G.R. No.

L-22405 June 30, 1971

PHILIPPINE EDUCATION CO., INC., plaintiff-appellant,
vs.
MAURICIO A. SORIANO, ET AL., defendant-appellees.
Marcial Esposo for plaintiff-appellant.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Antonio G. Ibarra and Attorney Concepcion
Torrijos-Agapinan for defendants-appellees.

DIZON, J.:
An appeal from a decision of the Court of First Instance of Manila dismissing the complaint filed by the Philippine Education
Co., Inc. against Mauricio A. Soriano, Enrico Palomar and Rafael Contreras.
On April 18, 1958 Enrique Montinola sought to purchase from the Manila Post Office ten (10) money orders of P200.00 each
payable to E.P. Montinola withaddress at Lucena, Quezon. After the postal teller had made out money ordersnumbered
124685, 124687-124695, Montinola offered to pay for them with a private checks were not generally accepted in payment of
money orders, the teller advised him to see the Chief of the Money Order Division, but instead of doing so, Montinola
managed to leave building with his own check and the ten(10) money orders without the knowledge of the teller.
On the same date, April 18, 1958, upon discovery of the disappearance of the unpaid money orders, an urgent message was
sent to all postmasters, and the following day notice was likewise served upon all banks, instructing them not to pay anyone
of the money orders aforesaid if presented for payment. The Bank of America received a copy of said notice three days later.
On April 23, 1958 one of the above-mentioned money orders numbered 124688 was received by appellant as part of its sales
receipts. The following day it deposited the same with the Bank of America, and one day thereafter the latter cleared it with
the Bureau of Posts and received from the latter its face value of P200.00.
On September 27, 1961, appellee Mauricio A. Soriano, Chief of the Money Order Division of the Manila Post Office, acting for
and in behalf of his co-appellee, Postmaster Enrico Palomar, notified the Bank of America that money order No. 124688
attached to his letter had been found to have been irregularly issued and that, in view thereof, the amount it represented had
been deducted from the bank's clearing account. For its part, on August 2 of the same year, the Bank of America debited
appellant's account with the same amount and gave it advice thereof by means of a debit memo.
On October 12, 1961 appellant requested the Postmaster General to reconsider the action taken by his office deducting the
sum of P200.00 from the clearing account of the Bank of America, but his request was denied. So was appellant's
subsequent request that the matter be referred to the Secretary of Justice for advice. Thereafter, appellant elevated the
matter to the Secretary of Public Works and Communications, but the latter sustained the actions taken by the postal officers.
In connection with the events set forth above, Montinola was charged with theft in the Court of First Instance of Manila
(Criminal Case No. 43866) but after trial he was acquitted on the ground of reasonable doubt.
On January 8, 1962 appellant filed an action against appellees in the Municipal Court of Manila praying for judgment as
follows:
WHEREFORE, plaintiff prays that after hearing defendants be ordered:
(a) To countermand the notice given to the Bank of America on September 27, 1961, deducting from the
said Bank's clearing account the sum of P200.00 represented by postal money order No. 124688, or in the
alternative indemnify the plaintiff in the same amount with interest at 8-% per annum from September 27,
1961, which is the rate of interest being paid by plaintiff on its overdraft account;
(b) To pay to the plaintiff out of their own personal funds, jointly and severally, actual and moral damages in
the amount of P1,000.00 or in such amount as will be proved and/or determined by this Honorable Court:
exemplary damages in the amount of P1,000.00, attorney's fees of P1,000.00, and the costs of action.
Plaintiff also prays for such other and further relief as may be deemed just and equitable.
On November 17, 1962, after the parties had submitted the stipulation of facts reproduced at pages 12 to 15 of the Record
on Appeal, the above-named court rendered judgment as follows:
WHEREFORE, judgment is hereby rendered, ordering the defendants to countermand the notice given to
the Bank of America on September 27, 1961, deducting from said Bank's clearing account the sum of
P200.00 representing the amount of postal money order No. 124688, or in the alternative, to indemnify the
plaintiff in the said sum of P200.00 with interest thereon at the rate of 8-% per annum from September 27,
1961 until fully paid; without any pronouncement as to cost and attorney's fees.
The case was appealed to the Court of First Instance of Manila where, after the parties had resubmitted the same stipulation
of facts, the appealed decision dismissing the complaint, with costs, was rendered.

The first, second and fifth assignments of error discussed in appellant's brief are related to the other and will therefore be
discussed jointly. They raise this main issue: that the postal money order in question is a negotiable instrument; that its
nature as such is not in anyway affected by the letter dated October 26, 1948 signed by the Director of Posts and addressed
to all banks with a clearing account with the Post Office, and that money orders, once issued, create a contractual
relationship of debtor and creditor, respectively, between the government, on the one hand, and the remitters payees or
endorses, on the other.
It is not disputed that our postal statutes were patterned after statutes in force in the United States. For this reason, ours are
generally construed in accordance with the construction given in the United States to their own postal statutes, in the
absence of any special reason justifying a departure from this policy or practice. The weight of authority in the United States
is that postal money orders are not negotiable instruments (Bolognesi vs. U.S. 189 Fed. 395; U.S. vs. Stock Drawers
National Bank, 30 Fed. 912), the reason behind this rule being that, in establishing and operating a postal money order
system, the government is not engaging in commercial transactions but merely exercises a governmental power for the
public benefit.
It is to be noted in this connection that some of the restrictions imposed upon money orders by postal laws and regulations
are inconsistent with the character of negotiable instruments. For instance, such laws and regulations usually provide for not
more than one endorsement; payment of money orders may be withheld under a variety of circumstances (49 C.J. 1153).
Of particular application to the postal money order in question are the conditions laid down in the letter of the Director of
Posts of October 26, 1948 (Exhibit 3) to the Bank of America for the redemption of postal money orders received by it from its
depositors. Among others, the condition is imposed that "in cases of adverse claim, the money order or money orders
involved will be returned to you (the bank) and the, corresponding amount will have to be refunded to the Postmaster, Manila,
who reserves the right to deduct the value thereof from any amount due you if such step is deemed necessary." The
conditions thus imposed in order to enable the bank to continue enjoying the facilities theretofore enjoyed by its depositors,
were accepted by the Bank of America. The latter is therefore bound by them. That it is so is clearly referred from the fact
that, upon receiving advice that the amount represented by the money order in question had been deducted from its clearing
account with the Manila Post Office, it did not file any protest against such action.
Moreover, not being a party to the understanding existing between the postal officers, on the one hand, and the Bank of
America, on the other, appellant has no right to assail the terms and conditions thereof on the ground that the letter setting
forth the terms and conditions aforesaid is void because it was not issued by a Department Head in accordance with Sec. 79
(B) of the Revised Administrative Code. In reality, however, said legal provision does not apply to the letter in question
because it does not provide for a department regulation but merely sets down certain conditions upon the privilege granted to
the Bank of Amrica to accept and pay postal money orders presented for payment at the Manila Post Office. Such being the
case, it is clear that the Director of Posts had ample authority to issue it pursuant to Sec. 1190 of the Revised Administrative
Code.
In view of the foregoing, We do not find it necessary to resolve the issues raised in the third and fourth assignments of error.
WHEREFORE, the appealed decision being in accordance with law, the same is hereby affirmed with costs.
Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Fernando, Teehankee, Barredo and Villamor, JJ., concur.
Castro and Makasiar, JJ., took no part.

G.R. No. L-49188 January 30, 1990

PHILIPPINE AIRLINES, INC., petitioner,
vs.
HON. COURT OF APPEALS, HON. JUDGE RICARDO D. GALANO, Court of First Instance of Manila, Branch XIII,
JAIME K. DEL ROSARIO, Deputy Sheriff, Court of First Instance, Manila, and AMELIA TAN,respondents.

GUTIERREZ, JR., J.:

Behind the simple issue of validity of an alias writ of execution in this case is a more fundamental question. Should the Court
allow a too literal interpretation of the Rules with an open invitation to knavery to prevail over a more discerning and just
approach? Should we not apply the ancient rule of statutory construction that laws are to be interpreted by the spirit which
vivifies and not by the letter which killeth?
This is a petition to review on certiorari the decision of the Court of Appeals in CA-G.R. No. 07695 entitled "Philippine
Airlines, Inc. v. Hon. Judge Ricardo D. Galano, et al.", dismissing the petition for certiorari against the order of the Court of
First Instance of Manila which issued an alias writ of execution against the petitioner.
The petition involving the alias writ of execution had its beginnings on November 8, 1967, when respondent Amelia Tan,
under the name and style of Able Printing Press commenced a complaint for damages before the Court of First Instance of
Manila. The case was docketed as Civil Case No. 71307, entitled Amelia Tan, et al. v. Philippine Airlines, Inc.
After trial, the Court of First Instance of Manila, Branch 13, then presided over by the late Judge Jesus P. Morfe rendered
judgment on June 29, 1972, in favor of private respondent Amelia Tan and against petitioner Philippine Airlines, Inc. (PAL) as
follows:
WHEREFORE, judgment is hereby rendered, ordering the defendant Philippine Air Lines:
1. On the first cause of action, to pay to the plaintiff the amount of P75,000.00 as actual damages, with
legal interest thereon from plaintiffs extra-judicial demand made by the letter of July 20, 1967;
2. On the third cause of action, to pay to the plaintiff the amount of P18,200.00, representing the unrealized
profit of 10% included in the contract price of P200,000.00 plus legal interest thereon from July 20,1967;
3. On the fourth cause of action, to pay to the plaintiff the amount of P20,000.00 as and for moral damages,
with legal interest thereon from July 20, 1 967;
4. On the sixth cause of action, to pay to the plaintiff the amount of P5,000.00 damages as and for
attorney's fee.
Plaintiffs second and fifth causes of action, and defendant's counterclaim, are dismissed.
With costs against the defendant. (CA Rollo, p. 18)
On July 28, 1972, the petitioner filed its appeal with the Court of Appeals. The case was docketed as CA-G.R. No. 51079-R.
On February 3, 1977, the appellate court rendered its decision, the dispositive portion of which reads:
IN VIEW WHEREOF, with the modification that PAL is condemned to pay plaintiff the sum of P25,000.00 as
damages and P5,000.00 as attorney's fee, judgment is affirmed, with costs. (CA Rollo, p. 29)
Notice of judgment was sent by the Court of Appeals to the trial court and on dates subsequent thereto, a motion for
reconsideration was filed by respondent Amelia Tan, duly opposed by petitioner PAL.
On May 23,1977, the Court of Appeals rendered its resolution denying the respondent's motion for reconsideration for lack of
merit.
No further appeal having been taken by the parties, the judgment became final and executory and on May 31, 1977,
judgment was correspondingly entered in the case.
The case was remanded to the trial court for execution and on September 2,1977, respondent Amelia Tan filed a motion
praying for the issuance of a writ of execution of the judgment rendered by the Court of Appeals. On October 11, 1977, the
trial court, presided over by Judge Galano, issued its order of execution with the corresponding writ in favor of the
respondent. The writ was duly referred to Deputy Sheriff Emilio Z. Reyes of Branch 13 of the Court of First Instance of Manila
for enforcement.
Four months later, on February 11, 1978, respondent Amelia Tan moved for the issuance of an alias writ of execution stating
that the judgment rendered by the lower court, and affirmed with modification by the Court of Appeals, remained unsatisfied.
On March 1, 1978, the petitioner filed an opposition to the motion for the issuance of an alias writ of execution stating that it
had already fully paid its obligation to plaintiff through the deputy sheriff of the respondent court, Emilio Z. Reyes, as
evidenced by cash vouchers properly signed and receipted by said Emilio Z. Reyes.

On March 3,1978, the Court of Appeals denied the issuance of the alias writ for being premature, ordering the executing
sheriff Emilio Z. Reyes to appear with his return and explain the reason for his failure to surrender the amounts paid to him by
petitioner PAL. However, the order could not be served upon Deputy Sheriff Reyes who had absconded or disappeared.
On March 28, 1978, motion for the issuance of a partial alias writ of execution was filed by respondent Amelia Tan.
On April 19, 1978, respondent Amelia Tan filed a motion to withdraw "Motion for Partial Alias Writ of Execution" with
Substitute Motion for Alias Writ of Execution. On May 1, 1978, the respondent Judge issued an order which reads:
As prayed for by counsel for the plaintiff, the Motion to Withdraw 'Motion for Partial Alias Writ of Execution
with Substitute Motion for Alias Writ of Execution is hereby granted, and the motion for partial alias writ of
execution is considered withdrawn.
Let an Alias Writ of Execution issue against the defendant for the fall satisfaction of the judgment rendered.
Deputy Sheriff Jaime K. del Rosario is hereby appointed Special Sheriff for the enforcement thereof. (CA
Rollo, p. 34)
On May 18, 1978, the petitioner received a copy of the first alias writ of execution issued on the same day directing Special
Sheriff Jaime K. del Rosario to levy on execution in the sum of P25,000.00 with legal interest thereon from July 20,1967
when respondent Amelia Tan made an extra-judicial demand through a letter. Levy was also ordered for the further sum of
P5,000.00 awarded as attorney's fees.
On May 23, 1978, the petitioner filed an urgent motion to quash the alias writ of execution stating that no return of the writ
had as yet been made by Deputy Sheriff Emilio Z. Reyes and that the judgment debt had already been fully satisfied by the
petitioner as evidenced by the cash vouchers signed and receipted by the server of the writ of execution, Deputy Sheriff
Emilio Z. Reyes.
On May 26,1978, the respondent Jaime K. del Rosario served a notice of garnishment on the depository bank of petitioner,
Far East Bank and Trust Company, Rosario Branch, Binondo, Manila, through its manager and garnished the petitioner's
deposit in the said bank in the total amount of P64,408.00 as of May 16, 1978. Hence, this petition for certiorari filed by the
Philippine Airlines, Inc., on the grounds that:
I
AN ALIAS WRIT OF EXECUTION CANNOT BE ISSUED WITHOUT PRIOR RETURN OF THE ORIGINAL
WRIT BY THE IMPLEMENTING OFFICER.
II
PAYMENT OF JUDGMENT TO THE IMPLEMENTING OFFICER AS DIRECTED IN THE WRIT OF
EXECUTION CONSTITUTES SATISFACTION OF JUDGMENT.
III
INTEREST IS NOT PAYABLE WHEN THE DECISION IS SILENT AS TO THE PAYMENT THEREOF.
IV
SECTION 5, RULE 39, PARTICULARLY REFERS TO LEVY OF PROPERTY OF JUDGMENT DEBTOR
AND DISPOSAL OR SALE THEREOF TO SATISFY JUDGMENT.
Can an alias writ of execution be issued without a prior return of the original writ by the implementing officer?
We rule in the affirmative and we quote the respondent court's decision with approval:
The issuance of the questioned alias writ of execution under the circumstances here obtaining is justified
because even with the absence of a Sheriffs return on the original writ, the unalterable fact remains that
such a return is incapable of being obtained (sic) because the officer who is to make the said return has
absconded and cannot be brought to the Court despite the earlier order of the court for him to appear for
this purpose. (Order of Feb. 21, 1978, Annex C, Petition). Obviously, taking cognizance of this
circumstance, the order of May 11, 1978 directing the issuance of an alias writ was therefore issued.
(Annex D. Petition). The need for such a return as a condition precedent for the issuance of an alias writ
was justifiably dispensed with by the court below and its action in this regard meets with our concurrence. A
contrary view will produce an abhorent situation whereby the mischief of an erring officer of the court could
be utilized to impede indefinitely the undisputed and awarded rights which a prevailing party rightfully
deserves to obtain and with dispatch. The final judgment in this case should not indeed be permitted to
become illusory or incapable of execution for an indefinite and over extended period, as had already
transpired. (Rollo, pp. 35-36)
Judicium non debet esse illusorium; suum effectum habere debet (A judgment ought not to be illusory it ought to have its
proper effect).
Indeed, technicality cannot be countenanced to defeat the execution of a judgment for execution is the fruit and end of the

suit and is very aptly called the life of the law (Ipekdjian Merchandising Co. v. Court of Tax Appeals, 8 SCRA 59 [1963];
Commissioner of Internal Revenue v. Visayan Electric Co., 19 SCRA 697, 698 [1967]). A judgment cannot be rendered
nugatory by the unreasonable application of a strict rule of procedure. Vested rights were never intended to rest on the
requirement of a return, the office of which is merely to inform the court and the parties, of any and all actions taken under
the writ of execution. Where such information can be established in some other manner, the absence of an executing officer's
return will not preclude a judgment from being treated as discharged or being executed through an alias writ of execution as
the case may be. More so, as in the case at bar. Where the return cannot be expected to be forthcoming, to require the same
would be to compel the enforcement of rights under a judgment to rest on an impossibility, thereby allowing the total
avoidance of judgment debts. So long as a judgment is not satisfied, a plaintiff is entitled to other writs of execution
(Government of the Philippines v. Echaus and Gonzales, 71 Phil. 318). It is a well known legal maxim that he who cannot
prosecute his judgment with effect, sues his case vainly.
More important in the determination of the propriety of the trial court's issuance of an alias writ of execution is the issue of
satisfaction of judgment.
Under the peculiar circumstances surrounding this case, did the payment made to the absconding sheriff by check in his
name operate to satisfy the judgment debt? The Court rules that the plaintiff who has won her case should not be adjudged
as having sued in vain. To decide otherwise would not only give her an empty but a pyrrhic victory.
It should be emphasized that under the initial judgment, Amelia Tan was found to have been wronged by PAL.
She filed her complaint in 1967.
After ten (10) years of protracted litigation in the Court of First Instance and the Court of Appeals, Ms. Tan won her case.
It is now 1990.
Almost twenty-two (22) years later, Ms. Tan has not seen a centavo of what the courts have solemnly declared as rightfully
hers. Through absolutely no fault of her own, Ms. Tan has been deprived of what, technically, she should have been paid
from the start, before 1967, without need of her going to court to enforce her rights. And all because PAL did not issue the
checks intended for her, in her name.
Under the peculiar circumstances of this case, the payment to the absconding sheriff by check in his name did not operate as
a satisfaction of the judgment debt.
In general, a payment, in order to be effective to discharge an obligation, must be made to the proper person. Article 1240 of
the Civil Code provides:
Payment shall be made to the person in whose favor the obligation has been constituted, or his successor
in interest, or any person authorized to receive it. (Emphasis supplied)
Thus, payment must be made to the obligee himself or to an agent having authority, express or implied, to receive the
particular payment (Ulen v. Knecttle 50 Wyo 94, 58 [2d] 446, 111 ALR 65). Payment made to one having apparent authority to
receive the money will, as a rule, be treated as though actual authority had been given for its receipt. Likewise, if payment is
made to one who by law is authorized to act for the creditor, it will work a discharge (Hendry v. Benlisa 37 Fla. 609, 20 SO
800,34 LRA 283). The receipt of money due on ajudgment by an officer authorized by law to accept it will, therefore, satisfy
the debt (See 40 Am Jm 729, 25; Hendry v. Benlisa supra; Seattle v. Stirrat 55 Wash. 104 p. 834,24 LRA [NS] 1275).
The theory is where payment is made to a person authorized and recognized by the creditor, the payment to such a person
so authorized is deemed payment to the creditor. Under ordinary circumstances, payment by the judgment debtor in the case
at bar, to the sheriff should be valid payment to extinguish the judgment debt.
There are circumstances in this case, however, which compel a different conclusion.
The payment made by the petitioner to the absconding sheriff was not in cash or legal tender but in checks. The checks were
not payable to Amelia Tan or Able Printing Press but to the absconding sheriff.
Did such payments extinguish the judgment debt?
Article 1249 of the Civil Code provides:
The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver
such currency, then in the currency which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall
produce the effect of payment only when they have been cashed, or when through the fault of the creditor
they have been impaired.
In the meantime, the action derived from the original obligation shall be held in abeyance.
In the absence of an agreement, either express or implied, payment means the discharge of a debt or obligation in money
(US v. Robertson, 5 Pet. [US] 641, 8 L. ed. 257) and unless the parties so agree, a debtor has no rights, except at his own
peril, to substitute something in lieu of cash as medium of payment of his debt (Anderson v. Gill, 79 Md.. 312, 29 A 527, 25

LRA 200,47 Am. St. Rep. 402). Consequently, unless authorized to do so by law or by consent of the obligee a public officer
has no authority to accept anything other than money in payment of an obligation under a judgment being executed. Strictly
speaking, the acceptance by the sheriff of the petitioner's checks, in the case at bar, does not, per se, operate as a discharge
of the judgment debt.
Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by
itself, operate as payment (See. 189, Act 2031 on Negs. Insts.; Art. 1249, Civil Code; Bryan Landon Co. v. American Bank, 7
Phil. 255; Tan Sunco v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61). A check, whether a manager's check or ordinary cheek, is not
legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the
obligee or creditor. Mere delivery of checks does not discharge the obligation under a judgment. The obligation is not
extinguished and remains suspended until the payment by commercial document is actually realized (Art. 1249, Civil Code,
par. 3).
If bouncing checks had been issued in the name of Amelia Tan and not the Sheriff's, there would have been no payment.
After dishonor of the checks, Ms. Tan could have run after other properties of PAL. The theory is that she has received no
value for what had been awarded her. Because the checks were drawn in the name of Emilio Z. Reyes, neither has she
received anything. The same rule should apply.
It is argued that if PAL had paid in cash to Sheriff Reyes, there would have been payment in full legal contemplation. The
reasoning is logical but is it valid and proper? Logic has its limits in decision making. We should not follow rulings to their
logical extremes if in doing so we arrive at unjust or absurd results.
In the first place, PAL did not pay in cash. It paid in cheeks.
And second, payment in cash always carries with it certain cautions. Nobody hands over big amounts of cash in a careless
and inane manner. Mature thought is given to the possibility of the cash being lost, of the bearer being waylaid or running off
with what he is carrying for another. Payment in checks is precisely intended to avoid the possibility of the money going to the
wrong party. The situation is entirely different where a Sheriff seizes a car, a tractor, or a piece of land. Logic often has to give
way to experience and to reality. Having paid with checks, PAL should have done so properly.
Payment in money or cash to the implementing officer may be deemed absolute payment of the judgment debt but the Court
has never, in the least bit, suggested that judgment debtors should settle their obligations by turning over huge amounts of
cash or legal tender to sheriffs and other executing officers. Payment in cash would result in damage or interminable
litigations each time a sheriff with huge amounts of cash in his hands decides to abscond.
As a protective measure, therefore, the courts encourage the practice of payments by cheek provided adequate controls are
instituted to prevent wrongful payment and illegal withdrawal or disbursement of funds. If particularly big amounts are
involved, escrow arrangements with a bank and carefully supervised by the court would be the safer procedure. Actual
transfer of funds takes place within the safety of bank premises. These practices are perfectly legal. The object is always the
safe and incorrupt execution of the judgment.
It is, indeed, out of the ordinary that checks intended for a particular payee are made out in the name of another. Making the
checks payable to the judgment creditor would have prevented the encashment or the taking of undue advantage by the
sheriff, or any person into whose hands the checks may have fallen, whether wrongfully or in behalf of the creditor. The
issuance of the checks in the name of the sheriff clearly made possible the misappropriation of the funds that were
withdrawn.
As explained and held by the respondent court:
... [K]nowing as it does that the intended payment was for the private party respondent Amelia Tan, the
petitioner corporation, utilizing the services of its personnel who are or should be knowledgeable about the
accepted procedures and resulting consequences of the checks drawn, nevertheless, in this instance,
without prudence, departed from what is generally observed and done, and placed as payee in the checks
the name of the errant Sheriff and not the name of the rightful payee. Petitioner thereby created a situation
which permitted the said Sheriff to personally encash said checks and misappropriate the proceeds thereof
to his exclusive personal benefit. For the prejudice that resulted, the petitioner himself must bear the fault.
The judicial guideline which we take note of states as follows:
As between two innocent persons, one of whom must suffer the consequence of a breach of trust, the one
who made it possible by his act of confidence must bear the loss. (Blondeau, et al. v. Nano, et al., L-41377,
July 26, 1935, 61 Phil. 625)
Having failed to employ the proper safeguards to protect itself, the judgment debtor whose act made possible the loss had
but itself to blame.
The attention of this Court has been called to the bad practice of a number of executing officers, of requiring checks in
satisfaction of judgment debts to be made out in their own names. If a sheriff directs a judgment debtor to issue the checks in
the sheriff's name, claiming he must get his commission or fees, the debtor must report the sheriff immediately to the court
which ordered the execution or to the Supreme Court for appropriate disciplinary action. Fees, commissions, and salaries are
paid through regular channels. This improper procedure also allows such officers, who have sixty (60) days within which to
make a return, to treat the moneys as their personal finds and to deposit the same in their private accounts to earn sixty (60)

days interest, before said finds are turned over to the court or judgment creditor (See Balgos v. Velasco, 108 SCRA 525
[1981]). Quite as easily, such officers could put up the defense that said checks had been issued to them in their private or
personal capacity. Without a receipt evidencing payment of the judgment debt, the misappropriation of finds by such officers
becomes clean and complete. The practice is ingenious but evil as it unjustly enriches court personnel at the expense of
litigants and the proper administration of justice. The temptation could be far greater, as proved to be in this case of the
absconding sheriff. The correct and prudent thing for the petitioner was to have issued the checks in the intended payee's
name.
The pernicious effects of issuing checks in the name of a person other than the intended payee, without the latter's
agreement or consent, are as many as the ways that an artful mind could concoct to get around the safeguards provided by
the law on negotiable instruments. An angry litigant who loses a case, as a rule, would not want the winning party to get what
he won in the judgment. He would think of ways to delay the winning party's getting what has been adjudged in his favor. We
cannot condone that practice especially in cases where the courts and their officers are involved. We rule against the
petitioner.
Anent the applicability of Section 15, Rule 39, as follows:
Section 15. Execution of money judgments. The officer must enforce an execution of a money judgment
by levying on all the property, real and personal of every name and nature whatsoever, and which may be
disposed of for value, of the judgment debtor not exempt from execution, or on a sufficient amount of such
property, if they be sufficient, and selling the same, and paying to the judgment creditor, or his attorney, so
much of the proceeds as will satisfy the judgment. ...
the respondent court held:
We are obliged to rule that the judgment debt cannot be considered satisfied and therefore the orders of
the respondent judge granting the alias writ of execution may not be pronounced as a nullity.
xxx xxx xxx
It is clear and manifest that after levy or garnishment, for a judgment to be executed there is the requisite of
payment by the officer to the judgment creditor, or his attorney, so much of the proceeds as will satisfy the
judgment and none such payment had been concededly made yet by the absconding Sheriff to the private
respondent Amelia Tan. The ultimate and essential step to complete the execution of the judgment not
having been performed by the City Sheriff, the judgment debt legally and factually remains unsatisfied.
Strictly speaking execution cannot be equated with satisfaction of a judgment. Under unusual circumstances as those
obtaining in this petition, the distinction comes out clearly.
Execution is the process which carries into effect a decree or judgment (Painter v. Berglund, 31 Cal. App. 2d. 63, 87 P 2d
360, 363; Miller v. London, 294 Mass 300, 1 NE 2d 198, 200; Black's Law Dictionary), whereas the satisfaction of a judgment
is the payment of the amount of the writ, or a lawful tender thereof, or the conversion by sale of the debtor's property into an
amount equal to that due, and, it may be done otherwise than upon an execution (Section 47, Rule 39). Levy and delivery by
an execution officer are not prerequisites to the satisfaction of a judgment when the same has already been realized in fact
(Section 47, Rule 39). Execution is for the sheriff to accomplish while satisfaction of the judgment is for the creditor to
achieve. Section 15, Rule 39 merely provides the sheriff with his duties as executing officer including delivery of the proceeds
of his levy on the debtor's property to satisfy the judgment debt. It is but to stress that the implementing officer's duty should
not stop at his receipt of payments but must continue until payment is delivered to the obligor or creditor.
Finally, we find no error in the respondent court's pronouncement on the inclusion of interests to be recovered under the alias
writ of execution. This logically follows from our ruling that PAL is liable for both the lost checks and interest. The respondent
court's decision in CA-G.R. No. 51079-R does not totally supersede the trial court's judgment in Civil Case No. 71307. It
merely modified the same as to the principal amount awarded as actual damages.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby DISMISSED. The judgment of the respondent Court of
Appeals is AFFIRMED and the trial court's issuance of the alias writ of execution against the petitioner is upheld without
prejudice to any action it should take against the errant sheriff Emilio Z. Reyes. The Court Administrator is ordered to follow
up the actions taken against Emilio Z. Reyes.
SO ORDERED.
Fernan, C.J., Cruz, Paras, Bidin, Grio-Aquino, Medialdea and Regalado, JJ., concur.

Separate Opinions

NARVASA, J., dissenting:

The execution of final judgments and orders is a function of the sheriff, an officer of the court whose authority is by and large
statutorily determined to meet the particular exigencies arising from or connected with the performance of the multifarious
duties of the office. It is the acknowledgment of the many dimensions of this authority, defined by statute and chiselled by
practice, which compels me to disagree with the decision reached by the majority.
A consideration of the wide latitude of discretion allowed the sheriff as the officer of the court most directly involved with the
implementation and execution of final judgments and orders persuades me that PAL's payment to the sheriff of its judgment
debt to Amelia Tan, though made by check issued in said officer's name, lawfully satisfied said obligation and foreclosed
further recourse therefor against PAL, notwithstanding the sheriffs failure to deliver to Tan the proceeds of the check.
It is a matter of history that the judiciary .. is an inherit or of the Anglo-American tradition. While the
common law as such .. "is not in force" in this jurisdiction, "to breathe the breath of life into many of the
institutions, introduced [here] under American sovereignty, recourse must be had to the rules, principles
and doctrines of the common law under whose protecting aegis the prototypes of these institutions had
their birth" A sheriff is "an officer of great antiquity," and was also called theshire reeve. A shire in English
law is a Saxon word signifying a division later called a county. A reeve is an ancient English officer of justice
inferior in rank to an alderman .. appointed to process, keep the King's peace, and put the laws in
execution. From a very remote period in English constitutional history .. the shire had another officer,
namely the shire reeve or as we say, the sheriff. .. The Sheriff was the special representative of the legal or
central authority, and as such usually nominated by the King. .. Since the earliest times, both in England
and the United States, a sheriff has continued his status as an adjunct of the court .. . As it was there, so it
has been in the Philippines from the time of the organization of the judiciary .. . (J. Fernando's concurring
opinion in Bagatsing v. Herrera, 65 SCRA 434)
One of a sheriff s principal functions is to execute final judgments and orders. The Rules of Court require the writs of
execution to issue to him, directing him to enforce such judgments and orders in the manner therein provided (Rule 39). The
mode of enforcement varies according to the nature of the judgment to be carried out: whether it be against property of the
judgment debtor in his hands or in the hands of a third person i e. money judgment), or for the sale of property, real or
personal (i.e. foreclosure of mortgage) or the delivery thereof, etc. (sec. 8, Rule 39).
Under sec. 15 of the same Rule, the sheriff is empowered to levy on so much of the judgment debtor's property as may be
sufficient to enforce the money judgment and sell these properties at public auction after due notice to satisfy the adjudged
amount. It is the sheriff who, after the auction sale, conveys to the purchaser the property thus sold (secs. 25, 26, 27, Rule
39), and pays the judgment creditor so much of the proceeds as will satisfy the judgment. When the property sold by him on
execution is an immovable which consequently gives rise to a light of redemption on the part of the judgment debtor and
others (secs. 29, 30, Rule 39), it is to him (or to the purchaser or redemptioner that the payments may be made by those
declared by law as entitled to redeem (sec. 31, Rule 39); and in this situation, it becomes his duty to accept payment and
execute the certificate of redemption (Enage v. Vda. y Hijos de Escano, 38 Phil. 657, cited in Moran, Comments on the Rules
of Court, 1979 ed., vol. 2, pp. 326-327). It is also to the sheriff that "written notice of any redemption must be given and a
duplicate filed with the registrar of deeds of the province, and if any assessments or taxes are paid by the redemptioner or if
he has or acquires any lien other than that upon which the redemption was made, notice thereof must in like manner be
given to the officer and filed with the registrar of deeds," the effect of failure to file such notice being that redemption may be
made without paying such assessments, taxes, or liens (sec. 30, Rule 39).
The sheriff may likewise be appointed a receiver of the property of the judgment debtor where the appointment of the
receiver is deemed necessary for the execution of the judgment (sec. 32, Rule 39).
At any time before the sale of property on execution, the judgment debtor may prevent the sale by paying the sheriff the
amount required by the execution and the costs that have been incurred therein (sec. 20, Rule 39).
The sheriff is also authorized to receive payments on account of the judgment debt tendered by "a person indebted to the
judgment debtor," and his "receipt shall be a sufficient discharge for the amount so paid or directed to be credited by the
judgment creditor on the execution" (sec. 41, Rule 39).
Now, obviously, the sheriff s sale extinguishes the liability of the judgment debtor either in fun, if the price paid by the highest
bidder is equal to, or more than the amount of the judgment or pro tanto if the price fetched at the sale be less. Such
extinction is not in any way dependent upon the judgment creditor's receiving the amount realized, so that the conversion or
embezzlement of the proceeds of the sale by the sheriff does not revive the judgment debt or render the judgment creditor
liable anew therefor.
So, also, the taking by the sheriff of, say, personal property from the judgment debtor for delivery to the judgment creditor, in
fulfillment of the verdict against him, extinguishes the debtor's liability; and the conversion of said property by the sheriff, does
not make said debtor responsible for replacing the property or paying the value thereof.
In the instances where the Rules allow or direct payments to be made to the sheriff, the payments may be made by check,

but it goes without saying that if the sheriff so desires, he may require payment to be made in lawful money. If he accepts the
check, he places himself in a position where he would be liable to the judgment creditor if any damages are suffered by the
latter as a result of the medium in which payment was made (Javellana v. Mirasol, et al., 40 Phil. 761). The validity of the
payment made by the judgment debtor, however, is in no wise affected and the latter is discharged from his obligation to the
judgment creditor as of the moment the check issued to the sheriff is encashed and the proceeds are received by Id. office.
The issuance of the check to a person authorized to receive it (Art. 1240, Civil Code; See. 46 of the Code of Civil Procedure;
Enage v. Vda y Hijos de Escano, 38 Phil. 657, cited in Javellana v. Mirasol, 40 Phil. 761) operates to release the judgment
debtor from any further obligations on the judgment.
The sheriff is an adjunct of the court; a court functionary whose competence involves both discretion and personal liability
(concurring opinion of J. Fernando, citing Uy Piaoco v. Osmena, 9 Phil. 299, in Bagatsing v. Herrera, 65 SCRA 434). Being
an officer of the court and acting within the scope of his authorized functions, the sheriff s receipt of the checks in payment of
the judgment execution, may be deemed, in legal contemplation, as received by the court itself (Lara v. Bayona, 10 May
1955, No. L- 10919).
That the sheriff functions as a conduit of the court is further underscored by the fact that one of the requisites for appointment
to the office is the execution of a bond, "conditioned (upon) the faithful performance of his (the appointee's) duties .. for the
delivery or payment to Government, or the person entitled thereto, of all properties or sums of money that shall officially
come into his hands" (sec. 330, Revised Administrative Code).
There is no question that the checks came into the sheriffs possession in his official capacity. The court may require of the
judgment debtor, in complying with the judgment, no further burden than his vigilance in ensuring that the person he is paying
money or delivering property to is a person authorized by the court to receive it. Beyond this, further expectations become
unreasonable. To my mind, a proposal that would make the judgment debtor unqualifiedly the insurer of the judgment
creditor's entitlement to the judgment amount which is really what this case is all about begs the question.
That the checks were made out in the sheriffs name (a practice, by the way, of long and common acceptance) is of little
consequence if juxtaposed with the extent of the authority explicitly granted him by law as the officer entrusted with the power
to execute and implement court judgments. The sheriffs requirement that the checks in payment of the judgment debt be
issued in his name was simply an assertion of that authority; and PAL's compliance cannot in the premises be faulted merely
because of the sheriffs subsequent malfeasance in absconding with the payment instead of turning it over to the judgment
creditor.
If payment had been in cash, no question about its validity or of the authority and duty of the sheriff to accept it in settlement
of PAL's judgment obligation would even have arisen. Simply because it was made by checks issued in the sheriff s name
does not warrant reaching any different conclusion.
As payment to the court discharges the judgment debtor from his responsibility on the judgment, so too must payment to the
person designated by such court and authorized to act in its behalf, operate to produce the same effect.
It is unfortunate and deserving of commiseration that Amelia Tan was deprived of what was adjudged to her when the sheriff
misappropriated the payment made to him by PAL in dereliction of his sworn duties. But I submit that her remedy lies, not
here and in reviving liability under a judgment already lawfully satisfied, but elsewhere.
ACCORDINGLY, I vote to grant the petition.
Melencio-Herrera, Gancayco, J., concurs.

FELICIANO, J., dissenting:

I concur in the able dissenting opinions of Narvasa and Padilla, JJ. and would merely wish to add a few footnotes to their
lucid opinions.
1. Narvasa, J. has demonstrated in detail that a sheriff is authorized by the Rules of Court and our case law
to receive either legal tender or checks from the judgment debtor in satisfaction of the judgment debt. In
addition, Padilla, J. has underscored the obligation of the sheriff, imposed upon him by the nature of his
office and the law, to turn over such legal tender, checks and proceeds of execution sales to the judgment
creditor. The failure of a sheriff to effect such turnover and his conversion of the funds (or goods) held by
him to his own uses, do not have the effect of frustrating payment by and consequent discharge of the
judgment debtor.
To hold otherwise would be to throw the risk of the sheriff faithfully performing his duty as a public officer
upon those members of the general public who are compelled to deal with him. It seems to me that a
judgment debtor who turns over funds or property to the sheriff can not reasonably be made an insurer of
the honesty and integrity of the sheriff and that the risk of the sheriff carrying out his duties honestly and
faithfully is properly lodged in the State itself The sheriff, like all other officers of the court, is appointed and
paid and controlled and disciplined by the Government, more specifically by this Court. The public surely
has a duty to report possible wrongdoing by a sheriff or similar officer to the proper authorities and, if
necessary, to testify in the appropriate judicial and administrative disciplinary proceedings. But to make the

individual members of the general community insurers of the honest performance of duty of a sheriff, or
other officer of the court, over whom they have no control, is not only deeply unfair to the former. It is also a
confession of comprehensive failure and comes too close to an abdication of duty on the part of the Court
itself. This Court should have no part in that.
2. I also feel compelled to comment on the majority opinion written by Gutierrez, J. with all his customary
and special way with words. My learned and eloquent brother in the Court apparently accepts the
proposition that payment by a judgment debtor of cash to a sheriff produces the legal effects of payment,
the sheriff being authorized to accept such payment. Thus, in page 10 of hisponencia, Gutierrez, J. writes:
The receipt of money due on a judgment by an officer authorized by law to accept it will satisfy the debt.
(Citations omitted)
The theory is where payment is made to a person authorized and recognized by the creditor, the payment
to such a person so authorized is deemed payment to the creditor. Under ordinary circumstances, payment
by the judgment debtor in the case at bar, to the sheriff would be valid payment to extinguish the judgment
debt.
Shortly thereafter, however, Gutierrez, J. backs off from the above position and strongly implies that
payment in cash to the sheriff is sheer imprudence on the part of the judgment debtor and that therefore,
should the sheriff abscond with the cash, the judgment debtor has not validly discharged the judgment
debt:
It is argued that if PAL had paid in cash to Sheriff Reyes, there would have been payment in full legal
contemplation. The reasoning is logical but is it valid and proper?
In the first place, PAL did not pay in cash. It paid in checks.
And second, payment in cash always carries with it certain cautions. Nobody hands over big amounts of
cash in a careless and inane manner. Mature thought is given to the possibility of the cash being lost, of the
bearer being waylaid or running off with what he is carrying for another. Payment in checks is precisely
intended to avoid the possibility of the money going to the wrong party....
Payment in money or cash to the implementing officer may be deemed absolute payment of the judgment
debt but the court has never, in the least bit, suggested that judgment debtors should settle their obligations
by turning over huge amounts of cash or legal tender to sheriffs and other executing officers. ... (Emphasis
in the original) (Majority opinion, pp. 12-13)
There is no dispute with the suggestion apparently made that maximum safety is secured where the judgment debtor delivers
to the sheriff not cash but a check made out, not in the name of the sheriff, but in the judgment creditor's name. The
fundamental point that must be made, however, is that under our law only cash is legal tender and that the sheriff can be
compelled to accept only cash and not checks, even if made out to the name of the judgment creditor. 1 The sheriff could
have quite lawfully required PAL to deliver to him only cash, i.e., Philippine currency. If the sheriff had done so, and if PAL
had complied with such a requirement, as it would have had to, one would have to agree that legal payment must be deemed
to have been effected. It requires no particularly acute mind to note that a dishonest sheriff could easily convert the money
and abscond. The fact that the sheriff in the instant case required, not cash to be delivered to him, but rather a check made
out in his name, does not change the legal situation. PAL did not thereby become negligent; it did not make the loss anymore
possible or probable than if it had instead delivered plain cash to the sheriffs.
It seems to me that the majority opinion's real premise is the unspoken one that the judgment debtor should bear the risk of
the fragility of the sheriff s virtue until the money or property parted with by the judgment debtor actually reaches the hands of
the judgment creditor. This brings me back to my earlier point that risk is most appropriately borne not by the judgment
debtor, nor indeed by the judgment creditor, but by the State itself. The Court requires all sheriffs to post good and adequate
fidelity bonds before entering upon the performance of their duties and, presumably, to maintain such bonds in force and
effect throughout their stay in office. 2 The judgment creditor, in circumstances like those of the instant case, could be
allowed to execute upon the absconding sheriff s bond. 3
I believe the Petition should be granted and I vote accordingly.

