Exhibit 281). On the basis of said affidavit
of loss, 280 replacement CTDs were issued in favor of said depositor (Defendant's
Exhibits 282-561).
5. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan from
defendant bank in the amount of Eight Hundred Seventy Five Thousand Pesos
(P875,000.00). On the same date, said depositor executed a notarized Deed of
Assignment of Time Deposit (Exhibit 562) which stated, among others, that he (de la
Cruz) surrenders to defendant bank "full control of the indicated time deposits from
and after date" of the assignment and further authorizes said bank to pre-terminate,
set-off and "apply the said time deposits to the payment of whatever amount or
amounts may be due" on the loan upon its maturity (TSN, February 9, 1987, pp. 60-
62).
6. Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff Caltex

(Phils.) Inc., went to the defendant bank's Sucat branch and presented for verification
the CTDs declared lost by Angel dela Cruz alleging that the same were delivered to
herein plaintiff "as security for purchases made with Caltex Philippines, Inc." by said
depositor (TSN, February 9, 1987, pp. 54-68).
7. On November 26, 1982, defendant received a letter (Defendant's Exhibit 563) from
herein plaintiff formally informing it of its possession of the CTDs in question and of
its decision to pre-terminate the same.
8. On December 8, 1982, plaintiff was requested by herein defendant to furnish the

former "a copy of the document evidencing the guarantee agreement with Mr. Angel
dela Cruz" as well as "the details of Mr. Angel dela Cruz" obligation against which
plaintiff proposed to apply the time deposits (Defendant's Exhibit 564).
9. No copy of the requested documents was furnished herein defendant.
10. Accordingly, defendant bank rejected the plaintiff's demand and claim for
payment of the value of the CTDs in a letter dated February 7, 1983 (Defendant's
Exhibit 566).
11. In April 1983, the loan of Angel dela Cruz with the defendant bank matured and
fell due and on August 5, 1983, the latter set-off and applied the time deposits in
question to the payment of the matured loan (TSN, February 9, 1987, pp. 130-131).
12. In view of the foregoing, plaintiff filed the instant complaint, praying that
defendant bank be ordered to pay it the aggregate value of the certificates of time
deposit of P1,120,000.00 plus accrued interest and compounded interest therein at
16% per annum, moral and exemplary damages as well as attorney's fees.
After trial, the court a quo rendered its decision dismissing the instant complaint. 3
On appeal, as earlier stated, respondent court affirmed the lower court's dismissal of the complaint,
hence this petition wherein petitioner faults respondent court in ruling (1) that the subject certificates
of deposit are non-negotiable despite being clearly negotiable instruments; (2) that petitioner did not
become a holder in due course of the said certificates of deposit; and (3) in disregarding the
pertinent provisions of the Code of Commerce relating to lost instruments payable to bearer. 4
The instant petition is bereft of merit.
A sample text of the certificates of time deposit is reproduced below to provide a better
understanding of the issues involved in this recourse.
SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%
Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____
This is to Certify that B E A R E R has deposited in this Bank the sum

of PESOS: FOUR THOUSAND ONLY, SECURITY BANK SUCAT
OFFICE P4,000 & 00 CTS Pesos, Philippine Currency, repayable to
said depositor 731 days. after date, upon presentation and surrender
of this certificate, with interest at the rate of 16% per cent per annum.
(Sgd. Illegible) (Sgd. Illegible)
—————————— ———————————
AUTHORIZED SIGNATURES 5
Respondent court ruled that the CTDs in question are non-negotiable instruments, nationalizing as
follows:
. . . While it may be true that the word "bearer" appears rather boldly in the CTDs
issued, it is important to note that after the word "BEARER" stamped on the space
provided supposedly for the name of the depositor, the words "has deposited" a
certain amount follows. The document further provides that the amount deposited
shall be "repayable to said depositor" on the period indicated. Therefore, the text of
the instrument(s) themselves manifest with clarity that they are payable, not to
whoever purports to be the "bearer" but only to the specified person indicated
therein, the depositor. In effect, the appellee bank acknowledges its depositor Angel
dela Cruz as the person who made the deposit and further engages itself to pay said
depositor the amount indicated thereon at the stipulated date. 6
We disagree with these findings and conclusions, and hereby hold that the CTDs in question are
negotiable instruments. Section 1 Act No. 2031, otherwise known as the Negotiable Instruments
Law, enumerates the requisites for an instrument to become negotiable, viz:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise

indicated therein with reasonable certainty.
The CTDs in question undoubtedly meet the requirements of the law for negotiability. The parties'
bone of contention is with regard to requisite (d) set forth above. It is noted that Mr. Timoteo P.
Tiangco, Security Bank's Branch Manager way back in 1982, testified in open court that the
depositor reffered to in the CTDs is no other than Mr. Angel de la Cruz.
xxx xxx xxx
Atty. Calida:
q In other words Mr. Witness, you are saying that per books of the
bank, the depositor referred (sic) in these certificates states that it
was Angel dela Cruz?
witness:
a Yes, your Honor, and we have the record to show that Angel dela
Cruz was the one who cause (sic) the amount.
Atty. Calida:
q And no other person or entity or company, Mr. Witness?
witness:
a None, your Honor. 7
xxx xxx xxx
Atty. Calida:
q Mr. Witness, who is the depositor identified in all of these

certificates of time deposit insofar as the bank is concerned?
witness:
a Angel dela Cruz is the depositor. 8
xxx xxx xxx

On this score, the accepted rule is that the negotiability or non-negotiability of an instrument is
determined from the writing, that is, from the face of the instrument itself. In the construction of a bill
9
or note, the intention of the parties is to control, if it can be legally ascertained. While the writing
10
may be read in the light of surrounding circumstances in order to more perfectly understand the
intent and meaning of the parties, yet as they have constituted the writing to be the only outward and
visible expression of their meaning, no other words are to be added to it or substituted in its stead.
The duty of the court in such case is to ascertain, not what the parties may have secretly intended as
contradistinguished from what their words express, but what is the meaning of the words they have
used. What the parties meant must be determined by what they said. 11
Contrary to what respondent court held, the CTDs are negotiable instruments. The documents
provide that the amounts deposited shall be repayable to the depositor. And who, according to the
document, is the depositor? It is the "bearer." The documents do not say that the depositor is Angel
de la Cruz and that the amounts deposited are repayable specifically to him. Rather, the amounts
are to be repayable to the bearer of the documents or, for that matter, whosoever may be the bearer
at the time of presentment.
If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it could
have with facility so expressed that fact in clear and categorical terms in the documents, instead of
having the word "BEARER" stamped on the space provided for the name of the depositor in each
CTD. On the wordings of the documents, therefore, the amounts deposited are repayable to
whoever may be the bearer thereof. Thus, petitioner's aforesaid witness merely declared that Angel
de la Cruz is the depositor "insofar as the bank is concerned," but obviously other parties not privy to
the transaction between them would not be in a position to know that the depositor is not the bearer
stated in the CTDs. Hence, the situation would require any party dealing with the CTDs to go behind
the plain import of what is written thereon to unravel the agreement of the parties thereto through
facts aliunde. This need for resort to extrinsic evidence is what is sought to be avoided by the
Negotiable Instruments Law and calls for the application of the elementary rule that the interpretation
of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. 12
The next query is whether petitioner can rightfully recover on the CTDs. This time, the answer is in
the negative. The records reveal that Angel de la Cruz, whom petitioner chose not to implead in this
suit for reasons of its own, delivered the CTDs amounting to P1,120,000.00 to petitioner without
informing respondent bank thereof at any time. Unfortunately for petitioner, although the CTDs are
bearer instruments, a valid negotiation thereof for the true purpose and agreement between it and
De la Cruz, as ultimately ascertained, requires both delivery and indorsement. For, although
petitioner seeks to deflect this fact, the CTDs were in reality delivered to it as a security for De la
Cruz' purchases of its fuel products. Any doubt as to whether the CTDs were delivered as payment
for the fuel products or as a security has been dissipated and resolved in favor of the latter by
petitioner's own authorized and responsible representative himself.
In a letter dated November 26, 1982 addressed to respondent Security Bank, J.Q. Aranas, Jr.,
Caltex Credit Manager, wrote: ". . . These certificates of deposit were negotiated to us by Mr. Angel
dela Cruz to guarantee his purchases of fuel products" (Emphasis ours.) This admission is
13
conclusive upon petitioner, its protestations notwithstanding. Under the doctrine of estoppel, an
admission or representation is rendered conclusive upon the person making it, and cannot be denied
or disproved as against the person relying thereon. A party may not go back on his own acts and
14
representations to the prejudice of the other party who relied upon them. In the law of evidence,
15
whenever a party has, by his own declaration, act, or omission, intentionally and deliberately led
another to believe a particular thing true, and to act upon such belief, he cannot, in any litigation
arising out of such declaration, act, or omission, be permitted to falsify it.16
If it were true that the CTDs were delivered as payment and not as security, petitioner's credit
manager could have easily said so, instead of using the words "to guarantee" in the letter
aforequoted. Besides, when respondent bank, as defendant in the court below, moved for a bill of
particularity therein praying, among others, that petitioner, as plaintiff, be required to aver with
17
sufficient definiteness or particularity (a) the due date or dates of payment of the alleged
indebtedness of Angel de la Cruz to plaintiff and (b) whether or not it issued a receipt showing that
the CTDs were delivered to it by De la Cruz as payment of the latter's alleged indebtedness to it,
plaintiff corporation opposed the motion. Had it produced the receipt prayed for, it could have
18
proved, if such truly was the fact, that the CTDs were delivered as payment and not as security.
Having opposed the motion, petitioner now labors under the presumption that evidence willfully
suppressed would be adverse if produced. 19
Under the foregoing circumstances, this disquisition in Intergrated Realty Corporation, et al. vs.
Philippine National Bank, et al. is apropos:
20
. . . Adverting again to the Court's pronouncements in Lopez, supra, we quote

therefrom:
The character of the transaction between the parties is to be

determined by their intention, regardless of what language was used
or what the form of the transfer was. If it was intended to secure the
payment of money, it must be construed as a pledge; but if there was
some other intention, it is not a pledge. However, even though a
transfer, if regarded by itself, appears to have been absolute, its
object and character might still be qualified and explained by
contemporaneous writing declaring it to have been a deposit of the
property as collateral security. It has been said that a transfer of
property by the debtor to a creditor, even if sufficient on its face to
make an absolute conveyance, should be treated as a pledge if the
debt continues in inexistence and is not discharged by the transfer,
and that accordingly the use of the terms ordinarily importing
conveyance of absolute ownership will not be given that effect in such
a transaction if they are also commonly used in pledges and
mortgages and therefore do not unqualifiedly indicate a transfer of
absolute ownership, in the absence of clear and unambiguous
language or other circumstances excluding an intent to pledge.
Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the Negotiable
Instruments Law, an instrument is negotiated when it is transferred from one person to another in
such a manner as to constitute the transferee the holder thereof, and a holder may be the payee or
21
indorsee of a bill or note, who is in possession of it, or the bearer thereof. In the present case,
22
however, there was no negotiation in the sense of a transfer of the legal title to the CTDs in favor of
petitioner in which situation, for obvious reasons, mere delivery of the bearer CTDs would have
sufficed. Here, the delivery thereof only as security for the purchases of Angel de la Cruz (and we
even disregard the fact that the amount involved was not disclosed) could at the most constitute
petitioner only as a holder for value by reason of his lien. Accordingly, a negotiation for such purpose
cannot be effected by mere delivery of the instrument since, necessarily, the terms thereof and the
subsequent disposition of such security, in the event of non-payment of the principal obligation, must
be contractually provided for.
The pertinent law on this point is that where the holder has a lien on the instrument arising from
contract, he is deemed a holder for value to the extent of his lien. As such holder of collateral
23
security, he would be a pledgee but the requirements therefor and the effects thereof, not being
provided for by the Negotiable Instruments Law, shall be governed by the Civil Code provisions on
pledge of incorporeal rights, which inceptively provide:
24
Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may also be

pledged. The instrument proving the right pledged shall be delivered to the creditor,
and if negotiable, must be indorsed.
Art. 2096. A pledge shall not take effect against third persons if a description of the
thing pledged and the date of the pledge do not appear in a public instrument.
Aside from the fact that the CTDs were only delivered but not indorsed, the factual findings of
respondent court quoted at the start of this opinion show that petitioner failed to produce any
document evidencing any contract of pledge or guarantee agreement between it and Angel de la
Cruz. Consequently, the mere delivery of the CTDs did not legally vest in petitioner any right
25
effective against and binding upon respondent bank. The requirement under Article 2096
aforementioned is not a mere rule of adjective law prescribing the mode whereby proof may be
made of the date of a pledge contract, but a rule of substantive law prescribing a condition without
which the execution of a pledge contract cannot affect third persons adversely. 26
On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of respondent
bank was embodied in a public instrument. With regard to this other mode of transfer, the Civil
27
Code specifically declares:
Art. 1625. An assignment of credit, right or action shall produce no effect as against
third persons, unless it appears in a public instrument, or the instrument is recorded
in the Registry of Property in case the assignment involves real property.
Respondent bank duly complied with this statutory requirement. Contrarily, petitioner, whether as
purchaser, assignee or lien holder of the CTDs, neither proved the amount of its credit or the extent
of its lien nor the execution of any public instrument which could affect or bind private respondent.
Necessarily, therefore, as between petitioner and respondent bank, the latter has definitely the better
right over the CTDs in question.
Finally, petitioner faults respondent court for refusing to delve into the question of whether or not
private respondent observed the requirements of the law in the case of lost negotiable instruments
and the issuance of replacement certificates therefor, on the ground that petitioner failed to raised
that issue in the lower court. 28
On this matter, we uphold respondent court's finding that the aspect of alleged negligence of private
respondent was not included in the stipulation of the parties and in the statement of issues submitted
by them to the trial court. The issues agreed upon by them for resolution in this case are:
29
1. Whether or not the CTDs as worded are negotiable instruments.
2. Whether or not defendant could legally apply the amount covered by the CTDs
against the depositor's loan by virtue of the assignment (Annex "C").
3. Whether or not there was legal compensation or set off involving the amount
covered by the CTDs and the depositor's outstanding account with defendant, if any.
4. Whether or not plaintiff could compel defendant to preterminate the CTDs before
the maturity date provided therein.
5. Whether or not plaintiff is entitled to the proceeds of the CTDs.
6. Whether or not the parties can recover damages, attorney's fees and litigation
expenses from each other.
As respondent court correctly observed, with appropriate citation of some doctrinal authorities, the
foregoing enumeration does not include the issue of negligence on the part of respondent bank. An
issue raised for the first time on appeal and not raised timely in the proceedings in the lower court is
barred by estoppel. Questions raised on appeal must be within the issues framed by the parties
30
and, consequently, issues not raised in the trial court cannot be raised for the first time on appeal.31
Pre-trial is primarily intended to make certain that all issues necessary to the disposition of a case
are properly raised. Thus, to obviate the element of surprise, parties are expected to disclose at a
pre-trial conference all issues of law and fact which they intend to raise at the trial, except such as
may involve privileged or impeaching matters. The determination of issues at a pre-trial conference
bars the consideration of other questions on appeal. 32
To accept petitioner's suggestion that respondent bank's supposed negligence may be considered
encompassed by the issues on its right to preterminate and receive the proceeds of the CTDs would
be tantamount to saying that petitioner could raise on appeal any issue. We agree with private
respondent that the broad ultimate issue of petitioner's entitlement to the proceeds of the questioned
certificates can be premised on a multitude of other legal reasons and causes of action, of which
respondent bank's supposed negligence is only one. Hence, petitioner's submission, if accepted,
would render a pre-trial delimitation of issues a useless exercise. 33
Still, even assuming arguendo that said issue of negligence was raised in the court below, petitioner
still cannot have the odds in its favor. A close scrutiny of the provisions of the Code of Commerce
laying down the rules to be followed in case of lost instruments payable to bearer, which it invokes,
will reveal that said provisions, even assuming their 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. The word "may" is usually permissive, not mandatory. It is an
34 35
auxiliary verb indicating liberty, opportunity, permission and possibility.36
Moreover, as correctly analyzed by private respondent, Articles 548 to 558 of the Code of
37
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.
Footnotes
1 Per Justice Segundino G. Chua, with the concurrence of Justices Santiago M.

Kapunan and Luis L. Victor.
2 Judge Ramon Mabutas, Jr., presiding; Rollo, 64-88.
3 Rollo, 24-26.
4 Ibid., 12.
5 Exhibit A, Documentary Evidence for the Plaintiff, 8.
6 Rollo, 28.
7 TSN, February 9, 1987, 46-47.
8 Ibid., id., 152-153.
9 11 Am. Jur. 2d, Bills and Notes, 79.
10 Ibid., 86.
11 Ibid., 87-88.
12 Art. 1377, Civil Code.
13 Exhibit 563, Documentary Evidence for the Defendant, 442; Original Record, 211.
14 Panay Electric Co., Inc. vs. Court of Appeals, et al., 174 SCRA 500 (1989).
15 Philippine National Bank vs. Intermediate Appellate Court, et al., 189 SCRA 680
(1990).
16 Section 2(a), Rule 131, Rules of Court.

17 Original Record, 152.
18 Ibid., 154.
19 Section 3(e), Rule 131, Rules of Court.
20 174 SCRA 295 (1989), jointly decided with Overseas Bank of Manila vs. Court of
Appeals, et al., G.R. No. 60907.
21 Sec. 30, Act No. 2031.
22 Sec. 191, id.
23 Sec. 27, id.; see also Art. 2118, Civil Code.
24 Commentaries and Jurisprudence on the Philippine Commercial Laws,

T.C. Martin, 1985 Rev. Ed., Vol. I, 134; Art. 18, Civil Code; Sec. 196, Act No. 2031.
25 Rollo, 25.
26 Tec Bi & Co. vs. Chartered Bank of India, Australia and China, 41 Phil. 596
(1916); Ocejo, Perez & Co. vs. The International Banking Corporation, 37 Phil. 631
(1918); Te Pate vs. Ingersoll, 43 Phil. 394 (1922).
27 Rollo, 25.
28 Ibid., 15.
29 Joint Partial Stipulation of Facts and Statement of Issues, dated November 27,
1984; Original Record, 209.
30 Mejorada vs. Municipal Council of Dipolog, 52 SCRA 451 (1973).
31 Sec. 18, Rule 46, Rules of Court; Garcia, et al. vs. Court of Appeals, et al., 102
SCRA 597 (1981); Matienzo vs. Servidad, 107 SCRA 276 (1981); Aguinaldo
Industries Corporation, etc. vs. Commissioner of Internal Revenue, et al., 112 SCRA
136 (1982); Dulos Realty & Development Corporation vs. Court of Appeals, et al.,
157 SCRA 425 (1988).
32 Bergado vs. Court of Appeals, et al., 173 SCRA 497 (1989).
33 Rollo, 58.
34 U.S. vs. Sanchez, 13 Phil. 336 (1909); Capati vs. Ocampo, 113 SCRA 794 (1982).
35 Luna vs. Abaya, 86 Phil. 472 (1950).
36 Philippine Law Dictionary, F.B. Moreno, Third Edition, 590.
37 Rollo, 59.
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 107898 December 19, 1995
MANUEL LIM and ROSITA LIM, petitioners,

vs.
COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.
BELLOSILLO, J.:
MANUEL LIM and ROSITA LIM, spouses, were charged before the Regional Trial Court of Malabon
with estafa on three (3) counts under Art. 315, par. 2 (d), of The Revised Penal Code, docketed as
Crim. Cases Nos. 1696-MN to 1698-MN. The Informations substantially alleged that Manuel and
Rosita, conspiring together, purchased goods from Linton Commercial Company, Inc. (LINTON), and
with deceit issued seven Consolidated Bank and Trust Company (SOLIDBANK) checks
simultaneously with the delivery as payment therefor. When presented to the drawee bank for
payment the checks were dishonored as payment on the checks had been stopped and/or for
insufficiency of funds to cover the amounts. Despite repeated notice and demand the Lim spouses
failed and refused to pay the checks or the value of the goods.
On the basis of the same checks, Manuel and Rosita Lim were also charged with seven (7) counts
of violation of B.P. Blg. 22, otherwise known as the Bouncing Checks Law, docketed as Crim. Cases
Nos. 1699-MN to 1705-MN. In substance, the Informations alleged that the Lims issued the checks
with knowledge that they did not have sufficient funds or credit with the drawee bank for payment in
full of such checks upon presentment. When presented for payment within ninety (90) days from
date thereof the checks were dishonored by the drawee bank for insufficiency of funds. Despite
receipt of notices of such dishonor the Lims failed to pay the amounts of the checks or to make
arrangements for full payment within five (5) banking days.
Manuel Lim and Rosita Lim are the president and treasurer, respectively, of Rigi Bilt Industries, Inc.
(RIGI). RIGI had been transacting business with LINTON for years, the latter supplying the former
with steel plates, steel bars, flat bars and purlin sticks which it uses in the fabrication, installation and
building of steel structures. As officers of RIGI the Lim spouses were allowed 30, 60 and sometimes
even up to 90 days credit.
On 27 May 1983 the Lims ordered 100 pieces of mild steel plates worth P51,815.00 from LINTON
which were delivered on the same day at their place of business at 666 7th Avenue, 8th Street,
Kalookan City. To pay LINTON for the delivery the Lims issued SOLIDBANK Check No. 027700
postdated 3 September 1983 in the amount of P51,800.00. 1
On 30 May 1983 the Lims ordered another 65 pieces of mild steel plates worth P63,455.00 from
LINTON which were delivered at their place of business on the same day. They issued as payment
SOLIDBANK Check No. 027699 in the amount of P63,455.00 postdated 20 August 1983. 2
The Lim spouses also ordered 2,600 "Z" purlins worth P241,800.00 which were delivered to them on
various dates, to wit: 15 and 22 April 1983; 11, 14, 20, 23, 25, 28 and 30 May 1983; and, 2 and 9
June 1983. To pay for the deliveries, they issued seven SOLIDBANK checks, five of which were —
Check No. Date of Issue Amount
027683 16 July 1983 P27,900.00 3
027684 23 July 1983 P27,900.00 4

027719 6 Aug. 1983 P32,550.00 5
027720 13 Aug. 1983 P27,900.00 6
027721 27 Aug. 1983 P37,200.00 7
William Yu Bin, Vice President and Sales Manager of LINTON, testified that when those seven (7)
checks were deposited with the Rizal Commercial Banking Corporation they were dishonored for
"insufficiency of funds" with the additional notation "payment stopped" stamped thereon. Despite
demand Manuel and Rosita refused to make good the checks or pay the value of the deliveries.
Salvador Alfonso, signature verifier of SOLIDBANK, Grace Park Branch, Kalookan City, where the
Lim spouses maintained an account, testified on the following transactions with respect to the seven
(7) checks:
CHECK NO. DATE PRESENTED REASON FOR DISHONOR
027683 22 July 1983 Payment Stopped (PS) 8
027684 23 July 1983 PS and Drawn Against

