PHILIPPINE EDUCATION CO., INC., plaintiff-appellant, vs. MAURICIO A.

SORIANO, ET AL., defendants-appellees.

[G.R. No. L-22405. June 30, 1971.]
SYLLABUS
1. COMMERCIAL LAW; POSTAL LAW; NATURE OF POSTAL MONEY ORDERS. It
is not disputed that our postal statutes were patterned after similar 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).
2. ADMINISTRATIVE LAW; ID.; A LETTER OF THE DIRECTOR OF POSTS SETTING
CONDITIONS FOR THE REDEMPTION BY A BANK OF POSTAL MONEY ORDERS
RECEIVED BY IT FROM ITS DEPOSITORS IS NOT COVERED BY SEC. 79 (B) OF
THE REVISED ADMINISTRATIVE CODE, BUT BY SEC. 1190 OF THE SAME CODE.
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 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." . . .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 America to accept and pay postal
money orders presented its depositors, instead of the same being 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.
DECISION
DIZON, J p:
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 with address at
Lucena, Quezon. After the postal teller had made out money orders numbered
124685, 124687-124695, Montinola offered to pay for them with a private check. As
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 the 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 Blank 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
8-1/2% 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 8-1/2% per
annum from September 27, 1961 until fully paid; without
any pronouncement as to costs 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
complaints with costs, was rendered.
The first, second and fifth assignments of error discussed in appellant's brief are
related to each 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 endorsees, on the other.
It is not disputed that our postal statutes were patterned after similar 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 Status 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
suffered 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 America to accept and pay postal money orders
presented by its depositors, instead of the same being 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.
||| (Philippine Education Co., Inc. v. Soriano, G.R. No. L-22405, [June 30, 1971], 148-A
PHIL 521-527)
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.
SYLLABUS
1. COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS LAW; REQUIREMENTS FOR
NEGOTIABILITY; CERTIFICATE OF TIME DEPOSIT AS NEGOTIABLE
INSTRUMENT; CASE AT BAR. Section 1 of 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 referred to in the CTDs is no other than Mr. Angel de la Cruz. . . .
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.
2. ID.; ID.; DETERMINATION OF NEGOTIABILITY OR NON-NEGOTIABILITY OF
INSTRUMENT; RULES. On this score, the accepted rule is that the negotiability or
non-negotiability of an instrument is determined from the writing, that is, from the face
of the instrument itself. In the construction of a bill or note, the intention of the parties is
to control, if it can be legally ascertained. 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.
3. ID.; ID.; NEGOTIATION, DEFINED; HOLDER, DEFINED; IN CASE AT BAR,
DELIVERY OF INSTRUMENT CONSTITUTED THE TRANSFEREE A MERE
HOLDER FOR VALUE BY REASON OF HIS LIEN. Petitioner's insistence that the
CTDs were negotiated to it begs the question. Under the Negotiable Instruments Law,
an instrument is negotiated when it is transferred from one person to another in such a
manner as to constitute the transferee the holder thereof, and a holder may be the
payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof, 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.
4. ID.; CODE OF COMMERCE; RULES TO BE FOLLOWED IN CASE OF LOST
INSTRUMENT PAYABLE TO BEARER; MERELY PERMISSIVE AND NOT
MANDATORY. 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." The use of the word "may" in said provision shows that it is not
mandatory but discretionary on the part of the "dispossessed owner" to apply to the
judge or court of competent jurisdiction for the issuance of a duplicate of the lost
instrument. Where the provision reads "may," this word shows that it is not mandatory
but discretional. The word "may" is usually permissive, not mandatory. It is an auxiliary
verb indicating liberty, opportunity, permission and possibility.
5. CIVIL LAW; OBLIGATIONS AND CONTRACTS; INTERPRETATION OF OBSCURE
WORDS OR STIPULATIONS IN CONTRACT; SHALL NOT FAVOR THE PARTY WHO
CAUSE THE OBSCURITY; CASE AT BAR. 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.
6. ID.; ID.; ESTOPPEL; EFFECTS; CASE AT BAR. Any doubt as to whether the
CTDs were delivered as payment for the fuel products or as a security has been
dissipated and resolved in favor of the latter by petitioner's own authorized and
responsible representative himself. In a letter dated November 26, 1982 addressed to
respondent Security Bank, J. Q. Aranas, Jr., Caltex Credit Manager, wrote: " . . . These
certificates of deposit were negotiated to us by Mr. Angel dela Cruz to guarantee his
purchases of fuel products" (Emphasis ours.) This admission is conclusive upon
petitioner, its protestations notwithstanding. Under the doctrine of estoppel, an
admission or representation is rendered conclusive upon the person making it, and
cannot be denied or disproved as against the person relying thereon. A party may not
go back on his own acts and representations to the prejudice of the other party who
relied upon them.
7. ID.; ID.; CHARACTER OF TRANSACTION DETERMINED BY INTENTION OF THE
PARTIES. This disquisition in Integrated Realty Corporation, et al. vs. Philippine
National Bank, et al. 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 existence 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.'"
8. ID.; PLEDGE OF INCORPOREAL RIGHTS; REQUISITES; REQUIREMENT FOR
PLEDGE TO TAKE EFFECT AGAINST THIRD PERSONS; NOT OBSERVED IN
CASE AT BAR. 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, 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. 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.
9. ID.; ASSIGNMENT OF INCORPOREAL RIGHTS; REQUIREMENT FOR
ASSIGNMENT TO TAKE EFFECT AGAINST THIRD PERSONS; OBSERVED IN
CASE AT BAR. The assignment of the CTDs made by Angel de la Cruz in favor of
respondent bank was embodied in a public instrument. With regard to this other mode
of transfer, the Civil 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 lienholder 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.
10. REMEDIAL LAW; EVIDENCE; BURDEN OF PROOF AND PRESUMPTIONS;
ESTOPPEL IN PAIS; EFFECT. 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.
11. ID.; ID.; ID.; EVIDENCE WILLFULLY SUPPRESSED WOULD BE ADVERSE IF
PRODUCED; CASE AT BAR. When respondent bank, as defendant in the court
below, moved for a bill of particulars therein 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. 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.
12. ID.; CIVIL PROCEDURE; APPEALS; ISSUES NOT RAISED IN TRIAL COURT
CANNOT BE RAISED FOR THE FIRST TIME ON APPEAL; CASE AT BAR. Pretrial 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. 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.
DECISION
REGALADO, J p:
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
private respondent bank.
The undisputed background of this case, as found by the court a quo and adopted by
respondent court, appears of record:
"1. On various dates, defendant, a commercial banking institution,
through its Sucat Branch issued 280 certificates of time
deposit (CTDs) in favor of one Angel dela Cruz who
deposited with herein defendant the aggregate amount
of P1,120,000.00, as follows: (Joint Partial Stipulation of
Facts and Statement of Issues, Original Records, p.
207; Defendant's Exhibits 1 to 280):

CTD CTD
Dates Serial Nos. Quantity Amount
22 Feb. 82 90101 to 90120 20 P80,000
26 Feb. 82 74602 to 74691 90 360,000

2 Mar. 82 74701 to 74740 40 160,000

4 Mar. 82 90127 to 90146 20 80,000
5 Mar. 82 74797 to 94800 4 16,000
5 Mar. 82 89965 to 89986 22 88,000
5 Mar. 82 70147 to 90150 4 16,000
8 Mar. 82 90001 to 90020 20 80,000

"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 (dela 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).

9 Mar. 82 90023 to 90050 28 112,000

9 Mar. 82 89991 to 90000 10 40,000
9 Mar. 82 90251 to 90272 22 88,000

Total 280 P1,120,000
=== =======
"2. Angel dela Cruz delivered the said certificates of time deposit (CTDs)
to herein plaintiff in connection with his purchase 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 Manager, 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). LexLib

"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).

"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 preterminate 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' obligations
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).

AND TRUST COMPANY No. 90101

6778 Ayala Ave., Makati

Metro Manila, Philippines

"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).
SUCAT OFFICE P 4.000.00
CERTIFICATE OF DEPOSIT

"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.

Rate 16%

Date of Maturity FEB 23, 1984 FEB 22 1982, 19___

"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. cdrep
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

This is to Certify that BEARER has deposited in this Bank the sum of
PESOS: FOUR SECURITY BANK THOUSAND ONLY.
SUCAT OFFICE P4,000 & 00 CTS Pesos, Philippine
Currency, repayable to said depositor 731 days after
date, upon presentation and surrender of this certificate,
with interest at the rate of 16% per cent per annum.

(Sgd. Illegible (Sgd. Illegible)

_______________________ ______________________
AUTHORIZED SIGNATURES" 5
______________
Respondent court ruled that the CTDs in question are non-negotiable instruments,

rationalizing 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

(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 referred to in the CTDs is no other than Mr.
Angel de la Cruz. Cdpr
xxx xxx xxx

"Atty. Calida:
We disagree with these findings and conclusions, and hereby hold that the CTDs in
question are negotiable instruments. Section 1 of 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;

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:

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

in money;
a Yes, your Honor, and we have the record to show that Angel dela Cruz
was the one who cause (sic) the amount.
(c) Must be payable on demand, or at a fixed or determinable future time;

Atty. Calida:

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

xxx xxx xxx

witness:

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. LexLib

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

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"
(Underscoring 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 particulars 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 Integrated 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
existence 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 lienholder 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. LibLex
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 raise 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. 30 Questions 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." (Emphases ours.)

[G.R. No. 112576. October 26, 1994.]

METROPOLITAN BANK AND TRUST COMPANY, petitioner, vs. THE
HON. COURT OF APPEALS, RURAL BANK OF
PADRE GARCIA, INC. and ISABEL R. KATIGBAK,
respondents.

DECISION
ROMERO, J p:
This petition for certiorari seeks to annul the decision of
respondent Court of Appeals dated October 29, 1992 in CA GR
CV No. 26571 affirming the decision of the Regional Trial Court of
Lipa, Batangas Branch XIII for damages, and the Resolution dated
November 11, 1993 denying petitioner's motion for reconsideration of
the aforesaid decision.

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. LLjur
WHEREFORE, on the modified premises above set forth, the petition is DENIED and
the appealed decision is hereby AFFIRMED.
SO ORDERED.
||| (Caltex (Philippines), Inc. v. Court of Appeals, G.R. No. 97753, [August 10, 1992])

The case emanated from a dispute between the Rural

Bank of Padre Garcia, Inc. (RBPG) and Metropolitan Bank and Trust
Company (MBTC) relative to a credit memorandum dated April 5,
1982 from the Central Bank in the amount of P304,000.00 in favor of
RBPG.

The records show that Isabel Katigbak is the president

and director of RBPG, owning 65% of the shares thereof.
Metropolitan Bank and Trust Company (MBTC) is the rural bank's
depository bank, where Katigbak maintains current accounts with
MBTC's main office in Makati as well as its Lipa City branch. cdrep

On April 6, 1982, MBTC received from the Central Bank

a credit memo dated April 5, 1982 that its demand deposit account
was credited with P304,000.00 for the account of RBPG,
representing loans granted by the Central Bank to RBPG. On the
basis of said credit memo, Isabel Katigbak issued several checks

against its account with MBTC in the total amount of P300,000.00,

two (2) of which (Metrobank Check Nos. 0069 and 0070) were
payable to Dr. Felipe C. Roque and Mrs. Eliza Roque for P25,000.00
each. Said checks issued to Dr. and Mrs. Roque were deposited by
the Roques with the Philippine Banking Corporation, Novaliches
Branch in Quezon City. When these checks were forwarded to MBTC
on April 12, 1982 for payment (six (6) days from receipt of the Credit
Memo), the checks were returned by MBTC with the annotations
"DAIF TNC" (Drawn Against Insufficient Funds Try Next
Clearing) so they were redeposited on April 14, 1982. These were
however again dishonored and returned unpaid for the following
reasons: "DAIF TNC NO ADVICE FROM CB."

After the second dishonor of the two (2) checks, Dr.

Felipe Roque, a member of the Board of Directors of Philippine
Banking Corporation, allegedly went to the Office of Antonio katigbak,
an officer of RBPG, chiding him for the bouncing checks. In order to
appease the doctor, RBPG paid Dr. Roque P50,000.00 in cash to
replace the aforesaid checks.

On April 13, 1982, Isabel Katigbak who was in

Hongkong on a business-vacation trip together with her sons Alfredo
and Antonio, both of whom were also officers of RBPG, received
overseas phone calls from Mrs. Maris Katigbak-San Juan at her
residence in San Lorenzo Village, Makati, informing Isabel Katigbak
that a certain Mr. Rizal Dungo, Assistant Cashier of MBTC insisted on
talking to her (Mrs. San Juan), berating her about the checks which
bounced, saying "Nag-issue kayo ng tseke, wala namang pondo,"
even if it was explained to Mr. Dungo that Mrs. San Juan was not in
any way connected with RBPG.

Mrs. Katigbak testified that she informed Mrs. San Juan

to request defendant MBTC to check and verify the records regarding
the aforementioned Central Bank credit memo for P304,000.00 in
favor of RBPG as she was certain that the checks were sufficiently
covered by the CB credit memo as early as April 6, 1994, but the
following day, Mrs. San Juan received another insulting call from Mr.
Dungo ("Bakit kayo nag-issue ng tseke na wala namang pondo,

Three Hundred Thousand na.") 1 When Mrs. San Juan explained to

him the need to verify the records regarding the Central Bank memo,
he merely brushed it aside, telling her sarcastically that he was very
sure that no such credit memo existed. Mrs. San Juan was
constrained to place another long distance call to Mrs. Katigbak in
Hongkong that evening. Tense and angered, the Katigbaks had to cut
short their Hongkong stay with their respective families and flew back
to Manila, catching the first available flight on April 15, 1982.

Immediately upon arrival, Mrs. Katigbak called up

MBTC, through a Mr. Cochico, for a re-examination of the records of
MBTC regarding the Central Bank credit memo dated April 5, 1982
for P304,000.00. Mr. Dungo, to whom Cochico handed over the
phone, allegedly arrogantly said: "Bakit kayo magagalit, wala naman
kayong pondo?" These remarks allegedly so shocked Mrs. Katigbak
that her blood pressure rose to a dangerous level and she had to
undergo medical treatment at the Makati Medical Center for two (2)
days.

Metrobank not only dishonored the checks issued by

RBPG, the latter was issued four (4) debit memos representing
service and penalty charges for the returned checks.

RBPG and Isabel Katigbak filed Civil Case No. V-329 in

the RTC of Lipa, Batangas Branch XIII against the Metropolitan
Bank and Trust Company for damages on April 26, 1983.

The ultimate facts as alleged by the defendant MBTC in

its answer are as follows: that on April 6, 1982, its messenger, Elizer
Gonzales, received from the Central Bank several credit advices on
rural bank accounts, which included that of plaintiff RBPG in the
amount of P304,000.00; that due to the inadvertence of said
messenger, the credit advice issued in favor of plaintiff RBPG was

not delivered to the department in charge of processing the same;

consequently, when MBTC received from the clearing department the
checks in question, the stated balance in RBPG's account was only
P5,498.58 which excluded the unprocessed credit advice of
P304,000.00 resulting in the dishonor of the aforementioned checks;
that as regards the P304,000.00 which was a re-discounting loan
from the Central Bank, the same was credited only on April 15, 1982
after the Central Bank finally confirmed that a credit advice was
indeed issued in favor of RBPG; that after the confirmation, MBTC
credited the amount of the credit advice to plaintiff RBPG's account
and thru its officers, allegedly conveyed personally on two occasions
its apologies to plaintiffs to show that the bank and its officers acted
with no deliberate intent on their part to cause injury or damage to
plaintiffs, explaining the circumstances that gave rise to the bouncing
checks situation. Metrobank's negligence arising from their
messenger's misrouting of the credit advice resulting in the return of
the checks in question, despite daily reporting of credit memos and a
corresponding daily radio message confirmation, (as shown by
Exhibit "I," the Investigation Report of the bank's Mr. Valentino
Elevado) and Mr. Dungo's improper handling of clients led to the
messenger's dismissal from service and Mr. Dungo's transfer from
Metro Manila to Mindoro.

The threshold issue was whether or not, under the facts

and circumstances of the case, plaintiff may be allowed to recover
actual, moral and exemplary damages, including attorney's fees,
litigation expenses and the costs of the suit. On August 25, 1989, the
RTC of Lipa City rendered a decision 2 in favor of plaintiffs and
against the defendant MBTC, ordering the latter to:

1. pay plaintiff Isabel Katigbak P50,000.00 as temperate damages;

2. pay P500,000.00 as moral damages, considering that RBPG's credit

standing and business reputation were damaged by the wrongful acts of
defendant's employees, coupled with the rude treatment received by
Isabel Katigbak at the hands of Mr. Dungo, all of which impelled her to
seek medical treatment;

3. pay P100,000.00 as attorney's fees and litigation expenses; and

4. pay the costs of suit.

The lower court did not award actual damages in the

amount of P50,000.00 representing the amount of the two (2) checks
payable to Dr. Felipe C. Roque and Mrs. Elisa Roque for P25,000.00
each, as it found no showing that Mr. Antonio Katigbak who allegedly
paid the amount was actually reimbursed by plaintiff RBPG.
Moreover, the court held that no actual damages could have been
suffered by plaintiff RBPG because on April 15, 1982, the Central
Bank credit advice in the amount of P304,000 which included the two
(2) checks issued to the Roque spouses in the sum of P50,000.00
were already credited to the account of RBPG and the service, as
well as penalty charges, were all reversed.

MBTC appealed from the decision to the Court of

Appeals in CA GR CV No. 26571, alleging that the trial court erred
in awarding temperate and moral damages, as well as attorney's
fees, plus costs and expenses of litigation without factual or legal
basis therefor.

On October 29, 1992, the Court of Appeals rendered a

decision 3 affirming that of the trial court, except for the deletion of
the award of temperate damages, the reduction of moral damages
from P500,000.00 to P50,000.00 in favor of RBPG and P100,000.00
for Isabel Katigbak and P50,000.00, as attorney's fees. Plaintiffsappellees filed a motion for reconsideration of the decision,
questioning the deletion of the award of temperate damages and the
reduction of the award of moral damages and attorney's fees. The
motion was denied.

MBTC filed this petition, presenting the following issues

for resolution:

There is no merit in petitioner's argument that it should

not be considered negligent, much less be held liable for damages on
account of the inadvertence of its bank employee as Article 1173 of
the Civil Code only requires it to exercise the diligence of a good
pater familias.

1. whether or not private respondents RBPG and Isabel Rodriguez are

legally entitled to moral damages and attorney's fees, and.

2. assuming that they are so entitled, whether or not the amounts

awarded are excessive and unconscionable. prcd

The petition is devoid of merit.

The case at bench was instituted to seek damages

caused by the dishonor through negligence of respondent bank's
checks which were actually sufficiently funded, and the insults from
petitioner bank's officer directed against private respondent Isabel R.
Katigbak. The presence of malice and the evidence of besmirched
reputation or loss of credit and business standing, as well as a
reappraisal of its probative value, involves factual matters which,
having been already thoroughly discussed and analyzed in the courts
below, are no longer reviewable here. While this rule admits of
exceptions, this case does not fall under any of these.

As borne out by the records, the dishonoring of the

respondent's checks committed through negligence by the petitioner
bank on April 6, 1982 was rectified only on April 15, 1992 or nine (9)
days after receipt of the credit memo. Clearly, petitioner bank was
remiss in its duty and obligation to treat private respondents' account
with the highest degree of care, considering the fiduciary nature of
their relationship. The bank is under obligation to treat the accounts
of its depositors with meticulous care, whether such account consists
only of a few hundred pesos or of millions. It must bear the blame for
failing to discover the mistake of its employee despite the established
procedure requiring bank papers to pass through bank personnel
whose duty it is to check and countercheck them for possible errors.
4 Responsibility arising from negligence in the performance of every
kind of obligation is demandable. 5 While the bank's negligence may
not have been attended with malice and bad faith, nevertheless, it
caused serious anxiety, embarrassment and humiliation to private
respondents for which they are entitled to recover reasonable moral
damages. 6

As the records bear out, insult was added to injury by

petitioner bank's issuance of debit memoranda representing service
and penalty charges for the returned checks, not to mention the
insulting remarks from its Assistant Cashier.

In the case of Leopoldo Araneta v. Bank of America, 7

we held that:

"The financial credit of a

businessman is a prized and valuable asset,
it being a significant part of the foundation of
his business. Any adverse reflection thereon
constitutes some financial loss to him. As
stated in the case of Atlanta National Bank
vs. Davis, 96 Ga 334, 23 SE 190, citing 2
Morse Banks, Sec. 458, 'it can hardly be
possible that a customer's check can be
wrongfully refused payment without some
impeachment of his credit, which must in fact
be an actual injury, though he cannot, from
the nature of the case, furnish independent,
distinct proof thereof'."

It was established that when Mrs. Katigbak learned that

her checks were not being honored and Mr. Dungo repeatedly made
the insulting phone calls, her wounded feelings and the mental
anguish suffered by her caused her blood pressure to rise beyond
normal limits, necessitating medical attendance for two (2) days at a
hospital.

Moral and temperate damages which are not

susceptible of pecuniary estimation are not awarded to penalize the
petitioner but to compensate the respondents for injuries suffered as
a result of the former's fault and negligence, taking into account the
latter's credit and social standing in the banking community,
particularly since this is the very first time such humiliation has
befallen private respondents. The amount of such losses need not be
established with exactitude, precisely due to their nature. 11

The carelessness of petitioner bank, aggravated by the

lack of promptness in repairing the error and the arrogant attitude of
the bank officer handling the matter, justifies the grant of moral
damages, which are clearly not excessive and unconscionable. prLL

Moreover, considering the nature and extent of the

services rendered by private respondent's counsel, both in the trial
and appellate courts, the Court deems it just and equitable that
attorney's fees in the amount of P50,000.00 be awarded.

WHEREFORE, the decision of respondent Court of

Appeals is AFFIRMED in all respects.
The damage to private respondents' reputation and
social standing entitles them to moral damages. Moral damages
include physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social
humiliation and similar injury. 8 Temperate or moderate damages
which are more than nominal but less than compensatory damages,
may be recovered when the court finds that some pecuniary loss has
been suffered but its amount cannot, from the nature of the case, be
proved with certainty. 9 Temperate damages may be allowed in
cases where from the nature of the case, definite proof of pecuniary
loss cannot be adduced, although the court is convinced that there
has been such loss. The appellate court, however, justified its
deletion when MBTC reasoned out that the amount of P50,000.00 is
not part of the relief prayed for in the complaint, aside from the fact
that the amount allegedly suffered by Mrs. Katigbak is susceptible of
proof. 10

SO ORDERED.

||| (Metropolitan Bank and Trust Co. v. Court of Appeals, G.R. No. 112576, [October
26, 1994])
[G.R. No. 89252. May 24, 1993.]
RAUL SESBREO, petitioner, vs. HON. COURT OF APPEALS, DELTA MOTORS

CORPORATION and PILIPINAS BANK, respondents.

Salva, Villanueva & Associates for Delta Motors Corporation.
Reyes, Salazar & Associates for Pilipinas Bank.
SYLLABUS
1. MERCANTILE LAW; NEGOTIABLE INSTRUMENTS LAW; NEGOTIATION
ASSIGNMENT AND TRANSFER, DIFFERENTIATED. The negotiation of a
negotiable instrument must be distinguished from the assignment or transfer of an
instrument whether that be negotiable or non-negotiable. Only an instrument qualifying
as a negotiable instrument under the relevant statute may be negotiated either by
indorsement thereof coupled with delivery, or by delivery alone where the negotiable
instrument is in bearer form. A negotiable instrument may, however, instead of being
negotiated, also be assigned or transferred. The legal consequences of negotiation as
distinguished from assignment of a negotiable instrument are, of course, different. A
non-negotiable instrument may, obviously, not be negotiated; but it may be assigned or
transferred, absent an express prohibition against assignment or transfer written in the
face of the instrument.
2. ID.; ID.; PROMISSORY NOTE; NON-NEGOTIABILITY THEREOF DOES NOT
PROHIBIT ITS TRANSFERABILITY AND ASSIGNABILITY; CASE AT BAR. DMC
PN No. 2731, while marked "non-negotiable," was not at the same time stamped "nontransferrable" or "non-assignable." It contained no stipulation which prohibited
Philfinance from assigning or transferring, in whole or in part, that Note.
3. ID.; ID.; ID.; PARTIAL ASSIGNMENT OF A PROMISSORY NOTE IS LEGALLY
BINDING AND ENFORCEABLE. Delta adduced the "Letter of Agreement" which it
had entered into with Philfinance. We find nothing in his "Letter of Agreement" which
can be reasonably construed as a prohibition upon Philfinance assigning or
transferring all or part of DMC PN No. 2731, before the maturity thereof. It is scarcely
necessary to add that, even had this "Letter of Agreement" set forth an explicit
prohibition of transfer upon Philfinance, such a prohibition cannot be invoked against
an assignee or transferee of the Note who parted with valuable consideration in good
faith and without notice of such prohibition. It is not disputed that petitioner was such
an assignee or transferee. Our conclusion on this point is reinforced by the fact that
what Philfinance and Delta were doing by their exchange of promissory notes was this:
Delta invested, by making a money market placement with Philfinance, approximately
P4,600,000.00 on 10 April 1980; but promptly, on the same day, borrowed back the
bulk of that placement, i.e., P4,000,000.00, by issuing its two (2) promissory notes:
DMC PN No. 2730 and DMC PN No. 2731, both also dated 10 April 1980. Thus,
Philfinance was left with not P4,600,000.00 but only P600,000.00 in cash and the two
(2) Delta promissory notes.
4. ID.; ID.; ID.; ID.; CONSENT OF INVESTOR NOT NECESSARY FOR VALIDITY
AND ENFORCEABILITY OF ASSIGNMENT. Delta's complaint that the partial
assignment by Philfinance of DMC PN No. 2731 had been effected without the
consent of Delta, we note that such consent was not necessary for the validity and
enforceability of the assignment in favor of petitioner.
5. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONVENTIONAL SUBROGATION
MUST BE CLEARLY ESTABLISHED. Conventional subrogation, which in the first
place is never lightly inferred, must be clearly established by the unequivocal terms of
the substituting obligation or by the evident incompatibility of the new and old
obligations on every point. Nothing of the sort is present in the instant case.
6. MERCANTILE LAW; NEGOTIABLE INSTRUMENTS LAW; MONEY MARKET;
CONSTRUED. The money market is an 'impersonal market', free from personal
considerations.' The market mechanism is intended to provide quick mobility of money

and securities.' The impersonal character of the money market device overlooks the
individual or entities concerned. The issuer of a commercial paper in the money
market necessarily knows in advance that it would be expeditiously transacted and
transferred to any investor/lender without need of notice to said issuer. In practice, no
notification is given to the borrower or issuer of commercial paper of the sale or
transfer to the investor. . . . There is need to individuate a money market transaction, a
relatively novel institution in the Philippine commercial scene. It has been intended to
facilitate the flow and acquisition of capital on an impersonal basis. And as specifically
required by Presidential Decree No. 678, the investing public must be given adequate
and effective protection in availing of the credit of a borrower in the commercial paper
market." (Perez v. Court of Appeals, 127 SCRA 636 [1984]).
7. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONDENSATION; EFFECTS
THEREOF NOT AFFECTED BY SUBSEQUENT ASSIGNMENT OF CREDIT; CASE
AT BAR. We turn to Delta's arguments concerning alleged compensation or
offsetting between DMC PN No. 2731 and Philfinance PN No. 143-A. It is important to
note that at the time Philfinance sold part of its rights under DMC PN No. 2731 to
petitioner on 9 February 1981, no compensation had as yet taken place and indeed
none could have taken place. The essential requirements of compensation are listed in
the Civil Code. On 9 February 1981, neither DMC PN No. 2731 nor Philfinance PN No.
143-A was due. This was explicitly recognized by Delta in its 10 April 1980 "Letter of
Agreement" with Philfinance, where Delta acknowledged that the relevant promissory
notes were "to be off settled (sic) against [Philfinance] PN No. 143-A upon co-terminal
maturity." The record shows, however, that petitioner notified Delta of the fact of the
assignment to him only on 14 July 1981, that is, after the maturity not only of the
money market placement made by petitioner but also of both DMC PN No. 2731 and
Philfinance PN No. 143-A. In other words, petitioner notified Delta of his rights as
assignee after compensation had taken place by operation of law because the
offsetting instruments had both reached maturity. At the time that Delta was first put to
notice of the assignment in petitioner's favor on 14 July 1981, DMC PN No. 2731 had
already been discharged by compensation. It bears some emphasis that petitioner
could have notified Delta of the assignment in his favor as soon as that assignment or
sale was effected on 9 February 1981. He could have also notified Delta as soon as
his money market placement matured on 13 March 1981 without payment thereof
being made by Philfinance; at that time, compensation had yet to set in and discharge
DMC PN No. 2731. Again, petitioner could have notified Delta on 26 March 1981 when
petitioner received from Philfinance the Denominated Custodianship Receipt ("DCR")
No. 10805 issued by private respondent Pilipinas in favor of petitioner. Petitioner could,
in fine, have notified Delta at any time before the maturity date of DMC PN No. 2731.
Because petitioner failed to do so, and because the record is bare of any indication
that Philfinance had itself notified Delta of the assignment to petitioner, the Court is
compelled to uphold the defense of compensation raised by private respondent Delta.
Of course, Philfinance remains liable to petitioner under the terms of the assignment
made by Philfinance to petitioner.
8. ID.; ID.; ASSIGNMENT; VALID WHEN MADE BEFORE COMPENSATION TAKES
PLACE; CASE AT BAR. As noted, the assignment to petitioner was made on 9
February 1981 or from forty-nine (49) days before the "co-terminal maturity" date, that
is to say, before any compensation had taken place. Further, the assignment to
petitioner would have prevented compensation from taking place between Philfinance
and Delta, to the extent of P304,533.33, because upon execution of the assignment in
favor of petitioner, Philfinance and Delta would have ceased to be creditors and
debtors of each other in their own right to the extent of the amount assigned by

Philfinance to petitioner. Thus, we conclude that the assignment effected by

Philfinance in favor of petitioner was a valid one and that petitioner accordingly
became owner of DMC PN No. 2731 to the extent of the portion thereof assigned to
him.
9. ID.; ID.; ID.; RIGHTS OF THE ASSIGNEE, NOT GREATER THAN THE RIGHTS OF
THE ASSIGNOR. It is a firmly settled doctrine that the rights of an assignee are not
any greater than the rights of the assignor, since the assignee is merely substituted in
the place of the assignor and that the assignee acquires his rights subject to the
equities i.e., the defenses which the debtor could have set up against the original
assignor before notice of the assignment was given to the debtor. (Article 1285 of the
Civil Code)
10. ID.; ID.; SOLIDARY OBLIGATIONS; EXPRESS ASSUMPTION OF SOLIDARY
LIABILITY, REQUIRED; ABSENCE OF EVIDENCE TO SUPPORT ALLEGATION IN
CASE AT BAR. We find nothing in the DCR that establishes an obligation on the
part of Pilipinas to pay petitioner the amount of P307,933.33 nor any assumption of
liability in solidum with Philfinance and Delta under DMC PN No. 2731. We find
nothing written in printers ink on the DCR which could reasonably be read as
converting Pilipinas into an obligor under the terms of DMC PN No. 2731 assigned to
petitioner, either upon maturity thereof or at any other time. We note that both in his
complaint and in his testimony before the trial court, petitioner referred merely to the
obligation of private respondent Pilipinas to effect physical delivery to him of DMC PN
No. 2731. Accordingly, petitioner's theory that Pilipinas had assumed a solidary
obligation to pay the amount represented by the portion of the Note assigned to him by
Philfinance, appears to be a new theory constructed only after the trial court had ruled
against him. The solidary liability that petitioner seeks to impute to Pilipinas cannot,
however, be lightly inferred. Under Article 1207 of the Civil Code, "there is a solidary
liability only when the obligation expressly so states, or when the law or the nature of
the obligation requires solidarity." The record here exhibits no express assumption of
solidary liability vis-a-vis petitioner, on the part of Pilipinas. Petitioner has not pointed
us to any law which imposed such liability upon Pilipinas nor has petitioner argued that
the very nature of the custodianship assumed by private respondent Pilipinas
necessarily implies solidary liability under the securities, custody of which was taken
by Pilipinas. Accordingly, we are unable to hold Pilipinas solidarily liable with
Philfinance and private respondent Delta under DMC PN No. 2731.
11. ID.; ID.; DEPOSIT; ACT OF DESIGNATING PILIPINAS AS CUSTODIAN OR
DEPOSITORY BANK; CASE AT BAR. We believe and so hold that a contract of
deposit was constituted by the act of Philfinance in designating Pilipinas as custodian
or depositary bank. The depositor was initially Philfinance; the obligation of the
depositary was owed, however, to petitioner Sesbreo as beneficiary of the
custodianship or depositary agreement. We do not consider that this is a simple case
of a stipulation pour autrui. The custodianship or depositary agreement was
established as an integral part of the money market transaction entered into by
petitioner with Philfinance. Petitioner bought a portion of DMC PN No. 2731;
Philfinance as assignor-vendor deposited that Note with Pilipinas in order that the thing
sold would be placed outside the control of the vendor. Indeed, the constituting of the
depositary or custodianship agreement was equivalent to constructive delivery of the
Note (to the extent it had been sold or assigned to petitioner) to petitioner. It will be
seen that custodianship agreements are designed to facilitate transactions in the
money market by providing a basis for confidence on the part of the investors or
placers that the instruments bought by them are effectively taken out of the pocket, as

it were, of the vendors and placed safely beyond their reach, that those instruments
will be there available to the placers of funds should they have need of them.
12. ID.; ID.; ID.; ID.; DEPOSITARY OBLIGED TO RETURN THE SECURITY OR
THING DEPOSITED UPON DEMAND OF DEPOSITOR; RATIONALE. The
depositary in a contract of deposit is obliged to return the security or the thing
deposited upon demand of the depositor (or, in the present case, of the beneficiary) of
the contract, even though a term for such return may have been established in the said
contract. Accordingly, any stipulation in the contract of deposit or custodianship that
runs counter to the fundamental purpose of that agreement or which was not brought
to the notice of and accepted by the placer-beneficiary, cannot be enforced as against
such beneficiary-placer. We believe that the position taken above is supported by
considerations of public policy. If there is any party that needs the equalizing protection
of the law in money market transactions, it is the members of the general public who
place their savings in such market for the purpose of generating interest revenues. The
custodian bank, if it is not related either in terms of equity ownership or management
control to the borrower of the funds, or the commercial paper dealer, is normally a
preferred or traditional banker of such borrower or dealer (here, Philfinance). The
custodian bank would have every incentive to protect the interest of its client the
borrower or dealer as against the placer of funds. The providers of such funds must be
safeguarded from the impact of stipulations privately made between the borrowers or
dealers and the custodian banks, and disclosed to fund-providers only after trouble
has erupted.
13. ID.; ID.; ID.; ID.; ID.; DEPOSITARY LIABLE FOR DAMAGES FOR BREACH OF
DUTY; CASE AT BAR. In the case at bar, the custodian-depositary bank Pilipinas
refused to deliver the security deposited with it when petitioner first demanded physical
delivery thereof on 2 April 1981. We must again note, in this connection, that on 2 April
1981, DMC PN No. 2731 had not yet matured and therefore, compensation or
offsetting against Philfinance PN No. 143-A had not yet taken place. Instead of
complying with the demand of petitioner, Pilipinas purported to require and await the
instructions of Philfinance, in obvious contravention of its undertaking under the DCR
to effect physical delivery of the Note upon receipt of "written instructions" from
petitioner Sesbreo. The ostensible term written into the DCR (i.e., "should this [DCR]
remain outstanding in your favor thirty [30] days after its maturity") was not a defense
against petitioner's demand for physical surrender of the Note on at least three
grounds: firstly, such term was never brought to the attention of petitioner Sesbreo at
the time the money market placement with Philfinance was made; secondly, such term
runs counter to the very purpose of the custodianship or depositary agreement as an
integral part of a money market transaction; and thirdly, it is inconsistent with the
provisions of Article 1988 of the Civil Code noted above. Indeed, in principle, petitioner
became entitled to demand physical delivery of the Note held by Pilipinas as soon as
petitioner's money market placement matured on 13 March 1981 without payment
from Philfinance. We conclude, therefore, that private respondent Pilipinas must
respond to petitioner for damages sustained by him arising out of its breach of duty. By
failing to deliver the Note to the petitioner as depositor-beneficiary of the thing
deposited, Pilipinas effectively and unlawfully deprived petitioner of the Note deposited
with it. Whether or not Pilipinas itself benefited from such conversion or unlawful
deprivation inflicted upon petitioner, is of no moment for present purposes.' Prima
facie, the damages suffered by petitioner consisted of P304,533.33, the portion of the
DMC PN No. 2731 assigned to petitioner but lost by him by reason of discharge of the
Note by compensation, plus legal interest of six percent (6%) per annum counting from
14 March 1981.

14. MERCANTILE LAW; CORPORATION LAW; PIERCING OF CORPORATE

ENTITIES; ABSENCE OF EVIDENCE TO JUSTIFY DISREGARD OF SEPARATE
CORPORATE PERSONALITIES; CASE AT BAR. It is not disputed that Philfinance
and private respondents Delta and Pilipinas have been organized as separate
corporate entities. Petitioner asks us to pierce their separate corporate entities, but has
been able only to cite the presence of a common Director Mr. Ricardo Silverio, Sr.,
sitting on the Boards of Directors of all three (3) companies. Petitioner has neither
alleged nor proved that one or another of the three (3) concededly related companies
used the other two (2) as mere alter egos or that the corporate affairs of the other two
(2) were administered and managed for the benefit of one. There is simply not enough
evidence of record to justify disregarding the separate corporate personalities of Delta
and Pilipinas and to hold them liable for any assumed or undetermined liability of
Philfinance to petitioner.
DECISION
FELICIANO, J p:
On 9 February 1981, petitioner Raul Sesbreo made a money market placement in the
amount of P300,000.00 with the Philippine Underwriters Finance Corporation
("Philfinance"), Cebu Branch; the placement, with a term of thirty-two (32) days, would
mature on 13 March 1981. Philfinance, also on 9 February 1981, issued the following
documents to petitioner:
(a) the Certificate of Confirmation of Sale, "without recourse," No. 20496
of one (1) Delta Motors Corporation Promissory Note
("DMC PN") No. 2731 for a term of 32 days at 17.0 %
per annum;

insufficient funds.
On 26 March 1981, Philfinance delivered to petitioner the DCR No. 10805 issued by
private respondent Pilipinas Bank ("Pilipinas"). It read as follows:
"PILIPINAS BANKMakati Stock Exchange Bldg.,Ayala Avenue, Makati,
Metro Manila

TO Raul Sesbreo

April 6, 1981MATURITY DATE.

N
O.
10805

(b) the Certificate of Securities Delivery Receipt No. 16587 indicating the
sale of DMC PN No. 2731 to petitioner, with the notation
that the said security was in custodianship of Pilipinas
Bank, as per Denominated Custodian Receipt ("DCR")
No. 10805 dated 9 February 1981; and

DENOMINATED

CUSTODIAN

RECEIPT

(c) post-dated checks payable on 13 March 1981 (i.e., the maturity date
of petitioner's investment), with petitioner as payee,
Philfinance as drawer, and Insular Bank of Asia and
America as drawee, in the total amount of P304,533.33.

'This confirms that as a duly Custodian Bank, and upon instruction of

PHILIPPINE
UNDERWRITERS
FINANCE
CORPORATION, we have in our custody the following
securities to you [sic] the extent herein indicated.

On 13 March 1981, petitioner sought to encash the post-dated checks issued by

Philfinance. However, the checks were dishonored for having been drawn against

SERIAL MAT. FACE ISSUED REGISTERED AMOUNTNUMBER DATE VALU

E BY HOLDER
PAYEE

2731 4-6-81 2,300,833.34 DMC PHIL. 307,933.33 UNDERWRITERS FINANC

E
CORP.

We further certify that these securities may be inspected by you or your

duly authorized representative at any time during
regular banking hours.

Upon your written instructions we shall undertake physical delivery of the

above securities fully assigned to you should this
Denominated
Custodianship
Receipt
remain
outstanding in your favor thirty (30) days after its
maturity.'

ure)" 1

On 2 April 1981, petitioner approached Ms. Elizabeth de Villa of private respondent

Pilipinas, Makati Branch, and handed to her a demand letter informing the bank that
his placement with Philfinance in the amount reflected in the DCR No. 10805 had
remained unpaid and outstanding, and that he in effect was asking for the physical
delivery of the underlying promissory note. Petitioner then examined the original of the
DMC PN No. 2731 and found: that the security had been issued on 10 April 1980; that
it would mature on 6 April 1981; that it had a face value of P2,300,833.33, with
Philfinance as "payee" and private respondent Delta Motors Corporation ("Delta") as
"maker;" and that on face of the promissory note was stamped "NON-NEGOTIABLE."
Pilipinas did not deliver the Note, nor any certificate of participation in respect thereof,
to petitioner.
Petitioner later made similar demand letters, dated 3 July 1981 and 3 August 1981, 2
again asking private respondent Pilipinas for physical delivery of the original of DMC
PN No. 2731. Pilipinas allegedly referred all of petitioner's demand letters to
Philfinance for written instructions, as had been supposedly agreed upon in a
"Securities Custodianship Agreement" between Pilipinas and Philfinance. Philfinance

never did provide the appropriate instructions; Pilipinas never released DMC PN No.
2731, nor any other instrument in respect thereof, to petitioner.
Petitioner also made a written demand on 14 July 1981 3 upon private respondent
Delta for the partial satisfaction of DMC PN No. 2731, explaining that Philfinance, as
payee thereof, had assigned to him said Note to the extent of P307,933.33. Delta,
however, denied any liability to petitioner on the promissory note, and explained in turn
that it had previously agreed with Philfinance to offset its DMC PN No. 2731 (along
with DMC PN No. 2730) against Philfinance PN No. 143-A issued in favor of Delta.
In the meantime, Philfinance, on 18 June 1981, was placed under the joint
management of the Securities and Exchange Commission ("SEC") and the Central
Bank. Pilipinas delivered to the SEC DMC PN No. 2731, which to date apparently
remains in the custody of the SEC. 4
As petitioner had failed to collect his investment and interest thereon, he filed on 28
September 1982 an action for damages with the Regional Trial Court ("RTC") of Cebu
City, Branch 21, against private respondents Delta and Pilipinas. 5 The trial court, in a
decision dated 5 August 1987, dismissed the complaint and counterclaims for lack of
merit and for lack of cause of action, with costs against petitioner.
Petitioner appealed to respondent Court of Appeals in C.A.-G.R. CV No. 15195. In a
Decision dated 21 March 1989, the Court of Appeals denied the appeal and held; 6
"Be that as it may, from the evidence on record, if there is anyone that
appears liable for the travails of plaintiff-appellant, it is
Philfinance. As correctly observed by the trial court:

'This act of Philfinance in

accepting the investment of plaintiff and
charging it against DMC P.N. No. 2731
when its entire face value was already
obligated or earmarked for set-off or
compensation is difficult to comprehend
and may have been motivated with bad
faith. Philfinance, therefore, is solely and
legally obligated to return the investment
of plaintiff, together with its earnings, and
to answer all the damages plaintiff has
suffered incident thereto. Unfortunately for
plaintiff, Philfinance was not impleaded as
one of the defendants in this case at bar;
hence, this Court is without jurisdiction to
pronounce judgment against it. (p. 11,
Decision).'

WHEREFORE, finding no reversible error in the decision appealed from, the same is
hereby affirmed in toto. Cost against plaintiff-appellant."
Petitioner moved for reconsideration of the above Decision, without success.
Hence, this Petition for Review on Certiorari.
After consideration of the allegations contained and issues raised in the pleadings, the
Court resolved to give due course to the petition and required the parties to file their
respective memoranda. 7
Petitioner reiterates the assignment of errors he directed at the trial court decision, and
contends that respondent Court of Appeals gravely erred: (i) in concluding that he
cannot recover from private respondent Delta his assigned portion of DMC PN No.
2731; (ii) in failing to hold private respondent Pilipinas solidarily liable on the DMC PN
No. 2731 in view of the provisions stipulated in DCR No. 10805 issued in favor of
petitioner; and (iii) in refusing to pierce the veil of corporate entity between Philfinance,
and private respondents Delta and Pilipinas, considering that the three (3) entities
belong to the "Silverio Group of Companies" under the leadership of Mr. Ricardo
Silverio, Sr. 8
There are at least two (2) sets of relationships which we need to address: firstly, the
relationship of petitioner vis-a-vis Delta; secondly, the relationship of petitioner in
respect of Pilipinas. Actually, of course, there is a third relationship that is of critical
importance: the relationship of petitioner and Philfinance. However, since Philfinance
has not been impleaded in this case, neither the trial court nor the Court of Appeals
acquired jurisdiction over the person of Philfinance. It is, consequently, not necessary
for present purposes to deal with this third relationship, except to the extent it
necessarily impinges upon or intersects the first and second relationships.
I
We consider first the relationship between petitioner and Delta.
The Court of Appeals in effect held that petitioner acquired no rights vis-a-vis Delta in
respect of the Delta promissory note (DMC PN No. 2731) which Philfinance sold
"without recourse" to petitioner, to the extent of P304,533.33. The Court of Appeals
said on this point:
"Nor could plaintiff-appellant have acquired any right over DMC P.N. No.
2731 as the same is `non-negotiable' as stamped on its
face (Exhibit `6'), negotiation being defined as the
transfer of an instrument from one person to another so
as to constitute the transferee the holder of the
instrument (Sec. 30, Negotiable Instruments Law). A
person not a holder cannot sue on the instrument in his
own name and cannot demand or receive payment
(Section 51, id.)." 9

Petitioner admits that DMC PN No. 2731 was non-negotiable but contends that that
Note had been validly transferred, in part, to him by assignment and that as a
result of such transfer, Delta as debtor-maker of the Note, was obligated to pay
petitioner the portion of that Note assigned to him by the payee Philfinance.
LLjur
Delta, however, disputes petitioner's contention and argues:
(1) that DMC PN No. 2731 was not intended to be negotiated or
otherwise transferred by Philfinance as manifested by
the word "non-negotiable" stamp across the face of the
Note 10 and because maker Delta and payee
Philfinance intended that this Note would be offset
against the outstanding obligation of Philfinance
represented by Philfinance PN No. 143-A issued to
Delta as payee;

(2) that the assignment of DMC PN No. 2731 by Philfinance was without
Delta's consent, if not against its instructions; and

(3) assuming (arguendo only) that the partial assignment in favor of

petitioner was valid, petitioner took that Note subject to
the defenses available to Delta, in particular, the
offsetting of DMC PN No. 2731 against Philfinance PN
No. 143-A. 11

We consider Delta's arguments seriatim.

Firstly, it is important to bear in mind that the negotiation of a negotiable instrument
must be distinguished from the assignment or transfer of an instrument whether that
be negotiable or non-negotiable. Only an instrument qualifying as a negotiable
instrument under the relevant statute may be negotiated either by indorsement thereof
coupled with delivery, or by delivery alone where the negotiable instrument is in bearer
form. A negotiable instrument may, however, instead of being negotiated, also be
assigned or transferred. The legal consequences of negotiation as distinguished from
assignment of a negotiable instrument are, of course, different. A non-negotiable
instrument may, obviously, not be negotiated; but it may be assigned or transferred,
absent an express prohibition against assignment or transfer written in the face of the

instrument:
"The words 'not negotiable,' stamped on the face of the bill of lading, did
not destroy its assignability, but the sole effect was to
exempt the bill from the statutory provisions relative
thereto, and a bill, though not negotiable, may be
transferred by assignment; the assignee taking subject
to the equities between the original parties." 12
(Emphasis added)

As agreed upon, we enclose our non-negotiable Promissory Note No.

2730 and 2731 for P2,000,000.00 each, dated April 10,
1980, to be offsetted [sic] against your PN No. 143-A
upon co-terminal maturity.

Please deliver the proceeds of our PNs to our representative, Mr. Eric
Castillo.
DMC PN No. 2731, while marked "non-negotiable," was not at the same time stamped
"non-transferrable" or "non-assignable." It contained no stipulation which prohibited
Philfinance from assigning or transferring, in whole or in part, that Note.
Delta adduced the "Letter of Agreement" which it had entered into with Philfinance and
which should be quoted in full:
10, 1980

Philippine Underwriters Finance Corp.Benavidez St., MakatiMetro

Manila.

V
ery
Truly
Your
s,

(
Sgd.)Florencio
B.
Biagan
Senior
Vice
President" 13

Attention: Mr. Alfredo O. Banaria SVP-Treasurer

GENTLEMEN:

This refers to our outstanding placement of P4,601,666.67 as evidenced

by your Promissory Note No. 143-A, dated April 10,
1980, to mature on April 6, 1981.

We find nothing in his "Letter of Agreement" which can be reasonably construed as a

prohibition upon Philfinance assigning or transferring all or part of DMC PN No. 2731,
before the maturity thereof. It is scarcely necessary to add that, even had this "Letter
of Agreement" set forth an explicit prohibition of transfer upon Philfinance, such a
prohibition cannot be invoked against an assignee or transferee of the Note who
parted with valuable consideration in good faith and without notice of such prohibition.
It is not disputed that petitioner was such an assignee or transferee. Our conclusion on
this point is reinforced by the fact that what Philfinance and Delta were doing by their
exchange of promissory notes was this: Delta invested, by making a money market
placement with Philfinance, approximately P4,600,000.00 on 10 April 1980; but
promptly, on the same day, borrowed back the bulk of that placement, i.e.,
P4,000,000.00, by issuing its two (2) promissory notes: DMC PN No. 2730 and DMC
PN No. 2731, both also dated 10 April 1980. Thus, Philfinance was left with not
P4,600,000.00 but only P600,000.00 in cash and the two (2) Delta promissory notes.

Apropos Delta's complaint that the partial assignment by Philfinance of DMC PN No.
2731 had been effected without the consent of Delta, we note that such consent was
not necessary for the validity and enforceability of the assignment in favor of petitioner.
14 Delta's argument that Philfinance's sale or assignment of part of its rights to DMC
PN No. 2731 constituted conventional subrogation, which required its (Delta's)
consent, is quite mistaken. Conventional subrogation, which in the first place is never
lightly inferred, 15 must be clearly established by the unequivocal terms of the
substituting obligation or by the evident incompatibility of the new and old obligations
on every point. 16 Nothing of the sort is present in the instant case.
It is in fact difficult to be impressed with Delta's complaint, since it released its DMC
PN No. 2731 to Philfinance, an entity engaged in the business of buying and selling
debt instruments and other securities, and more generally, in money market
transactions. In Perez v. Court of Appeals, 1 7 the Court, speaking through Mme.
Justice Herrera, made the following important statement: Cdpr
"There is another aspect to this case. What is involved here is a money
market transaction. As defined by Lawrence Smith `the
money market is a market dealing in standardized shortterm credit instruments (involving large amounts) where
lenders and borrowers do not deal directly with each
other but through a middle man or dealer in the open
market.' It involves 'commercial papers' which are
instruments 'evidencing indebtedness of any person or
entity . . ., which are issued, endorsed, sold or
transferred or in any manner conveyed to another
person or entity, with or without recourse'. The
fundamental function of the money market device in its
operation is to match and bring together in a most
impersonal manner both the 'fund users' and the 'fund
suppliers.' The money market is an 'impersonal market',
free from personal considerations.' The market
mechanism is intended to provide quick mobility of
money and securities.'

The impersonal character of the money market device overlooks the

individual or entities concerned. The issuer of a
commercial paper in the money market necessarily
knows in advance that it would be expeditiously
transacted and transferred to any investor/lender
without need of notice to said issuer. In practice, no
notification is given to the borrower or issuer of
commercial paper of the sale or transfer to the investor.

xxx xxx xxx

There is need to individuate a money market transaction, a relatively

novel institution in the Philippine commercial scene. It
has been intended to facilitate the flow and acquisition
of capital on an impersonal basis. And as specifically
required by Presidential Decree No. 678, the investing
public must be given adequate and effective protection
in availing of the credit of a borrower in the commercial
paper market." 18 (Citations omitted; emphasis
supplied)

We turn to Delta's arguments concerning alleged compensation or offsetting between

DMC PN No. 2731 and Philfinance PN No. 143-A. It is important to note that at the
time Philfinance sold part of its rights under DMC PN No. 2731 to petitioner on 9
February 1981, no compensation had as yet taken place and indeed none could have
taken place. The essential requirements of compensation are listed in the Civil Code
as follows:
"Art. 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at
the same time a principal creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the
same qualify if the latter has been stated;

(3) That the two debts are due;

(4) That they be liquidated and demandable;

If the creditor communicated the cession to him but the debtor did not
consent thereto, the latter may set up the compensation
of debts previous to the cession, but not of subsequent
ones.

(5) That over neither of them there be any retention or controversy,

commenced by third persons and communicated in due
time to the debtor." (Emphasis supplied)
If the assignment is made without the knowledge of the debtor, he may
set up the compensation of all credits prior to the same
and also later ones until he had knowledge of the
assignment." (Emphasis supplied). llcd
On 9 February 1981, neither DMC PN No. 2731 nor Philfinance PN No. 143-A was
due. This was explicitly recognized by Delta in its 10 April 1980 "Letter of
Agreement" with Philfinance, where Delta acknowledged that the relevant
promissory notes were "to be offsetted (sic) against [Philfinance] PN No. 143-A
upon co-terminal maturity."
As noted, the assignment to petitioner was made on 9 February 1981 or from fortynine (49) days before the "co-terminal maturity" date, that is to say, before any
compensation had taken place. Further, the assignment to petitioner would have
prevented compensation from taking place between Philfinance and Delta, to the
extent of P304,533.33, because upon execution of the assignment in favor of
petitioner, Philfinance and Delta would have ceased to be creditors and debtors of
each other in their own right to the extent of the amount assigned by Philfinance to
petitioner. Thus, we conclude that the assignment effected by Philfinance in favor of
petitioner was a valid one and that petitioner accordingly became owner of DMC PN
No. 2731 to the extent of the portion thereof assigned to him.
The record shows, however, that petitioner notified Delta of the fact of the assignment
to him only on 14 July 1981, 19 that is, after the maturity not only of the money market
placement made by petitioner but also of both DMC PN No. 2731 and Philfinance PN
No. 143-A. In other words, petitioner notified Delta of his rights as assignee after
compensation had taken place by operation of law because the offsetting instruments
had both reached maturity. It is a firmly settled doctrine that the rights of an assignee
are not any greater than the rights of the assignor, since the assignee is merely
substituted in the place of the assignor 20 and that the assignee acquires his rights
subject to the equities i.e., the defenses which the debtor could have set up
against the original assignor before notice of the assignment was given to the debtor.
Article 1285 of the Civil Code provides that:
"ART. 1285. The debtor who has consented to the assignment of rights
made by a creditor in favor of a third person, cannot set
up against the assignee the compensation which would
pertain to him against the assignor, unless the assignor
was notified by the debtor at the time he gave his
consent, that he reserved his right to the compensation.

Article 1626 of the same Code states that: "the debtor who, before having
knowledge of the assignment, pays his creditor shall be released from the
obligation." In Sison v. Yap-Tico, 21 the Court explained that:
"[n]o man is bound to remain a debtor; he may pay to him with whom he
contracted to pay; and if he pay before notice that his
debt has been assigned, the law holds him exonerated,
for the reason that it is the duty of the person who has
acquired a title by transfer to demand payment of the
debt, to give his debtor notice." 22

At the time that Delta was first put to notice of the assignment in petitioner's favor
on 14 July 1981, DMC PN No. 2731 had already been discharged by
compensation. Since the assignor Philfinance could not have then compelled
payment anew by Delta of DMC PN No. 2731, petitioner, as assignee of
Philfinance, is similarly disabled from collecting from Delta the portion of the
Note assigned to him.
It bears some emphasis that petitioner could have notified Delta of the assignment in
his favor as soon as that assignment or sale was effected on 9 February 1981. He
could have also notified Delta as soon as his money market placement matured on 13
March 1981 without payment thereof being made by Philfinance; at that time,
compensation had yet to set in and discharge DMC PN No. 2731. Again, petitioner
could have notified Delta on 26 March 1981 when petitioner received from Philfinance
the Denominated Custodianship Receipt ("DCR") No. 10805 issued by private
respondent Pilipinas in favor of petitioner. Petitioner could, in fine, have notified Delta
at any time before the maturity date of DMC PN No. 2731. Because petitioner failed to

do so, and because the record is bare of any indication that Philfinance had itself
notified Delta of the assignment to petitioner, the Court is compelled to uphold the
defense of compensation raised by private respondent Delta. Of course, Philfinance
remains liable to petitioner under the terms of the assignment made by Philfinance to
petitioner.
II
We turn now to the relationship between petitioner and private respondent Pilipinas.
Petitioner contends that Pilipinas became solidarily liable with Philfinance and Delta
when Pilipinas issued DCR No. 10805 with the following words:
"Upon your written instructions, we [Pilipinas] shall undertake physical
delivery of the above securities fully assigned to you "
23

The Court is not persuaded. We find nothing in the DCR that establishes an obligation
on the part of Pilipinas to pay petitioner the amount of P307,933.33 nor any
assumption of liability in solidum with Philfinance and Delta under DMC PN No. 2731.
We read the DCR as a confirmation on the part of Pilipinas that:
(1) it has in its custody, as duly constituted custodian bank, DMC PN No.
2731 of a certain face value, to mature on 6 April 1981
and payable to the order of Philfinance;

(2) Pilipinas was, from and after said date of the assignment by
Philfinance to petitioner (9 February 1981), holding that
Note on behalf and for the benefit of petitioner, at least
to the extent it had been assigned to petitioner by payee
Philfinance; 24

(3) petitioner may inspect the Note either "personally or by authorized

representative", at any time during regular bank hours;
and

(4) upon written instructions of petitioner, Pilipinas would physically

deliver the DMC PN No. 2731 (or a participation therein

to the extent of P307,933.33) "should this Denominated
Custodianship
Receipt
remain
outstanding
in
[petitioner's] favor thirty (30) days after its maturity."

Thus, we find nothing written in printers ink on the DCR which could reasonably be
read as converting Pilipinas into an obligor under the terms of DMC PN No. 2731
assigned to petitioner, either upon maturity thereof or at any other time. We note that
both in his complaint and in his testimony before the trial court, petitioner referred
merely to the obligation of private respondent Pilipinas to effect physical delivery to
him of DMC PN No. 2731. 25 Accordingly, petitioner's theory that Pilipinas had
assumed a solidary obligation to pay the amount represented by the portion of the
Note assigned to him by Philfinance, appears to be a new theory constructed only after
the trial court had ruled against him. The solidary liability that petitioner seeks to
impute to Pilipinas cannot, however, be lightly inferred. Under Article 1207 of the Civil
Code, "there is a solidary liability only when the obligation expressly so states, or when
the law or the nature of the obligation requires solidarity." The record here exhibits no
express assumption of solidary liability vis-a-vis petitioner, on the part of Pilipinas.
Petitioner has not pointed us to any law which imposed such liability upon Pilipinas nor
has petitioner argued that the very nature of the custodianship assumed by private
respondent Pilipinas necessarily implies solidary liability under the securities, custody
of which was taken by Pilipinas. Accordingly, we are unable to hold Pilipinas solidarily
liable with Philfinance and private respondent Delta under DMC PN No. 2731.
We do not, however, mean to suggest that Pilipinas has no responsibility and liability in
respect of petitioner under the terms of the DCR. To the contrary, we find, after
prolonged analysis and deliberation, that private respondent Pilipinas had breached its
undertaking under the DCR to petitioner Sesbreo. llcd
We believe and so hold that a contract of deposit was constituted by the act of
Philfinance in designating Pilipinas as custodian or depositary bank. The depositor
was initially Philfinance; the obligation of the depositary was owed, however, to
petitioner Sesbreo as beneficiary of the custodianship or depositary agreement. We
do not consider that this is a simple case of a stipulation pour autrui. The
custodianship or depositary agreement was established as an integral part of the
money market transaction entered into by petitioner with Philfinance. Petitioner bought
a portion of DMC PN No. 2731; Philfinance as assignor-vendor deposited that Note
with Pilipinas in order that the thing sold would be placed outside the control of the
vendor. Indeed, the constituting of the depositary or custodianship agreement was
equivalent to constructive delivery of the Note (to the extent it had been sold or
assigned to petitioner) to petitioner. It will be seen that custodianship agreements are
designed to facilitate transactions in the money market by providing a basis for
confidence on the part of the investors or placers that the instruments bought by them
are effectively taken out of the pocket, as it were, of the vendors and placed safely
beyond their reach, that those instruments will be there available to the placers of
funds should they have need of them. The depositary in a contract of deposit is obliged
to return the security or the thing deposited upon demand of the depositor (or, in the

present case, of the beneficiary) of the contract, even though a term for such return
may have been established in the said contract. 26 Accordingly, any stipulation in the
contract of deposit or custodianship that runs counter to the fundamental purpose of
that agreement or which was not brought to the notice of and accepted by the placerbeneficiary, cannot be enforced as against such beneficiary-placer.
We believe that the position taken above is supported by considerations of public
policy. If there is any party that needs the equalizing protection of the law in money
market transactions, it is the members of the general public who place their savings in
such market for the purpose of generating interest revenues. 27 The custodian bank, if
it is not related either in terms of equity ownership or management control to the
borrower of the funds, or the commercial paper dealer, is normally a preferred or
traditional banker of such borrower or dealer (here, Philfinance). The custodian bank
would have every incentive to protect the interest of its client the borrower or dealer as
against the placer of funds. The providers of such funds must be safeguarded from the
impact of stipulations privately made between the borrowers or dealers and the
custodian banks, and disclosed to fund-providers only after trouble has erupted.
In the case at bar, the custodian-depositary bank Pilipinas refused to deliver the
security deposited with it when petitioner first demanded physical delivery thereof on 2
April 1981. We must again note, in this connection, that on 2 April 1981, DMC PN No.
2731 had not yet matured and therefore, compensation or offsetting against
Philfinance PN No. 143-A had not yet taken place. Instead of complying with the
demand of petitioner, Pilipinas purported to require and await the instructions of
Philfinance, in obvious contravention of its undertaking under the DCR to effect
physical delivery of the Note upon receipt of "written instructions" from petitioner
Sesbreo. The ostensible term written into the DCR (i.e., "should this [DCR] remain
outstanding in your favor thirty [30] days after its maturity") was not a defense against
petitioner's demand for physical surrender of the Note on at least three grounds: firstly,
such term was never brought to the attention of petitioner Sesbreo at the time the
money market placement with Philfinance was made; secondly, such term runs
counter to the very purpose of the custodianship or depositary agreement as an
integral part of a money market transaction; and thirdly, it is inconsistent with the
provisions of Article 1988 of the Civil Code noted above. Indeed, in principle, petitioner
became entitled to demand physical delivery of the Note held by Pilipinas as soon as
petitioner's money market placement matured on 13 March 1981 without payment
from Philfinance.
We conclude, therefore, that private respondent Pilipinas must respond to petitioner for
damages sustained by him arising out of its breach of duty. By failing to deliver the
Note to the petitioner as depositor-beneficiary of the thing deposited, Pilipinas
effectively and unlawfully deprived petitioner of the Note deposited with it. Whether or
not Pilipinas itself benefited from such conversion or unlawful deprivation inflicted upon
petitioner, is of no moment for present purposes.' Prima facie, the damages suffered
by petitioner consisted of P304,533.33, the portion of the DMC PN No. 2731 assigned
to petitioner but lost by him by reason of discharge of the Note by compensation, plus
legal interest of six percent (6%) per annum counting from 14 March 1981.
The conclusion we have here reached is, of course, without prejudice to such right of
reimbursement as Pilipinas may have vis-a-vis Philfinance.
III
The third principal contention of petitioner that Philfinance and private respondents
Delta and Pilipinas should be treated as one corporate entity need not detain us for

long. LLphil
In the first place, as already noted, jurisdiction over the person of Philfinance was
never acquired either by the trial court nor by the respondent Court of appeals.
Petitioner similarly did not seek to implead Philfinance in the Petition before us.
Secondly, it is not disputed that Philfinance and private respondents Delta and
Pilipinas have been organized as separate corporate entities. Petitioner asks us to
pierce their separate corporate entities, but has been able only to cite the presence of
a common Director Mr. Ricardo Silverio, Sr., sitting on the Boards of Directors of all
three (3) companies. Petitioner has neither alleged nor proved that one or another of
the three (3) concededly related companies used the other two (2) as mere alter egos
or that the corporate affairs of the other two (2) were administered and managed for
the benefit of one. There is simply not enough evidence of record to justify
disregarding the separate corporate personalities of Delta and Pilipinas and to hold
them liable for any assumed or undetermined liability of Philfinance to petitioner. 28
WHEREFORE, for all the foregoing, the Decision and Resolution of the Court of
Appeals in C.A.-G.R. CV No. 15195 dated 21 March 1989 and 17 July 1989,
respectively, are hereby MODIFIED and SET ASIDE, to the extent that such Decision
and Resolution had dismissed petitioner's complaint against Pilipinas Bank. Private
respondent Pilipinas Bank is hereby ORDERED to indemnify petitioner for damages in
the amount of P304,533.33, plus legal interest thereon at the rate of six percent (6%)
per annum counted from 2 April 1981. As so modified, the Decision and Resolution of
the Court of Appeals are hereby AFFIRMED. No pronouncement as to costs.
SO ORDERED.
||| (Sesbreo v. Court of Appeals, G.R. No. 89252, [May 24, 1993])
[G.R. No. 113236. March 5, 2001.]
FIRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES, petitioner, vs.
COURT OF APPEALS and LUZON DEVELOPMENT BANK, respondents.
DECISION
QUISUMBING, J p:
This petition assails the decision 1 dated December 29, 1993 of the Court of Appeals
in CA-G.R. CV No. 29546, which affirmed the judgment 2 of the Regional Trial Court of
Pasay City, Branch 113 in Civil Case No. PQ-7854-P, dismissing Firestone's complaint
for damages.
The facts of this case, adopted by the CA and based on findings by the trial court, are
as follows:
. . . [D]efendant is a banking corporation. It operates under a certificate of
authority issued by the Central Bank of the Philippines,
and among its activities, accepts savings and time
deposits. Said defendant had as one of its clientdepositors the Fojas-Arca Enterprises Company
("Fojas-Arca" for brevity). Fojas-Arca maintaining a
special savings account with the defendant, the latter
authorized and allowed withdrawals of funds therefrom
through the medium of special withdrawal slips. These
are supplied by the defendant to Fojas-Arca.

In January 1978, plaintiff and Fojas-Arca entered into a "Franchised

Dealership Agreement" (Exh. B) whereby Fojas-Arca
has the privilege to purchase on credit and sell plaintiff's
products.

July 15, 1978 42128 940,190.00

Aug. 15, 1978 42129 880,000.00

On January 14, 1978 up to May 15, 1978. Pursuant to the aforesaid
Agreement, Fojas-Arca purchased on credit Firestone
products from plaintiff with a total amount of
P4,896,000.00. In payment of these purchases, FojasArca delivered to plaintiff six (6) special withdrawal slips
drawn upon the defendant. In turn, these were
deposited by the plaintiff with its current account with
the Citibank. All of them were honored and paid by the
defendant. This singular circumstance made plaintiff
believe [sic] and relied [sic] on the fact that the
succeeding special withdrawal slips drawn upon the
defendant would be equally sufficiently funded. Relying
on such confidence and belief and as a direct
consequence thereof, plaintiff extended to Fojas-Arca
other purchases on credit of its products.

On the following dates Fojas-Arca purchased Firestone products on

credit (Exh. M, I, J, K) and delivered to plaintiff the
corresponding special withdrawal slips in payment
thereof drawn upon the defendant, to wit:

Sep. 15, 1978 42130 981,500.00

These were likewise deposited by plaintiff in its current account with

Citibank and in turn the Citibank forwarded it [sic] to the
defendant for payment and collection, as it had done in
respect of the previous special withdrawal slips. Out of
these four (4) withdrawal slips only withdrawal slip No.
42130 in the amount of P981,500.00 was honored and
paid by the defendant in October 1978. Because of the
absence for a long period coupled with the fact that
defendant honored and paid withdrawal slips No. 42128
dated July 15, 1978, in the amount of P981,500.00
plaintiff's belief was all the more strengthened that the
other withdrawal slips were likewise sufficiently funded,
and that it had received full value and payment of FojasArca's credit purchased then outstanding at the time.
On this basis, plaintiff was induced to continue
extending to Fojas-Arca further purchase on credit of its
products as per agreement (Exh. "B").

DATE WITHDRAWAL AMOUNT

SLIP NO.

June 15, 1978 42127 P1,198,092.80

However, on December 14, 1978, plaintiff was informed by Citibank that

special withdrawal slips No. 42127 dated June 15, 1978
for P1,198,092.80 and No. 42129 dated August 15,
1978 for P880,000.00 were dishonored and not paid for
the reason 'NO ARRANGEMENT.' As a consequence,
the Citibank debited plaintiff's account for the total sum
of P2,078,092.80 representing the aggregate amount of
the above-two special withdrawal slips. Under such
situation, plaintiff averred that the pecuniary losses it
suffered is caused by and directly attributable to

defendant's gross negligence. ISADET

On September 25, 1979, counsel of plaintiff served a written demand

upon the defendant for the satisfaction of the damages
suffered by it. And due to defendant's refusal to pay
plaintiff's claim, plaintiff has been constrained to file this
complaint, thereby compelling plaintiff to incur litigation
expenses and attorney's fees which amount are
recoverable from the defendant.

Controverting the foregoing asseverations of plaintiff, defendant

asserted, inter alia that the transactions mentioned by
plaintiff are that of plaintiff and Fojas-Arca only, [in]
which defendant is not involved; Vehemently, it was
denied by defendant that the special withdrawal slips
were honored and treated as if it were checks, the truth
being that when the special withdrawal slips were
received by defendant, it only verified whether or not the
signatures therein were authentic, and whether or not
the deposit level in the passbook concurred with the
savings ledger, and whether or not the deposit is
sufficient to cover the withdrawal; if plaintiff treated the
special withdrawal slips paid by Fojas-Arca as checks
then plaintiff has to blame itself for being grossly
negligent in treating the withdrawal slips as check when
it is clearly stated therein that the withdrawal slips are
non-negotiable; that defendant is not a privy to any of
the transactions between Fojas-Arca and plaintiff for
which reason defendant is not duty bound to notify nor
give notice of anything to plaintiff. If at first defendant
had given notice to plaintiff it is merely an extension of
usual bank courtesy to a prospective client; that
defendant is only dealing with its depositor Fojas-Arca
and not the plaintiff. In summation, defendant
categorically stated that plaintiff has no cause of action
against it (pp. 1-3, Dec.; pp. 368-370, id). 3

Petitioner's complaint 4 for a sum of money and damages with the Regional Trial Court

of Pasay City, Branch 113, docketed as Civil Case No. 29546, was dismissed together
with the counterclaim of defendant.
Petitioner appealed the decision to the Court of Appeals. It averred that respondent
Luzon Development Bank was liable for damages under Article 2176 5 in relation to
Articles 19 6 and 20 7 of the Civil Code. As noted by the CA, petitioner alleged the
following tortious acts on the part of private respondent: 1) the acceptance and
payment of the special withdrawal slips without the presentation of the depositor's
passbook thereby giving the impression that the withdrawal slips are instruments
payable upon presentment; 2) giving the special withdrawal slips the general
appearance of checks; and 3) the failure of respondent bank to seasonably warn
petitioner that it would not honor two of the four special withdrawal slips.
On December 29, 1993, the Court of Appeals promulgated its assailed decision. It
denied the appeal and affirmed the judgment of the trial court. According to the
appellate court, respondent bank notified the depositor to present the passbook
whenever it received a collection note from another bank, belying petitioner's claim
that respondent bank was negligent in not requiring a passbook under the subject
transaction. The appellate court also found that the special withdrawal slips in question
were not purposely given the appearance of checks, contrary to petitioner's assertions,
and thus should not have been mistaken for checks. Lastly, the appellate court ruled
that the respondent bank was under no obligation to inform petitioner of the dishonor
of the special withdrawal slips, for to do so would have been a violation of the law on
the secrecy of bank deposits.
Hence, the instant petition, alleging the following assignment of error:
25. The CA grievously erred in holding that the [Luzon Development]
Bank was free from any fault or
negligence regarding the dishonor, or in
failing to give fair and timely advice of the
dishonor, of the two intermediate LDB
Slips and in failing to award damages to
Firestone pursuant to Article 2176 of the
New Civil Code. 8

The issue for our consideration is whether or not respondent bank should be held
liable for damages suffered by petitioner, due to its allegedly belated notice of nonpayment of the subject withdrawal slips.
The initial transaction in this case was between petitioner and Fojas-Arca, whereby the
latter purchased tires from the former with special withdrawal slips drawn upon FojasArca's special savings account with respondent bank. Petitioner in turn deposited
these withdrawal slips with Citibank. The latter credited the same to petitioner's current
account, then presented the slips for payment to respondent bank. It was at this point
that the bone of contention arose.
On December 14, 1978, Citibank informed petitioner that special withdrawal slips Nos.
42127 and 42129 dated June 15, 1978 and August 15, 1978, respectively, were
refused payment by respondent bank due to insufficiency of Fojas-Arca's funds on
deposit. That information came about six months from the time Fojas-Arca purchased
tires from petitioner using the subject withdrawal slips. Citibank then debited the

amount of these withdrawal slips from petitioner's account, causing the alleged
pecuniary damage subject of petitioner's cause of action.
At the outset, we note that petitioner admits that the withdrawal slips in question were
non-negotiable. 9 Hence, the rules governing the giving of immediate notice of
dishonor of negotiable instruments do not apply in this case. 10 Petitioner itself
concedes this point. 11 Thus, respondent bank was under no obligation to give
immediate notice that it would not make payment on the subject withdrawal slips.
Citibank should have known that withdrawal slips were not negotiable instruments. It
could not expect these slips to be treated as checks by other entities. Payment or
notice of dishonor from respondent bank could not be expected immediately, in
contrast to the situation involving checks.
In the case at bar, it appears that Citibank, with the knowledge that respondent Luzon
Development Bank, had honored and paid the previous withdrawal slips, automatically
credited petitioner's current account with the amount of the subject withdrawal slips,
then merely waited for the same to be honored and paid by respondent bank. It
presumed that the withdrawal slips were "good."
It bears stressing that Citibank could not have missed the non-negotiable nature of the
withdrawal slips. The essence of negotiability which characterizes a negotiable paper
as a credit instrument lies in its freedom to circulate freely as a substitute for money.
12 The withdrawal slips in question lacked this character.
A bank is under obligation to treat the accounts of its depositors with meticulous care,
whether such account consists only of a few hundred pesos or of millions of pesos. 13
The fact that the other withdrawal slips were honored and paid by respondent bank
was no license for Citibank to presume that subsequent slips would be honored and
paid immediately. By doing so, it failed in its fiduciary duty to treat the accounts of its
clients with the highest degree of care. 14
In the ordinary and usual course of banking operations, current account deposits are
accepted by the bank on the basis of deposit slips prepared and signed by the
depositor, or the latter's agent or representative, who indicates therein the current
account number to which the deposit is to be credited, the name of the depositor or
current account holder, the date of the deposit, and the amount of the deposit either in
cash or in check. 15
The withdrawal slips deposited with petitioner's current account with Citibank were not
checks, as petitioner admits. Citibank was not bound to accept the withdrawal slips as
a valid mode of deposit. But having erroneously accepted them as such, Citibank
and petitioner as account-holder must bear the risks attendant to the acceptance of
these instruments. Petitioner and Citibank could not now shift the risk and hold private
respondent liable for their admitted mistake.
WHEREFORE, the petition is DENIED and the decision of the Court of Appeals in CAG.R. CV No. 29546 is AFFIRMED. Costs against petitioner.
SO ORDERED.
||| (Firestone Tire & Rubber Company of the Phil. v. Court of Appeals, G.R. No.
113236, [March 5, 2001], 406 PHIL 143-152)
[G.R. No. L-2516. September 25, 1950.]
ANG TEK LIAN, petitioner, vs. THE COURT OF APPEALS, respondent.

Laurel, Sabido, Almario & Laurel, for petitioner.

Solicitor General Felix Bautista Angelo and Solicitor Manuel Tomacruz, for respondent.
SYLLABUS
1. CRIMINAL LAW; ESTAFA"; ISSUING CHECK WITH
INSUFFICIENT BANK DEPOSIT TO COVER THE SAME. One who issues a
check payable to cash to accomplish deceit and knows that at the time had no
sufficient deposit with the bank to cover the amount of the check and without
informing the payee of such circumstances, is guilty of estafa as provided by
article 315, paragraph (d), subsection 2 of the Revised Penal Code.
2. NEGOTIABLE INSTRUMENTS; CHECK DRAWN PAYABLE TO
THE ORDER OF "CASH"; INDORSEMENT. A check payable to the order of
"cash to the person presenting it for payment without the drawer's indorsement.
DECISION
BENGZON, J p:
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 Exhibit 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
the 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 bank 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. Da 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 the 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 failing 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.

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 of certiorari is denied and the
decision of the Court of Appeals is hereby affirmed, with costs.

"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 the holder
give satisfactory proof of his identity . . .." (Paton's
Digest, Vol. I, p. 1089.)

||| (Ang Tek Lian v. CA, G.R. No. L-2516, [September 25, 1950], 87 PHIL 383-387)