PADILLA, J., Dissenting Opinion

From the facts that appear to be undisputed, I reach a conclusion different from that of the majority. Sheriff Emilio Z. Reyes,
the trial court's authorized sheriff, armed with a writ of execution to enforce a final money judgment against the petitioner
Philippine Airlines (PAL) in favor of private respondent Amelia Tan, proceeded to petitioner PAL's office to implement the writ.
There is no question that Sheriff Reyes, in enforcing the writ of execution, was acting with full authority as an officer of the
law and not in his personal capacity. Stated differently, PAL had every right to assume that, as an officer of the law, Sheriff
Reyes would perform his duties as enjoined by law. It would be grossly unfair to now charge PAL with advanced or
constructive notice that Mr. Reyes would abscond and not deliver to the judgment creditor the proceeds of the writ of

execution. If a judgment debtor cannot rely on and trust an officer of the law, as the Sheriff, whom else can he trust?
Pursued to its logical extreme, if PAL had delivered to Sheriff Reyes the amount of the judgment in CASH, i.e. Philippine
currency, with the corresponding receipt signed by Sheriff Reyes, this would have been payment by PAL in full legal
contemplation, because under Article 1240 of the Civil Code, "payment shall be made to the person in whose favor the
obligation has been constituted or his successor in interest or any person authorized to receive it." And said payment if made
by PAL in cash, i.e., Philippine currency, to Sheriff Reyes would have satisfied PAL's judgment obligation, as payment is a
legally recognized mode for extinguishing one's obligation. (Article 1231, Civil Code).
Under Sec. 15, Rule 39, Rules of Court which provides thatSec. 15. Execution of money judgments. The officer must enforce an execution of a money judgment by
levying on all the property, real and personal of every name and nature whatsoever, and which may be
disposed of for value, of the judgment debtor not exempt from execution, or on a sufficient amount of such
property, if there be sufficient, and selling the same, and paying to the judgment creditor, or his attorney, so
much of the proceeds as will satisfy the judgment. ... .(emphasis supplied)
it would be the duty of Sheriff Reyes to pay to the judgment creditor the proceeds of the execution i.e., the cash received
from PAL (under the above assumption). But, the duty of the sheriff to pay the cash to the judgment creditor would be a
matter separate the distinct from the fact that PAL would have satisfied its judgment obligation to Amelia Tan, the judgment
creditor, by delivering the cash amount due under the judgment to Sheriff Reyes.
Did the situation change by PAL's delivery of its two (2) checks totalling P30,000.00 drawn against its bank account, payable
to Sheriff Reyes, for account of the judgment rendered against PAL? I do not think so, because when Sheriff Reyes
encashed the checks, the encashment was in fact a payment by PAL to Amelia Tan through Sheriff Reyes, an officer of the
law authorized to receive payment, and such payment discharged PAL'S obligation under the executed judgment.
If the PAL cheeks in question had not been encashed by Sheriff Reyes, there would be no payment by PAL and,
consequently no discharge or satisfaction of its judgment obligation. But the checks had been encashed by Sheriff Reyes
giving rise to a situation as if PAL had paid Sheriff Reyes in cash, i.e., Philippine currency. This, we repeat, is payment, in
legal contemplation, on the part of PAL and this payment legally discharged PAL from its judgment obligation to the judgment
creditor. To be sure, the same encashment by Sheriff Reyes of PAL's checks delivered to him in his official capacity as
Sheriff, imposed an obligation on Sheriff Reyes to pay and deliver the proceeds of the encashment to Amelia Tan who is
deemed to have acquired a cause of action against Sheriff Reyes for his failure to deliver to her the proceeds of the
encashment. As held:
Payment of a judgment, to operate as a release or satisfaction, even pro tanto must be made to the plaintiff
or to some person authorized by him, or by law, to receive it. The payment of money to the sheriff having
an execution satisfies it, and, if the plaintiff fails to receive it, his only remedy is against the officer
(Henderson v. Planters' and Merchants Bank, 59 SO 493, 178 Ala. 420).
Payment of an execution satisfies it without regard to whether the officer pays it over to the creditor or
misapplies it (340, 33 C.J.S. 644, citing Elliot v. Higgins, 83 N.C. 459). If defendant consents to the Sheriff s
misapplication of the money, however, defendant is estopped to claim that the debt is satisfied (340, 33
C.J.S. 644, citing Heptinstall v. Medlin 83 N.C. 16).
The above rulings find even more cogent application in the case at bar because, as contended by petitioner PAL (not denied
by private respondent), when Sheriff Reyes served the writ of execution on PAL, he (Reyes) was accompanied by private
respondent's counsel. Prudence dictated that when PAL delivered to Sheriff Reyes the two (2) questioned checks (payable to
Sheriff Reyes), private respondent's counsel should have insisted on their immediate encashment by the Sheriff with the
drawee bank in order to promptly get hold of the amount belonging to his client, the judgment creditor.
ACCORDINGLY, I vote to grant the petition and to quash the court a quo's alias writ of execution.
Melencio-Herrera, Gancayco, Sarmiento, Cortes, JJ., concurs.

Separate Opinions

NARVASA, J., dissenting:

The execution of final judgments and orders is a function of the sheriff, an officer of the court whose authority is by and large
statutorily determined to meet the particular exigencies arising from or connected with the performance of the multifarious
duties of the office. It is the acknowledgment of the many dimensions of this authority, defined by statute and chiselled by
practice, which compels me to disagree with the decision reached by the majority.
A consideration of the wide latitude of discretion allowed the sheriff as the officer of the court most directly involved with the
implementation and execution of final judgments and orders persuades me that PAL's payment to the sheriff of its judgment
debt to Amelia Tan, though made by check issued in said officer's name, lawfully satisfied said obligation and foreclosed

further recourse therefor against PAL, notwithstanding the sheriffs failure to deliver to Tan the proceeds of the check.
It is a matter of history that the judiciary .. is an inherit or of the Anglo-American tradition. While the
common law as such .. "is not in force" in this jurisdiction, "to breathe the breath of life into many of the
institutions, introduced [here] under American sovereignty, recourse must be had to the rules, principles
and doctrines of the common law under whose protecting aegis the prototypes of these institutions had
their birth" A sheriff is "an officer of great antiquity," and was also called the shire reeve. A shire in English
law is a Saxon word signifying a division later called a county. A reeve is an ancient English officer of justice
inferior in rank to an alderman .. appointed to process, keep the King's peace, and put the laws in
execution. From a very remote period in English constitutional history .. the shire had another officer,
namely the shire reeve or as we say, the sheriff. .. The Sheriff was the special representative of the legal or
central authority, and as such usually nominated by the King. .. Since the earliest times, both in England
and the United States, a sheriff has continued his status as an adjunct of the court .. . As it was there, so it
has been in the Philippines from the time of the organization of the judiciary .. . (J. Fernando's concurring
opinion in Bagatsing v. Herrera, 65 SCRA 434)
One of a sheriff s principal functions is to execute final judgments and orders. The Rules of Court require the writs of
execution to issue to him, directing him to enforce such judgments and orders in the manner therein provided (Rule 39). The
mode of enforcement varies according to the nature of the judgment to be carried out: whether it be against property of the
judgment debtor in his hands or in the hands of a third person i e. money judgment), or for the sale of property, real or
personal (i.e. foreclosure of mortgage) or the delivery thereof, etc. (sec. 8, Rule 39).
Under sec. 15 of the same Rule, the sheriff is empowered to levy on so much of the judgment debtor's property as may be
sufficient to enforce the money judgment and sell these properties at public auction after due notice to satisfy the adjudged
amount. It is the sheriff who, after the auction sale, conveys to the purchaser the property thus sold (secs. 25, 26, 27, Rule
39), and pays the judgment creditor so much of the proceeds as will satisfy the judgment. When the property sold by him on
execution is an immovable which consequently gives rise to a light of redemption on the part of the judgment debtor and
others (secs. 29, 30, Rule 39), it is to him (or to the purchaser or redemptioner that the payments may be made by those
declared by law as entitled to redeem (sec. 31, Rule 39); and in this situation, it becomes his duty to accept payment and
execute the certificate of redemption (Enage v. Vda. y Hijos de Escano, 38 Phil. 657, cited in Moran, Comments on the Rules
of Court, 1979 ed., vol. 2, pp. 326-327). It is also to the sheriff that "written notice of any redemption must be given and a
duplicate filed with the registrar of deeds of the province, and if any assessments or taxes are paid by the redemptioner or if
he has or acquires any lien other than that upon which the redemption was made, notice thereof must in like manner be
given to the officer and filed with the registrar of deeds," the effect of failure to file such notice being that redemption may be
made without paying such assessments, taxes, or liens (sec. 30, Rule 39).
The sheriff may likewise be appointed a receiver of the property of the judgment debtor where the appointment of the
receiver is deemed necessary for the execution of the judgment (sec. 32, Rule 39).
At any time before the sale of property on execution, the judgment debtor may prevent the sale by paying the sheriff the
amount required by the execution and the costs that have been incurred therein (sec. 20, Rule 39).
The sheriff is also authorized to receive payments on account of the judgment debt tendered by "a person indebted to the
judgment debtor," and his "receipt shall be a sufficient discharge for the amount so paid or directed to be credited by the
judgment creditor on the execution" (sec. 41, Rule 39).
Now, obviously, the sheriff s sale extinguishes the liability of the judgment debtor either in fun, if the price paid by the highest
bidder is equal to, or more than the amount of the judgment or pro tanto if the price fetched at the sale be less. Such
extinction is not in any way dependent upon the judgment creditor's receiving the amount realized, so that the conversion or
embezzlement of the proceeds of the sale by the sheriff does not revive the judgment debt or render the judgment creditor
liable anew therefor.
So, also, the taking by the sheriff of, say, personal property from the judgment debtor for delivery to the judgment creditor, in
fulfillment of the verdict against him, extinguishes the debtor's liability; and the conversion of said property by the sheriff, does
not make said debtor responsible for replacing the property or paying the value thereof.
In the instances where the Rules allow or direct payments to be made to the sheriff, the payments may be made by check,
but it goes without saying that if the sheriff so desires, he may require payment to be made in lawful money. If he accepts the
check, he places himself in a position where he would be liable to the judgment creditor if any damages are suffered by the
latter as a result of the medium in which payment was made (Javellana v. Mirasol, et al., 40 Phil. 761). The validity of the
payment made by the judgment debtor, however, is in no wise affected and the latter is discharged from his obligation to the
judgment creditor as of the moment the check issued to the sheriff is encashed and the proceeds are received by Id. office.
The issuance of the check to a person authorized to receive it (Art. 1240, Civil Code; See. 46 of the Code of Civil Procedure;
Enage v. Vda y Hijos de Escano, 38 Phil. 657, cited in Javellana v. Mirasol, 40 Phil. 761) operates to release the judgment
debtor from any further obligations on the judgment.
The sheriff is an adjunct of the court; a court functionary whose competence involves both discretion and personal liability
(concurring opinion of J. Fernando, citing Uy Piaoco v. Osmena, 9 Phil. 299, in Bagatsing v. Herrera, 65 SCRA 434). Being
an officer of the court and acting within the scope of his authorized functions, the sheriff s receipt of the checks in payment of

the judgment execution, may be deemed, in legal contemplation, as received by the court itself (Lara v. Bayona, 10 May
1955, No. L- 10919).
That the sheriff functions as a conduit of the court is further underscored by the fact that one of the requisites for appointment
to the office is the execution of a bond, "conditioned (upon) the faithful performance of his (the appointee's) duties .. for the
delivery or payment to Government, or the person entitled thereto, of all properties or sums of money that shall officially
come into his hands" (sec. 330, Revised Administrative Code).
There is no question that the checks came into the sheriffs possession in his official capacity. The court may require of the
judgment debtor, in complying with the judgment, no further burden than his vigilance in ensuring that the person he is paying
money or delivering property to is a person authorized by the court to receive it. Beyond this, further expectations become
unreasonable. To my mind, a proposal that would make the judgment debtor unqualifiedly the insurer of the judgment
creditor's entitlement to the judgment amount which is really what this case is all about-begs the question.
That the checks were made out in the sheriffs name (a practice, by the way, of long and common acceptance) is of little
consequence if juxtaposed with the extent of the authority explicitly granted him by law as the officer entrusted with the power
to execute and implement court judgments. The sheriffs requirement that the checks in payment of the judgment debt be
issued in his name was simply an assertion of that authority; and PAL's compliance cannot in the premises be faulted merely
because of the sheriffs subsequent malfeasance in absconding with the payment instead of turning it over to the judgment
creditor.
If payment had been in cash, no question about its validity or of the authority and duty of the sheriff to accept it in settlement
of PAL's judgment obligation would even have arisen. Simply because it was made by checks issued in the sheriff s name
does not warrant reaching any different conclusion.
As payment to the court discharges the judgment debtor from his responsibility on the judgment, so too must payment to the
person designated by such court and authorized to act in its behalf, operate to produce the same effect.
It is unfortunate and deserving of commiseration that Amelia Tan was deprived of what was adjudged to her when the sheriff
misappropriated the payment made to him by PAL in dereliction of his sworn duties. But I submit that her remedy lies, not
here and in reviving liability under a judgment already lawfully satisfied, but elsewhere.
ACCORDINGLY, I vote to grant the petition.
Melencio-Herrera, Gancayco, J., concurs.

FELICIANO, J., dissenting:

I concur in the able dissenting opinions of Narvasa and Padilla, JJ. and would merely wish to add a few footnotes to their
lucid opinions.
1. Narvasa, J. has demonstrated in detail that a sheriff is authorized by the Rules of Court and our case law
to receive either legal tender or checks from the judgment debtor in satisfaction of the judgment debt. In
addition, Padilla, J. has underscored the obligation of the sheriff, imposed upon him by the nature of his
office and the law, to turn over such legal tender, checks and proceeds of execution sales to the judgment
creditor. The failure of a sheriff to effect such turnover and his conversion of the funds (or goods) held by
him to his own uses, do not have the effect of frustrating payment by and consequent discharge of the
judgment debtor.
To hold otherwise would be to throw the risk of the sheriff faithfully performing his duty as a public officer
upon those members of the general public who are compelled to deal with him. It seems to me that a
judgment debtor who turns over funds or property to the sheriff can not reasonably be made an insurer of
the honesty and integrity of the sheriff and that the risk of the sheriff carrying out his duties honestly and
faithfully is properly lodged in the State itself The sheriff, like all other officers of the court, is appointed and
paid and controlled and disciplined by the Government, more specifically by this Court. The public surely
has a duty to report possible wrongdoing by a sheriff or similar officer to the proper authorities and, if
necessary, to testify in the appropriate judicial and administrative disciplinary proceedings. But to make the
individual members of the general community insurers of the honest performance of duty of a sheriff, or
other officer of the court, over whom they have no control, is not only deeply unfair to the former. It is also a
confession of comprehensive failure and comes too close to an abdication of duty on the part of the Court
itself. This Court should have no part in that.
2. I also feel compelled to comment on the majority opinion written by Gutierrez, J. with all his customary
and special way with words. My learned and eloquent brother in the Court apparently accepts the
proposition that payment by a judgment debtor of cash to a sheriff produces the legal effects of payment,
the sheriff being authorized to accept such payment. Thus, in page 10 of hisponencia, Gutierrez, J. writes:
The receipt of money due on a judgment by an officer authorized by law to accept it will satisfy the debt.
(Citations omitted)

The theory is where payment is made to a person authorized and recognized by the creditor, the payment
to such a person so authorized is deemed payment to the creditor. Under ordinary circumstances, payment
by the judgment debtor in the case at bar, to the sheriff would be valid payment to extinguish the judgment
debt.
Shortly thereafter, however, Gutierrez, J. backs off from the above position and strongly implies that
payment in cash to the sheriff is sheer imprudence on the part of the judgment debtor and that therefore,
should the sheriff abscond with the cash, the judgment debtor has not validly discharged the judgment
debt:
It is argued that if PAL had paid in cash to Sheriff Reyes, there would have been payment in full legal
contemplation. The reasoning is logical but is it valid and proper?
In the first place, PAL did not pay in cash. It paid in checks.
And second, payment in cash always carries with it certain cautions. Nobody hands over big amounts of
cash in a careless and inane manner. Mature thought is given to the possibility of the cash being lost, of the
bearer being waylaid or running off with what he is carrying for another. Payment in checks is precisely
intended to avoid the possibility of the money going to the wrong party....
Payment in money or cash to the implementing officer may be deemed absolute payment of the judgment
debt but the court has never, in the least bit, suggested that judgment debtors should settle their obligations
by turning over huge amounts of cash or legal tender to sheriffs and other executing officers. ... (Emphasis
in the original) (Majority opinion, pp. 12-13)
There is no dispute with the suggestion apparently made that maximum safety is secured where the judgment debtor delivers
to the sheriff not cash but a check made out, not in the name of the sheriff, but in the judgment creditor's name. The
fundamental point that must be made, however, is that under our law only cash is legal tender and that the sheriff can be
compelled to accept only cash and not checks, even if made out to the name of the judgment creditor. 1 The sheriff could
have quite lawfully required PAL to deliver to him only cash, i.e., Philippine currency. If the sheriff had done so, and if PAL
had complied with such a requirement, as it would have had to, one would have to agree that legal payment must be deemed
to have been effected. It requires no particularly acute mind to note that a dishonest sheriff could easily convert the money
and abscond. The fact that the sheriff in the instant case required, not cash to be delivered to him, but rather a check made
out in his name, does not change the legal situation. PAL did not thereby become negligent; it did not make the loss anymore
possible or probable than if it had instead delivered plain cash to the sheriffs.
It seems to me that the majority opinion's real premise is the unspoken one that the judgment debtor should bear the risk of
the fragility of the sheriff s virtue until the money or property parted with by the judgment debtor actually reaches the hands of
the judgment creditor. This brings me back to my earlier point that risk is most appropriately borne not by the judgment
debtor, nor indeed by the judgment creditor, but by the State itself. The Court requires all sheriffs to post good and adequate
fidelity bonds before entering upon the performance of their duties and, presumably, to maintain such bonds in force and
effect throughout their stay in office. 2 The judgment creditor, in circumstances like those of the instant case, could be
allowed to execute upon the absconding sheriff s bond. 3
I believe the Petition should be granted and I vote accordingly.

PADILLA, J., Dissenting Opinion

From the facts that appear to be undisputed, I reach a conclusion different from that of the majority. Sheriff Emilio Z. Reyes,
the trial court's authorized sheriff, armed with a writ of execution to enforce a final money judgment against the petitioner
Philippine Airlines (PAL) in favor of private respondent Amelia Tan, proceeded to petitioner PAL's office to implement the writ.
There is no question that Sheriff Reyes, in enforcing the writ of execution, was acting with full authority as an officer of the
law and not in his personal capacity. Stated differently, PAL had every right to assume that, as an officer of the law, Sheriff
Reyes would perform his duties as enjoined by law. It would be grossly unfair to now charge PAL with advanced or
constructive notice that Mr. Reyes would abscond and not deliver to the judgment creditor the proceeds of the writ of
execution. If a judgment debtor cannot rely on and trust an officer of the law, as the Sheriff, whom else can he trust?
Pursued to its logical extreme, if PAL had delivered to Sheriff Reyes the amount of the judgment in CASH, i.e. Philippine
currency, with the corresponding receipt signed by Sheriff Reyes, this would have been payment by PAL in full legal
contemplation, because under Article 1240 of the Civil Code, "payment shall be made to the person in whose favor the
obligation has been constituted or his successor in interest or any person authorized to receive it." And said payment if made
by PAL in cash, i.e., Philippine currency, to Sheriff Reyes would have satisfied PAL's judgment obligation, as payment is a
legally recognized mode for extinguishing one's obligation. (Article 1231, Civil Code).
Under Sec. 15, Rule 39, Rules of Court which provides thatSec. 15. Execution of money judgments.-The officer must enforce an execution of a money judgment by
levying on all the property, real and personal of every name and nature whatsoever, and which may be

disposed of for value, of the judgment debtor not exempt from execution, or on a sufficient amount of such
property, if there be sufficient, and selling the same, and paying to the judgment creditor, or his attorney, so
much of the proceeds as will satisfy the judgment. ... .(emphasis supplied)
it would be the duty of Sheriff Reyes to pay to the judgment creditor the proceeds of the execution i.e., the cash received
from PAL (under the above assumption). But, the duty of the sheriff to pay the cash to the judgment creditor would be a
matter separate the distinct from the fact that PAL would have satisfied its judgment obligation to Amelia Tan, the judgment
creditor, by delivering the cash amount due under the judgment to Sheriff Reyes.
Did the situation change by PAL's delivery of its two (2) checks totalling P30,000.00 drawn against its bank account, payable
to Sheriff Reyes, for account of the judgment rendered against PAL? I do not think so, because when Sheriff Reyes
encashed the checks, the encashment was in fact a payment by PAL to Amelia Tan through Sheriff Reyes, an officer of the
law authorized to receive payment, and such payment discharged PAL'S obligation under the executed judgment.
If the PAL cheeks in question had not been encashed by Sheriff Reyes, there would be no payment by PAL and,
consequently no discharge or satisfaction of its judgment obligation. But the checks had been encashed by Sheriff Reyes
giving rise to a situation as if PAL had paid Sheriff Reyes in cash, i.e., Philippine currency. This, we repeat, is payment, in
legal contemplation, on the part of PAL and this payment legally discharged PAL from its judgment obligation to the judgment
creditor. To be sure, the same encashment by Sheriff Reyes of PAL's checks delivered to him in his official capacity as
Sheriff, imposed an obligation on Sheriff Reyes to pay and deliver the proceeds of the encashment to Amelia Tan who is
deemed to have acquired a cause of action against Sheriff Reyes for his failure to deliver to her the proceeds of the
encashment. As held:
Payment of a judgment, to operate as a release or satisfaction, even pro tanto must be made to the plaintiff
or to some person authorized by him, or by law, to receive it. The payment of money to the sheriff having
an execution satisfies it, and, if the plaintiff fails to receive it, his only remedy is against the officer
(Henderson v. Planters' and Merchants Bank, 59 SO 493, 178 Ala. 420).
Payment of an execution satisfies it without regard to whether the officer pays it over to the creditor or
misapplies it (340, 33 C.J.S. 644, citing Elliot v. Higgins, 83 N.C. 459). If defendant consents to the Sheriff s
misapplication of the money, however, defendant is estopped to claim that the debt is satisfied (340, 33
C.J.S. 644, citing Heptinstall v. Medlin 83 N.C. 16).
The above rulings find even more cogent application in the case at bar because, as contended by petitioner PAL (not denied
by private respondent), when Sheriff Reyes served the writ of execution on PAL, he (Reyes) was accompanied by private
respondent's counsel. Prudence dictated that when PAL delivered to Sheriff Reyes the two (2) questioned checks (payable to
Sheriff Reyes), private respondent's counsel should have insisted on their immediate encashment by the Sheriff with the
drawee bank in order to promptly get hold of the amount belonging to his client, the judgment creditor.
ACCORDINGLY, I vote to grant the petition and to quash the court a quo's alias writ of execution.
Melencio-Herrera, Gancayco, Sarmiento, Cortes, JJ., concurs.
Footnotes
1 Art. 1249, Civil Code; e.g., Belisario v. Natividad, 60 Phil. 156 (1934); Villanueva v. Santos, 67 Phil 648
(1938).
2 See e.g., Sec. 46, Republic Act No. 296, as amended by Republic Act No. 4814.
3 See e.g., Sec. 9, Act No. 3598.

G.R. No. 88866 February 18, 1991

METROPOLITAN BANK & TRUST COMPANY, petitioner,
vs.
COURT OF APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC., LUCIA CASTILLO, MAGNO CASTILLO and
GLORIA CASTILLO, respondents.
Angara, Abello, Concepcion, Regala & Cruz for petitioner.
Bengzon, Zarraga, Narciso, Cudala, Pecson & Bengson for Magno and Lucia Castillo.
Agapito S. Fajardo and Jaime M. Cabiles for respondent Golden Savings & Loan Association, Inc.

CRUZ, J.:p
This case, for all its seeming complexity, turns on a simple question of negligence. The facts, pruned of all non-essentials,
are easily told.
The Metropolitan Bank and Trust Co. is a commercial bank with branches throughout the Philippines and even abroad.
Golden Savings and Loan Association was, at the time these events happened, operating in Calapan, Mindoro, with the other
private respondents as its principal officers.
In January 1979, a certain Eduardo Gomez opened an account with Golden Savings and deposited over a period of two
months 38 treasury warrants with a total value of P1,755,228.37. They were all drawn by the Philippine Fish Marketing
Authority and purportedly signed by its General Manager and countersigned by its Auditor. Six of these were directly payable
to Gomez while the others appeared to have been indorsed by their respective payees, followed by Gomez as second
indorser. 1
On various dates between June 25 and July 16, 1979, all these warrants were subsequently indorsed by Gloria Castillo as
Cashier of Golden Savings and deposited to its Savings Account No. 2498 in the Metrobank branch in Calapan, Mindoro.
They were then sent for clearing by the branch office to the principal office of Metrobank, which forwarded them to the
Bureau of Treasury for special clearing. 2
More than two weeks after the deposits, Gloria Castillo went to the Calapan branch several times to ask whether the
warrants had been cleared. She was told to wait. Accordingly, Gomez was meanwhile not allowed to withdraw from his
account. Later, however, "exasperated" over Gloria's repeated inquiries and also as an accommodation for a "valued client,"
the petitioner says it finally decided to allow Golden Savings to withdraw from the proceeds of the
warrants. 3 The first withdrawal was made on July 9, 1979, in the amount of P508,000.00, the second on July 13, 1979, in
the amount of P310,000.00, and the third on July 16, 1979, in the amount of P150,000.00. The total withdrawal was
P968.000.00. 4
In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own account, eventually collecting the
total amount of P1,167,500.00 from the proceeds of the apparently cleared warrants. The last withdrawal was made on July
16, 1979.
On July 21, 1979, Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the Bureau of
Treasury on July 19, 1979, and demanded the refund by Golden Savings of the amount it had previously withdrawn, to make
up the deficit in its account.
The demand was rejected. Metrobank then sued Golden Savings in the Regional Trial Court of Mindoro. 5 After trial,
judgment was rendered in favor of Golden Savings, which, however, filed a motion for reconsideration even as Metrobank
filed its notice of appeal. On November 4, 1986, the lower court modified its decision thus:
ACCORDINGLY, judgment is hereby rendered:
1. Dismissing the complaint with costs against the plaintiff;
2. Dissolving and lifting the writ of attachment of the properties of defendant Golden Savings and Loan
Association, Inc. and defendant Spouses Magno Castillo and Lucia Castillo;
3. Directing the plaintiff to reverse its action of debiting Savings Account No. 2498 of the sum of
P1,754,089.00 and to reinstate and credit to such account such amount existing before the debit was made
including the amount of P812,033.37 in favor of defendant Golden Savings and Loan Association, Inc. and
thereafter, to allow defendant Golden Savings and Loan Association, Inc. to withdraw the amount
outstanding thereon before the debit;
4. Ordering the plaintiff to pay the defendant Golden Savings and Loan Association, Inc. attorney's fees and
expenses of litigation in the amount of P200,000.00.
5. Ordering the plaintiff to pay the defendant Spouses Magno Castillo and Lucia Castillo attorney's fees and
expenses of litigation in the amount of P100,000.00.

SO ORDERED.
On appeal to the respondent court, 6 the decision was affirmed, prompting Metrobank to file this petition for review on the
following grounds:
1. Respondent Court of Appeals erred in disregarding and failing to apply the clear contractual terms and
conditions on the deposit slips allowing Metrobank to charge back any amount erroneously credited.
(a) Metrobank's right to charge back is not limited to instances where the checks or treasury warrants are
forged or unauthorized.
(b) Until such time as Metrobank is actually paid, its obligation is that of a mere collecting agent which
cannot be held liable for its failure to collect on the warrants.
2. Under the lower court's decision, affirmed by respondent Court of Appeals, Metrobank is made to pay for
warrants already dishonored, thereby perpetuating the fraud committed by Eduardo Gomez.
3. Respondent Court of Appeals erred in not finding that as between Metrobank and Golden Savings, the
latter should bear the loss.
4. Respondent Court of Appeals erred in holding that the treasury warrants involved in this case are not
negotiable instruments.
The petition has no merit.
From the above undisputed facts, it would appear to the Court that Metrobank was indeed negligent in giving Golden Savings
the impression that the treasury warrants had been cleared and that, consequently, it was safe to allow Gomez to withdraw
the proceeds thereof from his account with it. Without such assurance, Golden Savings would not have allowed the
withdrawals; with such assurance, there was no reason not to allow the withdrawal. Indeed, Golden Savings might even have
incurred liability for its refusal to return the money that to all appearances belonged to the depositor, who could therefore
withdraw it any time and for any reason he saw fit.
It was, in fact, to secure the clearance of the treasury warrants that Golden Savings deposited them to its account with
Metrobank. Golden Savings had no clearing facilities of its own. It relied on Metrobank to determine the validity of the
warrants through its own services. The proceeds of the warrants were withheld from Gomez until Metrobank allowed Golden
Savings itself to withdraw them from its own deposit. 7 It was only when Metrobank gave the go-signal that Gomez was
finally allowed by Golden Savings to withdraw them from his own account.
The argument of Metrobank that Golden Savings should have exercised more care in checking the personal circumstances
of Gomez before accepting his deposit does not hold water. It was Gomez who was entrusting the warrants, not Golden
Savings that was extending him a loan; and moreover, the treasury warrants were subject to clearing, pending which the
depositor could not withdraw its proceeds. There was no question of Gomez's identity or of the genuineness of his signature
as checked by Golden Savings. In fact, the treasury warrants were dishonored allegedly because of the forgery of the
signatures of the drawers, not of Gomez as payee or indorser. Under the circumstances, it is clear that Golden Savings acted
with due care and diligence and cannot be faulted for the withdrawals it allowed Gomez to make.
By contrast, Metrobank exhibited extraordinary carelessness. The amount involved was not trifling more than one and a
half million pesos (and this was 1979). There was no reason why it should not have waited until the treasury warrants had
been cleared; it would not have lost a single centavo by waiting. Yet, despite the lack of such clearance and
notwithstanding that it had not received a single centavo from the proceeds of the treasury warrants, as it now repeatedly
stresses it allowed Golden Savings to withdraw not once, not twice, but thrice from the uncleared treasury warrants
in the total amount of P968,000.00
Its reason? It was "exasperated" over the persistent inquiries of Gloria Castillo about the clearance and it also wanted to
"accommodate" a valued client. It "presumed" that the warrants had been cleared simply because of "the lapse of one
week." 8 For a bank with its long experience, this explanation is unbelievably naive.
And now, to gloss over its carelessness, Metrobank would invoke the conditions printed on the dorsal side of the deposit slips
through which the treasury warrants were deposited by Golden Savings with its Calapan branch. The conditions read as
follows:
Kindly note that in receiving items on deposit, the bank obligates itself only as the depositor's collecting
agent, assuming no responsibility beyond care in selecting correspondents, and until such time as actual
payment shall have come into possession of this bank, the right is reserved to charge back to the
depositor's account any amount previously credited, whether or not such item is returned. This also applies
to checks drawn on local banks and bankers and their branches as well as on this bank, which are unpaid
due to insufficiency of funds, forgery, unauthorized overdraft orany other reason. (Emphasis supplied.)
According to Metrobank, the said conditions clearly show that it was acting only as a collecting agent for Golden Savings and
give it the right to "charge back to the depositor's account any amount previously credited, whether or not such item is
returned. This also applies to checks ". . . which are unpaid due to insufficiency of funds, forgery, unauthorized overdraft of
any other reason." It is claimed that the said conditions are in the nature of contractual stipulations and became binding on

Golden Savings when Gloria Castillo, as its Cashier, signed the deposit slips.
Doubt may be expressed about the binding force of the conditions, considering that they have apparently been imposed by
the bank unilaterally, without the consent of the depositor. Indeed, it could be argued that the depositor, in signing the deposit
slip, does so only to identify himself and not to agree to the conditions set forth in the given permit at the back of the deposit
slip. We do not have to rule on this matter at this time. At any rate, the Court feels that even if the deposit slip were
considered a contract, the petitioner could still not validly disclaim responsibility thereunder in the light of the circumstances
of this case.
In stressing that it was acting only as a collecting agent for Golden Savings, Metrobank seems to be suggesting that as a
mere agent it cannot be liable to the principal. This is not exactly true. On the contrary, Article 1909 of the Civil Code clearly
provides that
Art. 1909. The agent is responsible not only for fraud, but also for negligence, which shall be judged
'with more or less rigor by the courts, according to whether the agency was or was not for a compensation.
The negligence of Metrobank has been sufficiently established. To repeat for emphasis, it was the clearance given by it that
assured Golden Savings it was already safe to allow Gomez to withdraw the proceeds of the treasury warrants he had
deposited Metrobank misled Golden Savings. There may have been no express clearance, as Metrobank insists (although
this is refuted by Golden Savings) but in any case that clearance could be implied from its allowing Golden Savings to
withdraw from its account not only once or even twice butthree times. The total withdrawal was in excess of its original
balance before the treasury warrants were deposited, which only added to its belief that the treasury warrants had indeed
been cleared.
Metrobank's argument that it may recover the disputed amount if the warrants are not paid for any reason is not acceptable.
Any reason does not mean no reason at all. Otherwise, there would have been no need at all for Golden Savings to deposit
the treasury warrants with it for clearance. There would have been no need for it to wait until the warrants had been cleared
before paying the proceeds thereof to Gomez. Such a condition, if interpreted in the way the petitioner suggests, is not
binding for being arbitrary and unconscionable. And it becomes more so in the case at bar when it is considered that the
supposed dishonor of the warrants was not communicated to Golden Savings before it made its own payment to Gomez.
The belated notification aggravated the petitioner's earlier negligence in giving express or at least implied clearance to the
treasury warrants and allowing payments therefrom to Golden Savings. But that is not all. On top of this, the supposed
reason for the dishonor, to wit, the forgery of the signatures of the general manager and the auditor of the drawer corporation,
has not been established. 9 This was the finding of the lower courts which we see no reason to disturb. And as we said in
MWSS v. Court of Appeals: 10
Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139 SCRA 238). It must be established by clear,
positive and convincing evidence. This was not done in the present case.
A no less important consideration is the circumstance that the treasury warrants in question are not negotiable instruments.
Clearly stamped on their face is the word "non-negotiable." Moreover, and this is of equal significance, it is indicated that they
are payable from a particular fund, to wit, Fund 501.
The following sections of the Negotiable Instruments Law, especially the underscored parts, are pertinent:
Sec. 1. Form of negotiable instruments. An instrument to be negotiable must conform to the following
requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with
reasonable certainty.
xxx xxx xxx
Sec. 3. When promise is unconditional. An unqualified order or promise to pay is unconditional within the
meaning of this Act though coupled with
(a) An indication of a particular fund out of which reimbursement is to be made or a particular account to be
debited with the amount; or
(b) A statement of the transaction which gives rise to the instrument judgment.
But an order or promise to pay out of a particular fund is not unconditional.
The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the order or promise to
pay "not unconditional" and the warrants themselves non-negotiable. There should be no question that the exception on

Section 3 of the Negotiable Instruments Law is applicable in the case at bar. This conclusion conforms to Abubakar vs.
Auditor General 11 where the Court held:
The petitioner argues that he is a holder in good faith and for value of a negotiable instrument and is
entitled to the rights and privileges of a holder in due course, free from defenses. But this treasury warrant
is not within the scope of the negotiable instrument law. For one thing, the document bearing on its face the
words "payable from the appropriation for food administration, is actually an Order for payment out of "a
particular fund," and is not unconditional and does not fulfill one of the essential requirements of a
negotiable instrument (Sec. 3 last sentence and section [1(b)] of the Negotiable Instruments Law).
Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed that they were "genuine and
in all respects what they purport to be," in accordance with Section 66 of the Negotiable Instruments Law. The simple reason
is that this law is not applicable to the non-negotiable treasury warrants. The indorsement was made by Gloria Castillo not for
the purpose of guaranteeing the genuineness of the warrants but merely to deposit them with Metrobank for clearing. It was
in fact Metrobank that made the guarantee when it stamped on the back of the warrants: "All prior indorsement and/or lack of
endorsements guaranteed, Metropolitan Bank & Trust Co., Calapan Branch."
The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the Philippine Islands, 12 but we feel this case is
inapplicable to the present controversy. That case involved checks whereas this case involves treasury warrants. Golden
Savings never represented that the warrants were negotiable but signed them only for the purpose of depositing them for
clearance. Also, the fact of forgery was proved in that case but not in the case before us. Finally, the Court found the Jai Alai
Corporation negligent in accepting the checks without question from one Antonio Ramirez notwithstanding that the payee
was the Inter-Island Gas Services, Inc. and it did not appear that he was authorized to indorse it. No similar negligence can
be imputed to Golden Savings.
We find the challenged decision to be basically correct. However, we will have to amend it insofar as it directs the petitioner
to credit Golden Savings with the full amount of the treasury checks deposited to its account.
The total value of the 32 treasury warrants dishonored was P1,754,089.00, from which Gomez was allowed to withdraw
P1,167,500.00 before Golden Savings was notified of the dishonor. The amount he has withdrawn must be charged not to
Golden Savings but to Metrobank, which must bear the consequences of its own negligence. But the balance of P586,589.00
should be debited to Golden Savings, as obviously Gomez can no longer be permitted to withdraw this amount from his
deposit because of the dishonor of the warrants. Gomez has in fact disappeared. To also credit the balance to Golden
Savings would unduly enrich it at the expense of Metrobank, let alone the fact that it has already been informed of the
dishonor of the treasury warrants.
WHEREFORE, the challenged decision is AFFIRMED, with the modification that Paragraph 3 of the dispositive portion of the
judgment of the lower court shall be reworded as follows:
3. Debiting Savings Account No. 2498 in the sum of P586,589.00 only and thereafter allowing defendant
Golden Savings & Loan Association, Inc. to withdraw the amount outstanding thereon, if any, after the
debit.
SO ORDERED.
Narvasa, Gancayco, Grio-Aquino and Medialdea, JJ., concur.

