Negotiable Instruments Cases | Sylver Jan Baluno Prior

Republic of the Philippines SUPREME COURT Manila SEC N! !I"ISI N G.R. No. 72593 April 30, 1987 CONSOLIDATED PL !OOD INDUSTRIES, INC., "ENR !EE, #$% RODOL&O T. 'ERGARA, petitioners# vs$ I&C LEASING AND ACCEPTANCE CORPORATION, respon%ent$ Carpio, Villaraza & Cruz Law Offices for petitioners. Europa, Dacanay & Tolentino for respondent. re*ueste% the seller,assignor to inspect the Aob site$ +fter con%ucting sai% inspection# the seller,assignor assure% petitioner,corporation that the =>se%= +llis Cra)ler &ractors )hich )ere being offere% )ere fit for the Aob# an% gave the correspon%ing )arranty of ninety 6108 %ays performance of the machines an% availability of parts$ 6t$s$n$# May 7/# 21/0# pp$ (1,..8$ Bith sai% assurance an% )arranty# an% relying on the seller,assignor:s s<ill an% Au%gment# petitioner,corporation through petitioners Bee an% "ergara# presi%ent an% vice, presi%ent# respectively# agree% to purchase on installment sai% t)o 678 units of =>se%= +llis Cra)ler &ractors$ It also pai% the %o)n payment of &)o ?un%re% &en &housan% Pesos 6P720#000$008$ n +pril (# 213/# the seller,assignor issue% the sales invoice for the t)o 78 units of tractors 6E@h$ =C,+=8$ +t the same time# the %ee% of sale )ith chattel mortgage )ith promissory note )as e@ecute% 6E@h$ =7=8$ Simultaneously )ith the e@ecution of the %ee% of sale )ith chattel mortgage )ith promissory note# the seller,assignor# by means of a %ee% of assignment 6E e@h$ = 2 =8# assigne% its rights an% interest in the chattel mortgage in favor of the respon%ent$ Imme%iately thereafter# the seller,assignor %elivere% sai% t)o 678 units of =>se%= tractors to the petitioner,corporation:s Aob site an% as agree%# the seller,assignor statione% its o)n mechanics to supervise the operations of the machines$ Barely fourteen 62'8 %ays ha% elapse% after their %elivery )hen one of the tractors bro<e %o)n an% after another nine 618 %ays# the other tractor li<e)ise bro<e %o)n 6t$s$n$# May 7/# 21/0# pp$ ./,.18$ n +pril 7(# 213/# petitioner Ro%olfo &$ "ergara formally a%vise% the seller,assignor of the fact that the tractors bro<e %o)n an% re*ueste% for the seller,assignor:s usual prompt attention un%er the )arranty 6E e@h$ = ( =8$ In response to the formal a%vice by petitioner Ro%olfo &$ "ergara# E@hibit =(#= the seller,assignor sent to the Aob site its mechanics to con%uct the necessary repairs 6E@hs$ =.#= =.,+#= =.,B#= 2. C#= =2.,C,2#= =.,!#= an% =.,E=8# but the tractors %i% not come out to be )hat they shoul% be after the repairs )ere un%erta<en because the units )ere no longer serviceable 6t$ s$ n$# May 7/# 21/0# p$ 3/8$

GUTIERRE(, )R., J.: &his is a petition for certiorari un%er Rule '( of the Rules of Court )hich assails on *uestions of la) a %ecision of the Interme%iate +ppellate Court in +C,-$R$ C" No$ ./.01 %ate% July 23# 21/(# as )ell as its resolution %ate% ctober 23# 21/(# %enying the motion for reconsi%eration$ &he antece%ent facts culle% from the petition are as follo)s4 &he petitioner is a corporation engage% in the logging business$ It ha% for its program of logging activities for the year 213/ the opening of a%%itional roa%s# an% simultaneous logging operations along the route of sai% roa%s# in its logging concession area at Baganga# Manay# an% Caraga# !avao riental$ 5or this purpose# it nee%e% t)o 678 a%%itional units of tractors$ Cogni9ant of petitioner,corporation:s nee% an% purpose# +tlantic -ulf ; Pacific Company of Manila# through its sister company an% mar<eting arm# In%ustrial Pro%ucts Mar<eting 6the =seller,assignor=8# a corporation %ealing in tractors an% other heavy e*uipment business# offere% to sell to petitioner,corporation t)o 678 =>se%= +llis Cra)ler &ractors# one 628 an ?!!,72,B an% the other an ?!!,2.,B$ In or%er to ascertain the e@tent of )or< to )hich the tractors )ere to be e@pose%# 6t$s$n$# May 7/# 21/0# p$ ''8 an% to %etermine the capability of the =>se%= tractors being offere%# petitioner,corporation

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Negotiable Instruments Cases | Sylver Jan Baluno Prior

Because of the brea<ing %o)n of the tractors# the roa% buil%ing an% simultaneous logging operations of petitioner,corporation )ere %elaye% an% petitioner "ergara a%vise% the seller,assignor that the payments of the installments as liste% in the promissory note )oul% li<e)ise be %elaye% until the seller,assignor completely fulfills its obligation un%er its )arranty 6t$s$n# May 7/# 21/0# p$ 318$ Since the tractors )ere no longer serviceable# on +pril 3# 2131# petitioner Bee as<e% the seller,assignor to pull out the units an% have them recon%itione%# an% thereafter to offer them for sale$ &he procee%s )ere to be given to the respon%ent an% the e@cess# if any# to be %ivi%e% bet)een the seller,assignor an% petitioner,corporation )hich offere% to bear one,half 62E78 of the recon%itioning cost 6E e@h$ = 3 =8$ No response to this letter# E@hibit =3#= )as receive% by the petitioner, corporation an% %espite several follo),up calls# the seller,assignor %i% nothing )ith regar% to the re*uest# until the complaint in this case )as file% by the respon%ent against the petitioners# the corporation# Bee# an% "ergara$ &he complaint )as file% by the respon%ent against the petitioners for the recovery of the principal sum of ne Million Ninety &hree &housan% Seven ?un%re% Eighty Nine Pesos ; 32E200 6P2#01C#3/1$328# accrue% interest of ne ?un%re% 5ifty ne &housan% Si@ ?un%re% Eighteen Pesos ; /.E200 6P2(2#.2/$/.8 as of +ugust 2(# 2131# accruing interest thereafter at the rate of t)elve 627F8 percent per annum# attorney:s fees of &)o ?un%re% 5orty Nine &housan% Eighty ne Pesos ; 32E200 6P7'1#0/2$3 28 an% costs of suit$ &he petitioners file% their amen%e% ans)er praying for the %ismissal of the complaint an% as<ing the trial court to or%er the respon%ent to pay the petitioners %amages in an amount at the soun% %iscretion of the court# &)enty &housan% Pesos 6P70#000$008 as an% for attorney:s fees# an% 5ive &housan% Pesos 6P(#000$008 for e@penses of litigation$ &he petitioners li<e)ise praye% for such other an% further relief as )oul% be Aust un%er the premises$ In a %ecision %ate% +pril 70# 21/2# the trial court ren%ere% the follo)ing Au%gment4 B?ERE5 RE# Au%gment is hereby ren%ere%4 2$ or%ering %efen%ants to pay Aointly an% severally in their official an% personal capacities the principal sum of NE MIDDI N NINE&G &?REE &? >S+N! SE"EN ?>N!RE! NINE&G EI-?& PES S ; 32E200 6P2#01C#31/$328 )ith accrue% interest of NE ?>N!RE! 5I5&G NE &? >S+N! SIH ?>N!RE! EI-?&EEN PES S ; /.E200 6P2(2#.2/$#/.8 as of +ugust 2(# 2131 an% accruing interest thereafter at the rate of 27F per annumI 7$ or%ering %efen%ants to pay Aointly an% severally attorney:s fees e*uivalent to ten percent 620F8 of the principal an% to pay the costs of the suit$ !efen%ants: counterclaim is %isallo)e%$ 6pp$ '(,'.# Rollo8 n June /# 21/2# the trial court issue% an or%er %enying the motion for reconsi%eration file% by the petitioners$ &hus# the petitioners appeale% to the Interme%iate +ppellate Court an% assigne% therein the follo)ing errors4 I &?+& &?E D BER C >R& ERRE! IN 5IN!IN- &?+& &?E SEDDER +&D+N&IC ->D5 +N! P+CI5IC C MP+NG 5 M+NID+ !I! N & +PPR "E !E5EN!+N&S,+PPEDD+N&S CD+IM 5 B+RR+N&G$ II &?+& &?E D BER C >R& ERRE! IN 5IN!IN- &?+& PD+IN&I55, +PPEDDEE IS + ? D!ER IN !>E C >RSE 5 &?E PR MISS RG N &E +N! S>E! >N!ER S+I! N &E +S ? D!ER &?ERE 5 IN !>E C >RSE$ n July 23# 21/(# the Interme%iate +ppellate Court issue% the challenge% %ecision affirming in toto the %ecision of the trial court$ &he pertinent portions of the %ecision are as follo)s4 @@@ @@@ @@@ 5rom the evi%ence presente% by the parties on the issue of )arranty# Be are of the consi%ere% opinion that asi%e from the fact that no provision of )arranty appears or is provi%e% in the !ee% of Sale of the tractors an% even a%mitting that in a contract of sale unless a contrary intention appears# there is an implie% )arranty# the %efense of breach of )arranty# if there is any# as in this case# %oes not lie in favor of the appellants an% against the plaintiff,appellee )ho is the assignee of the promissory note an% a hol%er of the same in %ue course$ Barranty lies in this case only bet)een In%ustrial Pro%ucts Mar<eting an% Consoli%ate% Ply)oo% In%ustries# Inc$ &he plaintiff,

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Negotiable Instruments Cases | Sylver Jan Baluno Prior

appellant herein upon application by appellant corporation grante% financing for the purchase of the *uestione% units of 5iat,+llis Cra)ler#&ractors$ @@@ @@@ @@@ ?ol%ing that breach of )arranty if any# is not a %efense available to appellants either to )ith%ra) from the contract an%Eor %eman% a proportionate re%uction of the price )ith %amages in either case 6+rt$ 2(.3# Ne) Civil Co%e8$ Be no) come to the issue as to )hether the plaintiff,appellee is a hol%er in %ue course of the promissory note$ &o begin )ith# it is beyon% arguments that the plaintiff,appellee is a financing corporation engage% in financing an% receivable %iscounting e@ten%ing cre%it facilities to consumers an% in%ustrial# commercial or agricultural enterprises by %iscounting or factoring commercial papers or accounts receivable %uly authori9e% pursuant to R$+$ (1/0 other)ise <no)n as the 5inancing +ct$ + stu%y of the *uestione% promissory note reveals that it is a negotiable instrument )hich )as %iscounte% or sol% to the I5C Deasing an% +cceptance Corporation for P/00#000$00 6E@h$ =+=8 consi%ering the follo)ing$ it is in )riting an% signe% by the ma<erI it contains an uncon%itional promise to pay a certain sum of money payable at a fi@e% or %eterminable future timeI it is payable to or%er 6Sec$ 2# NID8I the promissory note )as negotiate% )hen it )as transferre% an% %elivere% by IPM to the appellee an% %uly en%orse% to the latter 6Sec$ C0# NID8I it )as ta<en in the con%itions that the note )as complete an% regular upon its face before the same )as over%ue an% )ithout notice# that it ha% been previously %ishonore% an% that the note is in goo% faith an% for value )ithout notice of any infirmity or %efect in the title of IPM 6Sec$ (7# NID8I that I5C Deasing an% +cceptance Corporation hel% the instrument free from any %efect of title of prior parties an% free from %efenses available to prior parties among themselves an% may enforce payment of the instrument for the full amount thereof against all parties liable thereon 6Sec$ (3# NID8I the appellants engage% that they )oul% pay the note accor%ing to its tenor# an% a%mit the e@istence of the payee IPM an% its capacity to en%orse 6Sec$ .0# NID8$ In vie) of the essential elements foun% in the *uestione% promissory note# Be opine that the same is legally an% conclusively enforceable against the %efen%ants,appellants$ B?ERE5 RE# fin%ing the %ecision appeale% from accor%ing to la) an% evi%ence# Be fin% the appeal )ithout merit an% thus affirm the %ecision in toto$ Bith costs against the appellants$ 6pp$ (0,((# Rollo8 &he petitioners: motion for reconsi%eration of the %ecision of July 23# 21/( )as %enie% by the Interme%iate +ppellate Court in its resolution %ate% ctober 23# 21/(# a copy of )hich )as receive% by the petitioners on ctober 72# 21/($ ?ence# this petition )as file% on the follo)ing groun%s4 I$ N I&S 5+CE# &?E PR MISS RG N &E IS CDE+RDG N & + NE- &I+BDE INS&R>MEN& +S !E5INE! >N!ER &?E D+B SINCE I& IS NEI&?ER P+G+BDE & R!ER N R & BE+RER$ II &?E RESP N!EN& IS N & + ? D!ER IN !>E C >RSE4 +& BES&# I& IS + MERE +SSI-NEE 5 &?E S>BJEC& PR MISS RG N &E$ III$ SINCE &?E INS&+N& C+SE IN" D"ES + N N,NE- &I+BDE INS&R>MEN& +N! &?E &R+NS5ER 5 RI-?&S B+S &?R >-? + MERE +SSI-NMEN&# &?E PE&I&I NERS M+G R+ISE +-+INS& &?E RESP N!EN& +DD !E5ENSES &?+& +RE +"+ID+BDE & I& +S +-+INS& &?E SEDDER, +SSI-N R# IN!>S&RI+D PR !>C&S M+RJE&IN-$ I"$ &?E PE&I&I NERS +RE N & DI+BDE 5 R &?E P+GMEN& PR MISS RG N &E BEC+>SE4 +8 &?E SEDDER,+SSI-N R IS ->ID&G >N!ER &?E D+BI 5 BRE+C? 5 &?E

5 B+RR+N&G NDG 5R M &?E

B8 I5 +& +DD# &?E RESP N!EN& M+G REC "ER SEDDER,+SSI-N R 5 &?E PR MISS RG N &E$ "$

&?E +SSI-NMEN& 5 &?E C?+&&ED M R&-+-E BG &?E SEDDER, +SSI-N R IN 5+" R 5 &?E RESP N!EN& ! ES N & C?+N-E &?E N+&>RE 5 &?E &R+NS+C&I N 5R M BEIN- + S+DE N INS&+DDMEN&S & + P>RE D +N$

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Negotiable Instruments Cases | Sylver Jan Baluno Prior

"I$ &?E PR MISS RG N &E C+NN & BE +!MI&&E! R >SE! IN E"I!ENCE IN +NG C >R& BEC+>SE &?E REK>ISI&E ! C>MEN&+RG S&+MPS ?+"E N & BEEN +55IHE! &?ERE N R C+NCEDDE!$ &he petitioners praye% that Au%gment be ren%ere% setting asi%e the %ecision %ate% July 23# 21/(# as )ell as the resolution %ate% ctober 23# 21/( an% %ismissing the complaint but granting petitioners: counterclaims before the court of origin$ n the other han%# the respon%ent corporation in its comment to the petition file% on 5ebruary 70# 21/.# conten%e% that the petition )as file% out of timeI that the promissory note is a negotiable instrument an% respon%ent a hol%er in %ue courseI that respon%ent is not liable for any breach of )arrantyI an% finally# that the promissory note is a%missible in evi%ence$ &he core issue herein is )hether or not the promissory note in *uestion is a negotiable instrument so as to bar completely all the available %efenses of the petitioner against the respon%ent,assignee$ Preliminarily# it must be establishe% at the outset that )e consi%er the instant petition to have been file% on time because the petitioners: motion for reconsi%eration actually raise% ne) issues$ It cannot# therefore# be consi%ere% pro, formal$ &he petition is impresse% )ith merit$ 5irst# there is no *uestion that the seller,assignor breache% its e@press 10,%ay )arranty because the fin%ings of the trial court# a%opte% by the respon%ent appellate court# that =2' %ays after %elivery# the first tractor bro<e %o)n an% 1 %ays# thereafter# the secon% tractor became inoperable= are sustaine% by the recor%s$ &he petitioner )as clearly a victim of a )arranty not honore% by the ma<er$ &he Civil Co%e provi%es that4 +R&$ 2(.2$ The vendor shall be responsible for warranty a ainst the hidden defects which the thin sold !ay have, should they render it unfit for the use for which it is intended # or shoul% they %iminish its fitness for such use to such an e@tent that# ha% the ven%ee been a)are thereof# he )oul% not have ac*uire% it or )oul% have given a lo)er price for itI but sai% ven%or shall not be ans)erable for patent %efects or those )hich may be visible# or for those )hich are not visible if the ven%ee is an e@pert )ho# by reason of his tra%e or profession# shoul% have <no)n them$ +R&$ 2(.7$ "n a sale of oods, there is an i!plied warranty or condition as to the #uality or fitness of the oods, as follows$ 628 %here the buyer, e&pressly or by i!plication !a'es 'nown to the seller the particular purpose for which the oods are ac#uired, and it appears that the buyer relies on the sellers s'ill or (ud e (ud !ent )whether he be the rower or !anufacturer or not*, there is an i!plied warranty that the oods shall be reasonably fit for such purpose+ @@@ @@@ @@@ +R&$ 2(.'$ +n implie% )arranty or con%ition as to the *uality or fitness for a particular purpose may be anne@e% by the usage of tra%e$ @@@ @@@ @@@ +R&$ 2(..$ The vendor is responsible to the vendee for any hidden faults or defects in the thin sold even thou h he was not aware thereof. &his provision shall not apply if the contrary has been stipulate%# an% the ven%or )as not a)are of the hi%%en faults or %efects in the thing sol%$ 6Emphasis supplie%8$ It is patent then# that the seller,assignor is liable for its breach of )arranty against the petitioner$ &his liability as a general rule# e@ten%s to the corporation to )hom it assigne% its rights an% interests unless the assignee is a hol%er in %ue course of the promissory note in *uestion# assuming the note is negotiable# in )hich case the latter:s rights are base% on the negotiable instrument an% assuming further that the petitioner:s %efenses may not prevail against it$ Secon%ly# it li<e)ise cannot be %enie% that as soon as the tractors bro<e %o)n# the petitioner,corporation notifie% the seller,assignor:s sister company# +- ; P# about the brea<%o)n base% on the seller, assignor:s e@press 10,%ay )arranty# )ith )hich the latter complie% by sen%ing its mechanics$ ?o)ever# %ue to the seller,assignor:s %elay an% its failure to comply )ith its )arranty# the tractors became totally unserviceable an% useless for the purpose for )hich they )ere purchase%$

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Negotiable Instruments Cases | Sylver Jan Baluno Prior

&hir%ly# the petitioner,corporation# thereafter# unilaterally rescin%e% its contract )ith the seller,assignor$ +rticles 2212 an% 2(.3 of the Civil Co%e provi%e that4 +R&$ 2212$ The power to rescind obli ations is i!plied in reciprocal ones, in case one of the obligors shoul% not comply )ith )hat is incumbent upon him$ The in(ured party !ay choose between the fulfill!ent and the rescission of the obli ation with the pay!ent of da!a es in either case$ ?e may also see< rescission# even after he has chosen fulfillment# if the latter shoul% become impossible$ @@@ @@@ @@@ +R&$ 2(.3$ In the cases of articles 2(.2# 2(.7# 2(.'# 2(.( an% 2(..# the vendee !ay elect between withdrawin fro! the contract and de!andin a proportionate reduction of the price, with da!a es in either case. 6Emphasis supplie%8 Petitioner# having unilaterally an% e@traAu%icially rescin%e% its contract )ith the seller,assignor# necessarily can no longer sue the seller, assignor e@cept by )ay of counterclaim if the seller,assignor sues it because of the rescission$ In the case of the >niversity of the ,hilippines v. De los -n eles 6C( SCR+ 2078 )e hel%4 In other )or%s# the party )ho %eems the contract violate% may consi%er it resolve% or rescin%e%# an% act accor%ingly# without previous court action, but it proceeds at its own ris'. 5or it is only the final Au%gment of the correspon%ing court that )ill conclusively an% finally settle )hether the action ta<en )as or )as not correct in la)$ But the law definitely does not re#uire that the contractin party who believes itself in(ured !ust first file suit and wait for ad(ud e!ent before ta'in e&tra(udicial steps to protect its interest. Otherwise, the party in(ured by the other.s breach will have to passively sit and watch its da!a es accu!ulate durin the pendency of the suit until the final (ud !ent of rescission is rendered when the law itself re#uires that he should e&ercise due dili ence to !ini!ize its own da!a es )Civil Code, -rticle //01*. 6Emphasis supplie%8 -oing bac< to the core issue# )e rule that the promissory note in *uestion is not a negotiable instrument$ &he pertinent portion of the note is as follo)s4 5 R "+D>E RECEI"E!# IE)e Aointly an% severally promise to pay to the IN!>S&RI+D PR !>C&S M+RJE&IN-# the sum of NE MIDDI N NINE&G &?REE &? >S+N! SE"EN ?>N!RE! EI-?&G NINE PES S ; 32E200 only 6P 2#01C#3/1$328# Philippine Currency# the sai% principal sum# to be payable in 7' monthly installments starting July 2(# 213/ an% every 2(th of the month thereafter until fully pai%$ $$$ Consi%ering that paragraph 6%8# Section 2 of the Negotiable Instruments Da) re*uires that a promissory note =must be payable to or%er or bearer# = it cannot be %enie% that the promissory note in *uestion is not a negotiable instrument$ &he instrument in or%er to be consi%ere% negotiablility,i$e$ must contain the so,calle% :)or%s of negotiable# must be payable to :or%er: or :bearer:$ &hese )or%s serve as an e@pression of consent that the instrument may be transferre%$ &his consent is in%ispensable since a ma<er assumes greater ris< un%er a negotiable instrument than un%er a non,negotiable one$ $$$ @@@ @@@ @@@ Bhen instrument is payable to or%er$ SEC$ /$ B?EN P+G+BDE & R!ER$ L &he instrument is payable to or%er )here it is %ra)n payable to the or%er of a specifie% person or to him or his or%er$ $ $ $ @@@ @@@ @@@ &hese are the only t)o )ays by )hich an instrument may be ma%e payable to or%er$ &here must al)ays be a specifie% person name% in the instrument$ It means that the bill or note is to be pai% to the person %esignate% in the instrument or to any person to )hom he has in%orse% an% %elivere% the same$ %ithout the words 2or order2 or2to the order of, 2the instru!ent is payable only to the person desi nated therein and is therefore non3ne otiable. -ny subse#uent purchaser thereof will not en(oy the advanta es of bein a holder of a ne otiable instru!ent but will !erely =step into the shoes= of the person %esignate% in the instrument an% )ill thus be open to all %efenses available against the latter$= 6Campos an% Campos# Notes an% Selecte% Cases on Negotiable Instruments Da)# &hir% E%ition# page C/8$ 6Emphasis supplie%8

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Negotiable Instruments Cases | Sylver Jan Baluno Prior

