[G.R. No. 117660.
December 18, 2000] damages, plus attorneys fees equal to 10% of the total amounts due,
AGRO CONGLOMERATES, INC. and MARIO SORIANO, petitioners,
vs. THE HON. COURT OF APPEALS and REGENT SAVINGS and
LOAN BANK, INC., respondents.
DECISION
QUISUMBING, J.:
This is a petition for review challenging the decision[1] dated October
17, 1994 of the Court of Appeals in CA-G.R. No. 32933, which affirmed
in toto the judgment of the Manila Regional Trial Court, Branch 27, in
consolidated Cases Nos. 86-37374, 86-37388, 86-37543.
This petition springs from three complaints for sums of money filed by
respondent bank against herein petitioners. In the decision of the Court
of Appeals, petitioners were ordered to pay respondent bank, as
follows:
Wherefore, judgment is hereby rendered in favor of plaintiff and
against defendants, as follows:
1) In Civil Case No. 86-37374, defendants [petitioners, herein] are
ordered jointly and severally, to pay to plaintiff the amount of
P78,212.29, together with interest and service charge thereon, at the
rates of 14% and 3% per annum, respectively, computed from
November 10, 1982, until fully paid, plus stipulated penalty on unpaid
principal at the rate of 6% per annum, computed from November 10,
1982, plus 15% as liquidated damage plus 10% of the total amount
due, as attorneys fees, plus costs;
2) In Civil Case No. 86-37388, defendant is ordered to pay plaintiff the
amount of P632,911.39, together with interest and service charge
thereon at the rate of 14% and 3% per annum, respectively, computed
from January 15, 1983, until fully paid, plus stipulated penalty on
unpaid principal at the rate of 6% per annum, computed from January
15, 1983, plus liquidated damages equivalent to 15% of the total
amount due, plus attorneys fees equivalent to 10% of the total amount
due, plus costs; and
3) In Civil Case No. 86-37543, defendant is ordered to pay plaintiff, on
the first cause of action, the amount of P510,000.00, together with
interest and service charge thereon, at the rates of 14% and 2% per
annum, respectively, computed from March 13, 1983, until fully paid,
plus a penalty of 6% per annum, based on the outstanding principal of
the loan, computed from March 13, 1983, until fully paid; and on the
second cause of action, the amount of P494,936.71, together with
interest and service charge thereon at the rates of 14% and 2%, per
annum, respectively, computed from March 30, 1983, until fully paid,
plus a penalty charge of 6% per annum, based on the unpaid principal,
computed from March 30, 1983, until fully paid, plus (on both causes of
action) an amount equal to 15% of the total amounts due, as liquidated
plus costs.[2]
Based on the records, the following are the factual antecedents.
On July 17, 1982, petitioner Agro Conglomerates, Inc. as vendor, sold
two parcels of land to Wonderland Food Industries, Inc. In their
Memorandum of Agreement,[3] the parties covenanted that the
purchase price of Five Million (P5,000,000.00) Pesos would be settled
by the vendee, under the following terms and conditions: (1) One
Million (P1,000,000.00) Pesos shall be paid in cash upon the signing of
the agreement; (2) Two Million (P2,000,000.00) Pesos worth of common
shares of stock of the Wonderland Food Industries, Inc.; and (3) The
balance of P2,000,000.00 shall be paid in four equal installments, the
first installment falling due, 180 days after the signing of the
agreement and every six months thereafter, with an interest rate of
18% per annum, to be advanced by the vendee upon the signing of the
agreement.
On July 19, 1982, the vendor, the vendee, and the respondent bank
Regent Savings & Loan Bank (formerly Summa Savings & Loan
Association), executed an Addendum[4]to the previous Memorandum
of Agreement. The new arrangement pertained to the revision of
settlement of the initial payments of P1,000,000.00 and prepaid
interest of P360,000.00 (18% of P2,000,000.00) as follows:
Whereas, the parties have agreed to qualify the stipulated terms for
the payment of the said ONE MILLION THREE HUNDRED SIXTY
THOUSAND (P1,360,000.00) PESOS.
WHEREFORE, in consideration of the mutual covenant and agreement
of the parties, they do further covenant and agree as follows:
1. That the VENDEE instead of paying the amount of ONE MILLION
THREE HUNDRED SIXTY THOUSAND (P1,360,000.00) PESOS in cash,
hereby authorizes the VENDOR to obtain a loan from Summa Savings
and Loan Association with office address at Valenzuela, Metro Manila,
being represented herein by its President, Mr. Jaime Cario and referred
to hereafter as Financier; in the amount of ONE MILLION THREE
HUNDRED SIXTY THOUSAND (P1,360,000.00)PESOS, plus interest
thereon at such rate as the VENDEE and the Financier may agree,
which amount shall cover the ONE MILLION (P1,000,000.00) PESOS
cash which was agreed to be paid upon signing of the Memorandum of
Agreement, plus 18% interest on the balance of two million pesos
stipulated upon in Item No. 1(c) of the said agreement; provided
however, that said loan shall be made for and in the name of the
VENDOR.
2. The VENDEE also agrees that the full amount of ONE MILLION THREE
HUNDRED SIXTY THOUSAND (P1,360,000.00) PESOS be paid directly to
the VENDOR; however, the VENDEE hereby undertakes to pay the full
1
amount of the said loan to the Financier on such terms and conditions The evidences, however, disclose that Wonderland did not comply with
agreed upon by the Financier and the VENDOR, it being understood its obligation under said Addendum (Exh. S) as the agreement to turn
that while the loan will be secured from and in the name of the over the farmland to it, did not materialize (57 tsn, May 29, 1990), and
VENDOR, the VENDEE will be the one liable to pay the entire proceeds there was, actually no sale of the land (58 tsn, ibid). Hence,
thereof including interest and other charges.[5] Wonderland is not answerable. And since the loans obtained under the
four promissory notes (Exhs. A, C, G, and E) have not been paid,
This addendum was not notarized. despite opportunities given by plaintiff to defendants to make
payments, it stands to reason that defendants are liable to pay their
Consequently, petitioner Mario Soriano signed as maker several obligations thereunder to plaintiff. In fact, defendants failed to file a
promissory notes,[6] payable to the respondent bank. Thereafter, the third-party complaint against Wonderland, which shows the weakness
bank released the proceeds of the loan to petitioners. However, of its stand that Wonderland is answerable to make said payments.[7]
petitioners failed to meet their obligations as they fell due. During that
time, the bank was experiencing financial turmoil and was under the Petitioners appealed to the Court of Appeals. The trial courts decision
supervision of the Central Bank. Central Bank examiner and liquidator was affirmed by the appellate court.
Cordula de Jesus, endorsed the subject promissory notes to the banks
counsel for collection. The bank gave petitioners opportunity to settle Hence, this recourse, wherein petitioners raise the sole issue of:
their account by extending payment due dates. Mario Soriano
manifested his intention to re-structure the loan, yet did not show up WHETHER THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE
nor submit his formal written request. ADDENDUM, SIGNED BY THE PETITIONERS, RESPONDENT BANK AND
WONDERLAND INC., CONSTITUTES A NOVATION OF THE CONTRACT BY
Respondent bank filed three separate complaints before the Regional SUBSTITUTION OF DEBTOR, WHICH EXEMPTS THE PETITIONERS FROM
Trial Court of Manila for Collection of Sums of money. The ANY LIABILITY OVER THE PROMISSORY NOTES.
corresponding case histories are illustrated in the table below:
Revealed by the facts on record, the conflict among the parties started
Date of Loan Amount Payment Payment from a contract of sale of a farmland between petitioners and
Due Date Extension Wonderland Food Industries, Inc. As found by the trial court, no such
Dates sale materialized.
Civil Case 86-37374
August 12, 1982 P78,212.29 Nov. 10, 1982 Feb. 8, 1983 A contract of sale is a reciprocal transaction. The obligation or promise
May 9, 1983 of each party is the cause or consideration for the obligation or
Aug. 7, 1983 promise by the other. The vendee is obliged to pay the price, while the
vendor must deliver actual possession of the land. In the instant case
Civil Case 86-37388 the original plan was that the initial payments would be paid in cash.
July 19, 1982 P632,911.3 Jan. 15, 1983 May 16, 1983 Subsequently, the parties (with the participation of respondent bank)
9 Aug. 14, 1983 executed an addendum providing instead, that the petitioners would
secure a loan in the name of Agro Conglomerates Inc. for the total
Civil Case 86-37543 amount of the initial payments, while the settlement of said loan would
September 14, 1982 P510,000.0 March 13, June 11, 1983 be assumed by Wonderland. Thereafter, petitioner Soriano signed
0 1983 Sept. 9, 1983 several promissory notes and received the proceeds in behalf of
petitioner-company.
October 1, 1982 June 28, 1983
P494,936.7 March 30, Sept. 26, 1983 By this time, we note a subsidiary contract of suretyship had taken
1 1983 effect since petitioners signed the promissory notes as maker and
accommodation party for the benefit of Wonderland. Petitioners
In their answer, petitioners interposed the defense of novation and became liable as accommodation party. An accommodation party is a
insisted there was a valid substitution of debtor. They alleged that the person who has signed the instrument as maker, acceptor, or indorser,
addendum specifically states that although the promissory notes were without receiving value therefor, and for the purpose of lending his
in their names, Wonderland shall be responsible for the payment name to some other person and is liable on the instrument to a holder
thereof. for value, notwithstanding such holder at the time of taking the
The trial court held that petitioners are liable, to wit: instrument knew (the signatory) to be an accommodation party.[8] He
has the right, after paying the holder, to obtain reimbursement from

2
the party accommodated, since the relation between them has in
effect become one of principal and surety, the accommodation party
being the surety.[9] Suretyship is defined as the relation which exists
where one person has undertaken an obligation and another person is
also under the obligation or other duty to the obligee, who is entitled to
but one performance, and as between the two who are bound, one
rather than the other should perform.[10] The suretys liability to the
creditor or promisee of the principal is said to be direct, primary and
absolute; in other words, he is directly and equally bound with the
principal.[11] And the creditor may proceed against any one of the
solidary debtors.[12]
We do not give credence to petitioners assertion that, as provided by
the addendum, their obligation to pay the promissory notes was
novated by substitution of a new debtor, Wonderland. Contrary to
petitioners contention, the attendant facts herein do not make a case
of novation.
Novation is the extinguishment of an obligation by the substitution or
change of the obligation by a subsequent one which extinguishes or
modifies the first, either by changing the object or principal conditions,
or by substituting another in place of the debtor, or by subrogating a
third person in the rights of the creditor.[13] In order that a novation
can take place, the concurrence of the following requisites[14] are
indispensable:
1) There must be a previous valid obligation;
2) There must be an agreement of the parties concerned to a new
contract;
3) There must be the extinguishment of the old contract; and
4) There must be the validity of the new contract.
In the instant case, the first requisite for a valid novation is lacking.
There was no novation by substitution of debtor because there was no
prior obligation which was substituted by a new contract. It will be
noted that the promissory notes, which bound the petitioners to pay,
were executed after the addendum. The addendum modified the
contract of sale, not the stipulations in the promissory notes which
pertain to the surety contract. At this instance, Wonderland apparently
assured the payment of future debts to be incurred by the petitioners.
Consequently, only a contract of surety arose. It was wrong for
petitioners to presume a novation had taken place. The well-settled
rule is that novation is never presumed,[15] it must be clearly and
unequivocally shown.[16]
As it turned out, the contract of surety between Wonderland and the
petitioners was extinguished by the rescission of the contract of sale of
the farmland. With the rescission, there was confusion or merger in the
persons of the principal obligor and the surety, namely the petitioners
herein. The addendum which was dependent thereon likewise lost its
efficacy.
It is true that the basic and fundamental rule in the interpretation of
contract is that, if the terms thereof are clear and leave no doubt as to
the intention of the contracting parties, the literal meaning shall
control. However, in order to judge the intention of the parties, their
contemporaneous and subsequent acts should be considered.[17]
The contract of sale between Wonderland and petitioners did not
materialize. But it was admitted that petitioners received the proceeds
of the promissory notes obtained from respondent bank.
Sec. 22 of the Civil Code provides:
Every person who through an act of performance by another, or any
other means, acquires or comes into possession of something at the
expense of the latter without just or legal ground, shall return the same
to him.
Petitioners had no legal or just ground to retain the proceeds of the
loan at the expense of private respondent. Neither could petitioners
excuse themselves and hold Wonderland still liable to pay the loan
upon the rescission of their sales contract. If petitioners sustained
damages as a result of the rescission, they should have impleaded
Wonderland and asked damages. The non-inclusion of a necessary
party does not prevent the court from proceeding in the action, and the
judgment rendered therein shall be without prejudice to the rights of
such necessary party.[18] But respondent appellate court did not err in
holding that petitioners are duty-bound under the law to pay the claims
of respondent bank from whom they had obtained the loan proceeds.
G.R. No. 188363 February 27, 2013
ALLIED BANKING CORPORATION, Petitioner, vs. BANK OF THE
PHILIPPINE ISLANDS, Respondents.
DECISION
VILLARAMA, JR., J.:
A collecting bank is guilty of contributory negligence when it accepted
for deposit a post-dated check notwithstanding that said check had
been cleared by the drawee bank which failed to return the check
within the 24-hour reglementary period.
Petitioner Allied Banking Corporation appeals the Decision1 dated
March 19, 2009 of the Court of Appeals (CA) in CA-G.R. SP No. 97604
which set aside the Decision2 dated December 13, 2005 of the
3
Regional Trial Court (RTC) of Makati City, Branch 57 in Civil Case No.
05-418.
The factual antecedents:
On October 10, 2002, a check in the amount of P1,000,000.00 payable
to "Mateo Mgt. Group International" (MMGI) was presented for deposit
and accepted at petitioner's Kawit Branch. The check, post-dated "Oct.
9, 2003", was drawn against the account of Marciano Silva, Jr. (Silva)
with respondent Bank of the Philippine Islands (BPI) Bel-Air Branch.
Upon receipt, petitioner sent the check for clearing to respondent
through the Philippine Clearing House Corporation (PCHC).3
The check was cleared by respondent and petitioner credited the
account of MMGI with P1,000,000.00. On October 22, 2002, MMGIs
account was closed and all the funds therein were withdrawn. A month
later, Silva discovered the debit of P1,000,000.00 from his account. In
response to Silvas complaint, respondent credited his account with the
aforesaid sum.4
On March 21, 2003, respondent returned a photocopy of the check to
petitioner for the reason: "Postdated." Petitioner, however, refused to
accept and sent back to respondent a photocopy of the check.
Thereafter, the check, or more accurately, the Charge Slip, was tossed
several times from petitioner to respondent, and back to petitioner,
until on May 6, 2003, respondent requested the PCHC to take custody
of the check. Acting on the request, PCHC directed the respondent to
deliver the original check and informed it of PCHCs authority under
Clearing House Operating Memo (CHOM) No. 279 dated 06 September
1996 to split 50/50 the amount of the check subject of a "Ping-Pong"
controversy which shall be implemented thru the issuance of Debit
Adjustment Tickets against the outward demands of the banks
involved. PCHC likewise encouraged respondent to submit the
controversy for resolution thru the PCHC Arbitration Mechanism.5
However, it was petitioner who filed a complaint6 before the
Arbitration Committee, asserting that respondent should solely bear
the entire face value of the check due to its negligence in failing to
return the check to petitioner within the 24-hour reglementary period
as provided in Section 20.17 of the Clearing House Rules and
Regulations8 (CHRR) 2000. Petitioner prayed that respondent be
ordered to reimburse the sum of P500,000.00 with 12% interest per
annum, and to pay attorneys fees and other arbitration expenses.
In its Answer with Counterclaims,9 respondent charged petitioner with
gross negligence for accepting the post-dated check in the first place.
It contended that petitioners admitted negligence was the sole and
proximate cause of the loss.
On December 8, 2004, the Arbitration Committee rendered its
Decision10 in favor of petitioner and against the respondent. First, it
ruled that the situation of the parties does not involve a "Ping-Pong"
controversy since the subject check was neither returned within the
reglementary time or through the PCHC return window, nor coursed
through the clearing facilities of the PCHC.
As to respondents direct presentation of a photocopy of the subject
check, it was declared to be without legal basis because Section
21.111 of the CHRR 2000 does not apply to post-dated checks. The
Arbitration Committee further noted that respondent not only failed to
return the check within the 24-hour reglementary period, it also failed
to institute any formal complaint within the contemplation of Section
20.312 and it appears that respondent was already contented with the
50-50 split initially implemented by the PCHC. Finding both parties
negligent in the performance of their duties, the Committee applied
the doctrine of "Last Clear Chance" and ruled that the loss should be
shouldered by respondent alone, thus:
WHEREFORE, premises considered, judgment is hereby rendered in
favor of plaintiff Allied Banking Corporation and against defendant
Bank of the Philippine Islands, ordering the latter to pay the former the
following:
(a) The sum of P500,000.00, plus interest thereon at the rate of 12%
per annum counted from the date of filing of the complaint;
(b) Attorneys fees in the amount of P25,000.00;
(c) The sum of P2,090.00 as and by way of reimbursement of filing
fees, plus the cost of suit.
SO ORDERED.13
Respondent filed a motion for reconsideration14 but it was denied by
the PCHC Board of Directors under Board Resolution No. 10-200515
dated April 22, 2005. The Board pointed out that what actually
transpired was a "ping-pong" "not of a check but of a Charge Slip (CS)
enclosed in a carrier envelope that went back and forth through the
clearing system in apparent reaction by [petitioner] to the wrongful
return via the PCHC clearing system." Respondents conduct was held
as a "gross and unmistakably deliberate violation" of Section 20.2,16 in
relation to Section 20.1(e) of the CHRR 2000.17
On May 13, 2005, respondent filed a petition for review18 in the RTC
claiming that PCHC erred in constricting the return of a post-dated
check to Section 20.1, overlooking the fact that Section 20.3 is also
applicable which provision necessarily contemplates defects that are
referred to in Section 20.1 as both sections are subsumed under the
general provision (Section 20) on the return of regular items.
Respondent also argued that assuming it to be liable, the PCHC erred
in holding it solely responsible and should bear entirely the consequent
loss considering that while respondent may have the "last" opportunity
4
in proximity, it was petitioner which had the longest, fairest and
clearest chance to discover the mistake and avoid the happening of
the loss. Lastly, respondent assailed the award of attorneys fees,
arguing that PCHCs perception of "malice" against it and misuse of the
clearing machinery is clearly baseless and unfounded.
In its Decision dated December 13, 2005, the RTC affirmed with
modification the Arbitration Committees decision by deleting the
award of attorneys fees. The RTC found no merit in respondents
stance that through inadvertence it failed to discover that the check
was post-dated and that confirmation within 24 hours is often "elusive
if not outright impossible" because a drawee bank receives hundreds if
not thousands of checks in an ordinary clearing day. Thus:
Petitioner admitted par. 4 in its Answer with Counterclaim and in its
Memorandum, further adding that upon receipt of the subject check
"through inadvertence", it did not notice that the check was postdated,
hence, petitioner did not return the same to respondent."
These contradict petitioners belated contention that it discovered the
defect only after the lapse of the reglementary period. What the
evidence on record discloses is that petitioner received the check on
October 10, 2002, that it was promptly sent for clearing, that through
inadvertence, it did not notice that the check was postdated. Petitioner
did not even state when it discovered the defect in the subject check.
Likewise, petitioners contention that its discovery of the defect was a
non-issue in view of the admissions made in its Answer is unavailing.
The Court has noted the fact that the PCHC Arbitration Committee
conducted a clarificatory hearing during which petitioner admitted that
its standard operating procedure as regards confirmation of checks
was not followed. No less than petitioners witness admitted that BPI
tried to call up the drawer of the check, as their procedure dictates
when it comes to checks in large amounts. However, having initially
failed to contact the drawer, no follow up calls were made nor other
actions taken. Despite these, petitioner cleared the check. Having
admitted making said calls, it is simply impossible for petitioner to
have missed the fact that the check was postdated.19 (Emphasis
supplied)
With the denial of its motion for partial reconsideration, respondent
elevated the case to the CA by filing a petition for review under Rule 42
of the 1997 Rules of Civil Procedure, as amended.
By Decision dated March 19, 2009, the CA set aside the RTC judgment
and ruled for a 60-40 sharing of the loss as it found petitioner guilty of
contributory negligence in accepting what is clearly a post-dated
check. The CA found that petitioners failure to notice the irregularity
on the face of the check was a breach of its duty to the public and a
telling sign of its lack of due diligence in handling checks coursed
through it. While the CA conceded that the drawee bank has a bigger
responsibility in the clearing of checks, it declared that the presenting
bank cannot take lightly its obligation to make sure that only valid
checks are introduced into the clearing system. According to the CA,
considerations of public policy and substantial justice will be served by
allocating the damage on a 60-40 ratio, as it thus decreed:
WHEREFORE, the decision of the Regional Trial Court of Makati City
(Branch 57) dated December 13, 2005 is ANNULLED and SET ASIDE
and judgment is rendered ordering petitioner to pay respondent Allied
Banking Corporation the sum of P100,000.00 plus interest thereon at
the rate of 6% from July 10, 2003, which shall become 12% per annum
from finality hereof, until fully paid, aside from costs.
SO ORDERED.
Its motion for reconsideration having been denied by the CA, petitioner
is now before the Court seeking a partial reversal of the CAs decision
and affirmance of the December 13, 2005 Decision of the RTC.
Essentially, the two issues for resolution are: (1) whether the doctrine
of last clear chance applies in this case; and (2) whether the 60-40
apportionment of loss ordered by the CA was justified.
As well established by the records, both petitioner and respondent
were admittedly negligent in the encashment of a check post-dated
one year from its presentment.
Petitioner argues that the CA should have sustained PCHCs finding
that despite the antecedent negligence of petitioner in accepting the
postdated check for deposit, respondent, by exercising reasonable care
and prudence, might have avoided injurious consequences had it not
negligently cleared the check in question. It pointed out that in
applying the doctrine of last clear chance, the PCHC cited the case of
Philippine Bank of Commerce v. Court of Appeals21 which ruled that
assuming the banks depositor, private respondent, was negligent in
entrusting cash to a dishonest employee, thus providing the latter with
the opportunity to defraud the company, it cannot be denied that
petitioner bank had the last clear opportunity to avert the injury
incurred by its client, simply by faithfully observing their self-imposed
validation procedure.
Petitioner underscores respondents failure to observe clearing house
rules and its own standard operating procedure which, the PCHC said
constitute further negligence so much so that respondent should be
solely liable for the loss. Specifically, respondent failed to return the
subject check within the 24-hour reglementary period under Section
20.1 and to institute any formal complaint within the contemplation of
Section 20.3 of the CHRR 2000. The PCHC likewise faulted respondent
for not making follow-up calls or taking any other action after it initially
attempted, without success, to contact by telephone the drawer of the
check, and clearing the check despite such lack of confirmation from
5
its depositor in violation of its own standard procedure for checks
involving large amounts.
The doctrine of last clear chance, stated broadly, is that the negligence
of the plaintiff does not preclude a recovery for the negligence of the
defendant where it appears that the defendant, by exercising
reasonable care and prudence, might have avoided injurious
consequences to the plaintiff notwithstanding the plaintiffs
negligence.22 The doctrine necessarily assumes negligence on the
part of the defendant and contributory negligence on the part of the
plaintiff, and does not apply except upon that assumption.23 Stated
differently, the antecedent negligence of the plaintiff does not preclude
him from recovering damages caused by the supervening negligence
of the defendant, who had the last fair chance to prevent the
impending harm by the exercise of due diligence.24 Moreover, in
situations where the doctrine has been applied, it was defendants
failure to exercise such ordinary care, having the last clear chance to
avoid loss or injury, which was the proximate cause of the occurrence
of such loss or injury.25
In this case, the evidence clearly shows that the proximate cause of
the unwarranted encashment of the subject check was the negligence
of respondent who cleared a post-dated check sent to it thru the PCHC
clearing facility without observing its own verification procedure. As
correctly found by the PCHC and upheld by the RTC, if only respondent
exercised ordinary care in the clearing process, it could have easily
noticed the glaring defect upon seeing the date written on the face of
the check "Oct. 9, 2003". Respondent could have then promptly
returned the check and with the check thus dishonored, petitioner
would have not credited the amount thereof to the payees account.
Thus, notwithstanding the antecedent negligence of the petitioner in
accepting the post-dated check for deposit, it can seek reimbursement
from respondent the amount credited to the payees account covering
the check.
What petitioner omitted to mention is that in the cited case of
Philippine Bank of Commerce v. Court of Appeals,26 while the Court
found petitioner bank as the culpable party under the doctrine of last
clear chance since it had, thru its teller, the last opportunity to avert
the injury incurred by its client simply by faithfully observing its own
validation procedure, it nevertheless ruled that the plaintiff depositor
(private respondent) must share in the loss on account of its
contributory negligence. Thus:
The foregoing notwithstanding, it cannot be denied that, indeed,
private respondent was likewise negligent in not checking its monthly
statements of account. Had it done so, the company would have been
alerted to the series of frauds being committed against RMC by its
secretary. The damage would definitely not have ballooned to such an
amount if only RMC, particularly Romeo Lipana, had exercised even a
little vigilance in their financial affairs. This omission by RMC amounts
to contributory negligence which shall mitigate the damages that may
be awarded to the private respondent under Article 2179 of the New
Civil Code, to wit:
"x x x. When the plaintiffs own negligence was the immediate and
proximate cause of his injury, he cannot recover damages. But if his
negligence was only contributory, the immediate and proximate cause
of the injury being the defendant's lack of due care, the plaintiff may
recover damages, but the courts shall mitigate the damages to be
awarded."
In view of this, we believe that the demands of substantial justice are
satisfied by allocating the damage on a 60-40 ratio. Thus, 40% of the
damage awarded by the respondent appellate court, except the award
of P25,000.00 attorneys fees, shall be borne by private respondent
RMC; only the balance of 60% needs to be paid by the petitioners. The
award of attorneys fees shall be borne exclusively by the
petitioners.27 (Italics in the original; emphasis supplied)
In another earlier case,28 the Court refused to hold petitioner bank
solely liable for the loss notwithstanding the finding that the proximate
cause of the loss was due to its negligence. Since the employees of
private respondent bank were likewise found negligent, its claim for
damages is subject to mitigation by the courts. Thus:
Both banks were negligent in the selection and supervision of their
employees resulting in the encashment of the forged checks by an
impostor. Both banks were not able to overcome the presumption of
negligence in the selection and supervision of their employees. It was
the gross negligence of the employees of both banks which resulted in
the fraud and the subsequent loss. While it is true that petitioner BPIs
negligence may have been the proximate cause of the loss, respondent
CBCs negligence contributed equally to the success of the impostor in
encashing the proceeds of the forged checks. Under these
circumstances, we apply Article 2179 of the Civil Code to the effect
that while respondent CBC may recover its losses, such losses are
subject to mitigation by the courts. x x x
Considering the comparative negligence of the two (2) banks, we rule
that the demands of substantial justice are satisfied by allocating the
loss of P2,413,215.16 and the costs of the arbitration proceedings in
the amount of P7,250.00 and the costs of litigation on a 60-40 ratio.
Conformably with this ruling, no interests and attorneys fees can be
awarded to either of the parties.29 (Emphasis supplied)
Apportionment of damages between parties who are both negligent
was followed in subsequent cases involving banking transactions
notwithstanding the courts finding that one of them had the last clear
opportunity to avoid the occurrence of the loss.
6
In Bank of America NT & SA v. Philippine Racing Club,30 the Court
ruled:
In the case at bar, petitioner cannot evade responsibility for the loss by
attributing negligence on the part of respondent because, even if we
concur that the latter was indeed negligent in pre-signing blank
checks, the former had the last clear chance to avoid the loss. To
reiterate, petitioners own operations manager admitted that they
could have called up the client for verification or confirmation before
honoring the dubious checks. Verily, petitioner had the final
opportunity to avert the injury that befell the respondent. x x x
Petitioners negligence has been undoubtedly established and, thus,
pursuant to Art. 1170 of the NCC, it must suffer the consequence of
said negligence.
In the interest of fairness, however, we believe it is proper to consider
respondents own negligence to mitigate petitioners liability.1wphi1
Article 2179 of the Civil Code provides:
xxxx
Explaining this provision in Lambert v. Heirs of Ray Castillon, the Court
held:
"The underlying precept on contributory negligence is that a plaintiff
who is partly responsible for his own injury should not be entitled to
recover damages in full but must bear the consequences of his own
negligence. The defendant must thus be held liable only for the
damages actually caused by his negligence. xxx xxx xxx"
xxxx
Following established jurisprudential precedents, we believe the
allocation of sixty percent (60%) of the actual damages involved in this
case (represented by the amount of the checks with legal interest) to
petitioner is proper under the premises. Respondent should, in light of
its contributory negligence, bear forty percent (40%) of its own loss.31
(Emphasis supplied)
In Philippine National Bank v. F.F. Cruz and Co., Inc.,32 the Court made
a similar disposition, thus:
Given the foregoing, we find no reversible error in the findings of the
appellate court that PNB was negligent in the handling of FFCCIs
combo account, specifically, with respect to PNBs failure to detect the
forgeries in the subject applications for managers check which could
have prevented the loss. x x x PNB failed to meet the high standard of
diligence required by the circumstances to prevent the fraud. In
Philippine Bank of Commerce v. Court of Appeals and The Consolidated
Bank & Trust Corporation v. Court of Appeals, where the banks
negligence is the proximate cause of the loss and the depositor is
guilty of contributory negligence, we allocated the damages between
the bank and the depositor on a 60-40 ratio. We apply the same ruling
in this case considering that, as shown above, PNBs negligence is the
proximate cause of the loss while the issue as to FFCCIs contributory
negligence has been settled with finality in G.R. No. 173278. Thus, the
appellate court properly adjudged PNB to bear the greater part of the
loss consistent with these rulings.33
"Contributory negligence is conduct on the part of the injured party,
contributing as a legal cause to the harm he has suffered, which falls
below the standard to which he is required to conform for his own
protection."34 Admittedly, petitioners acceptance of the subject check
for deposit despite the one year postdate written on its face was a
clear violation of established banking regulations and practices. In such
instances, payment should be refused by the drawee bank and
returned through the PCHC within the 24-hour reglementary period. As
aptly observed by the CA, petitioners failure to comply with this basic
policy regarding post-dated checks was "a telling sign of its lack of due
diligence in handling checks coursed through it."35
It bears stressing that "the diligence required of banks is more than
that of a Roman paterfamilias or a good father of a family. The highest
degree of diligence is expected,"36 considering the nature of the
banking business that is imbued with public interest. While it is true
that respondent's liability for its negligent clearing of the check is
greater, petitioner cannot take lightly its own violation of the long-
standing rule against encashment of post-dated checks and the
injurious consequences of allowing such checks into the clearing
system.
Petitioner repeatedly harps on respondent's transgression of clearing
house rules when the latter resorted to direct presentment way beyond
the reglementary period but glosses over its own negligent act that
clearly fell short of the conduct expected of it as a collecting bank.
Petitioner must bear the consequences of its omission to exercise
extraordinary diligence in scrutinizing checks presented by its
depositors.
Assessing the facts and in the light of the cited precedents, the Court
thus finds no error committed by the CA in allocating the resulting loss
from the wrongful encashment of the subject check on a 60-40 ratio.
WHEREFORE, the petition for review on certiorari is DENIED. The
Decision dated March 19, 2009 of the Court of Appeals in CA-G.R. SP
No. 97604 is hereby AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
G.R. No. L-26767 February 22, 1968
7

ANG TIONG, plaintiff-appellee,
vs.
LORENZO TING, doing business under the name and style of PRUNES
PRESERVED MFG., and FELIPE ANG, defendants.
FELIPE ANG, defendant-appellant.
Chipeco & Alcaraz, Jr. for plaintiff-appellee.
Ang, Atienza & Tabora for defendant-appellant.
CASTRO, J.:
On August 15, 1960 Lorenzo Ting issued Philippine Bank of
Communications check K-81618, for the sum of P4,000, payable to
"cash or bearer". With Felipe Ang's signature (indorsement in blank) at
the back thereof, the instrument was received by the plaintiff Ang
Tiong who thereafter presented it to the drawee bank for payment. The
bank dishonored it. The plaintiff then made written demands on both
Lorenzo Ting and Felipe Ang that they make good the amount
represented by the check. These demands went unheeded; so he filed
in the municipal court of Manila an action for collection of the sum of
P4,000, plus P500 attorney's fees. On March 6, 1962 the municipal
court adjudged for the plaintiff against the two defendants.
Only Felipe Ang appealed to the Court of First Instance of Manila
(civil case 50018), which rendered judgment on July 31, 1962,
amended by an order dated August 9, 1962, directing him to pay to the
plaintiff "the sum of P4,000, with interest at the legal rate from the
date of the filing of the complaint, a further sum of P400 as attorney's
fees, and costs."
Felipe Ang then elevated the case to the Court of Appeals, which
certified it to this Court because the issues raised are purely of law.
The appellant imputes to the court a quo three errors, namely,
(1) that it refused to apply article 2071 of the new Civil Code to the
case at bar; (2) that it adjudged him a general indorser under the
Negotiable Instruments Law (Act 2031); and (3) that it held that he
"cannot obtain his release from the contract of suretyship or obtain
security to protect himself against any proceedings on the part of the
creditor and against the danger of insolvency of the principal debtor,"
because he is "jointly and severally liable on the instrument."
This, appeal is absolutely without merit.
1. The genuineness and due execution of the instrument are not
controverted. That the appellee is a holder thereof for value is
admitted.
Having arisen from a bank check which is indisputably a
negotiable instrument, the present case is, therefore, in so far as the
indorsee is concerned vis-a-vis the indorser, governed solely plaintiff
the Negotiable Instruments Law (see secs. 1 and 185). Article 2071 of
the new Civil Code, invoked by the appellant, the pertinent portion of
which states, "The guarantor, even before been paid, may proceed
against the principal debtor; (1) when he is sued for the payment; . . .
the action of the guarantor is to obtain release from the guaranty, to
demand a security that shall protect him from any proceedings by the
creditor . . .," is here completely irrelevant and can have no application
whatsoever.
We are in agreement with the trial judge that nothing in the
check in question indicates that the appellant is not a general indorser
within the purview of section 63 of the Negotiable Instruments Law
which makes "a person placing his signature upon an instrument
otherwise than as maker, drawer or acceptor" a general indorser,
"unless he clearly indicates plaintiff appropriate words his intention to
be bound in some other capacity," which he did not do. And section 66
ordains that "every indorser who indorses without qualification,
warrants to all subsequent holders in due course" (a) that the
instrument is genuine and in all respects what it purports to be; (b)
that he has a good title to it; (c) that all prior parties have capacity to
contract; and (d) that the instrument is at the time of his indorsement
valid and subsisting. In addition, "he engages that on due
presentment, it shall be accepted or paid, or both, as the case may be,
and that if it be dishonored, he will pay the amount thereof to the
holder." 1
2. Even on the assumption that the appellant is a mere
accommodation party, as he professes to be, he is nevertheless, by the
clear mandate of section 29 of the Negotiable Instruments Law, yet
"liable on the instrument to a holder for value, notwithstanding that
such holder at the time of taking the instrument knew him to be only
an accommodation party." To paraphrase, the accommodation party is
liable to a holder for value as if the contract was not for
accommodation. It is not a valid defense that the accommodation
party did not receive any valuable consideration when he executed the
instrument. Nor is it correct to say that the holder for value is not a
holder in due course merely because at the time he acquired the
instrument, he knew that the indorser was only an accommodation
party. 2
3. That the appellant, again assuming him to be an
accommodation indorser, may obtain security from the maker to
protect himself against the danger of insolvency of the latter, cannot in
any manner affect his liability to the appellee, as the said remedy is a
matter of concern exclusively between accommodation indorser and
accommodated party. So that the fact that the appellant stands only as
a surety in relation to the maker, granting this to be true for the sake of
argument, is immaterial to the claim of the appellee, and does not a
whit diminish nor defeat the rights of the latter who is a holder for
value. The liability of the appellant remains primary and unconditional.
8
To sanction the appellant's theory is to give unwarranted legal
recognition to the patent absurdity of a situation where an indorser,
when sued on an instrument by a holder in due course and for value,
can escape liability on his indorsement by the convenient expedient of
interposing the defense that he is a mere accomodation indorser.
ACCORDINGLY, the judgment a quo is affirmed in toto, at
appellant's cost.
Despite repeated demands for payment, the latest of which were on
September 13, 1988 and September 9, 1986, on Antonio Ang Eng
Liong and Tomas Ang, respectively, respondent Bank claimed that the
defendants failed and refused to settle their obligation, resulting in a
total indebtedness of P539,638.96 as of July 31, 1990, broken down as
follows:

PN-No. DVO-78-382 PN-No. DVO-7

TOMAS ANG,
Petitioner,
- versus -
ASSOCIATED BANK AND ANTONIO ANG ENG LIONGRespondents. Outstanding Balance P50,000.00 P30,000.00
G.R. No. 146511 September 5, 2007 Add Past due charges for 4,199 days Past due charge
(from 01-31-79 to 07-31-90) (from 12-8-78 t
X -------------------------------------------------------------------------------------- X 14% Interest P203,538.98 P125,334.41
2% Service Charge P11,663.89 P7,088.34
12% Overdue Charge P69,983.34 P42,530.00
DECISION
Total P285,186.21 P174,952.75
Less: Charges paid P500.00 None
AZCUNA, J.:
Amount Due P334,686.21 P204,952.75
This petition for certiorari under Rule 45 of the Rules on Civil Procedure
seeks to review the October 9, 2000 Decision[1] and December 26, In his Answer,[7] Antonio Ang Eng Liong only admitted to have secured
2000 Resolution[2] of the Court of Appeals in CA-G.R. CV No. 53413 a loan amounting to P80,000. He pleaded though that the bank be
which reversed and set aside the January 5, 1996 Decision[3] of the ordered to submit a more reasonable computation considering that
Regional Trial Court, Branch 16, Davao City, in Civil Case No. 20,299- there had been no correct and reasonable statement of account sent to
90, dismissing the complaint filed by respondents for collection of a him by the bank, which was allegedly collecting excessive interest,
sum of money. penalty charges, and attorneys fees despite knowledge that his
business was destroyed by fire, hence, he had no source of income for
several years.
On August 28, 1990, respondent Associated Bank (formerly Associated
For his part, petitioner Tomas Ang filed an Answer with Counterclaim
Banking Corporation and now known as United Overseas Bank
and Cross-claim.[8] He interposed the affirmative defenses that: the
Philippines) filed a collection suit against Antonio Ang Eng Liong and
bank is not the real party in interest as it is not the holder of the
petitioner Tomas Ang for the two (2) promissory notes that they
promissory notes, much less a holder for value or a holder in due
executed as principal debtor and co-maker, respectively.
course; the bank knew that he did not receive any valuable
consideration for affixing his signatures on the notes but merely lent
In the Complaint,[4] respondent Bank alleged that on October 3 and 9, his name as an accommodation party; he accepted the promissory
1978, the defendants obtained a loan of P50,000, evidenced by a notes in blank, with only the printed provisions and the signature of
promissory note bearing PN-No. DVO-78-382, and P30,000, evidenced Antonio Ang Eng Liong appearing therein; it was the bank which
by a promissory note bearing PN-No. DVO-78-390. As agreed, the loan completed the notes upon the orders, instructions, or representations
would be payable, jointly and severally, on January 31, 1979 and of his co-defendant; PN-No. DVO-78-382 was completed in excess of or
December 8, 1978, respectively. In addition, subsequent contrary to the authority given by him to his co-defendant who
amendments[5] to the promissory notes as well as the disclosure represented that he would only borrow P30,000 from the bank; his
statements[6] stipulated that the loan would earn 14% interest rate signature in PN-No. DVO-78-390 was procured through fraudulent
per annum, 2% service charge per annum, 1% penalty charge per means when his co-defendant claimed that his first loan did not push
month from due date until fully paid, and attorneys fees equivalent to through; the promissory notes did not indicate in what capacity he was
20% of the outstanding obligation. intended to be bound; the bank granted his co-defendant successive
extensions of time within which to pay, without his (Tomas Ang)

9
knowledge and consent; the bank imposed new and additional
stipulations on interest, penalties, services charges and attorneys fees
more onerous than the terms of the notes, without his knowledge and
consent, in the absence of legal and factual basis and in violation of
the Usury Law; the bank caused the inclusion in the promissory notes
of stipulations such as waiver of presentment for payment and notice
of dishonor which are against public policy; and the notes had been
impaired since they were never presented for payment and demands
were made only several years after they fell due when his co-
defendant could no longer pay them.
Regarding his counterclaim, Tomas Ang argued that by reason of the
banks acts or omissions, it should be held liable for the amount of
P50,000 for attorneys fees and expenses of litigation. Furthermore, on
his cross-claim against Antonio Ang Eng Liong, he averred that he
should be reimbursed by his co-defendant any and all sums that he
may be adjudged liable to pay, plus P30,000, P20,000 and P50,000 for
moral and exemplary damages, and attorneys fees, respectively.
In its Reply,[9] respondent Bank countered that it is the real party in
interest and is the holder of the notes since the Associated Banking
Corporation and Associated Citizens Bank are its predecessors-in-
interest. The fact that Tomas Ang never received any moneys in
consideration of the two (2) loans and that such was known to the
bank are immaterial because, as an accommodation maker, he is
considered as a solidary debtor who is primarily liable for the payment
of the promissory notes. Citing Section 29 of the Negotiable
Instruments Law (NIL), the bank posited that absence or failure of
consideration is not a matter of defense; neither is the fact that the
holder knew him to be only an accommodation party.
Respondent Bank likewise retorted that the promissory notes were
completely filled up at the time of their delivery. Assuming that such
was not the case, Sec. 14 of the NIL provides that the bank has the
prima facie authority to complete the blank form. Moreover, it is
presumed that one who has signed as a maker acted with care and had
signed the document with full knowledge of its content. The bank
noted that Tomas Ang is a prominent businessman in Davao City who
has been engaged in the auto parts business for several years, hence,
certainly he is not so nave as to sign the notes without knowing or
bothering to verify the amounts of the loans covered by them. Further,
he is already in estoppel since despite receipt of several demand
letters there was not a single protest raised by him that he signed for
only one note in the amount of P30,000.
It was denied by the bank that there were extensions of time for
payment accorded to Antonio Ang Eng Liong. Granting that such were
the case, it said that the same would not relieve Tomas Ang from
liability as he would still be liable for the whole obligation less the
share of his co-debtor who received the extended term.
The bank also asserted that there were no additional or new
stipulations imposed other than those agreed upon. The penalty
charge, service charge, and attorneys fees were reflected in the
amendments to the promissory notes and disclosure statements.
Reference to the Usury Law was misplaced as usury is legally non-
existent; at present, interest can be charged depending on the
agreement of the lender and the borrower.
Lastly, the bank contended that the provisions on presentment for
payment and notice of dishonor were expressly waived by Tomas Ang
and that such waiver is not against public policy pursuant to Sections
82 (c) and 109 of the NIL. In fact, there is even no necessity therefor
since being a solidary debtor he is absolutely required to pay and
primarily liable on both promissory notes.
On October 19, 1990, the trial court issued a preliminary pre-trial order
directing the parties to submit their respective pre-trial guide.[10]
When Antonio Ang Eng Liong failed to submit his brief, the bank filed
an ex-parte motion to declare him in default.[11] Per Order of
November 23, 1990, the court granted the motion and set the ex-parte
hearing for the presentation of the banks evidence.[12] Despite Tomas
Angs motion[13] to modify the Order so as to exclude or cancel the ex-
parte hearing based on then Sec. 4, Rule 18 of the old Rules of Court
(now Sec. 3[c.], Rule 9 of the Revised Rules on Civil Procedure), the
hearing nonetheless proceeded.[14]
Eventually, a decision[15] was rendered by the trial court on February
21, 1991. For his supposed bad faith and obstinate refusal despite
several demands from the bank, Antonio Ang Eng Liong was ordered to
pay the principal amount of P80,000 plus 14% interest per annum and
2% service charge per annum. The overdue penalty charge and
attorneys fees were, however, reduced for being excessive, thus:
WHEREFORE, judgment is rendered against defendant Antonio Ang Eng
Liong and in favor of plaintiff, ordering the former to pay the latter:
On the first cause of action:
1) the amount of P50,000.00 representing the principal
obligation with 14% interest per annum from June 27, 1983 with 2%
service charge and 6% overdue penalty charges per annum until fully
paid;
2) P11,663.89 as accrued service charge; and
3) P34,991.67 as accrued overdue penalty charge.
On the second cause of action:
10
1) the amount of P50,000.00 (sic) representing the principal
account with 14% interest from June 27, 1983 with 2% service charge
and 6% overdue penalty charges per annum until fully paid;
2) P7,088.34 representing accrued service charge;
3) P21,265.00 as accrued overdue penalty charge;
4) the amount of P10,000.00 as attorneys fees; and
5) the amount of P620.00 as litigation expenses and to pay
the costs.
SO ORDERED.[16]
The decision became final and executory as no appeal was taken
therefrom. Upon the banks ex-parte motion, the court accordingly
issued a writ of execution on April 5, 1991.[17]
Thereafter, on June 3, 1991, the court set the pre-trial conference
between the bank and Tomas Ang,[18] who, in turn, filed a Motion to
Dismiss[19] on the ground of lack of jurisdiction over the case in view
of the alleged finality of the February 21, 1991 Decision. He contended
that Sec. 4, Rule 18 of the old Rules sanctions only one judgment in
case of several defendants, one of whom is declared in default.
Moreover, in his Supplemental Motion to Dismiss,[20] Tomas Ang
maintained that he is released from his obligation as a solidary
guarantor and accommodation party because, by the banks actions, he
is now precluded from asserting his cross-claim against Antonio Ang
Eng Liong, upon whom a final and executory judgment had already
been issued.
The court denied the motion as well as the motion for reconsideration
thereon.[21] Tomas Ang subsequently filed a petition for certiorari and
prohibition before this Court, which, however, resolved to refer the
same to the Court of Appeals.[22] In accordance with the prayer of
Tomas Ang, the appellate court promulgated its Decision on January
29, 1992 in CA G.R. SP No. 26332, which annulled and set aside the
portion of the Order dated November 23, 1990 setting the ex-parte
presentation of the banks evidence against Antonio Ang Eng Liong, the
Decision dated February 21, 1991 rendered against him based on such
evidence, and the Writ of Execution issued on April 5, 1991.[23]
Trial then ensued between the bank and Tomas Ang. Upon the latters
motion during the pre-trial conference, Antonio Ang Eng Liong was
again declared in default for his failure to answer the cross-claim within
the reglementary period.[24]
When Tomas Ang was about to present evidence in his behalf, he filed
a Motion for Production of Documents,[25] reasoning:
xxx
2. That corroborative to, and/or preparatory or incident to his
testimony[,] there is [a] need for him to examine original records in the
custody and possession of plaintiff, viz:
a. original Promissory Note (PN for brevity) # DVO-78-382
dated October 3, 1978[;]
b. original of Disclosure Statement in reference to PN #
DVO-78-382;
c. original of PN # DVO-78-390 dated October 9, 1978;
d. original of Disclosure Statement in reference to PN #
DVO-78-390;
e. Statement or Record of Account with the Associated
Banking Corporation or its successor, of Antonio Ang in CA No. 470 (cf.
Exh. O) including bank records, withdrawal slips, notices, other papers
and relevant dates relative to the overdraft of Antonio Eng Liong in CA
No. 470;
f. Loan Applications of Antonio Ang Eng Liong or borrower
relative to PN Nos. DVO-78-382 and DVO-78-390 (supra);
g. Other supporting papers and documents submitted by
Antonio Ang Eng Liong relative to his loan application vis--vis PN. Nos.
DVO-78-382 and DVO-78-390 such as financial statements, income tax
returns, etc. as required by the Central Bank or bank rules and
regulations.
3. That the above matters are very material to the defenses of
defendant Tomas Ang, viz:
- the bank is not a holder in due course when it accepted
the [PNs] in blank.
- The real borrower is Antonio Ang Eng Liong which fact is
known to the bank.
- That the PAYEE not being a holder in due course and
knowing that defendant Tomas Ang is merely an accommodation party,
the latter may raise against such payee or holder or successor-in-
interest (of the notes) PERSONAL and EQUITABLE DEFENSES such as
FRAUD in INDUCEMENT, DISCHARGE ON NOTE, Application of [Articles]
2079, 2080 and 1249 of the Civil Code, NEGLIGENCE in delaying
collection despite Eng Liongs OVERDRAFT in C.A. No. 470, etc.[26]
In its Order dated May 16, 1994,[27] the court denied the motion
stating that the promissory notes and the disclosure statements have
already been shown to and inspected by Tomas Ang during the trial, as
in fact he has already copies of the same; the Statements or Records of
Account of Antonio Ang Eng Liong in CA No. 470, relative to his
overdraft, are immaterial since, pursuant to the previous ruling of the
court, he is being sued for the notes and not for the overdraft which is
personal to Antonio Ang Eng Liong; and besides its non-existence in
the banks records, there would be legal obstacle for the production and
11
inspection of the income tax return of Antonio Ang Eng Liong if done
without his consent.
When the motion for reconsideration of the aforesaid Order was
denied, Tomas Ang filed a petition for certiorari and prohibition with
application for preliminary injunction and restraining order before the
Court of Appeals docketed as CA G.R. SP No. 34840.[28] On August 17,
1994, however, the Court of Appeals denied the issuance of a
Temporary Restraining Order.[29]
Meanwhile, notwithstanding its initial rulings that Tomas Ang was
deemed to have waived his right to present evidence for failure to
appear during the pendency of his petition before the Court of Appeals,
the trial court decided to continue with the hearing of the case.[30]
After the trial, Tomas Ang offered in evidence several documents,
which included a copy of the Trust Agreement between the Republic of
the Philippines and the Asset Privatization Trust, as certified by the
notary public, and news clippings from the Manila Bulletin dated May
18, 1994 and May 30, 1994.[31] All the documentary exhibits were
admitted for failure of the bank to submit its comment to the formal
offer.[32] Thereafter, Tomas Ang elected to withdraw his petition in CA
G.R. SP No. 34840 before the Court of Appeals, which was then
granted.[33]
On January 5, 1996, the trial court rendered judgment against the
bank, dismissing the complaint for lack of cause of action.[34] It held
that:
Exh. 9 and its [sub-markings], the Trust Agreement dated 27 February
1987 for the defense shows that: the Associated Bank as of June 30,
1986 is one of DBPs or Development Bank of the [Philippines] non-
performing accounts for transfer; on February 27, 1987 through Deeds
of Transfer executed by and between the Philippine National Bank and
Development Bank of the Philippines and the National Government,
both financial institutions assigned, transferred and conveyed their
non-performing assets to the National Government; the National
Government in turn and as TRUSTOR, transferred, conveyed and
assigned by way of trust unto the Asset Privatization Trust said non-
performing assets, [which] took title to and possession of, [to]
conserve, provisionally manage and dispose[,] of said assets identified
for privatization or disposition; one of the powers and duties of the APT
with respect to trust properties consisting of receivables is to handle
the administration, collection and enforcement of the receivables; to
bring suit to enforce payment of the obligations or any installment
thereof or to settle or compromise any of such obligations, or any other
claim or demand which the government may have against any person
or persons[.]
The Manila Bulletin news clippings dated May 18, 1994 and May 30,
1994, Exh. 9-A, 9-B, 9-C, and 9-D, show that the Monetary Board of the
Bangko Sentral ng Pilipinas approved the rehabilitation plan of the
Associated Bank. One main feature of the rehabilitation plan included
the financial assistance for the bank by the Philippine Deposit
Insurance Corporation (PDIC) by way of the purchase of AB Assets
worth P1.3945 billion subject to a buy-back arrangement over a 10
year period. The PDIC had approved of the rehab scheme, which
included the purchase of ABs bad loans worth P1.86 at 25% discount.
This will then be paid by AB within a 10-year period plus a yield
comparable to the prevailing market rates x x x.
Based then on the evidence presented by the defendant Tomas Ang, it
would readily appear that at the time this suit for Sum of Money was
filed which was on August [28], 1990, the notes were held by the Asset
Privatization Trust by virtue of the Deeds of Transfer and Trust
Agreement, which was empowered to bring suit to enforce payment of
the obligations. Consequently, defendant Tomas Ang has sufficiently
established that plaintiff at the time this suit was filed was not the
holder of the notes to warrant the dismissal of the complaint.[35]
Respondent Bank then elevated the case to the Court of Appeals. In
the appellants brief captioned, ASSOCIATED BANK, Plaintiff-Appellant
versus ANTONIO ANG ENG LIONG and TOMAS ANG, Defendants,
TOMAS ANG, Defendant-Appellee, the following errors were alleged:
I.
THE LOWER COURT ERRED IN NOT HOLDING DEFENDANT ANTONIO
ANG ENG LIONG AND DEFENDANT-APPELLEE TOMAS ANG LIABLE TO
PLAINTIFF-APPELLANT ON THEIR UNPAID LOANS DESPITE THE LATTERS
DOCUMENTARY EXHIBITS PROVING THE SAID OBLIGATIONS.
II.
THE LOWER COURT ERRED IN DISMISSING PLAINTIFF-APPELLANTS
COMPLAINT ON THE BASIS OF NEWSPAPER CLIPPINGS WHICH WERE
COMPLETELY HEARSAY IN CHARACTER AND IMPROPER FOR JUDICIAL
NOTICE.[36]
The bank stressed that it has established the causes of action outlined
in its Complaint by a preponderance of evidence. As regards the Deed
of Transfer and Trust Agreement, it contended that the same were
never authenticated by any witness in the course of the trial; the
Agreement, which was not even legible, did not mention the
promissory notes subject of the Complaint; the bank is not a party to
the Agreement, which showed that it was between the Government of
the Philippines, acting through the Committee on Privatization
represented by the Secretary of Finance as trustor and the Asset
Privatization Trust, which was created by virtue of Proclamation No. 50;
and the Agreement did not reflect the signatures of the contracting
12
parties. Lastly, the bank averred that the news items appearing in the
Manila Bulletin could not be the subject of judicial notice since they
were completely hearsay in character.[37]
On October 9, 2000, the Court of Appeals reversed and set aside the
trial courts ruling. The dispositive portion of the Decision[38] reads:
WHEREFORE, premises considered, the Decision of the Regional Trial
Court of Davao City, Branch 16, in Civil Case No. 20,299-90 is hereby
REVERSED AND SET ASIDE and another one entered ordering
defendant-appellee Tomas Ang to pay plaintiff-appellant Associated
Bank the following:
1. P50,000.00 representing the principal amount of the loan
under PN-No. DVO-78-382 plus 14% interest thereon per annum
computed from January 31, 1979 until the full amount thereof is paid;
2. P30,000.00 representing the principal amount of the loan
under PN-No. DVO-78-390 plus 14% interest thereon per annum
computed from December 8, 1978 until the full amount thereof is paid;
All other claims of the plaintiff-appellant are DISMISSED for lack of legal
basis. Defendant-appellees counterclaim is likewise DISMISSED for lack
of legal and factual bases.
No pronouncement as to costs.
SO ORDERED.[39]
The appellate court disregarded the banks first assigned error for being
irrelevant in the final determination of the case and found its second
assigned error as not meritorious. Instead, it posed for resolution the
issue of whether the trial court erred in dismissing the complaint for
collection of sum of money for lack of cause of action as the bank was
said to be not the holder of the notes at the time the collection case
was filed.
In answering the lone issue, the Court of Appeals held that the bank is
a holder under Sec. 191 of the NIL. It concluded that despite the
execution of the Deeds of Transfer and Trust Agreement, the Asset
Privatization Trust cannot be declared as the holder of the subject
promissory notes for the reason that it is neither the payee or indorsee
of the notes in possession thereof nor is it the bearer of said notes. The
Court of Appeals observed that the bank, as the payee, did not indorse
the notes to the Asset Privatization Trust despite the execution of the
Deeds of Transfer and Trust Agreement and that the notes continued to
remain with the bank until the institution of the collection suit.
With the bank as the holder of the promissory notes, the Court of
Appeals held that Tomas Ang is accountable therefor in his capacity as
an accommodation party. Citing Sec. 29 of the NIL, he is liable to the
bank in spite of the latters knowledge, at the time of taking the notes,
that he is only an accommodation party. Moreover, as a co-maker who
agreed to be jointly and severally liable on the promissory notes,
Tomas Ang cannot validly set up the defense that he did not receive
any consideration therefor as the fact that the loan was granted to the
principal debtor already constitutes a sufficient consideration.
Further, the Court of Appeals agreed with the bank that the experience
of Tomas Ang in business rendered it implausible that he would just
sign the promissory notes as a co-maker without even checking the
real amount of the debt to be incurred, or that he merely acted on the
belief that the first loan application was cancelled. According to the
appellate court, it is apparent that he was negligent in falling for the
alibi of Antonio Ang Eng Liong and such fact would not serve to
exonerate him from his responsibility under the notes.
Nonetheless, the Court of Appeals denied the claims of the bank for
service, penalty and overdue charges as well as attorneys fees on the
ground that the promissory notes made no mention of such
charges/fees.
In his motion for reconsideration,[40] Tomas Ang raised for the first
time the assigned errors as follows:
xxx
2) Related to the above jurisdictional issues, defendant-appellee Tomas
Ang has recently discovered that upon the filing of the complaint on
August 28, 1990, under the jurisdictional rule laid down in BP Blg. 129,
appellant bank fraudulently failed to specify the amount of
compounded interest at 14% per annum, service charges at 2% per
annum and overdue penalty charges at 12% per annum in the prayer
of the complaint as of the time of its filing, paying a total of only
P640.00(!!!) as filing and court docket fees although the total sum
involved as of that time was P647,566.75 including 20% attorneys
fees. In fact, the stated interest in the body of the complaint alone
amount to P328,373.39 (which is actually compounded and
capitalized) in both causes of action and the total service and overdue
penalties and charges and attorneys fees further amount to
P239,193.36 in both causes of action, as of July 31, 1990, the time of
filing of the complaint. Significantly, appellant fraudulently misled the
Court, describing the 14% imposition as interest, when in fact the same
was capitalized as principal by appellant bank every month to earn
more interest, as stated in the notes. In view thereof, the trial court
never acquired jurisdiction over the case and the same may not be
now corrected by the filing of deficiency fees because the causes of
action had already prescribed and more importantly, the jurisdiction of
13
the Municipal Trial Court had been increased to P100,000.00 in
principal claims last March 20, 1999, pursuant to SC Circular No. 21-99,
section 5 of RA No. 7691, and section 31, Book I of the 1987
Administrative Code. In other words, as of today, jurisdiction over the
subject falls within the exclusive jurisdiction of the MTC, particularly if
the bank foregoes capitalization of the stipulated interest.
3) BY FAILING TO GIVE NOTICE OF ITS APPEAL AND APPEAL BRIEF TO
APPELLEE ANG ENG LIONG, THE APPEALED JUDGMENT OF THE TRIAL
COURT WHICH LEFT OUT TOMAS ANGS CROSS-CLAIM AGAINST ENG
LIONG (BECAUSE IT DISMISSED THE MAIN CLAIM), HAD LONG BECOME
FINAL AND EXECUTORY, AS AGAINST ENG LIONG. Accordingly, Tomas
Angs right of subrogation against Ang Eng Liong, expressed in his
cross-claim, is now SEVERAL TIMES foreclosed because of the fault or
negligence of appellant bank since 1979 up to its insistence of an ex-
parte trial, and now when it failed to serve notice of appeal and
appellants brief upon him. Accordingly, appellee Tomas Ang should be
released from his suretyship obligation pursuant to Art. 2080 of the
Civil Code. The above is related to the issues above-stated.
4) This Court may have erred in ADDING or ASSIGNING its own bill of
error for the benefit of appellant bank which defrauded the judiciary by
the payment of deficient docket fees.[41]
Finding no cogent or compelling reason to disturb the Decision, the
Court of Appeals denied the motion in its Resolution dated December
26, 2000.[42]
Petitioner now submits the following issues for resolution:
1. Is [A]rticle 2080 of the Civil Code applicable to discharge
petitioner Tomas Ang as accommodation maker or surety because of
the failure of [private] respondent bank to serve its notice of appeal
upon the principal debtor, respondent Eng Liong?
2. Did the trial court have jurisdiction over the case at all?
3. Did the Court of Appeals [commit] error in assigning its
own error and raising its own issue?
4. Are petitioners other real and personal defenses such as
successive extensions coupled with fraudulent collusion to hide Eng
Liongs default, the payees grant of additional burdens, coupled with
the insolvency of the principal debtor, and the defense of incomplete
but delivered instrument, meritorious?[43]
Petitioner allegedly learned after the promulgation of the Court of
Appeals decision that, pursuant to the parties agreement on the
compounding of interest with the principal amount (per month in case
of default), the interest on the promissory notes as of July 31, 1990
should have been only P81,647.22 for PN No. DVO-78-382 (instead of
P203,538.98) and P49,618.33 for PN No. DVO-78-390 (instead of
P125,334.41) while the principal debt as of said date should increase to
P647,566.75 (instead of P539,638.96). He submits that the bank
carefully and shrewdly hid the fact by describing the amounts as
interest instead of being part of either the principal or penalty in order
to pay a lesser amount of docket fees. According to him, the total fees
that should have been paid at the time of the filing of the complaint on
August 28, 1990 was P2,216.30 and not P614.00 or a shortage of 71%.
Petitioner contends that the bank may not now pay the deficiency
because the last demand letter sent to him was dated September 9,
1986, or more than twenty years have elapsed such that prescription
had already set in. Consequently, the banks claim must be dismissed
as the trial court loses jurisdiction over the case.
Petitioner also argues that the Court of Appeals should not have
assigned its own error and raised it as an issue of the case, contending
that no question should be entertained on appeal unless it has been
advanced in the court below or is within the issues made by the parties
in the pleadings. At any rate, he opines that the appellate courts
decision that the bank is the real party in interest because it is the
payee named in the note or the holder thereof is too simplistic since:
(1) the power and control of Asset Privatization Trust over the bank are
clear from the explicit terms of the duly certified trust documents and
deeds of transfer and are confirmed by the newspaper clippings; (2)
even under P.D. No. 902-A or the General Banking Act, where a
corporation or a bank is under receivership, conservation or
rehabilitation, it is only the representative (liquidator, receiver, trustee
or conservator) who may properly act for said entity, and, in this case,
the bank was held by Asset Privatization Trust as trustee; and (3) it is
not entirely accurate to say that the payee who has not indorsed the
notes in all cases is the real party in interest because the rights of the
payee may be subject of an assignment of incorporeal rights under
Articles 1624 and 1625 of the Civil Code.
Lastly, petitioner maintains that when respondent Bank served its
notice of appeal and appellants brief only on him, it rendered the
judgment of the trial court final and executory with respect to Antonio
Ang Eng Liong, which, in effect, released him (Antonio Ang Eng Liong)
from any and all liability under the promissory notes and, thereby,
foreclosed petitioners cross-claims. By such act, the bank, even if it be
the holder of the promissory notes, allegedly discharged a simple
contract for the payment of money (Sections 119 [d] and 122, NIL [Act
No. 2031]), prevented a surety like petitioner from being subrogated in
the shoes of his principal (Article 2080, Civil Code), and impaired the
notes, producing the effect of payment (Article 1249, Civil Code).
The petition is unmeritorious.
Procedurally, it is well within the authority of the Court of Appeals to
raise, if it deems proper under the circumstances obtaining, error/s not
14
assigned on an appealed case. In Mendoza v. Bautista,[44] this Court
recognized the broad discretionary power of an appellate court to
waive the lack of proper assignment of errors and to consider errors
not assigned, thus:
As a rule, no issue may be raised on appeal unless it has been brought
before the lower tribunal for its consideration. Higher courts are
precluded from entertaining matters neither alleged in the pleadings
nor raised during the proceedings below, but ventilated for the first
time only in a motion for reconsideration or on appeal.
However, as with most procedural rules, this maxim is subject to
exceptions. Indeed, our rules recognize the broad discretionary power
of an appellate court to waive the lack of proper assignment of errors
and to consider errors not assigned. Section 8 of Rule 51 of the Rules of
Court provides:
SEC. 8. Questions that may be decided. No error which does not affect
the jurisdiction over the subject matter or the validity of the judgment
appealed from or the proceedings therein will be considered, unless
stated in the assignment of errors, or closely related to or dependent
on an assigned error and properly argued in the brief, save as the court
may pass upon plain errors and clerical errors.
Thus, an appellate court is clothed with ample authority to review
rulings even if they are not assigned as errors in the appeal in these
instances: (a) grounds not assigned as errors but affecting jurisdiction
over the subject matter; (b) matters not assigned as errors on appeal
but are evidently plain or clerical errors within contemplation of law; (c)
matters not assigned as errors on appeal but consideration of which is
necessary in arriving at a just decision and complete resolution of the
case or to serve the interests of justice or to avoid dispensing
piecemeal justice; (d) matters not specifically assigned as errors on
appeal but raised in the trial court and are matters of record having
some bearing on the issue submitted which the parties failed to raise
or which the lower court ignored; (e) matters not assigned as errors on
appeal but closely related to an error assigned; and (f) matters not
assigned as errors on appeal but upon which the determination of a
question properly assigned is dependent. (Citations omitted)[45]
To the Courts mind, even if the Court of Appeals regarded petitioners
two assigned errors as irrelevant and not meritorious, the issue of
whether the trial court erred in dismissing the complaint for collection
of sum of money for lack of cause of action (on the ground that the
bank was not the holder of the notes at the time of the filing of the
action) is in reality closely related to and determinant of the resolution
of whether the lower court correctly ruled in not holding Antonio Ang
Eng Liong and petitioner Tomas Ang liable to the bank on their unpaid
loans despite documentary exhibits allegedly proving their obligations
and in dismissing the complaint based on newspaper clippings. Hence,
no error could be ascribed to the Court of Appeals on this point.
Now, the more relevant question is: who is the real party in interest at
the time of the institution of the complaint, is it the bank or the Asset
Privatization Trust?
To answer the query, a brief history on the creation of the Asset
Privatization Trust is proper.
Taking into account the imperative need of formally launching a
program for the rationalization of the government corporate sector,
then President Corazon C. Aquino issued Proclamation No. 50[46] on
December 8, 1986. As one of the twin cornerstones of the program was
to establish the privatization of a good number of government
corporations, the proclamation created the Asset Privatization Trust,
which would, for the benefit of the National Government, take title to
and possession of, conserve, provisionally manage and dispose of
transferred assets that were identified for privatization or disposition.
[47]
In accordance with the provisions of Section 23[48] of the
proclamation, then President Aquino subsequently issued
Administrative Order No. 14 on February 3, 1987, which approved the
identification of and transfer to the National Government of certain
assets (consisting of loans, equity investments, accrued interest
receivables, acquired assets and other assets) and liabilities (consisting
of deposits, borrowings, other liabilities and contingent guarantees) of
the Development Bank of the Philippines (DBP) and the Philippine
National Bank (PNB). The transfer of assets was implemented through
a Deed of Transfer executed on February 27, 1987 between the
National Government, on one hand, and the DBP and PNB, on the
other. In turn, the National Government designated the Asset
Privatization Trust to act as its trustee through a Trust Agreement,
whereby the non-performing accounts of DBP and PNB, including,
among others, the DBPs equity with respondent Bank, were entrusted
to the Asset Privatization Trust.[49] As provided for in the Agreement,
among the powers and duties of the Asset Privatization Trust with
respect to the trust properties consisting of receivables was to handle
their administration and collection by bringing suit to enforce payment
of the obligations or any installment thereof or settling or
compromising any of such obligations or any other claim or demand
which the Government may have against any person or persons, and
to do all acts, institute all proceedings, and to exercise all other rights,
powers, and privileges of ownership that an absolute owner of the
properties would otherwise have the right to do.[50]
Incidentally, the existence of the Asset Privatization Trust would have
expired five (5) years from the date of issuance of Proclamation No. 50.
[51] However, its original term was extended from December 8, 1991
up to August 31, 1992,[52] and again from December 31, 1993 until
15
June 30, 1995,[53] and then from July 1, 1995 up to December 31,
1999,[54] and further from January 1, 2000 until December 31, 2000.
[55] Thenceforth, the Privatization and Management Office was
established and took over, among others, the powers, duties and
functions of the Asset Privatization Trust under the proclamation.[56]
Based on the above backdrop, respondent Bank does not appear to be
the real party in interest when it instituted the collection suit on August
28, 1990 against Antonio Ang Eng Liong and petitioner Tomas Ang. At
the time the complaint was filed in the trial court, it was the Asset
Privatization Trust which had the authority to enforce its claims against
both debtors. In fact, during the pre-trial conference, Atty. Roderick
Orallo, counsel for the bank, openly admitted that it was under the
trusteeship of the Asset Privatization Trust.[57] The Asset Privatization
Trust, which should have been represented by the Office of the
Government Corporate Counsel, had the authority to file and prosecute
the case.
The foregoing notwithstanding, this Court can not, at present, readily
subscribe to petitioners insistence that the case must be dismissed.
Significantly, it stands without refute, both in the pleadings as well as
in the evidence presented during the trial and up to the time this case
reached the Court, that the issue had been rendered moot with the
occurrence of a supervening event the buy-back of the bank by its
former owner, Leonardo Ty, sometime in October 1993. By such re-
acquisition from the Asset Privatization Trust when the case was still
pending in the lower court, the bank reclaimed its real and actual
interest over the unpaid promissory notes; hence, it could rightfully
qualify as a holder[58] thereof under the NIL.
Notably, Section 29 of the NIL defines an accommodation party as a
person "who has signed the instrument as maker, drawer, acceptor, or
indorser, without receiving value therefor, and for the purpose of
lending his name to some other person." As gleaned from the text, an
accommodation party is one who meets all the three requisites, viz: (1)
he must be a party to the instrument, signing as maker, drawer,
acceptor, or indorser; (2) he must not receive value therefor; and (3)
he must sign for the purpose of lending his name or credit to some
other person.[59] An accommodation party lends his name to enable
the accommodated party to obtain credit or to raise money; he
receives no part of the consideration for the instrument but assumes
liability to the other party/ies thereto.[60] The accommodation party is
liable on the instrument to a holder for value even though the holder,
at the
time of taking the instrument, knew him or her to be merely an
accommodation party, as if the contract was not for accommodation.
[61]
As petitioner acknowledged it to be, the relation between an
accommodation party and the accommodated party is one of principal
and surety the accommodation party being the surety.[62] As such, he
is deemed an original promisor and debtor from the beginning;[63] he
is considered in law as the same party as the debtor in relation to
whatever is adjudged touching the obligation of the latter since their
liabilities are interwoven as to be inseparable.[64] Although a contract
of suretyship is in essence accessory or collateral to a valid principal
obligation, the surety's liability to the creditor is immediate, primary
and absolute; he is directly and equally bound with the principal.[65]
As an equivalent of a regular party to the undertaking, a surety
becomes liable to the debt and duty of the principal obligor even
without possessing a direct or personal interest in the obligations nor
does he receive any benefit therefrom.[66]
Contrary to petitioners adamant stand, however, Article 2080[67] of
the Civil Code does not apply in a contract of suretyship.[68] Art. 2047
of the Civil Code states that if a person binds himself solidarily with the
principal debtor, the provisions of Section 4, Chapter 3, Title I, Book IV
of the Civil Code must be observed. Accordingly, Articles 1207 up to
1222 of the Code (on joint and solidary obligations) shall govern the
relationship of petitioner with the bank.
The case of Inciong, Jr. v. CA[69] is illuminating:
Petitioner also argues that the dismissal of the complaint against
Naybe, the principal debtor, and against Pantanosas, his co-maker,
constituted a release of his obligation, especially because the dismissal
of the case against Pantanosas was upon the motion of private
respondent itself. He cites as basis for his argument, Article 2080 of the
Civil Code which provides that:
"The guarantors, even though they be solidary, are released from their
obligation whenever by come act of the creditor, they cannot be
subrogated to the rights, mortgages, and preferences of the latter."
It is to be noted, however, that petitioner signed the promissory note
as a solidary co-maker and not as a guarantor. This is patent even from
the first sentence of the promissory note which states as follows:
"Ninety one (91) days after date, for value received, I/we, JOINTLY and
SEVERALLY promise to pay to the PHILIPPINE BANK OF
COMMUNICATIONS at its office in the City of Cagayan de Oro,
Philippines the sum of FIFTY THOUSAND ONLY (P50,000.00) Pesos,
Philippine Currency, together with interest x x x at the rate of SIXTEEN
(16) per cent per annum until fully paid."
A solidary or joint and several obligation is one in which each debtor is
liable for the entire obligation, and each creditor is entitled to demand
the whole obligation. On the other hand, Article 2047 of the Civil Code
states:
16

"By guaranty a person, called the guarantor, binds himself to the
creditor to fulfill the obligation of the principal debtor in case the latter
should fail to do so.
If a person binds himself solidarily with the principal debtor, the
provisions of Section 4, Chapter 3, Title I of this Book shall be
observed. In such a case the contract is called a suretyship." (Italics
supplied.)
While a guarantor may bind himself solidarily with the principal debtor,
the liability of a guarantor is different from that of a solidary debtor.
Thus, Tolentino explains:
"A guarantor who binds himself in solidum with the principal debtor
under the provisions of the second paragraph does not become a
solidary co-debtor to all intents and purposes. There is a difference
between a solidary co-debtor, and a fiador in solidum (surety). The
later, outside of the liability he assumes to pay the debt before the
property of the principal debtor has been exhausted, retains all the
other rights, actions and benefits which pertain to him by reason of
rights of the fiansa; while a solidary co-debtor has no other rights than
those bestowed upon him in Section 4, Chapter 3, title I, Book IV of the
Civil Code."
Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on
joint and several obligations. Under Art. 1207 thereof, when there are
two or more debtors in one and the same obligation, the presumption
is that obligation is joint so that each of the debtors is liable only for a
proportionate part of the debt. There is a solidarily liability only when
the obligation expressly so states, when the law so provides or when
the nature of the obligation so requires.
Because the promissory note involved in this case expressly states that
the three signatories therein are jointly and severally liable, any one,
some or all of them may be proceeded against for the entire obligation.
The choice is left to the solidary creditor to determine against whom he
will enforce collection. (Citations omitted)[70]
In the instant case, petitioner agreed to be jointly and severally liable
under the two promissory notes that he co-signed with Antonio Ang
Eng Liong as the principal debtor. This being so, it is completely
immaterial if the bank would opt to proceed only against petitioner or
Antonio Ang Eng Liong or both of them since the law confers upon the
creditor the prerogative to choose whether to enforce the entire
obligation against any one, some or all of the debtors. Nonetheless,
petitioner, as an accommodation party, may seek reimbursement from
Antonio Ang Eng Liong, being the party accommodated.[71]
It is plainly mistaken for petitioner to say that just because the bank
failed to serve the notice of appeal and appellants brief to Antonio Ang
Eng Liong, the trial courts judgment, in effect, became final and
executory as against the latter and, thereby, bars his (petitioners)
cross-claims against him: First, although no notice of appeal and
appellants brief were served to Antonio Ang Eng Liong, he was
nonetheless impleaded in the case since his name appeared in the
caption of both the notice and the brief as one of the defendants-
appellees;[72] Second, despite including in the caption of the appellees
brief his co-debtor as one of the defendants-appellees, petitioner did
not also serve him a copy thereof;[73] Third, in the caption of the Court
of Appeals decision, Antonio Ang Eng Liong was expressly named as
one of the defendants-appellees;[74] and Fourth, it was only in his
motion for reconsideration from the adverse judgment of the Court of
Appeals that petitioner belatedly chose to serve notice to the counsel
of his co-defendant-appellee.[75]
Likewise, this Court rejects the contention of Antonio Ang Eng Liong, in
his special appearance through counsel, that the Court of Appeals,
much less this Court, already lacked jurisdiction over his person or over
the subject matter relating to him because he was not a party in CA-
G.R. CV No. 53413. Stress must be laid of the fact that he had twice
put himself in default one, in not filing a pre-trial brief and another, in
not filing his answer to petitioners cross-claims. As a matter of course,
Antonio Ang Eng Liong, being a party declared in default, already
waived his right to take part in the trial proceedings and had to
contend with the judgment rendered by the court based on the
evidence presented by the bank and petitioner. Moreover, even without
considering these default judgments, Antonio Ang Eng Liong even
categorically admitted having secured a loan totaling P80,000. In his
Answer to the complaint, he did not deny such liability but merely
pleaded that the bank be ordered to submit a more reasonable
computation instead of collecting excessive interest, penalty charges,
and attorneys fees. For failing to tender an issue and in not denying
the material allegations stated in the complaint, a judgment on the
pleadings[76] would have also been proper since not a single issue was
generated by the Answer he filed.
As the promissory notes were not discharged or impaired through any
act or omission of the bank, Sections 119 (d)[77] and 122[78] of the
NIL as well as Art. 1249[79] of the Civil Code would necessarily find no
application. Again, neither was petitioners right of reimbursement
barred nor was the banks right to proceed against Antonio Ang Eng
Liong expressly renounced by the omission to serve notice of appeal
and appellants brief to a party already declared in default.
Consequently, in issuing the two promissory notes, petitioner as
accommodating party warranted to the holder in due course that he
would pay the same according to its tenor.[80] It is no defense to state
on his part that he did not receive any value therefor[81] because the
phrase "without receiving value therefor" used in Sec. 29 of the NIL
means "without receiving value by virtue of the instrument" and not as
it is apparently supposed to mean, "without receiving payment for
17
lending his name."[82] Stated differently, when a third person
advances the face value of the note to the accommodated party at the
time of its creation, the consideration for the note as regards its maker
is the money advanced to the accommodated party. It is enough that
value was given for the note at the time of its creation.[83] As in the
instant case, a sum of money was received by virtue of the notes,
hence, it is immaterial so far as the bank is concerned whether one of
the signers, particularly petitioner, has or has not received anything in
payment of the use of his name.[84]
Under the law, upon the maturity of the note, a surety may pay the
debt, demand the collateral security, if there be any, and dispose of it
to his benefit, or, if applicable, subrogate himself in the place of the
creditor with the right to enforce the guaranty against the other
signers of the note for the reimbursement of what he is entitled to
recover from them.[85] Regrettably, none of these were prudently
done by petitioner. When he was first notified by the bank sometime in
1982 regarding his accountabilities under the promissory notes, he
lackadaisically relied on Antonio Ang Eng Liong, who represented that
he would take care of the matter, instead of directly communicating
with the bank for its settlement.[86] Thus, petitioner cannot now claim
that he was prejudiced by the supposed extension of time given by the
bank to his co-debtor.
Furthermore, since the liability of an accommodation party remains not
only primary but also unconditional to a holder for value, even if the
accommodated party receives an extension of the period for payment
without the consent of the accommodation party, the latter is still
liable for the whole obligation and such extension does not release him
because as far as a holder for value is concerned, he is a solidary co-
debtor.[87] In Clark v. Sellner,[88] this Court held:
x x x The mere delay of the creditor in enforcing the guaranty has not
by any means impaired his action against the defendant. It should not
be lost sight of that the defendant's signature on the note is an
assurance to the creditor that the collateral guaranty will remain good,
and that otherwise, he, the defendant, will be personally responsible
for the payment.
True, that if the creditor had done any act whereby the guaranty was
impaired in its value, or discharged, such an act would have wholly or
partially released the surety; but it must be born in mind that it is a
recognized doctrine in the matter of suretyship that with respect to the
surety, the creditor is under no obligation to display any diligence in
the enforcement of his rights as a creditor. His mere inaction
indulgence, passiveness, or delay in proceeding against the principal
debtor, or the fact that he did not enforce the guaranty or apply on the
payment of such funds as were available, constitute no defense at all
for the surety, unless the contract expressly requires diligence and
promptness on the part of the creditor, which is not the case in the
present action. There is in some decisions a tendency toward holding
that the creditor's laches may discharge the surety, meaning by laches
a negligent forbearance. This theory, however, is not generally
accepted and the courts almost universally consider it essentially
inconsistent with the relation of the parties to the note. (21 R.C.L.,
1032-1034)[89]
Neither can petitioner benefit from the alleged insolvency of Antonio
Ang Eng Liong for want of clear and convincing evidence proving the
same. Assuming it to be true, he also did not exercise diligence in
demanding security to protect himself from the danger thereof in the
event that he (petitioner) would eventually be sued by the bank.
Further, whether petitioner may or may not obtain security from
Antonio Ang Eng Liong cannot in any manner affect his liability to the
bank; the said remedy is a matter of concern exclusively between
themselves as accommodation party and accommodated party. The
fact that petitioner stands only as a surety in relation to Antonio Ang
Eng Liong is immaterial to the claim of the bank and does not a whit
diminish nor defeat the rights of the latter as a holder for value. To
sanction his theory is to give unwarranted legal recognition to the
patent absurdity of a situation where a co-maker, when sued on an
instrument by a holder in due course and for value, can escape liability
by the convenient expedient of interposing the defense that he is a
merely an accommodation party.[90]
In sum, as regards the other issues and errors alleged in this petition,
the Court notes that these were the very same questions of fact raised
on appeal before the Court of Appeals, although at times couched in
different terms and explained more lengthily in the petition. Suffice it
to say that the same, being factual, have been satisfactorily passed
upon and considered both by the trial and appellate courts. It is
doctrinal that only errors of law and not of fact are reviewable by this
Court in petitions for review on certiorari under Rule 45 of the Rules of
Court. Save for the most cogent and compelling reason, it is not our
function under the rule to examine, evaluate or weigh the probative
value of the evidence presented by the parties all over again.[91]
WHEREFORE, the October 9, 2000 Decision and December 26, 2000
Resolution of the Court of Appeals in CA-G.R. CV No. 53413 are
AFFIRMED. The petition is DENIED for lack of merit.
No costs.
SO ORDERED.
G.R. No. 176697 September 10, 2014
CESAR V. AREZA and LOLITA B. AREZA, Petitioners,
18
vs.
EXPRESS SAVINGS BANK, INC. and MICHAEL POTENCIANO,
Respondnets.
DECISION
PEREZ, J.:
Before this Court is a Petition for Review on Certiorari under Ruic 45 of
the Rules of Court, which seeks to reverse the Decision1 and
Resolution2 dated 29 June 2006 and 12 February 2007 of the Court of
Appeals in CAG.R. CV No. 83192. The Court of Appeals affirmed with
modification the 22 April 2004 Resolution3 of the Regional Trial Court
(RTC) of Calamba, Laguna, Branch 92, in Civil Case No. B-5886.
The factual antecedents follow.
Petitioners Cesar V. Areza and LolitaB. Areza maintained two bank
deposits with respondent Express Savings Banks Bian branch: 1)
Savings Account No. 004-01-000185-5 and 2) Special Savings Account
No. 004-02-000092-3.
They were engaged in the business of "buy and sell" of brand new and
second-hand motor vehicles. On 2 May 2000, they received an order
from a certain Gerry Mambuay (Mambuay) for the purchase of a
second-hand Mitsubishi Pajero and a brand-new Honda CRV.
The buyer, Mambuay, paid petitioners with nine (9) Philippine Veterans
Affairs Office (PVAO) checks payable to different payees and drawn
against the Philippine Veterans Bank (drawee), each valued at Two
Hundred Thousand Pesos (P200,000.00) for a total of One Million Eight
Hundred Thousand Pesos (P1,800,000.00).
About this occasion, petitioners claimed that Michael Potenciano
(Potenciano), the branch manager of respondent Express Savings Bank
(the Bank) was present during the transaction and immediately offered
the services of the Bank for the processing and eventual crediting of
the said checks to petitioners account.4 On the other hand,Potenciano
countered that he was prevailed upon to accept the checks by way of
accommodation of petitioners who were valued clients of the Bank.5
On 3 May 2000, petitioners deposited the said checks in their savings
account with the Bank. The Bank, inturn, deposited the checks with its
depositary bank, Equitable-PCI Bank, in Bian,Laguna. Equitable-PCI
Bank presented the checks to the drawee, the Philippine Veterans
Bank, which honored the checks.
On 6 May 2000, Potenciano informedpetitioners that the checks they
deposited with the Bank werehonored. He allegedly warned petitioners
that the clearing of the checks pertained only to the availability of
funds and did not mean that the checks were not infirmed.6 Thus, the
entire amount of P1,800,000.00 was credited to petitioners savings
account. Based on this information, petitioners released the two cars to
the buyer.
Sometime in July 2000, the subjectchecks were returned by PVAO to
the drawee on the ground that the amount on the face of the checks
was altered from the original amount of P4,000.00 to P200,000.00. The
drawee returned the checks to Equitable-PCI Bank by way of Special
Clearing Receipts. In August 2000, the Bank was informed by
Equitable-PCI Bank that the drawee dishonored the checks onthe
ground of material alterations. Equitable-PCI Bank initially filed a
protest with the Philippine Clearing House. In February 2001, the latter
ruled in favor of the drawee Philippine Veterans Bank. Equitable-PCI
Bank, in turn, debited the deposit account of the Bank in the amount of
P1,800,000.00.
The Bank insisted that they informed petitioners of said development
in August 2000 by furnishing them copies of the documents given by
its depositary bank.7 On the other hand, petitioners maintained that
the Bank never informed them of these developments.
On 9 March 2001, petitioners issued a check in the amount of
P500,000.00. Said check was dishonored by the Bank for the reason
"Deposit Under Hold." According topetitioners, the Bank unilaterally
and unlawfully put their account with the Bank on hold. On 22 March
2001, petitioners counsel sent a demand letter asking the Bank to
honor their check. The Bank refused to heed their request and instead,
closed the Special Savings Account of the petitioners with a balance of
P1,179,659.69 and transferred said amount to their savings account.
The Bank then withdrew the amount of P1,800,000.00representing the
returned checks from petitioners savings account.
Acting on the alleged arbitrary and groundless dishonoring of their
checks and the unlawful and unilateral withdrawal from their savings
account, petitioners filed a Complaint for Sum of Money with Damages
against the Bank and Potenciano with the RTC of Calamba.
On 15 January 2004, the RTC, through Judge Antonio S. Pozas, ruled in
favor of petitioners. The dispositive portion of the Decision reads:
WHEREFORE, the foregoing considered, the Court orders that judgment
be rendered in favor of plaintiffs and against the defendants jointly and
severally to pay plaintiffs as follows, to wit:
1. P1,800,000.00 representing the amount unlawfully withdrawn by the
defendants from the account of plaintiffs;
2. P500,000.00 as moral damages; and
3. P300,000.00 as attorneys fees.8
19
The trial court reduced the issue to whether or not the rights of
petitioners were violated by respondents when the deposits of the
former were debited by respondents without any court order and
without their knowledge and consent. According to the trial court, it is
the depositary bank which should safeguard the right ofthe depositors
over their money. Invoking Article 1977 of the Civil Code, the trial court
stated that the depositary cannot make use of the thing deposited
without the express permission of the depositor. The trial court also
held that respondents should have observed the 24-hour clearing
house rule that checks should be returned within 24-hours after
discovery of the forgery but in no event beyond the period fixed by law
for filing a legal action. In this case, petitioners deposited the checks in
May 2000, and respondents notified them of the problems on the check
three months later or in August 2000. In sum, the trial court
characterized said acts of respondents as attended with bad faith when
they debited the amount of P1,800,000.00 from the account of
petitioners.
Respondents filed a motion for reconsideration while petitioners filed a
motion for execution from the Decision of the RTC on the ground that
respondents motion for reconsideration did not conform with Section
5, Rule 16 of the Rules of Court; hence, it was a mere scrap of paper
that did not toll the running of the period to appeal.
On 22 April 2004, the RTC, through Pairing Judge Romeo C. De Leon
granted the motion for reconsideration, set aside the Pozas Decision,
and dismissed the complaint. The trial court awarded respondents their
counterclaim of moral and exemplary damages of P100,000.00 each.
The trial court first applied the principle of liberality when it
disregarded the alleged absence of a notice of hearing in respondents
motion for reconsideration. On the merits, the trial court considered
the relationship of the Bank and petitioners with respect to their
savings account deposits as a contract of loan with the bank as the
debtor and petitioners as creditors. As such, Article 1977 of the Civil
Code prohibiting the depository from making use of the thing
deposited without the express permission of the depositor is not
applicable. Instead, the trial court applied Article 1980 which provides
that fixed, savings and current deposits ofmoney in banks and similar
institutions shall be governed by the provisions governing simple loan.
The trial court then opined thatthe Bank had all the right to set-off
against petitioners savings deposits the value of their nine checks that
were returned.
On appeal, the Court of Appeals affirmed the ruling of the trial court
but deleted the award of damages. The appellate court made the
following ratiocination:
Any argument as to the notice of hearing has been resolved when the
pairing judge issued the order on February 24, 2004 setting the
hearing on March 26, 2004. A perusal of the notice of hearing shows
that request was addressed to the Clerk of Court and plaintiffs counsel
for hearing to be set on March 26, 2004.
The core issues in this case revolve on whether the appellee bank had
the right to debit the amount of P1,800,000.00 from the appellants
accounts and whether the banks act of debiting was done "without the
plaintiffs knowledge."
We find that the elements of legal compensation are all present in the
case at bar. Hence, applying the case of the Bank of the Philippine
Islands v. Court of Appeals, the obligors bound principally are at the
same time creditors of each other. Appellee bank stands as a debtor of
appellant, a depositor. At the same time, said bank is the creditor of
the appellant with respect to the dishonored treasury warrant checks
which amount were already credited to the account of appellants.
When the appellants had withdrawn the amount of the checks they
deposited and later on said checks were returned, they became
indebted to the appellee bank for the corresponding amount.
It should be noted that [G]erry Mambuay was the appellants walkin
buyer. As sellers, appellants oughtto have exercised due diligence in
assessing his credit or personal background. The 24-hour clearing
house rule is not the one that governs in this case since the nine
checks were discovered by the drawee bank to contain material
alterations.
Appellants merely allege that they were not informed of any
development on the checks returned. However, this Court believes that
the bank and appellants had opportunities to communicate about the
checks considering that several transactions occurred from the time of
alleged return of the checks to the date of the debit.
However, this Court agrees withappellants that they should not pay
moral and exemplary damages to each of the appellees for lack of
basis. The appellants were not shown to have acted in bad faith.9
Petitioners filed the present petition for review on certiorariraising both
procedural and substantive issues, to wit:
1. Whether or not the Honorable Court of Appeals committed a
reversible error of law and grave abuse of discretion in upholding the
legality and/or propriety of the Motion for Reconsideration filed in
violation of Section 5, Rule 15 ofthe Rules on Civil Procedure;
2. Whether or not the Honorable Court of Appeals committed a grave
abuse of discretion in declaring that the private respondents "had the
right to debit the amount of P1,800,000.00 from the appellants
accounts" and the banks act of debiting was done with the plaintiffs
knowledge.10
20
Before proceeding to the substantive issue, we first resolve the
procedural issue raised by petitioners.
Sections 5, Rule 15 of the Rules of Court states:
Section 5. Notice of hearing. The notice of hearing shall be addressed
to all parties concerned, and shall specify the time and date of the
hearing which must not be later than ten (10) days after the filing of
the motion.
Petitioners claim that the notice of hearing was addressed to the Clerk
of Court and not to the adverse party as the rules require. Petitioners
add that the hearing on the motion for reconsideration was scheduled
beyond 10 days from the date of filing.
As held in Maturan v. Araula,11 the rule requiring that the notice be
addressed to the adverse party has beensubstantially complied with
when a copy of the motion for reconsideration was furnished to the
counsel of the adverse party, coupled with the fact that the trial court
acted on said notice of hearing and, as prayed for, issued an order12
setting the hearing of the motion on 26 March 2004.
We would reiterate later that there is substantial compliance with the
foregoing Rule if a copy of the said motion for reconsideration was
furnished to the counsel of the adverse party.13
Now to the substantive issues to which procedural imperfection must,
in this case, give way.
The central issue is whether the Bank had the right to debit
P1,800,000.00 from petitioners accounts.
On 6 May 2000, the Bank informed petitioners that the subject checks
had been honored. Thus, the amountof P1,800,000.00 was accordingly
credited to petitioners accounts, prompting them to release the
purchased cars to the buyer.
Unknown to petitioners, the Bank deposited the checks in its
depositary bank, Equitable-PCI Bank. Three months had passed when
the Bank was informed by its depositary bank that the drawee had
dishonored the checks on the ground of material alterations.
The return of the checks created a chain of debiting of accounts, the
last loss eventually falling upon the savings account of petitioners with
respondent bank. The trial court inits reconsidered decision and the
appellate court were one in declaring that petitioners should bear the
loss.
We reverse.
The fact that material alteration caused the eventual dishonor of the
checks issued by PVAO is undisputed. In this case, before the alteration
was discovered, the checks were already cleared by the drawee bank,
the Philippine Veterans Bank. Three months had lapsed before the
drawee dishonored the checks and returned them to Equitable-PCI
Bank, the respondents depositary bank. And itwas not until 10 months
later when petitioners accounts were debited. A question thus arises:
What are the liabilities of the drawee, the intermediary banks, and the
petitioners for the altered checks?
LIABILITY OF THE DRAWEE
Section 63 of Act No. 2031 orthe Negotiable Instruments Law provides
that the acceptor, by accepting the instrument, engages that he will
pay it according to the tenor of his acceptance. The acceptor is a
drawee who accepts the bill. In Philippine National Bank v. Court of
Appeals,14 the payment of the amount of a check implies not only
acceptance but also compliance with the drawees obligation.
In case the negotiable instrument isaltered before acceptance, is the
drawee liable for the original or the altered tenor of acceptance? There
are two divergent intepretations proffered by legal analysts.15 The first
view is supported by the leading case of National City Bank ofChicago
v. Bank of the Republic.16 In said case, a certain Andrew Manning stole
a draft and substituted his name for that of the original payee. He
offered it as payment to a jeweler in exchange for certain jewelry. The
jeweler deposited the draft to the defendant bank which collectedthe
equivalent amount from the drawee. Upon learning of the alteration,
the drawee sought to recover from the defendant bank the amount of
the draft, as money paid by mistake. The court denied recovery on the
ground that the drawee by accepting admitted the existence of the
payee and his capacity to endorse.17 Still, in Wells Fargo Bank & Union
Trust Co. v. Bank of Italy,18 the court echoed the courts interpretation
in National City Bank of Chicago, in this wise:
We think the construction placed upon the section by the Illinois court
is correct and that it was not the legislative intent that the obligation of
the acceptor should be limited to the tenorof the instrument as drawn
by the maker, as was the rule at common law,but that it should be
enforceable in favor of a holder in due course against the acceptor
according to its tenor at the time of its acceptance or certification.
The foregoing opinion and the Illinois decision which it follows give
effect to the literal words of the Negotiable Instruments Law. As stated
in the Illinois case: "The court must take the act as it is written and
should give to the words their natural and common meaning . . . ifthe
language of the act conflicts with statutes or decisions in force before
its enactment the courts should not give the act a strained
construction in order to make it harmonize with earlier statutes or
decisions." The wording of the act suggests that a change in the
common law was intended. A careful reading thereof, independent of
21
any common-law influence, requires that the words "according to the
tenor of his acceptance" be construed as referring to the instrument as
it was at the time it came into the hands of the acceptor for
acceptance, for he accepts no other instrument than the one presented
to him the altered form and it alone he engages to pay. This
conclusion is in harmony with the law of England and the continental
countries. It makes for the usefulness and currency of negotiable paper
without seriously endangering accepted banking practices, for banking
institutions can readily protect themselves against liability on altered
instruments either by qualifying their acceptance or certification or by
relying on forgery insurance and specialpaper which will make
alterations obvious. All of the arguments advanced against the
conclusion herein announced seem highly technical in the face of the
practical facts that the drawee bank has authenticated an instrument
in a certain form, and that commercial policy favors the protection of
anyone who, in due course, changes his position on the faith of that
authentication.19
The second view is that the acceptor/drawee despite the tenor of his
acceptance is liable only to the extent of the bill prior to alteration.20
This view appears to be in consonance with Section 124 of the
Negotiable Instruments Law which statesthat a material alteration
avoids an instrument except as against an assenting party and
subsequent indorsers, but a holder in due course may enforce payment
according to its original tenor. Thus, when the drawee bank pays a
materially altered check, it violates the terms of the check, as well as
its duty tocharge its clients account only for bona fide disbursements
he had made. If the drawee did not pay according to the original tenor
of the instrument, as directed by the drawer, then it has no right to
claim reimbursement from the drawer, much less, the right to deduct
the erroneous payment it made from the drawers account which it was
expected to treat with utmost fidelity.21 The drawee, however, still has
recourse to recover its loss. It may pass the liability back to the
collecting bank which is what the drawee bank exactly did in this case.
It debited the account of Equitable-PCI Bank for the altered amount of
the checks.
LIABILITY OF DEPOSITARY BANK AND COLLECTING BANK
A depositary bank is the first bank to take an item even though it is
also the payor bank, unless the item is presented for immediate
payment over the counter.22 It is also the bank to which a check is
transferred for deposit in an account at such bank, evenif the check is
physically received and indorsed first by another bank.23 A collecting
bank is defined as any bank handling an item for collection except the
bank on which the check is drawn.24
When petitioners deposited the check with the Bank, they were
designating the latter as the collecting bank. This is in consonance with
the rule that a negotiable instrument, such as a check, whether a
manager's check or ordinary check, is not legal tender. As such, after
receiving the deposit, under its own rules, the Bank shall credit the
amount in petitioners account or infuse value thereon only after the
drawee bank shall have paid the amount of the check or the check has
been cleared for deposit.25
The Bank and Equitable-PCI Bank are both depositary and collecting
banks.
A depositary/collecting bank where a check is deposited, and which
endorses the check upon presentment with the drawee bank, is an
endorser. Under Section 66 of the Negotiable Instruments Law, an
endorser warrants "that the instrument is genuine and in all respects
what it purports to be; that he has good title to it; that all prior parties
had capacity to contract; and that the instrument is at the time of his
endorsement valid and subsisting." It has been repeatedly held that in
check transactions, the depositary/collecting bank or last endorser
generally suffers the loss because it has the duty to ascertain the
genuineness of all prior endorsements considering that the act of
presenting the check for payment to the drawee is an assertion that
the party making the presentment has done its duty to ascertain the
genuineness of the endorsements.26 If any of the warranties made by
the depositary/collecting bank turns out to be false, then the drawee
bank may recover from it up to the amount of the check.27
The law imposes a duty of diligence on the collecting bank to scrutinize
checks deposited with it for the purpose of determining their
genuineness and regularity. The collecting bank being primarily
engaged in banking holds itself out to the public as the expert and the
law holds it to a high standard of conduct.28
As collecting banks, the Bank and Equitable-PCI Bank are both liable for
the amount of the materially altered checks. Since Equitable-PCI Bank
is not a party to this case and the Bank allowed its account with
EquitablePCI Bank to be debited, it has the option toseek recourse
against the latter in another forum.
24-HOUR CLEARING RULE
Petitioners faulted the drawee bank for not following the 24-hour
clearing period because it was only in August 2000 that the drawee
bank notified Equitable-PCI that there were material alterations in the
checks.
We do not subscribe to the position taken by petitioners that the
drawee bank was at fault because it did not follow the 24-hour clearing
period which provides that when a drawee bank fails to return a forged
or altered check to the collecting bank within the 24-hour clearing
period, the collecting bank is absolved from liability.
Section 21 of the Philippine Clearing House Rules and Regulations
provides: Sec. 21. Special Return Items Beyond The Reglementary
22
Clearing Period.- Items which have been the subject of material
alteration or items bearing forged endorsement when such
endorsement is necessary for negotiation shall be returned by direct
presentation or demand to the Presenting Bank and not through the
regular clearing house facilities within the period prescribed by law for
the filing of a legal action by the returning bank/branch, institution or
entity sending the same.
Antonio Viray, in his book Handbook on Bank Deposits, elucidated:
It is clear that the so-called "24-hour" rule has been modified. In the
case of Hongkong & Shanghai vs. Peoples Bank reiterated in
Metropolitan Bank and Trust Co. vs. FNCB, the Supreme Court strictly
enforced the 24-hour rule under which the drawee bank forever loses
the right to claim against presenting/collecting bank if the check is not
returned at the next clearing day orwithin 24 hours. Apparently, the
commercial banks felt strict enforcement of the 24-hour rule is too
harsh and therefore made representations and obtained modification
of the rule, which modification is now incorporated in the Manual of
Regulations. Since the same commercial banks controlled the
Philippine Clearing House Corporation, incorporating the amended rule
in the PCHC Rules naturally followed.
As the rule now stands, the 24-hour rule is still in force, that is, any
check which should be refused by the drawee bank in accordance with
long standing and accepted banking practices shall be returned
through the PCHC/local clearing office, as the case may be, not later
than the next regular clearing (24-hour). The modification, however, is
that items which have been the subject of material alteration or
bearing forged endorsement may be returned even beyond 24 hours
so long that the same is returned within the prescriptive period fixed
by law. The consensus among lawyers is that the prescriptiveperiod is
ten (10)years because a check or the endorsement thereon is a written
contract. Moreover, the item need not be returned through the clearing
house but by direct presentation to the presenting bank.29
In short, the 24-hour clearing ruledoes not apply to altered checks.
LIABILITY OF PETITIONERS
The 2008 case of Far East Bank & Trust Company v. Gold Palace
Jewellery Co.30 is in point. A foreigner purchased several pieces of
jewelry from Gold Palace Jewellery using a United Overseas Bank
(Malaysia) issued draft addressed to the Land Bank of the Philippines
(LBP). Gold Palace Jewellery deposited the draft in the companys
account with Far East Bank. Far East Bank presented the draft for
clearing to LBP. The latter cleared the same and Gold Palace Jewellerys
account was credited with the amount stated in the draft.
Consequently, Gold Palace Jewellery released the pieces of jewelries to
the foreigner. Three weeks later, LBP informed Far East Bank that the
amount in the foreign draft had been materially altered from
P300,000.00 to P380,000.00. LBP returnedthe check to Far East Bank.
Far East Bank refunded LBP the P380,000.00 paid by LBP. Far East Bank
initially debited P168,053.36 from Gold Palace Jewellerys account and
demanded the payment of the difference between the amount in the
altered draft and the amount debited from Gold Palace Jewellery.
However, for the reasons already discussed above, our pronouncement
in the Far East Bank and Trust Companycase that "the drawee is liable
on its payment of the check according to the tenor of the check at the
time of payment, which was the raised amount"31 is inapplicable to
the factual milieu obtaining herein.
We only adopt said decision in so far as it adjudged liability on the part
of the collecting bank, thus:
Thus, considering that, in this case, Gold Palace is protected by Section
62 of the NIL, its collecting agent, Far East, should not have debited the
money paid by the drawee bank from respondent company's account.
When Gold Palace deposited the check with Far East, the latter, under
the terms of the deposit and the provisions of the NIL, became an
agent of the former for the collection of the amount in the draft. The
subsequent payment by the drawee bank and the collection of the
amount by the collecting bank closed the transaction insofar as the
drawee and the holder of the check or his agent are concerned,
converted the check into a mere voucher, and, as already discussed,
foreclosed the recovery by the drawee of the amount paid. This closure
of the transaction is a matter of course; otherwise, uncertainty in
commercial transactions, delay and annoyance will arise if a bank at
some future time will call on the payee for the return of the money
paid to him on the check.
As the transaction in this case had been closed and the principalagent
relationship between the payee and the collecting bank had already
ceased, the latter in returning the amount to the drawee bank was
already acting on its own and should now be responsible for its own
actions. x x x Likewise, Far East cannot invoke the warranty of the
payee/depositor who indorsed the instrument for collection to shift the
burden it brought upon itself. This is precisely because the said
indorsement is only for purposes of collection which, under Section 36
of the NIL, is a restrictive indorsement. It did not in any way transfer
the title of the instrument to the collecting bank. Far East did not own
the draft, it merely presented it for payment. Considering that the
warranties of a general indorser as provided in Section 66 of the NIL
are based upon a transfer of title and are available only to holders in
due course, these warranties did not attach to the indorsement for
deposit and collection made by Gold Palace to Far East. Without any
legal right to do so, the collecting bank, therefore, could not debit
respondent's account for the amount it refunded to the drawee bank.
23
The foregoing considered, we affirm the ruling of the appellate court to
the extent that Far East could not debit the account of Gold Palace, and
for doing so, it must return what it had erroneously taken.32
Applying the foregoing ratiocination, the Bank cannot debit the savings
account of petitioners. A depositary/collecting bank may resist or
defend against a claim for breach of warranty if the drawer, the payee,
or either the drawee bank or depositary bank was negligent and such
negligence substantially contributed tothe loss from alteration. In the
instant case, no negligence can be attributed to petitioners. We lend
credence to their claim that at the time of the sales transaction, the
Banks branch manager was present and even offered the Banks
services for the processing and eventual crediting of the checks. True
to the branch managers words, the checks were cleared three days
later when deposited by petitioners and the entire amount ofthe
checks was credited to their savings account.
ON LEGAL COMPENSATION
Petitioners insist that the Bank cannotbe considered a creditor of the
petitioners because it should have made a claim of the amount of
P1,800,000.00 from Equitable-PCI Bank, its own depositary bank and
the collecting bank in this case and not from them.
The Bank cannot set-off the amount it paid to Equitable-PCI Bank with
petitioners savings account. Under Art. 1278 of the New Civil Code,
compensation shall take place when two persons, in their own right,
are creditors and debtors of each other. And the requisites for legal
compensation are:
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 quality if
the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the
debtor.
It is well-settled that the relationship of the depositors and the Bank or
similar institution is that of creditor-debtor. Article 1980 of the New
Civil Code provides that fixed, savings and current deposits of money
in banks and similar institutions shall be governed by the provisions
concerning simple loans. The bank is the debtor and the depositor is
the creditor. The depositor lends the bank money and the bank agrees
to pay the depositor on demand. The savings deposit agreement
between the bank and the depositor is the contract that determines
the rights and obligations of the parties.33
But as previously discussed, petitioners are not liable for the deposit of
the altered checks. The Bank, asthe depositary and collecting bank
ultimately bears the loss. Thus, there being no indebtedness to the
Bank on the part of petitioners, legal compensation cannot take place.
DAMAGES
The Bank incurred a delay in informing petitioners of the checks
dishonor. The Bank was informed of the dishonor by Equitable-PCI Bank
as early as August 2000 but it was only on 7 March 2001 when the
Bank informed petitioners that it will debit from their account the
altered amount. This delay is tantamount to negligence on the part of
the collecting bank which would entitle petitioners to an award for
damages under Article 1170 of the New Civil Code which reads:
Art. 1170. Those who in the performance of their obligations are guilty
of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages.
The damages in the form of actual or compensatory damages
represent the amount debited by the Bank from petitioners account.
We delete the award of moral damages. Contrary to the lower courts
finding, there was no showing that the Bank acted fraudulently or in
bad faith. It may have been remiss in its duty to diligently protect the
account of its depositors but its honest but mistaken belief that
petitioners account should be debited is not tantamount to bad faith.
We also delete the award of attorneys fees for it is not a sound public
policy to place a premium on the right to litigate. No damages can
becharged to those who exercise such precious right in good faith,
even if done erroneously.34
To recap, the drawee bank, Philippine Veterans Bank in this case, is
only liable to the extent of the check prior to alteration. Since
Philippine Veterans Bank paid the altered amount of the check, it may
pass the liability back as it did, to Equitable-PCI Bank,the collecting
bank. The collecting banks, Equitable-PCI Bank and the Bank, are
ultimately liable for the amount of the materially altered check. It
cannot further pass the liability back to the petitioners absent any
showing in the negligence on the part of the petitioners which
substantially contributed to the loss from alteration.
Based on the foregoing, we affirm the Pozasdecision only insofar as it
ordered respondents to jointly and severally pay petitioners
P1,800,000.00, representing the amount withdrawn from the latters
account. We do not conform with said ruling regarding the finding of
24
bad faith on the part of respondents, as well as its failure toobserve the
24-hour clearing rule.
WHEREFORE, the petition is GRANTED. The Decision and Resolution
dated 29 June 2006 and 12 February 2007 respectively of the Court of
Appeals in CA-G.R. CV No. 83192 are REVERSED and SET ASIDE. The 15
January 2004 Decision of the Regional Trial Court of Calamba City,
Branch 92 in Civil Case No. B-5886 rendered by Judge Antonio S. Pozas
is REINSTATED only insofar as it ordered respondents to jointly and
severally pay petitioners P1,800,000.00 representing the amount
withdrawn from the latters account. The award of moral damages and
attorneys fees are DELETED.
SO ORDERED.
25