G.R. No. 97753 August 10, 1992

CALTEX (PHILIPPINES), INC., petitioner,
vs.
COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.
Bito, Lozada, Ortega & Castillo for petitioners.
Nepomuceno, Hofilea & Guingona for private.

REGALADO, J.:
This petition for review on certiorari impugns and seeks the reversal of the decision promulgated by respondent court on
March 8, 1991 in CA-G.R. CV No. 23615 1 affirming with modifications, the earlier decision of the Regional Trial Court of
Manila, Branch XLII, 2 which dismissed the complaint filed therein by herein petitioner against respondent bank.
The undisputed background of this case, as found by the court a quo and adopted by respondent court, appears of record:
1. On various dates, defendant, a commercial banking institution, through its Sucat Branch issued 280
certificates of time deposit (CTDs) in favor of one Angel dela Cruz who deposited with herein defendant the
aggregate amount of P1,120,000.00, as follows: (Joint Partial Stipulation of Facts and Statement of Issues,
Original Records, p. 207; Defendant's Exhibits 1 to 280);
CTD
Dates Serial Nos. Quantity Amount
22
Feb.
26
Feb.
2
Mar.
4
Mar.
5
Mar.
5
Mar.
5
Mar.
8
Mar.
9
Mar.
9
Mar.
9
Mar.

Total
===== ========

82
82
82
82
82
82
82
82
82
82
82

CTD
90101
74602
74701
90127
74797
89965
70147
90001
90023
89991
90251

to
to
to
to
to
to
to
to
to
to
to
280

90120
74691
74740
90146
94800
89986
90150
90020
90050
90000
90272

20
90
40
20
4
22
4
20
28
10
22

P80,000
360,000
160,000
80,000
16,000
88,000
16,000
80,000
112,000
40,000
88,000

P1,120,000

2. Angel dela Cruz delivered the said certificates of time (CTDs) to herein plaintiff in connection with his
purchased of fuel products from the latter (Original Record, p. 208).
3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo Tiangco, the Sucat Branch Manger, that
he lost all the certificates of time deposit in dispute. Mr. Tiangco advised said depositor to execute and
submit a notarized Affidavit of Loss, as required by defendant bank's procedure, if he desired replacement
of said lost CTDs (TSN, February 9, 1987, pp. 48-50).
4. On March 18, 1982, Angel dela Cruz executed and delivered to defendant bank the required Affidavit of
Loss (Defendant's Exhibit 281). On the basis of said affidavit of loss, 280 replacement CTDs were issued in
favor of said depositor (Defendant's Exhibits 282-561).
5. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan from defendant bank in the amount
of Eight Hundred Seventy Five Thousand Pesos (P875,000.00). On the same date, said depositor
executed a notarized Deed of Assignment of Time Deposit (Exhibit 562) which stated, among others, that
he (de la Cruz) surrenders to defendant bank "full control of the indicated time deposits from and after date"
of the assignment and further authorizes said bank to pre-terminate, set-off and "apply the said time
deposits to the payment of whatever amount or amounts may be due" on the loan upon its maturity (TSN,
February 9, 1987, pp. 60-62).
6. Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff Caltex (Phils.) Inc., went to the
defendant bank's Sucat branch and presented for verification the CTDs declared lost by Angel dela Cruz
alleging that the same were delivered to herein plaintiff "as security for purchases made with Caltex
Philippines, Inc." by said depositor (TSN, February 9, 1987, pp. 54-68).
7. On November 26, 1982, defendant received a letter (Defendant's Exhibit 563) from herein plaintiff
formally informing it of its possession of the CTDs in question and of its decision to pre-terminate the same.
8. On December 8, 1982, plaintiff was requested by herein defendant to furnish the former "a copy of the

document evidencing the guarantee agreement with Mr. Angel dela Cruz" as well as "the details of Mr.
Angel dela Cruz" obligation against which plaintiff proposed to apply the time deposits (Defendant's Exhibit
564).
9. No copy of the requested documents was furnished herein defendant.
10. Accordingly, defendant bank rejected the plaintiff's demand and claim for payment of the value of the
CTDs in a letter dated February 7, 1983 (Defendant's Exhibit 566).
11. In April 1983, the loan of Angel dela Cruz with the defendant bank matured and fell due and on August
5, 1983, the latter set-off and applied the time deposits in question to the payment of the matured loan
(TSN, February 9, 1987, pp. 130-131).
12. In view of the foregoing, plaintiff filed the instant complaint, praying that defendant bank be ordered to
pay it the aggregate value of the certificates of time deposit of P1,120,000.00 plus accrued interest and
compounded interest therein at 16% per annum, moral and exemplary damages as well as attorney's fees.
After trial, the court a quo rendered its decision dismissing the instant complaint. 3
On appeal, as earlier stated, respondent court affirmed the lower court's dismissal of the complaint, hence this petition
wherein petitioner faults respondent court in ruling (1) that the subject certificates of deposit are non-negotiable despite being
clearly negotiable instruments; (2) that petitioner did not become a holder in due course of the said certificates of deposit;
and (3) in disregarding the pertinent provisions of the Code of Commerce relating to lost instruments payable to bearer. 4
The instant petition is bereft of merit.
A sample text of the certificates of time deposit is reproduced below to provide a better understanding of the issues involved
in this recourse.
SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%
Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____
This is to Certify that B E A R E R has deposited in this Bank the sum of PESOS: FOUR
THOUSAND ONLY, SECURITY BANK SUCAT OFFICE P4,000 & 00 CTSPesos,
Philippine Currency, repayable to said depositor 731 days. after date, upon presentation
and surrender of this certificate, with interest at the rate of 16% per centper annum.
(Sgd. Illegible) (Sgd. Illegible)

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

reasonable certainty.
The CTDs in question undoubtedly meet the requirements of the law for negotiability. The parties' bone of contention is with
regard to requisite (d) set forth above. It is noted that Mr. Timoteo P. Tiangco, Security Bank's Branch Manager way back in
1982, testified in open court that the depositor reffered to in the CTDs is no other than Mr. Angel de la Cruz.
xxx xxx xxx
Atty. Calida:
q In other words Mr. Witness, you are saying that per books of the bank, the depositor
referred (sic) in these certificates states that it was Angel dela Cruz?
witness:
a Yes, your Honor, and we have the record to show that Angel dela Cruz was the one
who cause (sic) the amount.
Atty. Calida:
q And no other person or entity or company, Mr. Witness?
witness:
a None, your Honor. 7
xxx xxx xxx
Atty. Calida:
q Mr. Witness, who is the depositor identified in all of these certificates of time deposit
insofar as the bank is concerned?
witness:
a Angel dela Cruz is the depositor. 8
xxx xxx xxx
On this score, the accepted rule is that the negotiability or non-negotiability of an instrument is determined from the writing,
that is, from the face of the instrument itself. 9 In the construction of a bill or note, the intention of the parties is to control, if it
can be legally ascertained. 10 While the writing may be read in the light of surrounding circumstances in order to more
perfectly understand the intent and meaning of the parties, yet as they have constituted the writing to be the only outward
and visible expression of their meaning, no other words are to be added to it or substituted in its stead. The duty of the court
in such case is to ascertain, not what the parties may have secretly intended as contradistinguished from what their words
express, but what is the meaning of the words they have used. What the parties meant must be determined by what they
said. 11
Contrary to what respondent court held, the CTDs are negotiable instruments. The documents provide that the amounts
deposited shall be repayable to the depositor. And who, according to the document, is the depositor? It is the "bearer." The
documents do not say that the depositor is Angel de la Cruz and that the amounts deposited are repayable specifically to
him. Rather, the amounts are to be repayable to the bearer of the documents or, for that matter, whosoever may be the
bearer at the time of presentment.
If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it could have with facility so
expressed that fact in clear and categorical terms in the documents, instead of having the word "BEARER" stamped on the
space provided for the name of the depositor in each CTD. On the wordings of the documents, therefore, the amounts
deposited are repayable to whoever may be the bearer thereof. Thus, petitioner's aforesaid witness merely declared that
Angel de la Cruz is the depositor "insofar as the bank is concerned," but obviously other parties not privy to the transaction
between them would not be in a position to know that the depositor is not the bearer stated in the CTDs. Hence, the situation
would require any party dealing with the CTDs to go behind the plain import of what is written thereon to unravel the
agreement of the parties thereto through facts aliunde. This need for resort to extrinsic evidence is what is sought to be
avoided by the Negotiable Instruments Law and calls for the application of the elementary rule that the interpretation of
obscure words or stipulations in a contract shall not favor the party who caused the obscurity. 12
The next query is whether petitioner can rightfully recover on the CTDs. This time, the answer is in the negative. The records
reveal that Angel de la Cruz, whom petitioner chose not to implead in this suit for reasons of its own, delivered the CTDs
amounting to P1,120,000.00 to petitioner without informing respondent bank thereof at any time. Unfortunately for petitioner,
although the CTDs are bearer instruments, a valid negotiation thereof for the true purpose and agreement between it and De
la Cruz, as ultimately ascertained, requires both delivery and indorsement. For, although petitioner seeks to deflect this fact,
the CTDs were in reality delivered to it as a security for De la Cruz' purchases of its fuel products. Any doubt as to whether
the CTDs were delivered as payment for the fuel products or as a security has been dissipated and resolved in favor of the
latter by petitioner's own authorized and responsible representative himself.

In a letter dated November 26, 1982 addressed to respondent Security Bank, J.Q. Aranas, Jr., Caltex Credit Manager, wrote:
". . . These certificates of deposit were negotiated to us by Mr. Angel dela Cruz to guarantee his purchases of fuel products"
(Emphasis ours.) 13 This admission is conclusive upon petitioner, its protestations notwithstanding. Under the doctrine of
estoppel, an admission or representation is rendered conclusive upon the person making it, and cannot be denied or
disproved as against the person relying thereon. 14 A party may not go back on his own acts and representations to the
prejudice of the other party who relied upon them. 15 In the law of evidence, whenever a party has, by his own declaration,
act, or omission, intentionally and deliberately led another to believe a particular thing true, and to act upon such belief, he
cannot, in any litigation arising out of such declaration, act, or omission, be permitted to falsify it. 16
If it were true that the CTDs were delivered as payment and not as security, petitioner's credit manager could have easily
said so, instead of using the words "to guarantee" in the letter aforequoted. Besides, when respondent bank, as defendant in
the court below, moved for a bill of particularity therein 17 praying, among others, that petitioner, as plaintiff, be required to
aver with sufficient definiteness or particularity (a) the due date or dates of payment of the alleged indebtedness of Angel de
la Cruz to plaintiff and (b) whether or not it issued a receipt showing that the CTDs were delivered to it by De la Cruz
as payment of the latter's alleged indebtedness to it, plaintiff corporation opposed the motion. 18 Had it produced the receipt
prayed for, it could have proved, if such truly was the fact, that the CTDs were delivered as payment and not as security.
Having opposed the motion, petitioner now labors under the presumption that evidence willfully suppressed would be
adverse if produced. 19
Under the foregoing circumstances, this disquisition in Intergrated Realty Corporation, et al. vs. Philippine National Bank, et
al. 20 is apropos:
. . . Adverting again to the Court's pronouncements in Lopez, supra, we quote therefrom:
The character of the transaction between the parties is to be determined by their
intention, regardless of what language was used or what the form of the transfer was. If it
was intended to secure the payment of money, it must be construed as a pledge; but if
there was some other intention, it is not a pledge. However, even though a transfer, if
regarded by itself, appears to have been absolute, its object and character might still be
qualified and explained by contemporaneous writing declaring it to have been a deposit of
the property as collateral security. It has been said that a transfer of property by the
debtor to a creditor, even if sufficient on its face to make an absolute conveyance, should
be treated as a pledge if the debt continues in inexistence and is not discharged by the
transfer, and that accordingly the use of the terms ordinarily importing conveyance of
absolute ownership will not be given that effect in such a transaction if they are also
commonly used in pledges and mortgages and therefore do not unqualifiedly indicate a
transfer of absolute ownership, in the absence of clear and unambiguous language or
other circumstances excluding an intent to pledge.
Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the Negotiable Instruments Law, an
instrument is negotiated when it is transferred from one person to another in such a manner as to constitute the transferee
the holder thereof, 21 and a holder may be the payee or indorsee of a bill or note, who is in possession of it, or the bearer
thereof. 22 In the present case, however, there was no negotiation in the sense of a transfer of the legal title to the CTDs in
favor of petitioner in which situation, for obvious reasons, mere delivery of the bearer CTDs would have sufficed. Here, the
delivery thereof only as security for the purchases of Angel de la Cruz (and we even disregard the fact that the amount
involved was not disclosed) could at the most constitute petitioner only as a holder for value by reason of his lien.
Accordingly, a negotiation for such purpose cannot be effected by mere delivery of the instrument since, necessarily, the
terms thereof and the subsequent disposition of such security, in the event of non-payment of the principal obligation, must
be contractually provided for.
The pertinent law on this point is that where the holder has a lien on the instrument arising from contract, he is deemed a
holder for value to the extent of his lien. 23 As such holder of collateral security, he would be a pledgee but the requirements
therefor and the effects thereof, not being provided for by the Negotiable Instruments Law, shall be governed by the Civil
Code provisions on pledge of incorporeal rights, 24 which inceptively provide:
Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may also be pledged. The
instrument proving the right pledged shall be delivered to the creditor, and if negotiable, must be indorsed.
Art. 2096. A pledge shall not take effect against third persons if a description of the thing pledged and the
date of the pledge do not appear in a public instrument.
Aside from the fact that the CTDs were only delivered but not indorsed, the factual findings of respondent court quoted at the
start of this opinion show that petitioner failed to produce any document evidencing any contract of pledge or guarantee
agreement between it and Angel de la Cruz. 25 Consequently, the mere delivery of the CTDs did not legally vest in petitioner
any right effective against and binding upon respondent bank. The requirement under Article 2096 aforementioned is not a
mere rule of adjective law prescribing the mode whereby proof may be made of the date of a pledge contract, but a rule of
substantive law prescribing a condition without which the execution of a pledge contract cannot affect third persons
adversely. 26

On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of respondent bank was embodied in a
public instrument. 27 With regard to this other mode of transfer, the Civil Code specifically declares:
Art. 1625. An assignment of credit, right or action shall produce no effect as against third persons, unless it
appears in a public instrument, or the instrument is recorded in the Registry of Property in case the
assignment involves real property.
Respondent bank duly complied with this statutory requirement. Contrarily, petitioner, whether as purchaser, assignee or lien
holder of the CTDs, neither proved the amount of its credit or the extent of its lien nor the execution of any public instrument
which could affect or bind private respondent. Necessarily, therefore, as between petitioner and respondent bank, the latter
has definitely the better right over the CTDs in question.
Finally, petitioner faults respondent court for refusing to delve into the question of whether or not private respondent observed
the requirements of the law in the case of lost negotiable instruments and the issuance of replacement certificates therefor,
on the ground that petitioner failed to raised that issue in the lower court. 28
On this matter, we uphold respondent court's finding that the aspect of alleged negligence of private respondent was not
included in the stipulation of the parties and in the statement of issues submitted by them to the trial court. 29 The issues
agreed upon by them for resolution in this case are:
1. Whether or not the CTDs as worded are negotiable instruments.
2. Whether or not defendant could legally apply the amount covered by the CTDs against the depositor's
loan by virtue of the assignment (Annex "C").
3. Whether or not there was legal compensation or set off involving the amount covered by the CTDs and
the depositor's outstanding account with defendant, if any.
4. Whether or not plaintiff could compel defendant to preterminate the CTDs before the maturity date
provided therein.
5. Whether or not plaintiff is entitled to the proceeds of the CTDs.
6. Whether or not the parties can recover damages, attorney's fees and litigation expenses from each
other.
As respondent court correctly observed, with appropriate citation of some doctrinal authorities, the foregoing enumeration
does not include the issue of negligence on the part of respondent bank. An issue raised for the first time on appeal and not
raised timely in the proceedings in the lower court is barred by estoppel. 30Questions raised on appeal must be within the
issues framed by the parties and, consequently, issues not raised in the trial court cannot be raised for the first time on
appeal. 31
Pre-trial is primarily intended to make certain that all issues necessary to the disposition of a case are properly raised. Thus,
to obviate the element of surprise, parties are expected to disclose at a pre-trial conference all issues of law and fact which
they intend to raise at the trial, except such as may involve privileged or impeaching matters. The determination of issues at
a pre-trial conference bars the consideration of other questions on appeal. 32
To accept petitioner's suggestion that respondent bank's supposed negligence may be considered encompassed by the
issues on its right to preterminate and receive the proceeds of the CTDs would be tantamount to saying that petitioner could
raise on appeal any issue. We agree with private respondent that the broad ultimate issue of petitioner's entitlement to the
proceeds of the questioned certificates can be premised on a multitude of other legal reasons and causes of action, of which
respondent bank's supposed negligence is only one. Hence, petitioner's submission, if accepted, would render a pre-trial
delimitation of issues a useless exercise. 33
Still, even assuming arguendo that said issue of negligence was raised in the court below, petitioner still cannot have the
odds in its favor. A close scrutiny of the provisions of the Code of Commerce laying down the rules to be followed in case of
lost instruments payable to bearer, which it invokes, will reveal that said provisions, even assuming their applicability to the
CTDs in the case at bar, are merely permissive and not mandatory. The very first article cited by petitioner speaks for itself.
Art 548. The dispossessed owner, no matter for what cause it may be, may apply to the judge or court of
competent jurisdiction, asking that the principal, interest or dividends due or about to become due, be not
paid a third person, as well as in order to prevent the ownership of the instrument that a duplicate be issued
him. (Emphasis ours.)
xxx xxx xxx
The use of the word "may" in said provision shows that it is not mandatory but discretionary on the part of the "dispossessed
owner" to apply to the judge or court of competent jurisdiction for the issuance of a duplicate of the lost instrument. Where
the provision reads "may," this word shows that it is not mandatory but discretional.34 The word "may" is usually permissive,
not mandatory. 35 It is an auxiliary verb indicating liberty, opportunity, permission and possibility. 36
Moreover, as correctly analyzed by private respondent, 37 Articles 548 to 558 of the Code of Commerce, on which petitioner
seeks to anchor respondent bank's supposed negligence, merely established, on the one hand, a right of recourse in favor of

a dispossessed owner or holder of a bearer instrument so that he may obtain a duplicate of the same, and, on the other, an
option in favor of the party liable thereon who, for some valid ground, may elect to refuse to issue a replacement of the
instrument. Significantly, none of the provisions cited by petitioner categorically restricts or prohibits the issuance a duplicate
or replacement instrument sans compliance with the procedure outlined therein, and none establishes a mandatory
precedent requirement therefor.
WHEREFORE, on the modified premises above set forth, the petition is DENIED and the appealed decision is hereby
AFFIRMED.
SO ORDERED.
Narvasa, C.J., Padilla and Nocon, JJ., concur.

Footnotes
1 Per Justice Segundino G. Chua, with the concurrence of Justices Santiago M. Kapunan and Luis L.
Victor.
2 Judge Ramon Mabutas, Jr., presiding; Rollo, 64-88.
3 Rollo, 24-26.
4 Ibid., 12.
5 Exhibit A, Documentary Evidence for the Plaintiff, 8.
6 Rollo, 28.
7 TSN, February 9, 1987, 46-47.
8 Ibid., id., 152-153.
9 11 Am. Jur. 2d, Bills and Notes, 79.
10 Ibid., 86.
11 Ibid., 87-88.
12 Art. 1377, Civil Code.
13 Exhibit 563, Documentary Evidence for the Defendant, 442; Original Record, 211.
14 Panay Electric Co., Inc. vs. Court of Appeals, et al., 174 SCRA 500 (1989).
15 Philippine National Bank vs. Intermediate Appellate Court, et al., 189 SCRA 680 (1990).
16 Section 2(a), Rule 131, Rules of Court.
17 Original Record, 152.
18 Ibid., 154.
19 Section 3(e), Rule 131, Rules of Court.
20 174 SCRA 295 (1989), jointly decided with Overseas Bank of Manila vs. Court of Appeals, et al., G.R.
No. 60907.
21 Sec. 30, Act No. 2031.
22 Sec. 191, id.
23 Sec. 27, id.; see also Art. 2118, Civil Code.
24 Commentaries and Jurisprudence on the Philippine Commercial Laws, T.C. Martin, 1985 Rev. Ed., Vol.
I, 134; Art. 18, Civil Code; Sec. 196, Act No. 2031.
25 Rollo, 25.
26 Tec Bi & Co. vs. Chartered Bank of India, Australia and China, 41 Phil. 596 (1916); Ocejo, Perez & Co.
vs. The International Banking Corporation, 37 Phil. 631 (1918); Te Pate vs. Ingersoll, 43 Phil. 394 (1922).
27 Rollo, 25.
28 Ibid., 15.
29 Joint Partial Stipulation of Facts and Statement of Issues, dated November 27, 1984; Original Record,
209.

G.R. No. L-2516

September 25, 1950

ANG TEK LIAN, petitioner,

vs.
THE COURT OF APPEALS, respondent.
Laurel, Sabido, Almario and Laurel for petitioner.
Office of the Solicitor General Felix Bautista Angelo and Solicitor Manuel Tomacruz for respondent.
BENGZON, J.:
For having issued a rubber check, Ang Tek Lian was convicted of estafa in the Court of First Instance of Manila. The Court of
Appeals affirmed the verdict.
It appears that, knowing he had no funds therefor, Ang Tek Lian drew on Saturday, November 16, 1946, the check Exhibits A
upon the China Banking Corporation for the sum of P4,000, payable to the order of "cash". He delivered it to Lee Hua Hong
in exchange for money which the latter handed in act. On November 18, 1946, the next business day, the check was
presented by Lee Hua Hong to the drawee bank for payment, but it was dishonored for insufficiency of funds, the balance of
the deposit of Ang Tek Lian on both dates being P335 only.
The Court of Appeals believed the version of Lee Huan Hong who testified that "on November 16, 1946, appellant went to his
(complainant's) office, at 1217 Herran, Paco, Manila, and asked him to exchange Exhibit A which he (appellant) then
brought with him with cash alleging that he needed badly the sum of P4,000 represented by the check, but could not
withdraw it from the bank, it being then already closed; that in view of this request and relying upon appellant's assurance
that he had sufficient funds in the blank to meet Exhibit A, and because they used to borrow money from each other, even
before the war, and appellant owns a hotel and restaurant known as the North Bay Hotel, said complainant delivered to him,
on the same date, the sum of P4,000 in cash; that despite repeated efforts to notify him that the check had been dishonored
by the bank, appellant could not be located any-where, until he was summoned in the City Fiscal's Office in view of the
complaint for estafa filed in connection therewith; and that appellant has not paid as yet the amount of the check, or any part
thereof."
Inasmuch as the findings of fact of the Court of Appeals are final, the only question of law for decision is whether under the
facts found, estafa had been accomplished.
Article 315, paragraph (d), subsection 2 of the Revised Penal Code, punishes swindling committed "By post dating a check,
or issuing such check in payment of an obligation the offender knowing that at the time he had no funds in the bank, or the
funds deposited by him in the bank were not sufficient to cover the amount of the check, and without informing the payee of
such circumstances".
We believe that under this provision of law Ang Tek Lian was properly held liable. In this connection, it must be stated that, as
explained in People vs. Fernandez (59 Phil., 615), estafa is committed by issuing either a postdated check or an ordinary
check to accomplish the deceit.
It is argued, however, that as the check had been made payable to "cash" and had not been endorsed by Ang Tek Lian, the
defendant is not guilty of the offense charged. Based on the proposition that "by uniform practice of all banks in the
Philippines a check so drawn is invariably dishonored," the following line of reasoning is advanced in support of the
argument:
. . . When, therefore, he (the offended party ) accepted the check (Exhibit A) from the appellant, he did so with full
knowledge that it would be dishonored upon presentment. In that sense, the appellant could not be said to have
acted fraudulently because the complainant, in so accepting the check as it was drawn, must be considered, by
every rational consideration, to have done so fully aware of the risk he was running thereby." (Brief for the appellant,
p. 11.)
We are not aware of the uniformity of such practice. Instances have undoubtedly occurred wherein the Bank required the
indorsement of the drawer before honoring a check payable to "cash." But cases there are too, where no such requirement
had been made . It depends upon the circumstances of each transaction.
Under the Negotiable Instruments Law (sec. 9 [d], a check drawn payable to the order of "cash" is a check payable to bearer,
and the bank may pay it to the person presenting it for payment without the drawer's indorsement.
A check payable to the order of cash is a bearer instrument. Bacal vs. National City Bank of New York (1933), 146
Misc., 732; 262 N. Y. S., 839; Cleary vs. De Beck Plate Glass Co. (1907), 54 Misc., 537; 104 N. Y. S., 831;
Massachusetts Bonding & Insurance Co. vs. Pittsburgh Pipe & Supply Co. (Tex. Civ. App., 1939), 135 S. W. (2d),
818. See also H. Cook & Son vs. Moody (1916), 17 Ga. App., 465; 87 S. E., 713.
Where a check is made payable to the order of "cash", the word cash "does not purport to be the name of any
person", and hence the instrument is payable to bearer. The drawee bank need not obtain any indorsement of the
check, but may pay it to the person presenting it without any indorsement. . . . (Zollmann, Banks and Banking,
Permanent Edition, Vol. 6, p. 494.)
Of course, if the bank is not sure of the bearer's identity or financial solvency, it has the right to demand identification and /or

assurance against possible complications, for instance, (a) forgery of drawer's signature, (b) loss of the check by the
rightful owner, (c) raising of the amount payable, etc. The bank may therefore require, for its protection, that the indorsement
of the drawer or of some other person known to it be obtained. But where the Bank is satisfied of the identity and /or the
economic standing of the bearer who tenders the check for collection, it will pay the instrument without further question; and it
would incur no liability to the drawer in thus acting.
A check payable to bearer is authority for payment to holder. Where a check is in the ordinary form, and is payable
to bearer, so that no indorsement is required, a bank, to which it is presented for payment, need not have the holder
identified, and is not negligent in falling to do so. . . . (Michie on Banks and Banking, Permanent Edition, Vol. 5, p.
343.)
. . . Consequently, a drawee bank to which a bearer check is presented for payment need not necessarily have the
holder identified and ordinarily may not be charged with negligence in failing to do so. See Opinions 6C:2 and 6C:3
If the bank has no reasonable cause for suspecting any irregularity, it will be protected in paying a bearer check, "no
matter what facts unknown to it may have occurred prior to the presentment." 1 Morse, Banks and Banking, sec.
393.
Although a bank is entitled to pay the amount of a bearer check without further inquiry, it is entirely reasonable for
the bank to insist that holder give satisfactory proof of his identity. . . . (Paton's Digest, Vol. I, p. 1089.)
Anyway, it is significant, and conclusive, that the form of the check Exhibit A was totally unconnected with its dishonor. The
Court of Appeals declared that it was returned unsatisfied because the drawer had insufficient funds not because the
drawer's indorsement was lacking.
Wherefore, there being no question as to the correctness of the penalty imposed on the appellant, the writ ofcertiorari is
denied and the decision of the Court of Appeals is hereby affirmed, with costs.
Moran, C. J., Ozaeta, Paras, Pablo, Tuason, and Reyes, JJ., concur.

G.R. No. 93073 December 21, 1992

REPUBLIC PLANTERS BANK, petitioner,
vs.
COURT OF APPEALS and FERMIN CANLAS, respondents.

CAMPOS, JR., J.:

This is an appeal by way of a Petition for Review on Certiorari from the decision * of the Court of Appeals in CA G.R. CV No.
07302, entitled "Republic Planters Bank.Plaintiff-Appellee vs. Pinch Manufacturing Corporation, et al., Defendants, and
Fermin Canlas, Defendant-Appellant", which affirmed the decision ** in Civil Case No. 82-5448 except that it completely
absolved Fermin Canlas from liability under the promissory notes and reduced the award for damages and attorney's fees.
The RTC decision, rendered on June 20, 1985, is quoted hereunder:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff Republic Planters
Bank, ordering defendant Pinch Manufacturing Corporation (formerly Worldwide Garment Manufacturing,
Inc.) and defendants Shozo Yamaguchi and Fermin Canlas to pay, jointly and severally, the plaintiff bank
the following sums with interest thereon at 16% per annum from the dates indicated, to wit:
Under the promissory note (Exhibit "A"), the sum of P300,000.00 with interest from January 29, 1981 until
fully paid; under promissory note (Exhibit "B"), the sum of P40,000.00 with interest from November 27,
1980; under the promissory note (Exhibit "C"), the sum of P166,466.00 which interest from January 29,
1981; under the promissory note (Exhibit "E"), the sum of P86,130.31 with interest from January 29, 1981;
under the promissory note (Exhibit "G"), the sum of P12,703.70 with interest from November 27, 1980;
under the promissory note (Exhibit "H"), the sum of P281,875.91 with interest from January 29, 1981; and
under the promissory note (Exhibit "I"), the sum of P200,000.00 with interest from January 29, 1981.
Under the promissory note (Exhibit "D") defendants Pinch Manufacturing Corporation (formerly named
Worldwide Garment Manufacturing, Inc.), and Shozo Yamaguchi are ordered to pay jointly and severally,
the plaintiff bank the sum of P367,000.00 with interest of 16% per annum from January 29, 1980 until fully
paid
Under the promissory note (Exhibit "F") defendant corporation Pinch (formerly Worldwide) is ordered to pay
the plaintiff bank the sum of P140,000.00 with interest at 16% per annum from November 27, 1980 until
fully paid.
Defendant Pinch (formely Worldwide) is hereby ordered to pay the plaintiff the sum of P231,120.81 with
interest at 12% per annum from July 1, 1981, until fully paid and the sum of P331,870.97 with interest from
March 28, 1981, until fully paid.
All the defendants are also ordered to pay, jointly and severally, the plaintiff the sum of P100,000.00 as and
for reasonable attorney's fee and the further sum equivalent to 3% per annum of the respective principal
sums from the dates above stated as penalty charge until fully paid, plus one percent (1%) of the principal
sums as service charge.
With costs against the defendants.
SO ORDERED. 1
From the above decision only defendant Fermin Canlas appealed to the then Intermediate Court (now the Court Appeals).
His contention was that inasmuch as he signed the promissory notes in his capacity as officer of the defunct Worldwide
Garment Manufacturing, Inc, he should not be held personally liable for such authorized corporate acts that he performed. It
is now the contention of the petitioner Republic Planters Bank that having unconditionally signed the nine (9) promissory
notes with Shozo Yamaguchi, jointly and severally, defendant Fermin Canlas is solidarity liable with Shozo Yamaguchi on
each of the nine notes.
We find merit in this appeal.
From the records, these facts are established: Defendant Shozo Yamaguchi and private respondent Fermin Canlas were
President/Chief Operating Officer and Treasurer respectively, of Worldwide Garment Manufacturing, Inc.. By virtue of Board
Resolution No.1 dated August 1, 1979, defendant Shozo Yamaguchi and private respondent Fermin Canlas were authorized
to apply for credit facilities with the petitioner Republic Planters Bank in the forms of export advances and letters of
credit/trust receipts accommodations. Petitioner bank issued nine promissory notes, marked as Exhibits A to I inclusive, each
of which were uniformly worded in the following manner:
___________, after date, for value received, I/we, jointly and severaIly promise to pay to the ORDER of the
REPUBLIC PLANTERS BANK, at its office in Manila, Philippines, the sum of ___________ PESOS(....)
Philippine Currency...
On the right bottom margin of the promissory notes appeared the signatures of Shozo Yamaguchi and Fermin Canlas above

their printed names with the phrase "and (in) his personal capacity" typewritten below. At the bottom of the promissory notes
appeared: "Please credit proceeds of this note to:
________ Savings Account ______XX Current Account
No. 1372-00257-6
of WORLDWIDE GARMENT MFG. CORP.
These entries were separated from the text of the notes with a bold line which ran horizontally across the pages.
In the promissory notes marked as Exhibits C, D and F, the name Worldwide Garment Manufacturing, Inc. was apparently
rubber stamped above the signatures of defendant and private respondent.
On December 20, 1982, Worldwide Garment Manufacturing, Inc. noted to change its corporate name to Pinch Manufacturing
Corporation.
On February 5, 1982, petitioner bank filed a complaint for the recovery of sums of money covered among others, by the nine
promissory notes with interest thereon, plus attorney's fees and penalty charges. The complainant was originally brought
against Worldwide Garment Manufacturing, Inc. inter alia, but it was later amended to drop Worldwide Manufacturing, Inc. as
defendant and substitute Pinch Manufacturing Corporation it its place. Defendants Pinch Manufacturing Corporation and
Shozo Yamaguchi did not file an Amended Answer and failed to appear at the scheduled pre-trial conference despite due
notice. Only private respondent Fermin Canlas filed an Amended Answer wherein he, denied having issued the promissory
notes in question since according to him, he was not an officer of Pinch Manufacturing Corporation, but instead of Worldwide
Garment Manufacturing, Inc., and that when he issued said promissory notes in behalf of Worldwide Garment Manufacturing,
Inc., the same were in blank, the typewritten entries not appearing therein prior to the time he affixed his signature.
In the mind of this Court, the only issue material to the resolution of this appeal is whether private respondent Fermin Canlas
is solidarily liable with the other defendants, namely Pinch Manufacturing Corporation and Shozo Yamaguchi, on the nine
promissory notes.
We hold that private respondent Fermin Canlas is solidarily liable on each of the promissory notes bearing his signature for
the following reasons:
The promissory motes are negotiable instruments and must be governed by the Negotiable Instruments Law. 2
Under the Negotiable lnstruments Law, persons who write their names on the face of promissory notes are makers and are
liable as such. 3 By signing the notes, the maker promises to pay to the order of the payee or any holder 4 according to the
tenor thereof. 5 Based on the above provisions of law, there is no denying that private respondent Fermin Canlas is one of
the co-makers of the promissory notes. As such, he cannot escape liability arising therefrom.
Where an instrument containing the words "I promise to pay" is signed by two or more persons, they are deemed to be jointly
and severally liable thereon. 6 An instrument which begins" with "I" ,We" , or "Either of us" promise to, pay, when signed by
two or more persons, makes them solidarily liable. 7 The fact that the singular pronoun is used indicates that the promise is
individual as to each other; meaning that each of the co-signers is deemed to have made an independent singular promise to
pay the notes in full.
In the case at bar, the solidary liability of private respondent Fermin Canlas is made clearer and certain, without reason for
ambiguity, by the presence of the phrase "joint and several" as describing the unconditional promise to pay to the order of
Republic Planters Bank. A joint and several note is one in which the makers bind themselves both jointly and individually to
the payee so that all may be sued together for its enforcement, or the creditor may select one or more as the object of the
suit. 8 A joint and several obligation in common law corresponds to a civil law solidary obligation; that is, one of several
debtors bound in such wise that each is liable for the entire amount, and not merely for his proportionate share. 9By making a
joint and several promise to pay to the order of Republic Planters Bank, private respondent Fermin Canlas assumed the
solidary liability of a debtor and the payee may choose to enforce the notes against him alone or jointly with Yamaguchi and
Pinch Manufacturing Corporation as solidary debtors.
As to whether the interpolation of the phrase "and (in) his personal capacity" below the signatures of the makers in the notes
will affect the liability of the makers, We do not find it necessary to resolve and decide, because it is immaterial and will not
affect to the liability of private respondent Fermin Canlas as a joint and several debtor of the notes. With or without the
presence of said phrase, private respondent Fermin Canlas is primarily liable as a co-maker of each of the notes and his
liability is that of a solidary debtor.
Finally, the respondent Court made a grave error in holding that an amendment in a corporation's Articles of Incorporation
effecting a change of corporate name, in this case from Worldwide Garment manufacturing Inc to Pinch Manufacturing
Corporation extinguished the personality of the original corporation.
The corporation, upon such change in its name, is in no sense a new corporation, nor the successor of the original
corporation. It is the same corporation with a different name, and its character is in no respect changed.10
A change in the corporate name does not make a new corporation, and whether effected by special act or under a general
law, has no affect on the identity of the corporation, or on its property, rights, or liabilities. 11

The corporation continues, as before, responsible in its new name for all debts or other liabilities which it had previously
contracted or incurred. 12
As a general rule, officers or directors under the old corporate name bear no personal liability for acts done or contracts
entered into by officers of the corporation, if duly authorized. Inasmuch as such officers acted in their capacity as agent of the
old corporation and the change of name meant only the continuation of the old juridical entity, the corporation bearing the
same name is still bound by the acts of its agents if authorized by the Board. Under the Negotiable Instruments Law, the
liability of a person signing as an agent is specifically provided for as follows:
Sec. 20. Liability of a person signing as agent and so forth. Where the instrument contains or a person
adds to his signature words indicating that he signs for or on behalf of a principal , or in a representative
capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words
describing him as an agent, or as filling a representative character, without disclosing his principal, does not
exempt him from personal liability.
Where the agent signs his name but nowhere in the instrument has he disclosed the fact that he is acting in a representative
capacity or the name of the third party for whom he might have acted as agent, the agent is personally liable to take holder of
the instrument and cannot be permitted to prove that he was merely acting as agent of another and parol or extrinsic
evidence is not admissible to avoid the agent's personal liability. 13
On the private respondent's contention that the promissory notes were delivered to him in blank for his signature, we rule
otherwise. A careful examination of the notes in question shows that they are the stereotype printed form of promissory notes
generally used by commercial banking institutions to be signed by their clients in obtaining loans. Such printed notes are
incomplete because there are blank spaces to be filled up on material particulars such as payee's name, amount of the loan,
rate of interest, date of issue and the maturity date. The terms and conditions of the loan are printed on the note for the
borrower-debtor 's perusal. An incomplete instrument which has been delivered to the borrower for his signature is governed
by Section 14 of the Negotiable Instruments Law which provides, in so far as relevant to this case, thus:
Sec. 14. Blanks: when may be filled. Where the instrument is wanting in any material particular, the
person in possesion thereof has a prima facie authority to complete it by filling up the blanks therein. ... In
order, however, that any such instrument when completed may be enforced against any person who
became a party thereto prior to its completion, it must be filled up strictly in accordance with the authority
given and within a reasonable time...
Proof that the notes were signed in blank was only the self-serving testimony of private respondent Fermin Canlas, as
determined by the trial court, so that the trial court ''doubts the defendant (Canlas) signed in blank the promissory notes". We
chose to believe the bank's testimony that the notes were filled up before they were given to private respondent Fermin
Canlas and defendant Shozo Yamaguchi for their signatures as joint and several promissors. For signing the notes above
their typewritten names, they bound themselves as unconditional makers. We take judicial notice of the customary procedure
of commercial banks of requiring their clientele to sign promissory notes prepared by the banks in printed form with blank
spaces already filled up as per agreed terms of the loan, leaving the borrowers-debtors to do nothing but read the terms and
conditions therein printed and to sign as makers or co-makers. When the notes were given to private respondent Fermin
Canlas for his signature, the notes were complete in the sense that the spaces for the material particular had been filled up
by the bank as per agreement. The notes were not incomplete instruments; neither were they given to private respondent
Fermin Canlas in blank as he claims. Thus, Section 14 of the NegotiabIe Instruments Law is not applicable.
The ruling in case of Reformina vs. Tomol relied upon by the appellate court in reducing the interest rate on the promissory
notes from 16% to 12% per annum does not squarely apply to the instant petition. In the abovecited case, the rate of 12%
was applied to forebearances of money, goods or credit and court judgemets thereon, only in the absence of any stipulation
between the parties.
In the case at bar however , it was found by the trial court that the rate of interest is 9% per annum, which interest rate the
plaintiff may at any time without notice, raise within the limits allowed law. And so, as of February 16, 1984 , the plaintiff had
fixed the interest at 16% per annum.
This Court has held that the rates under the Usury Law, as amended by Presidential Decree No. 116, are applicable only to
interests by way of compensation for the use or forebearance of money. Article 2209 of the Civil Code, on the other hand,
governs interests by way of damages. 15 This fine distinction was not taken into consideration by the appellate court, which
instead made a general statement that the interest rate be at 12% per annum.
Inasmuch as this Court had declared that increases in interest rates are not subject to any ceiling prescribed by the Usury
Law, the appellate court erred in limiting the interest rates at 12% per annum. Central Bank Circular No. 905, Series of 1982
removed the Usury Law ceiling on interest rates. 16
In the 1ight of the foregoing analysis and under the plain language of the statute and jurisprudence on the matter, the
decision of the respondent: Court of Appeals absolving private respondent Fermin Canlas is REVERSED and SET ASIDE.
Judgement is hereby rendered declaring private respondent Fermin Canlas jointly and severally liable on all the nine
promissory notes with the following sums and at 16% interest per annum from the dates indicated, to wit:
Under the promissory note marked as exhibit A, the sum of P300,000.00 with interest from January 29, 1981 until fully paid;

under promissory note marked as Exhibit B, the sum of P40,000.00 with interest from November 27, 1980: under the
promissory note denominated as Exhibit C, the amount of P166,466.00 with interest from January 29, 1981; under the
promissory note denominated as Exhibit D, the amount of P367,000.00 with interest from January 29, 1981 until fully paid;
under the promissory note marked as Exhibit E, the amount of P86,130.31 with interest from January 29, 1981; under the
promissory note marked as Exhibit F, the sum of P140,000.00 with interest from November 27, 1980 until fully paid; under the
promissory note marked as Exhibit G, the amount of P12,703.70 with interest from November 27, 1980; the promissory note
marked as Exhibit H, the sum of P281,875.91 with interest from January 29, 1981; and the promissory note marked as
Exhibit I, the sum of P200,000.00 with interest on January 29, 1981.
The liabilities of defendants Pinch Manufacturing Corporation (formerly Worldwide Garment Manufacturing, Inc.) and Shozo
Yamaguchi, for not having appealed from the decision of the trial court, shall be adjudged in accordance with the judgment
rendered by the Court a quo.
With respect to attorney's fees, and penalty and service charges, the private respondent Fermin Canlas is hereby held jointly
and solidarity liable with defendants for the amounts found, by the Court a quo. With costs against private respondent.
SO ORDERED.
Narvasa, C.J., (Chairman), Feliciano, Regalado and Nocon, JJ., concur.