&herefore# consi%ering that the subAect promissory note is not a negotiable instrument# it follo)s that the respon%ent can never be a hol%er in %ue course but remains a mere assignee of the note in *uestion$ &hus# the petitioner may raise against the respon%ent all %efenses available to it as against the seller,assignor In%ustrial Pro%ucts Mar<eting$ &his being so# there )as no nee% for the petitioner to implie% the seller,assignor )hen it )as sue% by the respon%ent,assignee because the petitioner:s %efenses apply to both or either of either of them$ -ctually, the records show that even the respondent itself ad!itted to bein a !ere assi nee of the pro!issory note in #uestion, to wit$ +&&G$ P+D+C+4 !i% )e get it right from the counsel that )hat is being assigne% is the !ee% of Sale )ith Chattel Mortgage )ith the promissory note )hich is as testifie% to by the )itness )as in%orse%M 6Counsel for Plaintiff no%%ing his hea%$8 &hen )e have no further *uestions on cross# C >R&4 Gou confirm his manifestationM Gou are no%%ing your hea%M !o you confirm thatM +&&G$ ID+-+N4 &he !ee% of Sale cannot be assigne%$ + %ee% of sale is a transaction bet)een t)o personsI )hat is assigne% are rights# the rights of the mortgagee )ere assigne% to the I5C Deasing ; +cceptance Corporation$ C >R&4 ?e puts it in a simple )ay as one,%ee% of sale an% chattel mortgage )ere assigne%I $ $ $ you )ant to ma<e a %istinction# one is an assignment of mortgage right an% the other one is in%orsement of the promissory note$ Bhat counsel for %efen%ants )ants is that you stipulate that it is containe% in one single transactionM +&&G$ ID+-+N4 Be stipulate it is one single transaction$ 6pp$ 73,71# &SN$# 5ebruary 2C# 21/08$ Secon%ly# even conce%ing for purposes of %iscussion that the promissory note in *uestion is a negotiable instrument# the respon%ent cannot be a hol%er in %ue course for a more significant reason$ &he evi%ence presente% in the instant case sho)s that prior to the sale on installment of the tractors# there )as an arrangement bet)een the seller,assignor# In%ustrial Pro%ucts Mar<eting# an% the respon%ent )hereby the latter )oul% pay the seller,assignor the entire purchase price an% the seller,assignor# in turn# )oul% assign its rights to the respon%ent )hich ac*uire% the right to collect the price from the buyer# herein petitioner Consoli%ate% Ply)oo% In%ustries# Inc$ + mere perusal of the !ee% of Sale )ith Chattel Mortgage )ith Promissory Note# the !ee% of +ssignment an% the !isclosure of DoanECre%it &ransaction sho)s that sai% %ocuments evi%encing the sale on installment of the tractors )ere all e@ecute% on the same %ay by an% among the buyer# )hich is herein petitioner Consoli%ate% Ply)oo% In%ustries# Inc$I the seller,assignor )hich is the In%ustrial Pro%ucts Mar<etingI an% the assignee,financing company# )hich is the respon%ent$ &herefore# the respon%ent ha% actual <no)le%ge of the fact that the seller,assignor:s right to collect the purchase price )as not uncon%itional# an% that it )as subAect to the con%ition that the tractors ,sol% )ere not %efective$ &he respon%ent <ne) that )hen the tractors turne% out to be %efective# it )oul% be subAect to the %efense of failure of consi%eration an% cannot recover the purchase price from the petitioners$ Even assuming for the sa<e of argument that the promissory note is negotiable# the respon%ent# )hich too< the same )ith actual <no)le%ge of the foregoing facts so that its action in ta<ing the instrument amounte% to ba% faith# is not a hol%er in %ue course$ +s such# the respon%ent is subAect to all %efenses )hich the petitioners may raise against the seller,assignor$ +ny other interpretation )oul% be most ine*uitous to the unfortunate buyer )ho is not only sa%%le% )ith t)o useless tractors but must also face a la)suit from the assignee for the entire purchase price an% all its inci%ents )ithout being able to raise vali% %efenses available as against the assignor$ Dastly# the respon%ent faile% to present any evi%ence to prove that it ha% no <no)le%ge of any fact# )hich )oul% Austify its act of ta<ing the promissory note as not amounting to ba% faith$ Sections (7 an% (. of the Negotiable Instruments Da) provi%e that4 negotiating it$

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Negotiable Instruments Cases | Sylver Jan Baluno Prior

@@@ @@@ @@@ SEC$ (7$ B?+& C NS&I&>&ES + ? D!ER IN !>E C >RSE$ L + hol%er in %ue course is a hol%er )ho has ta<en the instrument un%er the follo)ing con%itions4 @@@ @@@ @@@ @@@ @@@ @@@ 6c8 That he too' it in ood faith and for value 6%8 That the ti!e it was ne otiated by hi! he had no notice of any infir!ity in the instru!ent of deffect in the title of the person ne otiatin it @@@ @@@ @@@ SEC$ (.$ %4-T CO56T"T7TE6 5OT"CE O8 DE88ECT. 9 To constitute notice of an infir!ity in the instru!ent or defect in the title of the person ne otiatin the sa!e, the person to who! it is ne otiated !ust have had actual 'nowled e of the infir!ity or defect, or 'nowled e of such facts that his action in ta'in the instru!ent a!ounts to bad faith$ 6Emphasis supplie%8 Be subscribe to the vie) of Ca!pos and Ca!pos that a financing company is not a hol%er in goo% faith as to the buyer# to )it4 In installment sales# the buyer usually issues a note payable to the seller to cover the purchase price$ Many times# in pursuance of a previous arrangement )ith the seller# a finance company pays the full price an% the note is in%orse% to it# subrogating it to the right to collect the price from the buyer# )ith interest$ Bith the increasing fre*uency of installment buying in this country# it is most probable that the ten%ency of the courts in the >nite% States to protect the buyer against the finance company )ill # the finance company )ill be subAect to the %efense of failure of consi%eration an% cannot recover the purchase price from the buyer$ +s against the argument that such a rule )oul% seriously affect =a certain mo%e of transacting business a%opte% throughout the State#= a court in one case state%4 It may be that our hol%ing here )ill re*uire some changes in business metho%s an% )ill impose a greater bur%en on the finance companies$ Be thin< the buyer,Mr$ ; Mrs$ -eneral Public,shoul% have some protection some)here along the line$ Be believe the finance company is better able to bear the ris< of the %ealer:s insolvency than the buyer an% in a far better position to protect his interests against unscrupulous an% insolvent %ealers$ $ $ $ If this opinion imposes great bur%ens on finance companies it is a potent argument in favor of a rule )hich )in affor% public protection to the general buying public against unscrupulous %ealers in personal property$ $ $ $ 6Mutual 5inance Co$ v$ Martin# .C So$ 7% .'1# '' +DR 7% 2 N21(CO8 6Campos an% Campos# Notes an% Selecte% Cases on Negotiable Instruments Da)# &hir% E%ition# p$ 27/8$ In the case of Co!!ercial Credit Corporation v. Oran e Country :achine %or's 6C' Cal$ 7% 3..8 involving similar facts# it )as hel% that in a very real sense# the finance company )as a moving force in the transaction from its very inception an% acte% as a party to it$ Bhen a finance company actively participates in a transaction of this type from its inception# it cannot be regar%e% as a hol%er in %ue course of the note given in the transaction$ In li<e manner# therefore# even assuming that the subAect promissory note is negotiable# the respon%ent# a financing company )hich actively participate% in the sale on installment of the subAect t)o +llis Cra)ler tractors# cannot be regar%e% as a hol%er in %ue course of sai% note$ It follo)s that the respon%ent:s rights un%er the promissory note involve% in this case are subAect to all %efenses that the petitioners have against the seller,assignor# In%ustrial Pro%ucts Mar<eting$ 5or Section (/ of the Negotiable Instruments Da) provi%es that =in the han%s of any hol%er other than a hol%er in %ue course# a negotiable instrument is subAect to the same %efenses as if it )ere non, negotiable$ $$$ = Prescin%ing from the foregoing an% setting asi%e other peripheral issues# )e fin% that both the trial an% respon%ent appellate court erre% in hol%ing the promissory note in *uestion to be negotiable$ Such a ruling %oes not only violate the la) an% applicable Aurispru%ence# but )oul% result in unAust enrichment on the part of both the assigner, assignor an% respon%ent assignee at the e@pense of the petitioner,corporation )hich rightfully rescin%e% an ine*uitable contract$ Be note# ho)ever# that since the seller,assignor has not been implea%e% herein# there is no obstacle for the respon%ent to file a civil Suit an% litigate its claims against the seller, assignor in the rather unli<ely possibility that it so %esires# B?ERE5 RE# in vie) of the foregoing# the %ecision of the respon%ent appellate court %ate% July 23# 21/(# as )ell as its resolution %ate%

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Negotiable Instruments Cases | Sylver Jan Baluno Prior

ctober 23# 21/.# are hereby +NN>DDE! an% SE& +SI!E$ &he complaint against the petitioner before the trial court is !ISMISSE!$ S R!ERE!$ annum# from & !+G until pai%$ In case this note is not pai% at maturity the interest rate shall automatically be increase% to per annum$ @@@ @@@ @@@ E@ecute% at Ma<ati# Philippines on November 23#213.$ Republic of the Philippines SUPREME COURT Manila &?IR! !I"ISI N G.R. No. 75502 No*+,-+r 12, 1987 .ALILID !OOD INDUSTRIES CORPORATION, AL&REDO SALONGA #$% )OA/UIN MIGUEL DE )ESUS,petitioners# vs$ "ONORA0LE INTERMEDIATE APPELLATE COURT #$% P"ILIPPINE 0AN.ING CORPORATION. P$B$ !E JES>S ; C $# INC$ 6Sg%$8 +lfre%o Salonga 6Sg%$8 Miguel %e Jesus IN >R PERS N+D C+P+CI&G

8ernan, ,aras, ,adilla, ;idin and Cortes, <<., concur.

6Sg%$8 +lfre%o Salonga 6Sg%$8 Miguel %e Jesus B$ ,ro!issory 5ote ,;C 5o. =/@@3>?,for PC00#000$004 !ue January C# 2133 No$ 27((,3. 5or value% receive%# IE)e Aointly an% severally promise to pay to the Philippine Ban<ing Corporation at its office at +yala +venue# Ma<ati# Metro Manila the sum of &?REE ?>N!RE! &? >S+N! NDG $$$ pesos 6PC00#000$008# )ith interest at the rate of 5 >R&EEN per cent 62'F8 per annum# from & !+G until pai%$ In case this note is not pai% at maturity the interest rate shall automatically be increase% to PPPPPPP 6PPPPPPF8 per annum$ @@@ @@@ @@@ E@ecute% at Ma<ati# Philippines on !ecember 7#213.$ P$B$ !E JES>S ; C $# INC$ 6Sg%$8 +lfre%o Salonga 6Sg%$8 Miguel %e Jesus IN >R PERS N+D C+P+CI&IES

&ELICIANO, J.: n 23 November 213.# Joa*uin Miguel %e Jesus an% +lfre%o &$ Salonga# Presi%ent,-eneral Manager an% Comptroller# respectively# of P$B$ !e Jesus an% Company# Inc$# e@ecute% a promissory note 6PBC No$ 2707,3.8 in favor of respon%ent Philippine Ban<ing Corporation in the amount of P.00#000$00# the obligation maturing on 71 !ecember 213.$ Similarly# on 7 !ecember 213.# a secon% promissory note 6PBC No$ 27((,3.8 )as e@ecute% this time in the amount of PC00#000$00# payable on or before C January 2133$ &hese t)o instruments )ere e@ecute% to %ocument or reflect loans secure% from respon%ent Ban< an% )ere signe% by Messrs$ %e Jesus an% Salonga in the follo)ing manner4 +$ ,ro!issory 5ote ,;C 5o. =/0/3>?,for P.00#000$004 !ue !ecember 71#213. No$ 2707,3. 5or value receive%# IE)e Aointly an% severally promise to pay to the Philippine Ban<ing Corporation at its office at +yala +venue# Ma<ati# Metro Manila the sum of SIH ?>N!RE! &? >S+N! NDG $$$ pesos 6P.00#000$008 )ith interest at the rate of 5 >R&EEN percent 2'F per

6Sg%#8 +lfre%o Salonga 6Sg%$8 Miguel %e Jesus n ( March 213/# P$!$ !e Jesus an% Company# Inc$# by vote of its stoc<hol%ers# change% its corporate name to Jalili% Boo% In%ustries Corporation 6hereafter =Jalili%=8# an act subse*uently vali%ate% by the Securities an% E@change Commission$ &hereafter# respon%ent Ban< serve% several letters of %eman% upon petitioner Jalili% for payment by the latter of the obligations contracte% un%er promissory notes PBC No$ 2707,3. an% PBC No$ 27((,3. )hich ha% apparently remaine%

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Negotiable Instruments Cases | Sylver Jan Baluno Prior

unsettle%$ Petitioner Jalili%# ho)ever# in%ebte%ness un%er both promissory notes$ %iso)ne% its allege% contracte% un%er promissory notes PBC No$ 2707,3. an% PBC No$ 27((,3. $ the %ispositive portion of the %ecision rea%s4 B?ERE5 RE# Au%gment is hereby ren%ere% in favor of plaintiff Philippine Ban<ing Corporation an% against %efen%ant Jalili% Boo% In%ustries Corporation )ho is or%ere% to pay plaintiff4 2$ &he amount of P2#3/0#7(C$0/ plus legal interest from +pril 1# 21/2 until the amount is fully pai%I 7$ the amount e*uivalent to 20F of the total amount %ue as attorney:s feesI an% C$ the costs of suit$ S R!ERE!$

n 2( May 21/2# respon%ent Ban< file% a Complaint for collection 6%oc<ete% as Civil Case No$ '27./8 against petitioner Jalili% an% Messrs$ %e Jesus an% Salonga )ith Branch 7C of the then Court of 5irst Instance of Ri9al 6Seventh Ju%icial !istrict8$ 1 In its complaint# respon%ent Ban< allege% that petitioner Jalili%# as principal# shoul% be hel% soli%arily liable un%er promissory notes PBC No$ 2707,3. an% PBC No$ 27((3. together )ith Messrs$ %e Jesus an% Salonga# both of )hom ha% signe% sai% promissory notes for an% in behalf of the petitioners company# as )ell as in their o)n personal capacities$ Respon%ent Ban< further allege% that# as of C0 +pril 21/2# the total amount of the in%ebte%ness of the obligors un%er the t)o promissory notes ha% risen to Pl#3/0#7(C$0/Li$e$# PI 2/.'1.1. )ith respect to promissory note PBC No$ 27073.# an% P(1C#3(.$27 )ith respect to promissory note PBC No$ 27(23. &he Ban< submitte% in substantiation of these claime% amounts t)o separate Statements of +ccount 6one for each promissory note8# )hich ha% been prepare% by respon%ent Ban< an% attache% to the complaint as +nne@es =C= an% =!= thereof$ 2 Promissory notes PBC No$ 2707,3. an% IBC No$ 27((,3. )ere li<e)ise attache% to the complaint as its +nne@es =+= an% =B=# respectively$ 3 In its +ns)er %ate% 20 July 21/l# 1 petitioner Jalili% allege% that it =haN%O no <no)le%ge or information sufficient to form a belief as to the truth of Nthe material allegations in the complaintO$ 5 +s its affirmative %efense# petitioner Jalili% asserte% that the authority to borro) money or contract loans on its behalf ha% not been grante% to Messrs$ %e Jesus an% Salonga )ho# it )as further asserte%# shoul% be hel% solely liable un%er the t)o promissory notes$ &he ans)er of petitioner Jalili%# ho)ever# )as not verifie%$ &he complaint )as %ismisse%# though )ithout preAu%ice# )ith respect to Messrs$ %e Jesus an% Salonga )hose )hereabouts coul% not then be ascertaine%$ &he parties )ere unable to arrive at an amicable settlement bet)een themselves at the pre,trial stage of the litigation$ Subse*uently# a motion for summary Au%gment )as file% by respon%ent Ban< to )hich petitioner Jalili% raise% neither obAection nor opposition$ In a three,page !ecision %ate% 27 ctober 21/C# the trial court foun% petitioner Jalili% liable to respon%ent Ban< for the obligations

&he trial Ju%ge base% his %ecision primarily on t)o factors4 628 the failure of petitioner Jalili% to verify its ans)er# )hich failure the trial Ju%ge consi%ere% as amounting to an a%mission by petitioner Jalili% of the genuineness an% %ue e@ecution of promissory notes PBC No$ 2707,3. an% PBC No$ 27((,3.# )hich )ere anne@e% to respon%ent Ban<:s complaintI an% 678 the fact that the t)o %ispute% promissory notes )ere signe% by Messrs$ %e Jesus an% Salonga both for an% in behalf of the former P$B$ %e Jesus an% Company# Inc$ 6no) petitioner Jalili%8 an% in their o)n personal capacities$ &he Au%gment of the lo)er court )as affirme% in toto on appeal$ In its %ispute% !ecision %ate% / November 21/(# the then Interme%iate +ppellate Court 6&hir% Civil Cases !ivision8 hel%4 !efen%ant,appellant faults the lo)er court in hol%ing it liable to pay the amount of Pl#3/0#7(C$0/ inasmuch as the promissory notes covere% only P100#000$00 claiming that plaintiff,appellee faile% to a%%uce evi%ence as to ho) sai% amounts increase% to the amount of Pl#3/0#7(C$0/$ !efen%ant,appellant argument is really flimsy# because it overloo<e% the fact that the promissory notes in *uestion )hich )ere %ue an% %eman%able since !ecember 71# 213. an% January C# 2133 bear interest at the rate of 2'F an% further stipulates for the payment of attorney:s fees of 20F of the amount %ue inclu%ing interest in case of collection of the promissory notes is %one through a la)yer$ Moreover# the statements of account +nne@es + an% B are also attache% to the same complaint as integral part thereof$ +nne@ + pertains to the promissory note No$ 2707,3. )ith the principal of

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Negotiable Instruments Cases | Sylver Jan Baluno Prior

P.00#000$00 )hile +nne@ B pertains to the promissory note No$ 27((3. )ith the principal of PC00#000$00$ E@plaine% in sai% statements of account are the charges for past %ue interest an% penalty charges an% the total of sai% obligation as of +pril C0# 21/2 sho)e% a total of principal# interest an% penalty charges of P2#3/0#7(C$0/$ The enuineness and due e&ecution of said pro!issory notes and state!ents of account are dee!ed ad!itted by the failure to deny under oath said docu!ents. ... 6 Petitioner Jalili%:s Motion for Reconsi%eration )as %enie% by the &hir% Civil Cases !ivision on 71 July 21/.$ In the present Petition for Revie)# petitioner Jalili% no longer %enies its liabilities an% obligations un%er the t)o promissory notes e@ecute% in favor of respon%ent Ban<$ It )oul%# ho)ever# contest the correctness of the aggregate amount of its in%ebte%ness# as claime% by respon%ent Ban<$ In this respect# petitioner Jalili% conten%s that although it may have implie%ly a%mitte% the genuineness an% %ue e@ecution of promissory notes PBC No$ 2707,3. an% PBC No$ 27((3. L+nne@es =+= an% =B= of the ComplaintLas a result of its failure to %eny specifically an% un%er oath the material allegations in respon%ent Ban<:s complaint# such a%mission cannot be ma%e to e@ten% an% apply to the t)o aforementione% Statements of +ccountL +nne@es =C= an% =!= of the Complaint,since none of petitioner Jalili%:s %uly authori9e% representatives ha% participate% in the preparation thereof$ 5urthermore# in the computations appearing therein# amounts correspon%ing to service char es, penalty char es # an% interest char es on past due interest )ere inclu%e% )hich# petitioner Jalili% claims# are not part of its un%erta<ings un%er either promissory note$ Be agree )ith the ruling of the trial Ju%ge an% the respon%ent appellate court that petitioner Jalili%# %ue to its failure to verify its ans)er# is %eeme% to have a%mitte% by implication the authenticity an% %ue e@ecution of promissory notes PBC No$ 2707,3. an% PBC No$ 27((,3.# )hich )ere both anne@e% to an% ma%e the basis for respon%ent Ban<:s complaint$ 7 Conse*uently# %efenses relating to the genuineness an% %ue e@ecution of the notes# such as that the instruments are spurious counterfeit# or of %ifferent import on their faces from the ones e@ecute% by the partiesI or that the si natures appearin therein are for eries+ or that said si natures were unauthorized as in the case of an a ent si nin for his principal or one si nin in behalf of a partnership or corporation I or that the corporation )as not authori9e% un%er its charter to sign the instrumentsI or that the party charge% signe% the instruments in some capacity other than that set out in the instrumentsI or that the instruments )ere never %elivere%# are effectively cut off# 8 placing petitioner Jalili% in estoppel from %isclaiming liability un%er those promissory notes$ No genuine issue having been raise% in the trial court by petitioner Jalili% regar%ing thee&istence an% validity of its liabilities un%er promissory notes PBC No$ 2707,3. an% PBC No$ 27((, 3.# summary Au%gment )as properly an% appropriately ren%ere% in the case at bar$ 9 In respect# ho)ever# of the a!ount of petitioner Jalili%:s total in%ebte%ness to respon%ent Ban< un%er the t)o promissory notes# it )as error for the appellate court 6as for the trial Ju%ge8 to have e@pan%e% the scope of petitioner Jalili%:s implie% a%mission of genuineness an% %ue e@ecution so as to inclu%e the t)o Statements of +ccount anne@e% to the complaint$ n this point# Rule /# Section / of the Revise% Rules of Court is *uite specific$ Section /$ 4ow to contest enuineness of such docu!ents $LBhen an action or %efense is foun%e% upon a )ritten instrument# copie% in or attache% to the correspon%ing plea%ing as provi%e% in the prece%ing section# the genuineness an% %ue e@ecution of the instrument shall be %eeme% a%mitte% unless the a%verse party# un%er oath# specifically %enies them# an% sets forth )hat he claims to be the factsI but this provision does not apply when the adverse party does not appear to be a party to the instru!ent or )hen compliance )ith an or%er for an inspection of the original instrument is refuse%$ 6Emphasis supplie%$8 +n e@amination of the t)o %ispute% Statements of +ccount reveals that both %ocuments 628 )ere printe% un%er the official letterhea% of respon%ent Ban<# 678 )ere prepare% by the Doans an% !iscounting !epartment of respon%ent Ban<# an% 6C8 bore the signature of approval of respon%ent Ban<:s authori9e% officer$ No other signature appears on the face of either %ocument$ In other )or%s# both Statements of +ccount )ere prepare% e&clusively by respon%ent Ban<$ It follo)s that petitioner Jalili%# not having been privy thereto# %i% not a%mit the genuineness an% %ue e@ecution of the Statements in spite of its failure to verify its ans)er to the complaint# an% that petitioner is not conclusively boun% by the charges nor by the computations of amounts set out therein$ 10 &he aggregate amount of petitioner Jalili%:s monetary obligations to respon%ent Ban< is %eterminable from the common stipulations an% con%itions containe% in promissory notes PBC No$ 2707,3. an% PBC No$ 27((,3.# un%er )hich petitioner Jalili% boun% itself to pay

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respon%ent Ban<# asi%e from the principal loan totalling P100#000$004 628 interest at the rate of fourteen percent 62'F8 per annum# payable monthly an% compoun%e% monthly if unpai%#11 an% 678 attorney:s fees e*uivalent to ten percent 620F8 of the entire amount %ue# inclu%ing interest$ 12 it %oes not# ho)ever# appear from the face of either promissory note that petitioner Jalili% agree% to pay service charges an% penalty char es in case of late payment of its obligations to respon%ent Ban<$ Since an un%erta<ing to pay service charges an% penalty charges on top of interest an% interest on past %ue interest cannot be presume%# it is necessary that evi%ence be a%%uce% by both parties to prove or %isprove their respective claims regar%ing the basis an% propriety of inclu%ing such charges an% in such amounts as part of petitioner Jalili%:s liabilities un%er the t)o promissory notes$ Evi%ence relating to the computation of interest on past %ue interest# that is %ue an% payable may also be submitte%$ B?ERE5 RE# the %ecision of Branch 7C of the then Court of 5irst Instance of Ri9al 6Seventh Ju%icial !istrict8 in Civil Case No$ '27./ an% the %ecision of the then Interme%iate +ppellate Court %ate% / November 21/( are +55IRME! to the e@tent that they refer to the principal amounts an% stipulate% interest %ue un%er Promissory Notes PBC No$ 2707,3. an% PBC No$ 27((,3. an% to attorney:s fees e*uivalent to ten percent 620F8 of the entire amount %ue$ &his case is REM+N!E! to the trial court for %etermination of )hether or not service charges an% penalty charges in case of late payment are %ue from petitioner Jalili% to respon%ent Ban<# an% if so# the amount thereof# as )ell as for %etermination of the amount of interest on past %ue interest# %ue an% payable by petitioner Jalili% to respon%ent Ban<$ No pronouncement as to costs$ S R!ERE!$ SEC N! !I"ISI N G.R. No. L285785 April 21, 1989 0ENITO S 3 ONG, petitioner# vs$ PEOPLE O& T"E P"ILIPPINES P"ILIPPINES #$% COURT O& APPEALS, respon%ents$ Law 8ir! of Bay!undo -. -r!ovit for petitioner. The 6olicitor Aeneral for respondent.

MELENCIO2"ERRERA, J.: Convicte% of Estafa un%er +rticle C2(# Paragraph 26b8 of the Revise% Penal Co%e by three 6C8 Courts# namely# the Metropolitan &rial Court# Caloocan City# Branch (7I 1 the Regional &rial Court of the same City# Branch 271 I 2an% respon%ent Court of +ppeals# petitioner no) see<s to brea< the chain of convictions$ &he in%ictment against petitioner,accuse%# file% on 2/ +ugust 21/.# rea%s4 &hat on or about an% %uring the month of January 21/. in Caloocan City# Metro Manila an% )ithin the Auris%iction of this ?onorable Court# the above, name% accuse% receive% from the Panama Sa)mill Inc$# represente% in this case by &E PEN- MEN# PBC Chec< No$ 712.2. %ate% January 2(# 21/. for P.#000$00 )hich chec< )as subse*uently encashe% by sai% accuse% for the purpose of an% un%er the e@press obligation on his part to use the sai% amount in securing a Marine Insurance coverage for PC#000#000$00 on a shipment of logs o)ne% by Panama Sa)mill# Inc$ but sai% accuse% )ith abuse of trust an% confi%ence repose% upon him far from complying )ith his obligation an% )ith intent to %eceive an% %efrau% sai% corporation# %i% then an% there )illfully# unla)fully an% feloniously receive a Marine Insurance coverage for only Pl#000#000$00 to cover sai% shipment of logs# paying therefor only the amount of P7#327$(0 as insurance premium )ithout the <no)le%ge an% consent of sai% Panama Sa)mill# Inc$# an% thereafter# sai% accuse% misappropriate% an% converte% to his o)n personal use an% benefit the balance of PC#7/3$(0# an% %espite repeate% %eman%s upon him# sai% accuse% refuse% an% faile% to account for sai% sum of PC#7/3$(0 to the %amage an% preAu%ice of

8ernan )Chair!an*, Autierrez, <r., ;idin and Cortes, <<., concur.

