Caltex (Philippines), Inc. v. Court of Appeals, G.R. No.

97753, 10 August 1992, (212 SCRA 448)

Facts:
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:

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

10. 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. 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).

1
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.

Ruling:

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.

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
9

bill or note, the intention of the parties is to control, if it can be legally ascertained.   While the
10

writing 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,

2
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.

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
17

aver with 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
18

prayed for, it could have 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. 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
21

payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof.   In the
22

present case, 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.

3
Salas vs Court of Appeals, G.R. No. 76788, 22 January 1990, (181 SCRA 296)

Facts:

Records disclose that on February 6, 1980, Juanita Salas (hereinafter referred to as petitioner)
bought a motor vehicle from the Violago Motor Sales Corporation (VMS for brevity) for
P58,138.20 as evidenced by a promissory note. This note was subsequently endorsed to
Filinvest Finance & Leasing Corporation (hereinafter referred to as private respondent) which
financed the purchase.

Petitioner defaulted in her installments beginning May 21, 1980 allegedly due to a discrepancy in
the engine and chassis numbers of the vehicle delivered to her and those indicated in the sales
invoice, certificate of registration and deed of chattel mortgage, which fact she discovered when
the vehicle figured in an accident on 9 May 1980.

This failure to pay prompted private respondent to initiate Civil Case No. 5915 for a sum of
money against petitioner before the Regional Trial Court of San Fernando, Pampanga.

In the petition before us, petitioner assigns twelve (12) errors which focus on the alleged fraud,
bad faith and misrepresentation of Violago Motor Sales Corporation in the conduct of its business
and which fraud, bad faith and misrepresentation supposedly released petitioner from any liability
to private respondent who should instead proceed against VMS.  3

Petitioner argues that in the light of the provision of the law on sales by description   which she
4

alleges is applicable here, no contract ever existed between her and VMS and therefore none
had been assigned in favor of private respondent.

Issue:
The pivotal issue in this case is whether the promissory note in question is a negotiable
instrument which will bar completely all the available defenses of the petitioner against private
respondent.

Ruling:

Petitioner's liability on the promissory note, the due execution and genuineness of which she
never denied under oath is, under the foregoing factual milieu, as inevitable as it is clearly
established.

4
The records reveal that involved herein is not a simple case of assignment of credit as petitioner
would have it appear, where the assignee merely steps into the shoes of, is open to all defenses
available against and can enforce payment only to the same extent as, the assignor-vendor.

Recently, in the case of Consolidated Plywood Industries Inc. v. IFC Leasing and Acceptance
Corp.,   this Court had the occasion to clearly distinguish between a negotiable and a non-
6

negotiable instrument.

Among others, the instrument in order to be considered negotiable must contain the so-called
"words of negotiability — i.e., must be payable to "order" or "bearer"". Under Section 8 of the
Negotiable Instruments Law, there are only two ways by which an instrument may be made
payable to order. There must always be a specified person named in the instrument and the bill
or note is to be paid to the person designated in the instrument or to any person to whom he has
indorsed and delivered the same. Without the words "or order or "to the order of", the instrument
is payable only to the person designated therein and is therefore non-negotiable. Any
subsequent purchaser thereof will not enjoy the advantages of being a holder of a negotiable
instrument, but will merely "step into the shoes" of the person designated in the instrument and
will thus be open to all defenses available against the latter. Such being the situation in the
above-cited case, it was held that therein private respondent is not a holder in due course but a
mere assignee against whom all defenses available to the assignor may be raised.  7

In the case at bar, however, the situation is different. Indubitably, the basis of private
respondent's claim against petitioner is a promissory note which bears all the earmarks of
negotiability.

A careful study of the questioned promissory note shows that it is a negotiable instrument, having
complied with the requisites under the law as follows: [a] it is in writing and signed by the maker
Juanita Salas; [b] it contains an unconditional promise to pay the amount of P58,138.20; [c] it is
payable at a fixed or determinable future time which is "P1,614.95 monthly for 36 months due
and payable on the 21 st day of each month starting March 21, 1980 thru and inclusive of Feb.
21, 1983;" [d] it is payable to Violago Motor Sales Corporation, or order and as such, [e] the
drawee is named or indicated with certainty.  9

It was negotiated by indorsement in writing on the instrument itself payable to the Order of
Filinvest Finance and Leasing Corporation   and it is an indorsement of the entire instrument. 
10 11

Under the circumstances, there appears to be no question that Filinvest is a holder in due
course, having taken the instrument under the following conditions: [a] it is complete and regular
upon its face; [b] it became the holder thereof before it was overdue, and without notice that it
had previously been dishonored; [c] it took the same in good faith and for value; and [d] when it
was negotiated to Filinvest, the latter had no notice of any infirmity in the instrument or defect in
the title of VMS Corporation. 12

Accordingly, respondent corporation holds the instrument free from any defect of title of prior
parties, and free from defenses available to prior parties among themselves, and may enforce
payment of the instrument for the full amount thereof.   This being so, petitioner cannot set up
13

against respondent the defense of nullity of the contract of sale between her and VMS.

Even assuming for the sake of argument that there is an iota of truth in petitioner's allegation that
there was in fact deception made upon her in that the vehicle she purchased was different from
that actually delivered to her, this matter cannot be passed upon in the case before us, where the
VMS was never impleaded as a party.

5
Whatever issue is raised or claim presented against VMS must be resolved in the "breach of
contract" case.

Hence, we reach a similar opinion as did respondent court when it held:

We can only extend our sympathies to the defendant (herein petitioner) in this
unfortunate incident. Indeed, there is nothing We can do as far as the Violago Motor
Sales Corporation is concerned since it is not a party in this case. To even discuss the
issue as to whether or not the Violago Motor Sales Corporation is liable in the transaction
in question would amount, to denial of due process, hence, improper and
unconstitutional. She should have impleaded Violago Motor Sales.

Metropolitan Bank & Trust Company v. Court of Appeals, G.R. No. 88866, 18 February
1991, (194 SCRA 169)

Facts:

The Metropolitan Bank and Trust Co. is a commercial bank with branches throughout the
Philippines and even abroad. Golden Savings and Loan Association was, at the time these
events happened, operating in Calapan, Mindoro, with the other private respondents as its
principal officers.