Insufficient Fund (DAIF)9
027699 24 Aug. 1983 PS and DAIF 10
027700 5 Sept. 1983 PS and DAIF 11
027719 9 Aug. 1983 DAIF 12
027720 16 Aug. 1983 PS and DAIF 13
027721 30 Aug. 1983 PS and DAIF 14
Manuel Lim admitted having issued the seven (7) checks in question to pay for deliveries made by
LINTON but denied that his company's account had insufficient funds to cover the amounts of the
checks. He presented the bank ledger showing a balance of P65,752.75. Also, he claimed that he
ordered SOLIDBANK to stop payment because the supplies delivered by LINTON were not in
accordance with the specifications in the purchase orders.
Rosita Lim was not presented to testify because her statements would only be corroborative.
On the basis of the evidence thus presented the trial court held both accused guilty of estafa and
violation of B.P. Blg. 22 in its decision dated 25 January 1989. In Crim. Case No. 1696-MN they were
sentenced to an indeterminate penalty of six (6) years and one (1) day of prision mayor as minimum
to twelve (12) years and one (1) day of reclusion temporal as maximum plus one (1) year for each
additional P10,000.00 with all the accessory penalties provided for by law, and to pay the costs.
They were also ordered to indemnify LINTON in the amount of P241,800.00. Similarly sentences
were imposed in Crim. Cases Nos. 1697-MN and 1698-MN except as to the indemnities awarded,
which were P63,455.00 and P51,800.00, respectively.
In Crim. Case No. 1699-MN the trial court sentenced both accused to a straight penalty of one (1)
year imprisonment with all the accessory penalties provided for by law and to pay the costs. In
addition, they were ordered to indemnify LINTON in the amount of P27,900.00. Again, similar
sentences were imposed in Crim. Cases Nos. 1700-MN to 1705-MN except for the indemnities
awarded, which were P32,550.00, P27,900.00, P27,900.00, P63,455.00, P51,800.00 and
P37,200.00 respectively. 15
On appeal, the accused assailed the decision as they imputed error to the trial court as follows: (a)
the regional Trial Court of malabon had no jurisdiction over the cases because the offenses charged
ere committed outside its territory; (b) they could not be held liable for estafa because the seven (7)
checks were issued by them several weeks after the deliveries of the goods; and, (c) neither could
they be held liable for violating B.P. Blg. 22 as they ordered payment of the checks to be stopped
because the goods delivered were not those specified by them, besides they had sufficient funds to
pay the checks.
In the decision of 18 September 1992 respondent Court of Appeals acquitted accused-appellants of

16
estafa on the ground that indeed the checks were not made in payment of an obligation contracted
at the time of their issuance. However it affirmed the finding of the trial court that they were guilty of
having violated B.P. Blg. 22. On 6 November 1992 their motion for reconsideration was denied.
17 18
In the case at bench petitioners maintain that the prosecution failed to prove that any of the essential
elements of the crime punishable under B.P. Blg. 22 was committed within the jurisdiction of the
Regional Trial Court of Malabon. They claim that what was proved was that all the elements of the
offense were committed in Kalookan City. The checks were issued at their place of business,
received by a collector of LINTON, and dishonored by the drawee bank, all in Kalookan City.
Furthermore, no evidence whatsoever supports the proposition that they knew that their checks were
insufficiently funded. In fact, some of the checks were funded at the time of presentment but
dishonored nonetheless upon their instruction to the bank to stop payment. In fine, considering that
the checks were all issued, delivered, and dishonored in Kalookan City, the trial court of Malabon
exceeded its jurisdiction when it tried the case and rendered judgment thereon.
The petition has no merit. Section 1, par. 1, of B.P. Blg. 22 punishes "[a]ny 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 . . ." The gravamen of the offense is knowingly
issuing a worthless check. Thus, a fundamental element is knowledge on the part of the drawer of
19
the insufficiency of his funds in or credit with the drawee bank for the payment of such check in full
20
upon presentment. Another essential element is subsequent dishonor of the check 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. 21
It is settled that venue in criminal cases is a vital ingredient of jurisdiction. Section 14, par. (a), Rule
22
110, of the Revised Rules of Court, which has been carried over in Sec. 15, par. (a), Rule 110 of the
1985 Rules on Criminal Procedure, specifically provides:
Sec. 14. Place where action is to be instituted. — (a) In all criminal prosecutions the
action shall be instituted and tried in the court of the municipality or province wherein
the offense was committed or anyone of the essential ingredients thereof took place.
If all the acts material and essential to the crime and requisite of its consummation occurred in one
municipality or territory, the court therein has the sole jurisdiction to try the case. There are certain
23
crimes in which some acts material and essential to the crimes and requisite to their consummation
occur in one municipality or territory and some in another, in which event, the court of either has
jurisdiction to try the cases, it being understood that the first court taking cognizance of the case
excludes the other. These are the so-called transitory or continuing crimes under which violation of
24
B.P. Blg. 22 is categorized. In other words, a person charged with a transitory crime may be validly
tried in any municipality or territory where the offense was in part committed. 25
In determining proper venue in these cases, the following acts material and essential to each crime
and requisite to its consummation must be considered: (a) the seven (7) checks were issued to
LINTON at its place of business in Balut, Navotas; b) they were delivered to LINTON at the same
place; (c) they were dishonored in Kalookan City; and, (d) petitioners had knowledge of the
insufficiency of their funds in SOLIDBANK at the time the checks were issued. Since there is no
dispute that the checks were dishonored in Kalookan City, it is no longer necessary to discuss where
the checks were dishonored.
Under Sec. 191 of the Negotiable Instruments Law the term "issue" means the first delivery of the
instrument complete in form to a person who takes it as a holder. On the other hand, the term
"holder" refers to the payee or indorsee of a bill or note who is in possession of it or the bearer
thereof. In People v. Yabut this Court explained —
26
. . . The place where the bills were written, signed, or dated does not necessarily fix
or determine the place where they were executed. What is of decisive importance is
the delivery thereof. The delivery of the instrument is the final act essential to
its consummation as an obligation. An undelivered bill or note is inoperative. Until
delivery, the contract is revocable. And the issuance as well as the delivery of the
check must be to a person who takes it as a holder, which means "(t)he payee or
indorsee of a bill or note, who is in possession of it, or the bearer thereof." Delivery of
the check signifies transfer of possession, whether actual or constructive, from one
person to another with intent to transfer titlethereto . . .
Although LINTON sent a collector who received the checks from petitioners at their place of
business in Kalookan City, they were actually issued and delivered to LINTON at its place of
business in Balut, Navotas. The receipt of the checks by the collector of LINTON is not the issuance
and delivery to the payee in contemplation of law. The collector was not the person who could take
the checks as a holder, i.e., as a payee or indorsee thereof, with the intent to transfer title thereto.
Neither could the collector be deemed an agent of LINTON with respect to the checks because he
was a mere employee. As this Court further explained in People v. Yabut — 27
Modesto Yambao's receipt of the bad checks from Cecilia Que Yabut or Geminiano
Yabut, Jr., in Caloocan City cannot, contrary to the holding of the respondent Judges,
be licitly taken as delivery of the checks to the complainant Alicia P. Andan at
Caloocan City to fix the venue there. He did not take delivery of the checks as
holder, i.e., as "payee" or "indorsee." And there appears to be no contract of agency
between Yambao and Andan so as to bind the latter for the acts of the former. Alicia
P. Andan declared in that sworn testimony before the investigating fiscal that Yambao
is but her "messenger" or "part-time employee." There was no special
fiduciary relationship that permeated their dealings. For a contract of agency to exist,
the consent of both parties is essential. The principal consents that the other party,
the agent, shall act on his behalf, and the agent consents so as to act. It must exist
as afact. The law makes no presumption thereof. The person alleging it has the
burden of proof to show, not only the fact of its existence, but also its nature and
extent . . .
Section 2 of B.P. Blg. 22 establishes a prima facie evidence of knowledge of insufficient funds as
follows —
The making, drawing and issuance of a check payment of which is refused by the
bank because of insufficient funds in or credit with such bank, when presented within
ninety (90) days from the date of the check, shall be prima facie evidence of
knowledge of such insufficiency of funds or credit unless such maker or drawer pays
the holder thereof the amount due thereon, or makes arrangement for payment in full
by the drawee of such check within five (5) banking days after receiving notice that
such check has not been paid by the drawee.
The prima facie evidence has not been overcome by petitioners in the cases before us because they
did not pay LINTON the amounts due on the checks; neither did they make arrangements for
payment in full by the drawee bank within five (5) banking days after receiving notices that the
checks had not been paid by the drawee bank. In People v. Grospe citing People v. Manzanilla we
28 29
held that ". . . knowledge on the part of the maker or drawer of the check of the insufficiency of his
funds is by itself a continuing eventuality, whether the accused be within one territory or another."
Consequently, venue or jurisdiction lies either in the Regional Trial Court of Kalookan City or
Malabon. Moreover, we ruled in the same Grospe and Manzanilla cases as reiterated in Lim
v. Rodrigo that venue or jurisdiction is determined by the allegations in the Information. The
30
Informations in the cases under consideration allege that the offenses were committed in the
Municipality of Navotas which is controlling and sufficient to vest jurisdiction upon the Regional Trial
Court of Malabon. 31
We therefore sustain likewise the conviction of petitioners by the Regional Trial Court of Malabon for
violation of B.P. Blg. 22 thus —
Accused-appellants claim that they ordered payment of the checks to be stopped

because the goods delivered were not those specified by them. They maintain that
they had sufficient funds to cover the amount of the checks. The records of the bank,
however, reveal otherwise. The two letters (Exhs. 21 and 22) dated July 23, and
August 10, 1983 which they claim they sent to Linton Commercial, complaining
against the quality of the goods delivered by the latter, did not refer to the delivery of
mild steel plates (6mm x 4 x 8) and "Z" purlins (16 x 7 x 2-1/2 mts) for which the
checks in question were issued. Rather, the letters referred to B.1. Lally columns
(Sch. #20), which were the subject of other purchase orders.
It is true, as accused-appellants point out, that in a case brought by them against the
complainant in the Regional Trial Court of Kalookan City (Civil Case No. C-10921)
the complainant was held liable for actual damages because of the delivery of goods
of inferior quality (Exh. 23). But the supplies involved in that case were those of B.I.
pipes, while the purchases made by accused-appellants, for which they issued the
checks in question, were purchases of mild steel plates and "Z" purlins.
Indeed, the only question here is whether accused-appellants maintained funds

sufficient to cover the amounts of their checks at the time of issuance and
presentment of such checks. Section 3 of B.P. Blg. 22 provides that "notwithstanding
receipt of an order to stop payment, the drawee bank shall state in the notice of
dishonor that there were no sufficient funds in or credit with such bank for the
payment in full of the check, if such be the fact."
The purpose of this provision is precisely to preclude the maker or drawer of a

worthless check from ordering the payment of the check to be stopped as a pretext
for the lack of sufficient funds to cover the check.
In the case at bar, the notice of dishonor issued by the drawee bank, indicates not
only that payment of the check was stopped but also that the reason for such order
was that the maker or drawer did not have sufficient funds with which to cover the
checks. . . . Moreover, the bank ledger of accused-appellants' account in
Consolidated Bank shows that at the time the checks were presented for
encashment, the balance of accused-appellants' account was inadequate to cover
the amounts of the checks. . . .
32
WHEREFORE, the decision of the Court of Appeals dated 18 September 1992 affirming the
conviction of petitioners Manuel Lim and Rosita Lim —
In CA-G.R. CR No. 07277 (RTC Crim. Case No. 1699-MN); CA-G.R. CR No. 07278
(RTC Crim. Case No. 1700-MN); CA-G.R. CR No. 07279 (RTC Crim. Case No.
1701-MN); CA-G.R. CR No. 07280 (RTC Crim. Case No. 1702-MN); CA-G.R. CR
No. 07281 (RTC Crim. Case No. 1703-MN); CA-G.R. CA No. 07282 (RTC Crim.
Case No. 1704-MN); and CA-G.R. CR No. 07283 (RTC Crim Case No. 1705-MN),
the Court finds the accused-appellants
MANUEL LIM and ROSITA LIM guilty beyond reasonable doubt of violation of Batas
Pambansa Bilang 22 and are hereby sentenced to suffer a STRAIGHT PENALTY OF
ONE (1) YEAR IMPRISONMENT in each case, together with all the accessory
penalties provided by law, and to pay the costs.
In CA-G.R. CR No. 07277 (RTC Crim. Case No. 1699-MN), both accused-appellants
are hereby ordered to indemnify the offended party in the sum of P27,900.00.
In CA-G.R. CR No. 07278 (RTC Crim. Case No. 1700-MN) both accused-appellants
In CA-G.R. CR No. 07281 (RTC Crim. Case No. 1703-MN) both accused are hereby
ordered to indemnify the offended party in the sum of P63,455.00.
In CA-G.R CR No. 07282 (RTC Crim. Case No. 1704-MN) both accused-appellants
are hereby ordered to indemnify the offended party in the sum of P51,800.00, and
are hereby ordered to indemnify the offended party in the sum of P37,200.00 —
33
as well as its resolution of 6 November 1992 denying reconsideration thereof, is AFFIRMED.

Costs against petitioners.
SO ORDERED.
Padilla, Davide, Jr., Kapunan and Hermosisima, Jr., JJ., concur.
Footnotes
1 Exh. "C."
2 Exh. "G."
3 Exh. "L."
4 Exh. "N."
5 Exh. "P."
6 Exh. "S."
7 Exh. "V."
8 Exh. "M."
9 Exhs. "O," "O-1" and "O-2."
10 Exhs. "H" and "H-1."
11 Exhs. "D," "D-1" and "D-2."
12 Exhs. "Q" and "Q-1".
13 Exhs. "T," "U" and "U-1."
14 Exhs. "W," "W-1" and "W-2."
15 Rollo, pp. 79-80.
16 Penned by Justice Vicente V. Mendoza (now a Member of this Court) as

Chairman, with Justices Jaime M. Lantin and Consuelo Y. Santiago
concurring.
17 Id., pp. 56-58.
18 Id., p. 61.
19 Cruz v. IAC, G.R. No. 66327, 28 May 1984, 129 SCRA 490.
20 Lozano v. Martinez, G.R. No. 63419, 18 December 1986, 146 SCRA 323;
Dingle v. IAC, G.R. No. 75243, 16 March 1987, 148 SCRA 595.
21 People v. Manzanilla, G.R. Nos. 66003-04, 11 December 1987, 156 SCRA

279.
22 Lopez v. City Judge, No. L-25795, 29 October 1966, 18 SCRA; U.S. v.

Pagdayuman, 5 Phil. 265 (1905); U.S. v. Reyes, 1 Phil. 249 (1902); Ragpala
v. J.P. of Tubod, Lanao, 109 Phil. 265 (1905); Agbayani v. Sayo, No. L-47880,
30 April 1979, 89 SCRA 699.
23 People v. Yabut, No. L-42902, 29 April 1977, 76 SCRA 624.

24 Tuzon v. Cruz, No. L-27410, 28 August 1975, 66 SCRA 235.
25 People v. Grospe, G.R. Nos. 74053-54, 20 January 1988, 157 SCRA 154.
26 See Note 23, p. 629.
27 Id., p. 630.
28 See Note 25.
29 See Note 21.
30 G.R. No. 76974, 18 November 1988, 167 SCRA 487.
31 Adm. Order No. 3 defines the territorial jurisdiction of Regional Trial Courts
in the National Capital Judicial Region by, inter alia, establishing two
branches over the municipalities of Malabon and Navotas with seats in
Malabon.
32 Court of Appeals Decision, pp. 16-17; Rollo, pp. 54-55.
33 Id., pp. 56-58.
FIRST DIVISION
METROPOLITAN BANK G.R. No. 179952

AND TRUST COMPANY
(formerly ASIANBANK Present:
CORPORATION),
Petitioner, PUNO, C.J., Chairperson,
CARPIO MORALES,
LEONARDO-DE CASTRO,
BERSAMIN, and
VILLARAMA, JR., JJ.
- versus -
BA FINANCE
CORPORATION and Promulgated:
MALAYAN INSURANCE CO., December 4, 2009
INC.,
Respondents.
x-------------------------------------------------x
DECISION
CARPIO MORALES, J.:

Lamberto Bitanga (Bitanga) obtained from respondent BA Finance
Corporation (BA Finance) a P329,280[1] loan to secure which, he mortgaged his car
to respondent BA Finance.[2] The mortgage contained the following stipulation:
The MORTGAGOR covenants and agrees that he/it will cause the
property(ies) hereinabove mortgaged to be insured against loss or damage by
accident, theft and fire for a period of one year from date hereof with an
insurance company or companies acceptable to the MORTGAGEE in an
amount not less than the outstanding balance of mortgage obligations and that
he/it will make all loss, if any, under such policy or policies, payable to the
MORTGAGEE or its assigns as its interest may appear x x x.[3] (emphasis and
underscoring supplied)
Bitanga thus had the mortgaged car insured by respondent Malayan

Insurance Co., Inc. (Malayan Insurance)[4]which issued a policy stipulating
that, inter alia,
Loss, if any shall be payable to BA FINANCE CORP. as its interest

may appear. It is hereby expressly understood that this policy or any renewal
thereof, shall not be cancelled without prior notification and conformity by BA
FINANCE CORPORATION.[5] (emphasis and underscoring supplied)
The car was stolen. On Bitangas claim, Malayan Insurance issued a check
payable to the order of B.A. Finance Corporation and Lamberto Bitanga
for P224,500, drawn against China Banking Corporation (China Bank). The check
was crossed with the notation For Deposit Payees Account Only.[6]
Without the indorsement or authority of his co-payee BA Finance, Bitanga

deposited the check to his account with the Asianbank Corporation (Asianbank),
now merged with herein petitioner Metropolitan Bank and Trust Company
(Metrobank). Bitanga subsequently withdrew the entire proceeds of the check.
In the meantime, Bitangas loan became past due, but despite demands, he
failed to settle it.
BA Finance eventually learned of the loss of the car and of Malayan

Insurances issuance of a crossed check payable to it and Bitanga, and of Bitangas
depositing it in his account at Asianbank and withdrawing the entire proceeds
thereof.
BA Finance thereupon demanded the payment of the value of the check from
Asianbank[7] but to no avail, prompting it to file a complaint before the Regional
Trial Court (RTC) of Makati for sum of money and damages against Asianbank and
Bitanga,[8] alleging that, inter alia, it is entitled to the entire proceeds of the check.
In its Answer with Counterclaim,[9] Asianbank alleged that BA Finance
instituted [the] complaint in bad faith to coerce [it] into paying the whole amount of
the CHECK knowing fully well that its rightful claim, if any, is against Malayan
[Insurance].[10]
Asianbank thereafter filed a cross-claim against Bitanga,[11] alleging that he

fraudulently induced its personnel to release to him the full amount of the check;
and that on being later informed that the entire amount of the check did not belong
to Bitanga, it took steps to get in touch with him but he had changed residence
without leaving any forwarding address.[12]
And Asianbank filed a third-party complaint against Malayan Insurance,

[13]
alleging that Malayan Insurance was grossly negligent in issuing the check
payable to both Bitanga and BA Finance and delivering it to Bitanga without the
consent of BA Finance.[14]
Bitanga was declared in default in Asianbanks cross-claim.[15]
Branch 137 of the Makati RTC, finding that Malayan Insurance was not
privy to the contract between BA Finance and Bitanga, and noting the claim of
Malayan Insurance that it is its policy to issue checks to both the insured and the
financing company, held that Malayan Insurance cannot be faulted for negligence
for issuing the check payable to both BA Finance and Bitanga.
The trial court, holding that Asianbank was negligent in allowing Bitanga to
deposit the check to his account and to withdraw the proceeds thereof, without his
co-payee BA Finance having either indorsed it or authorized him to indorse it in its
behalf,[16] found Asianbank and Bitanga jointly and severally liable to BA
Finance following Section 41 of the Negotiable Instruments Law and Associated
Bank v. Court of Appeals.[17]
Thus the trial court disposed:

WHEREFORE, premises considered, judgment is hereby
rendered ordering defendants Asian Bank Corporation and Lamberto Bitanga:
1) To pay plaintiff jointly and severally the sum of

P224,500.00 with interest thereon at the rate of 12%
from September 25, 1992 until fully paid;
2) To pay plaintiff the sum of P50,000.00 as exemplary
damages; P20,000.00 as actual damages; P30,000.00 as
attorneys fee; and
3) To pay the costs of suit.
Asianbanks and Bitangas [sic] counterclaims are dismissed.

The third party complaint of defendant/third party plaintiff against
third-party defendant Malayan Insurance, Co., Inc. is hereby
dismissed. Asianbank is ordered to pay Malayan attorneys fee of P50,000.00
and a per appearance fee of P500.00.
On the cross-claim of defendant Asianbank, co-defendant

Lamberto Bitanga is ordered to pay the former the amounts the latter is
ordered to pay the plaintiff in Nos. 1, 2 and 3 above-mentioned.
SO ORDERED.[18] (emphasis and underscoring supplied)
Before the Court of Appeals, Asianbank, in its Appellants Brief, submitted

the following issues for consideration:
3.01.1.1 Whether BA Finance has a cause of action against

Asianbank.
3.01.1.2 Assuming that BA Finance has a valid cause of

action, may it claim from Asianbank more than one-half of the value of the
check considering that it is a mere co-payee or joint payee of the check?
3.01.1.3 Whether BA Finance is liable to Asianbank for actual and

exemplary damages for wrongfully bringing the case to court.
3.01.1.4 Whether Malayan is liable to Asianbank for

reimbursement of any sum of money which this Honorable Court may award
to BA Finance in this case.[19] (underscoring supplied)
And it proffered the following arguments:
A. BA Finance has no cause of action against Asianbank as it has no legal right and title
to the check considering that the check was not delivered to BA Finance. Hence,
BA Finance is not a holder thereof under the Negotiable Instruments Law.
B. Asianbank, as collecting bank, is not liable to BA Finance as there was no privity of

contract between them.
C. Asianbank, as collecting bank, is not liable to BA Finance, considering that, as the

intermediary between the payee and the drawee Chinabank, it merely acted on the
instructions of drawee Chinabank to pay the amount of the check to Bitanga,
hence, the consequent damage to BA Finance was due to the negligence of
Chinabank.
D. Malayans act of issuing and delivering the check solely to Bitanga in violation of the
loss payee clause in the Policy, is the proximate cause of the alleged damage to
BA Finance.
E. Assuming Asianbank is liable, BA Finance can claim only his proportionate interest on
the check as it is a joint payee thereof.
F. Bitanga alone is liable for the amount to BA Finance on the ground of unjust
enrichment or solutio indebiti.
G. BA Finance is liable to pay Asianbank actual and exemplary damages.