Republic of the Philippines SUPREME COURT Manila

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Negotiable Instruments Cases | Sylver Jan Baluno Prior

sai% Panama Sa)mill Inc$# in the aforestate% amount of PC#7/3$(0$ 6p$ C# riginal Recor%8 +fter trial on the merits# the Metropolitan &rial Court of Caloocan City convicte% petitioner in a !ecision# %ate% 23 !ecember 21/.# the %ispositive portion of )hich rea%s4 B?ERE5 RE# by proof beyon% reasonable %oubt# the accuse% BENI& SG is foun% ->ID&G of violating +rt$ C2(# Par$ C of the Revise% Penal Co%e# he is sentence% to a straight penalty of 5 >R 6'8 M N&?S imprisonment# to reimburse or give restitution in the amount of &?REE &? >S+N! &B ?>N!RE! EI-?&G SE"EN 6C#7/3$(08 PES S +N! (0E200 CEN&+" S an% to pay costs$ 6p$ C3# riginal Recor%$8 n appeal before it# the Regional &rial Court of Caloocan City# affirme% the Au%gment of conviction on C June 21/3# but increase% the penalty# as follo)s4 IN "IEB 5 &?E 5 RE- IN-# this Court fin%s the accuse% Benito Sy y ng guilty beyon% reasonable %oubt of the crime of estafa# thru misappropriation# as %efine% un%er par$ 26b8 an% penali9e% un%er the Cr% par$ of +rt C2( of the Revise% Penal Co%e an% there being no atten%ant mitigating nor aggravating circumstance# he is hereby sentence% to suffer an in%eterminate penalty of &?REE 6C8 M N&?S 5 +RRES& M+G R & NE 628 GE+R +N! NE 628 !+G 5 ,B"6"O5 COBBECC"O5-LI to suffer the accessory penalties provi%e% for by la)I an% to pay complainant Panama Sa)mill Co$# by )ay of reparation# the amount of PC#7/3$(0$ Costs against appellant$ 6p$ C0'# riginal Recor%8 n C0 June 21// respon%ent Court of +ppeals affirme% the Regional &rial Court !ecision 3 not)ithstan%ing t)o 678 Manifestations in lieu of Comment submitte% by the ffice of the Solicitor -eneral# %ate% C March 21// an% C ctober 21//# respectively# recommen%ing ac*uittal of petitioner,accuse%$ Before us no)# petitioner re,asserts his innocence$ &he Solicitor -eneral has also reiterate% his recommen%ation for ac*uittal$ +ccor%ing to &e Peng Men Manager of Panama Sa)mill# Inc$ 6henceforth# simply =Panama=8 an% sole )itness of the prosecution# the %evelopments in this case unfol%e% as follo)s4 2$ Sometime in January 21/. =Panama= engage% petitioner# an insurance agent# to obtain marine insurance in the amount of PCM to cover its log shipment from Pala)an to Manila$ 7$ +s instructe%#on l' January l1/. petitioner secure% Marine Insurance Policy No$ +C,M,/.E007 from riental +ssurance Corporation 6= riental=# for short8# )ith a face value of PCM 6E@hibit =+=8$ nly the %uplicate original of the Policy )as left )ith =Panama=$ C$ n 2( January 21/.# =Panama= gave petitioner Philippine Ban< of Communication Chec< No$ 712.2. in the amount of P.#000$00 payable to = riental= for the policy coverage of PCM$ '$ n 7/ January 21/. some of the logs value% at P2$7M )ere lost )hen the barge transporting the shipment encountere% rough seas in the vicinity of !umaran Islan%# Pala)an$ ($ =Panama= file% a claim for loss against = riental= only to be informe% by the latter that its marine insurance coverage )as only for P2M an% that petitioner ha% pai% a premium of only P7#327$(0 6E@hibit =!=8 .$ Conten%ing that petitioner ha% misappropriate% the %ifference of PC#7/3$(0 for his personal use an% benefit to its preAu%ice# =Panama= charge% petitioner )ith Estafa$ 5or his part# petitioner maintains that the follo)ing %etails constitute the truth4 a8 Petitioner ha% never# at any one time# %ealt )ith prosecution )itness# &e Peng Men$ It )as only through one &au &ian that petitioner ha% any contact )ith =Panama=$ b8 = riental= ha% issue% a Marine Insurance Policy in the amount of PCM in favor of =Panama= through petitioner:s efforts$ c8 ?o)ever# &au &ian re*ueste% petitioner to return the Policy since the rate )as *uite high an% =Panama= )ante% to pay only P.#000$00$ &hereafter# &au &ian returne% the original of the Policy to petitioner but retaine% the %uplicate copy$ &au &ian instructe% petitioner to obtain a re%uction of the premium from P/#2C3$(0 to P.#000$00$ %8 Since petitioner )as not able to secure a re%uction in the premium# he obtaine% instea% a P2M policy from = riental= paying for that purpose a premium of P7#327$(0$ In a%%ition# he obtaine% a P7M policy from the 5irst Integrate% Insurance Co$# Inc$ paying a premium

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therefor of PC#7(($00$ &he t)o policies totalle% PCM an% the premiums pai% reache% P(#1.3$(0# or almost P.#000$00$ e8 &he real reason )hy =Panama= )as not able to recover on the aforementione% policies )as because the policy of = riental= )as for total loss only an% not for partial loss$ In fact# even the &an -atue +%Austment Company sustaine% the reAection of =Panama:s= claim for that reason$ !efense )itness# Jent Cotoco# the >n%er)riting Manager of = riental= corroborate% petitioner:s testimony that the PCM Policy first issue% by = riental= 6E@hibit =2=8 )as cancelle% an% replace% by a P2M Policy 6E@hibit =C=8$ ?e e@plaine% that before the PCM Policy )as cancelle%# petitioner ha% surren%ere% the original to = riental=I that the original an% the replacement Policies bear the same serial number /.E007 because it is company policy for the replacement Policy to carry the same number as the original PolicyI an% that he )as a)are that the 5irst Integrate% Insurance Co$# Inc$# ha% issue% a P7M Policy for =Panama= 6t$s$n$# November 72# 21/.# pp$ 3/,/08 because the latter company charges a lo)er premium rate than = riental= 6 ibid$# pp$ /0, /78$ Is the accuse% guilty of Estafa committe% through misappropriation un%er paragraph l6b8# +rticle C7( of the Revise% Penal Co%eM Sai% provision rea%s4 +R&$ C2($ 6windlin )estafa*$ +ny person )ho shall %efrau% another by any of the means mentione% herein,belo) shall be punishe% by4 @@@@@@@@@ 6b8 By appropriating or converting# to the preAu%ice of another# money# goo%s# or any other personal property receive% by the offen%er in trust or on commission# or for a%ministration# or un%er any other obligation involving the %uty to ma<e %elivery of or to return the same# even though such obligation be totally or partially guarantee% by a bon% or by %enying having receive% such money# goo%s# or other property$ 5or the crime of Estafa through misappropriation to e@ist the follo)ing elements must be present4 2$ &hat money# goo%s or other personal property is receive% by the offen%er in trust# or on commission# or for a%ministration# or un%er any other obligation involving the %uty to ma<e %elivery of# or to return# the sameI 7$ &hat there be misappropriation or conversion of such money or property by the offen%er# or %enial on his part of such receiptI C$ &hat such misappropriation or conversion or %enial is to the preAu%ice of anotherI an% '$ &hat there is a %eman% ma%e by the offen%e% party to the offen%er$ 6II Criminal Da)# Duis B$ Reyes# 27th E%ition# p$ 3238 ?ave the foregoing elements been met in respect of petitioner, accuse%M Petitioner# supporte% by the Solicitor -eneral# avers that they have not because no conversion or misappropriation has been committe% an% that there )as no %eman% for the return of the P.#000$00 given to petitioner$ In other )or%s# elements 7# C# an% ' of the crime are lac<ing$ &he totality of the evi%ence yiel%s the follo)ing incontrovertible %ata in chronological or%er4 Jan$ 2'# 21/. , Issuance of riental Marine Insurance Policy No$ +C, M,/.E007 for P CM# )ith a total premium of P/#2C3$(0$ =against total loss only$= 6carbon copy# E@hibit =+=# original# E@hibit =2=8$ Jan$ 2(# 21/. , PBC Chec< No$ 712.2. payable to riental +ssurance Corporation for P.#000$00 6E@hibit =C=8# en%orse% at the bac< by petitioner 6E@hibit =C,2=8 an% stampe% =cleare%: on the same %ay# January 2(# 21/.$ Jan$ 2(# 21/. , Issuance of 5irst Integrate% Marine Insurance Policy No$ 007.. for P7M )ith a premium of PC#000$00 plus P77($00 %ocumentary stamps )ith a coverage =&otal Doss by &otal Doss of the "essel nly= 6E@hibit =7=8$ Jan$ 70# 21/. , Issuance of = riental= Marine Insurance +C,M,/.2007 for P2M# )ith a total premium of P7#327$(0 =against total loss only$= 6E@hibit =C=8$ Jan$ 72# 21/. , fficial receiptof = riental=for P7#327$(0 representing premium for Policy No$ M,/.2007 in the amount of P2M 6E@hibits =!= an% '=8$ Jan$ 7/# 21/. , Partial loss of the log shipment$

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5eb$ 7/# 21/. , Report of the &an,-atue +%Austment Co$# Inc$# that the loss )as not compensable un%er the terms an% con%itions =&otal Doss nly= stipulate% in the = riental= Policy 6E@hibit =.=8$ May 7# 21/. , En%orsement No$ M,0002 of 5irst Integrate% %eclaring that its Marine Cargo Policy No$ 007..# issue% on January 2(# 21/.# is =C+NCEDDE! effective as of its inception %ate# for non,payment of premium= 6E@hibit =E=I =E,2=8$ May # 21/. , Investigation of case by City 5iscal of Caloocan city$ June 20# 21/. , 5irst Integrate% fficial Receipt for PC#7(($00 in payment of premium for Marine Cargo Policy No$ 007.. issue% 6E@hibit =(=8 June 20# 21/. , En%orsement No$ NP+EM,0007E/. 5irst Integrate%# reinstating Marine Cargo Policy No$ 007.. provi%e% no loss =has occurre% prior to the %ate of issuance of this en%orsement= 6E@hibit =3=8$ +ug$ 2/# 21/. , Information for Estafa file% before the Metropolitan &rial Court# Caloocan City$ >pon the establishe% facts# there can be no %ispute that petitioner receive% a chec< in the amount of P.#000$00 from =Panama= for the particular purpose of securing a marine insurance coverage of PCM$ &hat mar<e% the creation of a fi%uciary relation bet)een them# the e@istence of )hich# either in the form of a trust or un%er any other obligation involving the %uty to ma<e %elivery of the same# is an essential element of the crime of Estafa by misappropriation or conversion$ &he first element of the crime of Estafa# therefore# is satisfie%$ +s to the secon% element of =misappropriation or conversion= of the money or property receive%# petitioner conten%s that the same is in atten%ant because petitioner ha%# in fact# procure% the PCM insurance coverage from t)o companies# spen%ing therefor all of the entruste% amount of P.#000$00 for premiums$ Be fin% ourselves in %isagreement$ &o =convert= 6=distraer=8 connotes the act of using or %isposing of another:s property as if it )ere one:s o)n$ +n% to =misappropriate= 6=appropiar=8 means to o)n# to ta<e something for one:s o)n benefit 6II Criminal Da)# Duis B$ Reyes# 27th E%ition# p$ 3718$ &hat there )as conversion or misappropriation by petitioner is imme%iately sho)n by the fact that# as a%mitte% by him on cross,e@amination# he ha% %eposite% the =Panama= chec< of P.#000$00 payable to = riental= in his o)n personal account 6t$s$n$# November 72# 21/.# p$ C08 even though he )as not authori9e% to %o so by = riental= being merely an or%inary# not a special agent# as testifie% to by the un%er)riting agent of = riental= 6ibid$# pp$ 30,3'8$ Petitioner assume% the right to %ispose of it as if it )ere his# thus committing conversion )ith unfaithfulness an% a clear breach of trust$ + chec< )hile not regar%e% as legal ten%er is normally# un%er commercial usage# a substitute for cash$ &he cre%it represente% by it in state% monetary value is properly capable of appropriation 6-alve9 vs$ Court of +ppeals# D, 773.0# November 71# 2132# '7 SCR+ 73/8$ More# petitioner only gave a %uplicate original copy of the = riental= policy to =Panama=# )hich accepte% it as the right policy$ If# as petitioner alleges# =Panama= ha% as<e% him to secure a re%uction in premium# it )oul% have been a simple matter for him to have informe% =Panama= of the secon% Policy for P2M he ha% secure% from = riental= as )ell as the P7M Policy from 5irst Integrate%$ But# no$ +ll these )ere frau%ulently conceale% from =Panama= an% )ere brought out only %uring the preliminary investigation of the case before the City 5iscal:s ffice$ Petitioner:s obtainment of the 5irst Integrate% Policy# )ith a coverage of P7M# )as only on paper$ ?e ha% faile% to pay the premium therefor of PC#7(($00 at the time of issuance so that the Policy never became vali% an% bin%ing 6Sec$ 33# Insurance Co%e of 213/8$ Elo*uent proof of that is the En%orsement of 7 May 21/. of 5irst Integrate% cancelling its sai% Policy for non,payment of premium =effective as of its inception %ate#= or on 2( January 21/.$ Petitioner:s e@planation that he pai% for the premium t)ice , the first time on 72 January 21/. e@cept that he )as not issue% a receipt because he pai% for it in cash 6t$s$n$# November 72# 21/.# pp$ C.,C38# an% the secon% time on 20 June 21/. =because the first time my sub,agent %i% not pay it %irectly to the company on the first time so I pai% it again#= 6 ibid$# p$ C/8 , is prevarication# pure an% simple$ Petitioner pai% the premium for the 5irst Integrate% Policy only on 20 June 21/. or five 6(8 months after its issuance an% five 6(8 months after the partial loss of the shipment# an% )hile the case )as alrea%y pen%ing investigation at the City 5iscal:s ffice$ &he company reinstate% the Policy# also on 20 June 21/.# but on the con%ition that =no loss ha% occurre% prior to the %ate of issuance of this en%orsement$= It )as a useless reinstatement# therefore# an% the

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star< fact remains that at the time of loss there )as no coverage from 5irst Integrate% because of non,payment of premium$ Evi%ently petitioner pai% the premium at that late %ate in a futile attempt to revive the Policy an% as a last,%itch effort to sho) that the entire P.#000$00 amount receive% from =Panama= )as use% by petitioner for the purpose inten%e% , namely# the payment of premium for marine insurance coverage of PCM$ In%ications are that no payment of premium to 5irst Integrate% )oul% have been ma%e either# but for this criminal charge$ &he evi%ence is clear that he ha% utili9e% the balance of the P.#000$00 6after %e%ucting the premium of P7#327$(0 pai% to = riental=8 for his o)n benefit# an% )ith abuse of confi%ence# )hich is the very essence of misappropriation$ +n% he )oul% have gotten a)ay scot,free if no loss of the shipment ha% occurre%$ &he thir% element of Estafa is li<e)ise present$ &he misappropriation or conversion resulte% in preAu%ice to =Panama= )hich ha% believe% all along that its shipment )as insure% for PCM$ &here )as %isturbance in its property rights# an%# although temporary# is sufficient to constitute inAury )ithin the meaning of +rticle C2(62,b8 of the Revise% Penal Co%e 6Du ?ayco vs$ Court of +ppeals# D,'1.03,2C ; ((33(,/.# +ugust 7.# 21/(# 2C/ SCR+ 7738$ +s to the fourth essential element# that of %eman% ma%e by the offen%e% party to the offen%er# )hich petitioner claims is )anting in this case# suffice it to state that %eman% is not necessary )hen there is evi%ence of misappropriation as in this case$ It so happens only that failure to account# upon %eman%# for fun%s or property hel% in trust# is circumstantial evi%ence of misappropriation$ &he same may# ho)ever# be establishe% by other proof# such as that intro%uce% in the case at bar$ 6&ubb vs$ People# et al$# 202 Phil$ 22' N21(3O8 +ll the essential elements of Estafa through misappropriation or conversion being present# )e %o not see our )ay clear to brea<ing the chain of convictions by the other Courts before us$ &he guilt of petitioner,accuse% has been proven beyon% reasonable %oubt$ B?ERE5 RE# the Au%gment un%er revie) is hereby +55IRME!$ Bith costs against petitioner,accuse%# Benito Sy y ng$ S R!ERE!$

Republic of the Philippines SUPREME COURT Manila EN B+NC G.R. No. L219188 )#$4#r3 30, 1990 P"ILIPPINE AIRLINES, INC., petitioner# vs$ "ON. COURT O& APPEALS, "ON. )UDGE RICARDO D. GALANO, Co4r5 o6 &ir75 I$75#$8+ o6 M#$il#, 0r#$89 :III, )AIME .. DEL ROSARIO, D+p453 S9+ri66, Co4r5 o6 &ir75 I$75#$8+, M#$il#, #$% AMELIA TAN,respon%ents$

GUTIERRE(, )R., J.: Behin% the simple issue of vali%ity of an alias )rit of e@ecution in this case is a more fun%amental *uestion$ Shoul% the Court allo) a too literal interpretation of the Rules )ith an open invitation to <navery to prevail over a more %iscerning an% Aust approachM Shoul% )e not apply the ancient rule of statutory construction that la)s are to be interprete% by the spirit )hich vivifies an% not by the letter )hich <illethM &his is a petition to revie) on certiorari the %ecision of the Court of +ppeals in C+,-$R$ No$ 03.1( entitle% = ,hilippine -irlines, "nc. v. 4on. <ud e Bicardo D. Aalano, et al.2, %ismissing the petition for certiorari against the or%er of the Court of 5irst Instance of Manila )hich issue% an alias )rit of e@ecution against the petitioner$ &he petition involving the alias )rit of e@ecution ha% its beginnings on November /# 21.3# )hen respon%ent +melia &an# un%er the name an% style of +ble Printing Press commence% a complaint for %amages before the Court of 5irst Instance of Manila$ &he case )as %oc<ete% as Civil Case No$ 32C03# entitle% -!elia Tan, et al. v. ,hilippine -irlines, "nc$ +fter trial# the Court of 5irst Instance of Manila# Branch 2C# then presi%e% over by the late Ju%ge Jesus P$ Morfe ren%ere% Au%gment on June 71# 2137# in favor of private respon%ent +melia &an an% against petitioner Philippine +irlines# Inc$ 6P+D8 as follo)s4

,aras, ,adilla, 6ar!iento and Be alado, <<., concur.

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B?ERE5 RE# Au%gment is hereby ren%ere%# or%ering the %efen%ant Philippine +ir Dines4 2$ n the first cause of action# to pay to the plaintiff the amount of P3(#000$00 as actual %amages# )ith legal interest thereon from plaintiffs e@tra,Au%icial %eman% ma%e by the letter of July 70# 21.3I 7$ n the thir% cause of action# to pay to the plaintiff the amount of P2/#700$00# representing the unreali9e% profit of 20F inclu%e% in the contract price of P700#000$00 plus legal interest thereon from July 70#21.3I C$ n the fourth cause of action# to pay to the plaintiff the amount of P70#000$00 as an% for moral %amages# )ith legal interest thereon from July 70# 2 1.3I '$ n the si@th cause of action# to pay to the plaintiff the amount of P(#000$00 %amages as an% for attorney:s fee$ Plaintiffs secon% an% fifth counterclaim# are %ismisse%$ causes of action# an% %efen%ant:s the issuance of a )rit of e@ecution of the Au%gment ren%ere% by the Court of +ppeals$ n ctober 22# 2133# the trial court# presi%e% over by Ju%ge -alano# issue% its or%er of e@ecution )ith the correspon%ing )rit in favor of the respon%ent$ &he )rit )as %uly referre% to !eputy Sheriff Emilio Q$ Reyes of Branch 2C of the Court of 5irst Instance of Manila for enforcement$ 5our months later# on 5ebruary 22# 213/# respon%ent +melia &an move% for the issuance of an alias )rit of e@ecution stating that the Au%gment ren%ere% by the lo)er court# an% affirme% )ith mo%ification by the Court of +ppeals# remaine% unsatisfie%$ n March 2# 213/# the petitioner file% an opposition to the motion for the issuance of an alias )rit of e@ecution stating that it ha% alrea%y fully pai% its obligation to plaintiff through the %eputy sheriff of the respon%ent court# Emilio Q$ Reyes# as evi%ence% by cash vouchers properly signe% an% receipte% by sai% Emilio Q$ Reyes$ n March C#213/# the Court of +ppeals %enie% the issuance of the alias )rit for being premature# or%ering the e@ecuting sheriff Emilio Q$ Reyes to appear )ith his return an% e@plain the reason for his failure to surren%er the amounts pai% to him by petitioner P+D$ ?o)ever# the or%er coul% not be serve% upon !eputy Sheriff Reyes )ho ha% abscon%e% or %isappeare%$ n March 7/# 213/# motion for the issuance of a partial alias )rit of e@ecution )as file% by respon%ent +melia &an$ n +pril 21# 213/# respon%ent +melia &an file% a motion to )ith%ra) =Motion for Partial +lias Brit of E@ecution= )ith Substitute Motion for +lias Brit of E@ecution$ n May 2# 213/# the respon%ent Ju%ge issue% an or%er )hich rea%s4 +s praye% for by counsel for the plaintiff# the Motion to Bith%ra) :Motion for Partial +lias Brit of E@ecution )ith Substitute Motion for +lias Brit of E@ecution is hereby grante%# an% the motion for partial alias )rit of e@ecution is consi%ere% )ith%ra)n$ Det an +lias Brit of E@ecution issue against the %efen%ant for the fall satisfaction of the Au%gment ren%ere%$ !eputy Sheriff Jaime J$ %el Rosario is hereby appointe% Special Sheriff for the enforcement thereof$ 6C+ Rollo# p$ C'8 n May 2/# 213/# the petitioner receive% a copy of the first alias )rit of e@ecution issue% on the same %ay %irecting Special Sheriff Jaime J$

Bith costs against the %efen%ant$ 6C+ Rollo# p$ 2/8 n July 7/# 2137# the petitioner file% its appeal )ith the Court of +ppeals$ &he case )as %oc<ete% as C+,-$R$ No$ (2031,R$ n 5ebruary C# 2133# the appellate court ren%ere% its %ecision# the %ispositive portion of )hich rea%s4 IN "IEB B?ERE 5# )ith the mo%ification that P+D is con%emne% to pay plaintiff the sum of P7(#000$00 as %amages an% P(#000$00 as attorney:s fee# Au%gment is affirme%# )ith costs$ 6C+ Rollo# p$ 718 Notice of Au%gment )as sent by the Court of +ppeals to the trial court an% on %ates subse*uent thereto# a motion for reconsi%eration )as file% by respon%ent +melia &an# %uly oppose% by petitioner P+D$ n May 7C#2133# the Court of +ppeals ren%ere% its resolution %enying the respon%ent:s motion for reconsi%eration for lac< of merit$ No further appeal having been ta<en by the parties# the Au%gment became final an% e@ecutory an% on May C2# 2133# Au%gment )as correspon%ingly entere% in the case$ &he case )as reman%e% to the trial court for e@ecution an% on September 7#2133# respon%ent +melia &an file% a motion praying for

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Negotiable Instruments Cases | Sylver Jan Baluno Prior