Footnotes
* Associate Justice Hector C. Fule, ponente, Associate Justices Lorna S. Lombos-de la Fuente and Luis L.
Victor, concurring.
** Penned by Judge Daniel C. Macaraeg, RTC Manila, Branch LX.
1 Rollo, pp. 49-50.
2 Act 2031, enacted on February 3, 1911.
3 Negotiable Instruments Law, section 184; H.D. Lee Merchantile Co. vs. Merchantile Co., 276 P. 807
(1929).
4 Ibid., Section 1.
5 lbid., Section 60.
6 lbid-, Section 17 (g).
7 Powell vs- Mobley, 142 S.E. 678 (1928); Keenig vs. Curran's Restaurant, 159 Atl. 553 (1932).
8 Rice vs.Gove, 22 pick Mass 158; 33 AM Dec. 724.
9 Blacks Law Dictionary, p. 1249 (5th ed., 1979
10 6 Fletcher, Cyclopedia of the Law of Private Corporations, pp. 224-225 (Rev. ed., 1968).
11 Mutual Building & Loan Association vs. Corum, 220 Cal. 282, citing Corpus Juris; 30 P- 2d 509, 514
(1934)- Pilsen Brewing Co. vs. Wallace, 291 ILL. 59, 125 N.E. 714, 8 A.L.R. 579 (1919).
12 Ozan Lumber Co. vs. Davis Sewing Machine Co., 284 F-161 (1922); 18 C.J.S. 572.
13 Crocker National Bank vs. Say, 209 Cal. 436; 288 P. 69 (1930); Dayries vs. Lindsly, 54 So. 791 (1911);
Granada vs. PNB, 18 SCRA 1 (1966).
14 139 SCRA 260 (1985).
15 GSIS vs. Court of Appeals, 145 SCRA 311 (1986).
16 Philippine National Bank vs. Court of Appeals, 196 SCRA 536 (1991).

G.R. No. 148864

August 21, 2003

SPOUSES EDUARDO B. EVANGELISTA and EPIFANIA C. EVANGELISTA, Petitioners,

vs.
MERCATOR FINANCE CORP., LYDIA P. SALAZAR, LAMEC'S** REALTY AND DEVELOPMENT CORP. and the
REGISTER OF DEEDS OF BULACAN, Respondents.
DECISION
PUNO, J.:
Petitioners, Spouses Evangelista ("Petitioners"), are before this Court on a Petition for Review on Certiorariunder Rule 45 of
the Revised Rules of Court, assailing the decision of the Court of Appeals dismissing their petition.
Petitioners filed a complaint1 for annulment of titles against respondents, Mercator Finance Corporation, Lydia P. Salazar,
Lamecs Realty and Development Corporation, and the Register of Deeds of Bulacan. Petitioners claimed being the
registered owners of five (5) parcels of land2 contained in the Real Estate Mortgage3executed by them and Embassy Farms,
Inc. ("Embassy Farms"). They alleged that they executed the Real Estate Mortgage in favor of Mercator Financing
Corporation ("Mercator") only as officers of Embassy Farms. They did not receive the proceeds of the loan evidenced by a
promissory note, as all of it went to Embassy Farms. Thus, they contended that the mortgage was without any consideration
as to them since they did not personally obtain any loan or credit accommodations. There being no principal obligation on
which the mortgage rests, the real estate mortgage is void.4 With the void mortgage, they assailed the validity of the
foreclosure proceedings conducted by Mercator, the sale to it as the highest bidder in the public auction, the issuance of the
transfer certificates of title to it, the subsequent sale of the same parcels of land to respondent Lydia P. Salazar ("Salazar"),
and the transfer of the titles to her name, and lastly, the sale and transfer of the properties to respondent Lamecs Realty &
Development Corporation ("Lamecs").
Mercator admitted that petitioners were the owners of the subject parcels of land. It, however, contended that "on February
16, 1982, plaintiffs executed a Mortgage in favor of defendant Mercator Finance Corporation for and in consideration of
certain loans, and/or other forms of credit accommodations obtained from the Mortgagee (defendant Mercator Finance
Corporation) amounting to EIGHT HUNDRED FORTY-FOUR THOUSAND SIX HUNDRED TWENTY-FIVE & 78/100
(P844,625.78) PESOS, Philippine Currency and to secure the payment of the same and those others that the MORTGAGEE
may extend to the MORTGAGOR (plaintiffs) x x x."5 It contended that since petitioners and Embassy Farms signed the
promissory note6 as co-makers, aside from the Continuing Suretyship Agreement7 subsequently executed to guarantee the
indebtedness of Embassy Farms, and the succeeding promissory notes8 restructuring the loan, then petitioners are jointly
and severally liable with Embassy Farms. Due to their failure to pay the obligation, the foreclosure and subsequent sale of
the mortgaged properties are valid.
Respondents Salazar and Lamecs asserted that they are innocent purchasers for value and in good faith, relying on the
validity of the title of Mercator. Lamecs admitted the prior ownership of petitioners of the subject parcels of land, but alleged
that they are the present registered owner. Both respondents likewise assailed the long silence and inaction by petitioners as
it was only after a lapse of almost ten (10) years from the foreclosure of the property and the subsequent sales that they
made their claim. Thus, Salazar and Lamecs averred that petitioners are in estoppel and guilty of laches.9
During pre-trial, the parties agreed on the following issues:
a. Whether or not the Real Estate Mortgage executed by the plaintiffs in favor of defendant Mercator Finance Corp.
is null and void;
b. Whether or not the extra-judicial foreclosure proceedings undertaken on subject parcels of land to satisfy the
indebtedness of Embassy Farms, Inc. is (sic) null and void;
c. Whether or not the sale made by defendant Mercator Finance Corp. in favor of Lydia Salazar and that executed
by the latter in favor of defendant Lamecs Realty and Development Corp. are null and void;
d. Whether or not the parties are entitled to damages.10
After pre-trial, Mercator moved for summary judgment on the ground that except as to the amount of damages, there is no
factual issue to be litigated. Mercator argued that petitioners had admitted in their pre-trial brief the existence of the
promissory note, the continuing suretyship agreement and the subsequent promissory notes restructuring the loan, hence,
there is no genuine issue regarding their liability. The mortgage, foreclosure proceedings and the subsequent sales are valid
and the complaint must be dismissed.11
Petitioners opposed the motion for summary judgment claiming that because their personal liability to Mercator is at issue,
there is a need for a full-blown trial.12
The RTC granted the motion for summary judgment and dismissed the complaint. It held:
A reading of the promissory notes show (sic) that the liability of the signatories thereto are solidary in view of the phrase
"jointly and severally." On the promissory note appears (sic) the signatures of Eduardo B. Evangelista, Epifania C.
Evangelista and another signature of Eduardo B. Evangelista below the words Embassy Farms, Inc. It is crystal clear then
that the plaintiffs-spouses signed the promissory note not only as officers of Embassy Farms, Inc. but in their personal

capacity as well(.) Plaintiffs(,) by affixing their signatures thereon in a dual capacity have bound themselves as solidary
debtor(s) with Embassy Farms, Inc. to pay defendant Mercator Finance Corporation the amount of indebtedness. That the
principal contract of loan is void for lack of consideration, in the light of the foregoing is untenable.13
Petitioners motion for reconsideration was denied for lack of merit.14 Thus, petitioners went up to the Court of Appeals, but
again were unsuccessful. The appellate court held:
The appellants insistence that the loans secured by the mortgage they executed were not personally theirs but those of
Embassy Farms, Inc. is clearly self-serving and misplaced. The fact that they signed the subject promissory notes in the(ir)
personal capacities and as officers of the said debtor corporation is manifest on the very face of the said documents of
indebtedness (pp. 118, 128-131, Orig. Rec.). Even assuming arguendo that they did not, the appellants lose sight of the fact
that third persons who are not parties to a loan may secure the latter by pledging or mortgaging their own property (Lustan
vs. Court of Appeals, 266 SCRA 663, 675). x x x. In constituting a mortgage over their own property in order to secure the
purported corporate debt of Embassy Farms, Inc., the appellants undeniably assumed the personality of persons interested
in the fulfillment of the principal obligation who, to save the subject realities from foreclosure and with a view towards being
subrogated to the rights of the creditor, were free to discharge the same by payment (Articles 1302 [3] and 1303, Civil Code
of the Philippines).15 (emphases in the original)
The appellate court also observed that "if the appellants really felt aggrieved by the foreclosure of the subject mortgage and
the subsequent sales of the realties to other parties, why then did they commence the suit only on August 12, 1997 (when the
certificate of sale was issued on January 12, 1987, and the certificates of title in the name of Mercator on September 27,
1988)?" Petitioners "procrastination for about nine (9) years is difficult to understand. On so flimsy a ground as lack of
consideration, (w)e may even venture to say that the complaint was not worth the time of the courts."16
A motion for reconsideration by petitioners was likewise denied for lack of merit.17 Thus, this petition where they allege that:
The court a quo erred and acted with grave abuse of discretion amounting to lack or excess of jurisdiction in affirming in toto
the May 4, 1998 order of the trial court granting respondents motion for summary judgment despite the existence of genuine
issues as to material facts and its non-entitlement to a judgment as a matter of law, thereby deciding the case in a way
probably not in accord with applicable decisions of this Honorable Court.18
we affirm.
Summary judgment "is a procedural technique aimed at weeding out sham claims or defenses at an early stage of the
litigation."19 The crucial question in a motion for summary judgment is whether the issues raised in the pleadings are
genuine or fictitious, as shown by affidavits, depositions or admissions accompanying the motion. A genuine issue means "an
issue of fact which calls for the presentation of evidence, as distinguished from an issue which is fictitious or contrived so as
not to constitute a genuine issue for trial."20 To forestall summary judgment, it is essential for the non-moving party to
confirm the existence of genuine issues where he has substantial, plausible and fairly arguable defense, i.e., issues of fact
calling for the presentation of evidence upon which a reasonable finding of fact could return a verdict for the non-moving
party. The proper inquiry would therefore be whether the affirmative defenses offered by petitioners constitute genuine issue
of fact requiring a full-blown trial.21
In the case at bar, there are no genuine issues raised by petitioners. Petitioners do not deny that they obtained a loan from
Mercator. They merely claim that they got the loan as officers of Embassy Farms without intending to personally bind
themselves or their property. However, a simple perusal of the promissory note and the continuing suretyship agreement
shows otherwise. These documentary evidence prove that petitioners are solidary obligors with Embassy Farms.
The promissory note22 states:
For value received, I/We jointly and severally promise to pay to the order of MERCATOR FINANCE CORPORATION at its
office, the principal sum of EIGHT HUNDRED FORTY-FOUR THOUSAND SIX HUNDRED TWENTY-FIVE PESOS & 78/100
(P 844,625.78), Philippine currency, x x x, in installments as follows:
September 16, 1982

P154,267.87

October 16, 1982

P154,267.87

November 16, 1982

P154,267.87

December 16, 1982

P154,267.87

January 16, 1983

P154,267.87

February 16, 1983

P154,267.87
xxx

xxx

xxx

The note was signed at the bottom by petitioners Eduardo B. Evangelista and Epifania C. Evangelista, and Embassy Farms,
Inc. with the signature of Eduardo B. Evangelista below it.
The Continuing Suretyship Agreement23 also proves the solidary obligation of petitioners, viz:

(Embassy Farms, Inc.)

Principal
(Eduardo B. Evangelista)
Surety
(Epifania C. Evangelista)
Surety
(Mercator Finance Corporation)
Creditor
To: MERCATOR FINANCE COPORATION
(1) For valuable and/or other consideration, EDUARDO B. EVANGELISTA and EPIFANIA C.
EVANGELISTA (hereinafter called Surety), jointly and severally unconditionally guarantees (sic) to
MERCATOR FINANCE COPORATION (hereinafter called Creditor), the full, faithful and prompt
payment and discharge of any and all indebtedness of EMBASSY FARMS, INC. (hereinafter called
Principal) to the Creditor.
xxx

xxx

xxx

(3) The obligations hereunder are joint and several and independent of the obligations of the Principal.
A separate action or actions may be brought and prosecuted against the Surety whether or not the
action is also brought and prosecuted against the Principal and whether or not the Principal be joined
in any such action or actions.
xxx

xxx

xxx

The agreement was signed by petitioners on February 16, 1982. The promissory notes24 subsequently executed by
petitioners and Embassy Farms, restructuring their loan, likewise prove that petitioners are solidarily liable with Embassy
Farms.
Petitioners further allege that there is an ambiguity in the wording of the promissory note and claim that since it was Mercator
who provided the form, then the ambiguity should be resolved against it.
Courts can interpret a contract only if there is doubt in its letter.25 But, an examination of the promissory note shows no such
ambiguity. Besides, assuming arguendo that there is an ambiguity, Section 17 of the Negotiable Instruments Law states, viz:
SECTION 17. Construction where instrument is ambiguous. Where the language of the instrument is ambiguous or there
are omissions therein, the following rules of construction apply:
xxx

xxx

xxx

(g) Where an instrument containing the word "I promise to pay" is signed by two or more persons, they are deemed to be
jointly and severally liable thereon.
Petitioners also insist that the promissory note does not convey their true intent in executing the document.1wphi1The
defense is unavailing. Even if petitioners intended to sign the note merely as officers of Embassy Farms, still this does not
erase the fact that they subsequently executed a continuing suretyship agreement. A surety is one who is solidarily liable with
the principal.26 Petitioners cannot claim that they did not personally receive any consideration for the contract for wellentrenched is the rule that the consideration necessary to support a surety obligation need not pass directly to the surety, a
consideration moving to the principal alone being sufficient. A surety is bound by the same consideration that makes the
contract effective between the principal parties thereto.27 Having executed the suretyship agreement, there can be no
dispute on the personal liability of petitioners.
Lastly, the parol evidence rule does not apply in this case.28 We held in Tarnate v. Court of Appeals,29 that where the parties
admitted the existence of the loans and the mortgage deeds and the fact of default on the due repayments but raised the
contention that they were misled by respondent bank to believe that the loans were long-term accommodations, then the
parties could not be allowed to introduce evidence of conditions allegedly agreed upon by them other than those stipulated in
the loan documents because when they reduced their agreement in writing, it is presumed that they have made the writing
the only repository and memorial of truth, and whatever is not found in the writing must be understood to have been waived
and abandoned.
IN VIEW WHEREOF, the petition is dismissed. Treble costs against the petitioners.

G.R. No. 161756 December 16, 2005

VICTORIA J. ILANO represented by her Attorney-in-fact, MILO ANTONIO C. ILANO, Petitioners,
vs.
HON. DOLORES L. ESPAOL, in her capacity as Executive Judge, RTC of Imus, Cavite, Br. 90, and, AMELIA
ALONZO, EDITH CALILAP, DANILO CAMACLANG, ESTELA CAMACLANG, ALLAN CAMACLANG, LENIZA REYES,
EDWIN REYES, JANE BACAREL, CHERRY CAMACLANG, FLORA CABRERA, ESTELITA LEGASPI, CARMENCITA
GONZALES, NEMIA CASTRO, GLORIA DOMINGUEZ, ANNILYN C. SABALE and several JOHN DOES, Respondents.
DECISION
CARPIO MORALES, J.:
The Court of Appeals having affirmed the dismissal by Branch 20 of the Regional Trial Court (RTC) of Cavite at Imus, for lack
of cause of action, Civil Case No. 2079-00, the complaint filed by herein petitioner Victoria J. Ilano
for Revocation/Cancellation of Promissory Notes and Bills of Exchange (Checks) with Damages and Prayer for Preliminary
Injunction or Temporary Restraining Order (TRO),1 against herein respondents 15 named defendants (and several John
Does), a recital of the pertinent allegations in the complaint, quoted verbatim as follows, is in order:
xxx
3. That defendant AMELIA O. ALONZO, is a trusted employee of [petitioner]. She has been with them for several years
already, and through the years, defendant ALONZO was able to gain the trust and confidence of [petitioner] and her family;
4. That due to these trust and confidence reposed upon defendant ALONZO by [petitioner], there were occasions when
defendant ALONZO was entrusted with [petitioners] METROBANK Check Book containing either signed or unsigned blank
checks, especially in those times when [petitioner] left for the United States for medical check-up;
5. Sometime during the second week of December 1999, or thereabouts, defendant ALONZO by means ofdeceit and abuse
of confidence succeeded in procuring Promissory Notes and signed blank checksfrom [petitioner] who was then
recuperating from illness;
6. That as stated, aside from the said blank checks, defendant ALONZO likewise succeeded in inducing[petitioner]
to sign the Promissory Notes antedated June 8, 1999 in the amount of PESOS: ONE MILLION FOUR HUNDRED
TWENTY EIGHT THOUSAND TWO HUNDRED SEVENTY TWO (Php 1,428,272.00) payable to defendants EDITH CALILAP
and DANILO CALILAP, and another Promissory Noted dated March 1999 in the amount of PESOS: ONE MILLION (Php
1,000,000.00) payable to the same defendants EDITH CALILAP and DANILO CALILAP, copies of said Promissory Notes are
hereto attached as Annexes "A" and "A-1" hereof;
7. That another Promissory Note antedated October 1, 1999 thru the machination of defendant ALONZO, was signed
by [petitioner] in the amount of PESOS: THREE MILLION FORTY SIX THOUSAND FOUR HUNDRED ONE (Php
3,046,401.00) excluding interest, in favor of her co-defendants ESTELA CAMACLANG, ALLAN CAMACLANG, LENIZA
REYES, EDWIN REYES, JANE BACAREL and CHERRY CAMACLANG, a copy of said Promissory Note is hereto attached
as Annex "B" hereof;
8. That the Promissory Notes and blank checks were procured thru fraud and deceit. The consent of the [petitioner]
in the issuance of the two (2) aforementioned Promissory Notes was vitiated. Furthermore, the same were issued for
want of consideration, hence, the same should be cancelled, revoked or declared null and void;
9. That as clearly shown heretofore, defendant ALONZO in collusion with her co-defendants, ESTELA CAMACLANG, ALLAN
CAMACLANG and ESTELITA LEGASPI likewise was able to induce plaintiff to sign several undated blank
checks, among which are:
Metrobank Check No. 0111544
Metrobank Check No. 0111545
Metrobank Check No. 0111546
Metrobank Check No. 0111547
Metrobank Check No. 0111515
all in the total amount of Php 3,031,600.00, copies of said checks are hereto attached as Annexes "C", "C-1", "C-2", "C-3"
and "C-4", respectively;
10. That aside from the checks mentioned heretofore, defendant ALONZO, confederated and conspired with the following
co-defendants, FLORA CABRERA, NEMIA CASTRO, EDITH CALILAP, DANILO CALILAP, GLORIA DOMINGUEZ,
CARMENCITA GONZALES and ANNILYN C. SABALE and took advantage of the signature of [petitioner] in said blank
checks which were later on completed by them indicated opposite their respective names and the respective amount
thereof, as follows:
NAME

AMOUNT

METROBANK

Check No.
Flora Cabrera

Php 337,584.58 0111460

Flora Cabrera

98,000.00 0111514

Nemia Castro

100,000.00 0111542

Nemia Castro

150,000.00 0084078

Edith Calilap/Danilo Calilap

490,000.00 0111513

Edith Calilap/Danilo Calilap

790,272.00 0111512

Edith Calilap/Danilo Calilap

1,220,000.00 0111462

Gloria Dominguez/

1,046,040.00 0111543

Carmencita Gonzales
Annilyn C. Sable

150,000.00 0085134

Annilyn C. Sable

250,000.00 0085149

Annilyn C. Sable

186,000.00 0085112

Copy attached as Annexes "D", "D-1", "D-2", "D-3", "D-4", "D-5", "D-6", "D-7", "D-8", "D-9" and "D-10", respectively;
Furthermore, defendant ALONZO colluded and conspired with defendant NEMIA CASTO in procuring the signature of
[petitioner] in documents denominated as "Malayang Salaysay" dated July 22, 1999 in the amount of PESOS: ONE
HUNDRED FIFTY THOUSAND (Php 150,000.00) and another "Malayang Salaysay" dated November 22, 1999 in the
amount of PESOS: ONE HUNDRED THOUSAND (Php 100,000.00) Annexes "D-11" and "D-12" hereof;
11. That said defendants took undue advantage of the signature of [petitioner] in the said blank checks and
furthermore forged and or falsified the signature of [petitioner] in other unsigned checks and as it was made to
appear that said [petitioner] is under the obligation to pay them several amounts of money, when in truth and in fact,
said [petitioner] does not owe any of said defendant any single amount;
12. That the issuance of the aforementioned checks or Promissory Notes or the aforementioned "Malayang
Salaysay" to herein defendants were tainted with fraud and deceit, and defendants conspired with one another to
defraud herein [petitioner] as the aforementioned documents were issued for want of consideration;
13. That the aforesaid defendants conspiring and confederating together and helping one another committed acts of
falsification and defraudation which they should be held accountable under law;
14. The foregoing acts, and transactions, perpetrated by herein defendants in all bad faith and malice, with
malevolence and selfish intent are causing anxiety, tension, sleepless nights, wounded feelings, and
embarrassment to [petitioner] entitling her to moral damages of at least in the amount of PESOS: FIVE HUNDRED
THOUSAND (Php 500,000.00);
15. That to avoid repetition of similar acts and as a correction for the public good, the defendants should be held liable to
[petitioner] for exemplary damages in the sum of not less than the amount of PESOS: TWO HUNDRED THOUSAND (Php
200,000.00);
16. That to protect the rights and interest of the [petitioner] in the illegal actuations of the defendants, she was forced to
engage the services of counsel for which she was obliged to pay the sum of PESOS: ONE HUNDRED THOUSAND (Php
100,000.00) by way of Attorneys fees plus the amount of PESOS: THREE THOUSAND (Php 3,000.00) per appearance in
court;

x x x (Emphasis and underscoring supplied)

The named defendants-herein respondents filed their respective Answers invoking, among other grounds for dismissal, lack
of cause of action, for while the checks subject of the complaint had been issued on account and for value, some had been
dishonored due to "ACCOUNT CLOSED;" and the allegations in the complaint are bare and general.
By Order2 dated October 12, 2000, the trial court dismissed petitioners complaint for failure "to allege the ultimate facts"bases of petitioners claim that her right was violated and that she suffered damages thereby.
On appeal to the Court of Appeals, petitioner contended that the trial court:
A. . . . FAILED TO STATE CLEARLY AND DISTINCTLY THE FACTS AND LAW ON WHICH THE APPEALED ORDER WAS
BASED, THEREBY RENDERING SAID ORDER NULL AND VOID.
B. . . . ERRED IN HOLDING THAT THE COMPLAINT FAILED TO ALLEGE ULTIMATE FACTS ON WHICH [PETITIONER]
RELIES ON HER CLAIM THEREBY DISMISSING THE CASE FOR LACK OF CAUSE OF ACTION.
C. . . . ERRED IN GIVING DUE COURSE TO THE MOTION TO DISMISS THAT CONTAINED A FAULTY NOTICE OF
HEARING AS THE SAME IS MERELY ADDRESSED TO THE BRANCH CLERK OF COURT.3
In its Decision4 of March 21, 2003 affirming the dismissal order of the trial court, the appellate court held that the elements of
a cause of action are absent in the case:
xxx
Such allegations in the complaint are only general averments of fraud, deceit and bad faith. There were no allegations of
facts showing that the acts complained of were done in the manner alleged. The complaint did not clearly ascribe the extent
of the liability of each of [respondents]. Neither did it state any right or cause of action on the part of [petitioner] to show that
she is indeed entitled to the relief prayed for. In the first place, the record shows that subject checks which she sought to
cancel or revoke had already been dishonored and stamped "ACCOUNT CLOSED." In fact, there were already criminal
charges for violation of Batas Pambansa Blg. 22 filed against [petitioner] previous to the filing of the civil case for
revocation/cancellation. Such being the case, there was actually nothing more to cancel or revoke. The subject checks could
no longer be negotiated. Thus, [petitioners] allegation that the [respondents] were secretly negotiating with third persons for
their delivery and/or assignment, is untenable.
In the second place, we find nothing on the face of the complaint to show that [petitioner] denied the genuineness or
authenticity of her signature on the subject promissory notes and the allegedly signed blank checks. She merely alleged
abuse of trust and confidence on the part of [Alonzo]. Even assuming arguendo that such allegations were true, then
[petitioner] cannot be held totally blameless for her predicament as it was by her own negligence that subject
instruments/signed blank checks fell into the hands of third persons. Contrary to [petitioners] allegations, the promissory
notes show that some of the [respondents] were actually creditors of [petitioner] and who were issued the subject checks as
securities for the loan/obligation incurred. Having taken the instrument in good faith and for value, the [respondents] are
therefore considered holders thereof in due course and entitled to payment.
x x x (Underscoring supplied)
Hence, the present petition for review on certiorari, petitioner faulting the appellate court:
1. . . . in sustaining the dismissal of the complaint upon the ground of failure to state a cause of action when there are other
several causes of action which ventilate such causes of action in the complaint;
2. . . . in finding that a requirement that a Decision which should express therein clearly and distinctly the facts and the law on
which it is based does not include cases which had not reached pre-trial or trial stage;
3. . . . in not finding that a notice of hearing which was addressed to the Clerk of Court is totally defective and that
subsequent action of the court did not cure the flaw.5
In issue then is whether petitioners complaint failed to state a cause of action.
A cause of action has three elements: (1) the legal right of the plaintiff, (2) the correlative obligation of the defendant, and (3)
the act or omission of the defendant in violation of said legal right. In determining the presence of these elements, inquiry is
confined to the four corners of the complaint6 including its annexes, they being parts thereof.7 If these elements are absent,
the complaint becomes vulnerable to a motion to dismiss on the ground of failure to state a cause of action.8
As reflected in the above-quoted allegations in petitioners complaint, petitioner is seeking twin reliefs, one for
revocation/cancellation of promissory notes and checks, and the other for damages.
Thus, petitioner alleged, among other things, that respondents, through "deceit," "abuse of confidence" "machination,"
"fraud," "falsification," "forgery," "defraudation," and "bad faith," and "with malice, malevolence and selfish intent," succeeded
in inducing her to sign antedated promissory notes and some blank checks, and "[by taking] undue advantage" of her
signature on some other blank checks, succeeded in procuring them, even if there was no consideration for all of these
instruments on account of which she suffered "anxiety, tension, sleepless nights, wounded feelings and embarrassment."

While some of the allegations may lack particulars, and are in the form of conclusions of law, the elements of a cause of
action are present. For even if some are not stated with particularity, petitioner alleged 1) her legal right not to be bound by
the instruments which were bereft of consideration and to which her consent was vitiated; 2) the correlative obligation on the
part of the defendants-respondents to respect said right; and 3) the act of the defendants-respondents in procuring her
signature on the instruments through "deceit," "abuse of confidence" "machination," "fraud," "falsification," "forgery,"
"defraudation," and "bad faith," and "with malice, malevolence and selfish intent."
Where the allegations of a complaint are vague, indefinite, or in the form of conclusions, its dismissal is not proper for the
defendant may ask for more particulars.9
With respect to the checks subject of the complaint, it is gathered that, except for Check No. 0084078,10 they were drawn all
against petitioners Metrobank Account No. 00703-955536-7.
Annex "D-8"11 of the complaint, a photocopy of Check No. 0085134, shows that it was dishonored on January 12, 2000 due
to "ACCOUNT CLOSED." When petitioner then filed her complaint on March 28, 2000, all the checks subject hereof which
were drawn against the same closed account were already rendered valueless or non-negotiable, hence, petitioner had, with
respect to them, no cause of action.
With respect to above-said Check No. 0084078, however, which was drawn against another account of petitioner, albeit the
date of issue bears only the year 1999, its validity and negotiable character at the time the complaint was filed on March
28, 2000 was not affected. For Section 6 of the Negotiable Instruments Law provides:
Section 6. Omission; seal; particular money. The validity and negotiable character of an instrument are not affected
by the fact that
(a) It is not dated; or
(b) Does not specify the value given, or that any value had been given therefor; or
(c) Does not specify the place where it is drawn or the place where it is payable; or
(d) Bears a seal; or
(e) Designates a particular kind of current money in which payment is to be made.
x x x (Emphasis supplied)
However, even if the holder of Check No. 0084078 would have filled up the month and day of issue thereon to be
"December" and "31," respectively, it would have, as it did, become stale six (6) months or 180 days thereafter, following
current banking practice.12
It is, however, with respect to the questioned promissory notes that the present petition assumes merit. For, petitioners
allegations in the complaint relative thereto, even if lacking particularity, does not as priorly stated call for the dismissal of the
complaint.
WHEREFORE, the petition is PARTLY GRANTED.
The March 21, 2003 decision of the appellate court affirming the October 12, 2000 Order of the trial court, Branch 20 of the
RTC of Imus, Cavite, is AFFIRMED with MODIFICATION in light of the foregoing discussions.
The trial court is DIRECTED to REINSTATE Civil Case No. 2079-00 to its docket and take further proceedings thereon only
insofar as the complaint seeks the revocation/cancellation of the subject promissory notes and damages.
Let the records of the case be then REMANDED to the trial court.
SO ORDERED.
CONCHITA CARPIO MORALES
Associate Justice
WE CONCUR:
ARTEMIO V. PANGANIBAN
Associate Justice
Chairman
ANGELINA SANDOVAL-GUTIERREZ
Associate Justice

RENATO C. CORONA
Associate Justice

CANCIO C. GARCIA

G.R. No. 111190 June 27, 1995

LORETO D. DE LA VICTORIA, as City Fiscal of Mandaue City and in his personal capacity as garnishee,petitioner,
vs.
HON. JOSE P. BURGOS, Presiding Judge, RTC, Br. XVII, Cebu City, and RAUL H. SESBREO,respondents.

BELLOSILLO, J.:
RAUL H. SESBREO filed a complaint for damages against Assistant City Fiscals Bienvenido N. Mabanto, Jr., and Dario D.
Rama, Jr., before the Regional Trial Court of Cebu City. After trial judgment was rendered ordering the defendants to pay
P11,000.00 to the plaintiff, private respondent herein. The decision having become final and executory, on motion of the
latter, the trial court ordered its execution. This order was questioned by the defendants before the Court of Appeals.
However, on 15 January 1992 a writ of execution was issued.
On 4 February 1992 a notice of garnishment was served on petitioner Loreto D. de la Victoria as City Fiscal of Mandaue City
where defendant Mabanto, Jr., was then detailed. The notice directed petitioner not to disburse, transfer, release or convey to
any other person except to the deputy sheriff concerned the salary checks or other checks, monies, or cash due or belonging
to Mabanto, Jr., under penalty of law. 1 On 10 March 1992 private respondent filed a motion before the trial court for
examination of the garnishees.
On 25 May 1992 the petition pending before the Court of Appeals was dismissed. Thus the trial court, finding no more legal
obstacle to act on the motion for examination of the garnishees, directed petitioner on 4 November 1992 to submit his report
showing the amount of the garnished salaries of Mabanto, Jr., within fifteen (15) days from receipt 2 taking into consideration
the provisions of Sec. 12, pars. (f) and (i), Rule 39 of the Rules of Court.
On 24 November 1992 private respondent filed a motion to require petitioner to explain why he should not be cited in
contempt of court for failing to comply with the order of 4 November 1992.
On the other hand, on 19 January 1993 petitioner moved to quash the notice of garnishment claiming that he was not in
possession of any money, funds, credit, property or anything of value belonging to Mabanto, Jr., except his salary and RATA
checks, but that said checks were not yet properties of Mabanto, Jr., until delivered to him. He further claimed that, as such,
they were still public funds which could not be subject to garnishment.
On 9 March 1993 the trial court denied both motions and ordered petitioner to immediately comply with its order of 4
November 1992. 3 It opined that the checks of Mabanto, Jr., had already been released through petitioner by the Department
of Justice duly signed by the officer concerned. Upon service of the writ of garnishment, petitioner as custodian of the checks
was under obligation to hold them for the judgment creditor. Petitioner became a virtual party to, or a forced intervenor in, the
case and the trial court thereby acquired jurisdiction to bind him to its orders and processes with a view to the complete
satisfaction of the judgment. Additionally, there was no sufficient reason for petitioner to hold the checks because they were
no longer government funds and presumably delivered to the payee, conformably with the last sentence of Sec. 16 of the
Negotiable Instruments Law.
With regard to the contempt charge, the trial court was not morally convinced of petitioner's guilt. For, while his explanation
suffered from procedural infirmities nevertheless he took pains in enlightening the court by sending a written explanation
dated 22 July 1992 requesting for the lifting of the notice of garnishment on the ground that the notice should have been sent
to the Finance Officer of the Department of Justice. Petitioner insists that he had no authority to segregate a portion of the
salary of Mabanto, Jr. The explanation however was not submitted to the trial court for action since the stenographic reporter
failed to attach it to the record. 4
On 20 April 1993 the motion for reconsideration was denied. The trial court explained that it was not the duty of the garnishee
to inquire or judge for himself whether the issuance of the order of execution, writ of execution and notice of garnishment was
justified. His only duty was to turn over the garnished checks to the trial court which issued the order of execution. 5
Petitioner raises the following relevant issues: (1) whether a check still in the hands of the maker or its duly authorized
representative is owned by the payee before physical delivery to the latter: and, (2) whether the salary check of a
government official or employee funded with public funds can be subject to garnishment.
Petitioner reiterates his position that the salary checks were not owned by Mabanto, Jr., because they were not yet delivered
to him, and that petitioner as garnishee has no legal obligation to hold and deliver them to the trial court to be applied to
Mabanto, Jr.'s judgment debt. The thesis of petitioner is that the salary checks still formed part of public funds and therefore
beyond the reach of garnishment proceedings.
Petitioner has well argued his case.
Garnishment is considered as a species of attachment for reaching credits belonging to the judgment debtor owing to him
from a stranger to the litigation. 6 Emphasis is laid on the phrase "belonging to the judgment debtor" since it is the focal point
in resolving the issues raised.
As Assistant City Fiscal, the source of the salary of Mabanto, Jr., is public funds. He receives his compensation in the form of
checks from the Department of Justice through petitioner as City Fiscal of Mandaue City and head of office. Under Sec. 16 of

the Negotiable Instruments Law, every contract on a negotiable instrument is incomplete and revocable until delivery of the
instrument for the purpose of giving effect thereto. As ordinarily understood, delivery means the transfer of the possession of
the instrument by the maker or drawer with intent to transfer title to the payee and recognize him as the holder thereof. 7
According to the trial court, the checks of Mabanto, Jr., were already released by the Department of Justice duly signed by
the officer concerned through petitioner and upon service of the writ of garnishment by the sheriff petitioner was under
obligation to hold them for the judgment creditor. It recognized the role of petitioner ascustodian of the checks. At the same
time however it considered the checks as no longer government funds and presumed delivered to the payee based on the
last sentence of Sec. 16 of the Negotiable Instruments Law which states: "And where the instrument is no longer in the
possession of a party whose signature appears thereon, a valid and intentional delivery by him is presumed." Yet, the
presumption is not conclusive because the last portion of the provision says "until the contrary is proved." However this
phrase was deleted by the trial court for no apparent reason. Proof to the contrary is its own finding that the checks were in
the custody of petitioner. Inasmuch as said checks had not yet been delivered to Mabanto, Jr., they did not belong to him and
still had the character of public funds. In Tiro v. Hontanosas 8 we ruled that
The salary check of a government officer or employee such as a teacher does not belong to him before it is
physically delivered to him. Until that time the check belongs to the government. Accordingly, before there
is actual delivery of the check, the payee has no power over it; he cannot assign it without the consent of
the Government.
As a necessary consequence of being public fund, the checks may not be garnished to satisfy the judgment. 9The rationale
behind this doctrine is obvious consideration of public policy. The Court succinctly stated in Commissioner of Public
Highways v. San Diego 10 that
The functions and public services rendered by the State cannot be allowed to be paralyzed or disrupted by
the diversion of public funds from their legitimate and specific objects, as appropriated by law.
In denying petitioner's motion for reconsideration, the trial court expressed the additional ratiocination that it was not the duty
of the garnishee to inquire or judge for himself whether the issuance of the order of execution, the writ of execution, and the
notice of garnishment was justified, citing our ruling in Philippine Commercial Industrial Bank v. Court of Appeals. 11 Our
precise ruling in that case was that "[I]t is not incumbent upon the garnishee to inquire or to judge for itself whether or not the
order for the advance execution of a judgment is valid." But that is invoking only the general rule. We have also established
therein the compelling reasons, as exceptions thereto, which were not taken into account by the trial court, e.g., a defect on
the face of the writ or actual knowledge by the garnishee of lack of entitlement on the part of the garnisher. It is worth to note
that the ruling referred to the validity of advance execution of judgments, but a careful scrutiny of that case and similar cases
reveals that it was applicable to a notice of garnishment as well. In the case at bench, it was incumbent upon petitioner to
inquire into the validity of the notice of garnishment as he had actual knowledge of the non-entitlement of private respondent
to the checks in question. Consequently, we find no difficulty concluding that the trial court exceeded its jurisdiction in issuing
the notice of garnishment concerning the salary checks of Mabanto, Jr., in the possession of petitioner.
WHEREFORE, the petition is GRANTED. The orders of 9 March 1993 and 20 April 1993 of the Regional Trial Court of Cebu
City, Br. 17, subject of the petition are SET ASIDE. The notice of garnishment served on petitioner dated 3 February 1992 is
ordered DISCHARGED.
SO ORDERED.
Quiason and Kapunan, JJ., concur.