[20]
(underscoring supplied)
The appellate court, summarizing the errors attributed to the trial court by
Asianbank to be whetherBA Finance has a cause of action against [it] even if the
subject check had not been delivered toBA Finance by the issuer itself, held in the
affirmative and accordingly affirmed the trial courts decision but deleted the award
of P20,000 as actual damages.[21]
Hence, the present Petition for Review on Certiorari [22] filed by Metrobank
(hereafter petitioner) to which Asianbank was, as earlier stated, merged, faulting
the appellate court
I. x x x in applying the case of Associated Bank v. Court of

Appeals, in the absence of factual similarity and of the legal
relationships necessary for the application of the desirable
shortcut rule. x x x
II. x x x in not finding that x x x the general rule that the payee
has no cause of action against the collecting bank absent
delivery to him must be applied.
III. x x x in finding that all the elements of a cause of action by
BA Finance Corporation against Asianbank Corporation are
present.
IV. x x x in finding that Article 1208 of the Civil Code is not
applicable.
V. x x x in awarding of exemplary damages even in the absence
of moral, temperate, liquidated or compensatory damages
and a finding of fact that Asianbank acted in a wanton,
fraudulent, reckless, oppressive or malevolent manner.
xxxx
VII. x x x in dismissing Asianbanks counterclaim and Third Party
complaint [against Malayan Insurance].[23](italics in the
original; underscoring supplied)
Petitioner proffers the following arguments against the application
of Associated Bank v. CA to the case:
x x x [T]he rule established in the Associated Bank case has provided a

speedier remedy for the payee to recover from erring collecting banks despite
the absence of delivery of the negotiable instrument. However, the application
of the rule demands careful consideration of the factual settings and issues
raised in the case x x x.
One of the relevant circumstances raised in Associated Bank is the

existence of forgery or unauthorized indorsement. x x x
xxxx
In the case at bar, Bitanga is authorized to indorse the check as the

drawer names him as one of the payees.Moreover, his signature is not a forgery
nor has he or anyone forged the signature of the representative of BA Finance
Corporation. No unauthorized indorsement appears on the check.
xxxx
Absent the indispensable fact of forgery or unauthorized indorsement,

the desirable shortcut rule cannot be applied,[24] (underscoring supplied)
The petition fails.
Section 41 of the Negotiable Instruments Law provides:

Where an instrument is payable to the order of two or more payees or
indorsees who are not partners, all must indorse unless the one indorsing has
authority to indorse for the others. (emphasis and underscoring supplied)
Bitanga alone endorsed the crossed check, and petitioner allowed the deposit
and release of the proceeds thereof, despite the absence of authority of Bitangas co-
payee BA Finance to endorse it on its behalf.[25]
Denying any irregularity in accepting the check, petitioner maintains that it
followed normal banking procedure.The testimony of Imelda Cruz, Asianbanks
then accounting head, shows otherwise, however, viz:
Q Now, could you be familiar with a particular policy of the bank with
respect to checks with joined (sic) payees?
A Yes, sir.
Q And what would be the particular policy of the bank regarding this
transaction?
A The bank policy and procedure regarding the joint checks. Once it
is deposited to a single account, we are not accepting joint
checks for single account, depositing to a single account (sic).
Q What happened to the bank employee who allowed this particular

transaction to occur?
A Once the branch personnel, the bank personnel (sic) accepted it, he is
liable.
Q What do you mean by the branch personnel being held liable?

A Because since (sic) the bank policy, we are not supposed to accept
joint checks to a [single] account, so we mean that personnel
would be held liable in the sense that (sic) once it is withdrawn
or encashed, it will not be allowed.
Q In your experience, have you encountered any bank employee who was
subjected to disciplinary action by not following bank policies?
A The one that happened in that case, since I really dont know who that
personnel is, he is no longer connected with the bank.
Q What about in general, do you know of any disciplinary action,

Madam witness?
A Since theres a negligence on the part of the bank personnel, it will
be a ground for his separation [from] the bank. [26] (emphasis,
italics and underscoring supplied)
Admittedly, petitioner dismissed the employee who allowed the deposit of the
check in Bitangas account.
Petitioners argument that since there was neither forgery, nor unauthorized
indorsement because Bitanga was a co-payee in the subject check, the dictum
in Associated Bank v. CA does not apply in the present case fails. The payment of
an instrument over a missing indorsement is the equivalent of payment on a forged
indorsement[27] or an unauthorized indorsement in itself in the case of joint payees.
[28]
Clearly, petitioner, through its employee, was negligent when it allowed the
deposit of the crossed check, despite the lone endorsement of Bitanga, ostensibly
ignoring the fact that the check did not, it bears repeating, carry the indorsement of
BA Finance.[29]
As has been repeatedly emphasized, the banking business is imbued with

public interest such that the highest degree of diligence and highest standards of
integrity and performance are expected of banks in order to maintain the trust and
confidence of the public in general in the banking sector. [30] Undoubtedly, BA
Finance has a cause of action against petitioner.
Is petitioner liable to BA Finance for the full value of the check?
Petitioner, at all events, argue that its liability to BA Finance should only be
one-half of the amount covered by the check as there is no indication in the check
that Bitanga and BA Finance are solidary creditors to thus make them
presumptively joint creditors under Articles 1207 and 1208 of the Civil Code which
respectively provide:
Art. 1207. The concurrence of two or more creditors or of two or more

debtors in one and the same obligation does not imply that each one of the
former has a right to demand, or that each one of the latter is bound to render,
entire compliance with the prestations. There is a solidary liability only when
the obligation expressly so states, or when the law or the nature of the
obligation requires solidarity.
Art. 1208. If from the law, or the nature or wording of the obligations to
which the preceding article refers to the contrary does not appear, the credit or
debt shall be presumed to be divided into as many equal shares as there are
creditors or debtors, the debts or credits being considered distinct from one
another, subject to the Rules of Court governing the multiplicity of suits.
Petitioners argument is flawed.
The provisions of the Negotiable Instruments Law and underlying

jurisprudential teachings on the black-letter law provide definitive justification for
petitioners full liability on the value of the check.
To be sure, a collecting bank, Asianbank in this case, where a check is
deposited and which indorses the check upon presentment with the drawee bank, is
an indorser.[31] This is because in indorsing a check to the drawee bank, a collecting
bank stamps the back of the check with the phrase all prior endorsements and/or
lack of endorsement guaranteed[32] and, for all intents and purposes, treats the
check as a negotiable instrument, hence, assumes the warranty of an indorser.
[33]
Without Asianbanks warranty, the drawee bank (China Bank in this case) would
not have paid the value of the subject check.
Petitioner, as the collecting bank or last indorser, generally suffers the loss
because it has the duty to ascertain the genuineness of all prior indorsements
considering that the act of presenting the check for payment to the drawee is an
assertion that the party making the presentment has done its duty to ascertain the
genuineness of prior indorsements.[34]
Accordingly, one who credits the proceeds of a check to the account of the
indorsing payee is liable in conversion to the non-indorsing payee for
the entire amount of the check.[35]
It bears noting that in petitioners cross-claim against Bitanga, the trial court
ordered Bitanga to return to petitioner the entire value of the check ─ P224,500.00
─ with interest as well as damages and cost of suit. Petitioner never questioned this
aspect of the trial courts disposition, yet it now prays for the modification of its
liability to BA Finance to only one-half of said amount. To pander to petitioners
supplication would certainly amount to unjust enrichment at BA Finances
expense. Petitioners remedywhich is the reimbursement for the full amount of the
check from the perpetrator of the irregularity lies with Bitanga.
Articles 1207 and 1208 of the Civil Code cannot be applied to the present
case as these are completely irrelevant.The drawer, Malayan Insurance in this case,
issued the check to answer for an underlying contractual obligation (payment of
insurance proceeds). The obligation is merely reflected in the instrument and
whether the payees would jointly share in the proceeds or not is beside the point.
Moreover, granting petitioners appeal for partial liability would run counter
to the existing principles on the liabilities of parties on negotiable instruments,
particularly on Section 68 of the Negotiable Instruments Law which instructs that
joint payees who indorse are deemed to indorse jointly and severally.[36] Recall that
when the maker dishonors the instrument, the holder thereof can turn to those
secondarily liable the indorser for recovery.[37] And since the law explicitly
mandates a solidary liability on the
part of the joint payees who indorse the instrument, the holderthereof (assuming
the check was further negotiated) can turn to either Bitanga or BA Finance for full
recompense.
Respecting petitioners challenge to the award by the appellate court of

exemplary damages to BA Finance, the same fails. Contrary to petitioners claim
that no moral, temperate, liquidated or compensatory damages were awarded by
the trial court,[38] the RTC did in fact award compensatory or actual damages
of P224,500, the value of the check, plus interest thereon.
Petitioner argues, however, that assuming arguendo that compensatory

damages had been awarded, the same contravened Article 2232 of the Civil Code
which provides that in contracts or quasi-contracts, the court may award exemplary
damages only if the defendant acted in a wanton, fraudulent, reckless, oppressive,
or malevolent manner.Since, so petitioner concludes, there was no finding that it
acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner, [39] it is
not liable for exemplary damages.
The argument fails. To reiterate, petitioners liability is based not on contract

or quasi-contract but on quasi-delictsince there is no pre-existing contractual
relation between the parties.[40] Article 2231 of the Civil Code, which provides that
in quasi-delict, exemplary damages may be granted if the defendant acted with
gross negligence, thus applies. For gross negligence implies a want or absence of
or failure to exercise even slight care or diligence, or the entire absence of care,
[41]
evincing a thoughtless disregard of consequences without exerting any effort to
avoid them.[42]
x x x The law allows the grant of exemplary damages to set an example

for the public good. The business of a bank is affected with public interest;
thus it makes a sworn profession of diligence and meticulousness in giving
irreproachable service. For this reason, the bank should guard against in injury
attributable to negligence or bad faith on its part. The award
of exemplary damages is proper as a warning to [the petitioner] and all
concerned not to recklessly disregard their obligation to exercise the highest
and strictest diligence in serving their depositors.[43] (Italics and underscoring
supplied)
As for the dismissal by the appellate court of petitioners third-party

complaint against Malayan Insurance, the same is well-taken. Petitioner based its
third-party complaint on Malayan Insurances alleged gross negligence in issuing
the check payable to both BA Finance and Bitanga, despite the stipulation in the
mortgage and in the insurance policy that liability for loss shall be payable to BA
Finance.[44] Malayan Insurance countered, however, that it
x x x paid the amount of P224,500 to BA Finance Corporation and Lamberto

Bitanga in compliance with the decision in the case of Lamberto Bitanga
versus Malayan Insurance Co., Inc., Civil Case No. 88-2802, RTC-Makati Br.
132, and affirmed on appeal by the Supreme Court [3 rd Division], G.R. no.
101964, April 8, 1992 x x x.[45] (underscoring supplied)
It is noted that Malayan Insurance, which stated that it was a matter of

company policy to issue checks in the name of the insured and the financing
company, presented a witness to rebut its supposed negligence. [46] Perforce, it thus
wrote a crossed check with joint payees so as to serve warning that the check was
issued for a definite purpose.[47]Petitioner never ever disputed these assertions.
The Court takes exception, however, to the appellate courts affirmance of the
trial courts grant of legal interest of 12% per annum on the value of the check. For
the obligation in this case did not arise out of a loan or forbearance of money,
goods or credit. While Article 1980 of the Civil Code provides that:
Fixed savings, and current deposits of money in banks and similar

institutions shall be governed by the provisions concerning simple loan,
said provision does not find application in this case since the nature of the
relationship between BA Finance and petitioner is one of agency whereby
petitioner, as collecting bank, is to collect for BA Finance the corresponding
proceeds from the check.[48] Not being a loan or forbearance of money, the interest
should be 6% per annum computed from the date of extrajudicial demand on
September 25, 1992 until finality of judgment; and 12% per annum from finality of
judgment until payment, conformably with Eastern Shipping Lines, Inc. v. Court of
Appeals.[49]
WHEREFORE, the Decision of the Court of Appeals dated May 18, 2007
is AFFIRMED with MODIFICATION in that the rate of interest on the
judgment obligation of P224,500 should be 6% per annum, computed from the
time of extrajudicial demand on September 25, 1992 until its full payment before
finality of judgment; thereafter, if the amount adjudged remains unpaid, the interest
rate shall be 12% per annum computed from the time the judgment becomes final
and executory until fully satisfied.
Costs against petitioner.
SO ORDERED.
CONCHITA CARPIO MORALES

Associate Justice
WE CONCUR:
REYNATO S. PUNO
Chief Justice
Chairperson
TERESITA J. LEONARDO-DE CASTRO LUCAS P. BERSAMIN

Associate Justice Associate Justice
MARTIN S. VILLARAMA, JR.

Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the
conclusions in the above decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice
[1]
Exhibit A, records, pp. 210-211.
[2]
Exhibit B, id. at 212-215.
[3]
Id. at 213.
[4]
Exhibit D, id. at 217.
[5]
Exhibit D-1, ibid.
[6]
Exhibit F, id. at 219.
[7]
Exhibits H, id. at 221-222.
[8]
Id. at 1-4.
[9]
Id. at 40-45.
[10]
Id. at 43.
[11]
Id. at 53-63.
[12]
Id. at 60-61.
[13]
Id. at 69-72.
[14]
Id. at 82.
[15]
Id. at 142-143; Order of May 23, 1994.
[16]
Id. at 306.
[17]
G.R. No. 89802, May 7, 1992, 208 SCRA 465.
[18]
Records, p. 307.
[19]
CA rollo, pp. 39-40.
[20]
Id. at 40-41.
[21]
Decision of May 18, 2007, penned by Court of Appeals Associate Justice Ramon M. Bato, Jr. with the
concurrence of Associate Justices Andres B. Reyes, Jr. and Jose C. Mendoza.
[22]
Rollo, pp. 10-57.
[23]
Id. at 20-22.
[24]
Id. at 23-25.
[25]
TSN, May 30, 1995, pp. 7-8; The testimony of John Agbayani, vice president of BA Finance, reads as follows:
Q Thereafter what happened next, if you know?
A Upon further verification, we were informed by Malayan Insurance Company that in deed a check, a
cross check was issued to BA Finance Corporation and Lamberto Bitanga and the check was delivered
to Lamberto Bitanga.
Q So, after the said check was delivered to Mr. Lamberto Bitanga, do you have any knowledge Mr. witness,
if you know, what happened to the check?
A Yes, sir, the check was deposited into the personal account of Mr. Lamberto Bitanga only, with Asian
Savings Bank without the knowledge and endorsement of the joint payee of the said check, which is
the plaintiff here, BA Finance.
xxxx
We immediately send a formal letter communication to Asian Bank in order to discuss the possibility of
reimbursement of banking on the premise that our check was irregular accepted for deposit into the
personal account of Lamberto Bitanga without our endorsement.
[26]
TSN, October 18, 1995, pp. 5-7.
[27]
Kelly v. Central Bank and Trust Co. (Colo App), 794 P2d 1037, 12 UCCRS2d 1089; Humberto Decorators, Inc.
v. Plaza Natl Bank, 180 NJ Super 170, 434 A2d 618, 32 UCCRS 494; Vide: 11 Am Jur 2d, Bills and Notes,
224, at p. 557.
[28]
Beyer v. First Natl Bank, 188 Mont 208, 612 P2d 1285, 29 UCCRS 563; Vide: 11 Am Jur 2d, Bills and Notes,
224, at p. 557.
[29]
Gempesaw v. Court of Appeals, G.R. No. 92244, Feb. 9, 1993, 218 SCRA 682, 695.
[30]
Philippine Commercial International Bank v. Court of Appeals, G.R. No. 121413, January 29, 2001, 350 SCRA
446.
[31]
Associated Bank v. Court of Appeals, 322 Phil. 677, 697 (1996).
[32]
Section 17 of the Philippine Clearing House Corporation Rules states that: BANK GUARANTEE. All checks
cleared through the PCHC shall bear the guarantee affixed thereto by the Presenting Bank/Branch which
shall read as follows: Cleared thru the Philippine Clearing House Corporation. All prior endorsements
and/or lack of endorsement guaranteed.
[33]
Banco de Oro v. Equitable Banking Corp., 241 Phil. 187, 196-197 (1988).
[34]
Sections 65 and 66 of the Negotiable Instruments Law state that:
Sec. 65. Every person negotiating an instrument by delivery or by a qualified indorsement warrants:
(a) That the instrument is genuine and in all respects what it purports to be;
(b) That he has good title to it;
(c) That all prior parties had capacity to contract;
(d) That he has no knowledge of any fact which would impair the validity of the instrument or render it
valueless.
But when the negotiation is by delivery only, the warranty extends in favor of no holder other than the
immediate transferee.
The provisions of subdivision (c) of this section do not apply to a person negotiating public or corporation
securities other than bills and notes.
Sec. 66. Liability of general indorser. Every indorser who indorses without qualification, warrants to all
subsequent holders in due course:
(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section; and
(b) That the instrument is, at the time of his indorsement, valid and subsisting;
And in addition, he engages that, on due presentment, it shall be accepted or paid, or both, as the case may
be, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly
taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to
pay it.
[35]
Vide Peoples Nat. Bank v. American Fidelity Fire Ins. Co ., 39 Md. App. 614, 386 A.2d 1254, 24 U.C.C. Rep.
Serv. 362 (1978); Middle States Leasing Corp. v. Manufacturers Hanover Trust Co., 62 A.D.2d 273, 404
N.Y.S.2d 846, 23 U.C.C. Rep. Serv. 1215 (1st Dep't 1978); Vide 11 Am Jur 2d, Bills and Notes, 225, at p.
557.
[36]
Sec. 68. Order in which indorsers are liable. As respect one another, indorsers are liable prima facie in the order
in which they indorse; but evidence is admissible to show that, as between or among themselves, they have
agreed otherwise. Joint payees or joint indorsees who indorse are deemed to indorse jointly and severally.
[37]
Section 66 of the NIL, supra note 35.
[38]
Rollo, pp. 46-47.
[39]
Id. at 47.
[40]
Article 2176 of the Civil Code states: Whoever by act or omission causes damage to another, there being
fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no
pre-existing contractual relation between the parties is called a quasi-delict and is governed by the
provisions of this Chapter.
[41]
Acebedo Optical v. National Labor Relations Commission, G.R. No. 150171, July 17, 2007, 527 SCRA 655, 675.
[42]
Ibid.
[43]
BPI Family Bank v. Buenaventura, G.R. No. 148196, Septenber 30, 2005, 471 SCRA 431, 445.
[44]
Vide records, p. 82; rollo, p. 50.
[45]
Id. at 100-101.
[46]
Testimony of Michael Yap, Malayan Insurances first vice president.
[47]
Vide Bataan Cigar and Cigarette Factory v. Court of Appeals, G.R. No. 93048, March 3, 1994, 230 SCRA 643,
648-649, where the Court held that crossing of checks should put the holder on inquiry and upon him or her
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 faith, contrary
to Section 52 (c) of the Negotiable Instruments Law. (Underscoring supplied)
[48]
Jai Alai Corp. of the Phils. v. BPI, G.R. No. L-29432, August 6, 1975, 66 SCRA 29, 34.
[49]
G.R. No. 97412, July 12, 1994, 234 SCRA 78.
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-39641 February 28, 1983
METROPOL (BACOLOD) FINANCING & INVESTMENT CORPORATION, plaintiff-appellee,

vs.
SAMBOK MOTORS COMPANY and NG SAMBOK SONS MOTORS CO., LTD., defendants-
appellants.
Rizal Quimpo & Cornelio P. Revena for plaintiff-appellee.
Diosdado Garingalao for defendants-appellants.
DE CASTRO, J.:
The former Court of Appeals, by its resolution dated October 16, 1974 certified this case to this Court
the issue issued therein being one purely of law.
On April 15, 1969 Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons
Motors Co., Ltd., in the amount of P15,939.00 payable in twelve (12) equal monthly installments,
beginning May 18, 1969, with interest at the rate of one percent per month. It is further provided that
in case on non-payment of any of the installments, the total principal sum then remaining unpaid
shall become due and payable with an additional interest equal to twenty-five percent of the total
amount due.
On the same date, Sambok Motors Company (hereinafter referred to as Sambok), a sister company
of Ng Sambok Sons Motors Co., Ltd., and under the same management as the former, negotiated
and indorsed the note in favor of plaintiff Metropol Financing & Investment Corporation with the
following indorsement:
Pay to the order of Metropol Bacolod Financing & Investment Corporation with
recourse. Notice of Demand; Dishonor; Protest; and Presentment are hereby waived.
SAMBOK MOTORS CO. (BACOLOD)
By:
RODOLFO G. NONILLO Asst. General Manager
The maker, Dr. Villaruel defaulted in the payment of his installments when they became due, so on
October 30, 1969 plaintiff formally presented the promissory note for payment to the maker. Dr.
Villaruel failed to pay the promissory note as demanded, hence plaintiff notified Sambok as indorsee
of said note of the fact that the same has been dishonored and demanded payment.
Sambok failed to pay, so on November 26, 1969 plaintiff filed a complaint for collection of a sum of
money before the Court of First Instance of Iloilo, Branch I. Sambok did not deny its liability but
contended that it could not be obliged to pay until after its co-defendant Dr. Villaruel has been
declared insolvent.
During the pendency of the case in the trial court, defendant Dr. Villaruel died, hence, on October 24,
1972 the lower court, on motion, dismissed the case against Dr. Villaruel pursuant to Section 21,
Rule 3 of the Rules of Court. 1
On plaintiff's motion for summary judgment, the trial court rendered its decision dated September 12,
1973, the dispositive portion of which reads as follows:
WHEREFORE, judgment is rendered:
(a) Ordering Sambok Motors Company to pay to the plaintiff the sum of P15,939.00
plus the legal rate of interest from October 30, 1969;
(b) Ordering same defendant to pay to plaintiff the sum equivalent to 25% of
P15,939.00 plus interest thereon until fully paid; and
(c) To pay the cost of suit.
Not satisfied with the decision, the present appeal was instituted, appellant Sambok raising a lone
assignment of error as follows:
The trial court erred in not dismissing the complaint by finding defendant appellant
Sambok Motors Company as assignor and a qualified indorsee of the subject
promissory note and in not holding it as only secondarily liable thereof.
Appellant Sambok argues that by adding the words "with recourse" in the indorsement of the note, it
becomes a qualified indorser that being a qualified indorser, it does not warrant that if said note is
dishonored by the maker on presentment, it will pay the 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 purports to be; (b) that he has a good title to it; (c) that all prior
parties had capacity to contract; (d) that he has no knowledge of any fact which would impair the
validity of the instrument or render it valueless.
The appeal is without merit.
A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may
be made by adding to the indorser's signature the words "without recourse" or any words of similar
import. Such an indorsement relieves the indorser of the general obligation to pay if the instrument
2
is dishonored but not of the liability arising from warranties on the instrument as provided in Section
65 of the Negotiable Instruments Law already mentioned herein. However, appellant Sambok
indorsed the note "with recourse" and even waived the notice of demand, dishonor, protest and
presentment.
"Recourse" means resort to a person who is secondarily liable after the default of the person who is
primarily liable. Appellant, by indorsing the note "with recourse" does not make itself a qualified
3
indorser but a general indorser who is secondarily liable, because by such indorsement, it agreed
that if Dr. Villaruel fails to pay the note, plaintiff-appellee can go after said appellant. The effect of
such indorsement is that the note was indorsed without qualification. A person who indorses without
qualification engages that on due presentment, the note shall be accepted or paid, or both as the
case may be, and that if it be dishonored, he will pay the amount thereof to the holder. Appellant
4
Sambok's intention of indorsing the note without qualification is made even more apparent by the
fact that the notice of demand, dishonor, protest and presentment were an waived. The words added
by said appellant do not limit his liability, but rather confirm his obligation as a general indorser.
Lastly, the lower court did not err in not declaring appellant as only secondarily liable because after
an instrument is dishonored by non-payment, the person secondarily liable thereon ceases to be
such and becomes a principal debtor. His liabiliy becomes the same as that of the original
5
obligor. Consequently, the holder need not even proceed against the maker before suing the
6
indorser.
WHEREFORE, the decision of the lower court is hereby affirmed. No costs.
SO ORDERED.
Makasiar (Chairman), Concepcion, Jr., Guerrero and Escolin, JJ., concur.
Aquino, J., is on leave.
Separate Opinions
ABAD SANTOS, J., concurring:
I concur and wish to add the observation that the appeal could have been treated as a petition for
review under R.A. 5440 and dismissed by minute resolution.
Separate Opinions
ABAD SANTOS, J., concurring:
I concur and wish to add the observation that the appeal could have been treated as a petition for
review under R.A. 5440 and dismissed by minute resolution.
Footnotes
1 Sec. 21. Where claim does not survive.—When the action is for recovery of money,
debt or interest thereon, and the defendant dies before final judgment in the Court of
First Instance, it shall be dismissed to be prosecuted in the manner especially
provided in these rules.
2 Section 38, The Negotiable Instruments Law.
3 Ogden, The Law of Negotiable Instruments, p. 200 citing Industrial Bank and Trust
Company vs. Hesselberg, 195 S.W. (2d) 470.
4 Ang Tiong vs. Ting, 22 SCRA 715.
5 Pittsburg Westmoreland Coal Co. vs. Kerr, 115 N.E.
6 American Bank vs. Macondray & Co., 4 Phil. 695.