%el Rosario to levy on e@ecution in the sum of P7(#000$00 )ith legal interest thereon from July 70#21.3 )hen respon%ent +melia &an ma%e an e@tra,Au%icial %eman% through a letter$ Devy )as also or%ere% for the further sum of P(#000$00 a)ar%e% as attorney:s fees$ n May 7C# 213/# the petitioner file% an urgent motion to *uash the alias )rit of e@ecution stating that no return of the )rit ha% as yet been ma%e by !eputy Sheriff Emilio Q$ Reyes an% that the Au%gment %ebt ha% alrea%y been fully satisfie% by the petitioner as evi%ence% by the cash vouchers signe% an% receipte% by the server of the )rit of e@ecution# !eputy Sheriff Emilio Q$ Reyes$ n May 7.#213/# the respon%ent Jaime J$ %el Rosario serve% a notice of garnishment on the %epository ban< of petitioner# 5ar East Ban< an% &rust Company# Rosario Branch# Binon%o# Manila# through its manager an% garnishe% the petitioner:s %eposit in the sai% ban< in the total amount of P.'#'0/$00 as of May 2.# 213/$ ?ence# this petition for certiorari file% by the Philippine +irlines# Inc$# on the groun%s that4 I +N +DI+S BRI& RE&>RN 5 &?E II P+GMEN& 5 J>!-MEN& & &?E IMPDEMEN&IN55ICER +S !IREC&E! IN &?E BRI& 5 EHEC>&I N C NS&I&>&ES S+&IS5+C&I N 5 J>!-MEN&$ III IN&ERES& IS N & P+G+BDE B?EN &?E !ECISI N IS SIDEN& +S & P+GMEN& &?ERE 5$ I" SEC&I N (# R>DE C1# P+R&IC>D+RDG RE5ERS & DE"G 5 PR PER&G 5 J>!-MEN& !EB& R +N! !ISP S+D R S+DE &?ERE 5 & S+&IS5G J>!-MEN&$ Can an alias )rit of e@ecution be issue% )ithout a prior return of the original )rit by the implementing officerM Be rule in the affirmative an% )e *uote the respon%ent court:s %ecision )ith approval4 &?E 5 EHEC>&I N C+NN & BE ISS>E! BI&? >& PRI R RI-IN+D BRI& BG &?E IMPDEMEN&IN- 55ICER$ &he issuance of the *uestione% alias )rit of e@ecution un%er the circumstances here obtaining is Austifie% because even )ith the absence of a Sheriffs return on the original )rit# the unalterable fact remains that such a return is incapable of being obtaine% 6sic8 because the officer )ho is to ma<e the sai% return has abscon%e% an% cannot be brought to the Court %espite the earlier or%er of the court for him to appear for this purpose$ 6 r%er of 5eb$ 72# 213/# +nne@ C# Petition8$ bviously# ta<ing cogni9ance of this circumstance# the or%er of May 22# 213/ %irecting the issuance of an alias )rit )as therefore issue%$ 6+nne@ !$ Petition8$ &he nee% for such a return as a con%ition prece%ent for the issuance of an alias )rit )as Austifiably %ispense% )ith by the court belo) an% its action in this regar% meets )ith our concurrence$ + contrary vie) )ill pro%uce an abhorent situation )hereby the mischief of an erring officer of the court coul% be utili9e% to impe%e in%efinitely the un%ispute% an% a)ar%e% rights )hich a prevailing party rightfully %eserves to obtain an% )ith %ispatch$ &he final Au%gment in this case shoul% not in%ee% be permitte% to become illusory or incapable of e@ecution for an in%efinite an% over e@ten%e% perio%# as ha% alrea%y transpire%$ 6Rollo# pp$ C(,C.8 <udiciu! non debet esse illusoriu!+ suu! effectu! habere debet 6+ Au%gment ought not to be illusory it ought to have its proper effect8$ In%ee%# technicality cannot be countenance% to %efeat the e@ecution of a Au%gment for e@ecution is the fruit an% en% of the suit an% is very aptly calle% the life of the la) 6Ipe<%Aian Merchan%ising Co$ v$ Court of &a@ +ppeals# / SCR+ (1 N21.COI Commissioner of Internal Revenue v$ "isayan Electric Co$# 21 SCR+ .13# .1/ N21.3O8$ + Au%gment cannot be ren%ere% nugatory by the unreasonable application of a strict rule of proce%ure$ "este% rights )ere never inten%e% to rest on the re*uirement of a return# the office of )hich is merely to inform the court an% the parties# of any an% all actions ta<en un%er the )rit of e@ecution$ Bhere such information can be establishe% in some other manner# the absence of an e@ecuting officer:s return )ill not preclu%e a Au%gment from being treate% as %ischarge% or being e@ecute% through an alias )rit of e@ecution as the case may be$ More so# as in the case at bar$ Bhere the return cannot be e@pecte% to be forthcoming# to re*uire the same )oul% be to compel the enforcement of rights un%er a Au%gment to rest on an impossibility# thereby allo)ing the total avoi%ance of Au%gment %ebts$ So long as a Au%gment is not satisfie%# a plaintiff is entitle% to other )rits of e@ecution 6-overnment of the Philippines v$ Echaus an% -on9ales# 32 Phil$ C2/8$ It is a )ell <no)n legal ma@im that he )ho cannot prosecute his Au%gment )ith effect# sues his case vainly$

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Negotiable Instruments Cases | Sylver Jan Baluno Prior

More important in the %etermination of the propriety of the trial court:s issuance of an alias )rit of e@ecution is the issue of satisfaction of Au%gment$ >n%er the peculiar circumstances surroun%ing this case# %i% the payment ma%e to the abscon%ing sheriff by chec< in his name operate to satisfy the Au%gment %ebtM &he Court rules that the plaintiff )ho has )on her case shoul% not be a%Au%ge% as having sue% in vain$ &o %eci%e other)ise )oul% not only give her an empty but a pyrrhic victory$ It shoul% be emphasi9e% that un%er the initial Au%gment# +melia &an )as foun% to have been )ronge% by P+D$ She file% her complaint in 21.3$ +fter ten 6208 years of protracte% litigation in the Court of 5irst Instance an% the Court of +ppeals# Ms$ &an )on her case$ It is no) 2110$ +lmost t)enty,t)o 6778 years later# Ms$ &an has not seen a centavo of )hat the courts have solemnly %eclare% as rightfully hers$ &hrough absolutely no fault of her o)n# Ms$ &an has been %eprive% of )hat# technically# she shoul% have been pai% from the start# before =C?># )ithout nee% of her going to court to enforce her rights$ +n% all because P+D %i% not issue the chec<s inten%e% for her# in her name$ >n%er the peculiar circumstances of this case# the payment to the abscon%ing sheriff by chec< in his name %i% not operate as a satisfaction of the Au%gment %ebt$ In general# a payment# in or%er to be effective to %ischarge an obligation# must be ma%e to the proper person$ +rticle 27'0 of the Civil Co%e provi%es4 Payment shall be ma%e to the person in )hose favor the obligation has been constitute%# or his successor in interest# or any person authorized to receive it. 6Emphasis supplie%8 &hus# payment must be ma%e to the obligee himself or to an agent having authority# e@press or implie%# to receive the particular payment 6>len v$ Jnecttle (0 Byo 1'# (/ N7%O ''.# 222 +DR .(8$ Payment ma%e to one having apparent authority to receive the money )ill# as a rule# be treate% as though actual authority ha% been given for its receipt$ Di<e)ise# if payment is ma%e to one )ho by la) is authori9e% to act for the cre%itor# it )ill )or< a %ischarge 6?en%ry v$ Benlisa C3 5la$ .01# 70 S /00#C' DR+ 7/C8$ &he receipt of money %ue on aAu%gment by an officer authori9e% by la) to accept it )ill# therefore# satisfy the %ebt 6See '0 +m Jm 371# 7(I ?en%ry v$ Benlisa supraI Seattle v$ Stirrat (( Bash$ 20' p$ /C'#7' DR+ NNSO 273(8$ &he theory is )here payment is ma%e to a person authori9e% an% recogni9e% by the cre%itor# the payment to such a person so authori9e% is %eeme% payment to the cre%itor$ >n%er or%inary circumstances# payment by the Au%gment %ebtor in the case at bar# to the sheriff shoul% be vali% payment to e@tinguish the Au%gment %ebt$ &here are circumstances in this case# ho)ever# )hich compel a %ifferent conclusion$ &he payment ma%e by the petitioner to the abscon%ing sheriff )as not in cash or legal ten%er but in chec<s$ &he chec<s )ere not payable to +melia &an or +ble Printing Press but to the abscon%ing sheriff$ !i% such payments e@tinguish the Au%gment %ebtM +rticle 27'1 of the Civil Co%e provi%es4 &he payment of %ebts in money shall be ma%e in the currency stipulate%# an% if it is not possible to %eliver such currency# then in the currency )hich is legal ten%er in the Philippines$ &he %elivery of promissory notes payable to or%er# or bills of e@change or other mercantile %ocuments shall pro%uce the effect of payment only )hen they have been cashe%# or )hen through the fault of the cre%itor they have been impaire%$ In the meantime# the action %erive% from the original obligation shall be hel% in abeyance$ In the absence of an agreement# either e@press or implie%# payment means the %ischarge of a %ebt or obligation in money 6>S v$ Robertson# ( Pet$ N>SO .'2# / D$ e%$ 7(38 an% unless the parties so agree# a %ebtor has no rights# e@cept at his o)n peril# to substitute something in lieu of cash as me%ium of payment of his %ebt 6+n%erson v$ -ill# 31 M%$$ C27# 71 + (73# 7( DR+ 700#'3 +m$ St$ Rep$ '078$ Conse*uently# unless authori9e% to %o so by la) or by consent of the obligee a public officer has no authority to accept anything other than money in payment of an obligation un%er a Au%gment being e@ecute%$ Strictly spea<ing# the acceptance by the sheriff of the petitioner:s

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chec<s# in the case at bar# %oes not# per se# operate as a %ischarge of the Au%gment %ebt$ Since a negotiable instrument is only a substitute for money an% not money# the %elivery of such an instrument %oes not# by itself# operate as payment 6See$ 2/1# +ct 70C2 on Negs$ Insts$I +rt$ 27'1# Civil Co%eI Bryan Dan%on Co$ v$ +merican Ban<# 3 Phil$ 7((I &an Sunco v$ Santos# 1 Phil$ ''I 72 R$C$D$ .0# .28$ + chec<# )hether a manager:s chec< or or%inary chee<# is not legal ten%er# an% an offer of a chec< in payment of a %ebt is not a vali% ten%er of payment an% may be refuse% receipt by the obligee or cre%itor$ Mere %elivery of chec<s %oes not %ischarge the obligation un%er a Au%gment$ &he obligation is not e@tinguishe% an% remains suspen%e% until the payment by commercial %ocument is actually reali9e% 6+rt$ 27'1# Civil Co%e# par$ C8$ If bouncing chec<s ha% been issue% in the name of +melia &an an% not the Sheriff:s# there )oul% have been no payment$ +fter %ishonor of the chec<s# Ms$ &an coul% have run after other properties of P+D$ &he theory is that she has receive% no value for )hat ha% been a)ar%e% her$ Because the chec<s )ere %ra)n in the name of Emilio Q$ Reyes# neither has she receive% anything$ &he same rule shoul% apply$ It is argue% that if P+D ha% pai% in cash to Sheriff Reyes# there )oul% have been payment in full legal contemplation$ &he reasoning is logical but is it vali% an% properM Dogic has its limits in %ecision ma<ing$ Be shoul% not follo) rulings to their logical e@tremes if in %oing so )e arrive at unAust or absur% results$ In the first place# P+D did not pay in cash$ It pai% in chee<s$ +n% secon%# payment in cash al)ays carries )ith it certain cautions$ Nobo%y han%s over big amounts of cash in a careless an% inane manner$ Mature thought is given to the possibility of the cash being lost# of the bearer being )aylai% or running off )ith )hat he is carrying for another$ Payment in chec<s is precisely inten%e% to avoi% the possibility of the money going to the )rong party$ &he situation is entirely %ifferent )here a Sheriff sei9es a car# a tractor# or a piece of lan%$ Dogic often has to give )ay to e@perience an% to reality$ ?aving pai% )ith chec<s# P+D shoul% have %one so properly$ Payment in money or cash to the implementing officer may be %eeme% absolute payment of the Au%gment %ebt but the Court has never# in the least bit# suggeste% that Au%gment %ebtors shoul% settle their obligations by turning over huge amounts of cash or legal ten%er to sheriffs an% other e@ecuting officers$ Payment in cash )oul% result in %amage or interminable litigations each time a sheriff )ith huge amounts of cash in his han%s %eci%es to abscon%$ +s a protective measure# therefore# the courts encourage the practice of payments by chee< provi%e% a%e*uate controls are institute% to prevent )rongful payment an% illegal )ith%ra)al or %isbursement of fun%s$ If particularly big amounts are involve%# escro) arrangements )ith a ban< an% carefully supervise% by the court )oul% be the safer proce%ure$ +ctual transfer of fun%s ta<es place )ithin the safety of ban< premises$ &hese practices are perfectly legal$ &he obAect is al)ays the safe an% incorrupt e@ecution of the Au%gment$ It is# in%ee%# out of the or%inary that chec<s inten%e% for a particular payee are ma%e out in the name of another$ Ma<ing the chec<s payable to the Au%gment cre%itor )oul% have prevente% the encashment or the ta<ing of un%ue a%vantage by the sheriff# or any person into )hose han%s the chec<s may have fallen# )hether )rongfully or in behalf of the cre%itor$ &he issuance of the chec<s in the name of the sheriff clearly ma%e possible the misappropriation of the fun%s that )ere )ith%ra)n$ +s e@plaine% an% hel% by the respon%ent court4 $$$ NJOno)ing as it %oes that the inten%e% payment )as for the private party respon%ent +melia &an# the petitioner corporation# utili9ing the services of its personnel )ho are or shoul% be <no)le%geable about the accepte% proce%ures an% resulting conse*uences of the chec<s %ra)n# nevertheless# in this instance# )ithout pru%ence# %eparte% from )hat is generally observe% an% %one# an% place% as payee in the chec<s the name of the errant Sheriff an% not the name of the rightful payee$ Petitioner thereby create% a situation )hich permitte% the sai% Sheriff to personally encash sai% chec<s an% misappropriate the procee%s thereof to his e@clusive personal benefit$ 5or the preAu%ice that resulte%# the petitioner himself must bear the fault$ &he Au%icial gui%eline )hich )e ta<e note of states as follo)s4 +s bet)een t)o innocent persons# one of )hom must suffer the conse*uence of a breach of trust# the one )ho ma%e it possible by his act of confi%ence must bear the loss$ 6Blon%eau# et al$ v$ Nano# et al$# D,'2C33# July 7.# 21C(# .2 Phil$ .7(8 ?aving faile% to employ the proper safeguar%s to protect itself# the Au%gment %ebtor )hose act ma%e possible the loss ha% but itself to blame$

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&he attention of this Court has been calle% to the ba% practice of a number of e@ecuting officers# of re*uiring chec<s in satisfaction of Au%gment %ebts to be ma%e out in their o)n names$ If a sheriff %irects a Au%gment %ebtor to issue the chec<s in the sheriff:s name# claiming he must get his commission or fees# the %ebtor must report the sheriff imme%iately to the court )hich or%ere% the e@ecution or to the Supreme Court for appropriate %isciplinary action$ 5ees# commissions# an% salaries are pai% through regular channels$ &his improper proce%ure also allo)s such officers# )ho have si@ty 6.08 %ays )ithin )hich to ma<e a return# to treat the moneys as their personal fin%s an% to %eposit the same in their private accounts to earn si@ty 6.08 %ays interest# before sai% fin%s are turne% over to the court or Au%gment cre%itor 6See Balgos v$ "elasco# 20/ SCR+ (7( N21/2O8$ Kuite as easily# such officers coul% put up the %efense that sai% chec<s ha% been issue% to them in their private or personal capacity$ Bithout a receipt evi%encing payment of the Au%gment %ebt# the misappropriation of fin%s by such officers becomes clean an% complete$ &he practice is ingenious but evil as it unAustly enriches court personnel at the e@pense of litigants an% the proper a%ministration of Austice$ &he temptation coul% be far greater# as prove% to be in this case of the abscon%ing sheriff$ &he correct an% pru%ent thing for the petitioner )as to have issue% the chec<s in the inten%e% payee:s name$ &he pernicious effects of issuing chec<s in the name of a person other than the inten%e% payee# )ithout the latter:s agreement or consent# are as many as the )ays that an artful min% coul% concoct to get aroun% the safeguar%s provi%e% by the la) on negotiable instruments$ +n angry litigant )ho loses a case# as a rule# )oul% not )ant the )inning party to get )hat he )on in the Au%gment$ ?e )oul% thin< of )ays to %elay the )inning party:s getting )hat has been a%Au%ge% in his favor$ Be cannot con%one that practice especially in cases )here the courts an% their officers are involve%$ Be rule against the petitioner$ +nent the applicability of Section 2(# Rule C1# as follo)s4 Section 2($ E&ecution of !oney (ud !ents$ L &he officer must enforce an e@ecution of a money Au%gment by levying on all the property# real an% personal of every name an% nature )hatsoever# an% )hich may be %ispose% of for value# of the Au%gment %ebtor not e@empt from e@ecution# or on a sufficient amount of such property# if they be sufficient# an% selling the same# and payin to the (ud !ent creditor# or his attorney# so much of the procee%s as )ill satisfy the Au%gment$ $$$ the respon%ent court hel%4 Be are oblige% to rule that the Au%gment %ebt cannot be consi%ere% satisfie% an% therefore the or%ers of the respon%ent Au%ge granting the alias )rit of e@ecution may not be pronounce% as a nullity$ @@@ @@@ @@@ It is clear an% manifest that after levy or garnishment# for a Au%gment to be e@ecute% there is the re*uisite of payment by the officer to the Au%gment cre%itor# or his attorney# so much of the procee%s as )ill satisfy the Au%gment an% none such payment ha% been conce%e%ly ma%e yet by the abscon%ing Sheriff to the private respon%ent +melia &an$ &he ultimate an% essential step to complete the e@ecution of the Au%gment not having been performe% by the City Sheriff# the Au%gment %ebt legally an% factually remains unsatisfie%$ Strictly spea<ing e@ecution cannot be e*uate% )ith satisfaction of a Au%gment$ >n%er unusual circumstances as those obtaining in this petition# the %istinction comes out clearly$ E@ecution is the process )hich carries into effect a %ecree or Au%gment 6Painter v$ Berglun%# C2 Cal$ +pp$ 7%$ .C# /3 P 7% C.0# C.CI Miller v$ Don%on# 71' Mass C00# 2 NE 7% 21/# 700I Blac<:s Da) !ictionary8# )hereas the satisfaction of a Au%gment is the payment of the amount of the )rit# or a la)ful ten%er thereof# or the conversion by sale of the %ebtor:s property into an amount e*ual to that %ue# an%# it may be %one other)ise than upon an e@ecution 6Section '3# Rule C18$ Devy an% %elivery by an e@ecution officer are not prere*uisites to the satisfaction of a Au%gment )hen the same has alrea%y been reali9e% in fact 6Section '3# Rule C18$ E@ecution is for the sheriff to accomplish )hile satisfaction of the Au%gment is for the cre%itor to achieve$ Section 2(# Rule C1 merely provi%es the sheriff )ith his %uties as e@ecuting officer inclu%ing %elivery of the procee%s of his levy on the %ebtor:s property to satisfy the Au%gment %ebt$ It is but to stress that the implementing officer:s %uty shoul% not stop at his receipt of payments but must continue until payment is %elivere% to the obligor or cre%itor$ 5inally# )e fin% no error in the respon%ent court:s pronouncement on the inclusion of interests to be recovere% un%er the alias )rit of e@ecution$ &his logically follo)s from our ruling that P+D is liable for

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both the lost chec<s an% interest$ &he respon%ent court:s %ecision in C+,-$R$ No$ (2031,R %oes not totally superse%e the trial court:s Au%gment in Civil Case No$ 32C03$ It merely mo%ifie% the same as to the principal amount a)ar%e% as actual %amages$ B?ERE5 RE# IN "IEB 5 &?E 5 RE- IN-# the petition is hereby !ISMISSE!$ &he Au%gment of the respon%ent Court of +ppeals is +55IRME! an% the trial court:s issuance of the alias )rit of e@ecution against the petitioner is uphel% )ithout preAu%ice to any action it shoul% ta<e against the errant sheriff Emilio Q$ Reyes$ &he Court +%ministrator is or%ere% to follo) up the actions ta<en against Emilio Q$ Reyes$ S R!ERE!$ ;idin, AriDo3-#uino, :edialdea and
8erry, De la Bosa and -ssociates for private respondent.

GUTIERRE(, )R., J.: &his is a petition for revie) on certiorari of the Court of +ppeals: %ecision affirming the %ecision of the Insurance Commissioner )hich %ismisse% the petitioners: complaint against respon%ent Philippine +merican Dife Insurance Company for the recovery of the procee%s from their late father:s policy$ &he facts of the case as foun% by the Court of +ppeals are4 Petitioners appeal from the !ecision of the Insurance Commissioner %ismissing herein petitioners: complaint against respon%ent Philippine +merican Dife Insurance Company for the recovery of the procee%s of Policy No$ 20/7'.3 in the amount of P /0#000$00$ n September 7C#213C# &an Dee Siong# father of herein petitioners# applie% for life insurance in the amount of P /0#000$00 )ith respon%ent company$ Sai% application )as approve% an% Policy No$ 20/7'.3 )as issue% effective November .#213C# )ith petitioners the beneficiaries thereof 6E@hibit +8$ n +pril 7.#213(# &an Dee Siong %ie% of hepatoma 6E@hibit B8$ Petitioners then file% )ith respon%ent company their claim for the procee%s of the life insurance policy$ ?o)ever# in a letter %ate% September 22# 213(# respon%ent company %enie% petitioners: claim an% rescin%e% the policy by reason of the allege% misrepresentation an% concealment of material facts ma%e by the %ecease% &an Dee Siong in his application for insurance 6E@hibit C8$ &he premiums pai% on the policy )ere thereupon refun%e% $ +lleging that respon%ent company:s refusal to pay them the procee%s of the policy )as unAustifie% an% unreasonable# petitioners file% on November 73# 213(# a complaint against the former )ith the ffice of the Insurance Commissioner# %oc<ete% as I$C$ Case No$ 72/$ +fter hearing the evi%ence of both parties# the Insurance Commissioner ren%ere% Au%gment on +ugust 1# 2133# %ismissing petitioners: complaint$ 6Rollo# pp$ 12,178 &he Court of +ppeals %ismisse% : the petitioners: appeal from the Insurance Commissioner:s %ecision for lac< of merit ?ence# this petition$ &he petitioners raise the follo)ing issues in their assignment of errors# to )it4 +$ &he conclusion in la) of respon%ent Court that respon%ent insurer has the right to rescin% the policy contract )hen insure% is alrea%y %ea% is not in accor%ance )ith e@isting la) an% applicable Aurispru%ence$

8ernan, C.<., Cruz, ,aras, Be alado, <<., concur.

Republic of the Philippines SUPREME COURT Manila &?IR! !I"ISI N G.R. No. 18019 )4$+ 29, 1989 EMILIO TAN, )UANITO TAN, AL0ERTO TAN #$% ARTURO TAN, petitioners# vs$ T"E COURT O& APPEALS #$% T"E P"ILIPPINE AMERICAN LI&E INSURANCE COMPAN , respon%ents$ O.8. 6antos & ,.C. 5olasco for petitioners.