In January 1979, a certain Eduardo Gomez opened an account with Golden Savings and
deposited over a period of two months 38 treasury warrants with a total value of P1,755,228.37.
They were all drawn by the Philippine Fish Marketing Authority and purportedly signed by its
General Manager and countersigned by its Auditor. Six of these were directly payable to Gomez
while the others appeared to have been indorsed by their respective payees, followed by Gomez
as second indorser. 1

On various dates between June 25 and July 16, 1979, all these warrants were subsequently
indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its Savings Account
No. 2498 in the Metrobank branch in Calapan, Mindoro. They were then sent for clearing by the
branch office to the principal office of Metrobank, which forwarded them to the Bureau of
Treasury for special clearing.2

More than two weeks after the deposits, Gloria Castillo went to the Calapan branch several times
to ask whether the warrants had been cleared. She was told to wait. Accordingly, Gomez was
meanwhile not allowed to withdraw from his account. Later, however, "exasperated" over Gloria's
repeated inquiries and also as an accommodation for a "valued client," the petitioner says it
finally decided to allow Golden Savings to withdraw from the proceeds of the
warrants. 3

The first withdrawal was made on July 9, 1979, in the amount of P508,000.00, the second on
July 13, 1979, in the amount of P310,000.00, and the third on July 16, 1979, in the amount of
P150,000.00. The total withdrawal was P968.000.00. 4

In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own
account, eventually collecting the total amount of P1,167,500.00 from the proceeds of the
apparently cleared warrants. The last withdrawal was made on July 16, 1979.

On July 21, 1979, Metrobank informed Golden Savings that 32 of the warrants had been
dishonored by the Bureau of Treasury on July 19, 1979, and demanded the refund by Golden
Savings of the amount it had previously withdrawn, to make up the deficit in its account.

6
The demand was rejected. Metrobank then sued Golden Savings in the Regional Trial Court of
Mindoro.  After trial, judgment was rendered in favor of Golden Savings, which, however, filed a
5

motion for reconsideration even as Metrobank filed its notice of appeal.

Issue:

Respondent Court of Appeals erred in holding that the treasury warrants involved in this case are
not negotiable instruments.

Ruling:

From the above undisputed facts, it would appear to the Court that Metrobank was indeed
negligent in giving Golden Savings the impression that the treasury warrants had been cleared
and that, consequently, it was safe to allow Gomez to withdraw the proceeds thereof from his
account with it. Without such assurance, Golden Savings would not have allowed the
withdrawals; with such assurance, there was no reason not to allow the withdrawal. Indeed,
Golden Savings might even have incurred liability for its refusal to return the money that to all
appearances belonged to the depositor, who could therefore withdraw it any time and for any
reason he saw fit.

It was, in fact, to secure the clearance of the treasury warrants that Golden Savings deposited
them to its account with Metrobank. Golden Savings had no clearing facilities of its own. It relied
on Metrobank to determine the validity of the warrants through its own services. The proceeds of
the warrants were withheld from Gomez until Metrobank allowed Golden Savings itself to
withdraw them from its own deposit.  It was only when Metrobank gave the go-signal that Gomez
7

was finally allowed by Golden Savings to withdraw them from his own account.

The argument of Metrobank that Golden Savings should have exercised more care in checking
the personal circumstances of Gomez before accepting his deposit does not hold water. It was
Gomez who was entrusting the warrants, not Golden Savings that was extending him a loan; and
moreover, the treasury warrants were subject to clearing, pending which the depositor could not
withdraw its proceeds. There was no question of Gomez's identity or of the genuineness of his
signature as checked by Golden Savings. In fact, the treasury warrants were dishonored
allegedly because of the forgery of the signatures of the drawers, not of Gomez as payee or
indorser. Under the circumstances, it is clear that Golden Savings acted with due care and
diligence and cannot be faulted for the withdrawals it allowed Gomez to make.

By contrast, Metrobank exhibited extraordinary carelessness. The amount involved was not
trifling — more than one and a half million pesos (and this was 1979). There was no reason why
it should not have waited until the treasury warrants had been cleared; it would not have lost a
single centavo by waiting. Yet, despite the lack of such clearance — and notwithstanding that it
had not received a single centavo from the proceeds of the treasury warrants, as it now
repeatedly stresses — it allowed Golden Savings to withdraw — not once, not twice, but thrice
— from the uncleared treasury warrants in the total amount of P968,000.00

Its reason? It was "exasperated" over the persistent inquiries of Gloria Castillo about the
clearance and it also wanted to "accommodate" a valued client. It "presumed" that the warrants
had been cleared simply because of "the lapse of one week."  For a bank with its long
8

experience, this explanation is unbelievably naive.

7
And now, to gloss over its carelessness, Metrobank would invoke the conditions printed on the
dorsal side of the deposit slips through which the treasury warrants were deposited by Golden
Savings with its Calapan branch.

According to Metrobank, the said conditions clearly show that it was acting only as a collecting
agent for Golden Savings and give it the right to "charge back to the depositor's account any
amount previously credited, whether or not such item is returned. This also applies to checks
". . . which are unpaid due to insufficiency of funds, forgery, unauthorized overdraft of any other
reason." It is claimed that the said conditions are in the nature of contractual stipulations and
became binding on Golden Savings when Gloria Castillo, as its Cashier, signed the deposit slips.

Doubt may be expressed about the binding force of the conditions, considering that they have
apparently been imposed by the bank unilaterally, without the consent of the depositor. Indeed, it
could be argued that the depositor, in signing the deposit slip, does so only to identify himself
and not to agree to the conditions set forth in the given permit at the back of the deposit slip. We
do not have to rule on this matter at this time. At any rate, the Court feels that even if the deposit
slip were considered a contract, the petitioner could still not validly disclaim responsibility
thereunder in the light of the circumstances of this case.

In stressing that it was acting only as a collecting agent for Golden Savings, Metrobank seems to
be suggesting that as a mere agent it cannot be liable to the principal. This is not exactly true. On
the contrary, Article 1909 of the Civil Code clearly provides that —

Art. 1909. — The agent is responsible not only for fraud, but also for negligence, which
shall be judged 'with more or less rigor by the courts, according to whether the agency
was or was not for a compensation.

The negligence of Metrobank has been sufficiently established. To repeat for emphasis, it was
the clearance given by it that assured Golden Savings it was already safe to allow Gomez to
withdraw the proceeds of the treasury warrants he had deposited Metrobank misled Golden
Savings. There may have been no express clearance, as Metrobank insists (although this is
refuted by Golden Savings) but in any case that clearance could be implied from its allowing
Golden Savings to withdraw from its account not only once or even twice but three times. The
total withdrawal was in excess of its original balance before the treasury warrants were
deposited, which only added to its belief that the treasury warrants had indeed been cleared.

Metrobank's argument that it may recover the disputed amount if the warrants are not paid for
any reason is not acceptable. Any reason does not mean no reason at all. Otherwise, there
would have been no need at all for Golden Savings to deposit the treasury warrants with it for
clearance. There would have been no need for it to wait until the warrants had been cleared
before paying the proceeds thereof to Gomez. Such a condition, if interpreted in the way the
petitioner suggests, is not binding for being arbitrary and unconscionable. And it becomes more
so in the case at bar when it is considered that the supposed dishonor of the warrants was not
communicated to Golden Savings before it made its own payment to Gomez.

The belated notification aggravated the petitioner's earlier negligence in giving express or at least
implied clearance to the treasury warrants and allowing payments therefrom to Golden Savings.
But that is not all. On top of this, the supposed reason for the dishonor, to wit, the forgery of the
signatures of the general manager and the auditor of the drawer corporation, has not been
established.  This was the finding of the lower courts which we see no reason to disturb. And as
9

we said in MWSS v. Court of Appeals: 10

Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139 SCRA 238). It must be
established by clear, positive and convincing evidence. This was not done in the present
case.