SUPREME COURT
Manila
EN BANC
G.R. No. L-1405 July 31, 1948
BENJAMIN ABUBAKAR, petitioner,

vs.
THE AUDITOR GENERAL, respondent.
Viray and Viola Viray for petitioner.

First Assistant Solicitor General Roberto A. Gianzon and Solicitor Manuel Tomacruz for respondent.
BENGZON, J.:
We are asked to overrule the decision of the Auditor General refusing to authorize the payment of
Treasury warrant No. A-2867376 for P1,000 which was issued in favor of Placido S. Urbanes on
December 10, 1941, but is now in the hands of herein petitioner Benjamin Abubakar.
For his refusal the respondent gave two reasons: first, because the money available for the
redemption of treasury warrants issued before January 2, 1942, is appropriated by Republic Act No.
80 (Item F-IV-8) and this warrant does not come within the purview of said appropriation; and
second, because on of the requirements of his office had not been complied with, namely, that it
must be shown that the holders of warrants covering payment or replenishment of cash advances for
official expenditures (as this warrant is) received them in payment of definite government obligations.
Finding the first reason to be sufficiently valid we shall not discuss, nor pass upon the second.
There is no doubt as to the authenticity and date of the treasury warrant. There is no question that it
was regularly indorsed by the payee and is now in the custody of the herein petitioner who is a
private individual. On the other hand, it is admitted that the warrant was originally made payable to
Placido S. Urbanes in his capacity as disbursing officer of the Food Administration for "additional
cash advance for Food Production Campaign in La Union" (Annex A). It is thus apparent that this is a
treasury warrant issued in favor of a public officer or employee and held in possession by a private
individual. Such being the case, the Auditor General can hardly be blamed for not authorizing its
redemption out of an appropriation specifically for "treasury warrants issued ... in favor of and held in
possession by private individuals." (Republic Act No. 80, Item F-IV-8.) This warrant was not issued in
favor of aprivate individual. It was issued in favor of a government employee.
The distinction is not without a difference. Outstanding treasury warrants issued prior to January 2,
1942, amount to more than four million pesos. The appropriation herein mentioned is only for
P1,750,000. Obviously Congress wished to provide for redemption of one class of warrants — those
issued to private individuals — as distinguished from those issued in favor of government officials.
Basis for the discrimination is not lacking. Probably the Government is not so sure that those
warrants to officials have all been properly used by the latter during the Japanese occupation or
maybe it wants to conduct further inquiries as to the equities of the present holders thereof.
The petitioner argues that he is a holder in good faith and for value of a negotiable instrument an dis
entitled to the rights and privileges of a holder in due course, free from defenses. But this treasury
warrant is not within the scope of the negotiable instruments law. For one thing, the document
bearing on its face the words "payable from the appropriation for food administration," is actually an
order for payment out of "a particular fund," and is not unconditional, and does not fulfill one of the
essential requirements of a negotiable instrument. (Section 3 last sentenced and section 1[b] of the
Negotiable Instruments Law.) In the United States, government warrants for the payment of money
are not negotiable instruments nor commercial proper1
Anyway the question here is not whether the Government should eventually pay this warrant, or is
ultimately responsible for it, but whether the Auditor General erred in refusing to permit payment out
of the particular appropriation in Item F-IV-8 of Republic Act No. 80. We think that he did not. Petition
dismissed, with costs.
Paras, Actg. C.J., Feria, Pablo, Perfecto, Briones, and Padilla, JJ., concur.
Footnotes
1
Logan County Bank vs. Farmers' National Bank, 155 Pac., 561; Velvet Ridge School
District No. 91 vs. Bank of Searcy, 137 S.W., 907; Marshall vs. State, 102 So., 650.
THIRD DIVISION
[G.R. No. 120639. September 25, 1998]
BPI EXPRESS CARD CORPORATION, petitioner, vs. COURT OF

APPEALS and RICARDO J. MARASIGAN, respondents.
DECISION
KAPUNAN, J.:
The question before this Court is whether private respondent can recover moral damages
arising from the cancellation of his credit card by petitioner credit card corporation.
The facts of the case are as stated in the decision of the respondent court,[1] to wit:
The case arose from the dishonor of the credit card of the plaintiff Atty.
Ricardo J. Marasigan by Cafe Adriatico, a business establishment accredited
with the defendant-appellant BPI Express Card Corporation (BECC for
brevity) on December 8, 1989 when the plaintiff entertained some guests
thereat.
The records of this case show that plaintiff, who is a lawyer by profession was
a complimentary member of BECC from February 1988 to February 1989 and
was issued Credit Card No. 100-012-5534 with a credit limit of P3,000.00 and
with a monthly billing every 27th of the month (Exh. N), subject to the terms
and conditions stipulated in the contract (Exh. 1-b). His membership was
renewed for another year or until February 1990 and the credit limit was
increased to P5,000.00 (Exh. A). The plaintiff oftentimes exceeded his credit
limits (Exhs. I, I-1 to I-12) but this was never taken against him by the
defendant and even his mode of paying his monthly bills in check was
tolerated. Their contractual relations went on smoothly until his statement of
account for October, 1989 amounting to P8,987.84 was not paid in due
time. The plaintiff admitted having inadvertently failed to pay his account for
the said month because he was in Quezon province attending to some
professional and personal commitments. He was informed by his secretary that
defendant was demanding immediate payment of his outstanding account, was
requiring him to issue a check for P15,000.00 which would include his future
bills, and was threatening to suspend his credit card. Plaintiff issued Far East
Bank and Trust Co. Check No. 494675 in the amount of P15,000.00, postdated
December 15, 1989 which was received on November 23, 1989 by Tess
Lorenzo, an employee of the defendant (Exhs. J and J-1), who in turn gave the
said check to Jeng Angeles, a co-employee who handles the account of the
plaintiff. The check remained in the custody of Jeng Angeles. Mr. Roberto
Maniquiz, head of the collection department of defendant was formally
informed of the postdated check about a week later. On November 28, 1989,
defendant served plaintiff a letter by ordinary mail informing him of the
temporary suspension of the privileges of his credit card and the inclusion of
his account number in their Caution List. He was also told to refrain from
further use of his credit card to avoid any inconvenience/embarrassment and
that unless he settles his outstanding account with the defendant within 5 days
from receipt of the letter, his membership will be permanently cancelled (Exh.
3). There is no showing that the plaintiff received this letter before December
8, 1989. Confident that he had settled his account with the issuance of the
postdated check, plaintiff invited some guests on December 8, 1989 and
entertained them at Caf Adriatico. When he presented his credit card to Caf
Adriatico for the bill amounting to P735.32, said card was dishonored. One of
his guests, Mary Ellen Ringler, paid the bill by using her own credit card, a
Unibankard (Exhs. M, M-1 and M-2).
In a letter addressed to the defendant dated December 12, 1989, plaintiff
requested that he be sent the exact billing due him as of December 15, 1989, to
withhold the deposit of his postdated check and that said check be returned to
him because he had already instructed his bank to stop the payment thereof as
the defendant violated their agreement that the plaintiff issue the check to the
defendant to cover his account amounting to only P8,987.84 on the condition
that the defendant will not suspend the effectivity of the card (Exh. D). A letter
dated December 16, 1989 was sent by the plaintiff to the manager of FEBTC,
Ramada Branch, Manila requesting the bank to stop the payment of the check
(Exhs. E, E-1). No reply was received by plaintiff from the defendant to his
letter dated December 12, 1989. Plaintiff sent defendant another letter dated
March 12, 1990 reminding the latter that he had long rescinded and cancelled
whatever arrangement he entered into with defendant and requesting for his
correct billing, less the improper charges and penalties, and for an explanation
within five (5) days from receipt thereof why his card was dishonored on
December 8, 1989 despite assurance to the contrary by defendant's personnel-
in-charge, otherwise the necessary court action shall be filed to hold defendant
responsible for the humiliation and embarrassment suffered by him (Exh.
F). Plaintiff alleged further that after a few days, a certain Atty. Albano,
representing himself to be working with office of Atty. Lopez, called him
inquiring as to how the matter can be threshed out extrajudicially but the latter
said that such is a serious matter which cannot be discussed over the
phone. The defendant served its final demand to the plaintiff dated March 21,
1990 requiring him to pay in full his overdue account, including stipulated fees
and charges, within 5 days from receipt thereof or face court action also to
replace the postdated check with cash within the same period or face criminal
suit for violation of the Bouncing Check Law (Exh. G/Exh. 13). The plaintiff,
in a reply letter dated April 5, 1990 (Exh. H), demanded defendant's
compliance with his request in his first letter dated March 12, 1990 within
three (3) days from receipt, otherwise the plaintiff will file a case against them,
x x x.[2]
Thus, on May 7, 1990 private respondent filed a complaint for damages against petitioner
before the Regional Trial Court of Makati, Branch 150, docketed as Civil Case No. 90-1174.
After trial, the trial court ruled for private respondent, finding that herein petitioner abused
its right in contravention of Article 19 of the Civil Code. [3] The dispositive portion of the decision
reads:
Wherefore, judgment is hereby rendered ordering the defendant to pay plaintiff

the following:
1. P100,000.00 as moral damages;

2. P50,000.00 as exemplary damages; and
3. P20,000.00 by way of attorney's fees.
On the other hand, plaintiff is ordered to pay defendant its outstanding
obligation in the amount of P14,439.41, amount due as of December 15, 1989.
[4]
The trial court's ruling was based on its findings and conclusions, to wit:
There is no question that plaintiff had been in default in the payment of his
billings for more than two months, prompting defendant to call him and
reminded him of his obligation. Unable to personally talk with him, this Court
is convinced that somehow one or another employee of defendant called him
up more than once.
However, while it is true that, as indicated in the terms and conditions of the
application for BPI credit card, upon failure of the cardholder to pay his
outstanding obligation for more than thirty (30) days, the defendant can
automatically suspend or cancel the credit card, that reserved right should not
have been abused, as it was in fact abused, in plaintiff's case. What is more
peculiar here is that there have been admitted communications between
plaintiff and defendant prior to the suspension or cancellation of plaintiff's
credit card and his inclusion in the caution list. However, nowhere in any of
these communications was there ever a hint given to plaintiff that his card had
already been suspended or cancelled. In fact, the Court observed that while
defendant was trying its best to persuade plaintiff to update its account and pay
its obligation, it had already taken steps to suspend/cancel plaintiff's card and
include him in the caution list. While the Court admires defendant's diplomacy
in dealing with its clients, it cannot help but frown upon the backhanded way
defendant dealt with plaintiff's case. For despite Tess Lorenzo's denial, there is
reason to believe that plaintiff was indeed assured by defendant of the
continued honoring of his credit card so long as he pays his obligation
of P15,000.00. Worst, upon receipt of the postdated check, defendant kept the
same until a few days before it became due and said check was presented to
the head of the collection department, Mr. Maniquiz, to take steps thereon,
resulting to the embarrassing situation plaintiff found himself in on December
8, 1989. Moreover, Mr. Maniquiz himself admitted that his request for plaintiff
to replace the check with cash was not because it was a postdated check but
merely to tally the payment with the account due.
Likewise, the Court is not persuaded by the sweeping denials made by Tess
Lorenzo and her claim that her only participation was to receive the subject
check. Her immediate superior, Mr. Maniquiz testified that he had instructed
Lorenzo to communicate with plaintiff once or twice to request the latter to
replace the questioned check with cash, thus giving support to the testimony of
plaintiff's witness, Dolores Quizon, that it was one Tess Lorenzo who she had
talked over the phone regarding plaintiff's account and plaintiff's own
statement that it was this woman who assured him that his card has not yet
been and will not be cancelled/suspended if he would pay defendant the sum
of P15,000.00.
Now, on the issue of whether or not upon receipt of the subject check,
defendant had agreed that the card shall remain effective, the Court takes note
of the following:
1. An employee of defendant corporation unconditionally accepted the subject check

upon its delivery, despite its being a postdated one; and the amount did not tally with
plaintiff's obligation;
2. Defendant did not deny nor controvert plaintiff's claim that all his payments were
made in checks;
3. Defendant's main witness, Mr. Maniquiz, categorically stated that the request for
plaintiff to replace his postdated check with cash was merely for the purpose of
tallying plaintiff's outstanding obligation with his payment and not to question the
postdated check;
4. That the card was suspended almost a week after receipt of the postdated check;
5. That despite the many instances that defendant could have informed plaintiff over
the phone of the cancellation or suspension of his credit card, it did not do so, which
could have prevented the incident of December 8, 1989, the notice allegedly sent thru
ordinary mail is not only unreliable but takes a long time. Such action as suspension
of credit card must be immediately relayed to the person affected so as to avoid
embarrassing situations.
6. And that the postdated check was deposited on December 20, 1989.
In view of the foregoing observations, it is needless to say that there was

indeed an arrangement between plaintiff and the defendant, as can be inferred
from the acts of the defendant's employees, that the subject credit card is still
good and could still be used by the plaintiff as it would be honored by the duly
accredited establishment of defendant.[5]
Not satisfied with the Regional Trial Court's decision, petitioner appealed to the Court of
Appeals, which, in a decision promulgated on March 9, 1995 ruled in its dispositive portion:
WHEREFORE, premises considered, the decision appealed from is hereby
AFFIRMED with the MODIFICATION that the defendant-appellant shall pay
the plaintiff-appellee the following: P50,000.00 as moral damages; P25,000.00
as exemplary damages; and P10,000.00 by way of attorney's fees.
SO ORDERED.[6]
Hence, the present petition on the following assignment of errors:
I
THE LOWER COURT ERRED IN DECLARING THAT THERE WAS

INDEED AN AGREEMENT OR ARRANGEMENT ENTERED INTO
BETWEEN THE PARTIES WHEREIN THE DEFENDANT REQUIRED
THE PLAINTIFF TO ISSUE A POSTDATED CHECK IN ITS FAVOR IN
THE AMOUNT OF P15,000.00 AS PAYMENT FOR HIS OVERDUE
ACCOUNTS, WITH THE CONDITION THAT THE PLAINTIFF'S CREDIT
CARD WILL NOT BE SUSPENDED OR CANCELLED.
II
THE LOWER COURT ERRED IN HOLDING DEFENDANT LIABLE FOR