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B$ &he conclusion in la) of respon%ent Court that respon%ent insurer may be allo)e% to avoi% the policy on groun%s of concealment by the %ecease% assure%# is contrary to the provisions of the policy contract itself# as )ell as# of applicable legal provisions an% establishe% Aurispru%ence$ C$ &he inference of respon%ent Court that respon%ent insurer )as misle% in issuing the policy are manifestly mista<en an% contrary to a%mitte% evi%ence$ 6Rollo# p$ 38 &he petitioners conten% that the respon%ent company no longer ha% the right to rescin% the contract of insurance as rescission must allege%ly be %one %uring the lifetime of the insure% )ithin t)o years an% prior to the commencement of action$ &he contention is )ithout merit$ &he pertinent section in the Insurance Co%e provi%es4 Section '/$ Bhenever a right to rescin% a contract of insurance is given to the insurer by any provision of this chapter# such right must be e@ercise% previous to the commencement of an action on the contract$ +fter a policy of life insurance ma%e payable on the %eath of the insure% shall have been in force %uring the lifetime of the insure% for a perio% of t)o years from the %ate of its issue or of its last reinstatement# the insurer cannot prove that the policy is voi% ab initio or is rescin%able by reason of the frau%ulent concealment or misrepresentation of the insure% or his agent$ +ccor%ing to the petitioners# the Insurance Da) )as amen%e% an% the secon% paragraph of Section '/ a%%e% to prevent the insurance company from e@ercising a right to rescin% after the %eath of the insure%$ &he so,calle% =incontestability clause= preclu%es the insurer from raising the %efenses of false representations or concealment of material facts insofar as health an% previous %iseases are concerne% if the insurance has been in force for at least t)o years %uring the insure%:s lifetime$ &he phrase =%uring the lifetime= foun% in Section '/ simply means that the policy is no longer consi%ere% in force after the insure% has %ie%$ &he <ey phrase in the secon% paragraph of Section '/ is =for a perio% of t)o years$= +s note% by the Court of +ppeals# to )it4 &he policy )as issue% on November .#213C an% the insure% %ie% on +pril 7.#213($ &he policy )as thus in force for a perio% of only one year an% five months$ Consi%ering that the insure% %ie% before the t)o,year perio% ha% lapse%# respon%ent company is not# therefore# barre% from proving that the policy is voi% ab initio by reason of the insure%:s frau%ulent concealment or misrepresentation$ Moreover# respon%ent company rescin%e% the contract of insurance an% refun%e% the premiums pai% on September 22# 213(# previous to the commencement of this action on November 73#213($ 6Rollo# pp$ 11,2008 @@@ @@@ @@@ &he petitioners conten% that there coul% have been no concealment or misrepresentation by their late father because &an Dee Siong %i% not have to buy insurance$ ?e )as only pressure% by insistent salesmen to %o so$ &he petitioners state4 ?ere then is a case of an assure% )hose application )as submitte% because of repeate% visits an% solicitations by the insurer:s agent$ +ssure% %i% not <noc< at the %oor of the insurer to buy insurance$ ?e )as the obAect of solicitations an% visits$ +ssure% )as a man of means$ ?e coul% have obtaine% a bigger insurance# not Aust P /0#000$00$ If his purpose )ere to misrepresent an% to conceal his ailments in anticipation of %eath %uring the t)o,year perio%# he certainly coul% have gotten a bigger insurance$ ?e %i% not$ Insurer Philamlife coul% have presente% as )itness its Me%ical E@aminer !r$ >rbano -uinto$ It )as he )ho accomplishe% the application# Part II# me%ical$ Philamlife %i% not$ Philamlife coul% have put to the )itness stan% its +gent Bienveni%o S$ -uinto# a relative to !r$ -uinto# +gain Philamlife %i% not$ 6pp$ 2C/2C1# Rollo8 @@@ @@@ @@@ &his ?onorable Supreme Court has ha% occasion to %enounce the pressure an% practice in%ulge% in by agents in selling insurance$ +t one time or another most of us have been subAecte% to that pressure# that practice$ &his court too< Au%icial cogni9ance of the )hirl)in% pressure of insurance selling,especially of the agent:s practice of :supplyin the information# preparin an% answerin the application# sub!ittin the application to their companies# concludin the transactions an% other)ises!oothin out all difficulties. Be call attention to )hat this ?onorable Court sai% in Insular Dife v$ 5eliciano# et al$# 3C Phil$ 702I at page 70(4 It is of common <no)le%ge that the selling of insurance to%ay is subAecte% to the )hirl)in% pressure of mo%ern salesmanship$ Insurance companies sen% %etaile% instructions to their agents to solicit an% procure applications$ &hese agents are to be foun% all over the length an% brea%th of the lan%$ &hey are stimulate% to more active efforts by contests an% by the <een competition offere% by the other rival insurance companies$ They supply all the infor!ation, prepare and answer the applications, sub!it the applications to their co!panies, conclude the transactions, and otherwise s!ooth out all difficulties$

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&he agents in short %o )hat the company set them out to %o$ &he "nsular Life case )as %eci%e% some forty years ago )hen the pressure of insurance salesmanship )as not over)helming as it is no)I )hen the population of this country )as less than one,fourth of )hat it is no)I )hen the insurance companies competing )ith one another coul% be counte% by the fingers$ 6pp$ 2'0,2'7# Rollo8 @@@ @@@ @@@ In the face of all the above# it )oul% be unAust if# having been subAecte% to the )hirl)in% pressure of insurance salesmanship this Court itself has long %enounce%# the assure% )ho %ies )ithin the t)o,year perio%# shoul% stan% charge% of frau%ulent concealment an% misrepresentation$= 6p$ 2'7# Rollo8 &he legislative ans)er to the arguments pose% by the petitioners is the =incontestability clause= a%%e% by the secon% paragraph of Section '/$ &he insurer has t)o years from the %ate of issuance of the insurance contract or of its last reinstatement )ithin )hich to contest the policy# )hether or not# the insure% still lives )ithin such perio%$ +fter t)o years# the %efenses of concealment or misrepresentation# no matter ho) patent or )ell foun%e%# no longer lie$ Congress felt this )as a sufficient ans)er to the various tactics employe% by insurance companies to avoi% liability$ &he petitioners: interpretation )oul% give rise to the incongruous situation )here the beneficiaries of an insure% )ho %ies right after ta<ing out an% paying for a life insurance policy# )oul% be allo)e% to collect on the policy even if the insure% frau%ulently conceale% material facts$ &he petitioners argue that no evi%ence )as presente% to sho) that the me%ical terms )ere e@plaine% in a layman:s language to the insure%$ &hey state that the insurer shoul% have presente% its t)o me%ical fiel% e@aminers as )itnesses$ Moreover# the petitioners allege that the policy inten%s that the me%ical e@amination must be con%ucte% before its issuance other)ise the insurer =)aives )hatever imperfection by ratification$= Be agree )ith the Court of +ppeals )hich rule%4 n the other han%# petitioners argue that no evi%ence )as presente% by respon%ent company to sho) that the *uestions appearing in Part II of the application for insurance )ere as<e%# e@plaine% to an% un%erstoo% by the %ecease% so as to prove concealment on his part$ &he same is not )ell ta<en$ &he %ecease%# by affi@ing his signature on the application form# affirme% the correctness of all the entries an% ans)ers appearing therein$ It is but to be e@pecte% that he# a businessman# )oul% not have affi@e% his signature on the application form unless he clearly un%erstoo% its significance$ 5or# the presumption is that a person inten%s the or%inary conse*uence of his voluntary act an% ta<es or%inary care of his concerns$ NSec$ (6c8 an% 6%8# Rule 2C2# Rules of CourtO$ &he evi%ence for respon%ent company sho)s that on September 21#2137# the %ecease% )as e@amine% by !r$ "ictoriano Dim an% )as foun% to be %iabetic an% hypertensiveI that by January# 213C# the %ecease% )as complaining of progressive )eight loss an% ab%ominal pain an% )as %iagnose% to be suffering from hepatoma# 6t$s$n$ +ugust 7C# 213.# pp$ /,20I E@hibit 78$ +nother physician# !r$ Benceslao "itug# testifie% that the %ecease% came to see him on !ecember 2'# 213C for consolation an% claime% to have been %iabetic for five years$ 6t$s$n$# +ug$ 7C#213.# p$ (I E@hibit .8 Because of the concealment ma%e by the %ecease% of his consultations an% treatments for hypertension# %iabetes an% liver %isor%ers# respon%ent company )as thus misle% into accepting the ris< an% approving his application as me%ically stan%ar% 6E@hibit (, C8 an% %ispensing )ith further me%ical investigation an% e@amination 6E@hibit (,+8$ 5or as long as no a%verse me%ical history is reveale% in the application form# an applicant for insurance is presume% to be healthy an% physically fit an% no further me%ical investigation or e@amination is con%ucte% by respon%ent company$ 6t$s$n$# +pril /#213.# pp$ .,/8$ 6Rollo# pp$ 1.,1/8 &here is no strong sho)ing that )e shoul% apply the =fine print= or =contract of a%hesion= rule in this case$ 6S)eet Dines# Inc$ v$ &eves# /C SCR+ C.2 N213/O8$ &he petitioners cite4 It is a matter of common <no)le%ge that large amounts of money are collecte% from ignorant persons by companies an% associations )hich a%opt high soun%ing titles an% print the amount of benefits they agree to pay in large blac<,face% type# follo)ing such un%erta<ings by fine print con%itions )hich %estroy the substance of the promise$ +ll provisions# con%itions# or e@ceptions )hich in any )ay ten% to )or< a forfeiture of the policy shoul% be construe% most strongly against those for )hose benefit they are inserte%# an% most favorably to)ar% those against )hom they are meant to operate$ 6&rini%a% v$ rient Protective +ssurance +ssn$# .3 Phil$ 2/'8 &here is no sho)ing that the *uestions in the application form for insurance regar%ing the insure%:s me%ical history are in smaller print than the rest of the printe% form or that they are %esigne% in such a )ay as to conceal from the applicant their importance$ If a )arning in bol% re% letters or a bo@e% )arning similar to that re*uire% for cigarette a%vertisements by the Surgeon -eneral of the >nite% States is necessary# that is for Congress or the Insurance Commission to provi%e as protection against high pressure insurance salesmanship$ Be are limite% in this petition to ascertaining )hether or not the respon%ent Court of +ppeals committe% reversible error$ It is the petitioners: bur%en to sho) that the factual fin%ings of the respon%ent court are not base% on substantial evi%ence or that its conclusions are contrary to applicable la) an% Aurispru%ence$ &hey have faile% to %ischarge that bur%en$ B?ERE5 RE# the petition is hereby !ENIE! for lac< of merit$ &he *uestione% %ecision of the Court of +ppeals is +55IRME!$ S R!ERE!$

8ernan, )C.<., Chair!an*, ;idin and Cortes, <<., concur.

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Negotiable Instruments Cases | Sylver Jan Baluno Prior

LLLL &otal PC1/#'/C$30 Private respon%ent# E%en &an# refuse% to accept the payment ma%e by the &ibaAia spouses an% instea% insiste% that the garnishe% fun%s %eposite% )ith the cashier of the Regional &rial Court of Pasig# Metro Manila be )ith%ra)n to satisfy the Au%gment obligation$ n 2( January 2112# %efen%ant spouses 6petitioners8 file% a motion to lift the )rit of e@ecution on the groun% that the Au%gment %ebt ha% alrea%y been pai%$ n 71 January 2112# the motion )as %enie% by the trial court on the groun% that payment in cashier:s chec< is not payment in legal ten%er an% that payment )as ma%e by a thir% party other than the %efen%ant$ + motion for reconsi%eration )as %enie% on / 5ebruary 2112$ &hereafter# the spouses &ibaAia file% a petition for certiorari# prohibition an% inAunction in the Court of +ppeals$ &he appellate court %ismisse% the petition on 7' +pril 2112 hol%ing that payment by cashier:s chec< is not payment in legal ten%er as re*uire% by Republic +ct No$ (71$ &he motion for reconsi%eration )as %enie% on 73 May 2112$ In this petition for revie)# the &ibaAia spouses raise the follo)ing issues4 I B?E&?ER R N & &?E BPI C+S?IER:S C?ECJ N $ 02'072 IN &?E +M >N& 5 P7.7#3(0$00 &EN!ERE! BG PE&I&I NERS 5 R P+GMEN& 5 &?E J>!-MEN& !EB&# IS =DE-+D &EN!ER=$ II B?E&?ER R N & &?E PRI"+&E RESP N!EN& M+G "+DI!DG RE5>SE &?E &EN!ER 5 P+GMEN& P+R&DG IN C?ECJ +N! P+R&DG IN C+S? M+!E BG PE&I&I NERS# &?R> +>R R+ "I& +N! C >NSED# 5 R &?E S+&IS5+C&I N 5 &?E M NE&+RG BDI-+&I N 5 PE&I&I NERS,SP >SES$ 1 &he only issue to be resolve% in this case is )hether or not payment by means of chec< 6even by cashier:s chec<8 is consi%ere% payment in legal ten%er as re*uire% by the Civil Co%e# Republic +ct No$ (71# an% the Central Ban< +ct$ It is conten%e% by the petitioners that the chec<# )hich )as a cashier:s chec< of the Ban< of the Philippine Islan%s# un%oubte%ly a ban< of goo% stan%ing an% reputation# an% )hich )as a crosse% chec< mar<e% =5or Payee:s +ccount nly= an% payable to private respon%ent E%en &an# is consi%ere% legal ten%er# payment )ith )hich operates to %ischarge their monetary obligation$ 2 Petitioners# to support their contention# cite the case of 5ew ,acific Ti!ber and 6upply Co., "nc. v. 6eDeris 3 )here this Court hel% through Mr$ Justice ?ermogenes Concepcion# Jr$ that =It is a )ell,<no)n an% accepte% practice in the business sector that a cashier:s chec< is %eeme% as cash=$ &he provisions of la) applicable to the case at bar are the follo)ing4 a$ +rticle 27'1 of the Civil Co%e )hich provi%es4 +rt$ 27'1$ &he payment of %ebts in money shall be ma%e in the currency stipulate%# an% if it is not possible to %eliver such currency# then in the currency )hich is legal ten%er in the Philippines$

Republic of the Philippines SUPREME COURT Manila SEC N! !I"ISI N

G.R. No. 100290 )4$+ 1, 1993 NOR0ERTO TI0A)IA, )R. #$% CARMEN TI0A)IA, petitioners# vs$ T"E "ONORA0LE COURT O& APPEALS #$% EDEN TAN, respon%ents$

PADILLA, J.: Petitioners# spouses Norberto &ibaAia# Jr$ an% Carmen &ibaAia# are before this Court assailing the %ecision ; of respon%ent appellate court %ate% 7' +pril 2112 in C+,-$R$ SP No$ 7'2.' %enying their petition for certiorariprohibition# an% inAunction )hich sought to annul the or%er of Ju%ge Eutropio MigriRo of the Regional &rial Court# Branch 2(2# Pasig# Metro Manila in Civil Case No$ ('/.C entitle% =E%en &an vs$ Sps$ Norberto an% Carmen &ibaAia$= State% briefly# the relevant facts are as follo)s4 Case No$ ('/.C )as a suit for collection of a sum of money file% by E%en &an against the &ibaAia spouses$ + )rit of attachment )as issue% by the trial court on 23 +ugust 21/3 an% on 23 September 21/3# the !eputy Sheriff file% a return stating that a %eposit ma%e by the &ibaAia spouses in the Regional &rial Court of Jaloo<an City in the amount of 5our ?un%re% 5orty &)o &housan% Seven ?un%re% an% 5ifty Pesos 6P''7#3(0$008 in another case# ha% been garnishe% by him$ n 20 March 21//# the Regional &rial Court# Branch 2(2 of Pasig# Metro Manila ren%ere% its %ecision in Civil Case No$ ('/.C in favor of the plaintiff E%en &an# or%ering the &ibaAia spouses to pay her an amount in e@cess of &hree ?un%re% &housan% Pesos 6PC00#000$008$ n appeal# the Court of +ppeals mo%ifie% the %ecision by re%ucing the a)ar% of moral an% e@emplary %amages$ &he %ecision having become final# E%en &an file% the correspon%ing motion for e@ecution an% thereafter# the garnishe% fun%s )hich by then )ere on %eposit )ith the cashier of the Regional &rial Court of Pasig# Metro Manila# )ere levie% upon$ n 2' !ecember 2110# the &ibaAia spouses %elivere% to !eputy Sheriff E%uar%o Bolima the total money Au%gment in the follo)ing form4 Cashier:s Cash Chec< P7.7#3(0$00 2C(#3CC$30

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&he %elivery of promissory notes payable to or%er# or bills of e@change or other mercantile %ocuments shall pro%uce the effect of payment only )hen they have been cashe%# or )hen through the fault of the cre%itor they have been impaire%$ In the meantime# the action %erive% from the original obligation shall be hel% in abeyance$I b$ Section 2 of Republic +ct No$ (71# as amen%e%# )hich provi%es4 Sec$ 2$ Every provision containe% in# or ma%e )ith respect to# any obligation )hich purports to give the obligee the right to re*uire payment in gol% or in any particular <in% of coin or currency other than Philippine currency or in an amount of money of the Philippines measure% thereby# shall be as it is hereby %eclare% against public policy null an% voi%# an% of no effect# an% no such provision shall be containe% in# or ma%e )ith respect to# any obligation thereafter incurre%$ Every obligation heretofore an% hereafter incurre%# )hether or not any such provision as to payment is containe% therein or ma%e )ith respect thereto# shall be %ischarge% upon payment in any coin or currency )hich at the time of payment is legal ten%er for public an% private %ebts$ c$ Section .C of Republic +ct No$ 7.(# as amen%e% 6Central Ban< +ct8 )hich provi%es4 Sec$ .C$ Le al character L Chec<s representing %eposit money %o not have legal ten%er po)er an% their acceptance in the payment of %ebts# both public an% private# is at the option of the cre%itor4 Provi%e%# ho)ever# that a chec< )hich has been cleare% an% cre%ite% to the account of the cre%itor shall be e*uivalent to a %elivery to the cre%itor of cash in an amount e*ual to the amount cre%ite% to his account$ 5rom the afore*uote% provisions of la)# it is clear that this petition must fail$ In the recent cases of ,hilippine -irlines, "nc. vs. Court of -ppeals an% Bo!an Catholic ;ishop of :alolos, "nc. vs. "nter!ediate -ppellate Court # 5 this Court hel% that L
1

Sheriff Reyes# there )oul% be no payment by P+D an%# conse*uently# no %ischarge or satisfaction of its Au%gment obligation$= 7Moreover# the circumstances in the ,hilippine -irlines case are *uite %ifferent from those in the case at bar for in that case the chec<s issue% by the Au%gment %ebtor )ere ma%e payable to the sheriff# Emilio Q$ Reyes# )ho encashe% the chec<s but faile% to %eliver the procee%s of sai% encashment to the Au%gment cre%itor$ In the more recent case of 8ortunado vs. Court of -ppeals# 8 this Court stresse% that# =Be are not# by this %ecision# sanctioning the use of a chec< for the payment of obligations over the obAection of the cre%itor$= B?ERE5 RE# the petition is !ENIE!$ &he appeale% %ecision is hereby +55IRME!# )ith costs against the petitioners$ S R!ERE!$

5arvasa, C.<., Be alado and 5ocon, <<., concur. Republic of the Philippines SUPREME COURT Manila 5IRS& !I"ISI N G.R. No. L278112 S+p5+,-+r 2<, 1989 TRADERS RO AL 0AN., petitioner# vs$ T"E "ONORA0LE COURT O& APPEALS, "ON. 0ALTA(AR M. DI(ON, Pr+7i%i$= )4%=+, R+=io$#l Tri#l Co4r5, 0r#$89 113, P#7#3 Ci53 #$% AL&REDO C"ING, respon%ents$ 6an <uan, -frica, Aonzalez and 6an - ustin for petitioner. ;al os and ,erez for respondents.

+ chec<# )hether a manager:s chec< or or%inary chec<# is not legal ten%er# an% an offer of a chec< in payment of a %ebt is not a vali% ten%er of payment an% may be refuse% receipt by the obligee or cre%itor$ &he ruling in these t)o 678 cases merely applies the statutory provisions )hich lay %o)n the rule that a chec< is not legal ten%er an% that a cre%itor may vali%ly refuse payment by chec<# )hether it be a manager:s# cashier:s or personal chec<$ Petitioners erroneously rely on one of the %issenting opinions in the ,hilippine -irlines case < to support their cause$ &he %issenting opinion ho)ever %oes not in any )ay support the contention that a chec< is legal ten%er but# on the contrary# states that =If the P+D chec<s in *uestion ha% not been encashe% by

GRINO2A/UINO, J.: &his petition for certiorari assails the Court of +ppeals: %ecision %ate% +pril 71# 21/3 in C+,-$R$ SP No$ 0C(1C# entitle% = -lfredo Chin vs. 4on. ;altazar :. Dizon and Traders Boyal ;an'= nullifying the Regional &rial Court:s or%ers %ate% +ugust 2(#21/C an% May 7'#21/' an% prohibiting it from further procee%ing in Civil Case No$ 207/,P$ n March C0#21/7# the Philippine Blooming Mills# Inc$ 6PBM8 an% +lfre%o Ching Aointly submitte% to the Securities an% E@change Commission a petition for suspension of payments 6SEC No$ 77(08 )here +lfre%o Ching )as Aoine% as co, petitioner because un%er the la)# he )as allege%ly entitle%# as surety# to avail of the %efenses of PBM an% he )as e@pecte% to raise most of the stoc<hol%ers:

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Negotiable Instruments Cases | Sylver Jan Baluno Prior

e*uity of Pl00 million being re*uire% un%er the plan for the rehabilitation of PBM$ &ra%ers Royal Ban< )as inclu%e% among PBM:s cre%itors name% in Sche%ule + accompanying PBM:s petition for suspension of payments$ n May 2C# 21/C# the petitioner ban< file% Civil Case No$ 207/,P in the Regional &rial Court# Branch CHIII in Pasay City# against PBM an% +lfre%o Ching# to collect P77#773#31'$0( e@clusive of interests# penalties an% other ban< charges representing PBM:s outstan%ing obligation to the ban<$ +lfre%o Ching# a stoc<hol%er of PBM# )as implea%e% as co,%efen%ant for having signe% as a surety for PBM:s obligations to the e@tent of ten million pesos 6Pl0#000#0008 un%er a !ee% of Suretyship %ate% July 72# 2133$ In its en banc %ecision in SEC,EB No$ 02/ 6Chung Ja Bio# et al$ vs$ ?on$ +ntonio R$ Manabat# et al$8# the SEC %eclare% that it ha% assume% Auris%iction over petitioner +lfre%o Ching pursuant to Section .# Rule C of the ne) Rules of Proce%ure of the SEC provi%ing that =parties in interest )ithout )hom no final %etermination can be ha% of an action shall be Aoine% either as complainant# petitioner or respon%ent= to prevent multiplicity of suits$ n July 1# 21/7# the SEC issue% an r%er placing PBM:s business# inclu%ing its assets an% liabilities# un%er rehabilitation receivership# an% or%ere% that =all actions for claims liste% in Sche%ule + of the petition pen%ing before any court or tribunal are hereby suspen%e% in )hatever stage the same may be# until further or%ers from the Commission= 6p$ 77# Rollo8$ +s %irecte% by the SEC# sai% or%er )as publishe% once a )ee< for three consecutive )ee<s in the Bulletin &o%ay# Philippine !aily E@press an% &imes Journal at the e@pense of PBM an% +lfre%o Ching$ PBM an% Ching Aointly file% a motion to %ismiss Civil Case No$ 207/,P in the R&C# Pasay City# invo<ing the pen%ency in the SEC of PBM:s application for suspension of payments 6)hich Ching co,signe%8 an% over )hich the SEC ha% alrea%y assume% Auris%iction$ Before the motion to %ismiss coul% be resolve%# the court %roppe% PBM from the complaint# on motion of the plaintiff ban<# for the reason that the SEC ha% alrea%y place% PBM un%er rehabilitation receivership$ n +ugust 2(# 21/C# the trial court %enie% Ching:s motion to %ismiss the complaint against himself$ &he court pointe% out that =P$!$ 23(/ is only concerne% )ith the activities of corporations# partnerships an% associations$ Never )as it inten%e% to regulate an%Eor control activities of in%ivi%uals= 6p$22# Rollo8$ Ching:s motion for reconsi%eration of that or%er )as %enie% on May 7'#21/'$ Respon%ent Ju%ge argue% that un%er P : !$ 107,+# as amen%e%# the SEC may not vali%ly ac*uire Auris%iction over an in%ivi%ual# li<e Ching 6p$ .7# Rollo8$ Ching file% a petition for certiorari an% prohibition in the Court of +ppeals 6C+, -$R$ SP No$ 0C(1C8 to annul the or%ers of respon%ent Ju%ge an% to prohibit him from further procee%ing in the civil case$ &he main issue raise% in the petition )as )hether the court a #uo coul% ac*uire Auris%iction over Ching in his personal an% in%ivi%ual capacity as a surety of PBM in the collection suit file% by the ban<# %espite the fact that PBM:s obligation to the ban< ha% been place% un%er receivership by the SEC$ n +pril 71# 21/3# the Court of +ppeals grante% the )rits praye% for$ It nullifie% the *uestione% or%ers of respon%ent Ju%ge an% prohibite% him from further procee%ing in Civil Case No$ 207/,P# e@cept to enter an or%er %ismissing the case$ &he pertinent ruling of the Court of +ppeals rea%s4 In sum# since the SEC ha% assume% Auris%iction over petitioner in SEC Case No$ 77(0 an% reiterating the propriety of such assumption in SEC,EB No$ 02/I an% since un%er P! 107,+# as amen%e% by P! 23(/# $$$ upon appointment of a $$$ rehabilitation receiver$$$ pursuant to this !ecree# all actions for claims against corporation $$$ un%er management or receivership pen%ing before any court# tribunal# boar% or bo%y shall be suspen%e% accor%ingly $$$ respon%ent Au%ge clearly acte% )ithout Auris%iction in ta<ing cogni9ance of the civil case in the court a #uo brought by respon%ent ban< to enforce the surety agreement against petitioner for the purpose of collecting payment of PBM:s outstan%ing obligations$ Respon%ent ban< shoul% have *uestione% the SEC:s assumption of Auris%iction over petitioner in an appellate forum an% not in the court a #uo# a tribunal )ith )hich the SEC enAoys a co,e*ual an% coor%inate ran<$ 6p$ 73# Rollo$8 &he Ban< assails that %ecision in this petition for revie) alleging that the appellate court erre%I 2$ in hol%ing that Auris%iction over respon%ent +lfre%o Ching )as assume% by the SEC because he )as a co,signer or surety of PBM an% that the lo)er court may not assume Auris%iction over him so as to avoi% multiplicity of suitsI an% 7$ in hol%ing that the Auris%iction assume% by the SEC over Ching )as to the e@clusion of courts or tribunals of coor%inate ran<$ &he petition for revie) is meritorious$ +lthough Ching )as implea%e% in SEC Case No$ 77(0# as a co,petitioner of PBM# the SEC coul% not assume Auris%iction over his person an% properties$ &he Securities an% E@change Commission )as empo)ere%# as rehabilitation receiver# to ta<e custo%y an% control of the assets an% properties of PBM only# for the SEC has Auris%iction over corporations only not over private in%ivi%uals# e@cept stoc<hol%ers in an intra,corporate %ispute 6Sec$ (# P$!$ 107,+ an% Sec$ 7 of P$!$ 23(/8$ Being a nominal party in SEC Case No$ 77(0# Ching:s properties )ere not inclu%e% in the rehabilitation receivership that the SEC constitute% to ta<e custo%y of PBM:s assets$ &herefore# the petitioner ban< )as not barre% from filing a suit against Ching# as a surety for PBM$ +n anomalous situation )oul% arise if in%ivi%ual sureties for %ebtor corporations may escape liability by simply co, filing )ith the corporation a petition for suspension of payments in the SEC )hose Auris%iction is limite% only to corporations an% their corporate assets$