Separate Opinions

DAVIDE, JR., J., concurring and dissenting:

This Court may take judicial notice of the fact that checks for salaries of employees of various Departments all over the
country are prepared in Manila not at the end of the payroll period, but days before it to ensure that they reach the employees
concerned not later than the end of the payroll period. As to the employees in the provinces or cities, the checks are sent
through the heads of the corresponding offices of the Departments. Thus, in the case of Prosecutors and Assistant
Prosecutors of the Department of Justice, the checks are sent through the Provincial Prosecutors or City Prosecutors, as the
case may be, who shall then deliver the checks to the payees.
Involved in the instant case are the salary and RATA checks of then Assistant City Fiscal Bienvenido Mabanto, Jr., who was
detailed in the Office of the City Fiscal (now Prosecutor) of Mandaue City. Conformably with the aforesaid practice, these
checks were sent to Mabanto thru the petitioner who was then the City Fiscal of Mandaue City.
The ponencia failed to indicate the payroll period covered by the salary check and the month to which the RATA check

corresponds.
I respectfully submit that if these salary and RATA checks corresponded, respectively, to a payroll period and to a month
which had already lapsed at the time the notice of garnishment was served, the garnishment would be valid, as the checks
would then cease to be property of the Government and would become property of Mabanto. Upon the expiration of such
period and month, the sums indicated therein were deemed automatically segregated from the budgetary allocations for the
Department of Justice under the General Appropriations Act.
It must be recalled that the public policy against execution, attachment, or garnishment is directed to public funds.
Thus, in the case of Director of the Bureau of Commerce and Industry vs. Concepcion 1 where the core issue was whether or
not the salary due from the Government to a public officer or employee can, by garnishment, be seized before being paid to
him and appropriated to the payment of his judgment debts, this Court held:
A rule, which has never been seriously questioned, is that money in the hands of public officers, although it
may be due government employees, is not liable to the creditors of these employees in the process of
garnishment. One reason is, that the State, by virtue of its sovereignty, may not be sued in its own courts
except by express authorization by the Legislature, and to subject its officers to garnishment would be to
permit indirectly what is prohibited directly. Another reason is that moneys sought to be garnished, as long
as they remain in the hands of the disbursing officer of the Government, belong to the latter, although the
defendant in garnishment may be entitled to a specific portion thereof. And still another reason which
covers both of the foregoing is that every consideration of public policy forbids it.
The United States Supreme Court, in the leading case of Buchanan vs. Alexander ([1846], 4 How., 19), in
speaking of the right of creditors of seamen, by process of attachment, to divert the public money from its
legitimate and appropriate object, said:
To state such a principle is to refute it. No government can sanction it. At all times it would
be found embarrassing, and under some circumstances it might be fatal to the public
service. . . . So long as money remains in the hands of a disbursing officer, it is as much
the money of the United States, as if it had not been drawn from the treasury.Until paid
over by the agent of the government to the person entitled to it, the fund cannot, in any
legal sense, be considered a part of his effects." (See, further, 12 R.C.L., p. 841; Keene
vs. Smith [1904], 44 Ore., 525; Wild vs. Ferguson [1871], 23 La. Ann., 752; Bank of
Tennessee vs. Dibrell [1855], 3 Sneed [Tenn.], 379). (emphasis supplied)
The authorities cited in the ponencia are inapplicable. Garnished or levied on therein were public funds, to wit: (a) the pump
irrigation trust fund deposited with the Philippine National Bank (PNB) in the account of the Irrigation Service Unit in Republic
vs. Palacio; 2 (b) the deposits of the National Media Production Center in Traders Royal Bank vs. Intermediate Appellate
Court; 3 and (c) the deposits of the Bureau of Public Highways with the PNB under a current account, which may be
expended only for their legitimate object as authorized by the corresponding legislative appropriation in Commissioner of
Public Highways vs. Diego. 4
Neither is Tiro vs. Hontanosas 5 squarely in point. The said case involved the validity of Circular No. 21, series of 1969,
issued by the Director of Public Schools which directed that "henceforth no cashier or disbursing officer shall pay to
attorneys-in-fact or other persons who may be authorized under a power of attorney or other forms of authority to collect the
salary of an employee, except when the persons so designated and authorized is an immediate member of the family of the
employee concerned, and in all other cases except upon proper authorization of the Assistant Executive Secretary for Legal
and Administrative Matters, with the recommendation of the Financial Assistant." Private respondent Zafra Financing
Enterprise, which had extended loans to public school teachers in Cebu City and obtained from the latter promissory notes
and special powers of attorney authorizing it to take and collect their salary checks from the Division Office in Cebu City of
the Bureau of Public Schools, sought, inter alia, to nullify the Circular. It is clear that the teachers had in fact assigned to or
waived in favor of Zafra their future salaries which were still public funds. That assignment or waiver was contrary to public
policy.
I would therefore vote to grant the petition only if the salary and RATA checks garnished corresponds to an unexpired payroll
period and RATA month, respectively.
Padilla, J., concurs.

Separate Opinions
DAVIDE, JR., J., concurring and dissenting:
This Court may take judicial notice of the fact that checks for salaries of employees of various Departments all over the
country are prepared in Manila not at the end of the payroll period, but days before it to ensure that they reach the employees
concerned not later than the end of the payroll period. As to the employees in the provinces or cities, the checks are sent
through the heads of the corresponding offices of the Departments. Thus, in the case of Prosecutors and Assistant
Prosecutors of the Department of Justice, the checks are sent through the Provincial Prosecutors or City Prosecutors, as the

case may be, who shall then deliver the checks to the payees.
Involved in the instant case are the salary and RATA checks of then Assistant City Fiscal Bienvenido Mabanto, Jr., who was
detailed in the Office of the City Fiscal (now Prosecutor) of Mandaue City. Conformably with the aforesaid practice, these
checks were sent to Mabanto thru the petitioner who was then the City Fiscal of Mandaue City.
The ponencia failed to indicate the payroll period covered by the salary check and the month to which the RATA check
corresponds.
I respectfully submit that if these salary and RATA checks corresponded, respectively, to a payroll period and to a month
which had already lapsed at the time the notice of garnishment was served, the garnishment would be valid, as the checks
would then cease to be property of the Government and would become property of Mabanto. Upon the expiration of such
period and month, the sums indicated therein were deemed automatically segregated from the budgetary allocations for the
Department of Justice under the General Appropriations Act.
It must be recalled that the public policy against execution, attachment, or garnishment is directed to public funds.
Thus, in the case of Director of the Bureau of Commerce and Industry vs. Concepcion 1 where the core issue was whether or
not the salary due from the Government to a public officer or employee can, by garnishment, be seized before being paid to
him and appropriated to the payment of his judgment debts, this Court held:
A rule, which has never been seriously questioned, is that money in the hands of public officers, although it
may be due government employees, is not liable to the creditors of these employees in the process of
garnishment. One reason is, that the State, by virtue of its sovereignty, may not be sued in its own courts
except by express authorization by the Legislature, and to subject its officers to garnishment would be to
permit indirectly what is prohibited directly. Another reason is that moneys sought to be garnished, as long
as they remain in the hands of the disbursing officer of the Government, belong to the latter, although the
defendant in garnishment may be entitled to a specific portion thereof. And still another reason which
covers both of the foregoing is that every consideration of public policy forbids it.
The United States Supreme Court, in the leading case of Buchanan vs. Alexander ([1846], 4 How., 19), in
speaking of the right of creditors of seamen, by process of attachment, to divert the public money from its
legitimate and appropriate object, said:
To state such a principle is to refute it. No government can sanction it. At all times it would
be found embarrassing, and under some circumstances it might be fatal to the public
service. . . . So long as money remains in the hands of a disbursing officer, it is as much
the money of the United States, as if it had not been drawn from the treasury.Until paid
over by the agent of the government to the person entitled to it, the fund cannot, in any
legal sense, be considered a part of his effects." (See, further, 12 R.C.L., p. 841; Keene
vs. Smith [1904], 44 Ore., 525; Wild vs. Ferguson [1871], 23 La. Ann., 752; Bank of
Tennessee vs. Dibrell [1855], 3 Sneed [Tenn.], 379). (emphasis supplied)
The authorities cited in the ponencia are inapplicable. Garnished or levied on therein were public funds, to wit: (a) the pump
irrigation trust fund deposited with the Philippine National Bank (PNB) in the account of the Irrigation Service Unit in Republic
vs. Palacio; 2 (b) the deposits of the National Media Production Center in Traders Royal Bank vs. Intermediate Appellate
Court; 3 and (c) the deposits of the Bureau of Public Highways with the PNB under a current account, which may be
expended only for their legitimate object as authorized by the corresponding legislative appropriation in Commissioner of
Public Highways vs. Diego. 4
Neither is Tiro vs. Hontanosas 5 squarely in point. The said case involved the validity of Circular No. 21, series of 1969,
issued by the Director of Public Schools which directed that "henceforth no cashier or disbursing officer shall pay to
attorneys-in-fact or other persons who may be authorized under a power of attorney or other forms of authority to collect the
salary of an employee, except when the persons so designated and authorized is an immediate member of the family of the
employee concerned, and in all other cases except upon proper authorization of the Assistant Executive Secretary for Legal
and Administrative Matters, with the recommendation of the Financial Assistant." Private respondent Zafra Financing
Enterprise, which had extended loans to public school teachers in Cebu City and obtained from the latter promissory notes
and special powers of attorney authorizing it to take and collect their salary checks from the Division Office in Cebu City of
the Bureau of Public Schools, sought, inter alia, to nullify the Circular. It is clear that the teachers had in fact assigned to or
waived in favor of Zafra their future salaries which were still public funds. That assignment or waiver was contrary to public
policy.
I would therefore vote to grant the petition only if the salary and RATA checks garnished corresponds to an unexpired payroll
period and RATA month, respectively.
Padilla, J., concurs.

G.R. No. 85419 March 9, 1993

DEVELOPMENT BANK OF RIZAL, plaintiff-petitioner,
vs.
SIMA WEI and/or LEE KIAN HUAT, MARY CHENG UY, SAMSON TUNG, ASIAN INDUSTRIAL PLASTIC CORPORATION
and PRODUCERS BANK OF THE PHILIPPINES, defendants-respondents.
Yngson & Associates for petitioner.
Henry A. Reyes & Associates for Samso Tung & Asian Industrial Plastic Corporation.
Eduardo G. Castelo for Sima Wei.
Monsod, Tamargo & Associates for Producers Bank.
Rafael S. Santayana for Mary Cheng Uy.

CAMPOS, JR., J.:

On July 6, 1986, the Development Bank of Rizal (petitioner Bank for brevity) filed a complaint for a sum of money against
respondents Sima Wei and/or Lee Kian Huat, Mary Cheng Uy, Samson Tung, Asian Industrial Plastic Corporation (Plastic
Corporation for short) and the Producers Bank of the Philippines, on two causes of action:
(1) To enforce payment of the balance of P1,032,450.02 on a promissory note executed by respondent
Sima Wei on June 9, 1983; and
(2) To enforce payment of two checks executed by Sima Wei, payable to petitioner, and drawn against the
China Banking Corporation, to pay the balance due on the promissory note.
Except for Lee Kian Huat, defendants filed their separate Motions to Dismiss alleging a common ground that the complaint
states no cause of action. The trial court granted the defendants' Motions to Dismiss. The Court of Appeals affirmed this
decision, * to which the petitioner Bank, represented by its Legal Liquidator, filed this Petition for Review by Certiorari,
assigning the following as the alleged errors of the Court of Appeals: 1
(1) THE COURT OF APPEALS ERRED IN HOLDING THAT THE PLAINTIFF-PETITIONER HAS NO
CAUSE OF ACTION AGAINST DEFENDANTS-RESPONDENTS HEREIN.
(2) THE COURT OF APPEALS ERRED IN HOLDING THAT SECTION 13, RULE 3 OF THE REVISED
RULES OF COURT ON ALTERNATIVE DEFENDANTS IS NOT APPLICABLE TO HEREIN DEFENDANTSRESPONDENTS.
The antecedent facts of this case are as follows:
In consideration for a loan extended by petitioner Bank to respondent Sima Wei, the latter executed and delivered to the
former a promissory note, engaging to pay the petitioner Bank or order the amount of P1,820,000.00 on or before June 24,
1983 with interest at 32% per annum. Sima Wei made partial payments on the note, leaving a balance of P1,032,450.02. On
November 18, 1983, Sima Wei issued two crossed checks payable to petitioner Bank drawn against China Banking
Corporation, bearing respectively the serial numbers 384934, for the amount of P550,000.00 and 384935, for the amount of
P500,000.00. The said checks were allegedly issued in full settlement of the drawer's account evidenced by the promissory
note. These two checks were not delivered to the petitioner-payee or to any of its authorized representatives. For reasons not
shown, these checks came into the possession of respondent Lee Kian Huat, who deposited the checks without the
petitioner-payee's indorsement (forged or otherwise) to the account of respondent Plastic Corporation, at the Balintawak
branch, Caloocan City, of the Producers Bank. Cheng Uy, Branch Manager of the Balintawak branch of Producers Bank,
relying on the assurance of respondent Samson Tung, President of Plastic Corporation, that the transaction was legal and
regular, instructed the cashier of Producers Bank to accept the checks for deposit and to credit them to the account of said
Plastic Corporation, inspite of the fact that the checks were crossed and payable to petitioner Bank and bore no indorsement
of the latter. Hence, petitioner filed the complaint as aforestated.
The main issue before Us is whether petitioner Bank has a cause of action against any or all of the defendants, in the
alternative or otherwise.
A cause of action is defined as an act or omission of one party in violation of the legal right or rights of another. The essential
elements are: (1) legal right of the plaintiff; (2) correlative obligation of the defendant; and (3) an act or omission of the
defendant in violation of said legal right. 2
The normal parties to a check are the drawer, the payee and the drawee bank. Courts have long recognized the business
custom of using printed checks where blanks are provided for the date of issuance, the name of the payee, the amount
payable and the drawer's signature. All the drawer has to do when he wishes to issue a check is to properly fill up the blanks
and sign it. However, the mere fact that he has done these does not give rise to any liability on his part, until and unless the
check is delivered to the payee or his representative. A negotiable instrument, of which a check is, is not only a written
evidence of a contract right but is also a species of property. Just as a deed to a piece of land must be delivered in order to

convey title to the grantee, so must a negotiable instrument be delivered to the payee in order to evidence its existence as a
binding contract. Section 16 of the Negotiable Instruments Law, which governs checks, provides in part:
Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for
the purpose of giving effect thereto. . . .
Thus, the payee of a negotiable instrument acquires no interest with respect thereto until its delivery to him. 3Delivery of an
instrument means transfer of possession, actual or constructive, from one person to another. 4 Without the initial delivery of
the instrument from the drawer to the payee, there can be no liability on the instrument. Moreover, such delivery must be
intended to give effect to the instrument.
The allegations of the petitioner in the original complaint show that the two (2) China Bank checks, numbered 384934 and
384935, were not delivered to the payee, the petitioner herein. Without the delivery of said checks to petitioner-payee, the
former did not acquire any right or interest therein and cannot therefore assert any cause of action, founded on said checks,
whether against the drawer Sima Wei or against the Producers Bank or any of the other respondents.
In the original complaint, petitioner Bank, as plaintiff, sued respondent Sima Wei on the promissory note, and the alternative
defendants, including Sima Wei, on the two checks. On appeal from the orders of dismissal of the Regional Trial Court,
petitioner Bank alleged that its cause of action was not based on collecting the sum of money evidenced by the negotiable
instruments stated but on quasi-delict a claim for damages on the ground of fraudulent acts and evident bad faith of the
alternative respondents. This was clearly an attempt by the petitioner Bank to change not only the theory of its case but the
basis of his cause of action. It is well-settled that a party cannot change his theory on appeal, as this would in effect deprive
the other party of his day in court. 5
Notwithstanding the above, it does not necessarily follow that the drawer Sima Wei is freed from liability to petitioner Bank
under the loan evidenced by the promissory note agreed to by her. Her allegation that she has paid the balance of her loan
with the two checks payable to petitioner Bank has no merit for, as We have earlier explained, these checks were never
delivered to petitioner Bank. And even granting, without admitting, that there was delivery to petitioner Bank, the delivery of
checks in payment of an obligation does not constitute payment unless they are cashed or their value is impaired through the
fault of the creditor. 6 None of these exceptions were alleged by respondent Sima Wei.
Therefore, unless respondent Sima Wei proves that she has been relieved from liability on the promissory note by some
other cause, petitioner Bank has a right of action against her for the balance due thereon.
However, insofar as the other respondents are concerned, petitioner Bank has no privity with them. Since petitioner Bank
never received the checks on which it based its action against said respondents, it never owned them (the checks) nor did it
acquire any interest therein. Thus, anything which the respondents may have done with respect to said checks could not
have prejudiced petitioner Bank. It had no right or interest in the checks which could have been violated by said respondents.
Petitioner Bank has therefore no cause of action against said respondents, in the alternative or otherwise. If at all, it is Sima
Wei,
the
drawer,
who
would
have
a
cause
of
action
against
her
co-respondents, if the allegations in the complaint are found to be true.
With respect to the second assignment of error raised by petitioner Bank regarding the applicability of Section 13, Rule 3 of
the Rules of Court, We find it unnecessary to discuss the same in view of Our finding that the petitioner Bank did not acquire
any right or interest in the checks due to lack of delivery. It therefore has no cause of action against the respondents, in the
alternative or otherwise.
In the light of the foregoing, the judgment of the Court of Appeals dismissing the petitioner's complaint is AFFIRMED insofar
as the second cause of action is concerned. On the first cause of action, the case is REMANDED to the trial court for a trial
on the merits, consistent with this decision, in order to determine whether respondent Sima Wei is liable to the Development
Bank of Rizal for any amount under the promissory note allegedly signed by her.
SO ORDERED.
Narvasa, C.J., Padilla, Regalado and Nocon, JJ., concur.

# Footnotes
* CA G.R. CV No. 11980 dated October 12, 1988. Penned by Associate Justice Venancio D. Aldecoa, Jr.
with Associate Justices Ricardo P. Tensuan and Luis L. Victor, concurring.
1 Petition, p. 7; Rollo, p. 20.
2 Caseas vs. Rosales, et al., 19 SCRA 462 (1967); Remitere, et al. vs. Vda. de Yulo, et al., 16 SCRA 251
(1966).
3 In re Martens' Estate, 226 Iowa 162, 283 N.W. 885 (1939); Shriver vs. Danby, 113 A. 612 (1921).
4 Negotiable Instruments Law, Sec. 191, par. 6.
5 Ganzon vs. Court of Appeals, 161 SCRA 646 (1988). See also 1 M. MORAN, COMMENTS ON THE

G.R. No. L-39641 February 28, 1983

METROPOL (BACOLOD) FINANCING & INVESTMENT CORPORATION, plaintiff-appellee,
vs.
SAMBOK MOTORS COMPANY and NG SAMBOK SONS MOTORS CO., LTD., defendants-appellants.
Rizal Quimpo & Cornelio P. Revena for plaintiff-appellee.
Diosdado Garingalao for defendants-appellants.

DE CASTRO, J.:
The former Court of Appeals, by its resolution dated October 16, 1974 certified this case to this Court the issue issued therein
being one purely of law.
On April 15, 1969 Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons Motors Co., Ltd., in the amount
of P15,939.00 payable in twelve (12) equal monthly installments, beginning May 18, 1969, with interest at the rate of one
percent per month. It is further provided that in case on non-payment of any of the installments, the total principal sum then
remaining unpaid shall become due and payable with an additional interest equal to twenty-five percent of the total amount
due.
On the same date, Sambok Motors Company (hereinafter referred to as Sambok), a sister company of Ng Sambok Sons
Motors Co., Ltd., and under the same management as the former, negotiated and indorsed the note in favor of plaintiff
Metropol Financing & Investment Corporation with the following indorsement:
Pay to the order of Metropol Bacolod Financing & Investment Corporation with recourse. Notice of
Demand; Dishonor; Protest; and Presentment are hereby waived.
SAMBOK MOTORS CO. (BACOLOD)
By:
RODOLFO G. NONILLO Asst. General Manager
The maker, Dr. Villaruel defaulted in the payment of his installments when they became due, so on October 30, 1969 plaintiff
formally presented the promissory note for payment to the maker. Dr. Villaruel failed to pay the promissory note as
demanded, hence plaintiff notified Sambok as indorsee of said note of the fact that the same has been dishonored and
demanded payment.
Sambok failed to pay, so on November 26, 1969 plaintiff filed a complaint for collection of a sum of money before the Court of
First Instance of Iloilo, Branch I. Sambok did not deny its liability but contended that it could not be obliged to pay until after
its co-defendant Dr. Villaruel has been declared insolvent.
During the pendency of the case in the trial court, defendant Dr. Villaruel died, hence, on October 24, 1972 the lower court,
on motion, dismissed the case against Dr. Villaruel pursuant to Section 21, Rule 3 of the Rules of Court. 1
On plaintiff's motion for summary judgment, the trial court rendered its decision dated September 12, 1973, the dispositive
portion of which reads as follows:
WHEREFORE, judgment is rendered:
(a) Ordering Sambok Motors Company to pay to the plaintiff the sum of P15,939.00 plus the legal rate of
interest from October 30, 1969;
(b) Ordering same defendant to pay to plaintiff the sum equivalent to 25% of P15,939.00 plus interest
thereon until fully paid; and
(c) To pay the cost of suit.
Not satisfied with the decision, the present appeal was instituted, appellant Sambok raising a lone assignment of error as
follows:
The trial court erred in not dismissing the complaint by finding defendant appellant Sambok Motors
Company as assignor and a qualified indorsee of the subject promissory note and in not holding it as only
secondarily liable thereof.
Appellant Sambok argues that by adding the words "with recourse" in the indorsement of the note, it becomes a qualified
indorser that being a qualified indorser, it does not warrant that if said note is dishonored by the maker on presentment, it will
pay the amount to the holder; that it only warrants the following pursuant to Section 65 of the Negotiable Instruments Law: (a)
that the instrument is genuine and in all respects what it purports to be; (b) that he has a good title to it; (c) that all prior
parties had capacity to contract; (d) that he has no knowledge of any fact which would impair the validity of the instrument or
render it valueless.

The appeal is without merit.

A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may be made by adding to
the indorser's signature the words "without recourse" or any words of similar import. 2 Such an indorsement relieves the
indorser of the general obligation to pay if the instrument is dishonored but not of the liability arising from warranties on the
instrument as provided in Section 65 of the Negotiable Instruments Law already mentioned herein. However, appellant
Sambok indorsed the note "with recourse" and even waived the notice of demand, dishonor, protest and presentment.
"Recourse" means resort to a person who is secondarily liable after the default of the person who is primarily
liable. 3 Appellant, by indorsing the note "with recourse" does not make itself a qualified indorser but a general indorser who
is secondarily liable, because by such indorsement, it agreed that if Dr. Villaruel fails to pay the note, plaintiff-appellee can go
after said appellant. The effect of such indorsement is that the note was indorsed without qualification. A person who indorses
without qualification engages that on due presentment, the note shall be accepted or paid, or both as the case may be, and
that if it be dishonored, he will pay the amount thereof to the holder. 4 Appellant Sambok's intention of indorsing the note
without qualification is made even more apparent by the fact that the notice of demand, dishonor, protest and presentment
were an waived. The words added by said appellant do not limit his liability, but rather confirm his obligation as a general
indorser.
Lastly, the lower court did not err in not declaring appellant as only secondarily liable because after an instrument is
dishonored by non-payment, the person secondarily liable thereon ceases to be such and becomes a principal debtor. 5 His
liabiliy becomes the same as that of the original obligor. 6 Consequently, the holder need not even proceed against the
maker before suing the indorser.
WHEREFORE, the decision of the lower court is hereby affirmed. No costs.
SO ORDERED.
Makasiar (Chairman), Concepcion, Jr., Guerrero and Escolin, JJ., concur.
Aquino, J., is on leave.

Separate Opinions

ABAD SANTOS, J., concurring:

I concur and wish to add the observation that the appeal could have been treated as a petition for review under R.A. 5440
and dismissed by minute resolution.

Separate Opinions
ABAD SANTOS, J., concurring:
I concur and wish to add the observation that the appeal could have been treated as a petition for review under R.A. 5440
and dismissed by minute resolution.
Footnotes
1 Sec. 21. Where claim does not survive.When the action is for recovery of money, debt or interest
thereon, and the defendant dies before final judgment in the Court of First Instance, it shall be dismissed to
be prosecuted in the manner especially provided in these rules.
2 Section 38, The Negotiable Instruments Law.
3 Ogden, The Law of Negotiable Instruments, p. 200 citing Industrial Bank and Trust Company vs.
Hesselberg, 195 S.W. (2d) 470.
4 Ang Tiong vs. Ting, 22 SCRA 715.
5 Pittsburg Westmoreland Coal Co. vs. Kerr, 115 N.E.
6 American Bank vs. Macondray & Co., 4 Phil. 695.

G.R. No. L-15126

November 30, 1961

VICENTE R. DE OCAMPO & CO., plaintiff-appellee,

vs.
ANITA GATCHALIAN, ET AL., defendants-appellants.
Vicente Formoso, Jr. for plaintiff-appellee.
Reyes and Pangalagan for defendants-appellants.
LABRADOR, J.:
Appeal from a judgment of the Court of First Instance of Manila, Hon. Conrado M. Velasquez, presiding, sentencing the
defendants to pay the plaintiff the sum of P600, with legal interest from September 10, 1953 until paid, and to pay the costs.
The action is for the recovery of the value of a check for P600 payable to the plaintiff and drawn by defendant Anita C.
Gatchalian. The complaint sets forth the check and alleges that plaintiff received it in payment of the indebtedness of one
Matilde Gonzales; that upon receipt of said check, plaintiff gave Matilde Gonzales P158.25, the difference between the face
value of the check and Matilde Gonzales' indebtedness. The defendants admit the execution of the check but they allege in
their answer, as affirmative defense, that it was issued subject to a condition, which was not fulfilled, and that plaintiff was
guilty of gross negligence in not taking steps to protect itself.
At the time of the trial, the parties submitted a stipulation of facts, which reads as follows:
Plaintiff and defendants through their respective undersigned attorney's respectfully submit the following Agreed
Stipulation of Facts;
First. That on or about 8 September 1953, in the evening, defendant Anita C. Gatchalian who was then interested
in looking for a car for the use of her husband and the family, was shown and offered a car by Manuel Gonzales who
was accompanied by Emil Fajardo, the latter being personally known to defendant Anita C. Gatchalian;
Second. That Manuel Gonzales represented to defend Anita C. Gatchalian that he was duly authorized by the
owner of the car, Ocampo Clinic, to look for a buyer of said car and to negotiate for and accomplish said sale, but
which facts were not known to plaintiff;
Third. That defendant Anita C. Gatchalian, finding the price of the car quoted by Manuel Gonzales to her
satisfaction, requested Manuel Gonzales to bring the car the day following together with the certificate of registration
of the car, so that her husband would be able to see same; that on this request of defendant Anita C. Gatchalian,
Manuel Gonzales advised her that the owner of the car will not be willing to give the certificate of registration unless
there is a showing that the party interested in the purchase of said car is ready and willing to make such purchase
and that for this purpose Manuel Gonzales requested defendant Anita C. Gatchalian to give him (Manuel Gonzales)
a check which will be shown to the owner as evidence of buyer's good faith in the intention to purchase the said car,
the said check to be for safekeeping only of Manuel Gonzales and to be returned to defendant Anita C. Gatchalian
the following day when Manuel Gonzales brings the car and the certificate of registration, but which facts were not
known to plaintiff;
Fourth. That relying on these representations of Manuel Gonzales and with his assurance that said check will be
only for safekeeping and which will be returned to said defendant the following day when the car and its certificate of
registration will be brought by Manuel Gonzales to defendants, but which facts were not known to plaintiff, defendant
Anita C. Gatchalian drew and issued a check, Exh. "B"; that Manuel Gonzales executed and issued a receipt for
said check, Exh. "1";
Fifth. That on the failure of Manuel Gonzales to appear the day following and on his failure to bring the car and its
certificate of registration and to return the check, Exh. "B", on the following day as previously agreed upon,
defendant Anita C. Gatchalian issued a "Stop Payment Order" on the check, Exh. "3", with the drawee bank. Said
"Stop Payment Order" was issued without previous notice on plaintiff not being know to defendant, Anita C.
Gatchalian and who furthermore had no reason to know check was given to plaintiff;
Sixth. That defendants, both or either of them, did not know personally Manuel Gonzales or any member of his
family at any time prior to September 1953, but that defendant Hipolito Gatchalian is personally acquainted with V.
R. de Ocampo;
Seventh. That defendants, both or either of them, had no arrangements or agreement with the Ocampo Clinic at
any time prior to, on or after 9 September 1953 for the hospitalization of the wife of Manuel Gonzales and neither or
both of said defendants had assumed, expressly or impliedly, with the Ocampo Clinic, the obligation of Manuel
Gonzales or his wife for the hospitalization of the latter;
Eight. That defendants, both or either of them, had no obligation or liability, directly or indirectly with the Ocampo
Clinic before, or on 9 September 1953;
Ninth. That Manuel Gonzales having received the check Exh. "B" from defendant Anita C. Gatchalian under the
representations and conditions herein above specified, delivered the same to the Ocampo Clinic, in payment of the
fees and expenses arising from the hospitalization of his wife;

Tenth. That plaintiff for and in consideration of fees and expenses of hospitalization and the release of the wife of
Manuel Gonzales from its hospital, accepted said check, applying P441.75 (Exhibit "A") thereof to payment of said
fees and expenses and delivering to Manuel Gonzales the amount of P158.25 (as per receipt, Exhibit "D")
representing the balance on the amount of the said check, Exh. "B";
Eleventh. That the acts of acceptance of the check and application of its proceeds in the manner specified above
were made without previous inquiry by plaintiff from defendants:
Twelfth. That plaintiff filed or caused to be filed with the Office of the City Fiscal of Manila, a complaint for estafa
against Manuel Gonzales based on and arising from the acts of said Manuel Gonzales in paying his obligations with
plaintiff and receiving the cash balance of the check, Exh. "B" and that said complaint was subsequently dropped;
Thirteenth. That the exhibits mentioned in this stipulation and the other exhibits submitted previously, be
considered as parts of this stipulation, without necessity of formally offering them in evidence;
WHEREFORE, it is most respectfully prayed that this agreed stipulation of facts be admitted and that the parties
hereto be given fifteen days from today within which to submit simultaneously their memorandum to discuss the
issues of law arising from the facts, reserving to either party the right to submit reply memorandum, if necessary,
within ten days from receipt of their main memoranda. (pp. 21-25, Defendant's Record on Appeal).
No other evidence was submitted and upon said stipulation the court rendered the judgment already alluded above.
In their appeal defendants-appellants contend that the check is not a negotiable instrument, under the facts and
circumstances stated in the stipulation of facts, and that plaintiff is not a holder in due course. In support of the first
contention, it is argued that defendant Gatchalian had no intention to transfer her property in the instrument as it was for
safekeeping merely and, therefore, there was no delivery required by law (Section 16, Negotiable Instruments Law); that
assuming for the sake of argument that delivery was not for safekeeping merely, delivery was conditional and the condition
was not fulfilled.
In support of the contention that plaintiff-appellee is not a holder in due course, the appellant argues that plaintiff-appellee
cannot be a holder in due course because there was no negotiation prior to plaintiff-appellee's acquiring the possession of
the check; that a holder in due course presupposes a prior party from whose hands negotiation proceeded, and in the case at
bar, plaintiff-appellee is the payee, the maker and the payee being original parties. It is also claimed that the plaintiff-appellee
is not a holder in due course because it acquired the check with notice of defect in the title of the holder, Manuel Gonzales,
and because under the circumstances stated in the stipulation of facts there were circumstances that brought suspicion
about Gonzales' possession and negotiation, which circumstances should have placed the plaintiff-appellee under the duty,
to inquire into the title of the holder. The circumstances are as follows:
The check is not a personal check of Manuel Gonzales. (Paragraph Ninth, Stipulation of Facts). Plaintiff could have
inquired why a person would use the check of another to pay his own debt. Furthermore, plaintiff had the "means of
knowledge" inasmuch as defendant Hipolito Gatchalian is personally acquainted with V. R. de Ocampo (Paragraph
Sixth, Stipulation of Facts.).
The maker Anita C. Gatchalian is a complete stranger to Manuel Gonzales and Dr. V. R. de Ocampo (Paragraph
Sixth, Stipulation of Facts).
The maker is not in any manner obligated to Ocampo Clinic nor to Manuel Gonzales. (Par. 7, Stipulation of Facts.)
The check could not have been intended to pay the hospital fees which amounted only to P441.75. The check is in
the amount of P600.00, which is in excess of the amount due plaintiff. (Par. 10, Stipulation of Facts).
It was necessary for plaintiff to give Manuel Gonzales change in the sum P158.25 (Par. 10, Stipulation of Facts).
Since Manuel Gonzales is the party obliged to pay, plaintiff should have been more cautious and wary in accepting a
piece of paper and disbursing cold cash.
The check is payable to bearer. Hence, any person who holds it should have been subjected to inquiries. EVEN IN A
BANK, CHECKS ARE NOT CASHED WITHOUT INQUIRY FROM THE BEARER. The same inquiries should have
been made by plaintiff. (Defendants-appellants' brief, pp. 52-53)
Answering the first contention of appellant, counsel for plaintiff-appellee argues that in accordance with the best authority on
the Negotiable Instruments Law, plaintiff-appellee may be considered as a holder in due course, citing Brannan's Negotiable
Instruments Law, 6th edition, page 252. On this issue Brannan holds that a payee may be a holder in due course and says
that to this effect is the greater weight of authority, thus:
Whether the payee may be a holder in due course under the N. I. L., as he was at common law, is a question upon
which the courts are in serious conflict. There can be no doubt that a proper interpretation of the act read as a whole
leads to the conclusion that a payee may be a holder in due course under any circumstance in which he meets the
requirements of Sec. 52.
The argument of Professor Brannan in an earlier edition of this work has never been successfully answered and is
here repeated.

Section 191 defines "holder" as the payee or indorsee of a bill or note, who is in possession of it, or the bearer
thereof. Sec. 52 defendants defines a holder in due course as "a holder who has taken the instrument under the
following conditions: 1. That it is complete and regular on its face. 2. That he became the holder of it before it was
overdue, and without notice that it had been previously dishonored, if such was the fact. 3. That he took it in good
faith and for value. 4. That at the time it was negotiated to him he had no notice of any infirmity in the instrument or
defect in the title of the person negotiating it."
Since "holder", as defined in sec. 191, includes a payee who is in possession the word holder in the first clause of
sec. 52 and in the second subsection may be replaced by the definition in sec. 191 so as to read "a holder in due
course is a payee or indorsee who is in possession," etc. (Brannan's on Negotiable Instruments Law, 6th ed., p.
543).
The first argument of the defendants-appellants, therefore, depends upon whether or not the plaintiff-appellee is a holder in
due course. If it is such a holder in due course, it is immaterial that it was the payee and an immediate party to the
instrument.
The other contention of the plaintiff is that there has been no negotiation of the instrument, because the drawer did not
deliver the instrument to Manuel Gonzales with the intention of negotiating the same, or for the purpose of giving effect
thereto, for as the stipulation of facts declares the check was to remain in the possession Manuel Gonzales, and was not to
be negotiated, but was to serve merely as evidence of good faith of defendants in their desire to purchase the car being sold
to them. Admitting that such was the intention of the drawer of the check when she delivered it to Manuel Gonzales, it was no
fault of the plaintiff-appellee drawee if Manuel Gonzales delivered the check or negotiated it. As the check was payable to the
plaintiff-appellee, and was entrusted to Manuel Gonzales by Gatchalian, the delivery to Manuel Gonzales was a delivery by
the drawer to his own agent; in other words, Manuel Gonzales was the agent of the drawer Anita Gatchalian insofar as the
possession of the check is concerned. So, when the agent of drawer Manuel Gonzales negotiated the check with the
intention of getting its value from plaintiff-appellee, negotiation took place through no fault of the plaintiff-appellee, unless it
can be shown that the plaintiff-appellee should be considered as having notice of the defect in the possession of the holder
Manuel Gonzales. Our resolution of this issue leads us to a consideration of the last question presented by the appellants,
i.e., whether the plaintiff-appellee may be considered as a holder in due course.
Section 52, Negotiable Instruments Law, defines holder in due course, thus:
A holder in due course is a holder who has taken the instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it had been previously dishonored,
if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of
the person negotiating it.
The stipulation of facts expressly states that plaintiff-appellee was not aware of the circumstances under which the check
was delivered to Manuel Gonzales, but we agree with the defendants-appellants that the circumstances indicated by them in
their briefs, such as the fact that appellants had no obligation or liability to the Ocampo Clinic; that the amount of the check
did not correspond exactly with the obligation of Matilde Gonzales to Dr. V. R. de Ocampo; and that the check had two
parallel lines in the upper left hand corner, which practice means that the check could only be deposited but may not be
converted into cash all these circumstances should have put the plaintiff-appellee to inquiry as to the why and wherefore
of the possession of the check by Manuel Gonzales, and why he used it to pay Matilde's account. It was payee's duty to
ascertain from the holder Manuel Gonzales what the nature of the latter's title to the check was or the nature of his
possession. Having failed in this respect, we must declare that plaintiff-appellee was guilty of gross neglect in not finding out
the nature of the title and possession of Manuel Gonzales, amounting to legal absence of good faith, and it may not be
considered as a holder of the check in good faith. To such effect is the consensus of authority.
In order to show that the defendant had "knowledge of such facts that his action in taking the instrument amounted
to bad faith," it is not necessary to prove that the defendant knew the exact fraud that was practiced upon the
plaintiff by the defendant's assignor, it being sufficient to show that the defendant had notice that there was
something wrong about his assignor's acquisition of title, although he did not have notice of the particular wrong that
was committed. Paika v. Perry, 225 Mass. 563, 114 N.E. 830.
It is sufficient that the buyer of a note had notice or knowledge that the note was in some way tainted with fraud. It is
not necessary that he should know the particulars or even the nature of the fraud, since all that is required is
knowledge of such facts that his action in taking the note amounted bad faith. Ozark Motor Co. v. Horton (Mo. App.),
196 S.W. 395. Accord. Davis v. First Nat. Bank, 26 Ariz. 621, 229 Pac. 391.
Liberty bonds stolen from the plaintiff were brought by the thief, a boy fifteen years old, less than five feet tall,
immature in appearance and bearing on his face the stamp a degenerate, to the defendants' clerk for sale. The boy
stated that they belonged to his mother. The defendants paid the boy for the bonds without any further inquiry. Held,
the plaintiff could recover the value of the bonds. The term 'bad faith' does not necessarily involve furtive motives,

but means bad faith in a commercial sense. The manner in which the defendants conducted their Liberty Loan
department provided an easy way for thieves to dispose of their plunder. It was a case of "no questions asked."
Although gross negligence does not of itself constitute bad faith, it is evidence from which bad faith may be inferred.
The circumstances thrust the duty upon the defendants to make further inquiries and they had no right to shut their
eyes deliberately to obvious facts. Morris v. Muir, 111 Misc. Rep. 739, 181 N.Y. Supp. 913, affd. in memo., 191 App.
Div. 947, 181 N.Y. Supp. 945." (pp. 640-642, Brannan's Negotiable Instruments Law, 6th ed.).
The above considerations would seem sufficient to justify our ruling that plaintiff-appellee should not be allowed to recover
the value of the check. Let us now examine the express provisions of the Negotiable Instruments Law pertinent to the matter
to find if our ruling conforms thereto. Section 52 (c) provides that a holder in due course is one who takes the instrument "in
good faith and for value;" Section 59, "that every holder is deemed prima facie to be a holder in due course;" and Section 52
(d), that in order that one may be a holder in due course it is necessary that "at the time the instrument was negotiated to him
"he had no notice of any . . . defect in the title of the person negotiating it;" and lastly Section 59, that every holder is
deemed prima facieto be a holder in due course.
In the case at bar the rule that a possessor of the instrument is prima faciea holder in due course does not apply because
there was a defect in the title of the holder (Manuel Gonzales), because the instrument is not payable to him or to bearer. On
the other hand, the stipulation of facts indicated by the appellants in their brief, like the fact that the drawer had no account
with the payee; that the holder did not show or tell the payee why he had the check in his possession and why he was using
it for the payment of his own personal account show that holder's title was defective or suspicious, to say the least. As
holder's title was defective or suspicious, it cannot be stated that the payee acquired the check without knowledge of said
defect in holder's title, and for this reason the presumption that it is a holder in due course or that it acquired the instrument in
good faith does not exist. And having presented no evidence that it acquired the check in good faith, it (payee) cannot be
considered as a holder in due course. In other words, under the circumstances of the case, instead of the presumption that
payee was a holder in good faith, the fact is that it acquired possession of the instrument under circumstances that should
have put it to inquiry as to the title of the holder who negotiated the check to it. The burden was, therefore, placed upon it to
show that notwithstanding the suspicious circumstances, it acquired the check in actual good faith.
The rule applicable to the case at bar is that described in the case of Howard National Bank v. Wilson, et al., 96 Vt. 438, 120
At. 889, 894, where the Supreme Court of Vermont made the following disquisition:
Prior to the Negotiable Instruments Act, two distinct lines of cases had developed in this country. The first had its
origin in Gill v. Cubitt, 3 B. & C. 466, 10 E. L. 215, where the rule was distinctly laid down by the court of King's
Bench that the purchaser of negotiable paper must exercise reasonable prudence and caution, and that, if the
circumstances were such as ought to have excited the suspicion of a prudent and careful man, and he made no
inquiry, he did not stand in the legal position of a bona fide holder. The rule was adopted by the courts of this country
generally and seem to have become a fixed rule in the law of negotiable paper. Later in Goodman v. Harvey, 4 A. &
E. 870, 31 E. C. L. 381, the English court abandoned its former position and adopted the rule that nothing short of
actual bad faith or fraud in the purchaser would deprive him of the character of a bona fide purchaser and let in
defenses existing between prior parties, that no circumstances of suspicion merely, or want of proper caution in the
purchaser, would have this effect, and that even gross negligence would have no effect, except as evidence tending
to establish bad faith or fraud. Some of the American courts adhered to the earlier rule, while others followed the
change inaugurated in Goodman v. Harvey. The question was before this court in Roth v. Colvin, 32 Vt. 125, and, on
full consideration of the question, a rule was adopted in harmony with that announced in Gill v. Cubitt, which has
been adhered to in subsequent cases, including those cited above. Stated briefly, one line of cases including our
own had adopted the test of the reasonably prudent man and the other that of actual good faith. It would seem that it
was the intent of the Negotiable Instruments Act to harmonize this disagreement by adopting the latter test. That
such is the view generally accepted by the courts appears from a recent review of the cases concerning what
constitutes notice of defect. Brannan on Neg. Ins. Law, 187-201. To effectuate the general purpose of the act to
make uniform the Negotiable Instruments Law of those states which should enact it, we are constrained to hold
(contrary to the rule adopted in our former decisions) that negligence on the part of the plaintiff, or suspicious
circumstances sufficient to put a prudent man on inquiry, will not of themselves prevent a recovery, but are to be
considered merely as evidence bearing on the question of bad faith. See G. L. 3113, 3172, where such a course is
required in construing other uniform acts.
It comes to this then: When the case has taken such shape that the plaintiff is called upon to prove himself a holder
in due course to be entitled to recover, he is required to establish the conditions entitling him to standing as such,
including good faith in taking the instrument. It devolves upon him to disclose the facts and circumstances attending
the transfer, from which good or bad faith in the transaction may be inferred.
In the case at bar as the payee acquired the check under circumstances which should have put it to inquiry, why the holder
had the check and used it to pay his own personal account, the duty devolved upon it, plaintiff-appellee, to prove that it
actually acquired said check in good faith. The stipulation of facts contains no statement of such good faith, hence we are
forced to the conclusion that plaintiff payee has not proved that it acquired the check in good faith and may not be deemed a
holder in due course thereof.
For the foregoing considerations, the decision appealed from should be, as it is hereby, reversed, and the defendants are
absolved from the complaint. With costs against plaintiff-appellee.

G.R. No. 138074

August 15, 2003

CELY YANG, Petitioner,

vs.
HON. COURT OF APPEALS, PHILIPPINE COMMERCIAL INTERNATIONAL BANK, FAR EAST BANK & TRUST CO.,
EQUITABLE BANKING CORPORATION, PREM CHANDIRAMANI and FERNANDO DAVID,Respondents.
DECISION
QUISUMBING, J.:
For review on certiorari is the decision1 of the Court of Appeals, dated March 25, 1999, in CA-G.R. CV No. 52398, which
affirmed with modification the joint decision of the Regional Trial Court (RTC) of Pasay City, Branch 117, dated July 4, 1995,
in Civil Cases Nos. 54792 and 5492.3 The trial court dismissed the complaint against herein respondents Far East Bank &
Trust Company (FEBTC), Equitable Banking Corporation (Equitable), and Philippine Commercial International Bank (PCIB)
and ruled in favor of respondent Fernando David as to the proceeds of the two cashiers checks, including the earnings
thereof pendente lite. Petitioner Cely Yang was ordered to pay David moral damages of P100,000.00 and attorneys fees also
in the amount ofP100,000.00.
The facts of this case are not disputed, to wit:
On or before December 22, 1987, petitioner Cely Yang and private respondent Prem Chandiramani entered into an
agreement whereby the latter was to give Yang a PCIB managers check in the amount of P4.2 million in exchange for two
(2) of Yangs managers checks, each in the amount of P2.087 million, both payable to the order of private respondent
Fernando David. Yang and Chandiramani agreed that the difference of P26,000.00 in the exchange would be their profit to be
divided equally between them.
Yang and Chandiramani also further agreed that the former would secure from FEBTC a dollar draft in the amount of
US$200,000.00, payable to PCIB FCDU Account No. 4195-01165-2, which Chandiramani would exchange for another dollar
draft in the same amount to be issued by Hang Seng Bank Ltd. of Hong Kong.
Accordingly, on December 22, 1987, Yang procured the following:
a) Equitable Cashiers Check No. CCPS 14-009467 in the sum of P2,087,000.00, dated December 22, 1987,
payable to the order of Fernando David;
b) FEBTC Cashiers Check No. 287078, in the amount of P2,087,000.00, dated December 22, 1987, likewise
payable to the order of Fernando David; and
c) FEBTC Dollar Draft No. 4771, drawn on Chemical Bank, New York, in the amount of US$200,000.00, dated
December 22, 1987, payable to PCIB FCDU Account No. 4195-01165-2.
At about one oclock in the afternoon of the same day, Yang gave the aforementioned cashiers checks and dollar drafts to
her business associate, Albert Liong, to be delivered to Chandiramani by Liongs messenger, Danilo Ranigo. Ranigo was to
meet Chandiramani at Philippine Trust Bank, Ayala Avenue, Makati City, Metro Manila where he would turn over Yangs
cashiers checks and dollar draft to Chandiramani who, in turn, would deliver to Ranigo a PCIB managers check in the sum
of P4.2 million and a Hang Seng Bank dollar draft for US$200,000.00 in exchange.
Chandiramani did not appear at the rendezvous and Ranigo allegedly lost the two cashiers checks and the dollar draft
bought by petitioner. Ranigo reported the alleged loss of the checks and the dollar draft to Liong at half past four in the
afternoon of December 22, 1987. Liong, in turn, informed Yang, and the loss was then reported to the police.
It transpired, however, that the checks and the dollar draft were not lost, for Chandiramani was able to get hold of said
instruments, without delivering the exchange consideration consisting of the PCIB managers check and the Hang Seng
Bank dollar draft.
At three oclock in the afternoon or some two (2) hours after Chandiramani and Ranigo were to meet in Makati City,
Chandiramani delivered to respondent Fernando David at China Banking Corporation branch in San Fernando City,
Pampanga, the following: (a) FEBTC Cashiers Check No. 287078, dated December 22, 1987, in the sum of P2.087 million;
and (b) Equitable Cashiers Check No. CCPS 14-009467, dated December 22, 1987, also in the amount of P2.087 million. In
exchange, Chandiramani got US$360,000.00 from David, which Chandiramani deposited in the savings account of his wife,
Pushpa Chandiramani; and his mother, Rani Reynandas, who held FCDU Account No. 124 with the United Coconut Planters
Bank branch in Greenhills, San Juan, Metro Manila. Chandiramani also deposited FEBTC Dollar Draft No. 4771, dated
December 22, 1987, drawn upon the Chemical Bank, New York for US$200,000.00 in PCIB FCDU Account No. 4195-011652 on the same date.
Meanwhile, Yang requested FEBTC and Equitable to stop payment on the instruments she believed to be lost. Both banks
complied with her request, but upon the representation of PCIB, FEBTC subsequently lifted the stop payment order on
FEBTC Dollar Draft No. 4771, thus enabling the holder of PCIB FCDU Account No. 4195-01165-2 to receive the amount of
US$200,000.00.
On December 28, 1987, herein petitioner Yang lodged a Complaint4 for injunction and damages against Equitable,

Chandiramani, and David, with prayer for a temporary restraining order, with the Regional Trial Court of Pasay City. The
Complaint was docketed as Civil Case No. 5479. The Complaint was subsequently amended to include a prayer for
Equitable to return to Yang the amount of P2.087 million, with interest thereon until fully paid.5
On January 12, 1988, Yang filed a separate case for injunction and damages, with prayer for a writ of preliminary injunction
against FEBTC, PCIB, Chandiramani and David, with the RTC of Pasay City, docketed as Civil Case No. 5492. This
complaint was later amended to include a prayer that defendants therein return to Yang the amount of P2.087 million, the
value of FEBTC Dollar Draft No. 4771, with interest at 18% annually until fully paid.6
On February 9, 1988, upon the filing of a bond by Yang, the trial court issued a writ of preliminary injunction in Civil Case No.
5479. A writ of preliminary injunction was subsequently issued in Civil Case No. 5492 also.
Meanwhile, herein respondent David moved for dismissal of the cases against him and for reconsideration of the Orders
granting the writ of preliminary injunction, but these motions were denied. David then elevated the matter to the Court of
Appeals in a special civil action for certiorari docketed as CA-G.R. SP No. 14843, which was dismissed by the appellate
court.
As Civil Cases Nos. 5479 and 5492 arose from the same set of facts, the two cases were consolidated. The trial court then
conducted pre-trial and trial of the two cases, but the proceedings had to be suspended after a fire gutted the Pasay City Hall
and destroyed the records of the courts.
After the records were reconstituted, the proceedings resumed and the parties agreed that the money in dispute be invested
in Treasury Bills to be awarded in favor of the prevailing side. It was also agreed by the parties to limit the issues at the trial to
the following:
1. Who, between David and Yang, is legally entitled to the proceeds of Equitable Banking Corporation (EBC)
Cashiers Check No. CCPS 14-009467 in the sum of P2,087,000.00 dated December 22, 1987, and Far East Bank
and Trust Company (FEBTC) Cashiers Check No. 287078 in the sum of P2,087,000.00 dated December 22, 1987,
together with the earnings derived therefrom pendente lite?
2. Are the defendants FEBTC and PCIB solidarily liable to Yang for having allowed the encashment of FEBTC Dollar
Draft No. 4771, in the sum of US$200,000.00 plus interest thereon despite the stop payment order of Cely Yang?7
On July 4, 1995, the trial court handed down its decision in Civil Cases Nos. 5479 and 5492, to wit:
WHEREFORE, the Court renders judgment in favor of defendant Fernando David against the plaintiff Cely Yang and
declaring the former entitled to the proceeds of the two (2) cashiers checks, together with the earnings derived
therefrom pendente lite; ordering the plaintiff to pay the defendant Fernando David moral damages in the amount
of P100,000.00; attorneys fees in the amount of P100,000.00 and to pay the costs. The complaint against Far East Bank and
Trust Company (FEBTC), Philippine Commercial International Bank (PCIB) and Equitable Banking Corporation (EBC) is
dismissed. The decision is without prejudice to whatever action plaintiff Cely Yang will file against defendant Prem
Chandiramani for reimbursement of the amounts received by him from defendant Fernando David.
SO ORDERED.8
In finding for David, the trial court ratiocinated:
The evidence shows that defendant David was a holder in due course for the reason that the cashiers checks were complete
on their face when they were negotiated to him. They were not yet overdue when he became the holder thereof and he had
no notice that said checks were previously dishonored; he took the cashiers checks in good faith and for value. He parted
some $200,000.00 for the two (2) cashiers checks which were given to defendant Chandiramani; he had also no notice of
any infirmity in the cashiers checks or defect in the title of the drawer. As a matter of fact, he asked the manager of the China
Banking Corporation to inquire as to the genuineness of the cashiers checks (tsn, February 5, 1988, p. 21, September 20,
1991, pp. 13-14). Another proof that defendant David is a holder in due course is the fact that the stop payment order on [the]
FEBTC cashiers check was lifted upon his inquiry at the head office (tsn, September 20, 1991, pp. 24-25). The apparent
reason for lifting the stop payment order was because of the fact that FEBTC realized that the checks were not actually lost
but indeed reached the payee defendant David.9
Yang then moved for reconsideration of the RTC judgment, but the trial court denied her motion in its Order of September 20,
1995.
In the belief that the trial court misunderstood the concept of a holder in due course and misapprehended the factual milieu,
Yang seasonably filed an appeal with the Court of Appeals, docketed as CA-G.R. CV No. 52398.
On March 25, 1999, the appellate court decided CA-G.R. CV No. 52398 in this wise:
WHEREFORE, this court AFFIRMS the judgment of the lower court with modification and hereby orders the plaintiffappellant to pay defendant-appellant PCIB the amount of Twenty-Five Thousand Pesos (P25,000.00).
SO ORDERED.10
In affirming the trial courts judgment with respect to herein respondent David, the appellate court found that:

In this case, defendant-appellee had taken the necessary precautions to verify, through his bank, China Banking Corporation,
the genuineness of whether (sic) the cashiers checks he received from Chandiramani. As no stop payment order was made
yet (at) the time of the inquiry, defendant-appellee had no notice of what had transpired earlier between the plaintiff-appellant
and Chandiramani. All he knew was that the checks were issued to Chandiramani with whom he was he had (sic) a
transaction. Further on, David received the checks in question in due course because Chandiramani, who at the time the
checks were delivered to David, was acting as Yangs agent.
David had no notice, real or constructive, cogent for him to make further inquiry as to any infirmity in the instrument(s) and
defect of title of the holder. To mandate that each holder inquire about every aspect on how the instrument came about will
unduly impede commercial transactions, Although negotiable instruments do not constitute legal tender, they often take
the place of money as a means of payment.
The mere fact that David and Chandiramani knew one another for a long time is not sufficient to establish that they connived
with each other to defraud Yang. There was no concrete proof presented by Yang to support her theory.11
The appellate court awarded P25,000.00 in attorneys fees to PCIB as it found the action filed by Yang against said bank to
be "clearly unfounded and baseless." Since PCIB was compelled to litigate to protect itself, then it was entitled under Article
220812 of the Civil Code to attorneys fees and litigation expenses.
Hence, the instant recourse wherein petitioner submits the following issues for resolution:
a - WHETHER THE CHECKS WERE ISSUED TO PREM CHANDIRAMANI BY PETITIONER;
b - WHETHER THE ALLEGED TRANSACTION BETWEEN PREM CHANDIRAMANI AND FERNANDO DAVID IS
LEGITIMATE OR A SCHEME BY BOTH PRIVATE RESPONDENTS TO SWINDLE PETITIONER;
c - WHETHER FERNANDO DAVID GAVE PREM CHANDIRAMANI US$360,000.00 OR JUST A FRACTION OF
THE AMOUNT REPRESENTING HIS SHARE OF THE LOOT;
d - WHETHER PRIVATE RESPONDENTS FERNANDO DAVID AND PCIB ARE ENTITLED TO DAMAGES AND
ATTORNEYS FEES.13
At the outset, we must stress that this is a petition for review under Rule 45 of the 1997 Rules of Civil Procedure. It is basic
that in petitions for review under Rule 45, the jurisdiction of this Court is limited to reviewing questions of law, questions of
fact are not entertained absent a showing that the factual findings complained of are totally devoid of support in the record or
are glaringly erroneous.14 Given the facts in the instant case, despite petitioners formulation, we find that the following are
the pertinent issues to be resolved:
a) Whether the Court of Appeals erred in holding herein respondent Fernando David to be a holder in due course;
and
b) Whether the appellate court committed a reversible error in awarding damages and attorneys fees to David and
PCIB.
On the first issue, petitioner Yang contends that private respondent Fernando David is not a holder in due course of the
checks in question. While it is true that he was named the payee thereof, David failed to inquire from Chandiramani about
how the latter acquired possession of said checks. Given his failure to do so, it cannot be said that David was unaware of any
defect or infirmity in the title of Chandiramani to the checks at the time of their negotiation. Moreover, inasmuch as the checks
were crossed, then David should have, pursuant to our ruling in Bataan Cigar & Cigarette Factory, Inc. v. Court of
Appeals, G.R. No. 93048, March 3, 1994, 230 SCRA 643, been put on guard that the checks were issued for a definite
purpose and accordingly, made inquiries to determine if he received the checks pursuant to that purpose. His failure to do so
negates the finding in the proceedings below that he was a holder in due course.
Finally, the petitioner argues that there is no showing whatsoever that David gave Chandiramani any consideration of value
in exchange for the aforementioned checks.
Private respondent Fernando David counters that the evidence on record shows that when he received the checks, he
verified their genuineness with his bank, and only after said verification did he deposit them. David stresses that he had no
notice of previous dishonor or any infirmity that would have aroused his suspicions, the instruments being complete and
regular upon their face. David stresses that the checks in question were cashiers checks. From the very nature of cashiers
checks, it is highly unlikely that he would have suspected that something was amiss. David also stresses negotiable
instruments are presumed to have been issued for valuable consideration, and he who alleges otherwise must controvert the
presumption with sufficient evidence. The petitioner failed to discharge this burden, according to David. He points out that the
checks were delivered to him as the payee, and he took them as holder and payee thereof. Clearly, he concludes, he should
be deemed to be their holder in due course.
We shall now resolve the first issue.
Every holder of a negotiable instrument is deemed prima facie a holder in due course. However, this presumption arises only
in favor of a person who is a holder as defined in Section 191 of the Negotiable Instruments Law,15 meaning a "payee or
indorsee of a bill or note, who is in possession of it, or the bearer thereof."

In the present case, it is not disputed that David was the payee of the checks in question. The weight of authority sustains the
view that a payee may be a holder in due course.16 Hence, the presumption that he is aprima facie holder in due course
applies in his favor. However, said presumption may be rebutted. Hence, what is vital to the resolution of this issue is whether
David took possession of the checks under the conditions provided for in Section 5217 of the Negotiable Instruments Law. All
the requisites provided for in Section 52 must concur in Davids case, otherwise he cannot be deemed a holder in due
course.
We find that the petitioners challenge to Davids status as a holder in due course hinges on two arguments: (1) the lack of
proof to show that David tendered any valuable consideration for the disputed checks; and (2) Davids failure to inquire from
Chandiramani as to how the latter acquired possession of the checks, thus resulting in Davids intentional ignorance
tantamount to bad faith. In sum, petitioner posits that the last two requisites of Section 52 are missing, thereby preventing
David from being considered a holder in due course. Unfortunately for the petitioner, her arguments on this score are less
than meritorious and far from persuasive.
First, with respect to consideration, Section 2418 of the Negotiable Instruments Law creates a presumption that every party
to an instrument acquired the same for a consideration19 or for value.20 Thus, the law itself creates a presumption in Davids
favor that he gave valuable consideration for the checks in question. In alleging otherwise, the petitioner has the onus to
prove that David got hold of the checks absent said consideration. In other words, the petitioner must present convincing
evidence to overthrow the presumption. Our scrutiny of the records, however, shows that the petitioner failed to discharge her
burden of proof. The petitioners averment that David did not give valuable consideration when he took possession of the
checks is unsupported, devoid of any concrete proof to sustain it. Note that both the trial court and the appellate court found
that David did not receive the checks gratis, but instead gave Chandiramani US$360,000.00 as consideration for the said
instruments. Factual findings of the Court of Appeals are conclusive on the parties and not reviewable by this Court; they
carry great weight when the factual findings of the trial court are affirmed by the appellate court.21
Second, petitioner fails to point any circumstance which should have put David on inquiry as to the why and wherefore of the
possession of the checks by Chandiramani. David was not privy to the transaction between petitioner and Chandiramani.
Instead, Chandiramani and David had a separate dealing in which it was precisely Chandiramanis duty to deliver the checks
to David as payee. The evidence shows that Chandiramani performed said task to the letter. Petitioner admits that David took
the step of asking the manager of his bank to verify from FEBTC and Equitable as to the genuineness of the checks and only
accepted the same after being assured that there was nothing wrong with said checks. At that time, David was not aware of
any "stop payment" order. Under these circumstances, David thus had no obligation to ascertain from Chandiramani what the
nature of the latters title to the checks was, if any, or the nature of his possession. Thus, we cannot hold him guilty of gross
neglect amounting to legal absence of good faith, absent any showing that there was something amiss about Chandiramanis
acquisition or possession of the checks. David did not close his eyes deliberately to the nature or the particulars of a fraud
allegedly committed by Chandiramani upon the petitioner, absent any knowledge on his part that the action in taking the
instruments amounted to bad faith.22
Belatedly, and we say belatedly since petitioner did not raise this matter in the proceedings below, petitioner now claims that
David should have been put on alert as the instruments in question were crossed checks. Pursuant to Bataan Cigar &
Cigarette Factory, Inc. v. Court of Appeals, David should at least have inquired as to whether he was acquiring said checks
for the purpose for which they were issued, according to petitioners submission.
Petitioners reliance on the Bataan Cigar case, however, is misplaced. The facts in the present case are not on all fours
with Bataan Cigar. In the latter case, the crossed checks were negotiated and sold at a discount by the payee, while in the
instant case, the payee did not negotiate further the checks in question but promptly deposited them in his bank account.
The Negotiable Instruments Law is silent with respect to crossed checks, although the Code of Commerce23makes
reference to such instruments. Nonetheless, this Court has taken judicial cognizance of the practice that a check with two
parallel lines in the upper left hand corner means that it could only be deposited and not converted into cash. 24 The effects
of crossing a check, thus, relates to the mode of payment, meaning that the drawer had intended the check for deposit only
by the rightful person, i.e., the payee named therein. In Bataan Cigar, the rediscounting of the check by the payee knowingly
violated the avowed intention of crossing the check. Thus, in accepting the cross checks and paying cash for them, despite
the warning of the crossing, the subsequent holder could not be considered in good faith and thus, not a holder in due
course. Our ruling inBataan Cigar reiterates that in De Ocampo & Co. v. Gatchalian.25
The factual circumstances in De Ocampo and in Bataan Cigar are not present in this case. For here, there is no dispute that
the crossed checks were delivered and duly deposited by David, the payee named therein, in his bank account. In other
words, the purpose behind the crossing of the checks was satisfied by the payee.
Proceeding to the issue of damages, petitioner merely argues that respondents David and PCIB are not entitled to damages,
attorneys fees, and costs of suit as both acted in bad faith towards her, as shown by her version of the facts which gave rise
to the instant case.
Respondent David counters that he was maliciously and unceremoniously dragged into this suit for reasons which have
nothing to do with him at all, but which arose from petitioners failure to receive her share of the profit promised her by
Chandiramani.1wphi1 Moreover, in filing this suit which has lasted for over a decade now, the petitioner deprived David of
the rightful enjoyment of the two checks, to which he is entitled, under the law, compelled him to hire the services of counsel
to vindicate his rights, and subjected him to social humiliation and besmirched reputation, thus harming his standing as a

person of good repute in the business community of Pampanga. David thus contends that it is but proper that moral
damages, attorneys fees, and costs of suit be awarded him.
For its part, respondent PCIB stresses that it was established by both the trial court and the appellate court that it was
needlessly dragged into this case. Hence, no error was committed by the appellate court in declaring PCIB entitled to
attorneys fees as it was compelled to litigate to protect itself.
We have thoroughly perused the records of this case and find no reason to disagree with the finding of the trial court, as
affirmed by the appellate court, that:
[D]efendant David is entitled to [the] award of moral damages as he has been needlessly and unceremoniously dragged into
this case which should have been brought only between the plaintiff and defendant Chandiramani.26
A careful reading of the findings of facts made by both the trial court and appellate court clearly shows that the petitioner, in
including David as a party in these proceedings, is barking up the wrong tree. It is apparent from the factual findings that
David had no dealings with the petitioner and was not privy to the agreement of the latter with Chandiramani. Moreover, any
loss which the petitioner incurred was apparently due to the acts or omissions of Chandiramani, and hence, her recourse
should have been against him and not against David. By needlessly dragging David into this case all because he and
Chandiramani knew each other, the petitioner not only unduly delayed David from obtaining the value of the checks, but also
caused him anxiety and injured his business reputation while waiting for its outcome. Recall that under Article 221727 of the
Civil Code, moral damages include mental anguish, serious anxiety, besmirched reputation, wounded feelings, social
humiliation, and similar injury. Hence, we find the award of moral damages to be in order.
The appellate court likewise found that like David, PCIB was dragged into this case on unfounded and baseless grounds.
Both were thus compelled to litigate to protect their interests, which makes an award of attorneys fees justified under Article
2208 (2)28 of the Civil Code. Hence, we rule that the award of attorneys fees to David and PCIB was proper.
WHEREFORE, the instant petition is DENIED. The assailed decision of the Court of Appeals, dated March 25, 1999, in CAG.R. CV No. 52398 is AFFIRMED. Costs against the petitioner.
SO ORDERED.
Bellosillo, (Chairman), Austria-Martinez, and Tinga, JJ., concur.
Callejo, Sr., J., on leave.

Footnotes
1 Penned by Associate Justice Bernardo P. Abesamis with Associate Justices Jainal D. Rasul and Conchita Carpio
Morales (now a member of this Court) concurring. See Rollo, pp. 95-108.
2 The case is entitled "Cely Yang v. Equitable Banking Corporation, Prem Chandiramani, and Fernando David."
See Rollo, pp. 38-41.
3 Entitled "Cely Yang v. Far East Bank & Trust Company, Philippine Commercial and International Bank, Prem
Chandiramani, and Fernando David." See Rollo, pp. 42-46.
4 Records, Vol. I, pp. 1-4.
5 Id. at 8.
6 Id. at 141.
7 Rollo, p. 84.
8 CA Rollo, p. 131.
9 Id. at 195-196.
10 Id. at 462.
11 Id. at 456.
12 ART. 2208. In the absence of stipulation, attorneys fees and expenses of litigation, other than judicial costs,
cannot be recovered, except:
When exemplary damages are awarded;
When the defendants act or omission has compelled the plaintiff to litigate with third persons or to incur
expenses to protect his interest;
In criminal cases of malicious prosecution against the plaintiff;
In case of a clearly unfounded civil action or proceeding against the plaintiff;

G.R. No. 70145 November 13, 1986

MARCELO A. MESINA, petitioner,
vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT, HON. ARSENIO M. GONONG, in his capacity as Judge of
Regional Trial Court Manila (Branch VIII), JOSE GO, and ALBERT UY, respondents.

PARAS, J.:
This is an appeal by certiorari from the decision of the then Intermediate Appellate Court (IAC for short), now the Court of
Appeals (CA) in AC-G.R. S.P. 04710, dated Jan. 22, 1985, which dismissed the petition for certiorari and prohibition filed by
Marcelo A. Mesina against the trial court in Civil Case No. 84-22515. Said case (an Interpleader) was filed by Associated
Bank against Jose Go and Marcelo A. Mesina regarding their conflicting claims over Associated Bank Cashier's Check No.
011302 for P800,000.00, dated December 29, 1983.
Briefly, the facts and statement of the case are as follows:
Respondent Jose Go, on December 29, 1983, purchased from Associated Bank Cashier's Check No. 011302 for
P800,000.00. Unfortunately, Jose Go left said check on the top of the desk of the bank manager when he left the bank. The
bank manager entrusted the check for safekeeping to a bank official, a certain Albert Uy, who had then a visitor in the person
of Alexander Lim. Uy had to answer a phone call on a nearby telephone after which he proceeded to the men's room. When
he returned to his desk, his visitor Lim was already gone. When Jose Go inquired for his cashier's check from Albert Uy, the
check was not in his folder and nowhere to be found. The latter advised Jose Go to go to the bank to accomplish a "STOP
PAYMENT" order, which suggestion Jose Go immediately followed. He also executed an affidavit of loss. Albert Uy went to
the police to report the loss of the check, pointing to the person of Alexander Lim as the one who could shed light on it.
The records of the police show that Associated Bank received the lost check for clearing on December 31, 1983, coming
from Prudential Bank, Escolta Branch. The check was immediately dishonored by Associated Bank by sending it back to
Prudential Bank, with the words "Payment Stopped" stamped on it. However, the same was again returned to Associated
Bank on January 4, 1984 and for the second time it was dishonored. Several days later, respondent Associated Bank
received a letter, dated January 9, 1984, from a certain Atty. Lorenzo Navarro demanding payment on the cashier's check in
question, which was being held by his client. He however refused to reveal the name of his client and threatened to sue, if
payment is not made. Respondent bank, in its letter, dated January 20, 1984, replied saying the check belonged to Jose Go
who lost it in the bank and is laying claim to it.
On February 1, 1984, police sent a letter to the Manager of the Prudential Bank, Escolta Branch, requesting assistance in
Identifying the person who tried to encash the check but said bank refused saying that it had to protect its client's interest and
the Identity could only be revealed with the client's conformity. Unsure of what to do on the matter, respondent Associated
Bank on February 2, 1984 filed an action for Interpleader naming as respondent, Jose Go and one John Doe, Atty. Navarro's
then unnamed client. On even date, respondent bank received summons and copy of the complaint for damages of a certain
Marcelo A. Mesina from the Regional Trial Court (RTC) of Caloocan City filed on January 23, 1984 bearing the number C11139. Respondent bank moved to amend its complaint, having been notified for the first time of the name of Atty. Navarro's
client and substituted Marcelo A. Mesina for John Doe. Simultaneously, respondent bank, thru representative Albert Uy,
informed Cpl. Gimao of the Western Police District that the lost check of Jose Go is in the possession of Marcelo Mesina,
herein petitioner. When Cpl. Gimao went to Marcelo Mesina to ask how he came to possess the check, he said it was paid to
him by Alexander Lim in a "certain transaction" but refused to elucidate further. An information for theft (Annex J) was
instituted against Alexander Lim and the corresponding warrant for his arrest was issued (Annex 6-A) which up to the date of
the filing of this instant petition remains unserved because of Alexander Lim's successful evation thereof.
Meanwhile, Jose Go filed his answer on February 24, 1984 in the Interpleader Case and moved to participate as intervenor in
the complain for damages. Albert Uy filed a motion of intervention and answer in the complaint for Interpleader. On the
Scheduled date of pretrial conference inthe interpleader case, it was disclosed that the "John Doe" impleaded as one of the
defendants is actually petitioner Marcelo A. Mesina. Petitioner instead of filing his answer to the complaint in the interpleader
filed on May 17, 1984 an Omnibus Motion to Dismiss Ex Abudante Cautela alleging lack of jurisdiction in view of the absence
of an order to litigate, failure to state a cause of action and lack of personality to sue. Respondent bank in the other civil case
(CC-11139) for damages moved to dismiss suit in view of the existence already of the Interpleader case.
The trial court in the interpleader case issued an order dated July 13, 1984, denying the motion to dismiss of petitioner
Mesina and ruling that respondent bank's complaint sufficiently pleaded a cause of action for itnerpleader. Petitioner filed his
motion for reconsideration which was denied by the trial court on September 26, 1984. Upon motion for respondent Jose Go
dated October 31, 1984, respondent judge issued an order on November 6, 1984, declaring petitioner in default since his
period to answer has already expirecd and set theex-parte presentation of respondent bank's evidence on November 7,
1984.
Petitioner Mesina filed a petition for certioari with preliminary injunction with IAC to set aside 1) order of respondent court
denying his omnibus Motion to Dismiss 2) order of 3) the order of default against him.
On January 22, 1985, IAC rendered its decision dimissing the petition for certiorari. Petitioner Mesina filed his Motion for

Reconsideration which was also denied by the same court in its resolution dated February 18, 1985.
Meanwhile, on same date (February 18, 1985), the trial court in Civil Case #84-22515 (Interpleader) rendered a decisio, the
dispositive portion reading as follows:
WHEREFORE, in view of the foregoing, judgment is hereby rendered ordering plaintiff Associate Bank to
replace Cashier's Check No. 011302 in favor of Jose Go or its cas equivalent with legal rate of itnerest from
date of complaint, and with costs of suit against the latter.
SO ORDERED.
On March 29, 1985, the trial court in Civil Case No. C-11139, for damages, issued an order, the pertinent
portion of which states:
The records of this case show that on August 20, 1984 proceedings in this case was (were) ordered
suspended because the main issue in Civil Case No. 84-22515 and in this instant case are the same which
is: who between Marcelo Mesina and Jose Go is entitled to payment of Associated Bank's Cashier's Check
No. CC-011302? Said issue having been resolved already in Civil casde No. 84-22515, really this instant
case has become moot and academic.
WHEREFORE, in view of the foregoing, the motion sholud be as it is hereby granted and this case is
ordered dismissed.
In view of the foregoing ruling no more action should be taken on the "Motion For Reconsideration (of the
order admitting the Intervention)" dated June 21, 1984 as well as the Motion For Reconsideration dated
September 10, 1984.
SO ORDERED.
Petitioner now comes to Us, alleging that:
1. IAC erred in ruling that a cashier's check can be countermanded even in the hands of a holder in due course.
2. IAC erred in countenancing the filing and maintenance of an interpleader suit by a party who had earlier been sued on the
same claim.
3. IAC erred in upholding the trial court's order declaring petitioner as in default when there was no proper order for him to
plead in the interpleader complaint.
4. IAC went beyond the scope of its certiorari jurisdiction by making findings of facts in advance of trial.
Petitioner now interposes the following prayer:
1. Reverse the decision of the IAC, dated January 22, 1985 and set aside the February 18, 1985 resolution denying the
Motion for Reconsideration.
2. Annul the orders of respondent Judge of RTC Manila giving due course to the interpleader suit and declaring petitioner in
default.
Petitioner's allegations hold no water. Theories and examples advanced by petitioner on causes and effects of a cashier's
check such as 1) it cannot be countermanded in the hands of a holder in due course and 2) a cashier's check is a bill of
exchange drawn by the bank against itself-are general principles which cannot be aptly applied to the case at bar, without
considering other things. Petitioner failed to substantiate his claim that he is a holder in due course and for consideration or
value as shown by the established facts of the case. Admittedly, petitioner became the holder of the cashier's check as
endorsed by Alexander Lim who stole the check. He refused to say how and why it was passed to him. He had therefore
notice of the defect of his title over the check from the start. The holder of a cashier's check who is not a holder in due course
cannot enforce such check against the issuing bank which dishonors the same. If a payee of a cashier's check obtained it
from the issuing bank by fraud, or if there is some other reason why the payee is not entitled to collect the check, the
respondent bank would, of course, have the right to refuse payment of the check when presented by the payee, since
respondent bank was aware of the facts surrounding the loss of the check in question. Moreover, there is no similarity in the
cases cited by petitioner since respondent bank did not issue the cashier's check in payment of its obligation. Jose Go
bought it from respondent bank for purposes of transferring his funds from respondent bank to another bank near his
establishment realizing that carrying money in this form is safer than if it were in cash. The check was Jose Go's property
when it was misplaced or stolen, hence he stopped its payment. At the outset, respondent bank knew it was Jose Go's check
and no one else since Go had not paid or indorsed it to anyone. The bank was therefore liable to nobody on the check but
Jose Go. The bank had no intention to issue it to petitioner but only to buyer Jose Go. When payment on it was therefore
stopped, respondent bank was not the one who did it but Jose Go, the owner of the check. Respondent bank could not be
drawer and drawee for clearly, Jose Go owns the money it represents and he is therefore the drawer and the drawee in the
same manner as if he has a current account and he issued a check against it; and from the moment said cashier's check was
lost and/or stolen no one outside of Jose Go can be termed a holder in due course because Jose Go had not indorsed it in
due course. The check in question suffers from the infirmity of not having been properly negotiated and for value by
respondent Jose Go who as already been said is the real owner of said instrument.

In his second assignment of error, petitioner stubbornly insists that there is no showing of conflicting claims and interpleader
is out of the question. There is enough evidence to establish the contrary. Considering the aforementioned facts and
circumstances, respondent bank merely took the necessary precaution not to make a mistake as to whom to pay and
therefore interpleader was its proper remedy. It has been shown that the interpleader suit was filed by respondent bank
because petitioner and Jose Go were both laying their claims on the check, petitioner asking payment thereon and Jose Go
as the purchaser or owner. The allegation of petitioner that respondent bank had effectively relieved itself of its primary
liability under the check by simply filing a complaint for interpleader is belied by the willingness of respondent bank to issue a
certificate of time deposit in the amount of P800,000 representing the cashier's check in question in the name of the Clerk of
Court of Manila to be awarded to whoever wig be found by the court as validly entitled to it. Said validity will depend on the
strength of the parties' respective rights and titles thereto. Bank filed the interpleader suit not because petitioner sued it but
because petitioner is laying claim to the same check that Go is claiming. On the very day that the bank instituted the case in
interpleader, it was not aware of any suit for damages filed by petitioner against it as supported by the fact that the
interpleader case was first entitled Associated Bank vs. Jose Go and John Doe, but later on changed to Marcelo A. Mesina
for John Doe when his name became known to respondent bank.
In his third assignment of error, petitioner assails the then respondent IAC in upholding the trial court's order declaring
petitioner in default when there was no proper order for him to plead in the interpleader case. Again, such contention is
untenable. The trial court issued an order, compelling petitioner and respondent Jose Go to file their Answers setting forth
their respective claims. Subsequently, a Pre-Trial Conference was set with notice to parties to submit position papers.
Petitioner argues in his memorandum that this order requiring petitioner to file his answer was issued without jurisdiction
alleging that since he is presumably a holder in due course and for value, how can he be compelled to litigate against Jose
Go who is not even a party to the check? Such argument is trite and ridiculous if we have to consider that neither his name or
Jose Go's name appears on the check. Following such line of argument, petitioner is not a party to the check either and
therefore has no valid claim to the Check. Furthermore, the Order of the trial court requiring the parties to file their answers is
to all intents and purposes an order to interplead, substantially and essentially and therefore in compliance with the
provisions of Rule 63 of the Rules of Court. What else is the purpose of a law suit but to litigate?
The records of the case show that respondent bank had to resort to details in support of its action for Interpleader. Before it
resorted to Interpleader, respondent bank took an precautionary and necessary measures to bring out the truth. On the other
hand, petitioner concealed the circumstances known to him and now that private respondent bank brought these
circumstances out in court (which eventually rendered its decision in the light of these facts), petitioner charges it with
"gratuitous excursions into these non-issues." Respondent IAC cannot rule on whether respondent RTC committed an abuse
of discretion or not, without being apprised of the facts and reasons why respondent Associated Bank instituted the
Interpleader case. Both parties were given an opportunity to present their sides. Petitioner chose to withhold substantial
facts. Respondents were not forbidden to present their side-this is the purpose of the Comment of respondent to the petition.
IAC decided the question by considering both the facts submitted by petitioner and those given by respondents. IAC did not
act therefore beyond the scope of the remedy sought in the petition.
WHEREFORE, finding that the instant petition is merely dilatory, the same is hereby denied and the assailed orders of the
respondent court are hereby AFFIRMED in toto.
SO ORDERED.
Feria (Chairman), Fernan, Alampay and Gutierrez, Jr., JJ., concur.

G.R. No. 80599 September 15, 1989

ERNESTINA CRISOLOGO-JOSE, petitioner,
vs.
COURT OF APPEALS and RICARDO S. SANTOS, JR. in his own behalf and as Vice-President for Sales of Mover
Enterprises, Inc., respondents.
Melquiades P. de Leon for petitioner.
Rogelio A. Ajes for private respondent.

REGALADO, J.:
Petitioner seeks the annulment of the decision 1 of respondent Court of Appeals, promulgated on September 8, 1987, which
reversed the decision of the trial Court 2 dismissing the complaint for consignation filed by therein plaintiff Ricardo S. Santos,
Jr.
The parties are substantially agreed on the following facts as found by both lower courts:
In 1980, plaintiff Ricardo S. Santos, Jr. was the vice-president of Mover Enterprises, Inc. in-charge of
marketing and sales; and the president of the said corporation was Atty. Oscar Z. Benares. On April 30,
1980, Atty. Benares, in accommodation of his clients, the spouses Jaime and Clarita Ong, issued Check
No. 093553 drawn against Traders Royal Bank, dated June 14, 1980, in the amount of P45,000.00 (Exh- 'I')
payable to defendant Ernestina Crisologo-Jose. Since the check was under the account of Mover
Enterprises, Inc., the same was to be signed by its president, Atty. Oscar Z. Benares, and the treasurer of
the said corporation. However, since at that time, the treasurer of Mover Enterprises was not available, Atty.
Benares prevailed upon the plaintiff, Ricardo S. Santos, Jr., to sign the aforesaid chEck as an alternate
story. Plaintiff Ricardo S. Santos, Jr. did sign the check.
It appears that the check (Exh. '1') was issued to defendant Ernestina Crisologo-Jose in consideration of
the waiver or quitclaim by said defendant over a certain property which the Government Service Insurance
System (GSIS) agreed to sell to the clients of Atty. Oscar Benares, the spouses Jaime and Clarita Ong,
with the understanding that upon approval by the GSIS of the compromise agreement with the spouses
Ong, the check will be encashed accordingly. However, since the compromise agreement was not
approved within the expected period of time, the aforesaid check for P45,000.00 (Exh. '1') was replaced by
Atty. Benares with another Traders Royal Bank cheek bearing No. 379299 dated August 10, 1980, in the
same amount of P45,000.00 (Exhs. 'A' and '2'), also payable to the defendant Jose. This replacement
check was also signed by Atty. Oscar Z. Benares and by the plaintiff Ricardo S. Santos, Jr. When
defendant deposited this replacement check (Exhs. 'A' and '2') with her account at Family Savings Bank,
Mayon Branch, it was dishonored for insufficiency of funds. A subsequent redepositing of the said check
was likewise dishonored by the bank for the same reason. Hence, defendant through counsel was
constrained to file a criminal complaint for violation of Batas Pambansa Blg. 22 with the Quezon City
Fiscal's Office against Atty. Oscar Z. Benares and plaintiff Ricardo S. Santos, Jr. The investigating Assistant
City Fiscal, Alfonso Llamas, accordingly filed an amended information with the court charging both Oscar
Benares and Ricardo S. Santos, Jr., for violation of Batas Pambansa Blg. 22 docketed as Criminal Case
No. Q-14867 of then Court of First Instance of Rizal, Quezon City.
Meanwhile, during the preliminary investigation of the criminal charge against Benares and the plaintiff
herein, before Assistant City Fiscal Alfonso T. Llamas, plaintiff Ricardo S. Santos, Jr. tendered cashier's
check No. CC 160152 for P45,000.00 dated April 10, 1981 to the defendant Ernestina Crisologo-Jose, the
complainant in that criminal case. The defendant refused to receive the cashier's check in payment of the
dishonored check in the amount of P45,000.00. Hence, plaintiff encashed the aforesaid cashier's check
and subsequently deposited said amount of P45,000.00 with the Clerk of Court on August 14, 1981 (Exhs.
'D' and 'E'). Incidentally, the cashier's check adverted to above was purchased by Atty. Oscar Z. Benares
and given to the plaintiff herein to be applied in payment of the dishonored check. 3
After trial, the court a quo, holding that it was "not persuaded to believe that consignation referred to in Article 1256 of the
Civil Code is applicable to this case," rendered judgment dismissing plaintiff s complaint and defendant's counterclaim. 4
As earlier stated, respondent court reversed and set aside said judgment of dismissal and revived the complaint for
consignation, directing the trial court to give due course thereto.
Hence, the instant petition, the assignment of errors wherein are prefatorily stated and discussed seriatim.
1. Petitioner contends that respondent Court of Appeals erred in holding that private respondent, one of the
signatories of the check issued under the account of Mover Enterprises, Inc., is an accommodation party
under the Negotiable Instruments Law and a debtor of petitioner to the extent of the amount of said check.
Petitioner avers that the accommodation party in this case is Mover Enterprises, Inc. and not private respondent who merely

signed the check in question in a representative capacity, that is, as vice-president of said corporation, hence he is not liable
thereon under the Negotiable Instruments Law.
The pertinent provision of said law referred to provides:
Sec. 29. Liability of accommodation party an accommodation party is one who has signed the instrument
as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his
name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding
such holder, at the time of taking the instrument, knew him to be only an accommodation party.
Consequently, to be considered an accommodation party, a person must (1) be a party to the instrument, signing as maker,
drawer, acceptor, or indorser, (2) not receive value therefor, and (3) sign for the purpose of lending his name for the credit of
some other person.
Based on the foregoing requisites, it is not a valid defense that the accommodation party did not receive any valuable
consideration when he executed the instrument. From the standpoint of contract law, he differs from the ordinary concept of a
debtor therein in the sense that he has not received any valuable consideration for the instrument he signs. Nevertheless, he
is liable to a holder for value as if the contract was not for accommodation 5 in whatever capacity such accommodation party
signed the instrument, whether primarily or secondarily. Thus, it has been held that in lending his name to the accommodated
party, the accommodation party is in effect a surety for the latter. 6
Assuming arguendo that Mover Enterprises, Inc. is the accommodation party in this case, as petitioner suggests, the
inevitable question is whether or not it may be held liable on the accommodation instrument, that is, the check issued in favor
of herein petitioner.
We hold in the negative.
The aforequoted provision of the Negotiable Instruments Law which holds an accommodation party liable on the instrument
to a holder for value, although such holder at the time of taking the instrument knew him to be only an accommodation party,
does not include nor apply to corporations which are accommodation parties. 7 This is because the issue or indorsement of
negotiable paper by a corporation without consideration and for the accommodation of another is ultra vires. 8 Hence, one
who has taken the instrument with knowledge of the accommodation nature thereof cannot recover against a corporation
where it is only an accommodation party. If the form of the instrument, or the nature of the transaction, is such as to charge
the indorsee with knowledge that the issue or indorsement of the instrument by the corporation is for the accommodation of
another, he cannot recover against the corporation thereon. 9
By way of exception, an officer or agent of a corporation shall have the power to execute or indorse a negotiable paper in the
name of the corporation for the accommodation of a third person only if specifically authorized to do so. 10 Corollarily,
corporate officers, such as the president and vice-president, have no power to execute for mere accommodation a negotiable
instrument of the corporation for their individual debts or transactions arising from or in relation to matters in which the
corporation has no legitimate concern. Since such accommodation paper cannot thus be enforced against the corporation,
especially since it is not involved in any aspect of the corporate business or operations, the inescapable conclusion in law
and in logic is that the signatories thereof shall be personally liable therefor, as well as the consequences arising from their
acts in connection therewith.
The instant case falls squarely within the purview of the aforesaid decisional rules. If we indulge petitioner in her aforesaid
postulation, then she is effectively barred from recovering from Mover Enterprises, Inc. the value of the check. Be that as it
may, petitioner is not without recourse.
The fact that for lack of capacity the corporation is not bound by an accommodation paper does not thereby absolve, but
should render personally liable, the signatories of said instrument where the facts show that the accommodation involved
was for their personal account, undertaking or purpose and the creditor was aware thereof.
Petitioner, as hereinbefore explained, was evidently charged with the knowledge that the cheek was issued at the instance
and for the personal account of Atty. Benares who merely prevailed upon respondent Santos to act as co-signatory in
accordance with the arrangement of the corporation with its depository bank. That it was a personal undertaking of said
corporate officers was apparent to petitioner by reason of her personal involvement in the financial arrangement and the fact
that, while it was the corporation's check which was issued to her for the amount involved, she actually had no transaction
directly with said corporation.
There should be no legal obstacle, therefore, to petitioner's claims being directed personally against Atty. Oscar Z. Benares
and respondent Ricardo S. Santos, Jr., president and vice-president, respectively, of Mover Enterprises, Inc.
2. On her second assignment of error, petitioner argues that the Court of Appeals erred in holding that the
consignation of the sum of P45,000.00, made by private respondent after his tender of payment was
refused by petitioner, was proper under Article 1256 of the Civil Code.
Petitioner's submission is that no creditor-debtor relationship exists between the parties, hence consignation is not proper.
Concomitantly, this argument was premised on the assumption that private respondent Santos is not an accommodation
party.

As previously discussed, however, respondent Santos is an accommodation party and is, therefore, liable for the value of the
check. The fact that he was only a co-signatory does not detract from his personal liability. A co-maker or co-drawer under the
circumstances in this case is as much an accommodation party as the other co-signatory or, for that matter, as a lone
signatory in an accommodation instrument. Under the doctrine inPhilippine Bank of Commerce vs. Aruego, supra, he is in
effect a co-surety for the accommodated party with whom he and his co-signatory, as the other co-surety, assume solidary
liability ex lege for the debt involved. With the dishonor of the check, there was created a debtor-creditor relationship, as
between Atty. Benares and respondent Santos, on the one hand, and petitioner, on the other. This circumstance enables
respondent Santos to resort to an action of consignation where his tender of payment had been refused by petitioner.
We interpose the caveat, however, that by holding that the remedy of consignation is proper under the given circumstances,
we do not thereby rule that all the operative facts for consignation which would produce the effect of payment are present in
this case. Those are factual issues that are not clear in the records before us and which are for the Regional Trial Court of
Quezon City to ascertain in Civil Case No. Q-33160, for which reason it has advisedly been directed by respondent court to
give due course to the complaint for consignation, and which would be subject to such issues or claims as may be raised by
defendant and the counterclaim filed therein which is hereby ordered similarly revived.
3. That respondent court virtually prejudged Criminal Case No. Q-14687 of the Regional Trial Court of
Quezon City filed against private respondent for violation of Batas Pambansa Blg. 22, by holding that no
criminal liability had yet attached to private respondent when he deposited with the court the amount of
P45,000.00 is the final plaint of petitioner.
We sustain petitioner on this score.
Indeed, respondent court went beyond the ratiocination called for in the appeal to it in CA-G.R. CV. No. 05464. In its own
decision therein, it declared that "(t)he lone issue dwells in the question of whether an accommodation party can validly
consign the amount of the debt due with the court after his tender of payment was refused by the creditor." Yet, from the
commercial and civil law aspects determinative of said issue, it digressed into the merits of the aforesaid Criminal Case No.
Q-14867, thus:
Section 2 of B.P. 22 establishes the prima facie evidence of knowledge of such insufficiency of funds or
credit. Thus, the making, drawing and issuance of a check, payment of which is refused by the drawee
because of insufficient funds in or credit with such bank is prima facie evidence of knowledge of
insufficiency of funds or credit, when the check is presented within 90 days from the date of the check.
It will be noted that the last part of Section 2 of B.P. 22 provides that the element of knowledge of
insufficiency of funds or credit is not present and, therefore, the crime does not exist, when the drawer pays
the holder the amount due or makes arrangements for payment in full by the drawee of such check within
five (5) banking days after receiving notice that such check has not been paid by the drawee.
Based on the foregoing consideration, this Court finds that the plaintiff-appellant acted within Ms legal rights
when he consigned the amount of P45,000.00 on August 14, 1981, between August 7, 1981, the date when
plaintiff-appellant receive (sic) the notice of non-payment, and August 14, 1981, the date when the debt due
was deposited with the Clerk of Court (a Saturday and a Sunday which are not banking days) intervened.
The fifth banking day fell on August 14, 1981. Hence, no criminal liability has yet attached to plaintiffappellant when he deposited the amount of P45,000.00 with the Court a quo on August 14, 1981. 11
That said observations made in the civil case at bar and the intrusion into the merits of the criminal case pending in another
court are improper do not have to be belabored. In the latter case, the criminal trial court has to grapple with such factual
issues as, for instance, whether or not the period of five banking days had expired, in the process determining whether notice
of dishonor should be reckoned from any prior notice if any has been given or from receipt by private respondents of the
subpoena therein with supporting affidavits, if any, or from the first day of actual preliminary investigation; and whether there
was a justification for not making the requisite arrangements for payment in full of such check by the drawee bank within the
said period. These are matters alien to the present controversy on tender and consignation of payment, where no such
period and its legal effects are involved.
These are aside from the considerations that the disputed period involved in the criminal case is only a presumptive
rule, juris tantum at that, to determine whether or not there was knowledge of insufficiency of funds in or credit with the
drawee bank; that payment of civil liability is not a mode for extinguishment of criminal liability; and that the requisite quantum
of evidence in the two types of cases are not the same.
To repeat, the foregoing matters are properly addressed to the trial court in Criminal Case No. Q-14867, the resolution of
which should not be interfered with by respondent Court of Appeals at the present posture of said case, much less
preempted by the inappropriate and unnecessary holdings in the aforequoted portion of the decision of said respondent
court. Consequently, we modify the decision of respondent court in CA-G.R. CV No. 05464 by setting aside and declaring
without force and effect its pronouncements and findings insofar as the merits of Criminal Case No. Q-14867 and the liability
of the accused therein are concerned.
WHEREFORE, subject to the aforesaid modifications, the judgment of respondent Court of Appeals is AFFIRMED.
SO ORDERED.

G.R. No. L-17845

April 27, 1967

INTESTATE ESTATE OF VICTOR SEVILLA. SIMEON SADAYA, petitioner,

vs.
FRANCISCO SEVILLA, respondent.
Belen Law Offices for petitioner.
Poblador, Cruz & Nazareno for respondent.
SANCHEZ, J.:
On March 28, 1949, Victor Sevilla, Oscar Varona and Simeon Sadaya executed, jointly and severally, in favor of the Bank of
the Philippine Islands, or its order, a promissory note for P15,000.00 with interest at 8% per annum, payable on demand. The
entire, amount of P15,000.00, proceeds of the promissory note, was received from the bank by Oscar Varona alone. Victor
Sevilla and Simeon Sadaya signed the promissory note as co-makers only as a favor to Oscar Varona. Payments were made
on account. As of June 15, 1950, the outstanding balance stood P4,850.00. No payment thereafter made.
On October 6, 1952, the bank collected from Sadaya the foregoing balance which, together with interest, totalled P5,416.12.
Varona failed to reimburse Sadaya despite repeated demands.
Victor Sevilla died. Intestate estate proceedings were started in the Court of First Instance of Rizal, Special Proceeding No.
1518. Francisco Sevilla was named administrator.
In Special Proceeding No. 1518, Sadaya filed a creditor's claim for the above sum of P5,746.12, plus attorneys fees in the
sum of P1,500.00. The administrator resisted the claim upon the averment that the deceased Victor Sevilla "did not receive
any amount as consideration for the promissory note," but signed it only "as surety for Oscar Varona".
On June 5, 1957, the trial court issued an order admitting the claim of Simeon Sadaya in the amount of P5,746.12, and
directing the administrator to pay the same from any available funds belonging to the estate of the deceased Victor Sevilla.
The motion to reconsider having been overruled, the administrator appealed.1 The Court of Appeals, in a decision
promulgated on July, 15, 1960, voted to set aside the order appealed from and to disapprove and disallow "appellee's claim
of P5,746.12 against the intestate estate."
The case is now before this Court on certiorari to review the judgment of the Court of Appeals.
Sadaya's brief here seeks reversal of the appellate court's decision and prays that his claim "in the amount of 50% of
P5,746.12, or P2,873.06, against the intestate estate of the deceased Victor Sevilla," be approved.
1. That Victor Sevilla and Simeon Sadaya were joint and several accommodation makers of the 15,000.00-peso promissory
note in favor of the Bank of the Philippine Islands, need not be essayed. As such accommodation the makers, the individual
obligation of each of them to the bank is no different from, and no greater and no less than, that contract by Oscar Varona.
For, while these two did not receive value on the promissory note, they executed the same with, and for the purpose of
lending their names to, Oscar Varona. Their liability to the bank upon the explicit terms of the promissory note is joint and
several.2 Better yet, the bank could have pursued its right to collect the unpaid balance against either Sevilla or Sadaya. And
the fact is that one of the last two, Simeon Sadaya, paid that balance.
2. It is beyond debate that Simeon Sadaya could have sought reimbursement of the total amount paid from Oscar Varona.
This is but right and just. Varona received full value of the promissory note.3 Sadaya received nothing therefrom. He paid the
bank because he was a joint and several obligor. The least that can be said is that, as between Varona and Sadaya, there is
an implied contract of indemnity. And Varona is bound by the obligation to reimburse Sadaya.4
3. The common creditor, the Bank of the Philippine Islands, now out of the way, we first look into the relations inter se
amongst the three consigners of the promissory note. Their relations vis-a-vis the Bank, we repeat, is that of joint and several
obligors. But can the same thing be said about the relations of the three consigners, in respect to each other?
Surely enough, as amongst the three, the obligation of Varona and Sevilla to Sadaya who paid can not be joint and several.
For, indeed, had payment been made by Oscar Varona, instead of Simeon Sadaya, Varona could not have had reason to
seek reimbursement from either Sevilla or Sadaya, or both. After all, the proceeds of the loan went to Varona and the other
two received nothing therefrom.
4. On principle, a solidary accommodation maker who made payment has the right to contribution, from his coaccommodation maker, in the absence of agreement to the contrary between them, and subject to conditions imposed by
law. This right springs from an implied promise between the accommodation makers to share equally the burdens that may
ensue from their having consented to stamp their signatures on the promissory note.5 For having lent their signatures to the
principal debtor, they clearly placed themselves in so far as payment made by one may create liability on the other in
the category of mere joint grantors of the former.6 This is as it should be. Not one of them benefited by the promissory note.
They stand on the same footing. In misfortune, their burdens should be equally spread.
Manresa, commenting on Article 1844 of the Civil Code of Spain,7 which is substantially reproduced in Article 20738 of our
Civil Code, on this point stated:
Otros, como Pothier, entienden que, si bien el principio es evidente enestricto concepto juridico, se han extremado

sus consecuencias hasta el punto de que estas son contrarias, no solo a la logica, sino tambien a la equidad, que
debe ser el alma del Derecho, como ha dicho Laurent.
Esa accion sostienen no nace de la fianza, pues, en efecto, el hecho de afianzar una misma deuda no crea
ningun vinculo juridico, ni ninguna razon de obligar entre los fiadores, sino que trae, por el contrario, su origen de
una acto posterior, cual es el pago de toda la deuda realizado por uno de ellos, y la equdad, no permite que los
denias fiadores, que igualmente estaban estaban obligos a dicho pago, se aprovenchen de ese acto en perjuico del
que lo realozo.
Lo cierto es que esa accion concedida al fiador nace, si, del hecho del pago, pero es consecuencia del beneficio o
del derecho de division, como tenemos ya dicho. En efecto, por virtud de esta todos los cofiadores vienen obligados
a contribuir al pago de parte que a cada uno corresponde. De ese obligacion, contraida por todos ellos, se libran los
que no han pagado por consecuencia del acto realizado por el que pago, y si bien este no hizo mas que cumplir el
deber que el contracto de fianza le imponia de responder de todo el debito cuando no limito su obligacion a parte
alguna del mismo, dicho acto redunda en beneficio de los otros cofiadores los cuales se aprovechan de el para
quedar desligados de todo compromiso con el acreedor.9
5. And now, to the requisites before one accommodation maker can seek reimbursement from a co-accommodation maker.
By Article 18 of the Civil Code in matters not covered by the special laws, "their deficiency shall be supplied by the provisions
of this Code". Nothing extant in the Negotiable Instruments Law would define the right of one accommodation maker to seek
reimbursement from another. Perforce, we must go to the Civil Code.1wph1.t
Because Sevilla and Sadaya, in themselves, are but co-guarantors of Varona, their case comes within the ambit of Article
2073 of the Civil Code which reads:
ART. 2073. When there are two or more guarantors of the same debtor and for the same debt, the one among them
who has paid may demand of each of the others the share which is proportionally owing from him.
If any of the guarantors should be insolvent, his share shall be borne by the others, including the payer, in the same
proportion.
The provisions of this article shall not be applicable, unless the payment has been made in virtue of a judicial
demand or unless the principal debtor is insolvent.10
As Mr. Justice Street puts it: "[T]hat article deals with the situation which arises when one surety has paid the debt to the
creditor and is seeking contribution from his cosureties."11
Not that the requirements in paragraph 3, Article 2073, just quoted, are devoid of cogent reason. Says Manresa:12
c) Requisitos para el ejercicio del derecho de reintegro o de reembolso derivado de la corresponsabilidad de los
cofiadores.
La tercera de las prescripciones que comprende el articulo se refiere a los requisitos que deben concurrir para
que pueda tener lugar lo dispuesto en el mismo. Ese derecho que concede al fiador para reintegrarse directamente
de los fiadores de lo que pago por ellos en vez de dirigir su reclamacion contra el deudor, es un beneficio otorgado
por la ley solo ell dos casos determinados, cuya justificacion resulta evidenciada desde luego; y esa limitacion este
debidamente aconsejada por una razon de prudencia que no puede desconocerse, cual es la de evitar que por la
mera voluntad de uno de los cofiadores pueda hacerse surgir la accion de reintegro contra los demas en prejuicio
de los mismos.
El perjuicio que con tal motivo puede inferirse a los cofiadores es bien notorio, pues teniendo en primer termino el
fiador que paga por el deudor el derecho de indemnizacion contra este, sancionado por el art. 1,838, es de todo
punto indudable que ejercitando esta accion pueden quedar libres de toda responsabilidad los demas cofiadores si,
a consecuencia de ella, indemniza el fiado a aquel en los terminos establecidos en el expresado articulo. Por el
contrario de prescindir de dicho derecho el fiador, reclamando de los confiadores en primer lugar el oportuno
reintegro, estos en tendrian mas remedio que satisfacer sus ductares respectivas, repitiendo despues por ellas
contra el deudor con la imposicion de las molestias y gastos consiguientes.
No es aventurado asegurar que si el fiador que paga pudiera libremente utilizar uno u otro de dichos derechos, el
de indemnizacion por el deudor y el del reintegro por los cofiadores, indudablemente optaria siempre y en todo caso
por el segundo, puesto que mucha mas garantias de solvencia y mucha mas seguridad del cobro ha de encontrar
en los fiadores que en el deudor; y en la practica quedaria reducido el primero a la indemnizacion por el deudor a
los confiadores que hubieran hecho el reintegro, obligando a estos, sin excepcion alguna, a soportar siempre los
gastos y las molestias que anteriormente homos indicado. Y para evitar estos perjuicios, la ley no ha podido menos
de reducir el ejercicio de ese derecho a los casos en que absolutamente sea indispensable.13
6. All of the foregoing postulate the following rules: (1) A joint and several accommodation maker of a negotiable promissory
note may demand from the principal debtor reimbursement for the amount that he paid to the payee; and (2) a joint and
several accommodation maker who pays on the said promissory note may directly demand reimbursement from his coaccommodation maker without first directing his action against the principal debtor provided that (a) he made the payment by

virtue of a judicial demand, or (b) a principal debtor is insolvent.

The Court of Appeals found that Sadaya's payment to the bank "was made voluntarily and without any judicial demand," and
that "there is an absolute absence of evidence showing that Varona is insolvent". This combination of fact and lack of fact
epitomizes the fatal distance between payment by Sadaya and Sadaya's right to demand of Sevilla "the share which is
proportionately owing from him."
For the reasons given, the judgment of the Court of Appeals under review is hereby affirmed. No costs. So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar and Castro, JJ., concur.
Footnotes
1CA-G.R. No. 22246-R, "Intestate Estate of the deceased Victor Francisco Sevilla, administrator-appellant, vs.
Simeon Sadaya, claimant-appellee".
2Section 29, Negotiable Instruments Law; Acua vs. Veloso and Xavier, 50 Phil. 241, 252: Philippine Trust Company
vs. Antigua Botica Ramirez, et al., 56 Phil. 562, 565-566, 571. See also; Article 1216, Civil Code.
3Philippine National Bank vs. Masa, et al., 48 Phil. 207, 211; Acua vs. Veloso and Xavier, supra; Daniel on
Negotiable Instruments, 1933 ed., Vol. 3, p. 1598.
4Tolentino, Commentaries and Jurisprudence on Commercial Laws of the Philippines, Vol. I, p. 255, citing Blanchard
vs. Blanchard, 201 N.Y. 134, 94 NE 630.
5Daniel on Negotiable Instruments, id., p. 1597.
6Daniel on Negotiable Instruments, id., p. 1595; and Footnote 65 ...: "The liability of cosureties to each other for
contribution is not joint [joint and several] but several", citing Vansant vs. Gardner, 240 Ky. 318, 42 S. W. (2nd) 300;
Voss vs. Lewis, 126 Ind. 155, 25 N.E. 892.
7"ARTICULO 1.844 Cuando son dos o mas los fiadores de un mismo deudor y por una misma deuda, el que de
ellos la haya pagado podra reclamar de cada uno de los otros la parte que proporcionalmente le corresponda
satisfacer.
Si algundo de ellos resultara insolvente, le parte de este recaera sobre todos en la misma proporcion.
Para que pueda tener lugar la disposicion de este articulo, es preciso que se haya hecho el pago en virtud de
demanda judicial, o hallandose el deudor principal en estado de concurso o quiebra."
8Article, 2073 hereafter be recited in full.
9Manresa, Comentarios al Codigo Civil Espaol [1951 ed] Tomo XII, paginas 337, 38, 339; emphasis supplied.
10The word queibra [bankrupt] in the Spanish text of Article 1844 of the Civil Code of Spain is eliminated in Article
2073 of the present Civil Code; emphasis supplied.
11Cacho vs. Valles. 45 Phil. 107, 110-111, referring to Article 1844 of the Spanish Civil Code, now Article 2073 of the
Civil Code.
12Manresa, Codigo Civil Espaol, Tomo XII, paginas 342-343.
13Manresa, id., pp. 342-348.

G.R. No. 146511

September 5, 2007

TOMAS ANG, petitioner,

vs.
ASSOCIATED BANK AND ANTONIO ANG ENG LIONG, respondents.
DECISION
AZCUNA, J.:
This petition for certiorari under Rule 45 of the Rules on Civil Procedure seeks to review the October 9, 2000 Decision1 and
December 26, 2000 Resolution2 of the Court of Appeals in CA-G.R. CV No. 53413 which reversed and set aside the January
5, 1996 Decision3 of the Regional Trial Court, Branch 16, Davao City, in Civil Case No. 20,299-90, dismissing the complaint
filed by respondents for collection of a sum of money.
On August 28, 1990, respondent Associated Bank (formerly Associated Banking Corporation and now known as United
Overseas Bank Philippines) filed a collection suit against Antonio Ang Eng Liong and petitioner Tomas Ang for the two (2)
promissory notes that they executed as principal debtor and co-maker, respectively.
In the Complaint,4 respondent Bank alleged that on October 3 and 9, 1978, the defendants obtained a loan ofP50,000,
evidenced by a promissory note bearing PN-No. DVO-78-382, and P30,000, evidenced by a promissory note bearing PN-No.
DVO-78-390. As agreed, the loan would be payable, jointly and severally, on January 31, 1979 and December 8, 1978,
respectively. In addition, subsequent amendments5 to the promissory notes as well as the disclosure statements6 stipulated
that the loan would earn 14% interest rate per annum, 2% service charge per annum, 1% penalty charge per month from due
date until fully paid, and attorney's fees equivalent to 20% of the outstanding obligation.
Despite repeated demands for payment, the latest of which were on September 13, 1988 and September 9, 1986, on Antonio
Ang Eng Liong and Tomas Ang, respectively, respondent Bank claimed that the defendants failed and refused to settle their
obligation, resulting in a total indebtedness of P539,638.96 as of July 31, 1990, broken down as follows:
PN-No. DVO-78-382
Outstanding Balance
Add

14% Interest

PN-No. DVO-78-390

P50,000.00

P30,000.00

Past due charges for 4,199 days (from Past due charges for 4,253 days (from
01-31-79 to 07-31-90)
12-8-78 to 07-31-90)
P203,538.98

P125,334.41

2% Service Charge

P11,663.89

P7,088.34

12% Overdue Charge

P69,983.34

P42,530.00

P285,186.21

P174,952.75

P500.00

None

P334,686.21

P204,952.75

Total
Less: Charges paid
Amount Due

In his Answer,7 Antonio Ang Eng Liong only admitted to have secured a loan amounting to P80,000. He pleaded though that
the bank "be ordered to submit a more reasonable computation" considering that there had been "no correct and reasonable
statement of account" sent to him by the bank, which was allegedly collecting excessive interest, penalty charges, and
attorney's fees despite knowledge that his business was destroyed by fire, hence, he had no source of income for several
years.
For his part, petitioner Tomas Ang filed an Answer with Counterclaim and Cross-claim.8 He interposed the affirmative
defenses that: the bank is not the real party in interest as it is not the holder of the promissory notes, much less a holder for
value or a holder in due course; the bank knew that he did not receive any valuable consideration for affixing his signatures
on the notes but merely lent his name as an accommodation party; he accepted the promissory notes in blank, with only the
printed provisions and the signature of Antonio Ang Eng Liong appearing therein; it was the bank which completed the notes
upon the orders, instructions, or representations of his co-defendant; PN-No. DVO-78-382 was completed in excess of or
contrary to the authority given by him to his co-defendant who represented that he would only borrow P30,000 from the bank;

his signature in PN-No. DVO-78-390 was procured through fraudulent means when his co-defendant claimed that his first
loan did not push through; the promissory notes did not indicate in what capacity he was intended to be bound; the bank
granted his co-defendant successive extensions of time within which to pay, without his (Tomas Ang) knowledge and
consent; the bank imposed new and additional stipulations on interest, penalties, services charges and attorney's fees more
onerous than the terms of the notes, without his knowledge and consent, in the absence of legal and factual basis and in
violation of the Usury Law; the bank caused the inclusion in the promissory notes of stipulations such as waiver of
presentment for payment and notice of dishonor which are against public policy; and the notes had been impaired since they
were never presented for payment and demands were made only several years after they fell due when his co-defendant
could no longer pay them.
Regarding his counterclaim, Tomas Ang argued that by reason of the bank's acts or omissions, it should be held liable for the
amount of P50,000 for attorney's fees and expenses of litigation. Furthermore, on his cross-claim against Antonio Ang Eng
Liong, he averred that he should be reimbursed by his co-defendant any and all sums that he may be adjudged liable to pay,
plus P30,000, P20,000 and P50,000 for moral and exemplary damages, and attorney's fees, respectively.
In its Reply,9 respondent Bank countered that it is the real party in interest and is the holder of the notes since the Associated
Banking Corporation and Associated Citizens Bank are its predecessors-in-interest. The fact that Tomas Ang never received
any moneys in consideration of the two (2) loans and that such was known to the bank are immaterial because, as an
accommodation maker, he is considered as a solidary debtor who is primarily liable for the payment of the promissory notes.
Citing Section 29 of the Negotiable Instruments Law (NIL), the bank posited that absence or failure of consideration is not a
matter of defense; neither is the fact that the holder knew him to be only an accommodation party.
Respondent Bank likewise retorted that the promissory notes were completely filled up at the time of their delivery. Assuming
that such was not the case, Sec. 14 of the NIL provides that the bank has the prima facieauthority to complete the blank
form. Moreover, it is presumed that one who has signed as a maker acted with care and had signed the document with full
knowledge of its content. The bank noted that Tomas Ang is a prominent businessman in Davao City who has been engaged
in the auto parts business for several years, hence, certainly he is not so nave as to sign the notes without knowing or
bothering to verify the amounts of the loans covered by them. Further, he is already in estoppel since despite receipt of
several demand letters there was not a single protest raised by him that he signed for only one note in the amount
of P30,000.
It was denied by the bank that there were extensions of time for payment accorded to Antonio Ang Eng Liong. Granting that
such were the case, it said that the same would not relieve Tomas Ang from liability as he would still be liable for the whole
obligation less the share of his co-debtor who received the extended term.
The bank also asserted that there were no additional or new stipulations imposed other than those agreed upon. The penalty
charge, service charge, and attorney's fees were reflected in the amendments to the promissory notes and disclosure
statements. Reference to the Usury Law was misplaced as usury is legally non-existent; at present, interest can be charged
depending on the agreement of the lender and the borrower.
Lastly, the bank contended that the provisions on presentment for payment and notice of dishonor were expressly waived by
Tomas Ang and that such waiver is not against public policy pursuant to Sections 82 (c) and 109 of the NIL. In fact, there is
even no necessity therefor since being a solidary debtor he is absolutely required to pay and primarily liable on both
promissory notes.
On October 19, 1990, the trial court issued a preliminary pre-trial order directing the parties to submit their respective pre-trial
guide.10 When Antonio Ang Eng Liong failed to submit his brief, the bank filed an ex-partemotion to declare him in
default.11 Per Order of November 23, 1990, the court granted the motion and set theex-parte hearing for the presentation of
the bank's evidence.12 Despite Tomas Ang's motion13 to modify the Order so as to exclude or cancel the ex-parte hearing
based on then Sec. 4, Rule 18 of the old Rules of Court (now Sec. 3[c.], Rule 9 of the Revised Rules on Civil Procedure), the
hearing nonetheless proceeded.14
Eventually, a decision15 was rendered by the trial court on February 21, 1991. For his supposed bad faith and obstinate
refusal despite several demands from the bank, Antonio Ang Eng Liong was ordered to pay the principal amount of P80,000
plus 14% interest per annum and 2% service charge per annum. The overdue penalty charge and attorney's fees were,
however, reduced for being excessive, thus:
WHEREFORE, judgment is rendered against defendant Antonio Ang Eng Liong and in favor of plaintiff, ordering the
former to pay the latter:
On the first cause of action:
1) the amount of P50,000.00 representing the principal obligation with 14% interest per annum from June
27, 1983 with 2% service charge and 6% overdue penalty charges per annum until fully paid;
2) P11,663.89 as accrued service charge; and
3) P34,991.67 as accrued overdue penalty charge.
On the second cause of action:

1) the amount of P50,000.00 (sic) representing the principal account with 14% interest from June 27, 1983
with 2% service charge and 6% overdue penalty charges per annum until fully paid;
2) P7,088.34 representing accrued service charge;
3) P21,265.00 as accrued overdue penalty charge;
4) the amount of P10,000.00 as attorney's fees; and
5) the amount of P620.00 as litigation expenses and to pay the costs.
SO ORDERED.16
The decision became final and executory as no appeal was taken therefrom. Upon the bank's ex-parte motion, the court
accordingly issued a writ of execution on April 5, 1991.17
Thereafter, on June 3, 1991, the court set the pre-trial conference between the bank and Tomas Ang, 18 who, in turn, filed a
Motion to Dismiss19 on the ground of lack of jurisdiction over the case in view of the alleged finality of the February 21, 1991
Decision. He contended that Sec. 4, Rule 18 of the old Rules sanctions only one judgment in case of several defendants, one
of whom is declared in default. Moreover, in his Supplemental Motion to Dismiss,20 Tomas Ang maintained that he is
released from his obligation as a solidary guarantor and accommodation party because, by the bank's actions, he is now
precluded from asserting his cross-claim against Antonio Ang Eng Liong, upon whom a final and executory judgment had
already been issued.
The court denied the motion as well as the motion for reconsideration thereon.21 Tomas Ang subsequently filed a petition
for certiorari and prohibition before this Court, which, however, resolved to refer the same to the Court of Appeals.22 In
accordance with the prayer of Tomas Ang, the appellate court promulgated its Decision on January 29, 1992 in CA G.R. SP
No. 26332, which annulled and set aside the portion of the Order dated November 23, 1990 setting the ex-parte presentation
of the bank's evidence against Antonio Ang Eng Liong, the Decision dated February 21, 1991 rendered against him based on
such evidence, and the Writ of Execution issued on April 5, 1991.23
Trial then ensued between the bank and Tomas Ang. Upon the latter's motion during the pre-trial conference, Antonio Ang
Eng Liong was again declared in default for his failure to answer the cross-claim within the reglementary period.24
When Tomas Ang was about to present evidence in his behalf, he filed a Motion for Production of Documents,25 reasoning:
xxx
2. That corroborative to, and/or preparatory or incident to his testimony[,] there is [a] need for him to examine
original records in the custody and possession of plaintiff, viz:
a. original Promissory Note (PN for brevity) # DVO-78-382 dated October 3, 1978[;]
b. original of Disclosure Statement in reference to PN # DVO-78-382;
c. original of PN # DVO-78-390 dated October 9, 1978;
d. original of Disclosure Statement in reference to PN # DVO-78-390;
e. Statement or Record of Account with the Associated Banking Corporation or its successor, of Antonio
Ang in CA No. 470 (cf. Exh. O) including bank records, withdrawal slips, notices, other papers and relevant
dates relative to the overdraft of Antonio Eng Liong in CA No. 470;
f. Loan Applications of Antonio Ang Eng Liong or borrower relative to PN Nos. DVO-78-382 and DVO-78390 (supra);
g. Other supporting papers and documents submitted by Antonio Ang Eng Liong relative to his loan
application vis--vis PN. Nos. DVO-78-382 and DVO-78-390 such as financial statements, income tax
returns, etc. as required by the Central Bank or bank rules and regulations.
3. That the above matters are very material to the defenses of defendant Tomas Ang, viz:
- the bank is not a holder in due course when it accepted the [PNs] in blank.
- The real borrower is Antonio Ang Eng Liong which fact is known to the bank.
- That the PAYEE not being a holder in due course and knowing that defendant Tomas Ang is merely an
accommodation party, the latter may raise against such payee or holder or successor-in-interest (of the
notes) PERSONAL and EQUITABLE DEFENSES such as FRAUD in INDUCEMENT, DISCHARGE ON
NOTE, Application of [Articles] 2079, 2080 and 1249 of the Civil Code, NEGLIGENCE in delaying collection
despite Eng Liong's OVERDRAFT in C.A. No. 470, etc.26
In its Order dated May 16, 1994,27 the court denied the motion stating that the promissory notes and the disclosure
statements have already been shown to and inspected by Tomas Ang during the trial, as in fact he has already copies of the
same; the Statements or Records of Account of Antonio Ang Eng Liong in CA No. 470, relative to his overdraft, are immaterial

since, pursuant to the previous ruling of the court, he is being sued for the notes and not for the overdraft which is personal to
Antonio Ang Eng Liong; and besides its non-existence in the bank's records, there would be legal obstacle for the production
and inspection of the income tax return of Antonio Ang Eng Liong if done without his consent.
When the motion for reconsideration of the aforesaid Order was denied, Tomas Ang filed a petition for certiorariand
prohibition with application for preliminary injunction and restraining order before the Court of Appeals docketed as CA G.R.
SP No. 34840.28 On August 17, 1994, however, the Court of Appeals denied the issuance of a Temporary Restraining
Order.29
Meanwhile, notwithstanding its initial rulings that Tomas Ang was deemed to have waived his right to present evidence for
failure to appear during the pendency of his petition before the Court of Appeals, the trial court decided to continue with the
hearing of the case.30
After the trial, Tomas Ang offered in evidence several documents, which included a copy of the Trust Agreement between the
Republic of the Philippines and the Asset Privatization Trust, as certified by the notary public, and news clippings from the
Manila Bulletin dated May 18, 1994 and May 30, 1994.31 All the documentary exhibits were admitted for failure of the bank
to submit its comment to the formal offer.32Thereafter, Tomas Ang elected to withdraw his petition in CA G.R. SP No. 34840
before the Court of Appeals, which was then granted.33
On January 5, 1996, the trial court rendered judgment against the bank, dismissing the complaint for lack of cause of
action.34 It held that:
Exh. "9" and its [sub-markings], the Trust Agreement dated 27 February 1987 for the defense shows that: the
Associated Bank as of June 30, 1986 is one of DBP's or Development Bank of the [Philippines'] non-performing
accounts for transfer; on February 27, 1987 through Deeds of Transfer executed by and between the Philippine
National Bank and Development Bank of the Philippines and the National Government, both financial institutions
assigned, transferred and conveyed their non-performing assets to the National Government; the National
Government in turn and as TRUSTOR, transferred, conveyed and assigned by way of trust unto the Asset
Privatization Trust said non-performing assets, [which] took title to and possession of, [to] conserve, provisionally
manage and dispose[,] of said assets identified for privatization or disposition; one of the powers and duties of the
APT with respect to trust properties consisting of receivables is to handle the administration, collection and
enforcement of the receivables; to bring suit to enforce payment of the obligations or any installment thereof or to
settle or compromise any of such obligations, or any other claim or demand which the government may have
against any person or persons[.]
The Manila Bulletin news clippings dated May 18, 1994 and May 30, 1994, Exh. "9-A", "9-B", "9-C", and "9-D", show
that the Monetary Board of the Bangko Sentral ng Pilipinas approved the rehabilitation plan of the Associated Bank.
One main feature of the rehabilitation plan included the financial assistance for the bank by the Philippine Deposit
Insurance Corporation (PDIC) by way of the purchase of AB Assets worthP1.3945 billion subject to a buy-back
arrangement over a 10 year period. The PDIC had approved of the rehab scheme, which included the purchase of
AB's bad loans worth P1.86 at 25% discount. This will then be paid by AB within a 10-year period plus a yield
comparable to the prevailing market rates x x x.
Based then on the evidence presented by the defendant Tomas Ang, it would readily appear that at the time this suit
for Sum of Money was filed which was on August [28], 1990, the notes were held by the Asset Privatization Trust by
virtue of the Deeds of Transfer and Trust Agreement, which was empowered to bring suit to enforce payment of the
obligations. Consequently, defendant Tomas Ang has sufficiently established that plaintiff at the time this suit was
filed was not the holder of the notes to warrant the dismissal of the complaint.35
Respondent Bank then elevated the case to the Court of Appeals. In the appellant's brief captioned,"ASSOCIATED BANK,
Plaintiff-Appellant versus ANTONIO ANG ENG LIONG and TOMAS ANG, Defendants, TOMAS ANG, DefendantAppellee," the following errors were alleged:
I.
THE LOWER COURT ERRED IN NOT HOLDING DEFENDANT ANTONIO ANG ENG LIONG AND DEFENDANTAPPELLEE TOMAS ANG LIABLE TO PLAINTIFF-APPELLANT ON THEIR UNPAID LOANS DESPITE THE
LATTER'S DOCUMENTARY EXHIBITS PROVING THE SAID OBLIGATIONS.
II.
THE LOWER COURT ERRED IN DISMISSING PLAINTIFF-APPELLANT'S COMPLAINT ON THE BASIS OF
NEWSPAPER CLIPPINGS WHICH WERE COMPLETELY HEARSAY IN CHARACTER AND IMPROPER FOR
JUDICIAL NOTICE.36
The bank stressed that it has established the causes of action outlined in its Complaint by a preponderance of evidence. As
regards the Deed of Transfer and Trust Agreement, it contended that the same were never authenticated by any witness in
the course of the trial; the Agreement, which was not even legible, did not mention the promissory notes subject of the
Complaint; the bank is not a party to the Agreement, which showed that it was between the Government of the Philippines,
acting through the Committee on Privatization represented by the Secretary of Finance as trustor and the Asset Privatization
Trust, which was created by virtue of Proclamation No. 50; and the Agreement did not reflect the signatures of the contracting

parties. Lastly, the bank averred that the news items appearing in the Manila Bulletin could not be the subject of judicial
notice since they were completely hearsay in character.37
On October 9, 2000, the Court of Appeals reversed and set aside the trial court's ruling. The dispositive portion of the
Decision38 reads:
WHEREFORE, premises considered, the Decision of the Regional Trial Court of Davao City, Branch 16, in Civil
Case No. 20,299-90 is hereby REVERSED AND SET ASIDE and another one entered ordering defendant-appellee
Tomas Ang to pay plaintiff-appellant Associated Bank the following:
1. P50,000.00 representing the principal amount of the loan under PN-No. DVO-78-382 plus 14% interest thereon
per annum computed from January 31, 1979 until the full amount thereof is paid;
2. P30,000.00 representing the principal amount of the loan under PN-No. DVO-78-390 plus 14% interest thereon
per annum computed from December 8, 1978 until the full amount thereof is paid;
All other claims of the plaintiff-appellant are DISMISSED for lack of legal basis. Defendant-appellee's counterclaim is
likewise DISMISSED for lack of legal and factual bases.
No pronouncement as to costs.
SO ORDERED.39
The appellate court disregarded the bank's first assigned error for being "irrelevant in the final determination of the case" and
found its second assigned error as "not meritorious." Instead, it posed for resolution the issue of whether the trial court erred
in dismissing the complaint for collection of sum of money for lack of cause of action as the bank was said to be not the
"holder" of the notes at the time the collection case was filed.
In answering the lone issue, the Court of Appeals held that the bank is a "holder" under Sec. 191 of the NIL. It concluded that
despite the execution of the Deeds of Transfer and Trust Agreement, the Asset Privatization Trust cannot be declared as the
"holder" of the subject promissory notes for the reason that it is neither the payee or indorsee of the notes in possession
thereof nor is it the bearer of said notes. The Court of Appeals observed that the bank, as the payee, did not indorse the
notes to the Asset Privatization Trust despite the execution of the Deeds of Transfer and Trust Agreement and that the notes
continued to remain with the bank until the institution of the collection suit.
With the bank as the "holder" of the promissory notes, the Court of Appeals held that Tomas Ang is accountable therefor in
his capacity as an accommodation party. Citing Sec. 29 of the NIL, he is liable to the bank in spite of the latter's knowledge,
at the time of taking the notes, that he is only an accommodation party. Moreover, as a co-maker who agreed to be jointly
and severally liable on the promissory notes, Tomas Ang cannot validly set up the defense that he did not receive any
consideration therefor as the fact that the loan was granted to the principal debtor already constitutes a sufficient
consideration.
Further, the Court of Appeals agreed with the bank that the experience of Tomas Ang in business rendered it implausible that
he would just sign the promissory notes as a co-maker without even checking the real amount of the debt to be incurred, or
that he merely acted on the belief that the first loan application was cancelled. According to the appellate court, it is apparent
that he was negligent in falling for the alibi of Antonio Ang Eng Liong and such fact would not serve to exonerate him from his
responsibility under the notes.
Nonetheless, the Court of Appeals denied the claims of the bank for service, penalty and overdue charges as well as
attorney's fees on the ground that the promissory notes made no mention of such charges/fees.
In his motion for reconsideration,40 Tomas Ang raised for the first time the assigned errors as follows:
xxx
2) Related to the above jurisdictional issues, defendant-appellee Tomas Ang has recently discovered that upon the
filing of the complaint on August 28, 1990, under the jurisdictional rule laid down in BP Blg. 129, appellant bank
fraudulently failed to specify the amount of compounded interest at 14% per annum, service charges at 2% per
annum and overdue penalty charges at 12% per annum in the prayer of the complaint as of the time of its filing,
paying a total of only P640.00(!!!) as filing and court docket fees although the total sum involved as of that time
was P647,566.75 including 20% attorney's fees. In fact, the stated interest in the body of the complaint alone
amount to P328,373.39 (which is actuallycompounded and capitalized) in both causes of action and the total service
and overdue penalties and charges and attorney's fees further amount to P239,193.36 in both causes of action, as
of July 31, 1990, the time of filing of the complaint. Significantly, appellant fraudulently misled the Court, describing
the14% imposition as interest, when in fact the same was capitalized as principal by appellant bank every month to
earn more interest, as stated in the notes. In view thereof, the trial court never acquired jurisdiction over the case
and the same may not be now corrected by the filing of deficiency fees because the causes of action had already
prescribed and more importantly, the jurisdiction of the Municipal Trial Court had been increased to P100,000.00
in principal claims last March 20, 1999, pursuant to SC Circular No. 21-99, section 5 of RA No. 7691, and section
31, Book I of the 1987 Administrative Code. In other words, as of today, jurisdiction over the subject falls within the
exclusive jurisdiction of the MTC, particularly if the bank foregoes capitalization of the stipulated interest.

3) BY FAILING TO GIVE NOTICE OF ITS APPEAL AND APPEAL BRIEF TO APPELLEE ANG ENG LIONG, THE
APPEALED JUDGMENT OF THE TRIAL COURT WHICH LEFT OUT TOMAS ANG'S CROSS-CLAIM AGAINST
ENG LIONG (BECAUSE IT DISMISSED THE MAIN CLAIM), HAD LONG BECOME FINAL AND EXECUTORY, AS
AGAINST ENG LIONG. Accordingly, Tomas Ang's right of subrogation against Ang Eng Liong, expressed in his
cross-claim, is now SEVERAL TIMES foreclosed because of the fault or negligence of appellant bank since 1979 up
to its insistence of an ex-parte trial, and now when it failed to serve notice of appeal and appellant's brief upon him.
Accordingly, appellee Tomas Ang should be released from his suretyship obligation pursuant to Art. 2080 of the Civil
Code. The above is related to the issues above-stated.
4) This Court may have erred in ADDING or ASSIGNING its own bill of error for the benefit of appellant bank which
defrauded the judiciary by the payment of deficient docket fees.41
Finding no cogent or compelling reason to disturb the Decision, the Court of Appeals denied the motion in its Resolution
dated December 26, 2000.42
Petitioner now submits the following issues for resolution:
1. Is [A]rticle 2080 of the Civil Code applicable to discharge petitioner Tomas Ang as accommodation maker or
surety because of the failure of [private] respondent bank to serve its notice of appeal upon the principal debtor,
respondent Eng Liong?
2. Did the trial court have jurisdiction over the case at all?
3. Did the Court of Appeals [commit] error in assigning its own error and raising its own issue?
4. Are petitioner's other real and personal defenses such as successive extensions coupled with fraudulent collusion
to hide Eng Liong's default, the payee's grant of additional burdens, coupled with the insolvency of the principal
debtor, and the defense of incomplete but delivered instrument, meritorious?43
Petitioner allegedly learned after the promulgation of the Court of Appeals' decision that, pursuant to the parties' agreement
on the compounding of interest with the principal amount (per month in case of default), the interest on the promissory notes
as of July 31, 1990 should have been only P81,647.22 for PN No. DVO-78-382 (instead of P203,538.98) and P49,618.33 for
PN No. DVO-78-390 (instead of P125,334.41) while the principal debt as of said date should increase to P647,566.75
(instead of P539,638.96). He submits that the bank carefully and shrewdly hid the fact by describing the amounts as interest
instead of being part of either the principal or penalty in order to pay a lesser amount of docket fees. According to him, the
total fees that should have been paid at the time of the filing of the complaint on August 28, 1990 was P2,216.30 and
not P614.00 or a shortage of 71%. Petitioner contends that the bank may not now pay the deficiency because the last
demand letter sent to him was dated September 9, 1986, or more than twenty years have elapsed such that prescription had
already set in. Consequently, the bank's claim must be dismissed as the trial court loses jurisdiction over the case.
Petitioner also argues that the Court of Appeals should not have assigned its own error and raised it as an issue of the case,
contending that no question should be entertained on appeal unless it has been advanced in the court below or is within the
issues made by the parties in the pleadings. At any rate, he opines that the appellate court's decision that the bank is the real
party in interest because it is the payee named in the note or the holder thereof is too simplistic since: (1) the power and
control of Asset Privatization Trust over the bank are clear from the explicit terms of the duly certified trust documents and
deeds of transfer and are confirmed by the newspaper clippings; (2) even under P.D. No. 902-A or the General Banking Act,
where a corporation or a bank is under receivership, conservation or rehabilitation, it is only the representative (liquidator,
receiver, trustee or conservator) who may properly act for said entity, and, in this case, the bank was held by Asset
Privatization Trust as trustee; and (3) it is not entirely accurate to say that the payee who has not indorsed the notes in all
cases is the real party in interest because the rights of the payee may be subject of an assignment of incorporeal rights under
Articles 1624 and 1625 of the Civil Code.
Lastly, petitioner maintains that when respondent Bank served its notice of appeal and appellant's brief only on him, it
rendered the judgment of the trial court final and executory with respect to Antonio Ang Eng Liong, which, in effect, released
him (Antonio Ang Eng Liong) from any and all liability under the promissory notes and, thereby, foreclosed petitioner's crossclaims. By such act, the bank, even if it be the "holder" of the promissory notes, allegedly discharged a simple contract for the
payment of money (Sections 119 [d] and 122, NIL [Act No. 2031]), prevented a surety like petitioner from being subrogated in
the shoes of his principal (Article 2080, Civil Code), and impaired the notes, producing the effect of payment (Article 1249,
Civil Code).
The petition is unmeritorious.
Procedurally, it is well within the authority of the Court of Appeals to raise, if it deems proper under the circumstances
obtaining, error/s not assigned on an appealed case. In Mendoza v. Bautista,44 this Court recognized the broad discretionary
power of an appellate court to waive the lack of proper assignment of errors and to consider errors not assigned, thus:
As a rule, no issue may be raised on appeal unless it has been brought before the lower tribunal for its
consideration. Higher courts are precluded from entertaining matters neither alleged in the pleadings nor raised
during the proceedings below, but ventilated for the first time only in a motion for reconsideration or on appeal.
However, as with most procedural rules, this maxim is subject to exceptions. Indeed, our rules recognize the broad

discretionary power of an appellate court to waive the lack of proper assignment of errors and to consider errors not
assigned. Section 8 of Rule 51 of the Rules of Court provides:
SEC. 8. Questions that may be decided. No error which does not affect the jurisdiction over the subject matter or
the validity of the judgment appealed from or the proceedings therein will be considered, unless stated in the
assignment of errors, or closely related to or dependent on an assigned error and properly argued in the brief, save
as the court may pass upon plain errors and clerical errors.
Thus, an appellate court is clothed with ample authority to review rulings even if they are not assigned as errors in
the appeal in these instances: (a) grounds not assigned as errors but affecting jurisdiction over the subject matter;
(b) matters not assigned as errors on appeal but are evidently plain or clerical errors within contemplation of law; (c)
matters not assigned as errors on appeal but consideration of which is necessary in arriving at a just decision and
complete resolution of the case or to serve the interests of justice or to avoid dispensing piecemeal justice; (d)
matters not specifically assigned as errors on appeal but raised in the trial court and are matters of record having
some bearing on the issue submitted which the parties failed to raise or which the lower court ignored; (e) matters
not assigned as errors on appeal but closely related to an error assigned; and (f) matters not assigned as errors on
appeal but upon which the determination of a question properly assigned is dependent. (Citations omitted)45
To the Court's mind, even if the Court of Appeals regarded petitioner's two assigned errors as "irrelevant" and "not
meritorious," the issue of whether the trial court erred in dismissing the complaint for collection of sum of money for lack of
cause of action (on the ground that the bank was not the "holder" of the notes at the time of the filing of the action) is in
reality closely related to and determinant of the resolution of whether the lower court correctly ruled in not holding Antonio
Ang Eng Liong and petitioner Tomas Ang liable to the bank on their unpaid loans despite documentary exhibits allegedly
proving their obligations and in dismissing the complaint based on newspaper clippings. Hence, no error could be ascribed to
the Court of Appeals on this point.
Now, the more relevant question is: who is the real party in interest at the time of the institution of the complaint, is it the bank
or the Asset Privatization Trust?
To answer the query, a brief history on the creation of the Asset Privatization Trust is proper.
Taking into account the imperative need of formally launching a program for the rationalization of the government corporate
sector, then President Corazon C. Aquino issued Proclamation No. 5046 on December 8, 1986. As one of the twin
cornerstones of the program was to establish the privatization of a good number of government corporations, the
proclamation created the Asset Privatization Trust, which would, for the benefit of the National Government, take title to and
possession of, conserve, provisionally manage and dispose of transferred assets that were identified for privatization or
disposition.47
In accordance with the provisions of Section 2348 of the proclamation, then President Aquino subsequently issued
Administrative Order No. 14 on February 3, 1987, which approved the identification of and transfer to the National
Government of certain assets (consisting of loans, equity investments, accrued interest receivables, acquired assets and
other assets) and liabilities (consisting of deposits, borrowings, other liabilities and contingent guarantees) of the
Development Bank of the Philippines (DBP) and the Philippine National Bank (PNB). The transfer of assets was implemented
through a Deed of Transfer executed on February 27, 1987 between the National Government, on one hand, and the DBP
and PNB, on the other. In turn, the National Government designated the Asset Privatization Trust to act as its trustee through
a Trust Agreement, whereby the non-performing accounts of DBP and PNB, including, among others, the DBP's equity with
respondent Bank, were entrusted to the Asset Privatization Trust.49 As provided for in the Agreement, among the powers
and duties of the Asset Privatization Trust with respect to the trust properties consisting of receivables was to handle their
administration and collection by bringing suit to enforce payment of the obligations or any installment thereof or settling or
compromising any of such obligations or any other claim or demand which the Government may have against any person or
persons, and to do all acts, institute all proceedings, and to exercise all other rights, powers, and privileges of ownership that
an absolute owner of the properties would otherwise have the right to do.50
Incidentally, the existence of the Asset Privatization Trust would have expired five (5) years from the date of issuance of
Proclamation No. 50.51 However, its original term was extended from December 8, 1991 up to August 31, 1992,52 and again
from December 31, 1993 until June 30, 1995,53 and then from July 1, 1995 up to December 31, 1999,54 and further from
January 1, 2000 until December 31, 2000.55 Thenceforth, the Privatization and Management Office was established and
took over, among others, the powers, duties and functions of the Asset Privatization Trust under the proclamation.56
Based on the above backdrop, respondent Bank does not appear to be the real party in interest when it instituted the
collection suit on August 28, 1990 against Antonio Ang Eng Liong and petitioner Tomas Ang. At the time the complaint was
filed in the trial court, it was the Asset Privatization Trust which had the authority to enforce its claims against both debtors. In
fact, during the pre-trial conference, Atty. Roderick Orallo, counsel for the bank, openly admitted that it was under the
trusteeship of the Asset Privatization Trust.57 The Asset Privatization Trust, which should have been represented by the
Office of the Government Corporate Counsel, had the authority to file and prosecute the case.
The foregoing notwithstanding, this Court can not, at present, readily subscribe to petitioner's insistence that the case must
be dismissed. Significantly, it stands without refute, both in the pleadings as well as in the evidence presented during the trial
and up to the time this case reached the Court, that the issue had been rendered moot with the occurrence of a supervening

event the "buy-back" of the bank by its former owner, Leonardo Ty, sometime in October 1993. By such re-acquisition from
the Asset Privatization Trust when the case was still pending in the lower court, the bank reclaimed its real and actual interest
over the unpaid promissory notes; hence, it could rightfully qualify as a "holder"58 thereof under the NIL.
Notably, Section 29 of the NIL defines an accommodation party as a person "who has signed the instrument as maker,
drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other
person." As gleaned from the text, an accommodation party is one who meets all the three requisites, viz: (1) he must be a
party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not receive value therefor; and (3) he
must sign for the purpose of lending his name or credit to some other person.59 An accommodation party lends his name to
enable the accommodated party to obtain credit or to raise money; he receives no part of the consideration for the instrument
but assumes liability to the other party/ies thereto.60 The accommodation party is liable on the instrument to a holder for
value even though the holder, at the time of taking the instrument, knew him or her to be merely an accommodation party, as
if the contract was not for accommodation.61
As petitioner acknowledged it to be, the relation between an accommodation party and the accommodated party is one of
principal and surety the accommodation party being the surety.62 As such, he is deemed an original promisor and debtor
from the beginning;63 he is considered in law as the same party as the debtor in relation to whatever is adjudged touching
the obligation of the latter since their liabilities are interwoven as to be inseparable.64 Although a contract of suretyship is in
essence accessory or collateral to a valid principal obligation, the surety's liability to the creditor
is immediate, primary and absolute; he is directly and equallybound with the principal.65 As an equivalent of a regular party
to the undertaking, a surety becomes liable to the debt and duty of the principal obligor even without possessing a direct or
personal interest in the obligations nor does he receive any benefit therefrom.66
Contrary to petitioner's adamant stand, however, Article 208067 of the Civil Code does not apply in a contract of
suretyship.68 Art. 2047 of the Civil Code states that if a person binds himself solidarily with the principal debtor, the
provisions of Section 4, Chapter 3, Title I, Book IV of the Civil Code must be observed. Accordingly, Articles 1207 up to 1222
of the Code (on joint and solidary obligations) shall govern the relationship of petitioner with the bank.
The case of Inciong, Jr. v. CA69 is illuminating:
Petitioner also argues that the dismissal of the complaint against Naybe, the principal debtor, and against
Pantanosas, his co-maker, constituted a release of his obligation, especially because the dismissal of the case
against Pantanosas was upon the motion of private respondent itself. He cites as basis for his argument, Article
2080 of the Civil Code which provides that:
"The guarantors, even though they be solidary, are released from their obligation whenever by come act of the
creditor, they cannot be subrogated to the rights, mortgages, and preferences of the latter."
It is to be noted, however, that petitioner signed the promissory note as a solidary co-maker and not as a guarantor.
This is patent even from the first sentence of the promissory note which states as follows:
"Ninety one (91) days after date, for value received, I/we, JOINTLY and SEVERALLY promise to pay to the
PHILIPPINE BANK OF COMMUNICATIONS at its office in the City of Cagayan de Oro, Philippines the sum of
FIFTY THOUSAND ONLY (P50,000.00) Pesos, Philippine Currency, together with interest x x x at the rate of
SIXTEEN (16) per cent per annum until fully paid."
A solidary or joint and several obligation is one in which each debtor is liable for the entire obligation, and each
creditor is entitled to demand the whole obligation. On the other hand, Article 2047 of the Civil Code states:
"By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal
debtor in case the latter should fail to do so.
If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this
Book shall be observed. In such a case the contract is called a suretyship." (Italics supplied.)
While a guarantor may bind himself solidarily with the principal debtor, the liability of a guarantor is different from
that of a solidary debtor. Thus, Tolentino explains:
"A guarantor who binds himself in solidum with the principal debtor under the provisions of the second paragraph
does not become a solidary co-debtor to all intents and purposes. There is a difference between a solidary codebtor, and a fiador in solidum (surety). The later, outside of the liability he assumes to pay the debt before the
property of the principal debtor has been exhausted, retains all the other rights, actions and benefits which pertain to
him by reason of rights of the fiansa; while a solidary co-debtor has no other rights than those bestowed upon him in
Section 4, Chapter 3, title I, Book IV of the Civil Code."
Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on joint and several obligations. Under Art.
1207 thereof, when there are two or more debtors in one and the same obligation, the presumption is that obligation
is joint so that each of the debtors is liable only for a proportionate part of the debt. There is a solidarily liability only
when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires.
Because the promissory note involved in this case expressly states that the three signatories therein arejointly and

severally liable, any one, some or all of them may be proceeded against for the entire obligation. The choice is left to
the solidary creditor to determine against whom he will enforce collection. (Citations omitted)70
In the instant case, petitioner agreed to be "jointly and severally" liable under the two promissory notes that he co-signed with
Antonio Ang Eng Liong as the principal debtor. This being so, it is completely immaterial if the bank would opt to proceed only
against petitioner or Antonio Ang Eng Liong or both of them since the law confers upon the creditor the prerogative to choose
whether to enforce the entire obligation against any one, some or all of the debtors. Nonetheless, petitioner, as an
accommodation party, may seek reimbursement from Antonio Ang Eng Liong, being the party accommodated.71
It is plainly mistaken for petitioner to say that just because the bank failed to serve the notice of appeal and appellant's brief
to Antonio Ang Eng Liong, the trial court's judgment, in effect, became final and executory as against the latter and, thereby,
bars his (petitioner's) cross-claims against him: First, although no notice of appeal and appellant's brief were served to
Antonio Ang Eng Liong, he was nonetheless impleaded in the case since his name appeared in the caption of both the notice
and the brief as one of the defendants-appellees;72Second, despite including in the caption of the appellee's brief his codebtor as one of the defendants-appellees, petitioner did not also serve him a copy thereof;73 Third, in the caption of the
Court of Appeals' decision, Antonio Ang Eng Liong was expressly named as one of the defendants-appellees;74 and Fourth,
it was only in his motion for reconsideration from the adverse judgment of the Court of Appeals that petitioner belatedly chose
to serve notice to the counsel of his co-defendant-appellee.75
Likewise, this Court rejects the contention of Antonio Ang Eng Liong, in his "special appearance" through counsel, that the
Court of Appeals, much less this Court, already lacked jurisdiction over his person or over the subject matter relating to him
because he was not a party in CA-G.R. CV No. 53413. Stress must be laid of the fact that he had twice put himself in default
one, in not filing a pre-trial brief and another, in not filing his answer to petitioner's cross-claims. As a matter of course,
Antonio Ang Eng Liong, being a party declared in default, already waived his right to take part in the trial proceedings and
had to contend with the judgment rendered by the court based on the evidence presented by the bank and petitioner.
Moreover, even without considering these default judgments, Antonio Ang Eng Liong even categorically admitted having
secured a loan totaling P80,000. In his Answer to the complaint, he did not deny such liability but merely pleaded that the
bank "be ordered to submit a more reasonable computation" instead of collecting excessive interest, penalty charges, and
attorney's fees. For failing to tender an issue and in not denying the material allegations stated in the complaint, a judgment
on the pleadings76 would have also been proper since not a single issue was generated by the Answer he filed.
As the promissory notes were not discharged or impaired through any act or omission of the bank, Sections 119 (d)77 and
12278 of the NIL as well as Art. 124979 of the Civil Code would necessarily find no application. Again, neither was petitioner's
right of reimbursement barred nor was the bank's right to proceed against Antonio Ang Eng Liong expressly renounced by
the omission to serve notice of appeal and appellant's brief to a party already declared in default.
Consequently, in issuing the two promissory notes, petitioner as accommodating party warranted to the holder in due course
that he would pay the same according to its tenor.80 It is no defense to state on his part that he did not receive any value
therefor81 because the phrase "without receiving value therefor" used in Sec. 29 of the NIL means "without receiving value
by virtue of the instrument" and not as it is apparently supposed to mean, "without receiving payment for lending his
name."82 Stated differently, when a third person advances the face value of the note to the accommodated party at the time
of its creation, the consideration for the note as regards its maker is the money advanced to the accommodated party. It is
enough that value was given for the note at the time of its creation.83 As in the instant case, a sum of money was received
by virtue of the notes, hence, it is immaterial so far as the bank is concerned whether one of the signers, particularly
petitioner, has or has not received anything in payment of the use of his name.84
Under the law, upon the maturity of the note, a surety may pay the debt, demand the collateral security, if there be any, and
dispose of it to his benefit, or, if applicable, subrogate himself in the place of the creditor with the right to enforce the guaranty
against the other signers of the note for the reimbursement of what he is entitled to recover from them.85 Regrettably, none
of these were prudently done by petitioner. When he was first notified by the bank sometime in 1982 regarding his
accountabilities under the promissory notes, he lackadaisically relied on Antonio Ang Eng Liong, who represented that he
would take care of the matter, instead of directly communicating with the bank for its settlement. 86 Thus, petitioner cannot
now claim that he was prejudiced by the supposed "extension of time" given by the bank to his co-debtor.
Furthermore, since the liability of an accommodation party remains not only primary but also unconditional to a holder for
value, even if the accommodated party receives an extension of the period for payment without the consent of the
accommodation party, the latter is still liable for the whole obligation and such extension does not release him because as far
as a holder for value is concerned, he is a solidary co-debtor.87 In Clark v. Sellner,88 this Court held:
x x x The mere delay of the creditor in enforcing the guaranty has not by any means impaired his action against the
defendant. It should not be lost sight of that the defendant's signature on the note is an assurance to the creditor
that the collateral guaranty will remain good, and that otherwise, he, the defendant, will be personally responsible for
the payment.
True, that if the creditor had done any act whereby the guaranty was impaired in its value, or discharged, such an
act would have wholly or partially released the surety; but it must be born in mind that it is a recognized doctrine in
the matter of suretyship that with respect to the surety, the creditor is under no obligation to display any diligence in
the enforcement of his rights as a creditor. His mere inaction indulgence, passiveness, or delay in proceeding
against the principal debtor, or the fact that he did not enforce the guaranty or apply on the payment of such fundsM

as were available, constitute no defense at all for the surety, unless the contract expressly requires diligence and
promptness on the part of the creditor, which is not the case in the present action. There is in some decisions a
tendency toward holding that the creditor's laches may discharge the surety, meaning by laches a negligent
forbearance. This theory, however, is not generally accepted and the courts almost universally consider it essentially
inconsistent with the relation of the parties to the note. (21 R.C.L., 1032-1034)89
Neither can petitioner benefit from the alleged "insolvency" of Antonio Ang Eng Liong for want of clear and convincing
evidence proving the same. Assuming it to be true, he also did not exercise diligence in demanding security to protect himself
from the danger thereof in the event that he (petitioner) would eventually be sued by the bank. Further, whether petitioner
may or may not obtain security from Antonio Ang Eng Liong cannot in any manner affect his liability to the bank; the said
remedy is a matter of concern exclusively between themselves as accommodation party and accommodated party. The fact
that petitioner stands only as a surety in relation to Antonio Ang Eng Liong is immaterial to the claim of the bank and does not
a whit diminish nor defeat the rights of the latter as a holder for value. To sanction his theory is to give unwarranted legal
recognition to the patent absurdity of a situation where a co-maker, when sued on an instrument by a holder in due course
and for value, can escape liability by the convenient expedient of interposing the defense that he is a merely an
accommodation party.90
In sum, as regards the other issues and errors alleged in this petition, the Court notes that these were the very same
questions of fact raised on appeal before the Court of Appeals, although at times couched in different terms and explained
more lengthily in the petition. Suffice it to say that the same, being factual, have been satisfactorily passed upon and
considered both by the trial and appellate courts. It is doctrinal that only errors of law and not of fact are reviewable by this
Court in petitions for review on certiorari under Rule 45 of the Rules of Court. Save for the most cogent and compelling
reason, it is not our function under the rule to examine, evaluate or weigh the probative value of the evidence presented by
the parties all over again.91
WHEREFORE, the October 9, 2000 Decision and December 26, 2000 Resolution of the Court of Appeals in CA-G.R. CV No.
53413 are AFFIRMED. The petition is DENIED for lack of merit.
No costs.
SO ORDERED.
Puno, C.J., Chairperson, Sandoval-Gutierrez, Corona, Garcia, JJ., concur.

Footnotes
1 Penned by Associate Justice Martin S. Villarama, Jr., with Associate Justices Romeo J. Callejo, Sr. (now retired
Supreme Court Associate Justice) and Juan Q. Enriquez, Jr. concurring.
2 CA Rollo, p. 137.
3 Penned by Judge Romeo D. Marasigan.
4 Records, pp. 1-5.
5 Id. at 500, 563.
6 Id. at 501, 564.
7 Id. at 14-16.
8 Id. at 20-26.
9 Id. at 32-46.
10 Id. at 27-28.
11 Id. at 59-60.
12 Id. at 62.
13 Id. at 64-66.
14 Id. at 72-73.
15 Id. at 84-86.
16 Id. at 86.
17 Id. at 88-90, 144.
18 Id. at 91.
19 Id. at 92-94.

46 PROCLAIMING AND LAUNCHING A PROGRAM FOR THE EXPEDITIOUS DISPOSITION AND

PRIVATIZATION OF CERTAIN GOVERNMENT CORPORATIONS AND/OR THE ASSETS THEREOF AND
CREATING THE COMMITTEE ON PRIVATIZATION AND THE ASSET PRIVATIZATION TRUST.
47 Sec. 3, Art. II and Sec. 9, Art. III of Proclamation No. 50. In addition, the term "assets" is defined under Sec. 2 (1)
of the Proclamation as:
1) Assets shall include (i) receivables and other obligations due to government institutions under credit,
lease, indemnity and other agreements together with all collateral security and other rights (including but
not limited to rights in relation to shares of stock in corporations such as voting rights as well as rights to
appoint directors of corporations or otherwise engage in the management thereof) granted to such
institutions by contract or operation of law to secure or enforce the right of payment of such obligations; (ii)
real and personal property of any kind owned or held by the government institutions, including shares of
stock in corporations, obtained by such government institutions, whether directly or indirectly, through
foreclosure or other means, in settlement of such obligations; (iii) shares of stock and other investments
held by government institutions; and (iv) the government institutions themselves, whether as parent or
subsidiary corporations.
48 Sec. 23 of the Proclamation reads:
SEC. 23. Mechanics of Transfer of Assets. As soon as practicable, but not later than six months from the
date of the issuance of this Proclamation, the President, acting through the Committee on Privatization,
shall identify such assets of government institutions as appropriate for privatization and divestment in an
appropriate instrument describing such assets or identifying the loan or other transactions giving rise to the
receivables, obligations and other property constituting assets to be transferred.
The Committee shall, from the list of assets deemed appropriate for divestment, identify assets to be
transferred to the Trust or to be referred to the government institutions in an appropriate instrument, which
upon execution by the Committee shall constitute as the operative act of transfer or referral of the assets
described therein, and the Trust or the government institution may thereupon proceed with the divestment
in accordance with the provisions of this Proclamation and guidelines issued by the Committee.
Nothing in this Proclamation shall:
(1) Affect the rights of the National Government to pursue the enforcement of any claim of a
government institution in respect of or in relation to any asset transferred hereunder;
(2) In relation to any debt hereby assigned and transferred to the National Government of which a
government institution is the original creditor, give rise to any novation or requirement to obtain the
consent of the debtor; and
(3) In relation to any share of stock or any interest therein, give rise to any claim by any other
stockholder for enforcement of rights of pre-emption or of first refusal or other similar rights, the
provision of any law to the contrary notwithstanding.
Where the contractual rights of creditors of any of the government institutions involved may be affected by
the exercise of the Committee or the Trust of the powers granted herein, the Committee or the Trust shall
see to it that such rights are not impaired.

76 Sec. 1, Rule 34 of the 1997 Revised Rules on Civil Procedure states:

Section 1. Judgment on the pleadings. Where an answer fails to tender an issue, or otherwise admits the
material allegations of the adverse party's pleading, the court may, on motion of that party, direct judgment
on such pleading. However, in actions for declaration of nullity or annulment of marriage or for legal
separation, the material facts alleged in the complaint shall always be proved.
77 Sec. 119 of the NIL provides:
SECTION 119. Instrument; how discharged. A negotiable instrument is discharged:
(a.) By payment in due course by or on behalf of the principal debtor;
(b.) By payment in due course by the party accommodated, where the instrument is made or accepted for
his accommodation;
(c.) By the intentional cancellation thereof by the holder;
(d.) By any other act which will discharge a simple contract for the payment of money;
(e.) When the principal debtor becomes the holder of the instrument at or after maturity in his own right.
(Emphasis ours)