DAMAGES AND ATTORNEY'S FEES ARISING OUT FROM THE
DISHONOR OF THE PLAINTIFF'S CREDIT CARD.[7]
We find the petition meritorious.
The first issue to be resolved is whether petitioner had the right to suspend the credit card of
the private respondent.
Under the terms and conditions of the credit card, signed by the private respondent, any card
with outstanding balances after thirty (30) days from original billing/statement shall
automatically be suspended, thus:
PAYMENT OF CHARGES - BECC shall furnish the Cardholder a monthly
statement of account made through the use of the CARD and the Cardholder
agrees that all charges made through the use of the CARD shall be paid by the
Cardholder on or before the last day for payments, which is twenty (20) days
from the date of the said statement of account, and such payment due date
may be changed to an earlier date if the Cardholder's account is considered
overdue and/or with balances in excess of the approved credit limit; or to such
other date as may be deemed proper by the CARD issuer with notice to the
Cardholder on the same monthly statement of account. If the last day for
payment falls on a Saturday, Sunday or Holiday, the last day for payment
automatically becomes the last working day prior to said payment
date. However, notwithstanding the absence or lack of proof of service of the
statement of charges to the Cardholder, the latter shall pay any or all charges
made through the use of the CARD within thirty (30) days from the date or
dates thereof. Failure of Cardholder to pay any and all charges made through
the CARD within the payment period as stated in the statement of charges or
within thirty (30) days from actual date or dates whichever occur earlier, shall
render him in default without the necessity of demand from BECC, which the
Cardholder expressly waives. These charges or balance thereof remaining
unpaid after the payment due date indicated on the monthly statement of
account shall bear interest at the rate of 3% per month and an additional
penalty fee equivalent to another 3% of the amount due for every month or a
fraction of a month's delay. PROVIDED, that if there occurs any change on
the prevailing market rates. BECC shall have the option to adjust the rate of
interest and/or penalty fee due on the outstanding obligation with prior notice
to the Cardholder.
xxx xxx xxx
Any CARD with outstanding balances unpaid after thirty (30) days from
original billing/statement date shall automatically be suspended, and those
with accounts unpaid after sixty (60) days from said original billing/statement
date shall automatically be cancelled, without prejudice to BECC's right to
suspend or cancel any CARD any time and for whatever reason. In case of
default in his obligation as provided for in the preceding paragraph,
Cardholder shall surrender his CARD to BECC and shall in addition to the
interest and penalty charges aforementioned, pay the following liquidated
damages and/or fees (a) a collection fee of 25% of the amount due if the
account is referred to a collection agency or attorney; (b) a service fee of P100
for every dishonored check issued by the Cardholder in payment of his
account, with prejudice, however, to BECC's right of considering Cardholder's
obligation unpaid, cable cost for demanding payment or advising cancellation
of membership shall also be for Cardholder's account; and (c) a final fee
equivalent to 25% of the unpaid balance, exclusive of litigation expenses and
judicial costs, if the payment of the account is enforced through court action. [8]
The aforequoted provision of the credit card cannot be any clearer. By his own admission,
private respondent made no payment within thirty days for his original billing/statement dated 27
September 1989. Neither did he make payment for his original billing/statement dated 27
October 1989. Consequently, as early as 28 October 1989, thirty days from the non-payment of
his billing dated 27 September 1989, petitioner corporation could automatically suspend his
credit card.
The next issue is whether prior to the suspension of private respondent's credit card on 28
November 1989, the parties entered into an agreement whereby the card could still be used and
would be duly honored by duly accredited establisments.
We agree with the findings of the respondent court, that there was an arrangement between
the parties, wherein the petitioner required the private respondent to issue a check worth P15,000
as payment for the latter's billings. However, we find that the private respondent was not able to
comply with his obligation.
As the testimony of private respondent himself bears out, the agreement was for the
immediate payment of the outstanding account:
Q In said statement of account that you are supposed to pay the P8,974.84 the charge of interest and
penalties, did you note that?
A Yes, sir. I noted the date.
Q When?
A When I returned from the Quezon province, sir.
Q When?
A I think November 22, sir.
Q So that before you used again the credit card you were not able to pay immediately this P8,987.84 in
cash?
A I paid P15,000.00, sir.
Q My question Mr. Witness is, did you pay this P8,987.84 in charge of interest and penalties
immediately in cash?
A In cash no, but in check, sir.
Q You said that you noted the word "immediately" in bold letters in your statement of account, why
did you not pay immediately?
A Because I received that late, sir.
Q Yes, on November 22 when you received from the secretary of the defendant telling you to pay the
principal amount of P8,987.84, why did you not pay?
A There was a communication between me and the defendant, I was required to pay P8,000.00 but I
paid in check for P15,000.00, sir.
Q Do you have any evidence to show that the defendant required you to pay in check for P15,000.00?
A Yes, sir.
Q Where is it?
A It was by telecommunication, sir.
Q So there is no written communication between you and the defendant?
A There was none, sir.
Q There is no written agreement which says that P8,987.84 should be paid for P15,000.00 in check,
there is none?
A Yes, no written agreement, sir.
Q And you as a lawyer you know that a check is not considered as cash specially when it is postdated
sent to the defendant?
A That is correct, sir.
Clearly, the purpose of the arrangement between the parties on November 22, 1989, was for
the immediate payment of the private respondent's outstanding account, in order that his credit
card would not be suspended.
As agreed upon by the parties, on the following day, private respondent did issue a check
for P15,000. However, the check was postdated 15 December 1989. Settled is the doctrine that a
check is only a substitute for money and not money, the delivery of such an instrument does not,
by itself operate as payment.[9] This is especially true in the case of a postdated check.
Thus, the issuance by the private respondent of the postdated check was not effective
payment. It did not comply with his obligation under the arrangement with Miss
Lorenzo. Petitioner corporation was therefore justified in suspending his credit card.
Finally, we find no legal and factual basis for private respondent's assertion that in canceling
the credit card of the private respondent, petitioner abused its right under the terms and
conditions of the contract.
To find the existence of an abuse of right under Article 19 the following elements must be
present: (1) There is a legal right or duty; (2) which is exercised in bad faith; (3) for the sole
intent of prejudicing or injuring another.[10]
Time and again this Court has held that good faith is presumed and the burden of proving
bad faith is on the party alleging it.[11] This private respondent failed to do. In fact, the action of
the petitioner belies the existence of bad faith. As early as 28 October 1989, petitioner could
have suspended private respondent's card outright. Instead, petitioner allowed private respondent
to use his card for several weeks.Petitioner had even notified private respondent of the
impending suspension of his credit card and made special accommodations for him for settling
his outstanding account. As such, petitioner cannot be said to have capriciously and arbitrarily
canceled the private respondent's credit card.
We do not dispute the findings of the lower court that private respondent suffered damages
as a result of the cancellation of his credit card. However, there is a material distinction between
damages and injury. Injury is the illegal invasion of a legal right; damage is the loss, hurt, or
harm which results from the injury; and damages are the recompense or compensation awarded
for the damage suffered. Thus, there can be damage without injury in those instances in which
the loss or harm was not the result of a violation of a legal duty. In such cases, the consequences
must be borne by the injured person alone, the law affords no remedy for damages resulting from
an act which does not amount to a legal injury or wrong. These situations are often
called damnum absque injuria.[12]
In other words, in order that a plaintiff may maintain an action for the injuries of which he
complains, he must establish that such injuries resulted from a breach of duty which the
defendant owed to the plaintiff - a concurrence of injury to the plaintiff and legal responsibility
by the person causing it. The underlying basis for the award of tort damages is the premise that
an individual was injured in contemplation of law. Thus, there must first be a breach of some
duty and the imposition of liability for that breach before damages may be awarded; [13] and the
breach of such duty should be the proximate cause of the injury.
We therefore disagree with the ruling of the respondent court that the dishonor of the credit
card of the private respondent by Caf Adriatico is attributable to petitioner for its willful or gross
neglect to inform the private respondent of the suspension of his credit card, the unfortunate
consequence of which brought social humiliation and embarrassment to the private respondent.[14]
It was petitioner's failure to settle his obligation which caused the suspension of his credit
card and subsequent dishonor at Caf Adriatico.He can not now pass the blame to the petitioner
for not notifying him of the suspension of his card. As quoted earlier, the application contained
the stipulation that the petitioner could automatically suspend a card whose billing has not been
paid for more than thirty days.Nowhere is it stated in the terms and conditions of the application
that there is a need of notice before suspension may be effected as private respondent claims.[15]
This notwithstanding, on November 28, 1989, the day of the suspension of private
respondent's card, petitioner sent a letter by ordinary mail notifying private respondent that his
card had been temporarily suspended. Under the Rules on Evidence, there is a disputable
presumption that letters duly directed and mailed were received on the regular course of mail.
[16]
Aside from the private respondent's bare denial, he failed to present evidence to rebut the
presumption that he received said notice. In fact upon cross examination, private respondent
admitted that he did received the letter notifying him of the cancellation:
Q Now you were saying that there was a first letter sent to you by the defendant?
A Your letter, sir.
Q Was that the first letter that you received?
A Yes, sir.
Q Is it that there was a communication first between you and the defendant?
A There was none, sir. I received a cancellation notice but that was after November 27.[17]
As it was private respondent's own negligence which was the proximate cause of his
embarrassing and humiliating experience, we find the award of damages by the respondent court
clearly unjustified. We take note of the fact that private respondent has not yet paid his
outstanding account with petitioner.
IN VIEW OF THE FOREGOING, the decision of the Court of Appeals ordering petitioner
to pay private respondent P100,000.00 as moral damages, P50,000.00 as exemplary damages
and P20,000.00 as attorney's fees, is SET ASIDE. Private respondent is DIRECTED to pay his
outstanding obligation with the petitioner in the amount of P14,439.41.
SO ORDERED.
Narvasa, C.J., (Chairman), and Romero, J., concur.
Purisima, J., no part, being signatory to CA decision.
[1]
CA decision penned by: Justice Salome A. Montoya, concurred by: Justices Fidel P. Purisima and Godardo A.
Jacinto, Rollo, p. 12.
[2]
Id., at 24-26.
[3]
Article 19. Every 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.
[4]
See note 1, p. 45.
[5]
Id., at 42-44.
[6]
Id., at 35.
[7]
Id., at 6.
[8]
Records, p. 104.
[9]
Roman Catholic Bishop of Malolos, Inc. vs. IAC, 191 SCRA 411 (1990).
[10]
Albenson Enterprises Corp. vs. CA, 217 SCRA 16, 25 (1993).
[11]
Barons Marketing Corp. vs. Court of Appeals and Phelps Dodge Phils., Inc., G.R. No. 126486, February 9, 1998.
[12]
Custodio vs. CA, 253 SCRA 483 (1996) citing 22 Am Jur 2d, Damages, Sec. 4, 35-36.
[13]
Ibid.
[14]
See note 1, p. 33.
[15]
During cross-examination of plaintiff-private respondent Ricardo Marasigan by counsel for the defendant-
petitioner, the following exchange ensued:
Q Now you know that after using the credit card you have to pay the monthly charges as they fall due in accordance
with the obligation/application that you signed?
A Yes, sir.
Q And if the payments were not made on time they are supposed to earn interest?
A Yes, sir.
Q They also earn charges, may we know your answer Mr. Witness?
A Yes, sir.
Q Thank you. In case collection suit is filed you know that there were litigation charges that will be claimed against
you, is it not?
A I don't know sir.
Q But you as a practicing lawyer?
A Yes, as matter of fact that is the procedure.
Q But you did not read the contents?
A Yes, sir.
Q But how did you come to know that you are supposed to pay the charges since you have not read the contents?
A By the statement of account, sir.
Q What about the date when you should pay your monthly charges, did you know when to pay it?
A It is also stated there, sir.
Q In the monthly statement of account?
A Yes, sir.
Q When you received this monthly statement of account did you not complain to the defendant the credit card since
you have not read the contents of your application?
A No, sir. I did not.
Q You continued using that credit card until it was suspended and terminated?
A Yes, sir.
Q Now do you also know from the terms and conditions of the contract between you and the defendant that if the
charges for the use of the credit card are not paid it will be suspended?
A Yes, sir. But there has got to be a prior notice.
Q Thank you. After a suspension is still not paid your credit card has to be terminated?
A I think that is the procedure, sir (TSN, November 5, 1990, pp. 39-42).
[16]
Revised Rules of Court, Rule 131 Sec. 3 (m).
[17]
TSN, November 5, 1990, pp. 51-52.
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 97753 August 10, 1992
CALTEX (PHILIPPINES), INC., petitioner,

vs.
COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.
Bito, Lozada, Ortega & Castillo for petitioners.
Nepomuceno, Hofileña & Guingona for private.
REGALADO, J.:
This petition for review on certiorari impugns and seeks the reversal of the decision promulgated by
respondent court on March 8, 1991 in CA-G.R. CV No. 23615 affirming with modifications, the
1
earlier decision of the Regional Trial Court of Manila, Branch XLII, which dismissed the complaint
2
filed therein by herein petitioner against respondent bank.
The undisputed background of this case, as found by the court a quo and adopted by respondent
court, appears of record:
1. On various dates, defendant, a commercial banking institution, through its Sucat

Branch issued 280 certificates of time deposit (CTDs) in favor of one Angel dela Cruz
who deposited with herein defendant the aggregate amount of P1,120,000.00, as
follows: (Joint Partial Stipulation of Facts and Statement of Issues, Original Records,
p. 207; Defendant's Exhibits 1 to 280);
CTD CTD
Dates Serial Nos. Quantity Amount
22 Feb. 82 90101 to 90120 20 P80,000

26 Feb. 82 74602 to 74691 90 360,000
2 Mar. 82 74701 to 74740 40 160,000
4 Mar. 82 90127 to 90146 20 80,000
5 Mar. 82 74797 to 94800 4 16,000
5 Mar. 82 89965 to 89986 22 88,000
5 Mar. 82 70147 to 90150 4 16,000
8 Mar. 82 90001 to 90020 20 80,000
9 Mar. 82 90023 to 90050 28 112,000
9 Mar. 82 89991 to 90000 10 40,000
9 Mar. 82 90251 to 90272 22 88,000
——— ————
Total 280 P1,120,000
===== ========
2. Angel dela Cruz delivered the said certificates of time (CTDs) to herein plaintiff in
connection with his purchased of fuel products from the latter (Original Record, p.
208).
3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo Tiangco, the
Sucat Branch Manger, that he lost all the certificates of time deposit in dispute. Mr.
Tiangco advised said depositor to execute and submit a notarized Affidavit of Loss,
as required by defendant bank's procedure, if he desired replacement of said lost
CTDs (TSN, February 9, 1987, pp. 48-50).
4. On March 18, 1982, Angel dela Cruz executed and delivered to defendant bank
the required Affidavit of Loss (Defendant's Exhibit 281). On the basis of said affidavit
of loss, 280 replacement CTDs were issued in favor of said depositor (Defendant's
Exhibits 282-561).
5. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan from
defendant bank in the amount of Eight Hundred Seventy Five Thousand Pesos
(P875,000.00). On the same date, said depositor executed a notarized Deed of
Assignment of Time Deposit (Exhibit 562) which stated, among others, that he (de la
Cruz) surrenders to defendant bank "full control of the indicated time deposits from
and after date" of the assignment and further authorizes said bank to pre-terminate,
set-off and "apply the said time deposits to the payment of whatever amount or
amounts may be due" on the loan upon its maturity (TSN, February 9, 1987, pp. 60-
62).
6. Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff Caltex

(Phils.) Inc., went to the defendant bank's Sucat branch and presented for verification
the CTDs declared lost by Angel dela Cruz alleging that the same were delivered to
herein plaintiff "as security for purchases made with Caltex Philippines, Inc." by said
depositor (TSN, February 9, 1987, pp. 54-68).
7. On November 26, 1982, defendant received a letter (Defendant's Exhibit 563) from
herein plaintiff formally informing it of its possession of the CTDs in question and of
its decision to pre-terminate the same.
8. On December 8, 1982, plaintiff was requested by herein defendant to furnish the

former "a copy of the document evidencing the guarantee agreement with Mr. Angel
dela Cruz" as well as "the details of Mr. Angel dela Cruz" obligation against which
plaintiff proposed to apply the time deposits (Defendant's Exhibit 564).
9. No copy of the requested documents was furnished herein defendant.
10. Accordingly, defendant bank rejected the plaintiff's demand and claim for
payment of the value of the CTDs in a letter dated February 7, 1983 (Defendant's
Exhibit 566).
11. In April 1983, the loan of Angel dela Cruz with the defendant bank matured and
fell due and on August 5, 1983, the latter set-off and applied the time deposits in
question to the payment of the matured loan (TSN, February 9, 1987, pp. 130-131).
12. In view of the foregoing, plaintiff filed the instant complaint, praying that
defendant bank be ordered to pay it the aggregate value of the certificates of time
deposit of P1,120,000.00 plus accrued interest and compounded interest therein at
16% per annum, moral and exemplary damages as well as attorney's fees.
After trial, the court a quo rendered its decision dismissing the instant complaint. 3
On appeal, as earlier stated, respondent court affirmed the lower court's dismissal of the complaint,
hence this petition wherein petitioner faults respondent court in ruling (1) that the subject certificates
of deposit are non-negotiable despite being clearly negotiable instruments; (2) that petitioner did not
become a holder in due course of the said certificates of deposit; and (3) in disregarding the
pertinent provisions of the Code of Commerce relating to lost instruments payable to bearer. 4
The instant petition is bereft of merit.
A sample text of the certificates of time deposit is reproduced below to provide a better
understanding of the issues involved in this recourse.
SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%
Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____
This is to Certify that B E A R E R has deposited in this Bank the sum

of PESOS: FOUR THOUSAND ONLY, SECURITY BANK SUCAT
OFFICE P4,000 & 00 CTS Pesos, Philippine Currency, repayable to
said depositor 731 days. after date, upon presentation and surrender
of this certificate, with interest at the rate of 16% per cent per annum.
(Sgd. Illegible) (Sgd. Illegible)
—————————— ———————————
AUTHORIZED SIGNATURES 5
Respondent court ruled that the CTDs in question are non-negotiable instruments, nationalizing as
follows:
. . . While it may be true that the word "bearer" appears rather boldly in the CTDs
issued, it is important to note that after the word "BEARER" stamped on the space
provided supposedly for the name of the depositor, the words "has deposited" a
certain amount follows. The document further provides that the amount deposited
shall be "repayable to said depositor" on the period indicated. Therefore, the text of
the instrument(s) themselves manifest with clarity that they are payable, not to
whoever purports to be the "bearer" but only to the specified person indicated
therein, the depositor. In effect, the appellee bank acknowledges its depositor Angel
dela Cruz as the person who made the deposit and further engages itself to pay said
depositor the amount indicated thereon at the stipulated date. 6
We disagree with these findings and conclusions, and hereby hold that the CTDs in question are
negotiable instruments. Section 1 Act No. 2031, otherwise known as the Negotiable Instruments
Law, enumerates the requisites for an instrument to become negotiable, viz:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise

indicated therein with reasonable certainty.
The CTDs in question undoubtedly meet the requirements of the law for negotiability. The parties'
bone of contention is with regard to requisite (d) set forth above. It is noted that Mr. Timoteo P.
Tiangco, Security Bank's Branch Manager way back in 1982, testified in open court that the
depositor reffered to in the CTDs is no other than Mr. Angel de la Cruz.
xxx xxx xxx
Atty. Calida:
q In other words Mr. Witness, you are saying that per books of the
bank, the depositor referred (sic) in these certificates states that it
was Angel dela Cruz?
witness:
a Yes, your Honor, and we have the record to show that Angel dela
Cruz was the one who cause (sic) the amount.
Atty. Calida:
q And no other person or entity or company, Mr. Witness?
witness:
a None, your Honor. 7
xxx xxx xxx

Atty. Calida:
q Mr. Witness, who is the depositor identified in all of these

certificates of time deposit insofar as the bank is concerned?
witness:
a Angel dela Cruz is the depositor. 8
xxx xxx xxx
On this score, the accepted rule is that the negotiability or non-negotiability of an instrument is
determined from the writing, that is, from the face of the instrument itself. In the construction of a bill
9
or note, the intention of the parties is to control, if it can be legally ascertained. While the writing
10
may be read in the light of surrounding circumstances in order to more perfectly understand the
intent and meaning of the parties, yet as they have constituted the writing to be the only outward and
visible expression of their meaning, no other words are to be added to it or substituted in its stead.
The duty of the court in such case is to ascertain, not what the parties may have secretly intended as
contradistinguished from what their words express, but what is the meaning of the words they have
used. What the parties meant must be determined by what they said. 11
Contrary to what respondent court held, the CTDs are negotiable instruments. The documents
provide that the amounts deposited shall be repayable to the depositor. And who, according to the
document, is the depositor? It is the "bearer." The documents do not say that the depositor is Angel
de la Cruz and that the amounts deposited are repayable specifically to him. Rather, the amounts
are to be repayable to the bearer of the documents or, for that matter, whosoever may be the bearer
at the time of presentment.
If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it could
have with facility so expressed that fact in clear and categorical terms in the documents, instead of
having the word "BEARER" stamped on the space provided for the name of the depositor in each
CTD. On the wordings of the documents, therefore, the amounts deposited are repayable to
whoever may be the bearer thereof. Thus, petitioner's aforesaid witness merely declared that Angel
de la Cruz is the depositor "insofar as the bank is concerned," but obviously other parties not privy to
the transaction between them would not be in a position to know that the depositor is not the bearer
stated in the CTDs. Hence, the situation would require any party dealing with the CTDs to go behind
the plain import of what is written thereon to unravel the agreement of the parties thereto through
facts aliunde. This need for resort to extrinsic evidence is what is sought to be avoided by the
Negotiable Instruments Law and calls for the application of the elementary rule that the interpretation
of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. 12
The next query is whether petitioner can rightfully recover on the CTDs. This time, the answer is in
the negative. The records reveal that Angel de la Cruz, whom petitioner chose not to implead in this
suit for reasons of its own, delivered the CTDs amounting to P1,120,000.00 to petitioner without
informing respondent bank thereof at any time. Unfortunately for petitioner, although the CTDs are
bearer instruments, a valid negotiation thereof for the true purpose and agreement between it and
De la Cruz, as ultimately ascertained, requires both delivery and indorsement. For, although
petitioner seeks to deflect this fact, the CTDs were in reality delivered to it as a security for De la
Cruz' purchases of its fuel products. Any doubt as to whether the CTDs were delivered as payment
for the fuel products or as a security has been dissipated and resolved in favor of the latter by
petitioner's own authorized and responsible representative himself.
In a letter dated November 26, 1982 addressed to respondent Security Bank, J.Q. Aranas, Jr.,
Caltex Credit Manager, wrote: ". . . These certificates of deposit were negotiated to us by Mr. Angel
dela Cruz to guarantee his purchases of fuel products" (Emphasis ours.) This admission is
13
conclusive upon petitioner, its protestations notwithstanding. Under the doctrine of estoppel, an
admission or representation is rendered conclusive upon the person making it, and cannot be denied
or disproved as against the person relying thereon. A party may not go back on his own acts and
14
representations to the prejudice of the other party who relied upon them. In the law of evidence,
15
whenever a party has, by his own declaration, act, or omission, intentionally and deliberately led
another to believe a particular thing true, and to act upon such belief, he cannot, in any litigation
arising out of such declaration, act, or omission, be permitted to falsify it.
16
If it were true that the CTDs were delivered as payment and not as security, petitioner's credit
manager could have easily said so, instead of using the words "to guarantee" in the letter
aforequoted. Besides, when respondent bank, as defendant in the court below, moved for a bill of
particularity therein praying, among others, that petitioner, as plaintiff, be required to aver with
17
sufficient definiteness or particularity (a) the due date or dates of payment of the alleged
indebtedness of Angel de la Cruz to plaintiff and (b) whether or not it issued a receipt showing that
the CTDs were delivered to it by De la Cruz as payment of the latter's alleged indebtedness to it,
plaintiff corporation opposed the motion. Had it produced the receipt prayed for, it could have
18
proved, if such truly was the fact, that the CTDs were delivered as payment and not as security.
Having opposed the motion, petitioner now labors under the presumption that evidence willfully
suppressed would be adverse if produced. 19
Under the foregoing circumstances, this disquisition in Intergrated Realty Corporation, et al. vs.
Philippine National Bank, et al. is apropos:
20
. . . Adverting again to the Court's pronouncements in Lopez, supra, we quote

therefrom:
The character of the transaction between the parties is to be

determined by their intention, regardless of what language was used
or what the form of the transfer was. If it was intended to secure the
payment of money, it must be construed as a pledge; but if there was
some other intention, it is not a pledge. However, even though a
transfer, if regarded by itself, appears to have been absolute, its
object and character might still be qualified and explained by
contemporaneous writing declaring it to have been a deposit of the
property as collateral security. It has been said that a transfer of
property by the debtor to a creditor, even if sufficient on its face to
make an absolute conveyance, should be treated as a pledge if the
debt continues in inexistence and is not discharged by the transfer,
and that accordingly the use of the terms ordinarily importing
conveyance of absolute ownership will not be given that effect in such
a transaction if they are also commonly used in pledges and
mortgages and therefore do not unqualifiedly indicate a transfer of
absolute ownership, in the absence of clear and unambiguous
language or other circumstances excluding an intent to pledge.
Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the Negotiable
Instruments Law, an instrument is negotiated when it is transferred from one person to another in
such a manner as to constitute the transferee the holder thereof, and a holder may be the payee or
21
indorsee of a bill or note, who is in possession of it, or the bearer thereof. In the present case,
22
however, there was no negotiation in the sense of a transfer of the legal title to the CTDs in favor of
petitioner in which situation, for obvious reasons, mere delivery of the bearer CTDs would have
sufficed. Here, the delivery thereof only as security for the purchases of Angel de la Cruz (and we
even disregard the fact that the amount involved was not disclosed) could at the most constitute
petitioner only as a holder for value by reason of his lien. Accordingly, a negotiation for such purpose
cannot be effected by mere delivery of the instrument since, necessarily, the terms thereof and the
subsequent disposition of such security, in the event of non-payment of the principal obligation, must
be contractually provided for.
The pertinent law on this point is that where the holder has a lien on the instrument arising from
contract, he is deemed a holder for value to the extent of his lien. As such holder of collateral
23
security, he would be a pledgee but the requirements therefor and the effects thereof, not being
provided for by the Negotiable Instruments Law, shall be governed by the Civil Code provisions on
pledge of incorporeal rights, which inceptively provide:
24
Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may also be

pledged. The instrument proving the right pledged shall be delivered to the creditor,
and if negotiable, must be indorsed.
Art. 2096. A pledge shall not take effect against third persons if a description of the
thing pledged and the date of the pledge do not appear in a public instrument.
Aside from the fact that the CTDs were only delivered but not indorsed, the factual findings of
respondent court quoted at the start of this opinion show that petitioner failed to produce any
document evidencing any contract of pledge or guarantee agreement between it and Angel de la
Cruz. Consequently, the mere delivery of the CTDs did not legally vest in petitioner any right
25
effective against and binding upon respondent bank. The requirement under Article 2096
aforementioned is not a mere rule of adjective law prescribing the mode whereby proof may be
made of the date of a pledge contract, but a rule of substantive law prescribing a condition without
which the execution of a pledge contract cannot affect third persons adversely. 26
On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of respondent
bank was embodied in a public instrument. With regard to this other mode of transfer, the Civil
27
Code specifically declares:
Art. 1625. An assignment of credit, right or action shall produce no effect as against
third persons, unless it appears in a public instrument, or the instrument is recorded
in the Registry of Property in case the assignment involves real property.
Respondent bank duly complied with this statutory requirement. Contrarily, petitioner, whether as
purchaser, assignee or lien holder of the CTDs, neither proved the amount of its credit or the extent
of its lien nor the execution of any public instrument which could affect or bind private respondent.
Necessarily, therefore, as between petitioner and respondent bank, the latter has definitely the better
right over the CTDs in question.
Finally, petitioner faults respondent court for refusing to delve into the question of whether or not
private respondent observed the requirements of the law in the case of lost negotiable instruments
and the issuance of replacement certificates therefor, on the ground that petitioner failed to raised
that issue in the lower court.28
On this matter, we uphold respondent court's finding that the aspect of alleged negligence of private
respondent was not included in the stipulation of the parties and in the statement of issues submitted
by them to the trial court. The issues agreed upon by them for resolution in this case are:
29
1. Whether or not the CTDs as worded are negotiable instruments.
2. Whether or not defendant could legally apply the amount covered by the CTDs
against the depositor's loan by virtue of the assignment (Annex "C").
3. Whether or not there was legal compensation or set off involving the amount
covered by the CTDs and the depositor's outstanding account with defendant, if any.
4. Whether or not plaintiff could compel defendant to preterminate the CTDs before
the maturity date provided therein.
5. Whether or not plaintiff is entitled to the proceeds of the CTDs.
6. Whether or not the parties can recover damages, attorney's fees and litigation
expenses from each other.
As respondent court correctly observed, with appropriate citation of some doctrinal authorities, the
foregoing enumeration does not include the issue of negligence on the part of respondent bank. An
issue raised for the first time on appeal and not raised timely in the proceedings in the lower court is
barred by estoppel. Questions raised on appeal must be within the issues framed by the parties
30
and, consequently, issues not raised in the trial court cannot be raised for the first time on appeal.31
Pre-trial is primarily intended to make certain that all issues necessary to the disposition of a case
are properly raised. Thus, to obviate the element of surprise, parties are expected to disclose at a
pre-trial conference all issues of law and fact which they intend to raise at the trial, except such as
may involve privileged or impeaching matters. The determination of issues at a pre-trial conference
bars the consideration of other questions on appeal. 32
To accept petitioner's suggestion that respondent bank's supposed negligence may be considered
encompassed by the issues on its right to preterminate and receive the proceeds of the CTDs would
be tantamount to saying that petitioner could raise on appeal any issue. We agree with private
respondent that the broad ultimate issue of petitioner's entitlement to the proceeds of the questioned
certificates can be premised on a multitude of other legal reasons and causes of action, of which
respondent bank's supposed negligence is only one. Hence, petitioner's submission, if accepted,
would render a pre-trial delimitation of issues a useless exercise. 33
Still, even assuming arguendo that said issue of negligence was raised in the court below, petitioner
still cannot have the odds in its favor. A close scrutiny of the provisions of the Code of Commerce
laying down the rules to be followed in case of lost instruments payable to bearer, which it invokes,
will reveal that said provisions, even assuming their 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. The word "may" is usually permissive, not mandatory. It is an
34 35
auxiliary verb indicating liberty, opportunity, permission and possibility.