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Negotiable Instruments Cases | Sylver Jan Baluno Prior

&he term =parties,in,interest= in Section .# Rule C of the SEC:s Ne) Rules of Proce%ure contemplates only private in%ivi%uals sue% or suing as stoc<hol%ers# %irectors# or officers of a corporation$ Ching can be sue% separately to enforce his liability as surety for PBM# as e@pressly provi%e% by +rticle 272. of the Ne) Civil Co%e4 +R&$ 272.$ &he cre%itor may procee% against any of the soli%ary %ebtors or all of them simultaneously$ &he %eman% ma%e against one of them shall not be an obstacle to those )hich may subse*uently be %irecte% against the others# as long as the %ebt has not been fully collecte%$ It is elementary that a corporation has a personality %istinct an% separate from its in%ivi%ual stoc<hol%ers or members$ Being an officer or stoc<hol%er of a corporation %oes not ma<e one:s property the property also of the corporation# for they are separate entities 6+%elio Cru9 vs$ Kuiterio !alisay# 2(7 SCR+ '/78$ Ching:s act of Aoining as a co,petitioner )ith PBM in SEC Case No$ 77(0 %i% not vest in the SEC Auris%iction over his person or property# for Auris%iction %oes not %epen% on the consent or acts of the parties but upon e@press provision of la) 6&olentino vs$ Social Security System# 2C/ SCR+ '7/I Dee vs$ Municipal &rial Court of Degaspi City# Br$ I# 2'( SCR+ '0/8$ B?ERE5 RE# the petition for revie) is grante%$ &he %ecision of the Court of +ppeals in C+,-$R$ SP No$ 0C(1C is set asi%e$ Respon%ent Ju%ge of the Regional &rial Court in Pasay City is or%ere% to reinstate Civil Case No$ 207/,P an% to procee% therein against the private respon%ent +lfre%o Ching$ Costs against the private respon%ent$ S R!ERE!$ Republic of the Philippines SUPREME COURT Manila &?IR! !I"ISI N

G.R. No. 89252 M#3 21, 1993 RAUL SES0RE>O, petitioner# vs$ "ON. COURT O& APPEALS, DELTA MOTORS CORPORATION AND PILIPINAS 0AN., respon%ents$ 6alva, Villanueva & -ssociates for Delta :otors Corporation. Beyes, 6alazar & -ssociates for ,ilipinas ;an'.

&ELICIANO, J.: n 1 5ebruary 21/2# petitioner Raul SesbreRo ma%e a money mar<et placement in the amount of PC00#000$00 )ith the Philippine >n%er)riters 5inance Corporation 6=Philfinance=8# Cebu BranchI the placement# )ith a term of thirty,t)o 6C78 %ays# )oul% mature on 2C March 21/2# Philfinance# also on 1 5ebruary 21/2# issue% the follo)ing %ocuments to petitioner4 6a8 the Certificate of Confirmation of Sale# =)ithout recourse#= No$ 70'1. of one 628 !elta Motors Corporation Promissory Note 6=!MC PN=8 No$ 73C2 for a term of C7 %ays at 23$0F per annu!I 6b8 the Certificate of securities !elivery Receipt No$ 2.(/3 in%icating the sale of !MC PN No$ 73C2 to petitioner# )ith the notation that the sai% security )as in custo%ianship of Pilipinas Ban<# as per !enominate% Custo%ian Receipt 6=!CR=8 No$ 20/0( %ate% 1 5ebruary 21/2I an% 6c8 post,%ate% chec<s payable on 2C March 21/2 6i$e$# the maturity %ate of petitioner:s investment8# )ith petitioner as payee# Philfinance as %ra)er# an% Insular Ban< of +sia an% +merica as %ra)ee# in the total amount of PC0'#(CC$CC$ n 2C March 21/2# petitioner sought to encash the post%ate% chec<s issue% by Philfinance$ ?o)ever# the chec<s )ere %ishonore% for having been %ra)n against insufficient fun%s$

5arvasa, Cruz, Aancayco and :edialdea, <<., concur.

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n 7. March 21/2# Philfinance %elivere% to petitioner the !CR No$ 20/0( issue% by private respon%ent Pilipinas Ban< 6=Pilipinas=8$ It rea%s as follo)s4 PIDIPIN+S B+NJ Ma<ati Stoc< E@change Bl%g$# +yala +venue# Ma<ati# Metro Manila 5ebruary 1# 21/2 LLLLLLL "+D>E !+&E & Raul SesbreRo 21/2I that it ha% a face value of P7#C00#/CC$CC# )ith the Philfinance as =payee= an% private respon%ent !elta Motors Corporation 6=!elta=8 as =ma<erI= an% that on face of the promissory note )as stampe% =N N NE- &I+BDE$= Pilipinas %i% not %eliver the Note# nor any certificate of participation in respect thereof# to petitioner$ Petitioner later ma%e similar %eman% letters# %ate% C July 21/2 an% C +ugust 21/2# 2 again as<ing private respon%ent Pilipinas for physical %elivery of the original of !MC PN No$ 73C2$ Pilipinas allege%ly referre% all of petitioner:s %eman% letters to Philfinance for )ritten instructions# as has been suppose%ly agree% upon in =Securities Custo%ianship +greement= bet)een Pilipinas an% Philfinance$ Philfinance %i% not provi%e the appropriate instructionsI Pilipinas never release% !MC PN No$ 73C2# nor any other instrument in respect thereof# to petitioner$ Petitioner also ma%e a )ritten %eman% on 2' July 21/2 3 upon private respon%ent !elta for the partial satisfaction of !MC PN No$ 73C2# e@plaining that Philfinance# as payee thereof# ha% assigne% to him sai% Note to the e@tent of PC03#1CC$CC$ !elta# ho)ever# %enie% any liability to petitioner on the promissory note# an% e@plaine% in turn that it ha% previously agree% )ith Philfinance to offset its !MC PN No$ 73C2 6along )ith !MC PN No$ 73C08 against Philfinance PN No$ 2'C,+ issue% in favor of !elta$ In the meantime# Philfinance# on 2/ June 21/2# )as place% un%er the Aoint management of the Securities an% e@change commission 6=SEC=8 an% the Central Ban<$ Pilipinas %elivere% to the SEC !MC PN No$ 73C2# )hich to %ate apparently remains in the custo%y of the SEC$ 1 +s petitioner ha% faile% to collect his investment an% interest thereon# he file% on 7/ September 21/7 an action for %amages )ith the Regional &rial Court 6=R&C=8 of Cebu City# Branch 72# against private respon%ents !elta an% Pilipinas$ 5 &he trial court# in a %ecision %ate% ( +ugust 21/3# %ismisse% the complaint an% counterclaims for lac< of merit an% for lac< of cause of action# )ith costs against petitioner$ Petitioner appeale% to respon%ent Court of +ppeals in C$+$,-$R$ C" No$ 2(21($ In a !ecision %ate% 72 March 21/1# the Court of +ppeals %enie% the appeal an% hel%4 < Be that as it may# from the evi%ence on recor%# if there is anyone that appears liable for the travails of plaintiff,appellant# it is Philfinance$ +s correctly observe% by the trial court4 &his act of Philfinance in accepting the investment of plaintiff an% charging it against !MC PN No$ 73C2 )hen its entire face value )as alrea%y obligate% or earmar<e% for set,off or compensation is %ifficult to comprehen% an% may have been motivate% )ith ba% faith$ Philfinance# therefore# is solely an% legally obligate% to return the investment of plaintiff# together )ith its earnings# an% to ans)er all the %amages plaintiff has suffere% inci%ent thereto$ >nfortunately for plaintiff# Philfinance )as not implea%e% as one of the %efen%ants in this

+pril .# 21/2 LLLLLLLL M+&>RI&G !+&E N $ 20/0( !EN MIN+&E! C>S& !I+N RECEIP& &his confirms that as a %uly Custo%ian Ban<# an% upon instruction of P?IDIPPINE >N!ERBRI&ES 5IN+NCE C RP R+&I N# )e have in our custo%y the follo)ing securities to you NsicO the e@tent herein in%icate%$ SERI+D M+&$ 5+CE ISS>E! RE-IS&ERE! +M >N& N>MBER !+&E "+D>E BG ? D!ER P+GEE 73C2 ',.,/2 7#C00#/CC$C' !MC P?ID$ C03#1CC$CC >N!ERBRI&ERS 5IN+NCE C RP$ Be further certify that these securities may be inspecte% by you or your %uly authori9e% representative at any time %uring regular ban<ing hours$ >pon your )ritten instructions )e shall un%erta<e physical %elivery of the above securities fully assigne% to you shoul% this !enominate% Custo%ianship Receipt remain outstan%ing in your favor thirty 6C08 %ays after its maturity$ PIDIPIN+S B+NJ 6By Eli9abeth !e "illa Illegible Signature8 1 n 7 +pril 21/2# petitioner approache% Ms$ Eli9abeth %e "illa of private respon%ent Pilipinas# Ma<ati Branch# an% han%e% her a %eman% letter informing the ban< that his placement )ith Philfinance in the amount reflecte% in the !CR No$ 20/0( ha% remaine% unpai% an% outstan%ing# an% that he in effect )as as<ing for the physical %elivery of the un%erlying promissory note$ Petitioner then e@amine% the original of the !MC PN No$ 73C2 an% foun%4 that the security ha% been issue% on 20 +pril 21/0I that it )oul% mature on . +pril

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case at barI hence# this Court is )ithout Auris%iction to pronounce Au%gement against it$ 6p$ 22# !ecision8 B?ERE5 RE# fin%ing no reversible error in the %ecision appeale% from# the same is hereby affirme% in toto$ Cost against plaintiff,appellant$ Petitioner move% for reconsi%eration of the above !ecision# )ithout success$ ?ence# this Petition for Revie) on Certiorari$ +fter consi%eration of the allegations containe% an% issues raise% in the plea%ings# the Court resolve% to give %ue course to the petition an% re*uire% the parties to file their respective memoran%a$ 7 Petitioner reiterates the assignment of errors he %irecte% at the trial court %ecision# an% conten%s that respon%ent court of +ppeals gravely erre%4 6i8 in conclu%ing that he cannot recover from private respon%ent !elta his assigne% portion of !MC PN No$ 73C2I 6ii8 in failing to hol% private respon%ent Pilipinas soli%arily liable on the !MC PN No$ 73C2 in vie) of the provisions stipulate% in !CR No$ 20/0( issue% in favor r of petitioner# an% 6iii8 in refusing to pierce the veil of corporate entity bet)een Philfinance# an% private respon%ents !elta an% Pilipinas# consi%ering that the three 6C8 entities belong to the =Silverio -roup of Companies= un%er the lea%ership of Mr$ Ricar%o Silverio# Sr$ 8 &here are at least t)o 678 sets of relationships )hich )e nee% to a%%ress4 firstly# the relationship of petitioner vis3a3vis!eltaI secon%ly# the relationship of petitioner in respect of Pilipinas$ +ctually# of course# there is a thir% relationship that is of critical importance4 the relationship of petitioner an% Philfinance$ ?o)ever# since Philfinance has not been implea%e% in this case# neither the trial court nor the Court of +ppeals ac*uire% Auris%iction over the person of Philfinance$ It is# conse*uently# not necessary for present purposes to %eal )ith this thir% relationship# e@cept to the e@tent it necessarily impinges upon or intersects the first an% secon% relationships$ I$ Be consi%er first the relationship bet)een petitioner an% !elta$ &he Court of appeals in effect hel% that petitioner ac*uire% no rights vis3a3 vis !elta in respect of the !elta promissory note 6!MC PN No$ 73C28 )hich Philfinance sol% =)ithout recourse= to petitioner# to the e@tent of PC0'#(CC$CC$ &he Court of +ppeals sai% on this point4 Nor coul% plaintiff,appellant have ac*uire% any right over !MC PN No$ 73C2 as the same is =non,negotiable= as stampe% on its face 6E@hibit =.=8# negotiation being %efine% as the transfer of an instrument from one person to another so as to constitute the transferee the hol%er of the instrument 6Sec$ C0# Negotiable Instruments Da)8$ + person not a hol%er cannot sue on the instrument in his o)n name an% cannot %eman% or receive payment 6Section (2# id$8 9 Petitioner a%mits that !MC PN No$ 73C2 )as non,negotiable but conten%s that the Note ha% been vali%ly transferre%# in part to him by assignment an% that as a result of such transfer# !elta as %ebtor,ma<er of the Note# )as obligate% to pay petitioner the portion of that Note assigne% to him by the payee Philfinance$ !elta# ho)ever# %isputes petitioner:s contention an% argues4 628 that !MC PN No$ 73C2 )as not inten%e% to be negotiate% or other)ise transferre% by Philfinance as manifeste% by the )or% =non,negotiable= stamp across the face of the Note 10 an% because ma<er !elta an% payee Philfinance inten%e% that this Note )oul% be offset against the outstan%ing obligation of Philfinance represente% by Philfinance PN No$ 2'C,+ issue% to !elta as payeeI 678 that the assignment of !MC PN No$ 73C2 by Philfinance )as )ithout !elta:s consent# if not against its instructionsI an% 6C8 assuming 6ar uendo only8 that the partial assignment in favor of petitioner )as vali%# petitioner too< the Note subAect to the %efenses available to !elta# in particular# the offsetting of !MC PN No$ 73C2 against Philfinance PN No$ 2'C, +$ 11 Be consi%er !elta:s arguments seriati!$ 5irstly# it is important to bear in min% that the ne otiation of a negotiable instrument must be %istinguishe% from the assi n!ent or transfer of an instrument )hether that be negotiable or non,negotiable$ nly an instrument *ualifying as a negotiable instrument un%er the relevant statute may be ne otiated either by in%orsement thereof couple% )ith %elivery# or by %elivery alone )here the negotiable instrument is in bearer form$ + negotiable instrument may# ho)ever# instea% of being negotiate%# also be assi ned or transferred$ &he legal conse*uences of negotiation as %istinguishe% from assignment of a negotiable instrument are# of course# %ifferent$ + non,negotiable instrument may# obviously# not be negotiate%I but it may be assigne% or transferre%# absent an e@press prohibition against assignment or transfer )ritten in the face of the instrument4 &he )or%s 2not ne otiable,2 stampe% on the face of the bill of la%ing# did not destroy its assi nability # but the sole effect )as to e@empt the bill from the statutory provisions relative thereto# and a bill# though not ne otiable# !ay be transferred by assi n!entI the assignee ta<ing subAect to the e*uities bet)een the original parties$ 12 6Emphasis a%%e%8 !MC PN No$ 73C2# )hile mar<e% =non,negotiable#= )as not at the same time stampe% =non,transferable= or =non,assignable$= It containe% no stipulation )hich prohibite% Philfinance from assigning or transferring# in )hole or in part# that Note$ !elta a%%uce% the =Detter of +greement= )hich it ha% entere% into )ith Philfinance an% )hich shoul% be *uote% in full4

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+pril 20# 21/0 Philippine >n%er)riters 5inance Corp$ Benavi%e9 St$# Ma<ati# Metro Manila$ +ttention4 Mr$ +lfre%o S"P,&reasurer -EN&DEMEN4 &his refers to our outstan%ing placement of P'#.02#...$.3 as evi%ence% by your Promissory Note No$ 2'C,+# %ate% +pril 20# 21/0# to mature on +pril .# 21/2$ +s agree% upon# )e enclose our non,negotiable Promissory Note No$ 73C0 an% 73C2 for P7#000#000$00 each# %ate% +pril 20# 21/0# to be offsette% N sicO against your PN No$ 2'C,+ upon co,terminal maturity$ Please %eliver the procee%s of our PNs to our representative# Mr$ Eric Castillo$ "ery &ruly Gours# 6Sg%$8 5lorencio B$ Biagan Senior "ice Presi%ent 13 Be fin% nothing in his =Detter of +greement= )hich can be reasonably construe% as a prohibition upon Philfinance assigning or transferring all or part of !MC PN No$ 73C2# before the maturity thereof$ It is scarcely necessary to a%% that# even ha% this =Detter of +greement= set forth an e@plicit prohibition of transfer upon Philfinance# such a prohibition cannot be invo<e% against an assignee or transferee of the Note )ho parte% )ith valuable consi%eration in goo% faith an% )ithout notice of such prohibition$ It is not %ispute% that petitioner )as such an assignee or transferee$ ur conclusion on this point is reinforce% by the fact that )hat Philfinance an% !elta )ere %oing by their e@change of their promissory notes )as this4 !elta investe%# by ma<ing a money mar<et placement )ith Philfinance# appro@imately P'#.00#000$00 on 20 +pril 21/0I but promptly# on the same %ay# borro)e% bac< the bul< of that placement# i$e$# P'#000#000$00# by issuing its t)o 678 promissory notes4 !MC PN No$ 73C0 an% !MC PN No$ 73C2# both also %ate% 20 +pril 21/0$ &hus# Philfinance )as left )ith not P'#.00#000$00 but only P.00#000$00 in cash an% the t)o 678 !elta promissory notes$ -propos !elta:s complaint that the partial assignment by Philfinance of !MC PN No$ 73C2 ha% been effecte% )ithout the consent of !elta# )e note that such consent )as not necessary for the vali%ity an% enforceability of the assignment in favor of petitioner$ 11 !elta:s argument that Philfinance:s sale or assignment of part of its rights to !MC PN No$ 73C2 constitute% conventional subrogation# )hich re*uire% its 6!elta:s8 consent# is *uite mista<en$ Conventional $ Banaria subrogation# )hich in the first place is never lightly inferre%# 15 must be clearly establishe% by the une*uivocal terms of the substituting obligation or by the evi%ent incompatibility of the ne) an% ol% obligations on every point$ 1< Nothing of the sort is present in the instant case$ It is in fact %ifficult to be impresse% )ith !elta:s complaint# since it release% its !MC PN No$ 73C2 to Philfinance# an entity engage% in the business of buying an% selling %ebt instruments an% other securities# an% more generally# in money mar<et transactions$ In ,erez v. Court of -ppeals# 17 the Court# spea<ing through Mme$ Justice ?errera# ma%e the follo)ing important statement4 &here is another aspect to this case$ Bhat is involve% here is a money mar<et transaction$ +s %efine% by Da)rence Smith =the money mar<et is a mar<et %ealing in stan%ar%i9e% short,term cre%it instruments 6involving large amounts8 )here len%ers an% borro)ers %o not %eal %irectly )ith each other but through a mi%%le manor a %ealer in the open mar<et$= It involves =commercial papers= )hich are instruments =evi%encing in%ebtness of any person or entity$ $ $# )hich are issue%# en%orse%# sol% or transferre% or in any manner conveye% to another person or entity# )ith or )ithout recourse=$ &he fun%amental function of the money mar<et %evice in its operation is to match an% bring together in a most impersonal manner both the =fun% users= an% the =fun% suppliers$= The !oney !ar'et is an 2i!personal !ar'et2, free fro! personal considerations. 2The !ar'et !echanis! is intended to provide #uic' !obility of !oney and securities.2 &he impersonal character of the money mar<et %evice overloo<s the in%ivi%uals or entities concerne%$ The issuer of a co!!ercial paper in the !oney !ar'et necessarily 'nows in advance that it would be e&penditiously transacted and transferred to any investorElender without need of notice to said issuer. "n practice, no notification is iven to the borrower or issuer of co!!ercial paper of the sale or transfer to the investor. @@@ @@@ @@@ &here is nee% to in%ivi%uate a money mar<et transaction# a relatively novel institution in the Philippine commercial scene$ "t has been intended to facilitate the flow and ac#uisition of capital on an i!personal basis. +n% as specifically re*uire% by Presi%ential !ecree No$ .3/# the investin public !ust be iven ade#uate and effective protection in availin of the credit of a borrower in the co!!ercial paper !ar'et. 18 6Citations omitte%I emphasis supplie%8 Be turn to !elta:s arguments concerning allege% compensation or offsetting bet)een !MC PN No$ 73C2 an% Philfinance PN No$ 2'C,+$ It is important to note that at the ti!e ,hilfinance sold part of its ri hts under D:C ,5 5o. />1= to petitioner on C 8ebruary =CF=, no co!pensation had as yet ta'en place and indeed none could have ta'en place. &he essential re*uirements of compensation are liste% in the Civil Co%e as follo)s4 +rt$ 2731$ In or%er that compensation may be proper# it is necessary4

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628 &hat each one of the obli ors be bound principally, and that he be at the sa!e ti!e a principal creditor of the other+ 678 &hat both %ebts consists in a sum of money# or if the things %ue are consumable# they be of the same <in%# an% also of the same *uality if the latter has been state%I 6C8 That the two debts are due+ 6'8 &hat they be li*ui%ate% an% %eman%ableI 6(8 &hat over neither of them there be any retention or controversy# commence% by thir% persons an% communicate% in %ue time to the %ebtor$ 6Emphasis supplie%8 n 1 5ebruary 21/2# neither !MC PN No$ 73C2 nor Philfinance PN No$ 2'C,+ )as %ue$ &his )as e@plicitly recogni9e% by !elta in its 20 +pril 21/0 =Detter of +greement= )ith Philfinance# )here !elta ac<no)le%ge% that the relevant promissory notes )ere =to be offsette% 6sic8 against NPhilfinanceO PN No$ 2'C, + upon co3ter!inal !aturity$= +s note%# the assignment to petitioner )as ma%e on 1 5ebruary 21/2 or from forty,nine 6'18 %ays before the =co,terminal maturity= %ate# that is to say# before any compensation ha% ta<en place$ 5urther# the assignment to petitioner )oul% have prevente% compensation ha% ta<en place bet)een Philfinance an% !elta# to the e@tent of PC0'#(CC$CC# because upon e@ecution of the assignment in favor of petitioner# Philfinance an% !elta )oul% have cease% to be cre%itors an% %ebtors of each other in their o)n right to the e@tent of the amount assigne% by Philfinance to petitioner$ &hus# )e conclu%e that the assignment effecte% by Philfinance in favor of petitioner )as a vali% one an% that petitioner accor%ingly became o)ner of !MC PN No$ 73C2 to the e@tent of the portion thereof assigne% to him$ &he recor% sho)s# ho)ever# that petitioner notifie% !elta of the fact of the assignment to him only on 2' July 21/2# 19that is# after the maturity not only of the money mar<et placement ma%e by petitioner but also of both !MC PN No$ 73C2 an% Philfinance PN No$ 2'C,+$ In other )or%s# petitioner notified Delta of his ri hts as assi nee after co!pensation had ta'en place by operation of law because the offsettin instru!ents had both reached !aturity $ It is a firmly settle% %octrine that the rights of an assignee are not any greater that the rights of the assignor# since the assignee is merely substitute% in the place of the assignor 20 an% that the assignee ac*uires his rights subAect to the e*uities L i$e$# the %efenses L )hich the %ebtor coul% have set up against the original assignor before notice of the assignment )as given to the %ebtor$ +rticle 27/( of the Civil Co%e provi%es that4 +rt$ 27/($ &he %ebtor )ho has consente% to the assignment of rights ma%e by a cre%itor in favor of a thir% person# cannot set up against the assignee the compensation )hich )oul% pertain to him against the assignor# unless the assignor )as notifie% by the %ebtor at the time he gave his consent# that he reserve% his right to the compensation$ If the cre%itor communicate% the cession to him but the debtor did not consent thereto# the latter !ay set up the co!pensation of debts previous to the cession# but not of subse*uent ones$ If the assi n!ent is ma%e without the 'nowled e of the debtor, he !ay set up the co!pensation of all credits prior to the same an% also later ones until he ha% 'nowled e of the assi n!ent$ 6Emphasis supplie%8 +rticle 2.7. of the same co%e states that4 =the %ebtor )ho# before having <no)le%ge of the assignment# pays his cre%itor shall be release% from the obligation$= In 6ison v$ Gap3Tico# 21 the Court e@plaine% that4 NnOo man is boun% to remain a %ebtorI he may pay to him )ith )hom he contacte% to payI an% if he pay before notice that his %ebt has been assigne%# the la) hol%s him e@onerate%# for the reason that it is the %uty of the person )ho has ac*uire% a title by transfer to %eman% payment of the %ebt# to give his %ebt or notice$ 22 +t the time that !elta )as first put to notice of the assignment in petitioner:s favor on 2' July 21/2# !MC PN No$ 73C2 ha% alrea%y been %ischarge% by compensation$ Since the assignor Philfinance coul% not have then compelle% payment ane) by !elta of !MC PN No$ 73C2# petitioner# as assignee of Philfinance# is similarly %isable% from collecting from !elta the portion of the Note assigne% to him$ It bears some emphasis that petitioner coul% have notifie% !elta of the assignment or sale )as effecte% on 1 5ebruary 21/2$ ?e coul% have notifie% !elta as soon as his money mar<et placement mature% on 2C March 21/2 )ithout payment thereof being ma%e by PhilfinanceI at that time# compensation ha% yet to set in an% %ischarge !MC PN No$ 73C2$ +gain petitioner coul% have notifie% !elta on 7. March 21/2 )hen petitioner receive% from Philfinance the !enominate% Custo%ianship Receipt 6=!CR=8 No$ 20/0( issue% by private respon%ent Pilipinas in favor of petitioner$ Petitioner coul%# in fine# have notifie% !elta at any time before the maturity %ate of !MC PN No$ 73C2$ Because petitioner faile% to %o so# an% because the recor% is bare of any in%ication that Philfinance ha% itself notifie% !elta of the assignment to petitioner# the Court is compelle% to uphol% the %efense of compensation raise% by private respon%ent !elta$ f course# Philfinance remains liable to petitioner un%er the terms of the assignment ma%e by Philfinance to petitioner$ II$ Be turn no) to the relationship bet)een petitioner an% private respon%ent Pilipinas$ Petitioner conten%s that Pilipinas became soli%arily liable )ith Philfinance an% !elta )hen Pilipinas issue% !CR No$ 20/0( )ith the follo)ing )or%s4