8
A no less important consideration is the circumstance that the treasury warrants in question are
not negotiable instruments. Clearly stamped on their face is the word "non-negotiable."
Moreover, and this is of equal significance, it is indicated that they are payable from a particular
fund, to wit, Fund 501.

The following sections of the Negotiable Instruments Law, especially the underscored parts, are
pertinent:

Sec. 1. — Form of negotiable instruments. — An instrument to be negotiable must

conform to the following requirements:

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money;

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

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

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

indicated therein with reasonable certainty.

x x x           x x x          x x x

Sec. 3. When promise is unconditional. — An unqualified order or promise to pay is

unconditional within the meaning of this Act though coupled with —

(a) An indication of a particular fund out of which reimbursement is to be made or a

particular account to be debited with the amount; or

(b) A statement of the transaction which gives rise to the instrument judgment.

But an order or promise to pay out of a particular fund is not unconditional.

The indication of Fund 501 as the source of the payment to be made on the treasury warrants
makes the order or promise to pay "not unconditional" and the warrants themselves non-
negotiable. There should be no question that the exception on Section 3 of the Negotiable
Instruments Law is applicable in the case at bar. This conclusion conforms to Abubakar vs.
Auditor General  where the Court held:
11

The petitioner argues that he is a holder in good faith and for value of a negotiable
instrument and is 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 instrument
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 (Sec. 3 last sentence and section [1(b)] of the Negotiable
Instruments Law).

Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed
that they were "genuine and in all respects what they purport to be," in accordance with Section
66 of the Negotiable Instruments Law. The simple reason is that this law is not applicable to the
non-negotiable treasury warrants. The indorsement was made by Gloria Castillo not for the
purpose of guaranteeing the genuineness of the warrants but merely to deposit them with
Metrobank for clearing. It was in fact Metrobank that made the guarantee when it stamped on the

9
back of the warrants: "All prior indorsement and/or lack of endorsements guaranteed,
Metropolitan Bank & Trust Co., Calapan Branch."

The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the Philippine Islands,  but we
12

feel this case is inapplicable to the present controversy.  That case involved checks whereas this
1âwphi1

case involves treasury warrants. Golden Savings never represented that the warrants were
negotiable but signed them only for the purpose of depositing them for clearance. Also, the fact
of forgery was proved in that case but not in the case before us. Finally, the Court found the Jai
Alai Corporation negligent in accepting the checks without question from one Antonio Ramirez
notwithstanding that the payee was the Inter-Island Gas Services, Inc. and it did not appear that
he was authorized to indorse it. No similar negligence can be imputed to Golden Savings.

We find the challenged decision to be basically correct. However, we will have to amend it
insofar as it directs the petitioner to credit Golden Savings with the full amount of the treasury
checks deposited to its account.

Equitable Banking Corporation v. IAC, G.R. No. 74451, 25 May 1988, (161 SCRA 518)

Facts:

From the evidence submitted by the parties, the Court finds that sometime in 1975 defendant
Liberato Casals went to plaintiff Edward J. Nell Company and told its senior sales engineer,
Amado Claustro that he was interested in buying one of the plaintiff's garrett skidders. Plaintiff
was a dealer of machineries, equipment and supplies. Defendant Casals represented himself as
the majority stockholder, president and general manager of Casville Enterprises, Inc., a firm
engaged in the large scale production, procurement and processing of logs and lumber products,
which had a plywood plant in Sta. Ana, Metro Manila.

After defendant Casals talked with plaintiff's sales engineer, he was referred to plaintiffs
executive vice-president, Apolonio Javier, for negotiation in connection with the manner of
payment. When Javier asked for cash payment for the skidders, defendant Casals informed him
that his corporation, defendant Casville Enterprises, Inc., had a credit line with defendant
Equitable Banking Corporation. Apparently, impressed with this assertion, Javier agreed to have
the skidders paid by way of a domestic letter of credit which defendant Casals promised to open
in plaintiffs favor, in lieu of cash payment. Accordingly, on December 22, 1975, defendant
Casville, through its president, defendant Casals, ordered from plaintiff two units of garrett
skidders ...

The purchase order for the garrett skidders bearing No. 0051 and dated December 22, 1975
(Exhibit "A") contained the following terms and conditions:

On May 3, 1976, in compliance with defendant Casvile's recognition request, plaintiff shipped to
Cagayan de Oro City a Garrett skidder. Plaintiff paid the shipping cost in the amount of
P10,640.00 because of the verbal assurance of defendant Casville that it would be covered by
the letter of credit soon to be opened.

xxx xxx xxx

On July 15, 1976, defendant Casals handed to plaintiff a check in the amount of P300,000.00
postdated August 4, 1976, which was followed by another check of same date. Plaintiff
considered these checks either as partial payment for the skidder that was already delivered to
Cagayan de Oro or as reimbursement for the marginal deposit that plaintiff was supposed to pay.

In a letter dated August 3, 1976 (Exhibit "C"), defendants Casville informed the plaintiff that their
application for a letter of credit for the payment of the Garrett skidders had been approved by the

10
Equitable Banking Corporation. However, the defendants said that they would need the sum of
P300,000.00 to stand as collateral or marginal deposit in favor of Equitable Banking Corporation
and an additional amount of P100,000.00, also in favor of Equitable Banking Corporation, to
clear the title of the Estrada property belonging to defendant Casals which had been approved
as security for the trust receipts to be issued by the bank, covering the above-mentioned
equipment.

Although the marginal deposit was supposed to be produced by defendant Casville Enterprises,
plaintiff agreed to advance the necessary amount in order to facilitate the transaction.
Accordingly, on August 5,1976, plaintiff issued a check in the amount of P400,000.00 (Exhibit
"2") drawn against the First National City Bank and made payable to the order of Equitable
Banking Corporation and with the following notation or memorandum:

On August 9, 1976, defendant Casville wrote the bank applying for two letters of credit to cover
its purchase from plaintiff of two Garrett skidders, under the following terms and conditions:

Defendant Casville sent a copy of the foregoing letter to the plaintiff enclosing three postdated
checks. In said letter, plaintiff was informed of the requirements imposed by the defendant bank
pointing out that the "cash marginal required under paragraph (c) is 30% of Pl,091,000.00 or
P327,300.00 plus another P100,000.00 to clean up the Estrada property or a total of
P427,300.00" and that the check covering said amount should be made payable "to the Order of
EQUITABLE BANKING CORPORATION for the account of Casville Enterprises Inc." Defendant
Casville also stated that the three (3) enclosed postdated checks were intended as replacement
of the checks that were previously issued to plaintiff to secure the sum of P427,300.00 that
plaintiff would advance to defendant bank for the account of defendant Casville. All the new
checks were postdated November 19, 1976 and drawn in the sum of Pl45,500.00 (Exhibit "F"),
P181,800.00 (Exhibit "G") and P100,000.00 (Exhibit "H").