36
Moreover, as correctly analyzed by private respondent, Articles 548 to 558 of the Code of
37
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.
Footnotes
1 Per Justice Segundino G. Chua, with the concurrence of Justices Santiago M.

Kapunan and Luis L. Victor.
2 Judge Ramon Mabutas, Jr., presiding; Rollo, 64-88.
3 Rollo, 24-26.
4 Ibid., 12.
5 Exhibit A, Documentary Evidence for the Plaintiff, 8.
6 Rollo, 28.
7 TSN, February 9, 1987, 46-47.
8 Ibid., id., 152-153.
9 11 Am. Jur. 2d, Bills and Notes, 79.
10 Ibid., 86.
11 Ibid., 87-88.
12 Art. 1377, Civil Code.
13 Exhibit 563, Documentary Evidence for the Defendant, 442; Original Record, 211.
14 Panay Electric Co., Inc. vs. Court of Appeals, et al., 174 SCRA 500 (1989).
15 Philippine National Bank vs. Intermediate Appellate Court, et al., 189 SCRA 680
(1990).
16 Section 2(a), Rule 131, Rules of Court.
17 Original Record, 152.
18 Ibid., 154.
19 Section 3(e), Rule 131, Rules of Court.
20 174 SCRA 295 (1989), jointly decided with Overseas Bank of Manila vs. Court of
Appeals, et al., G.R. No. 60907.
21 Sec. 30, Act No. 2031.
22 Sec. 191, id.
23 Sec. 27, id.; see also Art. 2118, Civil Code.
24 Commentaries and Jurisprudence on the Philippine Commercial Laws,

T.C. Martin, 1985 Rev. Ed., Vol. I, 134; Art. 18, Civil Code; Sec. 196, Act No. 2031.
25 Rollo, 25.
26 Tec Bi & Co. vs. Chartered Bank of India, Australia and China, 41 Phil. 596
(1916); Ocejo, Perez & Co. vs. The International Banking Corporation, 37 Phil. 631
(1918); Te Pate vs. Ingersoll, 43 Phil. 394 (1922).
27 Rollo, 25.
28 Ibid., 15.
29 Joint Partial Stipulation of Facts and Statement of Issues, dated November 27,
1984; Original Record, 209.
30 Mejorada vs. Municipal Council of Dipolog, 52 SCRA 451 (1973).
31 Sec. 18, Rule 46, Rules of Court; Garcia, et al. vs. Court of Appeals, et al., 102
SCRA 597 (1981); Matienzo vs. Servidad, 107 SCRA 276 (1981); Aguinaldo
Industries Corporation, etc. vs. Commissioner of Internal Revenue, et al., 112 SCRA
136 (1982); Dulos Realty & Development Corporation vs. Court of Appeals, et al.,
157 SCRA 425 (1988).
32 Bergado vs. Court of Appeals, et al., 173 SCRA 497 (1989).
33 Rollo, 58.
34 U.S. vs. Sanchez, 13 Phil. 336 (1909); Capati vs. Ocampo, 113 SCRA 794 (1982).
35 Luna vs. Abaya, 86 Phil. 472 (1950).
36 Philippine Law Dictionary, F.B. Moreno, Third Edition, 590.
37 Rollo, 59.
SECOND DIVISION
[G.R. No. 96405. June 26, 1996]
BALDOMERO INCIONG, JR., petitioner, vs. COURT OF APPEALS and

PHILIPPINE BANK OF COMMUNICATIONS, respondents.
SYLLABUS
1. REMEDIAL LAW; EVIDENCE; PAROL EVIDENCE RULE; DOES NOT SPECIFY
THAT THE WRITTEN AGREEMENT BE A PUBLIC INSTRUMENT.- Clearly, the
rule does not specify that the written agreement be a public document. What is
required is that the agreement be in writing as the rule is in fact founded on "long
experience that written evidence is so much more certain and accurate than that
which rests in fleeting memory only, that it would be unsafe, when parties have
expressed the terms of their contract in writing, to admit weaker evidence to control
and vary the stronger and to show that the parties intended a different contract from
that expressed in the writing signed by them" [FRANCISCO, THE RULES OF
COURT OF THE PHILIPPINES, Vol. VII, Part I, 1990 ed., p. 179] Thus, for the parol
evidence rule to apply, a written contract need not be in any particular form, or be
signed by both parties. As a general rule, bills, notes and other instruments of a
similar nature are not subject to be varied or contradicted by parol or extrinsic
evidence.
2. CIVIL LAW; OBLIGATIONS; SOLIDARY OR JOINT AND SEVERAL OBLIGATION,
DEFINED.- 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. [TOLENTINO, CIVIL CODE OF THE PHILIPPINES, Vol. IV, 1991 ed., p.
217] Section 4, Chapter 3, Title 1, 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 the obligation is
joint so that each of the debtors is liable only for the proportionate part of the
debt. There is a solidary liability only when the obligation expressly so states, when
the law so provides or when the nature of the obligation so requires. [Sesbreo v.
Court of Appeals, G.R. No. 89252, May 24, 1993, 222 SCRA 466, 481.]
3. ID.; GUARANTY; GUARANTOR AS DISTINGUISHED FROM SOLIDARY
DEBTOR.- 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 latter, 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 the fiansa; while
a solidary co-debtor has no other rights than those bestowed upon him in Section 4,
Chapter 3, Title 1, Book IV of the Civil Code." [Tolentino, Civil Code of the
Philippines, Vol. V, 1992 ed., p. 502]
APPEARANCES OF COUNSEL
Emilio G. Abrogena for petitioner.
Teogenes X. Velez for private respondent.
DECISION
ROMERO, J.:
This is a petition for review on certiorari of the decision of the Court of Appeals
affirming that of the Regional Trial Court of Misamis Oriental, Branch 18, [1] which
disposed of Civil Case No. 10507 for collection of a sum of money and damages, as
follows:
"WHEREFORE, defendant BALDOMERO L. INCIONG, JR. is adjudged solidarily

liable and ordered to pay to the plaintiff Philippine Bank of Communications,
Cagayan de Oro City, the amount of FIFTY THOUSAND PESOS (P50,000.00),with
interest thereon from May 5, 1983 at 16% per annum until fully paid; and 6% per
annum on the total amount due, as liquidated damages or penalty from May 5, 1983
until fully paid; plus 10% of the total amount due for expenses of litigation and
attorney's fees; and to pay the costs.
The counterclaim, as well as the cross claim, are dismissed for lack of merit.
SO ORDERED."
Petitioner's liability resulted from the promissory note in the amount of P50,000.00
which he signed with Rene C. Naybe and Gregorio D. Pantanosas on February 3, 1983,
holding themselves jointly and severally liable to private respondent Philippine Bank of
Communications, Cagayan de Oro City branch. The promissory note was due on May
5, 1983.
Said due date expired without the promissors having paid their
obligation. Consequently, on November 14, 1983 and on June 8, 1984, private
respondent sent petitioner telegrams demanding payment thereof. [2] On December 11,
1984 private respondent also sent by registered mail a final letter of demand to Rene C.
Naybe. Since both obligors did not respond to the demands made, private respondent
filed on January 24, 1986 a complaint for collection of the sum of P50,000.00 against
the three obligors.
On November 25, 1986, the complaint was dismissed for failure of the plaintiff to
prosecute the case. However, on January 9, 1987, the lower court reconsidered the
dismissal order and required the sheriff to serve the summonses. On January 27, 1987,
the lower court dismissed the case against defendant Pantanosas as prayed for by the
private respondent herein. Meanwhile, only the summons addressed to petitioner was
served as the sheriff learned that defendant Naybe had gone to Saudi Arabia.
In his answer, petitioner alleged that sometime in January 1983, he was
approached by his friend, Rudy Campos, who told him that he was a partner of Pio Tio,
the branch manager of private respondent in Cagayan de Oro City, in the falcata logs
operation business. Campos also intimated to him that Rene C. Naybe was interested in
the business and would contribute a chainsaw to the venture. He added that, although
Naybe had no money to buy the equipment Pio Tio had assured Naybe of the approval
of a loan he would make with private respondent. Campos then persuaded petitioner to
act as a "co-maker" in the said loan. Petitioner allegedly acceded but with the
understanding that he would only be a co-maker for the loan of P5,000.00.
Petitioner alleged further that five (5) copies of a blank promissory note were
brought to him by Campos at his office. He affixed his signature thereto but in one copy,
he indicated that he bound himself only for the amount of P5,000.00. Thus, it was by
trickery, fraud and misrepresentation that he was made liable for the amount of
P50,000.00.
In the aforementioned decision of the lower court, it noted that the typewritten figure
"P50,000-" clearly appears directly below the admitted signature of the petitioner in the
promissory note.[3] Hence, the latter's uncorroborated testimony on his limited liability
cannot prevail over the presumed regularity and fairness of the transaction, under Sec.
5 (q) of Rule 131. The lower court added that it was "rather odd" for petitioner to have
indicated in a copy and not in the original, of the promissory note, his supposed
obligation in the amount of P5,000.00 only. Finally, the lower court held that even
granting that said limited amount had actually been agreed upon, the same would have
been merely collateral between him and Naybe and, therefore, not binding upon the
private respondent as creditor-bank.
The lower court also noted that petitioner was a holder of a Bachelor of Laws
degree and a labor consultant who was supposed to take due care of his concerns, and
that, on the witness stand, Pio Tio denied having participated in the alleged business
venture although he knew for a fact that the falcata logs operation was encouraged by
the bank for its export potential.
Petitioner appealed the said decision to the Court of Appeals which, in its decision
of August 31, 1990, affirmed that of the lower court. His motion for reconsideration of
the said decision having been denied, he filed the instant petition for review
on certiorari.
On February 6,1991, the Court denied the petition for failure of petitioner to comply
with the Rules of Court and paragraph 2 of Circular No. 1-88, and to sufficiently show
that respondent court had committed any reversible error in its questioned decision.
[4]
His motion for the reconsideration of the denial of his petition was likewise denied with
finality in the Resolution of April 24, 1991. [5] Thereafter, petitioner filed a motion for leave
to file a second motion for reconsideration which, in the Resolution of May 27, 1991, the
Court denied. In the same Resolution, the Court ordered the entry of judgment in this
case.[6]
Unfazed, petitioner filed a motion for leave to file a motion for clarification. In the
latter motion, he asserted that he had attached Registry Receipt No. 3268 to page 14 of
the petition in compliance with Circular No. 1-88. Thus, on August 7,1991, the Court
granted his prayer that his petition be given due course and reinstated the same. [7]
Nonetheless, we find the petition unmeritorious.
Annexed to the petition is a copy of an affidavit executed on May 3, 1988, or after
the rendition of the decision of the lower court, by Gregorio Pantanosas, Jr., an MTCC
judge and petitioner's co-maker in the promissory note. It supports petitioner's allegation
that they were induced to sign the promissory note on the belief that it was only for
P5,000.00, adding that it was Campos who caused the amount of the loan to be
increased to P50,000.00.
The affidavit is clearly intended to buttress petitioner's contention in the instant
petition that the Court of Appeals should have declared the promissory note null and
void on the following grounds: (a) the promissory note was signed in the office of Judge
Pantanosas, outside the premises of the bank; (b) the loan was incurred for the purpose
of buying a second-hand chainsaw which cost only P5,000.00; (c) even a new chainsaw
would cost only P27,500.00; (d) the loan was not approved by the board or credit
committee which was the practice, at it exceeded P5,000.00; (e) the loan had no
collateral; (f) petitioner and Judge Pantanosas were not present at the time the loan was
released in contravention of the bank practice, and (g) notices of default are sent
simultaneously and separately but no notice was validly sent to him. [8] Finally, petitioner
contends that in signing the promissory note, his consent was vitiated by fraud as,
contrary to their agreement that the loan was only for the amount of P5,000. 00, the
promissory note stated the amount of P50,000.00.
The above-stated points are clearly factual. Petitioner is to be reminded of the basic
rule that this Court is not a trier of facts.Having lost the chance to fully ventilate his
factual claims below, petitioner may no longer be accorded the same opportunity in the
absence of grave abuse of discretion on the part of the court below. Had he presented
Judge Pantanosas' affidavit before the lower court, it would have strengthened his claim
that the promissory note did not reflect the correct amount of the loan.
Nor is there merit in petitioner's assertion that since the promissory note "is not a
public deed with the formalities prescribed by law but x x x a mere commercial paper
which does not bear the signature of x x x attesting witnesses," parol evidence may
"overcome" the contents of the promissory note. [9] The first paragraph of the parol
evidence rule[10] states:
"When the terms of an agreement have been reduced to writing, it is considered as