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>pon your )ritten instruction# )e NPilipinasO shall underta'e physical %elivery of the above securities fully assi ned to you L$ 23 &he Court is not persua%e%$ Be fin% nothing in the !CR that establishes an obligation on the part of Pilipinas to pay petitioner the amount of PC03#1CC$CC nor any assumption of liability in solidu! )ith Philfinance an% !elta un%er !MC PN No$ 73C2$ Be rea% the !CR as a confirmation on the part of Pilipinas that4 628 it has in its custo%y# as %uly constitute% custo%ian ban<# !MC PN No$ 73C2 of a certain face value# to mature on . +pril 21/2 an% payable to the or%er of PhilfinanceI 678 ,ilipinas was# from an% after sai% %ate of the assignment by Philfinance to petitioner 61 5ebruary 21/28# holdin that 5ote on behalf and for the benefit of petitioner, at least to the e&tent it had been assi ned to petitioner by payee ,hilfinanceI 21 6C8 petitioner may inspect the Note either =personally or by authori9e% representative=# at any time %uring regular ban< hoursI an% 6'8 upon written instructions of petitioner, ,ilipinas would physically deliver the D:C ,5 5o. />1= )or a participation therein to the e&tent of ,10>,C11.11* =shoul% this !enominate% Custo%ianship receipt remain outstan%ing in Npetitioner:sO favor thirty 6C08 %ays after its maturity$= &hus# )e fin% nothing )ritten in printers in< on the !CR )hich coul% reasonably be rea% as converting Pilipinas into an obligor un%er the terms of !MC PN No$ 73C2 assigne% to petitioner# either upon maturity thereof or any other time$ Be note that both in his complaint an% in his testimony before the trial court# petitioner referre% merely to the obligation of private respon%ent Pilipinas to effect the physical %elivery to him of !MC PN No$ 73C2$ 25 +ccor%ingly# petitioner:s theory that Pilipinas ha% assume% a soli%ary obligation to pay the amount represente% by a portion of the Note assigne% to him by Philfinance# appears to be a ne) theory constructe% only after the trial court ha% rule% against him$ &he soli%ary liability that petitioner see<s to impute Pilipinas cannot# ho)ever# be lightly inferre%$ >n%er article 2703 of the Civil Co%e# =there is a soli%ary liability only )hen the la) or the nature of the obligation re*uires soli%arity#= &he recor% here e@hibits no e@press assumption of soli%ary liability vis3a3vis petitioner# on the part of Pilipinas$ Petitioner has not pointe% to us to any la) )hich impose% such liability upon Pilipinas nor has petitioner argue% that the very nature of the custo%ianship assume% by private respon%ent Pilipinas necessarily implies soli%ary liability un%er the securities# custo%y of )hich )as ta<en by Pilipinas$ +ccor%ingly# )e are unable to hol% Pilipinas soli%arily liable )ith Philfinance an% private respon%ent !elta un%er !MC PN No$ 73C2$ Be %o not# ho)ever# mean to suggest that Pilipinas has no responsibility an% liability in respect of petitioner un%er the terms of the !CR$ &o the contrary# )e fin%# after prolonge% analysis an% %eliberation# that private respon%ent Pilipinas ha% breache% its un%erta<ing un%er the !CR to petitioner SesbreRo$ Be believe an% so hol% that a contract of %eposit )as constitute% by the act of Philfinance in %esignating Pilipinas as custo%ian or %epositary ban<$ &he %epositor )as initially PhilfinanceI the obligation of the %epository )as o)e%# ho)ever# to petitioner SesbreRo as beneficiary of the custo%ianship or %epository agreement$ Be %o not consi%er that this is a simple case of a stipulation pour autri$ &he custo%ianship or %epositary agreement )as establishe% as an integral part of the money mar<et transaction entere% into by petitioner )ith Philfinance$ Petitioner bought a portion of !MC PN No$ 73C2I Philfinance as assignor,ven%or %eposite% that Note )ith Pilipinas in or%er that the thing sol% )oul% be place% outsi%e the control of the ven%or$ In%ee%# the constituting of the %epositary or custo%ianship agreement )as e*uivalent to constructive %elivery of the Note 6to the e@tent it ha% been sol% or assigne% to petitioner8 to petitioner$ It )ill be seen that custo%ianship agreements are %esigne% to facilitate transactions in the money mar<et by provi%ing a basis for confi%ence on the part of the investors or placers that the instruments bought by them are effectively ta<en out of the poc<et# as it )ere# of the ven%ors an% place% safely beyon% their reach# that those instruments )ill be there available to the placers of fun%s shoul% they have nee% of them$ &he %epositary in a contract of %eposit is oblige% to return the security or the thing %eposite% upon %eman% of the %epositor 6or# in the presente% case# of the beneficiary8 of the contract# even though a term for such return may have been establishe% in the sai% contract$ 2< +ccor%ingly# any stipulation in the contract of %eposit or custo%ianship that runs counter to the fun%amental purpose of that agreement or )hich )as not brought to the notice of an% accepte% by the placer, beneficiary# cannot be enforce% as against such beneficiary,placer$ Be believe that the position ta<en above is supporte% by consi%erations of public policy$ If there is any party that nee%s the e*uali9ing protection of the la) in money mar<et transactions# it is the members of the general public )hom place their savings in such mar<et for the purpose of generating interest revenues$ 27 &he custo%ian ban<# if it is not relate% either in terms of e*uity o)nership or management control to the borro)er of the fun%s# or the commercial paper %ealer# is normally a preferre% or tra%itional ban<er of such borro)er or %ealer 6here# Philfinance8$ &he custo%ian ban< )oul% have every incentive to protect the interest of its client the borro)er or %ealer as against the placer of fun%s$ &he provi%ers of such fun%s must be safeguar%e% from the impact of stipulations privately ma%e bet)een the borro)ers or %ealers an% the custo%ian ban<s# an% %isclose% to fun%,provi%ers only after trouble has erupte%$ In the case at bar# the custo%ian,%epositary ban< Pilipinas refuse% to %eliver the security %eposite% )ith it )hen petitioner first %eman%e% physical %elivery thereof on 7 +pril 21/2$ Be must again note# in this connection# that on 7 +pril 21/2# !MC PN No$ 73C2 ha% not yet mature% an% therefore# compensation or offsetting against Philfinance PN No$ 2'C,+ ha% not yet ta<en place$ Instea% of complying )ith the %eman% of the petitioner# Pilipinas purporte% to re*uire an% a)ait the instructions of Philfinance# in obvious contravention of its un%erta<ing un%er the !CR to effect physical %elivery of the Note upon receipt of =)ritten instructions= from petitioner 6esbreDo$ &he ostensible term )ritten

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into the !CR 6i$e$# =shoul% this N!CRO remain outstan%ing in your favor thirty NC0O %ays after its maturity=8 )as not a %efense against petitioner:s %eman% for physical surren%er of the Note on at least three groun%s4 firstly# such term )as never brought to the attention of petitioner SesbreRo at the time the money mar<et placement )ith Philfinance )as ma%eI secon%ly# such term runs counter to the very purpose of the custo%ianship or %epositary agreement as an integral part of a money mar<et transactionI an% thir%ly# it is inconsistent )ith the provisions of +rticle 21// of the Civil Co%e note% above$ In%ee%# in principle# petitioner became entitle% to %eman% physical %elivery of the Note hel% by Pilipinas as soon as petitioner:s money mar<et placement mature% on 2C March 21/2 )ithout payment from Philfinance$ Be conclu%e# therefore# that private respon%ent Pilipinas must respon% to petitioner for %amages sustaine% by arising out of its breach of %uty$ By failing to %eliver the Note to the petitioner as %epositor,beneficiary of the thing %eposite%# Pilipinas effectively an% unla)fully %eprive% petitioner of the Note %eposite% )ith it$ Bhether or not Pilipinas itself benefitte% from such conversion or unla)ful %eprivation inflicte% upon petitioner# is of no moment for present purposes$,ri!a facie# the %amages suffere% by petitioner consiste% of PC0'#(CC$CC# the portion of the !MC PN No$ 73C2 assigne% to petitioner but lost by him by reason of %ischarge of the Note by compensation# plus legal interest of si@ percent 6.F8 per annu! containing from 2' March 21/2$ &he conclusion )e have reache% is# of course# )ithout preAu%ice to such right of reimbursement as Pilipinas may havevis3a3vis Philfinance$ personalities of %elta an% Pilipinas an% to hol% them liable for any assume% or un%etermine% liability of Philfinance to petitioner$ 28 B?ERE5 RE# for all the foregoing# the !ecision an% Resolution of the Court of +ppeals in C$+$,-$R$ C" No$ 2(21( %ate% 72 march 21/1 an% 23 July 21/1# respectively# are hereby M !I5IE! an% SE& +SI!E# to the e@tent that such !ecision an% Resolution ha% %ismisse% petitioner:s complaint against Pilipinas Ban<$ Private respon%ent Pilipinas ban< is hereby R!ERE! to in%emnify petitioner for %amages in the amount of PC0'#(CC$CC# plus legal interest thereon at the rate of si@ percent 6.F8 per annu! counte% from 7 +pril 21/2$ +s so mo%ifie%# the !ecision an% Resolution of the Court of +ppeals are hereby +55IRME!$ No pronouncement as to costs$ S R!ERE!$

;idin, Davide, <r., Bo!ero and :elo, <<., concur.

III$ &he thir% principal contention of petitioner L that Philfinance an% private respon%ents !elta an% Pilipinas shoul% be treate% as one corporate entity L nee% not %etain us for long$ In the first place# as alrea%y note%# Auris%iction over the person of Philfinance )as never ac*uire% either by the trial court nor by the respon%ent Court of +ppeals$ Petitioner similarly %i% not see< to implea% Philfinance in the Petition before us$ Secon%ly# it is not %ispute% that Philfinance an% private respon%ents !elta an% Pilipinas have been organi9e% as separate corporate entities$ Petitioner as<s us to pierce their separate corporate entities# but has been able only to cite the presence of a common !irector L Mr$ Ricar%o Silverio# Sr$# sitting on the Boar% of !irectors of all three 6C8 companies$ Petitioner has neither allege% nor prove% that one or another of the three 6C8 conce%e%ly relate% companies use% the other t)o 678 as mere alter e os or that the corporate affairs of the other t)o 678 )ere a%ministere% an% manage% for the benefit of one$ &here is simply not enough evi%ence of recor% to Austify %isregar%ing the separate corporate Republic of the Philippines SUPREME COURT Manila SEC N! !I"ISI N G.R. No. L210821 &+-r4#r3 23, 1989 GO'ERNMENT SER'ICE INSURANCE S STEM, petitioner# vs$ COURT O& APPEALS #$% MR. ? MRS. ISA0ELO R. RAC"O, respon%ents$ The Aovern!ent Corporate Counsel for petitioner. Lorenzo -. 6ales for private respondents.

REGALADO , J.:

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Negotiable Instruments Cases | Sylver Jan Baluno Prior

Private respon%ents# Mr$ an% Mrs$ Isabelo R$ Racho# together )ith the spouses Mr$ an% Mrs 5laviano Dagasca# e@ecute% a %ee% of mortgage# %ate% November 2C# 21(3# in favor of petitioner -overnment Service Insurance System 6hereinafter referre% to as -SIS8 an% subse*uently# another %ee% of mortgage# %ate% +pril 2'# 21(/# in connection )ith t)o loans grante% by the latter in the sums of P 22#(00$00 an% P C#000$00# respectively$ 1 + parcel of lan% covere% by &ransfer Certificate of &itle No$ C/1/1 of the Register of !ee% of Kue9on City# co,o)ne% by sai% mortgagor spouses# )as given as security un%er the aforesai% t)o %ee%s$ 2 &hey also e@ecute% a :promissory note= )hich states in part4 $$$ for value receive%# )e the un%ersigne% $$$ J IN&DG# SE"ER+DDG an% S DI!+RIDG# promise to pay the - "ERNMEN& SER"ICE INS>R+NCE SGS&EM the sum of $ $ $ 6P 22#(00$008 Philippine Currency# )ith interest at the rate of si@ 6.F8 per centum compoun%e% monthly payable in $ $ $ 62708e*ual monthly installments of $ $ $ 6P 273$.(8 each$ 3 n July 22# 21.2# the Dagasca spouses e@ecute% an instrument %enominate% =+ssumption of Mortgage= un%er )hich they obligate% themselves to assume the aforesai% obligation to the -SIS an% to secure the release of the mortgage covering that portion of the lan% belonging to herein private respon%ents an% )hich )as mortgage% to the -SIS$ 1 &his un%erta<ing )as not fulfille%$ 5 >pon failure of the mortgagors to comply )ith the con%itions of the mortgage# particularly the payment of the amorti9ations %ue# -SIS e@traAu%icially foreclose% the mortgage an% cause% the mortgage% property to be sol% at public auction on !ecember C# 21.7$ < More than t)o years thereafter# or on +ugust 7C# 21.(# herein private respon%ents file% a complaint against the petitioner an% the Dagasca spouses in the former Court of 5irst Instance of Kue9on City# 7 praying that the e@traAu%icial foreclosure =ma%e on# their property an% all other %ocuments e@ecute% in relation thereto in favor of the -overnment Service Insurance System= be %eclare% null an% voi%$ It )as further praye% that they be allo)e% to recover sai% property# an%Eor the -SIS be or%ere% to pay them the value thereof# an%Eor they be allo)e% to repurchase the lan%$ +%%itionally# they as<e% for actual an% moral %amages an% attorney:s fees$ In their aforesai% complaint# private respon%ents allege% that they signe% the mortgage contracts not as sureties or guarantors for the Dagasca spouses but they merely gave their common property to the sai% co,o)ners )ho )ere solely benefite% by the loans from the -SIS$ &he trial court ren%ere% Au%gment on 5ebruary 7(# 21./ %ismissing the complaint for failure to establish a cause of action$ 8 Sai% %ecision )as reverse% by the respon%ent Court of +ppeals that4
9

$$$ although formally they are co,mortgagors# they are so only for accomo%ation 6sic8 in that the -SIS re*uire% their consent to the mortgage of the entire parcel of lan% )hich )as covere% )ith only one certificate of title# )ith full <no)le%ge that the loans secure% thereby )ere solely for the benefit of the appellant 6sic8 spouses )ho alone applie% for the loan$ @@@@ :It is# therefore# clear that as against the -SIS# appellants have a vali% cause for having foreclose% the mortgage )ithout having given sufficient notice to them as re*uire% either as to their %elin*uency in the payment of amorti9ation or as to the subse*uent foreclosure of the mortgage by reason of any %efault in such payment$ &he notice publishe% in the ne)spaper# :!aily Recor% 6E@h$ 278 an% poste% pursuant to Sec C of +ct C2C( is not the notice to )hich the mortgagor is entitle% upon the application being ma%e for an e@traAu%icial foreclosure$ $$$ 10 n the foregoing fin%ings# the respon%ent court conse*uently %ecree% that, In vie) of all the foregoing# the Au%gment appeale% from is hereby reverse%# an% another one entere% 628 %eclaring the foreclosure of the mortgage voi% insofar as it affects the share of the appellantsI 678 %irecting the -SIS to reconvey to appellants their share of the mortgage% property# or the value thereof if alrea%y sol% to thir% party# in the sum of P C(#000$00# an% 6C8 or%ering the appellees 5laviano Dagasca an% Esther Dagasca to pay the appellants the sum of P 20#00$00 as moral %amages# P (#000$00 as attorney:s fees# an% costs$ 11 &he case is no) before us in this petition for revie)$ In submitting their case to this Court# both parties relie% on the provisions of Section 71 of +ct No$ 70C2# other)ise <no)n as the Negotiable Instruments Da)# )hich provi%e that an accommo%ation party is one )ho has signe% an instrument as ma<er# %ra)er# acceptor of in%orser )ithout receiving value therefor# but is hel% liable on the instrument to a hol%er for value although the latter <ne) him to be only an accommo%ation party$ &his approach of both parties appears to be mis%irecte% an% their reliance misplace%$ &he promissory note hereinbefore *uote%# as )ell as the mortgage %ee%s subAect of this case# are clearly not negotiable instruments$ &hese %ocuments %o not comply )ith the fourth re*uisite to be consi%ere% as such un%er Section 2 of +ct No$ 70C2 because they are neither payable to or%er nor to bearer$ &he note is payable to a specifie% party# the -SIS$ +bsent the aforesai% re*uisite# the provisions of +ct No$ 70C2 )oul% not applyI governance shall be affor%e%# instea%# by the provisions of the Civil Co%e an% special la)s on mortgages$ +s earlier in%icate%# the factual fin%ings of respon%ent court are that private respon%ents signe% the %ocuments =only to give their consent to the mortgage as re*uire% by -SIS=# )ith the latter having full <no)le%ge that the loans

)hich hel%

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secure% thereby )ere solely for the benefit of the Dagasca spouses$ 12 &his appears to be %uly supporte% by sufficient evi%ence on recor%$ In%ee%# it )oul% be unusual for the -SIS to arrange for an% %e%uct the monthly amorti9ations on the loans from the salary as an army officer of 5laviano Dagasca )ithout li<e)ise affecting %e%uctions from the salary of Isabelo Racho )ho )as also an army sergeant$ &hen there is also the un%ispute% fact# as alrea%y state%# that the Dagasca spouses e@ecute% a so,calle% =+ssumption of Mortgage= promising to e@clu%e private respon%ents an% their share of the mortgage% property from liability to the mortgagee$ &here is no intimation that the former e@ecute% such instrument for a consi%eration# thus confirming that they %i% so pursuant to their original agreement$ &he parol evi%ence rule 13 cannot be use% by petitioner as a shiel% in this case for it is clear that there )as no obAection in the court belo) regar%ing the a%missibility of the testimony an% %ocuments that )ere presente% to prove that the private respon%ents signe% the mortgage papers Aust to accommo%ate their co,o)ners# the Dagasca spouses$ Besi%es# the intro%uction of such evi%ence falls un%er the e@ception to sai% rule# there being allegations in the complaint of private respon%ents in the court belo) regar%ing the failure of the mortgage contracts to e@press the true agreement of the parties$ 11 ?o)ever# contrary to the hol%ing of the respon%ent court# it cannot be sai% that private respon%ents are )ithout liability un%er the aforesai% mortgage contracts$ &he factual conte@t of this case is precisely )hat is contemplate% in the last paragraph of +rticle 70/( of the Civil Co%e to the effect that thir% persons )ho are not parties to the principal obligation may secure the latter by ple%ging or mortgaging their o)n property So long as vali% consent )as given# the fact that the loans )ere solely for the benefit of the Dagasca spouses )oul% not invali%ate the mortgage )ith respect to private respon%ents: share in the property$ In consenting thereto# even assuming that private respon%ents may not be assuming personal liability for the %ebt# their share in the property shall nevertheless secure an% respon% for the performance of the principal obligation$ &he parties to the mortgage coul% not have inten%e% that the same )oul% apply only to the ali*uot portion of the Dagasca spouses in the property# other)ise the consent of the private respon%ents )oul% not have been re*uire%$ &he suppose% re*uirement of prior %eman% on the private respon%ents )oul% not be in point here since the mortgage contracts create% obligations )ith specific terms for the compliance thereof$ &he facts further sho) that the private respon%ents e@pressly boun% themselves as soli%ary %ebtors in the promissory note hereinbefore *uote%$ Coming no) to the e@traAu%icial foreclosure effecte% by -SIS# Be cannot agree )ith the ruling of respon%ent court that lac< of notice to the private respon%ents of the e@traAu%icial foreclosure sale impairs the vali%ity thereof$ In;onnevie, et al. vs. Court of appeals, et al., 15 the Court rule% that +ct No$ Republic of the Philippines SUPREME COURT Manila SEC N! !I"ISI N C2C(# as amen%e%# %oes not re*uire personal notice on the mortgagor# *uoting the re*uirement on notice in such cases as follo)s4 Section C$ Notice shall be given by posting notices of sale for not less than t)enty %ays in at least three public places of the municipality )here the property is situate%# an% if such property is )orth more than four hun%re% pesos# such notice shall also be publishe% once a )ee< for at least three consecutive )ee<s in a ne)spaper of general circulation in the municipality or city$ &here is no sho)ing that the foregoing re*uirement on notice )as not complie% )ith in the foreclosure sale complaine% of $ &he respon%ent court# therefore# erre% in annulling the mortgage insofar as it affecte% the share of private respon%ents or in %irecting reconveyance of their property or the payment of the value thereof In%ubitably# )hether or not private respon%ents herein benefite% from the loan# the mortgage an% the e@traAu%icial foreclosure procee%ings )ere vali%$ B?ERE5 RE# Au%gment is hereby ren%ere% RE"ERSIN- the %ecision of the respon%ent Court of +ppeals an% REINS&+&IN- the %ecision of the court a #uo in Civil Case No$ K,1'2/ thereof$ S R!ERE!$

Melencio,?errera 6Chairperson8# Paras# Pa%illa an% Sarmiento# JJ$# concur$

G.R. No. 97753 A4=475 10, 1992

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Negotiable Instruments Cases | Sylver Jan Baluno Prior