On the same occasion, defendant Casals delivered to plaintiff TCT No. 11891 of the Register of
Deeds of Quezon City and TCT No. 50851 of the Register of Deeds of Rizal covering two pieces
of real estate properties.

Subsequently, Cesar Umali, plaintiffs credit and collection manager, accompanied by a

representative of defendant Casville, went to see Severino Santos to find out the status of the
credit line being sought by defendant Casville. Santos assured Umali that the letters of credit
would be opened as soon as the requirements imposed by defendant bank in its letter dated
August 11, 1976 had been complied with by defendant Casville.

On August 16, 1976, plaintiff issued a check for P427,300.00, payable to the "order of
EQUITABLE BANKING CORPORATION A/C CASVILLE ENTERPRISES, INC." and drawn
against the first National City Bank (Exhibit "E-l"). The check did not contain the notation found in
the previous check issued by the plaintiff (Exhibit "2") but the substance of said notation was
reproduced in a covering letter dated August 16,1976 that went with the check (Exhibit "E"). <äre||

Both the check and the covering letter were sent to defendant bank through defendant Casals.
anº•1àw> 

Plaintiff entrusted the delivery of the check and the latter to defendant Casals because it believed
that no one, including defendant Casals, could encash the same as it was made payable to the
defendant bank alone. Besides, defendant Casals was known to the bank as the one following
up the application for the letters of credit.

Upon receiving the check for P427,300.00 entrusted to him by plaintiff defendant Casals
immediately deposited it with the defendant bank and the bank teller accepted the same for
deposit in defendant Casville's checking account. After depositing said check, defendant
Casville, acting through defendant Casals, then withdrew all the amount deposited.

11
Meanwhile, upon their presentation for encashment, plaintiff discovered that the three checks
(Exhibits "F, "G" and "H") in the total amount of P427,300.00, that were issued by defendant
Casville as collateral were all dishonored for having been drawn against a closed account.

As defendant Casville failed to pay its obligation to defendant bank, the latter foreclosed the
mortgage executed by defendant Casville on the Estrada property which was sold in a public
auction sale to a third party.

Plaintiff allowed some time before following up the application for the letters of credit knowing
that it took time to process the same. However, when the three checks issued to it by defendant
Casville were dishonored, plaintiff became apprehensive and sent Umali on November 29, 1976,
to inquire about the status of the application for the letters of credit. When plaintiff was informed
that no letters of credit were opened by the defendant bank in its favor and then discovered that
defendant Casville had in the meanwhile withdrawn the entire amount of P427,300.00, without
paying its obligation to the bank plaintiff filed the instant action.

While the the instant case was being tried, defendants Casals and Casville assigned the garrett
skidder to plaintiff which credited in favor of defendants the amount of P450,000.00, as partial
satisfaction of plaintiff's claim against them.

Defendants Casals and Casville hardly disputed their liability to plaintiff. Not only did they show
lack of interest in disputing plaintiff's claim by not appearing in most of the hearings, but they also
assigned to plaintiff the garrett skidder which is an action of clear recognition of their liability.

What is left for the Court to determine, therefore, is only the liability of defendant bank to plaintiff.

Issue:

The crucial issue to resolve is whether or not petitioner Equitable Banking Corporation (briefly,
the Bank) is liable to private respondent Edward J. Nell Co. (NELL, for short) for the value of the
second check issued by NELL, Exhibit "E-l," which was made payable

Ruling:

We disagree.

1) The subject check was equivocal and patently ambiguous. By making the check read:

Pay to the EQUITABLE BANKING CORPORATION Order of A/C OF CASVILLE

ENTERPRISES, INC.

the payee ceased to be indicated with reasonable certainty in contravention of Section 8 of the
Negotiable Instruments Law.   As worded, it could be accepted as deposit to the account of the
3

party named after the symbols "A/C," or payable to the Bank as trustee, or as an agent, for
Casville Enterprises, Inc., with the latter being the ultimate beneficiary. That ambiguity is to be
taken contra proferentem that is, construed against NELL who caused the ambiguity and could
have also avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil Code,
provides:

Art. 1377. The interpretation of obscure words or stipulations in a contract shall

not favor the party who caused the obscurity.

12
2) Contrary to the finding of respondent Appellate Court, the subject check was, initially, not non-
negotiable. Neither was it a crossed check. The rubber-stamping transversall on the face of the
subject check of the words "Non-negotiable for Payee's Account Only" between two (2) parallel
lines, and "Non-negotiable, Teller- No. 4, August 17, 1976," separately boxed, was made only by
the Bank teller in accordance with customary bank practice, and not by NELL as the drawer of
the check, and simply meant that thereafter the same check could no longer be negotiated.

3) NELL's own acts and omissions in connection with the drawing, issuance and delivery of the
16 August 1976 check, Exhibit "E-l," and its implicit trust in Casals, were the proximate cause of
its own defraudation: (a) The original check of 5 August 1976, Exhibit "2," was payable to the
order solely of "Equitable Banking Corporation." NELL changed the payee in the subject check,
Exhibit "E", however, to "Equitable Banking Corporation, A/C of Casville Enterprises Inc.," upon
Casals request. NELL also eliminated both the cash disbursement voucher accompanying the
check which read:

Payment for marginal deposit and other expense re opening of L/C for account of
Casville Enterprises.

and the memorandum:

a/c of Casville Enterprises Inc. for Marginal deposit and payment of balance on
Estrada Property to be used as security for trust receipt for opening L/C of Garrett
Skidders in favor of the Edward Ashville J Nell Co.

Evidencing the real nature of the transaction was merely a separate covering letter, dated 16
August 1976, which Casals, sinisterly enough, suppressed from the Bank officials and teller.

(b) NELL entrusted the subject check and its covering letter, Exhibit "E," to Casals who,
obviously, had his own antagonistic interests to promote. Thus it was that Casals did not
purposely present the subject check to the Executive Vice-President of the Bank, who was aware
of the negotiations regarding the Letter of Credit, and who had rejected the previous check,
Exhibit "2," including its three documents because the terms and conditions required by the Bank
for the opening of the Letter of Credit had not yet been agreed on.

(c) NELL was extremely accommodating to Casals. Thus, to facilitate the sales transaction,
NELL even advanced the marginal deposit for the garrett skidder. It is, indeed, abnormal for the
seller of goods, the price of which is to be covered by a letter of credit, to advance the marginal
deposit for the same.

(d) NELL had received three (3) postdated checks all dated 16 November, 1976 from Casvine to
secure the subject check and had accepted the deposit with it of two (2) titles of real properties
as collateral for said postdated checks. Thus, NELL was erroneously confident that its interests
were sufficiently protected. Never had it suspected that those postdated checks would be
dishonored, nor that the subject check would be utilized by Casals for a purpose other than for
opening the letter of credit.