containing all the terms agreed upon and there can be, between the parties and their
successors-in-interest, no evidence of such terms other than the contents of the written
agreement."
Clearly, the rule does not specify that the written agreement be a public document.
What is required is that agreement be in writing as the rule is in fact founded on
"long experience that written evidence is so much more certain and accurate than that
which rests in fleeting memory only, that it would be unsafe, when parties have
expressed the terms of their contract in writing, to admit weaker evidence to control and
vary the stronger and to show that the parties intended a different contract from that
expressed in the writing signed by them." [11] Thus, for the parol evidence rule to apply, a
written contract need not be in any particular form, or be signed by both parties. [12] As a
general rule, bills, notes and other instruments of a similar nature are not subject to be
varied or contradicted by parol or extrinsic evidence. [13]
By alleging fraud in his answer, [14] petitioner was actually in the right direction
towards proving that he and his co-makers agreed to a loan of P5,000.00 only
considering that, where a parol contemporaneous agreement was the inducing and
moving cause of the written contract, it may be shown by parol evidence. [15] However,
fraud must be established by clear and convincing evidence, mere preponderance of
evidence, not even being adequate.[16] Petitioner's attempt to prove fraud must,
therefore, fail as it was evidenced only by his own uncorroborated and, expectedly, self-
serving testimony.
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 some 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. [17] 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
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."[18]
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 the obligation is joint so that each of
the debtors is liable only for a proportionate part of the debt. There is a solidarity liability
only when the obligation expressly so states, when the law so provides or when the
nature of the obligation so requires. [19]
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. [20] The choice is left to the solidary creditor to
determine against whom he will enforce collection. [21] Consequently, the dismissal of the
case against Judge Pontanosas may not be deemed as having discharged petitioner
from liability as well. As regards Naybe, suffice it to say that the court never acquired
jurisdiction over him. Petitioner, therefore, may only have recourse against his co-
makers, as provided by law.
WHEREFORE, the instant petition for review on certiorari is hereby DENIED and
the questioned decision of the Court of Appeals is AFFIRMED. Costs against petitioner.
SO ORDERED.
Regalado (Chairman), Puno, Mendoza, and Torres, Jr., JJ., concur.
[1]
Presided by Judge Senen C. Pearanda.
[2]
Exhs. D-1 & D.
[3]
Exh. A.
[4]
Rollo, p. 30.
[5]
Ibid., p. 37.
[6]
Ibid., p. 46.
[7]
Ibid., p. 50.
[8]
Petition, pp. 6-7.
[9]
Petition, p. 9; Rollo, p. 14.
[10]
Sec. 9, Rule 130, Rules of Court.
[11]
FRANCISCO, THE RULES OF COURT OF TIIE PHILIPPINES, Vol. VII, Part I, 1990 ed., p. 179.
[12]
32A C.J.S. 269.
[13]
Ibid., at p. 251.
[14]
Record, p. 38.
[15]
FRANCISCO, supra, p. 193.
[16]
Cu v. Court of Appeals, G.R. No. 75504, April 2, 1991, 195 SCRA 647, 657 citing Carenan v. Court of
Appeals, G.R. No. 84358, May 31, 1989 and Centenera v. Garcia Palicio, 29 Phil. 470 (1915).
[17]
TOLENTINO, CIVIL CODE OF THE PHILIPPINES, Vol. IV, 1991, ed., p. 217.
[18]
Supra, Vol. V, 1992 ed., p. 502.
[19]
Sesbreo v. Court of Appeals, G.R. No. 89252, May 24, 1993, 222 SCRA 466, 481.
[20]
Art. 1216, Civil Code; Ouano Arrastre Service, Inc. v. Aleonar, G.R. No. 97664, October 10, 1991, 202
SCRA 619, 625.
[21]
Dimayuga v. Phil. Commercial & Industrial Bank, G.R. No. 42542, August 5, 1991, 200 SCRA 143, 148
citing PNB v. Independent Planters Association Inc., L-28046, May 16, 1983, 122 SCRA 113.
269 Phil. 437
SARMIENTO, J.:
This is a petition for review on certiorari which seeks the reversal and
setting aside of the decision[1] of the Court of Appeals,
[2]
the dispositive portion of which reads:
WHEREFORE, the decision appealed from is hereby reversed and set aside
and another one entered for the plaintiff ordering the defendant-
appellee Roman Catholic Bishop of Malolos, Inc. to accept the balance of
P124,000.00 being paid by plaintiff-appellant and thereafter to execute in
favor of Robes-Francisco Realty Corporation a registerable Deed of
Absolute Sale over 20,655 square meters portion of that parcel of land
situated in San Jose del Monte, Bulacan described in OCT No. 575 (now
Transfer Certificates of Title Nos. T-169493, 169494, 169495 and 169496)
of the Register of Deeds of Bulacan. In case of refusal of the defendant to
execute the Deed of Final Sale, the clerk of court is directed to execute the
said document. Without pronouncement as to damages and attorney's
fees. Costs against the defendant-appellee.[3]
The case at bar arose from a complaint filed by the private respondent, then
plaintiff, against the petitioner, then defendant, in the Court of First
Instance (now Regional Trial Court) of Bulacan, at Sta. Maria, Bulacan,
[4]
for specific performance with damages, based on a contract[5] executed on
July 7, 1971.
The property subject matter of the contract consists of a 20,655 sq.m.-
portion, out of the 30,655 sq.m. total area, of a parcel of land covered by
Original Certificate of Title No. 575 of the Province of Bulacan, issued and
registered in the name of the petitioner which it sold to the private
respondent for and in consideration of P123,930.00.
The crux of the instant controversy lies in the compliance or non-
compliance by the private respondent with the provision for payment to the
petitioner of the principal balance of P100,000.00 and the accrued interest
of P24,000.00 within the grace period.
A chronological narration of the antecedent facts is as follows:
On July 7, 1971, the subject contract over the land in question was executed
between the petitioner as vendor and the private respondent through its
then president, Mr. Carlos F. Robes, as vendee, stipulating for
a downpayment of P23,930.00 and the balance of P100,000.00 plus 12%
interest per annum to be paid within four (4) years from execution of the
contract, that is, on or before July 7, 1975. The contract likewise provides
for cancellation, forfeiture of previous payments, and reconveyance of the
land in question in case the private respondent would fail to complete
payment within the said period.
On March 12, 1973, the private respondent, through its new president,
Atty. AdaliaFrancisco, addressed a letter[6] to Father Vasquez, parish priest
of San Jose Del Monte, Bulacan, requesting to be furnished with a copy of
the subject contract and the supporting documents.
On July 17, 1975, admittedly after the expiration of the stipulated period for
payment, the same Atty. Francisco wrote the petitioner a formal
request[7] that her company be allowed to pay the principal amount of
P100,000.00 in three (3) equal installments of six (6) months each with the
first installment and the accrued interest of P24,000.00 to be paid
immediately upon approval of the said request.
On July 29, 1975, the petitioner, through its counsel,
Atty. Carmelo Fernandez, formally denied the said request of the private
respondent, but granted the latter a grace period of five (5) days from the
receipt of the denial[8] to pay the total balance of P124,000.00, otherwise,
the provisions of the contract regarding cancellation, forfeiture,
and reconveyance would be implemented.
On August 4, 1975, the private respondent, through its president, Atty.
Francisco, wrote[9] the counsel of the petitioner requesting an extension of
30 days from said date to fully settle its account. The counsel for the
petitioner, Atty. Fernandez, received the said letter on the same day. Upon
consultation with the petitioner in Malolos, Bulacan, Atty. Fernandez, as
instructed, wrote the private respondent a letter[10] dated August 7, 1975
informing the latter of the denial of the request for an extension of the
grace period.
Consequently, Atty. Francisco, the private respondent's president, wrote a
letter[11]dated August 22, 1975, directly addressed to the petitioner,
protesting the alleged refusal of the latter to accept tender of payment
purportedly made by the former on August 5, 1975, the last day of the grace
period. In the same letter of August 22, 1975, received on the following day
by the petitioner, the private respondent demanded the execution of a deed
of absolute sale over the land in question and after which it would pay its
account in full, otherwise, judicial action would be resorted to.
On August 27, 1975, the petitioner's counsel, Atty. Fernandez, wrote a
reply[12] to the private respondent stating the refusal of his client to execute
the deed of absolute sale due to its (private respondent's) failure to pay its
full obligation. Moreover, the petitioner denied that the private respondent
had made any tender of payment whatsoever within the grace period. In
view of this alleged breach of contract, the petitioner cancelled the contract
and considered all previous payments forfeited and the land as ipso
facto reconveyed.
From a perusal of the foregoing facts, we find that both the contending
parties have conflicting versions on the main question of tender of
payment.
The trial court, in its ratiocination, preferred not to give credence to the
evidence presented by the private respondent. According to the trial court:
x x x What made Atty. Francisco suddenly decide to pay plaintiff's
obligation on August 5, 1975, go to defendant's office at Malolos, and there
tender her payment, when her request of August 4, 1975 had not yet been
acted upon until August 7 1975? If Atty. Francisco had decided to pay the
obligation and had available funds for the purpose on August 5, 1975, then
there would have been no need for her to write defendant on August 4, 1975
to request an extension of time. Indeed, Atty. Francisco's claim that she
made a tender of payment on August 5, 1975 -- such alleged act, considered
in relation to the circumstances both antecedent and subsequent thereto,
being not in accord with the normal pattern of human conduct -- is not
worthy of credence.[13]
The trial court likewise noted the inconsistency in the testimony of Atty.
Francisco, president of the private respondent, who earlier testified that a
certain Mila Policarpioaccompanied her on August 5, 1975 to the office of
the petitioner. Another person, however, named Aurora Oracion, was
presented to testify as the secretary-companion of Atty. Francisco on that
same occasion.
Furthermore, the trial court considered as fatal the failure of Atty.
Francisco to present in court the certified personal check allegedly tendered
as payment or, at least, its xeroxcopy, or even bank records thereof. Finally,
the trial court found that the private respondent had insufficient funds
available to fulfill the entire obligation considering that the latter, through
its president, Atty. Francisco, only had a savings account deposit of
P64,840.00, and although the latter had a money-market placement of
P300,000.00, the same was to mature only after the expiration of the 5-day
grace period.
Based on the above considerations, the trial court rendered a decision in
favor of the petitioner, the dispositive portion of which reads:
WHEREFORE, finding plaintiff to have failed to make out its case, the
court hereby declares the subject contract cancelled and plaintiff's down
payment of P23,930.00 forfeited in favor of defendant, and hereby
dismisses the complaint; and on the counterclaim, the Court orders
plaintiff to pay defendant.
(1) Attorney's fees of P10,000.00;
(2) Litigation expenses of P2,000.00; and
(3) Judicial costs.
SO ORDERED.[14]
Not satisfied with the said decision, the private respondent appealed to the
respondent Intermediate Appellate Court (now Court of Appeals) assigning
as reversible errors, among others, the findings of the trial court that the
available funds of the private respondent were insufficient and that the
latter did not effect a valid tender of payment and consignation.
The respondent court, in reversing the decision of the trial court, essentially
relies on the following findings:
x x x We are convinced from the testimony of Atty. Adalia Francisco and
her witnesses that in behalf of the plaintiff-appellant they have a total
available sum of P364,840.00 at her and at the plaintiff's disposal on or
before August 4, 1975 to answer for the obligation of the plaintiff-
appellant. It was not correct for the trial court to conclude that the
plaintiff-appellant had only about P64,840.00 in savings deposit on or
before August 5, 1975, a sum not enough to pay the outstanding account of
P124,000.00. The plaintiff-appellant, through Atty. Francisco proved and
the trial court even acknowledged that Atty. Adalia Francisco had about
P300,000.00 in money market placement. The error of the trial court lies
in concluding that the money market placement of P300,000.00 was out of
reach of Atty. Francisco. But as testified to by Mr. Catalino Estrella, a
representative of the Insular Bank of Asia and America, Atty. Francisco
could withdraw anytime her money market placement and place it at her
disposal, thus proving her financial capability of meeting more than the
whole of P124,000.00 then due per contract. This situation, We believe,
proves the truth that Atty. Francisco apprehensive that her request for a 30-
day grace period would be denied, she tendered payment on August 4, 1975
which offer defendant through its representative and counsel refused to
receive. x x x[15] (Underscoring supplied)
In other words, the respondent court, finding that the private respondent
had sufficient available funds, ipso facto concluded that the latter had
tendered payment. Is such conclusion warranted by the facts proven? The
petitioner submits that it is not.
Hence, this petition.[16]
The petitioner presents the following issues for resolution:
xxx xxx xxx
A. Is a finding that private respondent had sufficient available funds on or
before the grace period for the payment of its obligation proof that it
(private respondent) did tender of (sic) payment for its said obligation
within said period?
xxx xxx xxx
B. Is it the legal obligation of the petitioner (as vendor) to execute a deed
of absolute sale in favor of the private respondent (as vendee) before the
latter has actually paid the complete consideration of the sale - where the
contract between and executed by the parties stipulates -
"That upon complete payment of the agreed consideration by the herein
VENDEE, the VENDOR shall cause the execution of a Deed of Absolute
Sale in favor of the VENDEE."
xxx xxx xxx
C. Is an offer of a check a valid tender of payment of an obligation under a
contract which stipulates that the consideration of the sale is in Philippine
Currency?[17]
We find the petition impressed with merit.
With respect to the first issue, we agree with the petitioner that a finding
that the private respondent had sufficient available funds on or before the
grace period for the payment of its obligation does not constitute proof of
tender of payment by the latter for its obligation within the said
period. Tender of payment involves a positive and unconditional act by the
obligor of offering legal tender currency as payment to the obligee for
the former's obligation and demanding that the latter accept the
same. Thus, tender of payment cannot be presumed by a mere inference
from surrounding circumstances. At most, sufficiency of available funds is
only affirmative of the capacity or ability of the obligor to fulfill his part of
the bargain. But whether or not the obligor avails himself of such funds to
settle his outstanding account remains to be proven by independent and
credible evidence. Tender of payment presupposes not only that the
obligor is able, ready, and willing, but more so, in the act of performing his
obligation. Ab posse ad actu non vale illatio. "A proof that an act
could have been done is no proof that it was actually done."
The respondent court was therefore in error to have concluded from the
sheer proof of sufficient available funds on the part of the private
respondent to meet more than the total obligation within the grace period,
the alleged truth of tender of payment. The same is a classic case of non-
sequitur.
On the contrary, the respondent court finds itself remiss in overlooking or
taking lightly the more important findings of fact made by the trial court
which we have earlier mentioned and which as a rule, are entitled to great
weight on appeal and should be accorded full consideration and respect and
should not be disturbed unless for strong and cogent reasons.[18]
While the Court is not a trier of facts, yet, when the findings of fact of the
Court of Appeals are at variance with those of the trial court, [19] or when the
inference of the Court of Appeals from its findings of fact is manifestly
mistaken,[20] the Court has to review the evidence in order to arrive at the
correct findings based on the record.
Apropos the second issue raised, although admittedly the documents for
the deed of absolute sale had not been prepared, the subject contract clearly
provides that the full payment by the private respondent is an a priori
condition for the execution of the said documents by the petitioner.
That upon complete payment of the agreed consideration by the herein
VENDEE, the VENDOR shall cause the execution of a Deed of Absolute
Sale in favor of the VENDEE.[21]
The private respondent is therefore in estoppel to claim otherwise as the
latter did in the testimony in cross-examination of its president, Atty.
Francisco, which reads:
Q Now, you mentioned, Atty. Francisco, that you wanted the defendant to
execute the final deed of sale before you would given (sic) the personal
certified check in payment of your balance, is that correct?
A Yes, sir.[22]
xxx xxx xxx
Art. 1159 of the Civil Code of the Philippines provides that "obligations
arising from contracts have the force of law between the contracting parties
and should be complied with in good faith." And unless the stipulations in
said contract are contrary to law, morals, good customs, public order, or
public policy, the same are binding as between the parties. [23]
What the private respondent should have done if it was indeed desirous of
complying with its obligations would have been to pay the petitioner within
the grace period and obtain a receipt of such payment duly issued by the
latter. Thereafter, or, allowing a reasonable time, the private respondent
could have demanded from the petitioner the execution of the necessary
documents. In case the petitioner refused, the private respondent could
have had always resorted to judicial action for the legitimate enforcement
of its right. For the failure of the private respondent to undertake this more
judicious course of action, it alone shall suffer the consequences.
With regard to the third issue, granting arguendo that we would rule
affirmatively on the two preceding issues, the case of the private respondent
still can not succeed in view of the fact that the latter used a certified
personal check which is not legal tender nor the currency stipulated, and
therefore, can not constitute valid tender of payment. The first paragraph of
Art. 1249 of the Civil Code provides that "the payment of debts in money
shall be made in the currency stipulated, and if it is not possible to deliver
such currency, then in the currency which is legal tender in the Philippines.
The Court en banc in the recent case of Philippine Airlines v. Court of
Appeals,[24] G.R. No. L-49188, stated thus:
Since a negotiable instrument is only a substitute for money and not
money, the delivery of such an instrument does not, by itself, operate as
payment (citing Sec. 189, Act 2031 on Negs. Insts.; Art. 1249, Civil Code;
Bryan London Co. v. American Bank, 7 Phil. 255; Tan Sunco v. Santos, 9
Phil. 44; 21 R.C.L. 60, 61). A check, whether a manager's check or ordinary
check, is not legal tender, and an offer of a check in payment of a debt is not
a valid tender of payment and may be refused receipt by the obligee or
creditor.
Hence, where the tender of payment by the private respondent was not
valid for failure to comply with the requisite payment in legal tender or
currency stipulated within the grace period and as such, was validly refused
receipt by the petitioner, the subsequent consignation did not operate to
discharge the former from its obligation to the latter.
In view of the foregoing, the petitioner in the legitimate exercise of its rights
pursuant to the subject contract, did validly order therefore the cancellation
of the said contract, the forfeiture of the previous payment, and
the reconveyance ipso facto of the land in question.
WHEREFORE, the petition for review on certiorari is GRANTED and the
DECISION of the respondent court promulgated on April 25, 1985 is hereby
SET ASIDE and ANNULLED and the DECISION of the trial court dated
May 25, 1981 is hereby REINSTATED. Costs against the private
respondent.
SO ORDERED.
Melencio-Herrera, (Chairman), Paras, Padilla, and Regalado, JJ., concur.
[1]
Promulgated on April 25, 1985; Zosa, M.A., J., ponente; Bartolome, F.C.
and Ejercito, B.C., JJ., concurring.
[2]
AC-G.R. CV No. 69626, Robes-Francisco Realty & Development
Corporation vs. Roman Catholic Bishop of Malolos, Inc.
[3]
Rollo, 37.
[4]
Hon. Jesus M. Elbinias, Presiding Judge, Branch V.
[5]
Rollo, 9-11.
[6]
Annex "T", 2, Record on Appeal, Court of First Instance, Bulacan, Branch
V, Rollo, 49.
[7]
Annex "C-3", Id.
[8]
Annex "A-4", Id.
[9]
Annex "A-5", Id.
[10]
Annex "T", 5, Id.
[11]
Annex "C-6", Id.
[12]
Annex "C-7", 1-2, Id.
[13]
Annex "T", 14, Id.
[14]
Annex "T", 22, Id.
[15]
Rollo, 35.
[16]
Filed on October 25, 1985.
[17]
Rollo, 8-9.
[18]
Natividad del Rosario Vda. de Alberto v. Court of Appeals, G.R. 29759,
May 18, 1989; Matabuena v. Court of Appeals, G.R. 76542, May 5, 1989.
[19]
Robleza v. Court of Appeals, G.R. 80364, June 28, 1989.
[20]
Reynolds Philippine Corporation v. Court of Appeals, G.R. 38187,
January 17, 1987.
[21]
Rollo, 11.
[22]
T.s.n., June 9, 1977, 24.
[23]
Article 1409, Civil Code, par. 1.
[24]
Promulgated on January 30, 1990.
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 89252 May 24, 1993
RAUL SESBREÑO, petitioner,

vs.
HON. COURT OF APPEALS, DELTA MOTORS CORPORATION AND PILIPINAS
BANK, respondents.
Salva, Villanueva & Associates for Delta Motors Corporation.
Reyes, Salazar & Associates for Pilipinas Bank.
FELICIANO, J.:
On 9 February 1981, petitioner Raul Sesbreño made a money market placement in the amount of
P300,000.00 with the Philippine Underwriters Finance Corporation ("Philfinance"), Cebu Branch; the
placement, with a term of thirty-two (32) days, would mature on 13 March 1981, Philfinance, also on
9 February 1981, issued the following documents to petitioner:
(a) the Certificate of Confirmation of Sale, "without recourse," No. 20496 of one (1)
Delta Motors Corporation Promissory Note ("DMC PN") No. 2731 for a term of 32
days at 17.0% per annum;
(b) the Certificate of securities Delivery Receipt No. 16587 indicating the sale of DMC
PN No. 2731 to petitioner, with the notation that the said security was in
custodianship of Pilipinas Bank, as per Denominated Custodian Receipt ("DCR") No.
10805 dated 9 February 1981; and
(c) post-dated checks payable on 13 March 1981 (i.e., the maturity date of
petitioner's investment), with petitioner as payee, Philfinance as drawer, and Insular
Bank of Asia and America as drawee, in the total amount of P304,533.33.
On 13 March 1981, petitioner sought to encash the postdated checks issued by Philfinance.
However, the checks were dishonored for having been drawn against insufficient funds.
On 26 March 1981, Philfinance delivered to petitioner the DCR No. 10805 issued by private
respondent Pilipinas Bank ("Pilipinas"). It reads as follows:
PILIPINAS BANK
Makati Stock Exchange Bldg.,
Ayala Avenue, Makati,
Metro Manila
February 9, 198
———————
VALUE DATE
TO Raul Sesbreño
April 6, 1981
———————
MATURITY DAT
NO. 10805
DENOMINATED CUSTODIAN RECEIPT
This confirms that as a duly Custodian Bank, and upon instruction of PHILIPPINE
UNDERWRITES FINANCE CORPORATION, we have in our custody the following
securities to you [sic] the extent herein indicated.
SERIAL MAT. FACE ISSUED REGISTERED AMOUNT

NUMBER DATE VALUE BY HOLDER PAYEE
2731 4-6-81 2,300,833.34 DMC PHIL. 307,933.33

UNDERWRITERS
FINANCE CORP.
We further certify that these securities may be inspected by you or your duly
authorized representative at any time during regular banking hours.
Upon your written instructions we shall undertake physical delivery of the above
securities fully assigned to you should this Denominated Custodianship Receipt
remain outstanding in your favor thirty (30) days after its maturity.
PILIPIN
AS
BANK
(By
Elizabet
h De
Villa
Illegible
Signatu
re)1
On 2 April 1981, petitioner approached Ms. Elizabeth de Villa of private respondent Pilipinas, Makati
Branch, and handed her a demand letter informing the bank that his placement with Philfinance in
the amount reflected in the DCR No. 10805 had remained unpaid and outstanding, and that he in
effect was asking for the physical delivery of the underlying promissory note. Petitioner then
examined the original of the DMC PN No. 2731 and found: that the security had been issued on 10
April 1980; that it would mature on 6 April 1981; that it had a face value of P2,300,833.33, with the
Philfinance as "payee" and private respondent Delta Motors Corporation ("Delta") as "maker;" and
that on face of the promissory note was stamped "NON NEGOTIABLE." Pilipinas did not deliver the
Note, nor any certificate of participation in respect thereof, to petitioner.
Petitioner later made similar demand letters, dated 3 July 1981 and 3 August 1981, again asking
2
private respondent Pilipinas for physical delivery of the original of DMC PN No. 2731. Pilipinas
allegedly referred all of petitioner's demand letters to Philfinance for written instructions, as has been
supposedly agreed upon in "Securities Custodianship Agreement" between Pilipinas and
Philfinance. Philfinance did not provide the appropriate instructions; Pilipinas never released DMC
PN No. 2731, nor any other instrument in respect thereof, to petitioner.
Petitioner also made a written demand on 14 July 1981 upon private respondent Delta for the partial
3
satisfaction of DMC PN No. 2731, explaining that Philfinance, as payee thereof, had assigned to him
said Note to the extent of P307,933.33. Delta, however, denied any liability to petitioner on the
promissory note, and explained in turn that it had previously agreed with Philfinance to offset its
DMC PN No. 2731 (along with DMC PN No. 2730) against Philfinance PN No. 143-A issued in favor
of Delta.
In the meantime, Philfinance, on 18 June 1981, was placed under the joint management of the
Securities and exchange commission ("SEC") and the Central Bank. Pilipinas delivered to the SEC
DMC PN No. 2731, which to date apparently remains in the custody of the SEC. 4
As petitioner had failed to collect his investment and interest thereon, he filed on 28 September 1982
an action for damages with the Regional Trial Court ("RTC") of Cebu City, Branch 21, against private
respondents Delta and Pilipinas. The trial court, in a decision dated 5 August 1987, dismissed the
5
complaint and counterclaims for lack of merit and for lack of cause of action, with costs against
petitioner.
Petitioner appealed to respondent Court of Appeals in C.A.-G.R. CV No. 15195. In a Decision dated
21 March 1989, the Court of Appeals denied the appeal and held: 6
Be that as it may, from the evidence on record, if there is anyone that appears liable
for the travails of plaintiff-appellant, it is Philfinance. As correctly observed by the trial
court:
This act of Philfinance in accepting the investment of plaintiff and

charging it against DMC PN No. 2731 when its entire face value was
already obligated or earmarked for set-off or compensation is difficult
to comprehend and may have been motivated with bad faith.
Philfinance, therefore, is solely and legally obligated to return the
investment of plaintiff, together with its earnings, and to answer all the
damages plaintiff has suffered incident thereto. Unfortunately for
plaintiff, Philfinance was not impleaded as one of the defendants in
this case at bar; hence, this Court is without jurisdiction to pronounce
judgement against it. (p. 11, Decision)
WHEREFORE, finding no reversible error in the decision appealed from, the same is
hereby affirmed in toto. Cost against plaintiff-appellant.
Petitioner moved for reconsideration of the above Decision, without success.
Hence, this Petition for Review on Certiorari.
After consideration of the allegations contained and issues raised in the pleadings, the Court
resolved to give due course to the petition and required the parties to file their respective
memoranda. 7
Petitioner reiterates the assignment of errors he directed at the trial court decision, and contends
that respondent court of Appeals gravely erred: (i) in concluding that he cannot recover from private
respondent Delta his assigned portion of DMC PN No. 2731; (ii) in failing to hold private respondent
Pilipinas solidarily liable on the DMC PN No. 2731 in view of the provisions stipulated in DCR No.
10805 issued in favor r of petitioner, and (iii) in refusing to pierce the veil of corporate entity between
Philfinance, and private respondents Delta and Pilipinas, considering that the three (3) entities
belong to the "Silverio Group of Companies" under the leadership of Mr. Ricardo Silverio, Sr. 8
There are at least two (2) sets of relationships which we need to address: firstly, the relationship of
petitioner vis-a-vis Delta; secondly, the relationship of petitioner in respect of Pilipinas. Actually, of
course, there is a third relationship that is of critical importance: the relationship of petitioner and
Philfinance. However, since Philfinance has not been impleaded in this case, neither the trial court
nor the Court of Appeals acquired jurisdiction over the person of Philfinance. It is, consequently, not
necessary for present purposes to deal with this third relationship, except to the extent it necessarily
impinges upon or intersects the first and second relationships.
I.
We consider first the relationship between petitioner and Delta.
The Court of appeals in effect held that petitioner acquired no rights vis-a-vis Delta in respect of the
Delta promissory note (DMC PN No. 2731) which Philfinance sold "without recourse" to petitioner, to
the extent of P304,533.33. The Court of Appeals said on this point:
Nor could plaintiff-appellant have acquired any right over DMC PN No. 2731 as the
same is "non-negotiable" as stamped on its face (Exhibit "6"), negotiation being
defined as the transfer of an instrument from one person to another so as to
constitute the transferee the holder of the instrument (Sec. 30, Negotiable
Instruments Law). A person not a holder cannot sue on the instrument in his own
name and cannot demand or receive payment (Section 51, id.) 9
Petitioner admits that DMC PN No. 2731 was non-negotiable but contends that the Note had been
validly transferred, in part to him by assignment and that as a result of such transfer, Delta as debtor-
maker of the Note, was obligated to pay petitioner the portion of that Note assigned to him by the
payee Philfinance.
Delta, however, disputes petitioner's contention and argues:
(1) that DMC PN No. 2731 was not intended to be negotiated or otherwise
transferred by Philfinance as manifested by the word "non-negotiable" stamp across
the face of the Note and because maker Delta and payee Philfinance intended that
10
this Note would be offset against the outstanding obligation of Philfinance

represented by Philfinance PN No. 143-A issued to Delta as payee;
(2) that the assignment of DMC PN No. 2731 by Philfinance was without Delta's
consent, if not against its instructions; and
(3) assuming (arguendo only) that the partial assignment in favor of petitioner was
valid, petitioner took the Note subject to the defenses available to Delta, in particular,
the offsetting of DMC PN No. 2731 against Philfinance PN No. 143-A. 11
We consider Delta's arguments seriatim.
Firstly, it is important to bear in mind that the negotiation of a negotiable instrument must be
distinguished from the assignment or transfer of an instrument whether that be negotiable or non-
negotiable. Only an instrument qualifying as a negotiable instrument under the relevant statute may
be negotiated either by indorsement thereof coupled with delivery, or by delivery alone where the
negotiable instrument is in bearer form. A negotiable instrument may, however, instead of being
negotiated, also be assigned or transferred. The legal consequences of negotiation as distinguished
from assignment of a negotiable instrument are, of course, different. A non-negotiable instrument
may, obviously, not be negotiated; but it may be assigned or transferred, absent an express
prohibition against assignment or transfer written in the face of the instrument:
The words "not negotiable," stamped on the face of the bill of lading, did not destroy
its assignability, but the sole effect was to exempt the bill from the statutory
provisions relative thereto, and a bill, though not negotiable, may be transferred by
assignment; the assignee taking subject to the equities between the original
parties. (Emphasis added)
12
DMC PN No. 2731, while marked "non-negotiable," was not at the same time stamped "non-
transferable" or "non-assignable." It contained no stipulation which prohibited Philfinance from
assigning or transferring, in whole or in part, that Note.
Delta adduced the "Letter of Agreement" which it had entered into with Philfinance and which should
be quoted in full:
April
10,
1980
Philippine Underwriters Finance Corp.