CALTE: @P"ILIPPINESA, INC., petitioner# vs$ COURT O& APPEALS #$% SECURIT 0AN. AND TRUST COMPAN , respon%ents$ ;ito, Lozada, Orte a & Castillo for petitioners. 5epo!uceno, 4ofileDa & Auin ona for private. C$ Sometime in March 21/7# +ngel %ela Cru9 informe% Mr$ &imoteo &iangco# the Sucat Branch Manger# that he lost all the certificates of time %eposit in %ispute$ Mr$ &iangco a%vise% sai% %epositor to e@ecute an% submit a notari9e% +ffi%avit of Doss# as re*uire% by %efen%ant ban<:s proce%ure# if he %esire% replacement of sai% lost C&!s 6&SN# 5ebruary 1# 21/3# pp$ '/,(08$ '$ n March 2/# 21/7# +ngel %ela Cru9 e@ecute% an% %elivere% to %efen%ant ban< the re*uire% +ffi%avit of Doss 6!efen%ant:s E@hibit 7/28$ n the basis of sai% affi%avit of loss# 7/0 replacement C&!s )ere issue% in favor of sai% %epositor 6!efen%ant:s E@hibits 7/7,(.28$ ($ n March 7(# 21/7# +ngel %ela Cru9 negotiate% an% obtaine% a loan from %efen%ant ban< in the amount of Eight ?un%re% Seventy 5ive &housan% Pesos 6P/3(#000$008$ n the same %ate# sai% %epositor e@ecute% a notari9e% !ee% of +ssignment of &ime !eposit 6E@hibit (.78 )hich state%# among others# that he 6%e la Cru98 surren%ers to %efen%ant ban< =full control of the in%icate% time %eposits from an% after %ate= of the assignment an% further authori9es sai% ban< to pre,terminate# set,off an% =apply the sai% time %eposits to the payment of )hatever amount or amounts may be %ue= on the loan upon its maturity 6&SN# 5ebruary 1# 21/3# pp$ .0,.78$ .$ Sometime in November# 21/7# Mr$ +ranas# Cre%it Manager of plaintiff Calte@ 6Phils$8 Inc$# )ent to the %efen%ant ban<:s Sucat branch an% presente% for verification the C&!s %eclare% lost by +ngel %ela Cru9 alleging that the same )ere %elivere% to herein plaintiff =as security for purchases ma%e )ith Calte@ Philippines# Inc$= by sai% %epositor 6&SN# 5ebruary 1# 21/3# pp$ (',./8$ 3$ n November 7.# 21/7# %efen%ant receive% a letter 6!efen%ant:s E@hibit (.C8 from herein plaintiff formally informing it of its possession of the C&!s in *uestion an% of its %ecision to pre,terminate the same$ /$ n !ecember /# 21/7# plaintiff )as re*ueste% by herein %efen%ant to furnish the former =a copy of the %ocument evi%encing the guarantee agreement )ith Mr$ +ngel %ela Cru9= as )ell as =the %etails of Mr$ +ngel %ela Cru9= obligation against )hich plaintiff propose% to apply the time %eposits 6!efen%ant:s E@hibit (.'8$ 1$ No copy of the re*ueste% %ocuments )as furnishe% herein %efen%ant$ 20$ +ccor%ingly# %efen%ant ban< reAecte% the plaintiff:s %eman% an% claim for payment of the value of the C&!s in a letter %ate% 5ebruary 3# 21/C 6!efen%ant:s E@hibit (..8$ 22$ In +pril 21/C# the loan of +ngel %ela Cru9 )ith the %efen%ant ban< mature% an% fell %ue an% on +ugust (# 21/C# the latter set,off an% applie% the time %eposits in *uestion to the payment of the mature% loan 6&SN# 5ebruary 1# 21/3# pp$ 2C0,2C28$ 27$ In vie) of the foregoing# plaintiff file% the instant complaint# praying that %efen%ant ban< be or%ere% to pay it the aggregate value of the certificates of

REGALADO, J.: &his petition for revie) on certiorari impugns an% see<s the reversal of the %ecision promulgate% by respon%ent court on March /# 2112 in C+,-$R$ C" No$ 7C.2( 1 affirming )ith mo%ifications# the earlier %ecision of the Regional &rial Court of Manila# Branch HDII# 2 )hich %ismisse% the complaint file% therein by herein petitioner against respon%ent ban<$ &he un%ispute% bac<groun% of this case# as foun% by the court a #uo an% a%opte% by respon%ent court# appears of recor%4 2$ n various %ates# %efen%ant# a commercial ban<ing institution# through its Sucat Branch issue% 7/0 certificates of time %eposit 6C&!s8 in favor of one +ngel %ela Cru9 )ho %eposite% )ith herein %efen%ant the aggregate amount of P2#270#000$00# as follo)s4 6Joint Partial Stipulation of 5acts an% Statement of Issues# riginal Recor%s# p$ 703I !efen%ant:s E@hibits 2 to 7/08I CTD Dates 6erial 5os. Huantity -!ount 77 5eb$ /7 7. 5eb$ /7 7 Mar$ /7 ' Mar$ /7 ( Mar$ /7 ( Mar$ /7 ( Mar$ /7 / Mar$ /7 1 Mar$ /7 1 Mar$ /7 1 Mar$ /7 LLL &otal SSSSS SSSSSSSS 10202 3'.07 3'302 10273 3'313 /11.( 302'3 10002 1007C /1112 107(2 7/0 to to to to to to to to to to to 10270 3'.12 3'3'0 102'. 1'/00 /11/. 102(0 10070 100(0 10000 10737 70 10 '0 70 ' 77 ' 70 7/ 20 77 CTD P/0#000 C.0#000 2.0#000 /0#000 2.#000 //#000 2.#000 /0#000 227#000 '0#000 //#000 LLLL P2#270#000

7$ +ngel %ela Cru9 %elivere% the sai% certificates of time 6C&!s8 to herein plaintiff in connection )ith his purchase% of fuel pro%ucts from the latter 6 riginal Recor%# p$ 70/8$

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Negotiable Instruments Cases | Sylver Jan Baluno Prior

time %eposit of P2#270#000$00 plus accrue% interest an% compoun%e% interest therein at 2.F per annu!# moral an% e@emplary %amages as )ell as attorney:s fees$ +fter trial# the court a #uo ren%ere% its %ecision %ismissing the instant complaint$ 3 n appeal# as earlier state%# respon%ent court affirme% the lo)er court:s %ismissal of the complaint# hence this petition )herein petitioner faults respon%ent court in ruling 628 that the subAect certificates of %eposit are non, negotiable %espite being clearly negotiable instrumentsI 678 that petitioner %i% not become a hol%er in %ue course of the sai% certificates of %epositI an% 6C8 in %isregar%ing the pertinent provisions of the Co%e of Commerce relating to lost instruments payable to bearer$ 1 &he instant petition is bereft of merit$ + sample te@t of the certificates of time %eposit is repro%uce% belo) to provi%e a better un%erstan%ing of the issues involve% in this recourse$ SEC>RI&G +N! .33/ +yala Metro S>C+& CER&I5IC+&E Rate 2.F &R>S& +ve$# Ma<ati Manila# 55ICEP 5 B+NJ C MP+NG 10202 Philippines '#000$00 !EP SI& clarity that they are payable# not to )hoever purports to be the =bearer= but only to the specifie% person in%icate% therein# the %epositor$ In effect# the appellee ban< ac<no)le%ges its %epositor +ngel %ela Cru9 as the person )ho ma%e the %eposit an% further engages itself to pay sai% %epositor the amount in%icate% thereon at the stipulate% %ate$ < Be %isagree )ith these fin%ings an% conclusions# an% hereby hol% that the C&!s in *uestion are negotiable instruments$ Section 2 +ct No$ 70C2# other)ise <no)n as the Negotiable Instruments Da)# enumerates the re*uisites for an instrument to become negotiable# viz4 6a8 It must be in )riting an% signe% by the ma<er or %ra)erI 6b8 Must contain an uncon%itional promise or or%er to pay a sum certain in moneyI 6c8 Must be payable on %eman%# or at a fi@e% or %eterminable future timeI 6%8 Must be payable to or%er or to bearerI an% 6e8 Bhere the instrument is a%%resse% to a %ra)ee# he must be name% or other)ise in%icate% therein )ith reasonable certainty$ &he C&!s in *uestion un%oubte%ly meet the re*uirements of the la) for negotiability$ &he parties: bone of contention is )ith regar% to re*uisite 6%8 set forth above$ It is note% that Mr$ &imoteo P$ &iangco# Security Ban<:s Branch Manager )ay bac< in 21/7# testifie% in open court that the %epositor reffere% to in the C&!s is no other than Mr$ +ngel %e la Cru9$ @@@ @@@ @@@ +tty$ Cali%a4 * In other )or%s Mr$ Bitness# you are saying that per boo<s of the ban<# the %epositor referre% 6sic8 in these certificates states that it )as +ngel %ela Cru9M )itness4 a Ges# your ?onor# an% )e have the recor% to sho) that +ngel %ela Cru9 )as the one )ho cause 6sic8 the amount$ +tty$ Cali%a4 * +n% no other person or entity or company# Mr$ BitnessM )itness4 a None# your ?onor$ @@@ @@@ @@@ +tty$ Cali%a4
7

No$

!ate of Maturity 5EB$ 7C# 21/' 5EB 77# 21/7# 21PPPP &his is to Certify that B E + R E R has %eposite% in this Ban< the sum of PES S4 5 >R &? >S+N! NDG# SEC>RI&G B+NJ S>C+& 55ICE P'#000 ; 00 C&S Pesos# Philippine Currency# repayable to sai% %epositor 3C2 %ays$ after %ate# upon presentation an% surren%er of this certificate# )ith interest at the rate of 2.F per cent per annu!$ 6Sg%$ Illegible8 6Sg%$ Illegible8 LLLLLLLLLL LLLLLLLLLLL +>&? RIQE! SI-N+&>RES
5

Respon%ent court rule% that the C&!s in *uestion are non,negotiable instruments# nationali9ing as follo)s4 $ $ $ Bhile it may be true that the )or% =bearer= appears rather bol%ly in the C&!s issue%# it is important to note that after the )or% =BE+RER= stampe% on the space provi%e% suppose%ly for the name of the %epositor# the )or%s =has %eposite%= a certain amount follo)s$ &he %ocument further provi%es that the amount %eposite% shall be =repayable to sai% %epositor= on the perio% in%icate%$ &herefore# the te@t of the instrument6s8 themselves manifest )ith

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* Mr$ Bitness# )ho is the %epositor i%entifie% in all of these certificates of time %eposit insofar as the ban< is concerne%M )itness4 a +ngel %ela Cru9 is the %epositor$ 8 @@@ @@@ @@@ n this score# the accepte% rule is that the negotiability or non,negotiability of an instrument is %etermine% from the )riting# that is# from the face of the instrument itself$ 9 In the construction of a bill or note# the intention of the parties is to control# if it can be legally ascertaine%$ 10 Bhile the )riting may be rea% in the light of surroun%ing circumstances in or%er to more perfectly un%erstan% the intent an% meaning of the parties# yet as they have constitute% the )riting to be the only out)ar% an% visible e@pression of their meaning# no other )or%s are to be a%%e% to it or substitute% in its stea%$ &he %uty of the court in such case is to ascertain# not )hat the parties may have secretly inten%e% as contra%istinguishe% from )hat their )or%s e@press# but )hat is the meaning of the )or%s they have use%$ Bhat the parties meant must be %etermine% by )hat they sai%$ 11 Contrary to )hat respon%ent court hel%# the C&!s are negotiable instruments$ &he %ocuments provi%e that the amounts %eposite% shall be repayable to the %epositor$ +n% )ho# accor%ing to the %ocument# is the %epositorM It is the =bearer$= &he %ocuments %o not say that the %epositor is +ngel %e la Cru9 an% that the amounts %eposite% are repayable specifically to him$ Rather# the amounts are to be repayable to the bearer of the %ocuments or# for that matter# )hosoever may be the bearer at the time of presentment$ If it )as really the intention of respon%ent ban< to pay the amount to +ngel %e la Cru9 only# it coul% have )ith facility so e@presse% that fact in clear an% categorical terms in the %ocuments# instea% of having the )or% =BE+RER= stampe% on the space provi%e% for the name of the %epositor in each C&!$ n the )or%ings of the %ocuments# therefore# the amounts %eposite% are repayable to )hoever may be the bearer thereof$ &hus# petitioner:s aforesai% )itness merely %eclare% that +ngel %e la Cru9 is the %epositor =insofar as the ban< is concerne%#= but obviously other parties not privy to the transaction bet)een them )oul% not be in a position to <no) that the %epositor is not the bearer state% in the C&!s$ ?ence# the situation )oul% re*uire any party %ealing )ith the C&!s to go behin% the plain import of )hat is )ritten thereon to unravel the agreement of the parties thereto through facts aliunde. &his nee% for resort to e@trinsic evi%ence is )hat is sought to be avoi%e% by the Negotiable Instruments Da) an% calls for the application of the elementary rule that the interpretation of obscure )or%s or stipulations in a contract shall not favor the party )ho cause% the obscurity$ 12 &he ne@t *uery is )hether petitioner can rightfully recover on the C&!s$ &his time# the ans)er is in the negative$ &he recor%s reveal that +ngel %e la Cru9# )hom petitioner chose not to implea% in this suit for reasons of its o)n# %elivere% the C&!s amounting to P2#270#000$00 to petitioner )ithout informing respon%ent ban< thereof at any time$ >nfortunately for petitioner# although the C&!s are bearer instruments# a vali% negotiation thereof for the true purpose an% agreement bet)een it an% !e la Cru9# as ultimately ascertaine%# re*uires both %elivery an% in%orsement$ 5or# although petitioner see<s to %eflect this fact# the C&!s )ere in reality %elivere% to it as a security for !e la Cru9: purchases of its fuel pro%ucts$ +ny %oubt as to )hether the C&!s )ere %elivere% as payment for the fuel pro%ucts or as a security has been %issipate% an% resolve% in favor of the latter by petitioner:s o)n authori9e% an% responsible representative himself$ In a letter %ate% November 7.# 21/7 a%%resse% to respon%ent Security Ban<# J$K$ +ranas# Jr$# Calte@ Cre%it Manager# )rote4 =$ $ $ &hese certificates of %eposit )ere negotiate% to us by Mr$ +ngel %ela Cru9 to uarantee his purchases of fuel products= 6Emphasis ours$8 13 &his a%mission is conclusive upon petitioner# its protestations not)ithstan%ing$ >n%er the %octrine of estoppel# an a%mission or representation is ren%ere% conclusive upon the person ma<ing it# an% cannot be %enie% or %isprove% as against the person relying thereon$ 11 + party may not go bac< on his o)n acts an% representations to the preAu%ice of the other party )ho relie% upon them$ 15 In the la) of evi%ence# )henever a party has# by his o)n %eclaration# act# or omission# intentionally an% %eliberately le% another to believe a particular thing true# an% to act upon such belief# he cannot# in any litigation arising out of such %eclaration# act# or omission# be permitte% to falsify it$ 1< If it )ere true that the C&!s )ere %elivere% as payment an% not as security# petitioner:s cre%it manager coul% have easily sai% so# instea% of using the )or%s =to guarantee= in the letter afore*uote%$ Besi%es# )hen respon%ent ban<# as %efen%ant in the court belo)# move% for a bill of particularity therein 17 praying# among others# that petitioner# as plaintiff# be re*uire% to aver )ith sufficient %efiniteness or particularity 6a8 the %ue %ate or %ates ofpay!ent of the allege% in%ebte%ness of +ngel %e la Cru9 to plaintiff an% 6b8 )hether or not it issue% a receipt sho)ing that the C&!s )ere %elivere% to it by !e la Cru9 as pay!ent of the latter:s allege% in%ebte%ness to it# plaintiff corporation oppose% the motion$ 18 ?a% it pro%uce% the receipt praye% for# it coul% have prove%# if such truly )as the fact# that the C&!s )ere %elivere% as payment an% not as security$ ?aving oppose% the motion# petitioner no) labors un%er the presumption that evi%ence )illfully suppresse% )oul% be a%verse if pro%uce%$ 19 >n%er the foregoing circumstances# this %is*uisition in "nter rated Bealty Corporation, et al. vs. ,hilippine 5ational ;an', et al$ 20 is apropos4 $ $ $ +%verting again to the Court:s pronouncements in Lopez, supra# )e *uote therefrom4 &he character of the transaction bet)een the parties is to be %etermine% by their intention# regar%less of )hat language )as use% or )hat the form of the transfer )as$ If it )as inten%e% to secure the payment of money# it must be

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construe% as a ple%geI but if there )as some other intention# it is not a ple%ge$ ?o)ever# even though a transfer# if regar%e% by itself# appears to have been absolute# its obAect an% character might still be *ualifie% an% e@plaine% by contemporaneous )riting %eclaring it to have been a %eposit of the property as collateral security$ It has been sai% that a transfer of property by the %ebtor to a cre%itor# even if sufficient on its face to ma<e an absolute conveyance# shoul% be treate% as a ple%ge if the %ebt continues in ine@istence an% is not %ischarge% by the transfer# an% that accor%ingly the use of the terms or%inarily importing conveyance of absolute o)nership )ill not be given that effect in such a transaction if they are also commonly use% in ple%ges an% mortgages an% therefore %o not un*ualifie%ly in%icate a transfer of absolute o)nership# in the absence of clear an% unambiguous language or other circumstances e@clu%ing an intent to ple%ge$ Petitioner:s insistence that the C&!s )ere negotiate% to it begs the *uestion$ >n%er the Negotiable Instruments Da)# an instrument is negotiate% )hen it is transferre% from one person to another in such a manner as to constitute the transferee the hol%er thereof# 21 an% a hol%er may be the payee or in%orsee of a bill or note# )ho is in possession of it# or the bearer thereof$ 22 In the present case# ho)ever# there )as no negotiation in the sense of a transfer of the legal title to the C&!s in favor of petitioner in )hich situation# for obvious reasons# mere %elivery of the bearer C&!s )oul% have suffice%$ ?ere# the %elivery thereof only as security for the purchases of +ngel %e la Cru9 6an% )e even %isregar% the fact that the amount involve% )as not %isclose%8 coul% at the most constitute petitioner only as a hol%er for value by reason of his lien$ +ccor%ingly# a negotiation for such purpose cannot be effecte% by mere %elivery of the instrument since# necessarily# the terms thereof an% the subse*uent %isposition of such security# in the event of non,payment of the principal obligation# must be contractually provi%e% for$ &he pertinent la) on this point is that )here the hol%er has a lien on the instrument arising from contract# he is %eeme% a hol%er for value to the e@tent of his lien$ 23 +s such hol%er of collateral security# he )oul% be a ple%gee but the re*uirements therefor an% the effects thereof# not being provi%e% for by the Negotiable Instruments Da)# shall be governe% by the Civil Co%e provisions on ple%ge of incorporeal rights# 21 )hich inceptively provi%e4 +rt$ 701($ Incorporeal rights# evi%ence% by negotiable instruments# $ $ $ may also be ple%ge%$ &he instrument proving the right ple%ge% shall be %elivere% to the cre%itor# an% if negotiable# must be in%orse%$ +rt$ 701.$ + ple%ge shall not ta<e effect against thir% persons if a %escription of the thing ple%ge% an% the %ate of the ple%ge %o not appear in a public instrument$ +si%e from the fact that the C&!s )ere only %elivere% but not in%orse%# the factual fin%ings of respon%ent court *uote% at the start of this opinion sho) that petitioner faile% to pro%uce any %ocument evi%encing any contract of ple%ge or guarantee agreement bet)een it an% +ngel %e la Cru9$ 25 Conse*uently# the mere %elivery of the C&!s %i% not legally vest in petitioner any right effective against an% bin%ing upon respon%ent ban<$ &he re*uirement un%er +rticle 701. aforementione% is not a mere rule of a%Aective la) prescribing the mo%e )hereby proof may be ma%e of the %ate of a ple%ge contract# but a rule of substantive la) prescribing a con%ition )ithout )hich the e@ecution of a ple%ge contract cannot affect thir% persons a%versely$ 2< n the other han%# the assignment of the C&!s ma%e by +ngel %e la Cru9 in favor of respon%ent ban< )as embo%ie% in a public instrument$ 27 Bith regar% to this other mo%e of transfer# the Civil Co%e specifically %eclares4 +rt$ 2.7($ +n assignment of cre%it# right or action shall pro%uce no effect as against thir% persons# unless it appears in a public instrument# or the instrument is recor%e% in the Registry of Property in case the assignment involves real property$ Respon%ent ban< %uly complie% )ith this statutory re*uirement$ Contrarily# petitioner# )hether as purchaser# assignee or lien hol%er of the C&!s# neither prove% the amount of its cre%it or the e@tent of its lien nor the e@ecution of any public instrument )hich coul% affect or bin% private respon%ent$ Necessarily# therefore# as bet)een petitioner an% respon%ent ban<# the latter has %efinitely the better right over the C&!s in *uestion$ 5inally# petitioner faults respon%ent court for refusing to %elve into the *uestion of )hether or not private respon%ent observe% the re*uirements of the la) in the case of lost negotiable instruments an% the issuance of replacement certificates therefor# on the groun% that petitioner faile% to raise% that issue in the lo)er court$ 28 n this matter# )e uphol% respon%ent court:s fin%ing that the aspect of allege% negligence of private respon%ent )as not inclu%e% in the stipulation of the parties an% in the statement of issues submitte% by them to the trial court$29 &he issues agree% upon by them for resolution in this case are4 2$ Bhether or not the C&!s as )or%e% are negotiable instruments$ 7$ Bhether or not %efen%ant coul% legally apply the amount covere% by the C&!s against the %epositor:s loan by virtue of the assignment 6+nne@ =C=8$ C$ Bhether or not there )as legal compensation or set off involving the amount covere% by the C&!s an% the %epositor:s outstan%ing account )ith %efen%ant# if any$ '$ Bhether or not plaintiff coul% compel %efen%ant to preterminate the C&!s before the maturity %ate provi%e% therein$ ($ Bhether or not plaintiff is entitle% to the procee%s of the C&!s$ .$ Bhether or not the parties can recover %amages# attorney:s fees an% litigation e@penses from each other$

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+s respon%ent court correctly observe%# )ith appropriate citation of some %octrinal authorities# the foregoing enumeration %oes not inclu%e the issue of negligence on the part of respon%ent ban<$ +n issue raise% for the first time on appeal an% not raise% timely in the procee%ings in the lo)er court is barre% by estoppel$ 30 Kuestions raise% on appeal must be )ithin the issues frame% by the parties an%# conse*uently# issues not raise% in the trial court cannot be raise% for the first time on appeal$ 31 Pre,trial is primarily inten%e% to ma<e certain that all issues necessary to the %isposition of a case are properly raise%$ &hus# to obviate the element of surprise# parties are e@pecte% to %isclose at a pre,trial conference all issues of la) an% fact )hich they inten% to raise at the trial# e@cept such as may involve privilege% or impeaching matters$ &he %etermination of issues at a pre,trial conference bars the consi%eration of other *uestions on appeal$ 32 &o accept petitioner:s suggestion that respon%ent ban<:s suppose% negligence may be consi%ere% encompasse% by the issues on its right to preterminate an% receive the procee%s of the C&!s )oul% be tantamount to saying that petitioner coul% raise on appeal any issue$ Be agree )ith private respon%ent that the broa% ultimate issue of petitioner:s entitlement to the procee%s of the *uestione% certificates can be premise% on a multitu%e of other legal reasons an% causes of action# of )hich respon%ent ban<:s suppose% negligence is only one$ ?ence# petitioner:s submission# if accepte%# )oul% ren%er a pre,trial %elimitation of issues a useless e@ercise$ 33 Still# even assuming ar uendo that sai% issue of negligence )as raise% in the court belo)# petitioner still cannot have the o%%s in its favor$ + close scrutiny of the provisions of the Co%e of Commerce laying %o)n the rules to be follo)e% in case of lost instruments payable to bearer# )hich it invo<es# )ill reveal that sai% provisions# even assuming their applicability to the C&!s in the case at bar# are merely permissive an% not man%atory$ &he very first article cite% by petitioner spea<s for itself$ +rt ('/$ &he dispossessed owner# no matter for )hat cause it may be# !ay apply to the Au%ge or court of competent Auris%iction# as<ing that the principal# interest or %ivi%en%s %ue or about to become %ue# be not pai% a thir% person# as )ell as in or%er to prevent the o)nership of the instrument that a %uplicate be issue% him$ 6Emphasis ours$8 @@@ @@@ @@@ &he use of the )or% =may= in sai% provision sho)s that it is not man%atory but %iscretionary on the part of the =%ispossesse% o)ner= to apply to the Au%ge or court of competent Auris%iction for the issuance of a %uplicate of the lost instrument$ Bhere the provision rea%s =may#= this )or% sho)s that it is not man%atory but %iscretional$ 31 &he )or% =may= is usually permissive# not man%atory$ 35 It is an au@iliary verb in%icating liberty# opportunity# permission an% possibility$ 3< Moreover# as correctly analy9e% by private respon%ent# 37 +rticles ('/ to ((/ of the Co%e of Commerce# on )hich petitioner see<s to anchor respon%ent ban<:s suppose% negligence# merely establishe%# on the one han%# a right of recourse in favor of a %ispossesse% o)ner or hol%er of a bearer instrument so that he may obtain a %uplicate of the same# an%# on the other# an option in favor of the party liable thereon )ho# for some vali% groun%# may elect to refuse to issue a replacement of the instrument$ Significantly# none of the provisions cite% by petitioner categorically restricts or prohibits the issuance a %uplicate or replacement instrument sans compliance )ith the proce%ure outline% therein# an% none establishes a man%atory prece%ent re*uirement therefor$ B?ERE5 RE# on the mo%ifie% premises above set forth# the petition is !ENIE! an% the appeale% %ecision is hereby +55IRME!$ S R!ERE!$ 5arvasa, C.<., ,adilla and 5ocon, <<., concur.

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