In the last analysis, it was NELL's own acts, which put it into the power of Casals and Casville
Enterprises to perpetuate the fraud against it and, consequently, it must bear the loss (Blondeau,
et al., vs. Nano, et al., 61 Phil. 625 [1935]; Sta. Maria vs. Hongkong and Shanghai Banking
Corporation, 89 Phil. 780 [1951]; Republic of the Philippines vs. Equitable Banking Corporation,
L-15895, January 30,1964, 10 SCRA 8).

... As between two innocent persons, one of whom must suffer the consequence
of a breach of trust, the one who made it possible by his act of confidence must
bear the loss.

13
People v. Wagas, G.R. No. 157943, 4 September 2013, (705 SCRA 17)

Facts:

At the trial, the Prosecution presented complainant Alberto Ligaray as its lone witness. Ligaray
testified that on April 30, 1997, Wagas placed an order for 200 bags of rice over the telephone;
that he and his wife would not agree at first to the proposed payment of the order by postdated
check, but because of Wagas’ assurance that he would not disappoint them and that he had the
means to pay them because he had a lending business and money in the bank, they relented
and accepted the order; that he released the goods to Wagas on April 30, 1997 and at the same
time received Bank of the Philippine Islands (BPI) Check No. 0011003 for ₱200,000.00 payable
to cash and postdated May 8, 1997; that he later deposited the check with Solid Bank, his
depository bank, but the check was dishonored due to insufficiency of funds; 5 that he called
Wagas about the matter, and the latter told him that he would pay upon his return to Cebu; and
that despite repeated demands, Wagas did not pay him. 6

On cross-examination, Ligaray admitted that he did not personally meet Wagas because they
transacted through telephone only; that he released the 200 bags of rice directly to Robert
Cañada, the brother-in-law of Wagas, who signed the delivery receipt upon receiving the rice. 7

After Ligaray testified, the Prosecution formally offered the following: (a) BPI Check No. 0011003
in the amount of ₱200,000.00 payable to "cash;" (b) the return slip dated May 13, 1997 issued by
Solid Bank; (c) Ligaray’s affidavit; and (d) the delivery receipt signed by Cañada. After the RTC
admitted the exhibits, the Prosecution then rested its case. 8

In his defense, Wagas himself testified. He admitted having issued BPI Check No. 0011003 to
Cañada, his brother-in-law, not to Ligaray. He denied having any telephone conversation or any
dealings with Ligaray. He explained that the check was intended as payment for a portion of
Cañada’s property that he wanted to buy, but when the sale did not push through, he did not
anymore fund the check

On cross-examination, the Prosecution confronted Wagas with a letter dated July 3, 1997
apparently signed by him and addressed to Ligaray’s counsel, wherein he admitted owing
Ligaray ₱200,000.00 for goods received, to wit:

Wagas admitted the letter, but insisted that it was Cañada who had transacted with Ligaray, and
that he had signed the letter only because his sister and her husband (Cañada) had begged him
to assume the responsibility.11 On redirect examination, Wagas declared that Cañada, a seafarer,
was then out of the country; that he signed the letter only to accommodate the pleas of his sister
and Cañada, and to avoid jeopardizing Cañada’s application for overseas employment.

14
Ruling:

In every criminal prosecution, however, the identity of the offender, like the crime itself, must be
established by proof beyond reasonable doubt.28 In that regard, the Prosecution did not establish
beyond reasonable doubt that it was Wagas who had defrauded Ligaray by issuing the check.

Firstly, Ligaray expressly admitted that he did not personally meet the person with whom he was
transacting over the telephone, thus:

Secondly, the check delivered to Ligaray was made payable to cash. Under the Negotiable
Instruments Law, this type of check was payable to the bearer and could be negotiated by mere
delivery without the need of an indorsement.31 This rendered it highly probable that Wagas had
issued the check not to Ligaray, but to somebody else like Cañada, his brother-in-law, who then
negotiated it to Ligaray.  Relevantly, Ligaray confirmed that he did not himself see or meet
1âwphi1

Wagas at the time of the transaction and thereafter, and expressly stated that the person who
signed for and received the stocks of rice was Cañada.

It bears stressing that the accused, to be guilty of estafa as charged, must have used the check
in order to defraud the complainant. What the law punishes is the fraud or deceit, not the mere
issuance of the worthless check. Wagas could not be held guilty of estafa simply because he had
issued the check used to defraud Ligaray. The proof of guilt must still clearly show that it had
been Wagas as the drawer who had defrauded Ligaray by means of the check.

Thirdly, Ligaray admitted that it was Cañada who received the rice from him and who delivered
the check to him. Considering that the records are bereft of any showing that Cañada was then
acting on behalf of Wagas, the RTC had no factual and legal bases to conclude and find that
Cañada had been acting for Wagas. This lack of factual and legal bases for the RTC to infer so
obtained despite Wagas being Cañada’s brother-in-law.

Finally, Ligaray’s declaration that it was Wagas who had transacted with him over the telephone
was not reliable because he did not explain how he determined that the person with whom he
had the telephone conversation was really Wagas whom he had not yet met or known before
then. We deem it essential for purposes of reliability and trustworthiness that a telephone
conversation like that one Ligaray supposedly had with the buyer of rice to be first authenticated
before it could be received in evidence. Among others, the person with whom the witness
conversed by telephone should be first satisfactorily identified by voice recognition or any other
means.32 Without the authentication, incriminating another person just by adverting to the
telephone conversation with him would be all too easy. In this respect, an identification based on
familiarity with the voice of the caller, or because of clearly recognizable peculiarities of the caller
would have sufficed.33 The identity of the caller could also be established by the caller’s self-
identification, coupled with additional evidence, like the context and timing of the telephone call,
the contents of the statement challenged, internal patterns, and other distinctive characteristics,
and disclosure of knowledge of facts known peculiarly to the caller. 34

Verily, it is only fair that the caller be reliably identified first before a telephone communication is
accorded probative weight. The identity of the caller may be established by direct or
circumstantial evidence. According to one ruling of the Kansas Supreme Court:

15
Communications by telephone are admissible in evidence where they are relevant to the fact or
facts in issue, and admissibility is governed by the same rules of evidence concerning face-to-
face conversations except the party against whom the conversations are sought to be used must
ordinarily be identified. It is not necessary that the witness be able, at the time of the
conversation, to identify the person with whom the conversation was had, provided subsequent
identification is proved by direct or circumstantial evidence somewhere in the development of the
case. The mere statement of his identity by the party calling is not in itself sufficient proof of such
identity, in the absence of corroborating circumstances so as to render the conversation
admissible. However, circumstances preceding or following the conversation may serve to
sufficiently identify the caller. The completeness of the identification goes to the weight of the
evidence rather than its admissibility, and the responsibility lies in the first instance with the
district court to determine within its sound discretion whether the threshold of admissibility has
been met.35 (Bold emphasis supplied)

Yet, the Prosecution did not tender any plausible explanation or offer any proof to definitely
establish that it had been Wagas whom Ligaray had conversed with on the telephone. The
Prosecution did not show through Ligaray during the trial as to how he had determined that his
caller was Wagas. All that the Prosecution sought to elicit from him was whether he had known
and why he had known Wagas, and he answered as follows:

Ligaray’s statement that he could tell that it was Wagas who had ordered the rice because he
"know[s]" him was still vague and unreliable for not assuring the certainty of the identification,
and should not support a finding of Ligaray’s familiarity with Wagas as the caller by his voice. It
was evident from Ligaray’s answers that Wagas was not even an acquaintance of Ligaray’s prior
to the transaction. Thus, the RTC’s conclusion that Ligaray had transacted with Wagas had no
factual basis. Without that factual basis, the RTC was speculating on a matter as decisive as the
identification of the buyer to be Wagas.

The letter of Wagas did not competently establish that he was the person who had conversed
with Ligaray by telephone to place the order for the rice. The letter was admitted exclusively as
the State’s rebuttal evidence to controvert or impeach the denial of Wagas of entering into any
transaction with Ligaray on the rice; hence, it could be considered and appreciated only for that
purpose. Under the law of evidence, the court shall consider evidence solely for the purpose for
which it is offered,38 not for any other purpose.39 Fairness to the adverse party demands such
exclusivity. Moreover, the high plausibility of the explanation of Wagas that he had signed the
letter only because his sister and her husband had pleaded with him to do so could not be taken
for granted.

It is a fundamental rule in criminal procedure that the State carries the onus probandi in
establishing the guilt of the accused beyond a reasonable doubt, as a consequence of the tenet
ei incumbit probation, qui dicit, non qui negat, which means that he who asserts, not he who
denies, must prove,40 and as a means of respecting the presumption of innocence in favor of the
man or woman on the dock for a crime. Accordingly, the State has the burden of proof to show:
(1) the correct identification of the author of a crime, and (2) the actuality of the commission of
the offense with the participation of the accused. All these facts must be proved by the State
beyond reasonable doubt on the strength of its evidence and without solace from the weakness
of the defense. That the defense the accused puts up may be weak is inconsequential if, in the
first place, the State has failed to discharge the onus of his identity and culpability. The
presumption of innocence dictates that it is for the Prosecution to demonstrate the guilt and not
for the accused to establish innocence. 41 Indeed, the accused, being presumed innocent, carries
no burden of proof on his or her shoulders. For this reason, the first duty of the Prosecution is not
to prove the crime but to prove the identity of the criminal. For even if the commission of the
crime can be established, without competent proof of the identity of the accused beyond
reasonable doubt, there can be no conviction. 42

16
There is no question that an identification that does not preclude a reasonable possibility of
mistake cannot be accorded any evidentiary force.43 Thus, considering that the circumstances of
the identification of Wagas as the person who transacted on the rice did not preclude a
reasonable possibility of mistake, the proof of guilt did not measure up to the standard of proof
beyond reasonable doubt demanded in criminal cases. Perforce, the accused’s constitutional
right of presumption of innocence until the contrary is proved is not overcome, and he is entitled
to an acquittal,44 even though his innocence may be doubted.45

Nevertheless, an accused, though acquitted of estafa, may still be held civilly liable where the
preponderance of the established facts so warrants.46 Wagas as the admitted drawer of the
check was legally liable to pay the amount of it to Ligaray, a holder in due
course.47 Consequently, we pronounce and hold him fully liable to pay the amount of the
dishonored check, plus legal interest of 6% per annum from the finality of this decision.

HSBC v. CIR, G.R. No. 166018, 4 June 2014, (724 SCRA 499)

Facts:

HSBC performs, among others, custodial services on behalf of its investor-clients, corporate and
individual, resident or non-resident of the Philippines, with respect to their passive investments in
the Philippines, particularly investments in shares of stocks in domestic corporations. As a
custodian bank, HSBC serves as the collection/payment agent with respect to dividends and
other income derived from its investor-clients’ passive investments. 6

HSBC’s investor-clients maintain Philippine peso and/or foreign currency accounts, which are
managed by HSBC through instructions given through electronic messages. The said
instructions are standard forms known in the banking industry as SWIFT, or "Society for
Worldwide Interbank Financial Telecommunication." In purchasing shares of stock and other
investment in securities, the investor-clients would send electronic messages from abroad
instructing HSBC to debit their local or foreign currency accounts and to pay the purchase price
therefor upon receipt of the securities.
7

Pursuant to the electronic messages of its investor-clients, HSBC purchased and paid
Documentary Stamp Tax (DST) from September to December 1997 and also from January to
December 1998 amounting to ₱19,572,992.10 and ₱32,904,437.30, respectively, broken down
as follows:

On August 23, 1999, the Bureau of Internal Revenue (BIR), thru its then Commissioner,
Beethoven Rualo, issued BIR Ruling No. 132-99 to the effect that instructions or advises from
abroad on the management of funds located in the Philippines which do not involve transfer of
funds from abroad are not subject to DST. BIR Ruling No. 132-99 reads:

With the above BIR Ruling as its basis, HSBC filed on October 8, 1999 an administrative claim
for the refund of the amount of ₱19,572,992.10 allegedly representing erroneously paid DST to
the BIR for the period covering September to December 1997.

The CTA Decisions dated May 2, 2002 in CTA Case No. 6009 and dated December 18, 2002 in
CTA Case No. 5951 favored HSBC. Respondent Commissioner of Internal Revenue was
ordered to refund or issue a tax credit certificate in favor of HSBC in the reduced amounts of
₱30,360,570.75 in CTA Case No. 6009 and ₱16,436,395.83 in CTA Case No. 5951,
representing erroneously paid DST that have been sufficiently substantiated with documentary
evidence. The CTA ruled that HSBC is entitled to a tax refund or tax credit because Sections 180

17
and 181 of the 1997 Tax Code do not apply to electronic message instructions transmitted by
HSBC’s non-resident investor-clients:

The instruction made through an electronic message by a nonresident investor-client, which is to

debit his local or foreign currency account in the Philippines and pay a certain named recipient
also residing in the Philippines is not the transaction contemplated in Section 181 of the Code. In
this case, the withdrawal and payment shall be made in cash. It is parallel to an automatic bank
transfer of local funds from a savings account to a checking account maintained by a depositor in
one bank. The act of debiting the account is not subject to the documentary stamp tax under
Section 181. Neither is the transaction subject to the documentary stamp tax under Section 180
of the same Code. These electronic message instructions cannot be considered negotiable
instruments as they lack the feature of negotiability, which, is the ability to be transferred (Words
and Phrases).

These instructions are considered as mere memoranda and entered as such in the books of
account of the local bank, and the actual debiting of the payor’s local or foreign currency account
in the Philippines is the actual transaction that should be properly entered as such.

However, the Court of Appeals reversed both decisions of the CTA and ruled that the electronic
messages of HSBC’s investor-clients are subject to DST

HSBC asserts that the Court of Appeals committed grave error when it disregarded the factual
and legal conclusions of the CTA. According to HSBC, in the absence of abuse or improvident
exercise of authority, the CTA’s ruling should not have been disturbed as the CTA is a highly
specialized court which performs judicial functions, particularly for the review of tax cases. HSBC
further argues that the Commissioner of Internal Revenue had already settled the issue on the
taxability of electronic messages involved in these cases in BIR Ruling No. 132-99 and reiterated
in BIR Ruling No. DA-280-2004. 13

The Commissioner of Internal Revenue, on the other hand, claims that Section 181 of the 1997
Tax Code imposes DST on the acceptance or payment of a bill of exchange or order for the
payment of money. The DST under Section 18 of the 1997 Tax Code is levied on HSBC’s
exercise of a privilege which is specifically taxed by law. BIR Ruling No. 132-99 is inconsistent
with prevailing law and long standing administrative practice, respondent is not barred from
questioning his own revenue ruling. Tax refunds like tax exemptions are strictly construed
against the taxpayer.

Ruling:

The Court finds for HSBC.

The Court agrees with the CTA that the DST under Section 181 of the Tax Code is levied on the
acceptance or payment of "a bill of exchange purporting to be drawn in a foreign country but
payable in the Philippines" and that "a bill of exchange is an unconditional order in writing
addressed by one person to another, signed by the person giving it, requiring the person to
whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in
money to order or to bearer." A bill of exchange is one of two general forms of negotiable
instruments under the Negotiable Instruments Law. 15

The Court further agrees with the CTA that the electronic messages of HSBC’s investor-clients
containing instructions to debit their respective local or foreign currency accounts in the
Philippines and pay a certain named recipient also residing in the Philippines is not the
transaction contemplated under Section 181 of the Tax Code as such instructions are "parallel to
an automatic bank transfer of local funds from a savings account to a checking account

18
maintained by a depositor in one bank." The Court favorably adopts the finding of the CTA that
the electronic messages "cannot be considered negotiable instruments as they lack the feature
of negotiability, which, is the ability to be transferred" and that the said electronic messages are
"mere memoranda" of the transaction consisting of the "actual debiting of the [investor-client-
payor’s] local or foreign currency account in the Philippines" and "entered as such in the books of
account of the local bank," HSBC. 16

More fundamentally, the instructions given through electronic messages that are subjected to
DST in these cases are not negotiable instruments as they do not comply with the requisites of
negotiability under Section 1 of the Negotiable Instruments Law, which provides:

Sec. 1. Form of negotiable instruments.– An instrument to be negotiable must conform to the

following requirements:

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money;

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

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

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

indicated therein with reasonable certainty.

The electronic messages are not signed by the investor-clients as supposed drawers of a bill of
exchange; they do not contain an unconditional order to pay a sum certain in money as the
payment is supposed to come from a specific fund or account of the investor-clients; and, they
are not payable to order or bearer but to a specifically designated third party. Thus, the electronic
messages are not bills of exchange. As there was no bill of exchange or order for the payment
drawn abroad and made payable here in the Philippines, there could have been no acceptance
or payment that will trigger the imposition of the DST under Section 181 of the Tax Code.

It was implemented by Section 46 in relation to Section 39 of Revenue Regulations No. 26,  as 20

amended:

SEC. 39. A Bill of Exchange is one that "denotes checks, drafts, and all other kinds of orders for
the payment of money, payable at sight or on demand, or after a specific period after sight or
from a stated date."

SEC. 46. Bill of Exchange, etc. – When any bill of exchange or order for the payment of money
drawn in a foreign country but payable in this country whether at sight or on demand or after a
specified period after sight or from a stated date, is presented for acceptance or payment, there
must be affixed upon acceptance or payment of documentary stamp equal to P0.02 for each
₱200 or fractional part thereof. (Emphasis supplied.)

It took its present form in Section 218 of the Tax Code of 1939,  which provided:
21

19
SEC. 218. Stamp Tax Upon Acceptance of Bills of Exchange and Others. – Upon any
acceptance or payment of any bill of exchange or order for the payment of money purporting to
be drawn in a foreign country but payable in the Philippines, there shall be collected a
documentary stamp tax of four centavos on each two hundred pesos, or fractional part thereof, of
the face value of any such bill of exchange or order, or the Philippine equivalent of such value, if
expressed in foreign currency. (Emphasis supplied.)

It then became Section 230 of the 1977 Tax Code,  as amended by Presidential Decree Nos.
22

1457 and 1959,which, as stated earlier, was worded exactly as Section 181 of the current Tax
Code:

SEC. 230. Stamp tax upon acceptance of bills of exchange and others. – Upon any acceptance
or payment of any bill of exchange or order for the payment of money purporting to be drawn in a
foreign country but payable in the Philippines, there shall be collected a documentary stamp tax
of thirty centavos on each two hundred pesos, or fractional part thereof, of the face value of any
such bill of exchange, or order, or the Philippine equivalent of such value, if expressed in foreign
currency. (Emphasis supplied.)

The pertinent provision of the present Tax Code has therefore remained substantially the same
for the past one hundred years.  The identical text and common history of Section 230 of the
1âwphi1

1977 Tax Code, as amended, and the 1997 Tax Code, as amended, show that the law imposes
DST on either (a) the acceptance or (b) the payment of a foreign bill of exchange or order for the
payment of money that was drawn abroad but payable in the Philippines.

DST is an excise tax on the exercise of a right or privilege to transfer obligations, rights or
properties incident thereto.  Under Section 173 of the 1997 Tax Code, the persons primarily
23

liable for the payment of the DST are those (1) making, (2) signing, (3) issuing, (4) accepting, or
(5) transferring the taxable documents, instruments or papers. 24

In general, DST is levied on the exercise by persons of certain privileges conferred by law for the
creation, revision, or termination of specific legal relationships through the execution of specific
instruments. Examples of such privileges, the exercise of which, as effected through the
issuance of particular documents, are subject to the payment of DST are leases of lands,
mortgages, pledges and trusts, and conveyances of real property. 25

As stated above, Section 230 of the 1977 Tax Code, as amended, now Section 181 of the 1997
Tax Code, levies DST on either (a) the acceptance or (b) the payment of a foreign bill of
exchange or order for the payment of money that was drawn abroad but payable in the
Philippines. In other words, it levies DST as an excise tax on the privilege of the drawee to
accept or pay a bill of exchange or order for the payment of money, which has been drawn
abroad but payable in the Philippines, and on the corresponding privilege of the drawer to have
acceptance of or payment for the bill of exchange or order for the payment of money which it has
drawn abroad but payable in the Philippines.

Acceptance applies only to bills of exchange.  Acceptance of a bill of exchange has a very
26

definite meaning in law.  In particular, Section 132 of the Negotiable Instruments Law provides:
27

Sec. 132. Acceptance; how made, by and so forth. – The acceptance of a bill [of exchange ] is28

the signification by the drawee of his assent to the order of the drawer. The acceptance must be
in writing and signed by the drawee. It must not express that the drawee will perform his promise
by any other means than the payment of money.

Under the law, therefore, what is accepted is a bill of exchange, and the acceptance of a bill of
exchange is both the manifestation of the drawee’s consent to the drawer’s order to pay money
and the expression of the drawee’s promise to pay. It is "the act by which the drawee manifests
his consent to comply with the request contained in the bill of exchange directed to him and it

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contemplates an engagement or promise to pay."  Once the drawee accepts, he becomes an
29

acceptor.  As acceptor, he engages to pay the bill of exchange according to the tenor of his
30

acceptance. 31

Acceptance is made upon presentment of the bill of exchange, or within 24 hours after such
presentment.  Presentment for acceptance is the production or exhibition of the bill of exchange
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to the drawee for the purpose of obtaining his acceptance. 33

Presentment for acceptance is necessary only in the instances where the law requires it.  In the
34

instances where presentment for acceptance is not necessary, the holder of the bill of exchange
can proceed directly to presentment for payment.

Presentment for payment is the presentation of the instrument to the person primarily liable for
the purpose of demanding and obtaining payment thereof. 35

Thus, whether it be presentment for acceptance or presentment for payment, the negotiable
instrument has to be produced and shown to the drawee for acceptance or to the acceptor for
payment.

Revenue Regulations No. 26 recognizes that the acceptance or payment (of bills of exchange or
orders for the payment of money that have been drawn abroad but payable in the Philippines)
that is subjected to DST under Section 181 of the 1997 Tax Code is done after presentment for
acceptance or presentment for payment, respectively. In other words, the acceptance or
payment of the subject bill of exchange or order for the payment of money is done when there is
presentment either for acceptance or for payment of the bill of exchange or order for the payment
of money.

Applying the above concepts to the matter subjected to DST in these cases, the electronic
messages received by HSBC from its investor-clients abroad instructing the former to debit the
latter's local and foreign currency accounts and to pay the purchase price of shares of stock or
investment in securities do not properly qualify as either presentment for acceptance or
presentment for payment. There being neither presentment for acceptance nor presentment for
payment, then there was no acceptance or payment that could have been subjected to DST to
speak of.

Indeed, there had been no acceptance of a bill of exchange or order for the payment of money
on the part of HSBC. To reiterate, there was no bill of exchange or order for the payment drawn
abroad and made payable here in the Philippines. Thus, there was no acceptance as the
electronic messages did not constitute the written and signed manifestation of HSBC to a
drawer's order to pay money. As HSBC could not have been an acceptor, then it could not have
made any payment of a bill of exchange or order for the payment of money drawn abroad but
payable here in the Philippines. In other words, HSBC could not have been held liable for DST
under Section 230 of the 1977 Tax Code, as amended, and Section 181 of the 1997 Tax Code
as it is not "a person making, signing, issuing, accepting, or, transferring" the taxable instruments
under the said provision. Thus, HSBC erroneously paid DST on the said electronic messages for
which it is entitled to a tax refund.

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Rustia v. Rivera, G.R. No. 156903, 24 November 2006, (508 SCRA)

FactS;

In September 1995, Emerita Rivera, respondent, filed with the Metropolitan Trial Court (MeTC),
Branch 36, Quezon City, a complaint for sum of money against spouses Carlos and Teresita
Rustia, petitioners, and Rosemarie F. Rocha. The complaint was docketed as Civil Case No.
0206. Respondent alleged therein that petitioners obtained from her a loan of ₱130,000.00,
payable within thirty (30) days without need of prior demand. As security for the loan, petitioners
executed a promissory note, with Rosemarie Rocha as their co-maker. The loan bears an
interest of five percent (5%) per month. Petitioners paid the interest corresponding to the period
from January 1991 to March 1994. Thereafter, despite respondent’s written demands, they failed
to pay any interest or the principal obligation. Respondent then prayed that judgment be
rendered ordering petitioners to pay the loan, the accrued interest thereon, and attorney’s fees.

After the court’s denial of their motion to dismiss the complaint, petitioners filed their answer
admitting that respondent extended to them a loan of ₱130,000.00. However, they denied having
agreed to pay interest thereon. While they paid respondent ₱6,500.00 every month, however, it
was for the settlement of the principal obligation. In fact, they overpaid ₱123,500.00. They
prayed that the case be dismissed and that respondent be ordered to refund to them their
overpayment plus damages, attorney’s fees, and litigation expenses.

During the hearing, respondent offered in evidence petitioners’ promissory note and petitioner
Teresita Rustia’s letter addressed to respondent agreeing to pay 5% monthly interest.

Teresita denied having borrowed ₱130,000.00 from respondent; that respondent delivered the
said amount to petitioners as investment in the latter’s business; and that the monthly payment of
₱6,500.00 they tendered to respondent corresponds to her share in the profits.

Issue:

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1. Whether the Court of Appeals erred in holding that the motion for reconsideration filed with the
RTC by petitioners is but a mere scrap of paper for lack of notice of hearing;

2. Whether the Court of Appeals erred when it failed to apply Article 1956 of the Civil Code
providing that no interest shall be due unless it has been expressly stipulated in writing;

Ruling:

Section 4 lays the general rule that all written motions shall be set for hearing by the movant,
except the non-litigated motions or those which may be acted upon by the court without
prejudicing the rights of the adverse party. These ex parte motions include a motion for extension
of time to file pleadings,3 motion for extension of time to file an answer,4 and a motion for
extension of time to file a record on appeal. 5 In Manila Surety and Fidelity Co., Inc. v. Bath
Construction and Company,6 we ruled that a notice of time and place of hearing is mandatory
for motions for new trial or motion for reconsideration, as in this case. We have reiterated
this doctrine in Magno v. Ortiz,7 Calero v. Yaptichay,8 Vda. de Azarias v. Maddela,9 Phil.
Advertising Counselors, Inc. v. Revilla,10 Sacdalan v. Bautista,11 New Japan Motors, Inc. v.
Perucho,12 Firme v. Reyes, et al.,13 and others. More recently, in National Commercial Bank of
Saudi Arabia v. Court of Appeals,14 we reaffirmed the rule that the requirement of notice under
Sections 4 and 5, Rule 15 is mandatory and the lack thereof is fatal to a motion for
reconsideration.1âwphi1

We thus hold that the Court of Appeals did not err when it affirmed the RTC ruling that
petitioners’ motion for reconsideration is but a mere scrap of paper because it does not comply
with Sections 4 and 5, Rule 15.

Anent the second issue, contrary to petitioners’ contention, the trial court found that petitioner
Teresita Rustia sent respondent a letter begging the latter’s indulgence regarding her difficulty
and that of her husband in paying the 5% monthly interest on their ₱130,000.00 loan. This
finding by the trial court was upheld by the RTC and the Court of Appeals. Indeed, such letter
proves that petitioners agreed to pay interest. It is basic that findings of fact by the trial court,
when affirmed by the Court of Appeals, are binding and conclusive upon this Court. 15 Verily, the
Court of Appeals did not err when it sustained the lower court’s finding that respondent is entitled
to the payment of interests on the subject loan.

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