Benavidez St., Makati,
Metro Manila.
Attention: Mr. Alfredo O. Banaria

SVP-Treasurer
GENTLEMEN:
This refers to our outstanding placement of P4,601,666.67 as evidenced by your

Promissory Note No. 143-A, dated April 10, 1980, to mature on April 6, 1981.
As agreed upon, we enclose our non-negotiable Promissory Note No. 2730 and 2731
for P2,000,000.00 each, dated April 10, 1980, to be offsetted [sic] against your PN
No. 143-A upon co-terminal maturity.
Please deliver the proceeds of our PNs to our representative, Mr. Eric Castillo.
Very
Truly
Yours,
(Sgd.)
Florenci
o B.
Biagan
Senior
Vice
Preside
nt
13
We find nothing in his "Letter of Agreement" which can be reasonably construed as a prohibition
upon Philfinance assigning or transferring all or part of DMC PN No. 2731, before the maturity
thereof. It is scarcely necessary to add that, even had this "Letter of Agreement" set forth an explicit
prohibition of transfer upon Philfinance, such a prohibition cannot be invoked against an assignee or
transferee of the Note who parted with valuable consideration in good faith and without notice of
such prohibition. It is not disputed that petitioner was such an assignee or transferee. Our conclusion
on this point is reinforced by the fact that what Philfinance and Delta were doing by their exchange of
their promissory notes was this: Delta invested, by making a money market placement with
Philfinance, approximately P4,600,000.00 on 10 April 1980; but promptly, on the same day, borrowed
back the bulk of that placement, i.e., P4,000,000.00, by issuing its two (2) promissory notes: DMC
PN No. 2730 and DMC PN No. 2731, both also dated 10 April 1980. Thus, Philfinance was left with
not P4,600,000.00 but only P600,000.00 in cash and the two (2) Delta promissory notes.
Apropos Delta's complaint that the partial assignment by Philfinance of DMC PN No. 2731 had been
effected without the consent of Delta, we note that such consent was not necessary for the validity
and enforceability of the assignment in favor of petitioner. Delta's argument that Philfinance's sale
14
or assignment of part of its rights to DMC PN No. 2731 constituted conventional subrogation, which
required its (Delta's) consent, is quite mistaken. Conventional subrogation, which in the first place is
never lightly inferred, must be clearly established by the unequivocal terms of the substituting
15
obligation or by the evident incompatibility of the new and old obligations on every point. Nothing of
16
the sort is present in the instant case.
It is in fact difficult to be impressed with Delta's complaint, since it released its DMC PN No. 2731 to
Philfinance, an entity engaged in the business of buying and selling debt instruments and other
securities, and more generally, in money market transactions. In Perez v. Court of Appeals, the 17
Court, speaking through Mme. Justice Herrera, made the following important statement:
There is another aspect to this case. What is involved here is a money market
transaction. As defined by Lawrence Smith "the money market is a market dealing in
standardized short-term credit instruments (involving large amounts) where lenders
and borrowers do not deal directly with each other but through a middle manor a
dealer in the open market." It involves "commercial papers" which are instruments
"evidencing indebtness of any person or entity. . ., which are issued, endorsed, sold
or transferred or in any manner conveyed to another person or entity, with or without
recourse". The fundamental function of the money market device in its operation is to
match and bring together in a most impersonal manner both the "fund users" and the
"fund suppliers." The money market is an "impersonal market", free from personal
considerations. "The market mechanism is intended to provide quick mobility of
money and securities."
The impersonal character of the money market device overlooks the individuals or
entities concerned. The issuer of a commercial paper in the money market
necessarily knows in advance that it would be expenditiously transacted and
transferred to any investor/lender without need of notice to said issuer. In practice,
no notification is given to the borrower or issuer of commercial paper of the sale or
transfer to the investor.
xxx xxx xxx
There is need to individuate a money market transaction, a relatively novel institution

in the Philippine commercial scene. It has been intended to facilitate the flow and
acquisition of capital on an impersonal basis. And as specifically required by
Presidential Decree No. 678, the investing public must be given adequate and
effective protection in availing of the credit of a borrower in the commercial paper
market. (Citations omitted; emphasis supplied)
18
We turn to Delta's arguments concerning alleged compensation or offsetting between DMC PN No.
2731 and Philfinance PN No. 143-A. It is important to note that at the time Philfinance sold part of its
rights under DMC PN No. 2731 to petitioner on 9 February 1981, no compensation had as yet taken
place and indeed none could have taken place. The essential requirements of compensation are
listed in the Civil Code as follows:
Art. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other;
(2) That both debts consists in a sum of money, or if the things due are consumable,
they be of the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts are due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor. (Emphasis supplied)
On 9 February 1981, neither DMC PN No. 2731 nor Philfinance PN No. 143-A was due. This was
explicitly recognized by Delta in its 10 April 1980 "Letter of Agreement" with Philfinance, where Delta
acknowledged that the relevant promissory notes were "to be offsetted (sic) against [Philfinance] PN
No. 143-A upon co-terminal maturity."
As noted, the assignment to petitioner was made on 9 February 1981 or from forty-nine (49) days
before the "co-terminal maturity" date, that is to say, before any compensation had taken place.
Further, the assignment to petitioner would have prevented compensation had taken place between
Philfinance and Delta, to the extent of P304,533.33, because upon execution of the assignment in
favor of petitioner, Philfinance and Delta would have ceased to be creditors and debtors of each
other in their own right to the extent of the amount assigned by Philfinance to petitioner. Thus, we
conclude that the assignment effected by Philfinance in favor of petitioner was a valid one and that
petitioner accordingly became owner of DMC PN No. 2731 to the extent of the portion thereof
assigned to him.
The record shows, however, that petitioner notified Delta of the fact of the assignment to him only on
14 July 1981, that is, after the maturity not only of the money market placement made by petitioner
19
but also of both DMC PN No. 2731 and Philfinance PN No. 143-A. In other words, petitioner notified
Delta of his rights as assignee after compensation had taken place by operation of law because the
offsetting instruments had both reached maturity. It is a firmly settled doctrine that the rights of an
assignee are not any greater that the rights of the assignor, since the assignee is merely substituted
in the place of the assignor and that the assignee acquires his rights subject to the equities — i.e.,
20
the defenses — which the debtor could have set up against the original assignor before notice of the
assignment was given to the debtor. Article 1285 of the Civil Code provides that:
Art. 1285. The debtor who has consented to the assignment of rights made by a
creditor in favor of a third person, cannot set up against the assignee the
compensation which would pertain to him against the assignor, unless the assignor
was notified by the debtor at the time he gave his consent, that he reserved his right
to the compensation.
If the creditor communicated the cession to him but the debtor did not
consent thereto, the latter may set up the compensation of debts previous to the
cession, but not of subsequent ones.
If the assignment is made without the knowledge of the debtor, he may set up the
compensation of all credits prior to the same and also later ones until he
had knowledge of the assignment. (Emphasis supplied)
Article 1626 of the same code states that: "the debtor who, before having knowledge of the
assignment, pays his creditor shall be released from the obligation." In Sison v. Yap-Tico, the Court
21
explained that:
[n]o man is bound to remain a debtor; he may pay to him with whom he contacted to
pay; and if he pay before notice that his debt has been assigned, the law holds him
exonerated, for the reason that it is the duty of the person who has acquired a title by
transfer to demand payment of the debt, to give his debt or notice. 22
At the time that Delta was first put to notice of the assignment in petitioner's favor on 14 July 1981,
DMC PN No. 2731 had already been discharged by compensation. Since the assignor Philfinance
could not have then compelled payment anew by Delta of DMC PN No. 2731, petitioner, as assignee
of Philfinance, is similarly disabled from collecting from Delta the portion of the Note assigned to him.
It bears some emphasis that petitioner could have notified Delta of the assignment or sale was
effected on 9 February 1981. He could have notified Delta as soon as his money market placement
matured on 13 March 1981 without payment thereof being made by Philfinance; at that time,
compensation had yet to set in and discharge DMC PN No. 2731. Again petitioner could have
notified Delta on 26 March 1981 when petitioner received from Philfinance the Denominated
Custodianship Receipt ("DCR") No. 10805 issued by private respondent Pilipinas in favor of
petitioner. Petitioner could, in fine, have notified Delta at any time before the maturity date of DMC
PN No. 2731. Because petitioner failed to do so, and because the record is bare of any indication
that Philfinance had itself notified Delta of the assignment to petitioner, the Court is compelled to
uphold the defense of compensation raised by private respondent Delta. Of course, Philfinance
remains liable to petitioner under the terms of the assignment made by Philfinance to petitioner.
II.
We turn now to the relationship between petitioner and private respondent Pilipinas. Petitioner
contends that Pilipinas became solidarily liable with Philfinance and Delta when Pilipinas issued
DCR No. 10805 with the following words:
Upon your written instruction, we [Pilipinas] shall undertake physical delivery of the
above securities fully assigned to you —. 23
The Court is not persuaded. We find nothing in the DCR that establishes an obligation on the part of
Pilipinas to pay petitioner the amount of P307,933.33 nor any assumption of liability in solidum with
Philfinance and Delta under DMC PN No. 2731. We read the DCR as a confirmation on the part of
Pilipinas that:
(1) it has in its custody, as duly constituted custodian bank, DMC PN No. 2731 of a
certain face value, to mature on 6 April 1981 and payable to the order of Philfinance;
(2) Pilipinas was, from and after said date of the assignment by Philfinance to
petitioner (9 February 1981), holding that Note on behalf and for the benefit of
petitioner, at least to the extent it had been assigned to petitioner by payee
Philfinance;24
(3) petitioner may inspect the Note either "personally or by authorized

representative", at any time during regular bank hours; and
(4) upon written instructions of petitioner, Pilipinas would physically deliver the DMC
PN No. 2731 (or a participation therein to the extent of P307,933.33) "should this
Denominated Custodianship receipt remain outstanding in [petitioner's] favor thirty
(30) days after its maturity."
Thus, we find nothing written in printers ink on the DCR which could reasonably be read as
converting Pilipinas into an obligor under the terms of DMC PN No. 2731 assigned to petitioner,
either upon maturity thereof or any other time. We note that both in his complaint and in his
testimony before the trial court, petitioner referred merely to the obligation of private respondent
Pilipinas to effect the physical delivery to him of DMC PN No. 2731. Accordingly, petitioner's theory
25
that Pilipinas had assumed a solidary obligation to pay the amount represented by a portion of the
Note assigned to him by Philfinance, appears to be a new theory constructed only after the trial court
had ruled against him. The solidary liability that petitioner seeks to impute Pilipinas cannot, however,
be lightly inferred. Under article 1207 of the Civil Code, "there is a solidary liability only when the law
or the nature of the obligation requires solidarity," The record here exhibits no express assumption of
solidary liability vis-a-vis petitioner, on the part of Pilipinas. Petitioner has not pointed to us to any
law which imposed such liability upon Pilipinas nor has petitioner argued that the very nature of the
custodianship assumed by private respondent Pilipinas necessarily implies solidary liability under the
securities, custody of which was taken by Pilipinas. Accordingly, we are unable to hold Pilipinas
solidarily liable with Philfinance and private respondent Delta under DMC PN No. 2731.
We do not, however, mean to suggest that Pilipinas has no responsibility and liability in respect of
petitioner under the terms of the DCR. To the contrary, we find, after prolonged analysis and
deliberation, that private respondent Pilipinas had breached its undertaking under the DCR to
petitioner Sesbreño.
We believe and so hold that a contract of deposit was constituted by the act of Philfinance in
designating Pilipinas as custodian or depositary bank. The depositor was initially Philfinance; the
obligation of the depository was owed, however, to petitioner Sesbreño as beneficiary of the
custodianship or depository agreement. We do not consider that this is a simple case of a
stipulation pour autri. The custodianship or depositary agreement was established as an integral part
of the money market transaction entered into by petitioner with Philfinance. Petitioner bought a
portion of DMC PN No. 2731; Philfinance as assignor-vendor deposited that Note with Pilipinas in
order that the thing sold would be placed outside the control of the vendor. Indeed, the constituting of
the depositary or custodianship agreement was equivalent to constructive delivery of the Note (to the
extent it had been sold or assigned to petitioner) to petitioner. It will be seen that custodianship
agreements are designed to facilitate transactions in the money market by providing a basis for
confidence on the part of the investors or placers that the instruments bought by them are effectively
taken out of the pocket, as it were, of the vendors and placed safely beyond their reach, that those
instruments will be there available to the placers of funds should they have need of them. The
depositary in a contract of deposit is obliged to return the security or the thing deposited upon
demand of the depositor (or, in the presented case, of the beneficiary) of the contract, even though a
term for such return may have been established in the said contract. Accordingly, any stipulation in
26
the contract of deposit or custodianship that runs counter to the fundamental purpose of that
agreement or which was not brought to the notice of and accepted by the placer-beneficiary, cannot
be enforced as against such beneficiary-placer.
We believe that the position taken above is supported by considerations of public policy. If there is
any party that needs the equalizing protection of the law in money market transactions, it is the
members of the general public whom place their savings in such market for the purpose of
generating interest revenues. The custodian bank, if it is not related either in terms of equity
27
ownership or management control to the borrower of the funds, or the commercial paper dealer, is
normally a preferred or traditional banker of such borrower or dealer (here, Philfinance). The
custodian bank would have every incentive to protect the interest of its client the borrower or dealer
as against the placer of funds. The providers of such funds must be safeguarded from the impact of
stipulations privately made between the borrowers or dealers and the custodian banks, and
disclosed to fund-providers only after trouble has erupted.
In the case at bar, the custodian-depositary bank Pilipinas refused to deliver the security deposited
with it when petitioner first demanded physical delivery thereof on 2 April 1981. We must again note,
in this connection, that on 2 April 1981, DMC PN No. 2731 had not yet matured and therefore,
compensation or offsetting against Philfinance PN No. 143-A had not yet taken place. Instead of
complying with the demand of the petitioner, Pilipinas purported to require and await the instructions
of Philfinance, in obvious contravention of its undertaking under the DCR to effect physical delivery
of the Note upon receipt of "written instructions" from petitioner Sesbreño. The ostensible term
written into the DCR (i.e., "should this [DCR] remain outstanding in your favor thirty [30] days after its
maturity") was not a defense against petitioner's demand for physical surrender of the Note on at
least three grounds: firstly, such term was never brought to the attention of petitioner Sesbreño at the
time the money market placement with Philfinance was made; secondly, such term runs counter to
the very purpose of the custodianship or depositary agreement as an integral part of a money
market transaction; and thirdly, it is inconsistent with the provisions of Article 1988 of the Civil Code
noted above. Indeed, in principle, petitioner became entitled to demand physical delivery of the Note
held by Pilipinas as soon as petitioner's money market placement matured on 13 March 1981
without payment from Philfinance.
We conclude, therefore, that private respondent Pilipinas must respond to petitioner for damages
sustained by arising out of its breach of duty. By failing to deliver the Note to the petitioner as
depositor-beneficiary of the thing deposited, Pilipinas effectively and unlawfully deprived petitioner of
the Note deposited with it. Whether or not Pilipinas itself benefitted from such conversion or unlawful
deprivation inflicted upon petitioner, is of no moment for present purposes. Prima facie, the damages
suffered by petitioner consisted of P304,533.33, the portion of the DMC PN No. 2731 assigned to
petitioner but lost by him by reason of discharge of the Note by compensation, plus legal interest of
six percent (6%)per annum containing from 14 March 1981.
The conclusion we have reached is, of course, without prejudice to such right of reimbursement as
Pilipinas may have vis-a-vis Philfinance.
III.
The third principal contention of petitioner — that Philfinance and private respondents Delta and
Pilipinas should be treated as one corporate entity — need not detain us for long.
In the first place, as already noted, jurisdiction over the person of Philfinance was never acquired
either by the trial court nor by the respondent Court of Appeals. Petitioner similarly did not seek to
implead Philfinance in the Petition before us.
Secondly, it is not disputed that Philfinance and private respondents Delta and Pilipinas have been
organized as separate corporate entities. Petitioner asks us to pierce their separate corporate
entities, but has been able only to cite the presence of a common Director — Mr. Ricardo Silverio,
Sr., sitting on the Board of Directors of all three (3) companies. Petitioner has neither alleged nor
proved that one or another of the three (3) concededly related companies used the other two (2) as
mere alter egos or that the corporate affairs of the other two (2) were administered and managed for
the benefit of one. There is simply not enough evidence of record to justify disregarding the separate
corporate personalities of delta and Pilipinas and to hold them liable for any assumed or
undetermined liability of Philfinance to petitioner.
28
WHEREFORE, for all the foregoing, the Decision and Resolution of the Court of Appeals in C.A.-
G.R. CV No. 15195 dated 21 march 1989 and 17 July 1989, respectively, are hereby MODIFIED and
SET ASIDE, to the extent that such Decision and Resolution had dismissed petitioner's complaint
against Pilipinas Bank. Private respondent Pilipinas bank is hereby ORDERED to indemnify
petitioner for damages in the amount of P304,533.33, plus legal interest thereon at the rate of six
percent (6%) per annum counted from 2 April 1981. As so modified, the Decision and Resolution of
the Court of Appeals are hereby AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Bidin, Davide, Jr., Romero and Melo, JJ., concur.
# Footnotes
1 Exhibit "C", Folder of Exhibits, p. 3; TSN, 14 June 1983, p. 41.
2 Records, p. 441; Plaintiff's Memorandum, p. 3.
3 Id., p. 451; Plaintiff's Memorandum, p. 13.

4 TSN, 14 June 1983, p. 35.
5 Petitioner explained that he did not implead Philfinance as party defendant

because the latter was under rehabilitation by the Securities and Exchange
Commission (TSN of the Pre-trial Conference, pp. 6 and 30; dated 04 March 1983).
6 Court of Appeals' Decision, p. 8; Rollo, p. 90.
7 Private respondent Delta adopted as its own the Memorandum filed by private
respondent Pilipinas (Rollo, pp. 269-73).
8 Rollo, p. 6; Petition, p. 5.
9 Id., p. 88.
10 TSN, 17 August 1983, p. 36.
11 Records, pp. 36-37.
12 National Bank of Bristol v. Bartolome & O.R. Co., 59 A. 134, 138. See also, in this
connection, Consolidated Plywood v. IFC Leasing, 149 SCRA 449 (1987).
13 Exhibit "3," Records, p. 240.
14 National Investment and Development Corporation v. De Los Angeles, 40 SCRA

487 (1971); Bastida v. Dy Buncio & Co., 93 Phil. 195 (1953). See also Articles 1285
and 1625, Civil Code.
15 Article 1300, Civil Code.
16 Article 1292, id.
17 127 SCRA 636 (1984).
18 127 SCRA at 645-646.
19 Records, p, 451; Plaintiff's Memorandum, p. 13.
20 Gonzales v. Land Bank of the Philippines, 183 SCRA 520 (1990); Philippine
National bank v. General Acceptance and Finance Corp., 161 SCRA 449 (1988);
National Investment and Development Corporation v. De los Angeles, 40 SCRA 489
(1971); Montinola v. Philippine National Bank, 88 Phil. 178 (1951); National
Exchange Company, Ltd. v. Ramos, 51 Phil. 310 (1927); Sison v. Yap-Tico, 37 Phil.
584 (1918).
21 37 Phil. 584 (1918).
22 37 Phil. at 589. See also Rodriguez v. Court of Appeals, 207 SCRA 553, 559
(1992). See, generally, Philippine National Bank v. General Acceptance and Finance
Corp., 161 SCRA 449, 457 (1988).
23 Petitioner's Memorandum, p. 12; Rollo, p. 221.
24 The DCR specified the amount of P307,933.33 as the extent to which DMC PN
No. 2731 pertained to petitioner Raul Sesbreño. This amount probably refers to the
placement of P300,000.00 by petitioner plus interest from 9 February 1981 until the
maturity date of DMC PN No. 2731, i.e., 6 April 1981.
25 Complaint, pp. 2-3; Rollo, pp. 23-24; TSN of 11 April 1983, p. 51; TSN, 9 October
1986, pp. 15-16. See also Minutes of the Pre-trial Conference, dated 04 March 1983,
p. 9.
26 Article 1988, Civil Code.
27 See, in this connection, the second and third "whereas" clauses of P.D. No. 678,
dated 2 April 1975.
28 Pabalan v. National Labor Relations Commission, 184 SCRA 495 (1990); Del
Rosario v. National Labor Relations Commission, 187 SCRA 777 (1990); Remo, Jr. v.
Intermediate Appellate Court, 172 SCRA 405 (1989).

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FIRST DIVISION

BANK OF THE G.R. No. 136202

PUNO, C.J., Chairperson,

The facts[3] are as follows:

Private respondent Salazar was advised to settle the matter with

In the answer to the third-party complaint, private respondent Templonuevo

1. The amount of P267,707.70 with 12% interest thereon

The counterclaim is hereby ordered DISMISSED for lack of factual basis.

The third-party complaint [filed by petitioner] is hereby likewise ordered

Third-party defendants [i.e., private respondent Templonuevos]

Petitioner therefore filed this petition on these grounds:

Petitioner argues thus:

1. There is no presumption in law that a check payable to order, when

2. Salazar failed to adduce sufficient evidence to prove that her

3. The CA should have applied the Civil Code provisions on legal

5. Assuming the deduction from Salazars account was improper, the CA

6. There was no factual basis for the award of damages to Salazar.

The petition is partly meritorious.

(b) That these checks which had an aggregate amount of P267,692.50

If there was indeed no arrangement between Templonuevo and the plaintiff

Generally, only questions of law may be raised in an appeal

Section 49 of the Negotiable Instruments Law contemplates a situation

Transfer without indorsement; effect of- Where the holder of an instrument

It bears stressing that the above transaction is an equitable assignment and

Transferees in this situation do not enjoy the presumption of ownership in

Thus, even if the delay in the demand for reimbursement is taken in

It is an exception to the general rule for a payee of an order instrument to

The right of set-off was explained in Associated Bank v. Tan:[24]

More importantly, however, solely upon the prompting of Templonuevo, and

These checks, it must be emphasized, were subsequently dishonored,

WHEREFORE, the petition is partially GRANTED. The assailed Decision

ANGELINA SANDOVAL-GUTIERREZ RENATO C. CORONA

G.R. No. 97753 August 10, 1992

Bito, Lozada, Ortega & Castillo for petitioners.

Nepomuceno, Hofileña & Guingona for private.

filed therein by herein petitioner against respondent bank.

1. On various dates, defendant, a commercial banking institution, through its Sucat

22 Feb. 82 90101 to 90120 20 P80,000

6. Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff Caltex

8. On December 8, 1982, plaintiff was requested by herein defendant to furnish the

9. No copy of the requested documents was furnished herein defendant.

The instant petition is bereft of merit.

Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____

This is to Certify that B E A R E R has deposited in this Bank the sum

(Sgd. Illegible) (Sgd. Illegible)

(c) Must be payable on demand, or at a fixed or determinable future time;

(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be named or otherwise

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q And no other person or entity or company, Mr. Witness?

a None, your Honor. 7

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q Mr. Witness, who is the depositor identified in all of these

a Angel dela Cruz is the depositor. 8

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. . . Adverting again to the Court's pronouncements in Lopez, supra, we quote

The character of the transaction between the parties is to be

Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may also be

Code specifically declares: