OMAN CATHOLIC BISHOP OF MALOLOS, INC., Petitioner, v.

INTERMEDIATE APPELLATE COURT,

and ROBES-FRANCISCO REALTY AND DEVELOPMENT CORPORATION, Respondents.

Rodrigo Law Office for Petitioner.

Antonio P. Barredo and Napoleon M. Malinas for Private Respondent.

DECISION

SARMIENTO, J.:

This is a petition for review on certiorari which seeks the reversal and setting aside of the decision 1 of the
Court of Appeals, 2 the dispositive portion of which reads:chanrobles law library : red

WHEREFORE, the decision appealed from is hereby reversed and set aside and another one entered for
the plaintiff ordering the defendant-appellee Roman Catholic Bishop of Malolos, Inc. to accept the balance of
P124,000.00 being paid by plaintiff-appellant and thereafter to execute in favor of Robes-Francisco Realty
Corporation a registerable Deed of Absolute Sale over 20,655 square meters portion of that parcel of land
situated in San Jose del Monte, Bulacan described in OCT No. 575 (now Transfer Certificates of Title Nos.
T-169493, 169494,169495 and 169496) of the Register of Deeds of Bulacan. In case of refusal of the
defendant to execute the Deed of Final Sale, the clerk of court is directed to execute the said document.
Without pronouncement as to damages and attorney’s fees. Costs against the defendant-appellee. 3

The case at bar arose from a complaint filed by the private respondent, then plaintiff, against the petitioner,
then defendant, in the Court of First Instance (now Regional Trial Court) of Bulacan, at Sta. Maria, Bulacan,
4 for specific performance with damages, based on a contract 5 executed on July 7, 1971.

The property subject matter of the contract consists of a 20,655 sq.m.-portion, out of the 30,655 sq.m. total
area, of a parcel of land covered by Original Certificate of Title No. 575 of the Province of Bulacan, issued
and registered in the name of the petitioner which it sold to the private respondent for and in consideration of
P123,930.00.chanrobles virtual lawlibrary

The crux of the instant controversy lies in the compliance or non-compliance by the private respondent with
the provision for payment to the petitioner of the principal balance of P100,000.00 and the accrued interest
of P24,000.00 within the grace period.

A chronological narration of the antecedent facts is as follows:chanrob1es virtual 1aw library

On July 7, 1971, the subject contract over the land in question was executed between the petitioner as
vendor and the private respondent through its then president, Mr. Carlos F. Robes, as vendee, stipulating for
a downpayment of P23,930.00 and the balance of P100,000.00 plus 12% interest per annum to be paid
within four (4) years from execution of the contract, that is, on or before July 7, 1975. The contract likewise

1
provides for cancellation, forfeiture of previous payments, and reconveyance of the land in question in case
the private respondent would fail to complete payment within the said period.

On March 12, 1973, the private respondent, through its new president, Atty. Adalia Francisco, addressed a
letter 6 to Father Vasquez, parish priest of San Jose Del Monte, Bulacan, requesting to be furnished with a
copy of the subject contract and the supporting documents.

On July 17, 1975, admittedly after the expiration of the stipulated period for payment, the same Atty.
Francisco wrote the petitioner a formal request 7 that her company be allowed to pay the principal amount of
P100,000.00 in three (3) equal installments of six (6) months each with the first installment and the accrued
interest of P24,000.00 to be paid immediately upon approval of the said request.

On July 29, 1975, the petitioner, through its counsel, Atty. Carmelo Fernandez, formally denied the said
request of the private respondent, but granted the latter a grace period of five (5) days from the receipt of the
denial 8 to pay the total balance of P124,000.00, otherwise, the provisions of the contract regarding
cancellation, forfeiture, and reconveyance would be implemented.

On August 4, 1975, the private respondent, through its president, Atty. Francisco, wrote 9 the counsel of the
petitioner requesting an extension of 30 days from said date to fully settle its account. The counsel for the
petitioner, Atty. Fernandez, received the said letter on the same day. Upon consultation with the petitioner in
Malolos, Bulacan, Atty. Fernandez, as instructed, wrote the private respondent a letter 10 dated August 7,
1975 informing the latter of the denial of the request for an extension of the grace period.

Consequently, Atty. Francisco, the private respondent’s president, wrote a letter 11 dated August 22, 1975,
directly addressed to the petitioner, protesting the alleged refusal of the latter to accept tender of payment
purportedly made by the former on August 5, 1975, the last day of the grace period. In the same letter of
August 22, 1975, received on the following day by the petitioner, the private respondent demanded the
execution of a deed of absolute sale over the land in question and after which it would pay its account in full,
otherwise, judicial action would be resorted to.chanrobles.com.ph : virtual law library

On August 27, 1975, the petitioner’s counsel, Atty. Fernandez, wrote a reply 12 to the private respondent
stating the refusal of his client to execute the deed of absolute sale due to its (private respondent’s) failure to
pay its full obligation. Moreover, the petitioner denied that the private respondent had made any tender of
payment whatsoever within the grace period. In view of this alleged breach of contract, the petitioner
cancelled the contract and considered all previous payments forfeited and the land as ipso facto
reconveyed.

From a perusal of the foregoing facts, we find that both the contending parties have conflicting versions on
the main question of tender of payment.

The trial court, in its ratiocination, preferred not to give credence to the evidence presented by the private
Respondent. According to the trial court:chanrob1es virtual 1aw library

2
. . . What made Atty. Francisco suddenly decide to pay plaintiff’s obligation on August 5, 1975, go to
defendant’s office at Malolos, and there tender her payment, when her request of August 4, 1975 had not yet
been acted upon until August 7, 1975? If Atty. Francisco had decided to pay the obligation and had available
funds for the purpose on August 5, 1975, then there would have been no need for her to write defendant on
August 4, 1975 to request an extension of time. Indeed, Atty. Francisco’s claim that she made a tender of
payment on August 5, 1975 — such alleged act, considered in relation to the circumstances both antecedent
and subsequent thereto, being not in accord with the normal pattern of human conduct — is not worthy of
credence. 13

The trial court likewise noted the inconsistency in the testimony of Atty. Francisco, president of the private
respondent, who earlier testified that a certain Mila Policarpio accompanied her on August 5, 1975 to the
office of the petitioner. Another person, however, named Aurora Oracion, was presented to testify as the
secretary-companion of Atty. Francisco on that same occasion.

Furthermore, the trial court considered as fatal the failure of Atty. Francisco to present in court the certified
personal check allegedly tendered as payment or, at least, its xerox copy, or even bank records thereof.
Finally, the trial court found that the private respondent had insufficient funds available to fulfill the entire
obligation considering that the latter, through its president, Atty. Francisco, only had a savings account
deposit of P64,840.00, and although the latter had a money-market placement of P300,000.00, the same
was to mature only after the expiration of the 5-day grace period.

Based on the above considerations, the trial court rendered a decision in favor of the petitioner, the
dispositive portion of which reads:chanrobles virtual lawlibrary

WHEREFORE, finding plaintiff to have failed to make out its case, the court hereby declares the subject
contract cancelled and plaintiff’s downpayment of P23,930.00 forfeited in favor of defendant, and hereby
dismisses the complaint; and on the counterclaim, the Court orders plaintiff to pay defendant.

(1) Attorney’s fees of P10,000.00;

(2) Litigation expenses of P2,000.00; and

(3) Judicial costs.

SO ORDERED. 14

Not satisfied with the said decision, the private respondent appealed to the respondent Intermediate
Appellate Court (now Court of Appeals) assigning as reversible errors, among others, the findings of the trial
court that the available funds of the private respondent were insufficient and that the latter did not effect a
valid tender of payment and consignation.

The respondent court, in reversing the decision of the trial court, essentially relies on the following
findings:chanrob1es virtual 1aw library
3
. . . We are convinced from the testimony of Atty. Adalia Francisco and her witnesses that in behalf of the
plaintiff-appellant they have a total available sum of P364,840.00 at her and at the plaintiff’s disposal on or
before August 4, 1975 to answer for the obligation of the plaintiff-appellant. It was not correct for the trial
court to conclude that the plaintiff-appellant had only about P64,840.00 in savings deposit on or before
August 5, 1975, a sum not enough to pay the outstanding account of P124,000.00. The plaintiff-appellant,
through Atty. Francisco proved and the trial court even acknowledged that Atty. Adalia Francisco had about
P300,000.00 in money market placement. The error of the trial court has in concluding that the money
market placement of P300,000.00 was out of reach of Atty. Francisco. But as testified to by Mr. Catalino
Estrella, a representative of the Insular Bank of Asia and America, Atty. Francisco could withdraw anytime
her money market placement and place it at her disposal, thus proving her financial capability of meeting
more than the whole of P124,000.00 then due per contract. This situation, We believe, proves the truth that
Atty. Francisco apprehensive that her request for a 30-day grace period would be denied, she tendered
payment on August 4, 1975 which offer defendant through its representative and counsel refused to
receive. . .15 (Emphasis supplied)

In other words, the respondent court, finding that the private respondent had sufficient available funds, ipso
facto concluded that the latter had tendered payment. Is such conclusion warranted by the facts proven?
The petitioner submits that it is not.cralawnad

Hence, this petition. 16

The petitioner presents the following issues for resolution:chanrob1es virtual 1aw library

x x x

A. Is a finding that private respondent had sufficient available funds on or before the grace period for the
payment of its obligation proof that it (private respondent) did tender of (sic) payment for its said obligation
within said period?

x x x

B. Is it the legal obligation of the petitioner (as vendor) to execute a deed of absolute sale in favor of the
private respondent (as vendee) before the latter has actually paid the complete consideration of the sale —
where the contract between and executed by the parties stipulates —

"That upon complete payment of the agreed consideration by the herein VENDEE, the VENDOR shall cause
the execution of a Deed of Absolute Sale in favor of the VENDEE."cralaw virtua1aw library

x x x.
4
C. Is an offer of a check a valid tender of payment of an obligation under a contract which stipulates that the
consideration of the sale is in Philippine Currency? 17

We find the petition impressed with merit.

With respect to the first issue, we agree with the petitioner that a finding that the private respondent had
sufficient available funds on or before the grace period for the payment of its obligation does not constitute
proof of tender of payment by the latter for its obligation within the said period. Tender of payment involves a
positive and unconditional act by the obligor of offering legal tender currency as payment to the obligee for
the former’s obligation and demanding that the latter accept the same. Thus, tender of payment cannot be
presumed by a mere inference from surrounding circumstances. At most, sufficiency of available funds is
only affirmative of the capacity or ability of the obligor to fulfill his part of the bargain. But whether or not the
obligor avails himself of such funds to settle his outstanding account remains to be proven by independent
and credible evidence. Tender of payment presupposes not only that the obligor is able, ready, and willing,
but more so, in the act of performing his obligation. Ab posse ad actu non vale illatio. "A proof that an act
could have been done is no proof that it was actually done."cralaw virtua1aw library

The respondent court was therefore in error to have concluded from the sheer proof of sufficient available
funds on the part of the private respondent to meet more than the total obligation within the grace period, the
alleged truth of tender of payment. The same is a classic case of non-sequitur.chanrobles virtual lawlibrary

On the contrary, the respondent court finds itself remiss in overlooking or taking lightly the more important
findings of fact made by the trial court which we have earlier mentioned and which as a rule, are entitled to
great weight on appeal and should be accorded full consideration and respect and should not be disturbed
unless for strong and cogent reasons. 18

While the Court is not a trier of facts, yet, when the findings of fact of the Court of Appeals are at variance
with those of the trial court, 19 or when the inference of the Court of Appeals from its findings of fact is
manifestly mistaken, 20 the Court has to review the evidence in order to arrive at the correct findings based
on the record.

Apropos the second issue raised, although admittedly the documents for the deed of absolute sale had not
been prepared, the subject contract clearly provides that the full payment by the private respondent is an a
priori condition for the execution of the said documents by the petitioner.

That upon complete payment of the agreed consideration by the herein VENDEE, the VENDOR shall cause
the execution of a Deed of Absolute Sale in favor of the VENDEE. 21

The private respondent is therefore in estoppel to claim otherwise as the latter did in the testimony in
cross-examination of its president, Atty. Francisco, which reads:chanrob1es virtual 1aw library

5
Q Now, you mentioned, Atty. Francisco, that you wanted the defendant to execute the final deed of sale
before you would given (sic) the personal certified check in payment of your balance, is that correct?

A Yes, sir. 22

x x x

Art. 1159 of the Civil Code of the Philippines provides that "obligations arising from contracts have the force
of law between the contracting parties and should be complied with in good faith." And unless the
stipulations in said contract are contrary to law, morals, good customs, public order, or public policy, the
same are binding as between the parties.23

What the private respondent should have done if it was indeed desirous of complying with its obligations
would have been to pay the petitioner within the grace period and obtain a receipt of such payment duly
issued by the latter. Thereafter, or, allowing a reasonable time, the private respondent could have
demanded from the petitioner the execution of the necessary documents. In case the petitioner refused, the
private respondent could have had always resorted to judicial action for the legitimate enforcement of its
right. For the failure of the private respondent to undertake this more judicious course of action, it alone shall
suffer the consequences.chanrobles.com:cralaw:red

With regard to the third issue, granting arguendo that we would rule affirmatively on the two preceding
issues, the case of the private respondent still can not succeed in view of the fact that the latter used a
certified personal check which is not legal tender nor the currency stipulated, and therefore, can not
constitute valid tender of payment. The first paragraph of Art. 1249 of the Civil Code provides that "the
payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such
currency, then in the currency which is legal tender in the Philippines.

The Court en banc in the recent case of Philippine Airlines v. Court of Appeals, 24 G.R. No. L-49188, stated
thus:chanrob1es virtual 1aw library

Since a negotiable instrument is only a substitute for money and not money, the delivery of such an
instrument does not, by itself, operate as payment (citing Sec. 189, Act 2031 on Negs. Insts.; Art. 1249, Civil
Code; Bryan London Co. v. American Bank, 7 Phil. 255; Tan Sunco v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61).
A check, whether a manager’s check or ordinary check, is not legal tender, and an offer of a check in
payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor.

Hence, where the tender of payment by the private respondent was not valid for failure to comply with the
requisite payment in legal tender or currency stipulated within the grace period and as such, was validly
refused receipt by the petitioner, the subsequent consignation did not operate to discharge the former from
its obligation to the latter.

6
In view of the foregoing, the petitioner in the legitimate exercise of its rights pursuant to the subject contract,
did validly order therefore the cancellation of the said contract, the forfeiture of the previous payment, and
the reconveyance ipso facto of the land in question.chanrobles lawlibrary : rednad

WHEREFORE, the petition for review on certiorari is GRANTED and the DECISION of the respondent court
promulgated on April 25, 1985 is hereby SET ASIDE and ANNULLED and the DECISION of the trial court
dated May 25, 1981 is hereby REINSTATED. Costs against the private Respondent.

SO ORDERED.

Melencio-Herrera, Paras and Regalado, JJ., concur.

Padilla, J., took no part.

7
G.R. No. 120639 September 25, 1998

BPI EXPRESS CARD CORPORATION, petitioner,

vs.
COURT OF APPEALS and RICARDO J. MARASIGAN, respondents.

KAPUNAN, J.:

The question before this Court is whether private respondent can recover moral damages arising from the
cancellation of his credit card by petitioner credit card corporation.

The facts of the case are as stated in the decision of the respondent court, 1 to wit:

The case arose from the dishonor of the credit card of the plaintiff Atty. Ricardo J. Marasigan by Café
Adriatico, a business establishment accredited with the defendant-appellate BPI Express Card Corporation
(BECC for brevity), on December 8, 1989 when the plaintiff entertained some guests thereat.

The records of this case show that plaintiff, who is a lawyer by profession, was a complimentary member of
BECC from February 1988 to February 1989 and was issued Credit Card No. 100-012-5534 with a credit
limit of P3,000.00 and with a monthly billing every 27th of the month (Exh. N), subject to the terms and
conditions stipulated in the contract (Exh. 1-b). His membership was renewed for another year or until
February 1990 and the credit limit was increased to P5,000.00 (Exh. A). The plaintiffs oftentimes exceeded
his credit limits (Exhs. I, I-1 to I-12) but this was never taken against him by the defendant and even his
mode of paying his monthly bills in check was tolerated. Their contractual relations went on smoothly until
his statement of account for October 1989 amounting to P8,987.84 was not paid in due time. The plaintiff
admitted having inadvertently failed to pay his account for the said month because he was in Quezon
province attending to some professional and personal commitments. He was informed by his secretary that
defendant was demanding immediate payment of his outstanding account, was requiring him to issue a
check for P15,000.00 which would include his future bills, and was threatening to suspend his credit card.
Plaintiff issued Far East Bank and Trust Co. Check No. 494675 in the amount of P15,000.00, postdated
December 15, 1989 which was received on November 23, 1989 by Tess Lorenzo, an employee of the
defendant (Exhs. J and J-1), who in turn gave the said check to Jeng Angeles, a co-employee who handles
the account of the plaintiff. The check remained in the custody of Jeng Angeles. Mr. Roberto Maniquiz, head
of the collection department of defendant was formally informed of the postdated check about a week later.
On November 28, 2989, defendant served plaintiff a letter by ordinary mail informing him of the temporary
suspension of the privileges of his credit card and the inclusion of his account number in their Caution List.
He was also told to refrain from further use of his credit card to avoid any inconvenience/embarrassment and
that unless he settles his outstanding account with the defendant within 5 days from receipt of the letter, his
8
membership will be permanently cancelled (Exh. 3). There is no showing that the plaintiff received this letter
before December 8, 1989. Confidential that he had settled his account with the issuance of the postdated
check, plaintiff invited some guests on December 8, 1989 and entertained them at Café Adriatico. When he
presented his credit card to Café Adriatico for the bill amounting to P735.32, said card was dishonored. One
of his guests, Mary Ellen Ringler, paid the bill by using her own credit card a Unibankard (Exhs. M, M-1 and
M-2).

In a letter addressed to the defendant dated December 12, 1989, plaintiff requested that he be sent the
exact billing due him as of December 15, 1989, to withhold the deposit of his postdated check and that said
check be returned to him because he had already instructed his bank to stop the payment thereof as the
defendant violated their agreement that the plaintiff issue the check to the defendant to cover his account
amounting to only P8,987.84 on the condition that the defendant will not suspend the effectivity of the card
(Exh. D). A letter dated December 16, 1989 was sent by the plaintiff to the manager of FEBTC, Ramada
Branch, Manila requesting the bank to stop the payment of the check (Exhs. E, E-1). No reply was received
by plaintiff from the defendant to his letter dated December 12, 1989. Plaintiff sent defendant another letter
dated March 12, 1990 reminding the latter that he had long rescinded and cancelled whatever arrangement
he entered into with defendant and requesting for his correct billing, less the improper charges and penalties,
and for an explanation within five (5) days from receipt thereof why his card was dishonored on December 8,
1989 despite assurance to the contrary by defendant's personnel-in-charge, otherwise the necessary court
action shall be filed to hold defendant responsible for the humiliation and embarrassment suffered by him
(Exh. F). Plaintiff alleged further that after a few days, a certain Atty. Albano, representing himself to be
working with the office of Atty. Lopez, called him inquiring as to how the matter can be threshed out
extrajudicially but the latter said that such is a serious matter cannot be discussed over the phone. The
defendant served its final demand to the plaintiff dated March 21, 1990 requiring him to pay in full his
overdue account, including stipulated fees and charges, within 5 days from receipt thereof or face court
action and also to replace the postdated check with cash within the same period or face criminal suit for
violation of Bouncing Check Law (Exh. G/Exh. 13). The plaintiff in a reply letter dated April 5, 1990 (Exh. H),
demanded defendant's compliance with his request in his first letter dated March 12, 1990 within three (3)
days from receipt, otherwise the plaintiff will file a case against them, . . . .2

Thus, on May 7, 1990 private respondent filed a complaint for damages against petitioner before the
Regional Trial Court of Makati, Branch 150, docketed as Civil Case No. 90-1174.

After trial the trial court ruled for private respondent, finding that herein petitioner abused its right in
contravention of Article 19 of the Civil Code. 3 The dispositive portion of the decision reads:

Wherefore, judgment is hereby rendered ordering the defendant to pay plaintiff the following:

1. P 100,000.00 as moral damages;

2. P 50,000.00 as exemplary damages; and

3. P 20,000.00 by way of attorney's fees.

On the other hand, plaintiff is ordered to pay defendant its outstanding obligation in the amount of
P14,439.41, amount due as of December 15, 1989.4

The trial court's ruling was based on its findings and conclusions, to wit:

There is no question that plaintiff had been in default in the payment of his billings for more than two months,
prompting defendant to call him and reminded him of his obligation. Unable to personally talk with him, this
Court is convinced that somehow one or another employee of defendant called him up more that once.

9
However, while it is true that as indicated in the terms and conditions of the application for BPI credit card
upon failure of the cardholder to pay his outstanding obligation for more that thirty (30) days, the defendant
can automatically suspend or cancel the credit card, that reserved right should not have been abused as it
was in fact abused, in plaintiff's case. What is more peculiar here is that there have been admitted
communications between plaintiff and defendant prior to the suspension or cancellation of plaintiff's credit
card and his inclusion in the cautions list. However, nowhere in any of these communications was there ever
a hint given to plaintiff that his card had already been suspended or cancelled. In fact, the Court observed
that while defendant was trying its best to persuade plaintiff to update its account and pay its obligation, it
had already taken steps to suspend/cancel plaintiff's card and include him in the caution list. While the Court
admires defendant's diplomacy in dealing with its clients, it cannot help but frown upon the backhanded way
defendant deal with plaintiff's case. For despite Tess Lorenzo's denial, there is reason to believe that plaintiff
was indeed assured by defendant of the continued honoring of his credit card so long as he pays his
obligation of P15,000.00. Worst, upon receipt of the postdated check, defendant kept the same until a few
days before it became due and said check was presented to the head of the collection department, Mr.
Maniquiz, to take steps thereon, resulting to the embarrassing situations plaintiff found himself in on
December 8, 1989. Moreover, Mr. Maniquiz himself admitted that his request for plaintiff to replace the
check with cash was not because it was a postdated check but merely to tally the payment with the account
due.

Likewise, the Court is not persuaded by the sweeping denials made by Tess Lorenzo and her claim that her
only participation was to receive the subject check. Her immediate superior, Mr. Maniquiz testified that he
had instructed Lorenzo to communicate with plaintiff once or twice to request the latter to replace the
questioned check with cash, thus giving support to the testimony of plaintiff's witness, Dolores Quizon, that it
was one Tess Lorenzo whom she had talked over the phone regarding plaintiff's account and plaintiff's own
statement that it was this woman who assured him that his card has not yet been and will not be
cancelled/suspended if he would pay defendant the sum of P15,000.00.

Now, on the issue of whether or not upon receipt of the subject check defendant had agreed that the card
shall remain effective the Court takes note of the following:

1. An employee of defendant corporation unconditionally accepted the subject check upon its delivery
despite its being a postdated one; and the amount did not tally with plaintiff's obligation;

2. Defendant did not deny nor controvert plaintiff's claim that all of his payments were made in checks;

3. Defendant's main witness, Mr. Maniquiz, categorically stated that the request for plaintiff to replace his
postdated check with a cash was merely for the purpose of tallying plaintiff's outstanding obligation with his
payment and not to question the postdated check;

4. That the card was suspended almost a week after receipt of the postdated check;

5. That despite the many instances that defendant could have informed plaintiff over the phone of the
cancellation or suspension of his credit card, it did not do so, which could have prevented the incident of
December 8, 1989, the notice allegedly sent thru ordinary mail is not only unreliable but takes a long time.
Such action as suspension of credit card must be immediately relayed to the person affected so as to avoid
embarrassing situations.

6. And that the postdated check was deposited on December 20, 1989.

In view of the foregoing observations, it is needless to say that there was indeed an arrangement between
plaintiff and the defendant, as can be inferred from the acts of the defendant's employees, that the subject
credit card is still good and could still be used by the plaintiff as it would be honored by the duly accredited
establishment of defendant.

10
Not satisfied with the Regional Trial Court's decision, petitioner appealed to the Court of Appeals, which in a
decision promulgated on March 9, 1995 ruled in its dispositive portion.

WHEREFORE, premises considered the decision appealed from is hereby AFFIRMED with the
MODIFICATION that the defendant-appellant shall pay the plaintiff-appellee the following: P50,000.00 as
moral damages: P25,000.00 as exemplary damages; and P10,000.00 by way of attorney's fees.

SO ORDERED. 6

Hence, the present petition on the following assignment of errors:

THE LOWER COURT ERRED IN DECLARING THAT THERE WAS INDEED AN AGREEMENT OR
ARRANGEMENT ENTERED INTO BETWEEN THE PARTIES WHEREIN THE DEFENDANT REQUIRED
THE PLAINTIFF TO ISSUE A POSTDATED CHECK IN ITS FAVOR IN THE AMOUNT OF P15,000.00 AS
PAYMENT FOR HIS OVERDUE ACCOUNTS, WITH THE CONDITION THAT THE PLAINTIFF'S CREDIT
CARD WILL NOT BE SUSPENDED OR CANCELLED.

II

THE LOWER COURT ERRED IN HOLDING DEFENDANT LIABLE FOR DAMAGES AND ATTORNEY'S
FEES ARISING OUT FROM THE DISHONOR OF THE PLAINTIFF'S CREDIT CARD. 7

We find the petition meritorious.

The first issue to be resolved is whether petitioner had the right to suspend the credit card of the private
respondent.

Under the terms and conditions of the credit card, signed by the private respondent, any card with
outstanding balances after thirty (30) days from original billing/statement shall automatically be suspended,
thus:

PAYMENT OF CHARGES — BECC shall furnish the Cardholder a monthly statement of account made
through the use of the CARD and the Cardholder agrees that all charges made through the use of the CARD
shall be paid by the Cardholder on or before the last day for payment, which is twenty (20) days from the
date of the said statement of account; and such payment due date may be changed to an earlier date if the
Cardholder's account is considered overdue and/or with balances in excess of the approved credit limit; or to
such other date as may be deemed proper by the CARD issuer with notice to the Cardholder on the same
monthly statement of account. If the last day for payment falls on a Saturday, Sunday or Holiday, the last day
for payment automatically becomes the last working day prior to the said payment date. However,
notwithstanding the absence or lack of proof of service of the statement of charges to the Cardholder, the
latter shall pay any or all charges made through the use of the CARD within thirty (30) days from the date or
dates thereof. Failure of Cardholder to pay any and all charges made through the CARD within the payment
period as stated in the statement of charges or with in thirty (30) days from actual date or dates whichever
occur earlier, shall render him in default without the necessity of demand from BECC, which the Cardholder
expressly waives. These charges or balance thereof remaining unpaid after the payment due date indicated
on the monthly statement of account shall bear interest of 3% per month and an additional penalty fee
equivalent to another 3% of the amount due for every month or a fraction of a month's delay. PROVIDED,
that if there occurs any changes on the prevailing market rates BECC shall have the option to adjust the rate
of interest and/or penalty fee due on the outstanding obligation with prior notice to the Cardholder.

xxx xxx xxx

11
Any CARD with outstanding balances unpaid after thirty (30) days from original billing/statement date shall
automatically be suspended and those with accounts unpaid after sixty (60) days from said original
billing/statement date shall automatically be cancelled without prejudice to BECC's right to suspend or
cancel any CARD any time and for whatever reason. In case of default in his obligation as provided for in the
preceding paragraph, Cardholder shall surrender his CARD to BECC and shall in addition to the interest and
penalty charges aforementioned, pay the following liquidated damages and/or fees (a) a collection fee of
25% of the amount due if the account is referred to a collection agency or attorney; (b) a service fee of P100
for every dishonored check issued by the Cardholder's in payment of his account, without prejudice;
however to BECC's right of considering Cardholder's obligation unpaid; cable cost for demanding payment
or advising cancellation of membership shall also be for Cardholder's account; and (c) a final fee equivalent
to 25% of the unpaid balance, exclusive of litigation expenses and judicial costs, if the payment of the
account is enforced through court action. 8

The aforequoted provision of the card cannot be any clearer. By his own admission private respondent no
payment within thirty days for his billing/statement dated 27 September 1989. Neither did he make payment
for his original billing/statement dated 27 October 1989. Consequently as early as 28 October 1989 thirty
days from the non-payment of his billing dated 27 September 1989, petitioner corporation could
automatically suspend his credit card.

The next issue is whether prior to the suspension of private respondent's credit card on 28 November 1989
the parties entered into an agreement whereby the card could still be used and would be duly honored by
duly accredited establishments.

We agree with the findings of the respondent court, that there was an arrangement between the parties,
wherein the petitioner required the private respondent to issue a check worth P15,000.00 as payment for the
latter's billings. However we find that the private respondent was not able to comply with this obligation.

As the testimony of private respondent himself bears out, the agreement was for the immediate payment of
the outstanding account:

Q In said statement of account that you are supposed to pay the P8,974.84 the charge of interest and
penalties, did you note that?

A Yes, sir I noted the date.

Q When?

A When I returned from the Quezon province, sir

Q When?

A I think November 22, sir.

Q So that before you used again the credit card you were not able to pay immediately this P8,987.84 in
cash?

A I paid P15,000.00, sir.

Q My question Mr. witness is, did you pay this P8,987.84 in charge of interest and penalties immediately in
cash?

A In cash no, but in check, sir.

12
Q You said that you noted the word "immediately" in bold letters in your statement of accounts, why did not
pay immediately?

A Because I received that late, sir.

Q Yes, on November 22 when you received from the secretary of the defendant telling you to pay the
principal amount of P8,987.84, why did you not pay?

A There was a communication between me and the defendant, I was required to pay P8,000.00 but I paid in
check for P15,000.00, sir.

Q Do you have any evidence to show that the defendant required you to pay in check for P15,000.00?

A Yes, sir.

Q Where is it?

A It was telecommunication, sir.

Q So there is no written communication between you and the defendant?

A There was none, sir.

Q There is no written agreement which says that P8,987.84 should be paid for P15,000.00 in check, there is
none?

A Yes, no written agreement, sir.

Q And you as a lawyer you know that a check is not considered as cash specially when it is postdated sent
to the defendant?

A That is correct, sir.

Clearly the purpose of the arrangement between the parties on November 22, 1989, was for the immediate
payment of the private respondent's outstanding account, in order that his credit card would not be
suspended.

As agreed upon by the parties, on the following day, private respondent did issue a check for P15,000.00.
However, the check was postdated 15 December 1989. Settled is the doctrine that a check is only a
substitute for money and not money, the delivery of such an instrument does not, by itself operate as
payment. 9 This is especially true in the case of a postdated check.

Thus, the issuance by the private respondent of the postdated check was not effective payment. It did not
comply with his obligation under the arrangement with Miss Lorenzo. Petitioner corporation was therefore
justified in suspending his credit card.

Finally, we find no legal and factual basis for private respondent's assertion that in canceling the credit card
of the private respondent, petitioner abused its right under the terms and conditions of the contract.

To find the existence of an abuse of right Article 19 the following elements must be present (1) There is a
legal right or duty; (2) which is exercised in bad faith; (3) for the sole intent of prejudicing or injuring
another. 10

13
Time and again this Court has held that good faith is presumed and the burden of proving bad faith is on the
party alleging it. 11 This private respondent failed to do. In fact, the action of the petitioner belies the
existence of bad faith. As early as 28 October 1989, petitioner could have suspended private respondent's
card outright. Instead, petitioner allowed private respondent to use his card for several weeks. Petitioner had
even notified private respondent of the impending suspension of his credit card and made special
accommodations for him for setting his outstanding account. As such, petitioner cannot be said to have
capriciously and arbitrarily canceled the private respondent's credit card.

We do not dispute the findings of the lower court that private respondent suffered damages as a result of the
cancellation of his credit card. However, there is a material distinction between damages and injury. Injury is
the illegal invasion of a legal right; damage is the loss, hurt or harm which results from the injury; and
damages are the recompense or compensation awarded for the damage suffered. Thus, there can be
damage without injury in those instances in which the loss or harm was not the results of a violation of a
legal duty. In such cases, the consequences must be borne by the injured person alone, the law affords no
remedy for damages resulting from an act which does not amount to a legal injury or wrong. These
situations are often called damnum absque
injuria. 12

In other words, in order that the plaintiff may maintain an action for the injuries of which he complaints, he
must establish that such injuries resulted from a breach of duty which the defendant owed to the plaintiff a
concurrence of injury to the plaintiff and legal responsibility by the person causing it. The underlying basis for
the award of tort damages is the premise that an individual was injured in contemplation of law. Thus, there
must first be a breach of some duty and the imposition of liability for that breach before damages may be
awarded; 13 and the breach of such duty should be the proximate cause of the injury.

We therefore disagree with the ruling of the respondent court that the dishonor of the credit card of the
private respondent by Café Adriatico is attributable to petitioner for its willful or gross neglect to inform the
private respondent of the suspension of his credit card, the unfortunate consequence of which brought social
humiliation and embarrassment to the private respondent. 14

It was petitioner's failure to settle his obligation which caused the suspension of his credit card and
subsequent dishonor at Café Adriatico. He can not now pass the blame to the petitioner for not notifying him
of the suspension of his card. As quoted earlier, the application contained the stipulation that the petitioner
could automatically suspend a card whose billing has not been paid for more than thirty days. Nowhere is it
stated in the terms and conditions of the application that there is a need of notice before suspension may be
affected as private respondent claims. 15

This notwithstanding on November 28, 1989, the day of the suspension of private respondent's card,
petitioner sent a letter by ordinary mail notifying private respondent that his card had been temporarily
suspended. Under the Rules on Evidence, there is a disputable presumption that letters duly directed and
mailed were received on the regular course of mail. 16 Aside from the private respondent's bare denial he
failed to present evidence to rebut the presumption that he received said notice. In fact upon cross
examination private respondent admitted that he did receive the letter notifying him of the cancellation:

Q Now you were saying that there was a first letter sent to you by the defendant?

A Your letter, sir.

Q Was that the first letter that you received?

A Yes, sir.

Q It is that there was a communication first between you and the defendant?

14
A There was none, sir. I received a cancellation notice but that was after November 27. 17

As it was private respondent's own negligence which was the proximate cause of his embarrassing and
humiliating experience, we find the award of damages by the respondent court clearly unjustified. We take
note of the fact that private respondent has not yet paid his outstanding account with petitioner.

IN VIEW OF THE FOREGOING, the decision of the Court of Appeals ordering petitioner to pay private
respondent P100,000.00 as moral damages P50,000.00 as exemplary damages and P20,000.00 as
attorney's fees, is SET ASIDE. Private respondent is DIRECTED to pay his outstanding obligation with the
petitioner in the amount of P14,439.41.

SO ORDERED.

Narvasa, C.J. and Romero, JJ., concur.

Purisima, J., took no part.

G.R. No. 97753 August 10, 1992

15
CALTEX (PHILIPPINES), INC., petitioner,
vs.
COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.

Bito, Lozada, Ortega & Castillo for petitioners.

Nepomuceno, Hofileña & Guingona for private.

REGALADO, J.:

This petition for review on certiorari impugns and seeks the reversal of the decision promulgated by
respondent court on March 8, 1991 in CA-G.R. CV No. 23615 1 affirming with modifications, the earlier
decision of the Regional Trial Court of Manila, Branch XLII, 2 which dismissed the complaint filed therein by
herein petitioner against respondent bank.

The undisputed background of this case, as found by the court a quo and adopted by respondent court,
appears of record:

1. On various dates, defendant, a commercial banking institution, through its Sucat Branch issued 280
certificates of time deposit (CTDs) in favor of one Angel dela Cruz who deposited with herein defendant the
aggregate amount of P1,120,000.00, as follows: (Joint Partial Stipulation of Facts and Statement of Issues,
Original Records, p. 207; Defendant's Exhibits 1 to 280);

CTD CTD
Dates Serial Nos. Quantity Amount

22 Feb. 82 90101 to 90120 20 P80,000

26 Feb. 82 74602 to 74691 90 360,000
2 Mar. 82 74701 to 74740 40 160,000
4 Mar. 82 90127 to 90146 20 80,000
5 Mar. 82 74797 to 94800 4 16,000
5 Mar. 82 89965 to 89986 22 88,000
5 Mar. 82 70147 to 90150 4 16,000
8 Mar. 82 90001 to 90020 20 80,000
9 Mar. 82 90023 to 90050 28 112,000
9 Mar. 82 89991 to 90000 10 40,000
9 Mar. 82 90251 to 90272 22 88,000
——— ————
Total 280 P1,120,000
===== ========

2. Angel dela Cruz delivered the said certificates of time (CTDs) to herein plaintiff in connection with his
purchased of fuel products from the latter (Original Record, p. 208).

3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo Tiangco, the Sucat Branch Manger, that
he lost all the certificates of time deposit in dispute. Mr. Tiangco advised said depositor to execute and
submit a notarized Affidavit of Loss, as required by defendant bank's procedure, if he desired replacement of
said lost CTDs (TSN, February 9, 1987, pp. 48-50).

4. On March 18, 1982, Angel dela Cruz executed and delivered to defendant bank the required Affidavit of
Loss (Defendant's Exhibit 281). On the basis of said affidavit of loss, 280 replacement CTDs were issued in
favor of said depositor (Defendant's Exhibits 282-561).
16
5. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan from defendant bank in the amount
of Eight Hundred Seventy Five Thousand Pesos (P875,000.00). On the same date, said depositor executed
a notarized Deed of Assignment of Time Deposit (Exhibit 562) which stated, among others, that he (de la
Cruz) surrenders to defendant bank "full control of the indicated time deposits from and after date" of the
assignment and further authorizes said bank to pre-terminate, set-off and "apply the said time deposits to
the payment of whatever amount or amounts may be due" on the loan upon its maturity (TSN, February 9,
1987, pp. 60-62).

6. Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff Caltex (Phils.) Inc., went to the
defendant bank's Sucat branch and presented for verification the CTDs declared lost by Angel dela Cruz
alleging that the same were delivered to herein plaintiff "as security for purchases made with Caltex
Philippines, Inc." by said depositor (TSN, February 9, 1987, pp. 54-68).

7. On November 26, 1982, defendant received a letter (Defendant's Exhibit 563) from herein plaintiff formally
informing it of its possession of the CTDs in question and of its decision to pre-terminate the same.

8. On December 8, 1982, plaintiff was requested by herein defendant to furnish the former "a copy of the
document evidencing the guarantee agreement with Mr. Angel dela Cruz" as well as "the details of Mr. Angel
dela Cruz" obligation against which plaintiff proposed to apply the time deposits (Defendant's Exhibit 564).

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

10. Accordingly, defendant bank rejected the plaintiff's demand and claim for payment of the value of the
CTDs in a letter dated February 7, 1983 (Defendant's Exhibit 566).

11. In April 1983, the loan of Angel dela Cruz with the defendant bank matured and fell due and on August 5,
1983, the latter set-off and applied the time deposits in question to the payment of the matured loan (TSN,
February 9, 1987, pp. 130-131).

12. In view of the foregoing, plaintiff filed the instant complaint, praying that defendant bank be ordered to
pay it the aggregate value of the certificates of time deposit of P1,120,000.00 plus accrued interest and
compounded interest therein at 16% per annum, moral and exemplary damages as well as attorney's fees.

3
After trial, the court a quo rendered its decision dismissing the instant complaint.

On appeal, as earlier stated, respondent court affirmed the lower court's dismissal of the complaint, hence
this petition wherein petitioner faults respondent court in ruling (1) that the subject certificates of deposit are
non-negotiable despite being clearly negotiable instruments; (2) that petitioner did not become a holder in
due course of the said certificates of deposit; and (3) in disregarding the pertinent provisions of the Code of
Commerce relating to lost instruments payable to bearer. 4

The instant petition is bereft of merit.

A sample text of the certificates of time deposit is reproduced below to provide a better understanding of the
issues involved in this recourse.

SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%

17
 Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____

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

(Sgd. Illegible) (Sgd. Illegible)

—————————— ———————————

AUTHORIZED SIGNATURES 5

Respondent court ruled that the CTDs in question are non-negotiable instruments, nationalizing as follows:

. . . While it may be true that the word "bearer" appears rather boldly in the CTDs issued, it is important to
note that after the word "BEARER" stamped on the space provided supposedly for the name of the depositor,
the words "has deposited" a certain amount follows. The document further provides that the amount
deposited shall be "repayable to said depositor" on the period indicated. Therefore, the text of the
instrument(s) themselves manifest with clarity that they are payable, not to whoever purports to be the
"bearer" but only to the specified person indicated therein, the depositor. In effect, the appellee bank
acknowledges its depositor Angel dela Cruz as the person who made the deposit and further engages itself
to pay said depositor the amount indicated thereon at the stipulated date. 6

We disagree with these findings and conclusions, and hereby hold that the CTDs in question are negotiable
instruments. Section 1 Act No. 2031, otherwise known as the Negotiable Instruments Law, enumerates the
requisites for an instrument to become negotiable, viz:

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

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

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

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

(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with
reasonable certainty.

The CTDs in question undoubtedly meet the requirements of the law for negotiability. The parties' bone of
contention is with regard to requisite (d) set forth above. It is noted that Mr. Timoteo P. Tiangco, Security
Bank's Branch Manager way back in 1982, testified in open court that the depositor reffered to in the CTDs
is no other than Mr. Angel de la Cruz.

xxx xxx xxx

Atty. Calida:

q In other words Mr. Witness, you are saying that per books of the bank, the depositor referred (sic) in these
certificates states that it was Angel dela Cruz?

witness:

18
a Yes, your Honor, and we have the record to show that Angel dela Cruz was the one who cause (sic) the
amount.

Atty. Calida:

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

witness:

a None, your Honor. 7

xxx xxx xxx

Atty. Calida:

q Mr. Witness, who is the depositor identified in all of these certificates of time deposit insofar as the bank is
concerned?

witness:

a Angel dela Cruz is the depositor. 8

xxx xxx xxx

On this score, the accepted rule is that the negotiability or non-negotiability of an instrument is determined
from the writing, that is, from the face of the instrument itself.9 In the construction of a bill or note, the
intention of the parties is to control, if it can be legally ascertained. 10 While the writing may be read in the
light of surrounding circumstances in order to more perfectly understand the intent and meaning of the
parties, yet as they have constituted the writing to be the only outward and visible expression of their
meaning, no other words are to be added to it or substituted in its stead. The duty of the court in such case is
to ascertain, not what the parties may have secretly intended as contradistinguished from what their words
express, but what is the meaning of the words they have used. What the parties meant must be determined
by what they said. 11

Contrary to what respondent court held, the CTDs are negotiable instruments. The documents provide that
the amounts deposited shall be repayable to the depositor. And who, according to the document, is the
depositor? It is the "bearer." The documents do not say that the depositor is Angel de la Cruz and that the
amounts deposited are repayable specifically to him. Rather, the amounts are to be repayable to the bearer
of the documents or, for that matter, whosoever may be the bearer at the time of presentment.

If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it could have with
facility so expressed that fact in clear and categorical terms in the documents, instead of having the word
"BEARER" stamped on the space provided for the name of the depositor in each CTD. On the wordings of
the documents, therefore, the amounts deposited are repayable to whoever may be the bearer thereof. Thus,
petitioner's aforesaid witness merely declared that Angel de la Cruz is the depositor "insofar as the bank is
concerned," but obviously other parties not privy to the transaction between them would not be in a position
to know that the depositor is not the bearer stated in the CTDs. Hence, the situation would require any party
dealing with the CTDs to go behind the plain import of what is written thereon to unravel the agreement of
the parties thereto through facts aliunde. This need for resort to extrinsic evidence is what is sought to be
avoided by the Negotiable Instruments Law and calls for the application of the elementary rule that the
interpretation of obscure words or stipulations in a contract shall not favor the party who caused the
obscurity. 12

19
The next query is whether petitioner can rightfully recover on the CTDs. This time, the answer is in the
negative. The records reveal that Angel de la Cruz, whom petitioner chose not to implead in this suit for
reasons of its own, delivered the CTDs amounting to P1,120,000.00 to petitioner without informing
respondent bank thereof at any time. Unfortunately for petitioner, although the CTDs are bearer instruments,
a valid negotiation thereof for the true purpose and agreement between it and De la Cruz, as ultimately
ascertained, requires both delivery and indorsement. For, although petitioner seeks to deflect this fact, the
CTDs were in reality delivered to it as a security for De la Cruz' purchases of its fuel products. Any doubt as
to whether the CTDs were delivered as payment for the fuel products or as a security has been dissipated
and resolved in favor of the latter by petitioner's own authorized and responsible representative himself.

In a letter dated November 26, 1982 addressed to respondent Security Bank, J.Q. Aranas, Jr., Caltex Credit
Manager, wrote: ". . . These certificates of deposit were negotiated to us by Mr. Angel dela Cruz to
guarantee his purchases of fuel products" (Emphasis ours.) 13 This admission is conclusive upon petitioner,
its protestations notwithstanding. Under the doctrine of estoppel, an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or disproved as against the person relying
thereon. 14 A party may not go back on his own acts and representations to the prejudice of the other party
who relied upon them. 15 In the law of evidence, whenever a party has, by his own declaration, act, or
omission, intentionally and deliberately led another to believe a particular thing true, and to act upon such
belief, he cannot, in any litigation arising out of such declaration, act, or omission, be permitted to falsify it. 16

If it were true that the CTDs were delivered as payment and not as security, petitioner's credit manager
could have easily said so, instead of using the words "to guarantee" in the letter aforequoted. Besides, when
respondent bank, as defendant in the court below, moved for a bill of particularity therein 17 praying, among
others, that petitioner, as plaintiff, be required to aver with sufficient definiteness or particularity (a) the due
date or dates of payment of the alleged indebtedness of Angel de la Cruz to plaintiff and (b) whether or not it
issued a receipt showing that the CTDs were delivered to it by De la Cruz as payment of the latter's alleged
indebtedness to it, plaintiff corporation opposed the motion. 18 Had it produced the receipt prayed for, it could
have proved, if such truly was the fact, that the CTDs were delivered as payment and not as security. Having
opposed the motion, petitioner now labors under the presumption that evidence willfully suppressed would
be adverse if produced. 19

Under the foregoing circumstances, this disquisition in Intergrated Realty Corporation, et al. vs. Philippine
National Bank, et al. 20 is apropos:

. . . Adverting again to the Court's pronouncements in Lopez, supra, we quote therefrom:

The character of the transaction between the parties is to be determined by their intention, regardless of
what language was used or what the form of the transfer was. If it was intended to secure the payment of
money, it must be construed as a pledge; but if there was some other intention, it is not a pledge. However,
even though a transfer, if regarded by itself, appears to have been absolute, its object and character might
still be qualified and explained by contemporaneous writing declaring it to have been a deposit of the
property as collateral security. It has been said that a transfer of property by the debtor to a creditor, even if
sufficient on its face to make an absolute conveyance, should be treated as a pledge if the debt continues in
inexistence and is not discharged by the transfer, and that accordingly the use of the terms ordinarily
importing conveyance of absolute ownership will not be given that effect in such a transaction if they are also
commonly used in pledges and mortgages and therefore do not unqualifiedly indicate a transfer of absolute
ownership, in the absence of clear and unambiguous language or other circumstances excluding an intent to
pledge.

Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the Negotiable
Instruments Law, an instrument is negotiated when it is transferred from one person to another in such a
manner as to constitute the transferee the holder thereof, 21 and a holder may be the payee or indorsee of a
bill or note, who is in possession of it, or the bearer thereof. 22 In the present case, however, there was no
negotiation in the sense of a transfer of the legal title to the CTDs in favor of petitioner in which situation, for

20
obvious reasons, mere delivery of the bearer CTDs would have sufficed. Here, the delivery thereof only as
security for the purchases of Angel de la Cruz (and we even disregard the fact that the amount involved was
not disclosed) could at the most constitute petitioner only as a holder for value by reason of his lien.
Accordingly, a negotiation for such purpose cannot be effected by mere delivery of the instrument since,
necessarily, the terms thereof and the subsequent disposition of such security, in the event of non-payment
of the principal obligation, must be contractually provided for.

The pertinent law on this point is that where the holder has a lien on the instrument arising from contract, he
is deemed a holder for value to the extent of his lien. 23 As such holder of collateral security, he would be a
pledgee but the requirements therefor and the effects thereof, not being provided for by the Negotiable
Instruments Law, shall be governed by the Civil Code provisions on pledge of incorporeal rights, 24 which
inceptively provide:

Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may also be pledged. The instrument
proving the right pledged shall be delivered to the creditor, and if negotiable, must be indorsed.

Art. 2096. A pledge shall not take effect against third persons if a description of the thing pledged and the
date of the pledge do not appear in a public instrument.

Aside from the fact that the CTDs were only delivered but not indorsed, the factual findings of respondent
court quoted at the start of this opinion show that petitioner failed to produce any document evidencing any
contract of pledge or guarantee agreement between it and Angel de la Cruz. 25 Consequently, the mere
delivery of the CTDs did not legally vest in petitioner any right effective against and binding upon respondent
bank. The requirement under Article 2096 aforementioned is not a mere rule of adjective law prescribing the
mode whereby proof may be made of the date of a pledge contract, but a rule of substantive law prescribing
a condition without which the execution of a pledge contract cannot affect third persons adversely. 26

On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of respondent bank was
embodied in a public instrument. 27 With regard to this other mode of transfer, the Civil Code specifically
declares:

Art. 1625. An assignment of credit, right or action shall produce no effect as against third persons, unless it
appears in a public instrument, or the instrument is recorded in the Registry of Property in case the
assignment involves real property.

Respondent bank duly complied with this statutory requirement. Contrarily, petitioner, whether as purchaser,
assignee or lien holder of the CTDs, neither proved the amount of its credit or the extent of its lien nor the
execution of any public instrument which could affect or bind private respondent. Necessarily, therefore, as
between petitioner and respondent bank, the latter has definitely the better right over the CTDs in question.

Finally, petitioner faults respondent court for refusing to delve into the question of whether or not private
respondent observed the requirements of the law in the case of lost negotiable instruments and the issuance
of replacement certificates therefor, on the ground that petitioner failed to raised that issue in the lower
court. 28

On this matter, we uphold respondent court's finding that the aspect of alleged negligence of private
respondent was not included in the stipulation of the parties and in the statement of issues submitted by
them to the trial court. 29 The issues agreed upon by them for resolution in this case are:

1. Whether or not the CTDs as worded are negotiable instruments.

2. Whether or not defendant could legally apply the amount covered by the CTDs against the depositor's
loan by virtue of the assignment (Annex "C").

21
3. Whether or not there was legal compensation or set off involving the amount covered by the CTDs and
the depositor's outstanding account with defendant, if any.

4. Whether or not plaintiff could compel defendant to preterminate the CTDs before the maturity date
provided therein.

5. Whether or not plaintiff is entitled to the proceeds of the CTDs.

6. Whether or not the parties can recover damages, attorney's fees and litigation expenses from each other.

As respondent court correctly observed, with appropriate citation of some doctrinal authorities, the foregoing
enumeration does not include the issue of negligence on the part of respondent bank. An issue raised for the
first time on appeal and not raised timely in the proceedings in the lower court is barred by
estoppel. 30 Questions raised on appeal must be within the issues framed by the parties and, consequently,
issues not raised in the trial court cannot be raised for the first time on appeal. 31

Pre-trial is primarily intended to make certain that all issues necessary to the disposition of a case are
properly raised. Thus, to obviate the element of surprise, parties are expected to disclose at a pre-trial
conference all issues of law and fact which they intend to raise at the trial, except such as may involve
privileged or impeaching matters. The determination of issues at a pre-trial conference bars the
consideration of other questions on appeal. 32

To accept petitioner's suggestion that respondent bank's supposed negligence may be considered
encompassed by the issues on its right to preterminate and receive the proceeds of the CTDs would be
tantamount to saying that petitioner could raise on appeal any issue. We agree with private respondent that
the broad ultimate issue of petitioner's entitlement to the proceeds of the questioned certificates can be
premised on a multitude of other legal reasons and causes of action, of which respondent bank's supposed
negligence is only one. Hence, petitioner's submission, if accepted, would render a pre-trial delimitation of
issues a useless exercise. 33

Still, even assuming arguendo that said issue of negligence was raised in the court below, petitioner still
cannot have the odds in its favor. A close scrutiny of the provisions of the Code of Commerce laying down
the rules to be followed in case of lost instruments payable to bearer, which it invokes, will reveal that said
provisions, even assuming their applicability to the CTDs in the case at bar, are merely permissive and not
mandatory. The very first article cited by petitioner speaks for itself.

Art 548. The dispossessed owner, no matter for what cause it may be, may apply to the judge or court of
competent jurisdiction, asking that the principal, interest or dividends due or about to become due, be not
paid a third person, as well as in order to prevent the ownership of the instrument that a duplicate be issued
him. (Emphasis ours.)

xxx xxx xxx

The use of the word "may" in said provision shows that it is not mandatory but discretionary on the part of the
"dispossessed owner" to apply to the judge or court of competent jurisdiction for the issuance of a duplicate
of the lost instrument. Where the provision reads "may," this word shows that it is not mandatory but
discretional. 34 The word "may" is usually permissive, not mandatory. 35 It is an auxiliary verb indicating
liberty, opportunity, permission and possibility. 36

Moreover, as correctly analyzed by private respondent, 37 Articles 548 to 558 of the Code of Commerce, on
which petitioner seeks to anchor respondent bank's supposed negligence, merely established, on the one
hand, a right of recourse in favor of a dispossessed owner or holder of a bearer instrument so that he may
obtain a duplicate of the same, and, on the other, an option in favor of the party liable thereon who, for some
valid ground, may elect to refuse to issue a replacement of the instrument. Significantly, none of the
22
provisions cited by petitioner categorically restricts or prohibits the issuance a duplicate or replacement
instrument sans compliance with the procedure outlined therein, and none establishes a mandatory
precedent requirement therefor.

WHEREFORE, on the modified premises above set forth, the petition is DENIED and the appealed decision
is hereby AFFIRMED.

SO ORDERED.

Narvasa, C.J., Padilla and Nocon, JJ., concur.

G.R. No. 93397 March 3, 1997

TRADERS ROYAL BANK, petitioner,

vs.
COURT OF APPEALS, FILRITERS GUARANTY ASSURANCE CORPORATION and CENTRAL BANK of
the PHILIPPINES, respondents.

TORRES, JR., J.:

Assailed in this Petition for Review on Certiorari is the Decision of the respondent Court of Appeals dated
January 29, 1990,1 affirming the nullity of the transfer of Central Bank Certificate of Indebtedness (CBCI) No.
D891,2 with a face value of P500,000.00, from the Philippine Underwriters Finance Corporation (Philfinance)
23
to the petitioner Trader's Royal Bank (TRB), under a Repurchase Agreement3 dated February 4, 1981, and
a Detached Assignment4 dated April 27, 1981.

Docketed as Civil Case No. 83-17966 in the Regional Trial Court of Manila, Branch 32, the action was
originally filed as a Petition for Mandamus5 under Rule 65 of the Rules of Court, to compel the Central Bank
of the Philippines to register the transfer of the subject CBCI to petitioner Traders Royal Bank (TRB).

In the said petition, TRB stated that:

3. On November 27, 1979, Filriters Guaranty Assurance Corporation (Filriters) executed a "Detached
Assignment" . . ., whereby Filriters, as registered owner, sold, transferred, assigned and delivered unto
Philippine Underwriters Finance Corporation (Philfinance) all its rights and title to Central Bank Certificates
of Indebtedness of PESOS: FIVE HUNDRED THOUSAND (P500,000) and having an aggregate value of
PESOS: THREE MILLION FIVE HUNDRED THOUSAND (P3,500,000.00);

4. The aforesaid Detached Assignment (Annex "A") contains an express authorization executed by the
transferor intended to complete the assignment through the registration of the transfer in the name of
PhilFinance, which authorization is specifically phrased as follows: '(Filriters) hereby irrevocably authorized
the said issuer (Central Bank) to transfer the said bond/certificates on the books of its fiscal agent;

5. On February 4, 1981, petitioner entered into a Repurchase Agreement with PhilFinance . . ., whereby, for
and in consideration of the sum of PESOS: FIVE HUNDRED THOUSAND (P500,000.00), PhilFinance sold,
transferred and delivered to petitioner CBCI 4-year, 8th series, Serial No. D891 with a face value of
P500,000.00 . . ., which CBCI was among those previously acquired by PhilFinance from Filriters as averred
in paragraph 3 of the Petition;

6. Pursuant to the aforesaid Repurchase Agreement (Annex "B"), Philfinance agreed to repurchase CBCI
Serial No. D891 (Annex "C"), at the stipulated price of PESOS: FIVE HUNDRED NINETEEN THOUSAND
THREE HUNDRED SIXTY-ONE & 11/100 (P519,361.11) on April 27, 1981;

7. PhilFinance failed to repurchase the CBCI on the agreed date of maturity, April 27, 1981, when the
checks it issued in favor of petitioner were dishonored for insufficient funds;

8. Owing to the default of PhilFinance, it executed a Detached Assignment in favor of the Petitioner to
enable the latter to have its title completed and registered in the books of the respondent. And by means of
said Detachment, Philfinance transferred and assigned all, its rights and title in the said CBCI (Annex "C") to
petitioner and, furthermore, it did thereby "irrevocably authorize the said issuer (respondent herein) to
transfer the said bond/certificate on the books of its fiscal agent." . . .

9. Petitioner presented the CBCI (Annex "C"), together with the two (2) aforementioned Detached
Assignments (Annexes "B" and "D"), to the Securities Servicing Department of the respondent, and
requested the latter to effect the transfer of the CBCI on its books and to issue a new certificate in the name
of petitioner as absolute owner thereof;

10. Respondent failed and refused to register the transfer as requested, and continues to do so
notwithstanding petitioner's valid and just title over the same and despite repeated demands in writing, the
latest of which is hereto attached as Annex "E" and made an integral part hereof;

11. The express provisions governing the transfer of the CBCI were substantially complied with the
petitioner's request for registration, to wit:

"No transfer thereof shall be valid unless made at said office (where the Certificate has been registered) by
the registered owner hereof, in person or by his attorney duly authorized in writing, and similarly noted

24
hereon, and upon payment of a nominal transfer fee which may be required, a new Certificate shall be
issued to the transferee of the registered holder thereof."

and, without a doubt, the Detached Assignments presented to respondent were sufficient authorizations in
writing executed by the registered owner, Filriters, and its transferee, PhilFinance, as required by the
above-quoted provision;

12. Upon such compliance with the aforesaid requirements, the ministerial duties of registering a transfer of
ownership over the CBCI and issuing a new certificate to the transferee devolves upon the respondent;

Upon these assertions, TRB prayed for the registration by the Central Bank of the subject CBCI in its name.

On December 4, 1984, the Regional Trial Court the case took cognizance of the defendant Central Bank of
the Philippines' Motion for Admission of Amended Answer with Counter Claim for Interpleader6 thereby
calling to fore the respondent Filriters Guaranty Assurance Corporation (Filriters), the registered owner of
the subject CBCI as respondent.

For its part, Filriters interjected as Special Defenses the following:

11. Respondent is the registered owner of CBCI No. 891;

12. The CBCI constitutes part of the reserve investment against liabilities required of respondent as an
insurance company under the Insurance Code;

13. Without any consideration or benefit whatsoever to Filriters, in violation of law and the trust fund doctrine
and to the prejudice of policyholders and to all who have present or future claim against policies issued by
Filriters, Alfredo Banaria, then Senior Vice-President-Treasury of Filriters, without any board resolution,
knowledge or consent of the board of directors of Filriters, and without any clearance or authorization from
the Insurance Commissioner, executed a detached assignment purportedly assigning CBCI No. 891 to
Philfinance;

xxx xxx xxx

14. Subsequently, Alberto Fabella, Senior Vice-President-Comptroller are Pilar Jacobe,

Vice-President-Treasury of Filriters (both of whom were holding the same positions in Philfinance), without
any consideration or benefit redounding to Filriters and to the grave prejudice of Filriters, its policy holders
and all who have present or future claims against its policies, executed similar detached assignment forms
transferring the CBCI to plaintiff;

xxx xxx xxx

15. The detached assignment is patently void and inoperative because the assignment is without the
knowledge and consent of directors of Filriters, and not duly authorized in writing by the Board, as requiring
by Article V, Section 3 of CB Circular No. 769;

16. The assignment of the CBCI to Philfinance is a personal act of Alfredo Banaria and not the corporate act
of Filriters and such null and void;

a) The assignment was executed without consideration and for that reason, the assignment is void from the
beginning (Article 1409, Civil Code);

b) The assignment was executed without any knowledge and consent of the board of directors of Filriters;

25
c) The CBCI constitutes reserve investment of Filriters against liabilities, which is a requirement under the
Insurance Code for its existence as an insurance company and the pursuit of its business operations. The
assignment of the CBCI is illegal act in the sense of malum in se or malum prohibitum, for anyone to make,
either as corporate or personal act;

d) The transfer of dimunition of reserve investments of Filriters is expressly prohibited by law, is immoral and
against public policy;

e) The assignment of the CBCI has resulted in the capital impairment and in the solvency deficiency of
Filriters (and has in fact helped in placing Filriters under conservatorship), an inevitable result known to the
officer who executed assignment.

17. Plaintiff had acted in bad faith and with knowledge of the illegality and invalidity of the assignment.

a) The CBCI No. 891 is not a negotiable instrument and as a certificate of indebtedness is not payable to
bearer but is a registered in the name of Filriters;

b) The provision on transfer of the CBCIs provides that the Central Bank shall treat the registered owner as
the absolute owner and that the value of the registered certificates shall be payable only to the registered
owner; a sufficient notice to plaintiff that the assignments do not give them the registered owner's right as
absolute owner of the CBCI's;

c) CB Circular 769, Series of 1980 (Rules and Regulations Governing CBCIs) provides that the registered
certificates are payable only to the registered owner (Article II, Section 1).

18. Plaintiff knew full well that the assignment by Philfinance of CBCI No. 891 by Filriters is not a regular
transaction made in the usual of ordinary course of business;

a) The CBCI constitutes part of the reserve investments of Filriters against liabilities requires by the
Insurance Code and its assignment or transfer is expressly prohibited by law. There was no attempt to get
any clearance or authorization from the Insurance Commissioner;

b) The assignment by Filriters of the CBCI is clearly not a transaction in the usual or regular course of its
business;

c) The CBCI involved substantial amount and its assignment clearly constitutes disposition of "all or
substantially all" of the assets of Filriters, which requires the affirmative action of the stockholders (Section
40, Corporation [sic] Code.7

In its Decision8 dated April 29, 1988, the Regional Trial Court of Manila, Branch XXXIII found the assignment
of CBCI No. D891 in favor of Philfinance, and the subsequent assignment of the same CBCI by Philfinance
in favor of Traders Royal Bank null and void and of no force and effect. The dispositive portion of the
decision reads:

ACCORDINGLY, judgment is hereby rendered in favor of the respondent Filriters Guaranty Assurance
Corporation and against the plaintiff Traders Royal Bank:

(a) Declaring the assignment of CBCI No. 891 in favor of PhilFinance, and the subsequent assignment of
CBCI by PhilFinance in favor of the plaintiff Traders Royal Bank as null and void and of no force and effect;

(b) Ordering the respondent Central Bank of the Philippines to disregard the said assignment and to pay the
value of the proceeds of the CBCI No. D891 to the Filriters Guaranty Assurance Corporation;

26
(c) Ordering the plaintiff Traders Royal Bank to pay respondent Filriters Guaranty Assurance Corp. The sum
of P10,000 as attorney's fees; and

(d) to pay the costs.

SO ORDERED.9

10
The petitioner assailed the decision of the trial court in the Court of Appeals , but their appeals likewise
failed. The findings of the fact of the said court are hereby reproduced:

The records reveal that defendant Filriters is the registered owner of CBCI No. D891. Under a deed of
assignment dated November 27, 1971, Filriters transferred CBCI No. D891 to Philippine Underwriters
Finance Corporation (Philfinance). Subsequently, Philfinance transferred CBCI No. D891, which was still
registered in the name of Filriters, to appellant Traders Royal Bank (TRB). The transfer was made under a
repurchase agreement dated February 4, 1981, granting Philfinance the right to repurchase the instrument
on or before April 27, 1981. When Philfinance failed to buy back the note on maturity date, it executed a
deed of assignment, dated April 27, 1981, conveying to appellant TRB all its right and the title to CBCI No.
D891.

Armed with the deed of assignment, TRB then sought the transfer and registration of CBCI No. D891 in its
name before the Security and Servicing Department of the Central Bank (CB). Central Bank, however,
refused to effect the transfer and registration in view of an adverse claim filed by defendant Filriters.

Left with no other recourse, TRB filed a special civil action for mandamus against the Central Bank in the
Regional Trial Court of Manila. The suit, however, was subsequently treated by the lower court as a case of
interpleader when CB prayed in its amended answer that Filriters be impleaded as a respondent and the
court adjudge which of them is entitled to the ownership of CBCI No. D891. Failing to get a favorable
judgment. TRB now comes to this Court on appeal. 11

In the appellate court, petitioner argued that the subject CBCI was a negotiable instrument, and having
acquired the said certificate from Philfinance as a holder in due course, its possession of the same is thus
free fro any defect of title of prior parties and from any defense available to prior parties among themselves,
and it may thus, enforce payment of the instrument for the full amount thereof against all parties liable
thereon. 12

In ignoring said argument, the appellate court that the CBCI is not a negotiable instrument, since the
instrument clearly stated that it was payable to Filriters, the registered owner, whose name was inscribed
thereon, and that the certificate lacked the words of negotiability which serve as an expression of consent
that the instrument may be transferred by negotiation.

Obviously, the assignment of the certificate from Filriters to Philfinance was fictitious, having made without
consideration, and did not conform to Central Bank Circular No. 769, series of 1980, better known as the
"Rules and Regulations Governing Central Bank Certificates of Indebtedness", which provided that any
"assignment of registered certificates shall not be valid unless made . . . by the registered owner thereof in
person or by his representative duly authorized in writing."

Petitioner's claimed interest has no basis, since it was derived from Philfinance whose interest was
inexistent, having acquired the certificate through simulation. What happened was Philfinance merely
borrowed CBCI No. D891 from Filriters, a sister corporation, to guarantee its financing operations.

Said the Court:

In the case at bar, Alfredo O. Banaria, who signed the deed of assignment purportedly for and on behalf of
Filriters, did not have the necessary written authorization from the Board of Directors of Filriters to act for the
27
latter. For lack of such authority, the assignment did not therefore bind Filriters and violated as the same
time Central Bank Circular No. 769 which has the force and effect of a law, resulting in the nullity of the
transfer (People v. Que Po Lay, 94 Phil. 640; 3M Philippines, Inc. vs. Commissioner of Internal Revenue,
165 SCRA 778).

In sum, Philfinance acquired no title or rights under CBCI No. D891 which it could assign or transfer to
Traders Royal Bank and which the latter can register with the Central Bank.

WHEREFORE, the judgment appealed from is AFFIRMED, with costs against plaintiff-appellant.

SO ORDERED. 13

Petitioner's present position rests solely on the argument that Philfinance owns 90% of Filriters equity and
the two corporations have identical corporate officers, thus demanding the application of the doctrine or
piercing the veil of corporate fiction, as to give validity to the transfer of the CBCI from registered owner to
petitioner TRB. 14 This renders the payment by TRB to Philfinance of CBCI, as actual payment to Filriters.
Thus, there is no merit to the lower court's ruling that the transfer of the CBCI from Filriters to Philfinance
was null and void for lack of consideration.

Admittedly, the subject CBCI is not a negotiable instrument in the absence of words of negotiability within
the meaning of the negotiable instruments law (Act 2031).

The pertinent portions of the subject CBCI read:

xxx xxx xxx

The Central Bank of the Philippines (the Bank) for value received, hereby promises to pay bearer, of if this
Certificate of indebtedness be registered, to FILRITERS GUARANTY ASSURANCE CORPORATION, the
registered owner hereof, the principal sum of FIVE HUNDRED THOUSAND PESOS.

xxx xxx xxx

Properly understood, a certificate of indebtedness pertains to certificates for the creation and maintenance
of a permanent improvement revolving fund, is similar to a "bond," (82 Minn. 202). Being equivalent to a
bond, it is properly understood as acknowledgment of an obligation to pay a fixed sum of money. It is usually
used for the purpose of long term loans.

The appellate court ruled that the subject CBCI is not a negotiable instrument, stating that:

As worded, the instrument provides a promise "to pay Filriters Guaranty Assurance Corporation, the
registered owner hereof." Very clearly, the instrument is payable only to Filriters, the registered owner,
whose name is inscribed thereon. It lacks the words of negotiability which should have served as an
expression of consent that the instrument may be transferred by negotiation.15

A reading of the subject CBCI indicates that the same is payable to FILRITERS GUARANTY ASSURANCE
CORPORATION, and to no one else, thus, discounting the petitioner's submission that the same is a
negotiable instrument, and that it is a holder in due course of the certificate.

The language of negotiability which characterize a negotiable paper as a credit instrument is its freedom to
circulate as a substitute for money. Hence, freedom of negotiability is the touchtone relating to the protection
of holders in due course, and the freedom of negotiability is the foundation for the protection which the law
throws around a holder in due course (11 Am. Jur. 2d, 32). This freedom in negotiability is totally absent in a
certificate indebtedness as it merely to pay a sum of money to a specified person or entity for a period of
time.
28
As held in Caltex (Philippines), Inc. v. Court of Appeals, 16:

The accepted rule is that the negotiability or non-negotiability of an instrument is determined from the writing,
that is, from the face of the instrument itself. In the construction of a bill or note, the intention of the parties is
to control, if it can be legally ascertained. While the writing may be read in the light of surrounding
circumstance in order to more perfectly understand the intent and meaning of the parties, yet as they have
constituted the writing to be the only outward and visible expression of their meaning, no other words are to
be added to it or substituted in its stead. The duty of the court in such case is to ascertain, not what the
parties may have secretly intended as contradistinguished from what their words express, but what is the
meaning of the words they have used. What the parties meant must be determined by what they said.

Thus, the transfer of the instrument from Philfinance to TRB was merely an assignment, and is not governed
by the negotiable instruments law. The pertinent question then is, was the transfer of the CBCI from Filriters
to Philfinance and subsequently from Philfinance to TRB, in accord with existing law, so as to entitle TRB to
have the CBCI registered in its name with the Central Bank?

The following are the appellate court's pronouncements on the matter:

Clearly shown in the record is the fact that Philfinance's title over CBCI No. D891 is defective since it
acquired the instrument from Filriters fictitiously. Although the deed of assignment stated that the transfer
was for "value received", there was really no consideration involved. What happened was Philfinance merely
borrowed CBCI No. D891 from Filriters, a sister corporation. Thus, for lack of any consideration, the
assignment made is a complete nullity.

What is more, We find that the transfer made by Filriters to Philfinance did not conform to Central Bank
Circular No. 769, series of 1980, otherwise known as the "Rules and Regulations Governing Central Bank
Certificates of Indebtedness", under which the note was issued. Published in the Official Gazette on
November 19, 1980, Section 3 thereof provides that any assignment of registered certificates shall not be
valid unless made . . . by the registered owner thereof in person or by his representative duly authorized in
writing.

In the case at bar, Alfredo O. Banaria, who signed the deed of assignment purportedly for and on behalf of
Filriters, did not have the necessary written authorization from the Board of Directors of Filriters to act for the
latter. For lack of such authority, the assignment did not therefore bind Filriters and violated at the same time
Central Bank Circular No. 769 which has the force and effect of a law, resulting in the nullity of the transfer
(People vs. Que Po Lay, 94 Phil. 640; 3M Philippines, Inc. vs. Commissioner of Internal Revenue, 165
SCRA 778).

In sum, Philfinance acquired no title or rights under CBCI No. D891 which it could assign or transfer to
Traders Royal Bank and which the latter can register with the Central Bank

Petitioner now argues that the transfer of the subject CBCI to TRB must upheld, as the respondent Filriters
and Philfinance, though separate corporate entities on paper, have used their corporate fiction to defraud
TRB into purchasing the subject CBCI, which purchase now is refused registration by the Central Bank.

Says the petitioner;

Since Philfinance own about 90% of Filriters and the two companies have the same corporate officers, if the
principle of piercing the veil of corporate entity were to be applied in this case, then TRB's payment to
Philfinance for the CBCI purchased by it could just as well be considered a payment to Filriters, the
registered owner of the CBCI as to bar the latter from claiming, as it has, that it never received any payment
for that CBCI sold and that said CBCI was sold without its authority.

xxx xxx xxx

29
We respectfully submit that, considering that the Court of Appeals has held that the CBCI was merely
borrowed by Philfinance from Filriters, a sister corporation, to guarantee its (Philfinance's) financing
operations, if it were to be consistent therewith, on the issued raised by TRB that there was a piercing a veil
of corporate entity, the Court of Appeals should have ruled that such veil of corporate entity was, in fact,
pierced, and the payment by TRB to Philfinance should be construed as payment to Filriters. 17

We disagree with Petitioner.

Petitioner cannot put up the excuse of piercing the veil of corporate entity, as this merely an equitable
remedy, and may be awarded only in cases when the corporate fiction is used to defeat public convenience,
justify wrong, protect fraud or defend crime or where a corporation is a mere alter ego or business conduit of
a person. 18

Peiercing the veil of corporate entity requires the court to see through the protective shroud which exempts
its stockholders from liabilities that ordinarily, they could be subject to, or distinguished one corporation from
a seemingly separate one, were it not for the existing corporate fiction. But to do this, the court must be sure
that the corporate fiction was misused, to such an extent that injustice, fraud, or crime was committed upon
another, disregarding, thus, his, her, or its rights. It is the protection of the interests of innocent third persons
dealing with the corporate entity which the law aims to protect by this doctrine.

The corporate separateness between Filriters and Philfinance remains, despite the petitioners insistence on
the contrary. For one, other than the allegation that Filriters is 90% owned by Philfinance, and the identity of
one shall be maintained as to the other, there is nothing else which could lead the court under circumstance
to disregard their corporate personalities.

Though it is true that when valid reasons exist, the legal fiction that a corporation is an entity with a juridical
personality separate from its stockholders and from other corporations may be disregarded, 19 in the
absence of such grounds, the general rule must upheld. The fact that Filfinance owns majority shares in
Filriters is not by itself a ground to disregard the independent corporate status of Filriters. In Liddel &
Co., Inc. vs. Collector of Internal Revenue, 20 the mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a corporation is not of itself a sufficient reason for
disregarding the fiction of separate corporate personalities.

In the case at bar, there is sufficient showing that the petitioner was not defrauded at all when it acquired the
subject certificate of indebtedness from Philfinance.

On its face the subject certificates states that it is registered in the name of Filriters. This should have put the
petitioner on notice, and prompted it to inquire from Filriters as to Philfinance's title over the same or its
authority to assign the certificate. As it is, there is no showing to the effect that petitioner had any dealings
whatsoever with Filriters, nor did it make inquiries as to the ownership of the certificate.

The terms of the CBCI No. D891 contain a provision on its TRANSFER. Thus:

TRANSFER. This Certificate shall pass by delivery unless it is registered in the owner's name at any office of
the Bank or any agency duly authorized by the Bank, and such registration is noted hereon. After such
registration no transfer thereof shall be valid unless made at said office (where the Certificates has been
registered) by the registered owner hereof, in person, or by his attorney, duly authorized in writing and
similarly noted hereon and upon payment of a nominal transfer fee which may be required, a new Certificate
shall be issued to the transferee of the registered owner thereof. The bank or any agency duly authorized by
the Bank may deem and treat the bearer of this Certificate, or if this Certificate is registered as herein
authorized, the person in whose name the same is registered as the absolute owner of this Certificate, for
the purpose of receiving payment hereof, or on account hereof, and for all other purpose whether or not this
Certificate shall be overdue.

30
This is notice to petitioner to secure from Filriters a written authorization for the transfer or to require
Philfinance to submit such an authorization from Filriters.

Petitioner knew that Philfinance is not registered owner of the CBCI No. D891. The fact that a non-owner
was disposing of the registered CBCI owned by another entity was a good reason for petitioner to verify of
inquire as to the title Philfinance to dispose to the CBCI.

Moreover, CBCI No. D891 is governed by CB Circular No. 769, series of 1990 21, known as the Rules and
Regulations Governing Central Bank Certificates of Indebtedness, Section 3, Article V of which provides
that:

Sec. 3. Assignment of Registered Certificates. — Assignment of registered certificates shall not be valid
unless made at the office where the same have been issued and registered or at the Securities Servicing
Department, Central Bank of the Philippines, and by the registered owner thereof, in person or by his
representative, duly authorized in writing. For this purpose, the transferee may be designated as the
representative of the registered owner.

Petitioner, being a commercial bank, cannot feign ignorance of Central Bank Circular 769, and its
requirements. An entity which deals with corporate agents within circumstances showing that the agents are
acting in excess of corporate authority, may not hold the corporation liable. 22 This is only fair, as everyone
must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due,
and observe honesty and good faith. 23

The transfer made by Filriters to Philfinance did not conform to the said. Central Bank Circular, which for all
intents, is considered part of the law. As found by the courts a quo, Alfredo O. Banaria, who had signed the
deed of assignment from Filriters to Philfinance, purportedly for and in favor of Filriters, did not have the
necessary written authorization from the Board of Directors of Filriters to act for the latter. As it is, the sale
from Filriters to Philfinance was fictitious, and therefore void and inexistent, as there was no consideration
for the same. This is fatal to the petitioner's cause, for then, Philfinance had no title over the subject
certificate to convey the Traders Royal Bank. Nemo potest nisi quod de jure potest — no man can do
anything except what he can do lawfully.

Concededly, the subject CBCI was acquired by Filriters to form part of its legal and capital reserves, which
are required by law 24 to be maintained at a mandated level. This was pointed out by Elias Garcia,
Manager-in-Charge of respondent Filriters, in his testimony given before the court on May 30, 1986.

Q Do you know this Central Bank Certificate of Indebtedness, in short, CBCI No. D891 in the face value of
P5000,000.00 subject of this case?

A Yes, sir.

Q Why do you know this?

A Well, this was CBCI of the company sought to be examined by the Insurance Commission sometime in
early 1981 and this CBCI No. 891 was among the CBCI's that were found to be missing.

Q Let me take you back further before 1981. Did you have the knowledge of this CBCI No. 891 before 1981?

A Yes, sir. This CBCI is an investment of Filriters required by the Insurance Commission as legal reserve of
the company.

Q Legal reserve for the purpose of what?

31
A Well, you see, the Insurance companies are required to put up legal reserves under Section 213 of the
Insurance Code equivalent to 40 percent of the premiums receipt and further, the Insurance Commission
requires this reserve to be invested preferably in government securities or government binds. This is how
this CBCI came to be purchased by the company.

It cannot, therefore, be taken out of the said funds, without violating the requirements of the law. Thus, the
anauthorized use or distribution of the same by a corporate officer of Filriters cannot bind the said
corporation, not without the approval of its Board of Directors, and the maintenance of the required reserve
fund.

Consequently, the title of Filriters over the subject certificate of indebtedness must be upheld over the
claimed interest of Traders Royal Bank.

ACCORDINGLY, the petition is DISMISSED and the decision appealed from dated January 29, 1990 is
hereby AFFIRMED.

SO ORDERED.

Regalado, Romero and Mendoza, JJ., concur.

Puno, J., took no part.

G.R. No. 113236 March 5, 2001

FIRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES, petitioner,

vs.
COURT OF APPEALS and LUZON DEVELOPMENT BANK, respondents.

QUISUMBING, J.:

This petition assails the decision 1 dated December 29, 1993 of the Court of Appeals in CA-G.R. CV No.
29546, which affirmed the judgment 2 of the Regional Trial Court of Pasay City, Branch 113 in Civil Case No.
PQ-7854-P, dismissing Firestone's complaint for damages.

The facts of this case, adopted by the CA and based on findings by the trial court, are as follows:

. . . [D]efendant is a banking corporation. It operates under a certificate of authority issued by the Central
Bank of the Philippines, and among its activities, accepts savings and time deposits. Said defendant had as
one of its client-depositors the Fojas-Arca Enterprises Company ("Fojas-Arca" for brevity). Fojas-Arca
maintaining a special savings account with the defendant, the latter authorized and allowed withdrawals of
funds therefrom through the medium of special withdrawal slips. These are supplied by the defendant to
Fojas-Arca.

32
In January 1978, plaintiff and Fojas-Arca entered into a "Franchised Dealership Agreement" (Exh. B)
whereby Fojas-Arca has the privilege to purchase on credit and sell plaintiff's products.

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

On the following dates Fojas-Arca purchased Firestone products on credit (Exh. M, I, J, K) and delivered to
plaintiff the corresponding special withdrawal slips in payment thereof drawn upon the defendant, to wit:

WITHDRAWAL
DATE AMOUNT
SLIP NO.
June 15, 1978 42127 P1,198,092.80
July 15, 1978 42128 940,190.00
Aug. 15, 1978 42129 880,000.00
Sep. 15, 1978 42130 981,500.00

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

However, on December 14, 1978, plaintiff was informed by Citibank that special withdrawal slips No. 42127
dated June 15, 1978 for P1,198,092.80 and No. 42129 dated August 15, 1978 for P880,000.00 were
dishonored and not paid for the reason 'NO ARRANGEMENT.' As a consequence, the Citibank debited
plaintiff's account for the total sum of P2,078,092.80 representing the aggregate amount of the above-two
special withdrawal slips. Under such situation, plaintiff averred that the pecuniary losses it suffered is caused
by and directly attributable to defendant's gross negligence.

On September 25, 1979, counsel of plaintiff served a written demand upon the defendant for the satisfaction
of the damages suffered by it. And due to defendant's refusal to pay plaintiff's claim, plaintiff has been
constrained to file this complaint, thereby compelling plaintiff to incur litigation expenses and attorney's fees
which amount are recoverable from the defendant.

Controverting the foregoing asseverations of plaintiff, defendant asserted, inter alia that the transactions
mentioned by plaintiff are that of plaintiff and Fojas-Arca only, [in] which defendant is not involved;
Vehemently, it was denied by defendant that the special withdrawal slips were honored and treated as if it
were checks, the truth being that when the special withdrawal slips were received by defendant, it only
verified whether or not the signatures therein were authentic, and whether or not the deposit level in the
passbook concurred with the savings ledger, and whether or not the deposit is sufficient to cover the
withdrawal; if plaintiff treated the special withdrawal slips paid by Fojas-Arca as checks then plaintiff has to
blame itself for being grossly negligent in treating the withdrawal slips as check when it is clearly stated
therein that the withdrawal slips are non-negotiable; that defendant is not a privy to any of the transactions
33
between Fojas-Arca and plaintiff for which reason defendant is not duty bound to notify nor give notice of
anything to plaintiff. If at first defendant had given notice to plaintiff it is merely an extension of usual bank
courtesy to a prospective client; that defendant is only dealing with its depositor Fojas-Arca and not the
plaintiff. In summation, defendant categorically stated that plaintiff has no cause of action against it (pp. 1-3,
Dec.; pp. 368-370, id).3

Petitioner's complaint4 for a sum of money and damages with the Regional Trial Court of Pasay City, Branch
113, docketed as Civil Case No. 29546, was dismissed together with the counterclaim of defendant.

Petitioner appealed the decision to the Court of Appeals. It averred that respondent Luzon Development
Bank was liable for damages under Article 21765 in relation to Articles 196 and 207 of the Civil Code. As
noted by the CA, petitioner alleged the following tortious acts on the part of private respondent: 1) the
acceptance and payment of the special withdrawal slips without the presentation of the depositor's passbook
thereby giving the impression that the withdrawal slips are instruments payable upon presentment; 2) giving
the special withdrawal slips the general appearance of checks; and 3) the failure of respondent bank to
seasonably warn petitioner that it would not honor two of the four special withdrawal slips.

On December 29, 1993, the Court of Appeals promulgated its assailed decision. It denied the appeal and
affirmed the judgment of the trial court. According to the appellate court, respondent bank notified the
depositor to present the passbook whenever it received a collection note from another bank, belying
petitioner's claim that respondent bank was negligent in not requiring a passbook under the subject
transaction. The appellate court also found that the special withdrawal slips in question were not purposely
given the appearance of checks, contrary to petitioner's assertions, and thus should not have been mistaken
for checks. Lastly, the appellate court ruled that the respondent bank was under no obligation to inform
petitioner of the dishonor of the special withdrawal slips, for to do so would have been a violation of the law
on the secrecy of bank deposits.

Hence, the instant petition, alleging the following assignment of error:

25. The CA grievously erred in holding that the [Luzon Development] Bank was free from any fault or
negligence regarding the dishonor, or in failing to give fair and timely advice of the dishonor, of the
two intermediate LDB Slips and in failing to award damages to Firestone pursuant to Article 2176 of the New
Civil Code.8

The issue for our consideration is whether or not respondent bank should be held liable for damages
suffered by petitioner, due to its allegedly belated notice of non-payment of the subject withdrawal slips.

The initial transaction in this case was between petitioner and Fojas-Arca, whereby the latter purchased tires
from the former with special withdrawal slips drawn upon Fojas-Arca's special savings account with
respondent bank. Petitioner in turn deposited these withdrawal slips with Citibank. The latter credited the
same to petitioner's current account, then presented the slips for payment to respondent bank. It was at this
point that the bone of contention arose.

On December 14, 1978, Citibank informed petitioner that special withdrawal slips Nos. 42127 and 42129
dated June 15, 1978 and August 15, 1978, respectively, were refused payment by respondent bank due to
insufficiency of Fojas-Arca's funds on deposit. That information came about six months from the time
Fojas-Arca purchased tires from petitioner using the subject withdrawal slips. Citibank then debited the
amount of these withdrawal slips from petitioner's account, causing the alleged pecuniary damage subject of
petitioner's cause of action.

At the outset, we note that petitioner admits that the withdrawal slips in question were
non-negotiable.9 Hence, the rules governing the giving of immediate notice of dishonor of negotiable
instruments do not apply in this case.10 Petitioner itself concedes this point.11 Thus, respondent bank was
under no obligation to give immediate notice that it would not make payment on the subject withdrawal slips.

34
Citibank should have known that withdrawal slips were not negotiable instruments. It could not expect these
slips to be treated as checks by other entities. Payment or notice of dishonor from respondent bank could
not be expected immediately, in contrast to the situation involving checks.

In the case at bar, it appears that Citibank, with the knowledge that respondent Luzon Development Bank,
had honored and paid the previous withdrawal slips, automatically credited petitioner's current account with
the amount of the subject withdrawal slips, then merely waited for the same to be honored and paid by
respondent bank. It presumed that the withdrawal slips were "good."

It bears stressing that Citibank could not have missed the non-negotiable nature of the withdrawal slips. The
essence of negotiability which characterizes a negotiable paper as a credit instrument lies in its freedom to
circulate freely as a substitute for money.12 The withdrawal slips in question lacked this character.

A bank is under obligation to treat the accounts of its depositors with meticulous care, whether such account
consists only of a few hundred pesos or of millions of pesos. 13 The fact that the other withdrawal slips were
honored and paid by respondent bank was no license for Citibank to presume that subsequent slips would
be honored and paid immediately. By doing so, it failed in its fiduciary duty to treat the accounts of its clients
with the highest degree of care.14

In the ordinary and usual course of banking operations, current account deposits are accepted by the bank
on the basis of deposit slips prepared and signed by the depositor, or the latter's agent or representative,
who indicates therein the current account number to which the deposit is to be credited, the name of the
depositor or current account holder, the date of the deposit, and the amount of the deposit either in cash or
in check.15

The withdrawal slips deposited with petitioner's current account with Citibank were not checks, as petitioner
admits. Citibank was not bound to accept the withdrawal slips as a valid mode of deposit. But having
erroneously accepted them as such, Citibank — and petitioner as account-holder — must bear the risks
attendant to the acceptance of these instruments. Petitioner and Citibank could not now shift the risk and
hold private respondent liable for their admitted mistake.

WHEREFORE, the petition is DENIED and the decision of the Court of Appeals in CA-G.R. CV No. 29546 is
AFFIRMED. Costs against petitioner.

SO ORDERED.

Bellosillo, Mendoza, Buena and De Leon, Jr., JJ ., concur.

35
G.R. No. 89252 May 24, 1993

RAUL SESBREÑO, petitioner,

vs.
HON. COURT OF APPEALS, DELTA MOTORS CORPORATION AND PILIPINAS BANK, respondents.

Salva, Villanueva & Associates for Delta Motors Corporation.

Reyes, Salazar & Associates for Pilipinas Bank.

FELICIANO, J.:

On 9 February 1981, petitioner Raul Sesbreño made a money market placement in the amount of
P300,000.00 with the Philippine Underwriters Finance Corporation ("Philfinance"), Cebu Branch; the
placement, with a term of thirty-two (32) days, would mature on 13 March 1981, Philfinance, also on 9
February 1981, issued the following documents to petitioner:

(a) the Certificate of Confirmation of Sale, "without recourse," No. 20496 of one (1) Delta Motors Corporation
Promissory Note ("DMC PN") No. 2731 for a term of 32 days at 17.0% per annum;

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

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

On 13 March 1981, petitioner sought to encash the postdated checks issued by Philfinance. However, the
checks were dishonored for having been drawn against insufficient funds.

On 26 March 1981, Philfinance delivered to petitioner the DCR No. 10805 issued by private respondent
Pilipinas Bank ("Pilipinas"). It reads as follows:

PILIPINAS BANK
Makati Stock Exchange Bldg.,
Ayala Avenue, Makati,
Metro Manila

February 9, 1981
———————
VALUE DATE

TO Raul Sesbreño

April 6, 1981
————————
MATURITY DATE

NO. 10805

DENOMINATED CUSTODIAN RECEIPT

36
This confirms that as a duly Custodian Bank, and upon instruction of PHILIPPINE UNDERWRITES
FINANCE CORPORATION, we have in our custody the following securities to you [sic] the extent herein
indicated.

SERIAL MAT. FACE ISSUED REGISTERED AMOUNT

NUMBER DATE VALUE BY HOLDER PAYEE

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

UNDERWRITERS
FINANCE CORP.

We further certify that these securities may be inspected by you or your duly authorized representative at
any time during regular banking hours.

Upon your written instructions we shall undertake physical delivery of the above securities fully assigned to
you should this Denominated Custodianship Receipt remain outstanding in your favor thirty (30) days after
its maturity.

PILIPINAS BANK
(By Elizabeth De Villa
Illegible Signature)1

On 2 April 1981, petitioner approached Ms. Elizabeth de Villa of private respondent Pilipinas, Makati Branch,
and handed her a demand letter informing the bank that his placement with Philfinance in the amount
reflected in the DCR No. 10805 had remained unpaid and outstanding, and that he in effect was asking for
the physical delivery of the underlying promissory note. Petitioner then examined the original of the DMC PN
No. 2731 and found: that the security had been issued on 10 April 1980; that it would mature on 6 April 1981;
that it had a face value of P2,300,833.33, with the Philfinance as "payee" and private respondent Delta
Motors Corporation ("Delta") as "maker;" and that on face of the promissory note was stamped "NON
NEGOTIABLE." Pilipinas did not deliver the Note, nor any certificate of participation in respect thereof, to
petitioner.

Petitioner later made similar demand letters, dated 3 July 1981 and 3 August 1981, 2 again asking private
respondent Pilipinas for physical delivery of the original of DMC PN No. 2731. Pilipinas allegedly referred all
of petitioner's demand letters to Philfinance for written instructions, as has been supposedly agreed upon in
"Securities Custodianship Agreement" between Pilipinas and Philfinance. Philfinance did not provide the
appropriate instructions; Pilipinas never released DMC PN No. 2731, nor any other instrument in respect
thereof, to petitioner.

Petitioner also made a written demand on 14 July 19813 upon private respondent Delta for the partial
satisfaction of DMC PN No. 2731, explaining that Philfinance, as payee thereof, had assigned to him said
Note to the extent of P307,933.33. Delta, however, denied any liability to petitioner on the promissory note,
and explained in turn that it had previously agreed with Philfinance to offset its DMC PN No. 2731 (along
with DMC PN No. 2730) against Philfinance PN No. 143-A issued in favor of Delta.

In the meantime, Philfinance, on 18 June 1981, was placed under the joint management of the Securities
and exchange commission ("SEC") and the Central Bank. Pilipinas delivered to the SEC DMC PN No. 2731,
which to date apparently remains in the custody of the SEC.4

As petitioner had failed to collect his investment and interest thereon, he filed on 28 September 1982 an
action for damages with the Regional Trial Court ("RTC") of Cebu City, Branch 21, against private
respondents Delta and Pilipinas.5 The trial court, in a decision dated 5 August 1987, dismissed the complaint
and counterclaims for lack of merit and for lack of cause of action, with costs against petitioner.

37
Petitioner appealed to respondent Court of Appeals in C.A.-G.R. CV No. 15195. In a Decision dated 21
March 1989, the Court of Appeals denied the appeal and held:6

Be that as it may, from the evidence on record, if there is anyone that appears liable for the travails of
plaintiff-appellant, it is Philfinance. As correctly observed by the trial court:

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

WHEREFORE, finding no reversible error in the decision appealed from, the same is hereby affirmed in toto.
Cost against plaintiff-appellant.

Petitioner moved for reconsideration of the above Decision, without success.

Hence, this Petition for Review on Certiorari.

After consideration of the allegations contained and issues raised in the pleadings, the Court resolved to
give due course to the petition and required the parties to file their respective memoranda.7

Petitioner reiterates the assignment of errors he directed at the trial court decision, and contends that
respondent court of Appeals gravely erred: (i) in concluding that he cannot recover from private respondent
Delta his assigned portion of DMC PN No. 2731; (ii) in failing to hold private respondent Pilipinas solidarily
liable on the DMC PN No. 2731 in view of the provisions stipulated in DCR No. 10805 issued in favor r of
petitioner, and (iii) in refusing to pierce the veil of corporate entity between Philfinance, and private
respondents Delta and Pilipinas, considering that the three (3) entities belong to the "Silverio Group of
Companies" under the leadership of Mr. Ricardo Silverio, Sr.8

There are at least two (2) sets of relationships which we need to address: firstly, the relationship of
petitioner vis-a-vis Delta; secondly, the relationship of petitioner in respect of Pilipinas. Actually, of course,
there is a third relationship that is of critical importance: the relationship of petitioner and Philfinance.
However, since Philfinance has not been impleaded in this case, neither the trial court nor the Court of
Appeals acquired jurisdiction over the person of Philfinance. It is, consequently, not necessary for present
purposes to deal with this third relationship, except to the extent it necessarily impinges upon or intersects
the first and second relationships.

I.

We consider first the relationship between petitioner and Delta.

The Court of appeals in effect held that petitioner acquired no rights vis-a-vis Delta in respect of the Delta
promissory note (DMC PN No. 2731) which Philfinance sold "without recourse" to petitioner, to the extent of
P304,533.33. The Court of Appeals said on this point:

Nor could plaintiff-appellant have acquired any right over DMC PN No. 2731 as the same is "non-negotiable"
as stamped on its face (Exhibit "6"), negotiation being defined as the transfer of an instrument from one
person to another so as to constitute the transferee the holder of the instrument (Sec. 30, Negotiable
Instruments Law). A person not a holder cannot sue on the instrument in his own name and cannot demand
or receive payment (Section 51, id.)9

38
Petitioner admits that DMC PN No. 2731 was non-negotiable but contends that the Note had been validly
transferred, in part to him by assignment and that as a result of such transfer, Delta as debtor-maker of the
Note, was obligated to pay petitioner the portion of that Note assigned to him by the payee Philfinance.

Delta, however, disputes petitioner's contention and argues:

(1) that DMC PN No. 2731 was not intended to be negotiated or otherwise transferred by Philfinance as
manifested by the word "non-negotiable" stamp across the face of the Note10 and because maker Delta and
payee Philfinance intended that this Note would be offset against the outstanding obligation of Philfinance
represented by Philfinance PN No. 143-A issued to Delta as payee;

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

(3) assuming (arguendo only) that the partial assignment in favor of petitioner was valid, petitioner took the
Note subject to the defenses available to Delta, in particular, the offsetting of DMC PN No. 2731 against
Philfinance PN No. 143-A.11

We consider Delta's arguments seriatim.

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

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

DMC PN No. 2731, while marked "non-negotiable," was not at the same time stamped "non-transferable" or
"non-assignable." It contained no stipulation which prohibited Philfinance from assigning or transferring, in
whole or in part, that Note.

Delta adduced the "Letter of Agreement" which it had entered into with Philfinance and which should be
quoted in full:

April 10, 1980

Philippine Underwriters Finance Corp.

Benavidez St., Makati,
Metro Manila.

Attention: Mr. Alfredo O. Banaria

SVP-Treasurer

GENTLEMEN:

39
This refers to our outstanding placement of P4,601,666.67 as evidenced by your Promissory Note No. 143-A,
dated April 10, 1980, to mature on April 6, 1981.

As agreed upon, we enclose our non-negotiable Promissory Note No. 2730 and 2731 for P2,000,000.00
each, dated April 10, 1980, to be offsetted [sic] against your PN No. 143-A upon co-terminal maturity.

Please deliver the proceeds of our PNs to our representative, Mr. Eric Castillo.

Very Truly Yours,

(Sgd.)
Florencio B. Biagan
Senior Vice President13

We find nothing in his "Letter of Agreement" which can be reasonably construed as a prohibition upon
Philfinance assigning or transferring all or part of DMC PN No. 2731, before the maturity thereof. It is
scarcely necessary to add that, even had this "Letter of Agreement" set forth an explicit prohibition of
transfer upon Philfinance, such a prohibition cannot be invoked against an assignee or transferee of the
Note who parted with valuable consideration in good faith and without notice of such prohibition. It is not
disputed that petitioner was such an assignee or transferee. Our conclusion on this point is reinforced by the
fact that what Philfinance and Delta were doing by their exchange of their promissory notes was this: Delta
invested, by making a money market placement with Philfinance, approximately P4,600,000.00 on 10 April
1980; but promptly, on the same day, borrowed back the bulk of that placement, i.e., P4,000,000.00, by
issuing its two (2) promissory notes: DMC PN No. 2730 and DMC PN No. 2731, both also dated 10 April
1980. Thus, Philfinance was left with not P4,600,000.00 but only P600,000.00 in cash and the two (2) Delta
promissory notes.

Apropos Delta's complaint that the partial assignment by Philfinance of DMC PN No. 2731 had been
effected without the consent of Delta, we note that such consent was not necessary for the validity and
enforceability of the assignment in favor of petitioner.14 Delta's argument that Philfinance's sale or
assignment of part of its rights to DMC PN No. 2731 constituted conventional subrogation, which required its
(Delta's) consent, is quite mistaken. Conventional subrogation, which in the first place is never lightly
inferred,15 must be clearly established by the unequivocal terms of the substituting obligation or by the
evident incompatibility of the new and old obligations on every point.16 Nothing of the sort is present in the
instant case.

It is in fact difficult to be impressed with Delta's complaint, since it released its DMC PN No. 2731 to
Philfinance, an entity engaged in the business of buying and selling debt instruments and other securities,
and more generally, in money market transactions. In Perez v. Court of Appeals,17 the Court, speaking
through Mme. Justice Herrera, made the following important statement:

There is another aspect to this case. What is involved here is a money market transaction. As defined by
Lawrence Smith "the money market is a market dealing in standardized short-term credit instruments
(involving large amounts) where lenders and borrowers do not deal directly with each other but through a
middle manor a dealer in the open market." It involves "commercial papers" which are instruments
"evidencing indebtness of any person or entity. . ., which are issued, endorsed, sold or transferred or in any
manner conveyed to another person or entity, with or without recourse". The fundamental function of the
money market device in its operation is to match and bring together in a most impersonal manner both the
"fund users" and the "fund suppliers." The money market is an "impersonal market", free from personal
considerations. "The market mechanism is intended to provide quick mobility of money and securities."

The impersonal character of the money market device overlooks the individuals or entities concerned. The
issuer of a commercial paper in the money market necessarily knows in advance that it would be
expenditiously transacted and transferred to any investor/lender without need of notice to said issuer. In

40
practice, no notification is given to the borrower or issuer of commercial paper of the sale or transfer to the
investor.

xxx xxx xxx

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

We turn to Delta's arguments concerning alleged compensation or offsetting between DMC PN No. 2731
and Philfinance PN No. 143-A. It is important to note that at the time Philfinance sold part of its rights under
DMC PN No. 2731 to petitioner on 9 February 1981, no compensation had as yet taken place and indeed
none could have taken place. The essential requirements of compensation are listed in the Civil Code as
follows:

Art. 1279. In order that compensation may be proper, it is necessary:

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

(2) That both debts consists 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 are 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. (Emphasis supplied)

On 9 February 1981, neither DMC PN No. 2731 nor Philfinance PN No. 143-A was due. This was explicitly
recognized by Delta in its 10 April 1980 "Letter of Agreement" with Philfinance, where Delta acknowledged
that the relevant promissory notes were "to be offsetted (sic) against [Philfinance] PN No. 143-A upon
co-terminal maturity."

As noted, the assignment to petitioner was made on 9 February 1981 or from forty-nine (49) days before the
"co-terminal maturity" date, that is to say, before any compensation had taken place. Further, the
assignment to petitioner would have prevented compensation had taken place between Philfinance and
Delta, to the extent of P304,533.33, because upon execution of the assignment in favor of petitioner,
Philfinance and Delta would have ceased to be creditors and debtors of each other in their own right to the
extent of the amount assigned by Philfinance to petitioner. Thus, we conclude that the assignment effected
by Philfinance in favor of petitioner was a valid one and that petitioner accordingly became owner of DMC
PN No. 2731 to the extent of the portion thereof assigned to him.

The record shows, however, that petitioner notified Delta of the fact of the assignment to him only on 14 July
1981, 19 that is, after the maturity not only of the money market placement made by petitioner but also of
both DMC PN No. 2731 and Philfinance PN No. 143-A. In other words, petitioner notified Delta of his rights
as assignee after compensation had taken place by operation of law because the offsetting instruments had
both reached maturity. It is a firmly settled doctrine that the rights of an assignee are not any greater that the
rights of the assignor, since the assignee is merely substituted in the place of the assignor 20 and that the
assignee acquires his rights subject to the equities — i.e., the defenses — which the debtor could have set

41
up against the original assignor before notice of the assignment was given to the debtor. Article 1285 of the
Civil Code provides that:

Art. 1285. The debtor who has consented to the assignment of rights made by a creditor in favor of a third
person, cannot set up against the assignee the compensation which would pertain to him against the
assignor, unless the assignor was notified by the debtor at the time he gave his consent, that he reserved his
right to the compensation.

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

If the assignment is made without the knowledge of the debtor, he may set up the compensation of all
credits prior to the same and also later ones until he had knowledge of the assignment. (Emphasis supplied)

Article 1626 of the same code states that: "the debtor who, before having knowledge of the assignment,
pays his creditor shall be released from the obligation." In Sison v. Yap-Tico,21 the Court explained that:

[n]o man is bound to remain a debtor; he may pay to him with whom he contacted to pay; and if he pay
before notice that his debt has been assigned, the law holds him exonerated, for the reason that it is the duty
of the person who has acquired a title by transfer to demand payment of the debt, to give his debt or notice.22

At the time that Delta was first put to notice of the assignment in petitioner's favor on 14 July 1981, DMC PN
No. 2731 had already been discharged by compensation. Since the assignor Philfinance could not have
then compelled payment anew by Delta of DMC PN No. 2731, petitioner, as assignee of Philfinance, is
similarly disabled from collecting from Delta the portion of the Note assigned to him.

It bears some emphasis that petitioner could have notified Delta of the assignment or sale was effected on 9
February 1981. He could have notified Delta as soon as his money market placement matured on 13 March
1981 without payment thereof being made by Philfinance; at that time, compensation had yet to set in and
discharge DMC PN No. 2731. Again petitioner could have notified Delta on 26 March 1981 when petitioner
received from Philfinance the Denominated Custodianship Receipt ("DCR") No. 10805 issued by private
respondent Pilipinas in favor of petitioner. Petitioner could, in fine, have notified Delta at any time before the
maturity date of DMC PN No. 2731. Because petitioner failed to do so, and because the record is bare of
any indication that Philfinance had itself notified Delta of the assignment to petitioner, the Court is compelled
to uphold the defense of compensation raised by private respondent Delta. Of course, Philfinance remains
liable to petitioner under the terms of the assignment made by Philfinance to petitioner.

II.

We turn now to the relationship between petitioner and private respondent Pilipinas. Petitioner contends that
Pilipinas became solidarily liable with Philfinance and Delta when Pilipinas issued DCR No. 10805 with the
following words:

Upon your written instruction, we [Pilipinas] shall undertake physical delivery of the above securities fully
assigned to you —.23

The Court is not persuaded. We find nothing in the DCR that establishes an obligation on the part of
Pilipinas to pay petitioner the amount of P307,933.33 nor any assumption of liability in solidum with
Philfinance and Delta under DMC PN No. 2731. We read the DCR as a confirmation on the part of Pilipinas
that:

(1) it has in its custody, as duly constituted custodian bank, DMC PN No. 2731 of a certain face value, to
mature on 6 April 1981 and payable to the order of Philfinance;

42
(2) Pilipinas was, from and after said date of the assignment by Philfinance to petitioner (9 February
1981), holding that Note on behalf and for the benefit of petitioner, at least to the extent it had been assigned
to petitioner by payee Philfinance;24

(3) petitioner may inspect the Note either "personally or by authorized representative", at any time during
regular bank hours; and

(4) upon written instructions of petitioner, Pilipinas would physically deliver the DMC PN No. 2731 (or a
participation therein to the extent of P307,933.33) "should this Denominated Custodianship receipt remain
outstanding in [petitioner's] favor thirty (30) days after its maturity."

Thus, we find nothing written in printers ink on the DCR which could reasonably be read as converting
Pilipinas into an obligor under the terms of DMC PN No. 2731 assigned to petitioner, either upon maturity
thereof or any other time. We note that both in his complaint and in his testimony before the trial court,
petitioner referred merely to the obligation of private respondent Pilipinas to effect the physical delivery to
him of DMC PN No. 2731.25 Accordingly, petitioner's theory that Pilipinas had assumed a solidary obligation
to pay the amount represented by a portion of the Note assigned to him by Philfinance, appears to be a new
theory constructed only after the trial court had ruled against him. The solidary liability that petitioner seeks
to impute Pilipinas cannot, however, be lightly inferred. Under article 1207 of the Civil Code, "there is a
solidary liability only when the law or the nature of the obligation requires solidarity," The record here
exhibits no express assumption of solidary liability vis-a-vis petitioner, on the part of Pilipinas. Petitioner has
not pointed to us to any law which imposed such liability upon Pilipinas nor has petitioner argued that the
very nature of the custodianship assumed by private respondent Pilipinas necessarily implies solidary
liability under the securities, custody of which was taken by Pilipinas. Accordingly, we are unable to hold
Pilipinas solidarily liable with Philfinance and private respondent Delta under DMC PN No. 2731.

We do not, however, mean to suggest that Pilipinas has no responsibility and liability in respect of petitioner
under the terms of the DCR. To the contrary, we find, after prolonged analysis and deliberation, that private
respondent Pilipinas had breached its undertaking under the DCR to petitioner Sesbreño.

We believe and so hold that a contract of deposit was constituted by the act of Philfinance in designating
Pilipinas as custodian or depositary bank. The depositor was initially Philfinance; the obligation of the
depository was owed, however, to petitioner Sesbreño as beneficiary of the custodianship or depository
agreement. We do not consider that this is a simple case of a stipulation pour autri. The custodianship or
depositary agreement was established as an integral part of the money market transaction entered into by
petitioner with Philfinance. Petitioner bought a portion of DMC PN No. 2731; Philfinance as assignor-vendor
deposited that Note with Pilipinas in order that the thing sold would be placed outside the control of the
vendor. Indeed, the constituting of the depositary or custodianship agreement was equivalent to constructive
delivery of the Note (to the extent it had been sold or assigned to petitioner) to petitioner. It will be seen that
custodianship agreements are designed to facilitate transactions in the money market by providing a basis
for confidence on the part of the investors or placers that the instruments bought by them are effectively
taken out of the pocket, as it were, of the vendors and placed safely beyond their reach, that those
instruments will be there available to the placers of funds should they have need of them. The depositary in
a contract of deposit is obliged to return the security or the thing deposited upon demand of the depositor (or,
in the presented case, of the beneficiary) of the contract, even though a term for such return may have been
established in the said contract.26 Accordingly, any stipulation in the contract of deposit or custodianship that
runs counter to the fundamental purpose of that agreement or which was not brought to the notice of and
accepted by the placer-beneficiary, cannot be enforced as against such beneficiary-placer.

We believe that the position taken above is supported by considerations of public policy. If there is any party
that needs the equalizing protection of the law in money market transactions, it is the members of the
general public whom place their savings in such market for the purpose of generating interest
revenues.27 The custodian bank, if it is not related either in terms of equity ownership or management control
to the borrower of the funds, or the commercial paper dealer, is normally a preferred or traditional banker of

43
such borrower or dealer (here, Philfinance). The custodian bank would have every incentive to protect the
interest of its client the borrower or dealer as against the placer of funds. The providers of such funds must
be safeguarded from the impact of stipulations privately made between the borrowers or dealers and the
custodian banks, and disclosed to fund-providers only after trouble has erupted.

In the case at bar, the custodian-depositary bank Pilipinas refused to deliver the security deposited with it
when petitioner first demanded physical delivery thereof on 2 April 1981. We must again note, in this
connection, that on 2 April 1981, DMC PN No. 2731 had not yet matured and therefore, compensation or
offsetting against Philfinance PN No. 143-A had not yet taken place. Instead of complying with the demand
of the petitioner, Pilipinas purported to require and await the instructions of Philfinance, in obvious
contravention of its undertaking under the DCR to effect physical delivery of the Note upon receipt of "written
instructions" from petitioner Sesbreño. The ostensible term written into the DCR (i.e., "should this [DCR]
remain outstanding in your favor thirty [30] days after its maturity") was not a defense against petitioner's
demand for physical surrender of the Note on at least three grounds: firstly, such term was never brought to
the attention of petitioner Sesbreño at the time the money market placement with Philfinance was made;
secondly, such term runs counter to the very purpose of the custodianship or depositary agreement as an
integral part of a money market transaction; and thirdly, it is inconsistent with the provisions of Article 1988
of the Civil Code noted above. Indeed, in principle, petitioner became entitled to demand physical delivery of
the Note held by Pilipinas as soon as petitioner's money market placement matured on 13 March 1981
without payment from Philfinance.

We conclude, therefore, that private respondent Pilipinas must respond to petitioner for damages sustained
by arising out of its breach of duty. By failing to deliver the Note to the petitioner as depositor-beneficiary of
the thing deposited, Pilipinas effectively and unlawfully deprived petitioner of the Note deposited with it.
Whether or not Pilipinas itself benefitted from such conversion or unlawful deprivation inflicted upon
petitioner, is of no moment for present purposes. Prima facie, the damages suffered by petitioner consisted
of P304,533.33, the portion of the DMC PN No. 2731 assigned to petitioner but lost by him by reason of
discharge of the Note by compensation, plus legal interest of six percent (6%) per annum containing from 14
March 1981.

The conclusion we have reached is, of course, without prejudice to such right of reimbursement as Pilipinas
may have vis-a-vis Philfinance.

III.

The third principal contention of petitioner — that Philfinance and private respondents Delta and Pilipinas
should be treated as one corporate entity — need not detain us for long.

In the first place, as already noted, jurisdiction over the person of Philfinance was never acquired either by
the trial court nor by the respondent Court of Appeals. Petitioner similarly did not seek to implead Philfinance
in the Petition before us.

Secondly, it is not disputed that Philfinance and private respondents Delta and Pilipinas have been
organized as separate corporate entities. Petitioner asks us to pierce their separate corporate entities, but
has been able only to cite the presence of a common Director — Mr. Ricardo Silverio, Sr., sitting on the
Board of Directors of all three (3) companies. Petitioner has neither alleged nor proved that one or another of
the three (3) concededly related companies used the other two (2) as mere alter egos or that the corporate
affairs of the other two (2) were administered and managed for the benefit of one. There is simply not
enough evidence of record to justify disregarding the separate corporate personalities of delta and Pilipinas
and to hold them liable for any assumed or undetermined liability of Philfinance to petitioner. 28

WHEREFORE, for all the foregoing, the Decision and Resolution of the Court of Appeals in C.A.-G.R. CV No.
15195 dated 21 march 1989 and 17 July 1989, respectively, are hereby MODIFIED and SET ASIDE, to the
extent that such Decision and Resolution had dismissed petitioner's complaint against Pilipinas Bank.

44
Private respondent Pilipinas bank is hereby ORDERED to indemnify petitioner for damages in the amount of
P304,533.33, plus legal interest thereon at the rate of six percent (6%) per annum counted from 2 April 1981.
As so modified, the Decision and Resolution of the Court of Appeals are hereby AFFIRMED. No
pronouncement as to costs.

SO ORDERED.

Bidin, Davide, Jr., Romero and Melo, JJ., concur.

45
G.R. No. 45125 April 22, 1991

LORETA SERRANO, petitioner,

vs.
COURT OF APPEALS and LONG LIFE PAWNSHOP, INC., respondents.

Cecilio D. Ignacio for petitioner.

Hildawa & Gomez for private respondent.

RESOLUTION

FELICIANO, J.:

Sometime in early March 1968, petitioner Loreta Serrano bought some pieces of jewelry for P48,500.00
from Niceta Ribaya. On 21 March 1968, petitioner, then in need of money, instructed her private secretary,
Josefina Rocco, to pawn the jewelry. Josefina Rocco went to private respondent Long Life Pawnshop, Inc.
("Long Life"), pledged the jewelry for P22,000.00 with its principal owner and General Manager, Yu An Kiong,
and then absconded with said amount and the pawn ticket. The pawnshop ticket issued to Josefina Rocco
stipulated that it was redeemable "on presentation by the bearer."

Three (3) months later, Gloria Duque and Amalia Celeste informed Niceta Ribaya that a pawnshop ticket
issued by private respondent was being offered for sale. They told Niceta the ticket probably covered jewelry
once owned by the latter which jewelry had been pawned by one Josefina Rocco. Suspecting that it was the
same jewelry she had sold to petitioner, Niceta informed the latter of this offer and suggested that petitioner
go to the Long Life pawnshop to check the matter out. Petitioner claims she went to private respondent
pawnshop, verified that indeed her missing jewelry was pledged there and told Yu An Kiong not to permit
anyone to redeem the jewelry because she was the lawful owner thereof. Petitioner claims that Yu An Kiong
agreed.

On 9 July 1968, petitioner went to the Manila Police Department to report the loss, and a complaint first for
qualified theft and later changed to estafa was subsequently filed against Josefina Rocco. On the same date,
Detective Corporal Oswaldo Mateo of the Manila Police also claims to have gone to the pawnshop, showed
Yu An Kiong petitioner's report and left the latter a note asking him to hold the jewelry and notify the police in
case some one should redeem the same. The next day, on 10 July 1968, Yu An Kiong permitted one
Tomasa de Leon, exhibiting the appropriate pawnshop ticket, to redeem the jewelry.

46
On 4 October 1968, petitioner filed a complaint with the then Court of First Instance of Manila for damages
against private respondent Long Life for failure to hold the jewelry and for allowing its redemption without
first notifying petitioner or the police. After trial, the trial judge, Hon. Luis B. Reyes, rendered a decision in
favor of petitioner, awarding her P26,500.00 as actual damages, with legal interest thereon from the date of
the filing of the complaint, P2,000.00 as attorney's fees, and the costs of the suit.

Judge L.B. Reyes' decision was reversed on appeal and the complaint dismissed by the public respondent
Court of Appeals in a Decision promulgated on 26 September 1976.

The Court of Appeals gave credence to Yu An Kiong's testimony that neither petitioner nor Detective Mateo
ever apprised him of the misappropriation of petitioner's loan, or obtained a commitment from him not to
permit redemption of the jewelry, prior to 10 July 1968. Yu An Kiong claims to have become aware of the
loan's misappropriation only on 16 August 1968 when a subpoena duces tecum was served by the Manila
Fiscal's Office requiring him to bring the record of the pledge in connection with the preliminary investigation
of the estafa charge against Josefina Rocco. Consequently, the appellate court ruled, there could have been
no negligence, much less a grave one amounting to bad faith, imputable to Yu An Kiong as the basis for an
award of damages.

In this Petition for Review, petitioner seeks reversal of the Public respondent's findings relating to the
credibility of witnesses and the restoration of the trial court's decision.

Deliberating on the present Petition for Review, the Court considers that the public respondent Court of
Appeals committed reversible error in rendering its questioned Decision.

It is a settled principle of civil procedure that the conclusions of the trial court regarding the credibility of
witnesses are entitled to great respect from the appellate courts because the trial court had an opportunity to
observe the demeanor of witnesses while giving testimony which may indicate their candor or lack
thereof.1 While the Supreme Court ordinarily does not rule on the issue of credibility of witnesses, that being
a question of fact not properly raised in a petition under Rule 45, the Court has undertaken to do so in
exceptional situations where, for instance, as here, the trial court and the Court of Appeals arrived at
divergent conclusions on questions of fact and the credibility of witnesses.2

The Court of Appeals rejected what it considered to be the incredible testimony of petitioner and Detective
Mateo. It faulted petitioner for failing to report to the police authorities the loss of her jewelry immediately on
21 March 1968 when Josefina Rocco failed to return to her either the loan proceeds or the jewelry. But it
must be noted that Josefina Rocco simply disappeared without a trace on said date. Petitioner had no way
of knowing if Josefina had misappropriated her jewelry, or had first pledged the jewelry as instructed and
then misappropriated the proceeds of the loan. In the latter case, which was in fact what had occurred,
petitioner could have had no idea as to the identity of the pawnbroker. Moreover, this Court has several
times recognized that different people may have diverse reasons for failing to report promptly to the police
their having been victimized by some criminal or fraudulent scheme and that such failure does not by itself
render their subsequent testimony unworthy of credence.3

The Court of Appeals also found it hard to believe that Detective Mateo had failed to obtain a written
acknowledgment from Yu An Kiong of the receipt of the note as corroboration for his testimony. However,
absent evidence that it was an established practice for police officers to obtain such acknowledgment in
situations like the one here, it is difficult to see why Detective Mateo's behavior should be considered
unbelievable. On the other hand, as the trial court pointed out, it would not have been sensible for Detective
Mateo to leave a note reminding Yu An Kiong to hold unto the jewelry if the latter had in fact then told the
policeman that the jewelry had already been redeemed.

The public respondent apparently believed petitioner had failed to establish her ownership of the jewelry
pledged by Josefina Rocco, such failure purportedly engendering doubt that Tomasa de Leon may have
redeemed jewelry different from that owned by petitioner. This is curious and untenable because the record

47
on appeal indicates that Yu An Kiong had admitted in his answer and memorandum before the trial court
that he received pledged jewelry from Josefina Rocco and, in his memorandum, that such jewelry had been
entrusted to Josefina by petitioner as the latter's employer. It is clear from these judicial admissions that he
considered petitioner to have been the true owner of the jewelry.

Finally, the Court of Appeals did not believe petitioner's testimony because of a claimed material
inconsistency therein.1âwphi1 On direct examination, petitioner said she "immediately" went to the private
respondent's establishment upon being informed by Niceta Ribaya of the possible whereabouts of her
jewelry. On cross-examination, she said she went to the establishment "a few days later." If this is an
inconsistency, it relates to an unimportant detail. What is clear is that in any event, petitioner testified that
she went to the respondent's pawnshop to meet Yu An Kiong and notify him of the
misappropriation before anyone had redeemed the jewelry.

We must also note that the Court of Appeals apparently over-looked a fact of substance which did not
escape the attention of the trial court. Petitioner's version of events was corroborated by Police Detective
Mateo and by Niceta Ribaya. These were two (2) individuals who had nothing to gain from the outcome of
the case. Certainly, their disinterested testimony should have been accorded more probative weight than the
negative, uncorroborated and self-serving testimony of Yu An Kiong, which presented a diametrically
opposed version of events calculated to show that in permitting redemption of the jewelry, he was acting in
good faith.4

The testimony of Detective Mateo was moreover supported by the presumption that he had acted in the
regular performance of his official duty as a police officer, a presumption that Yu An Kiong did not try to
rebut.

This being a civil case, it was enough for petitioner to show, by a preponderance of evidence, that her
version of events did in fact occur. We agree with the trial court that this burden of proof had been
discharged by petitioner because her evidence was direct and more credible and persuasive than that
propounded by Yu An Kiong,5 and corroborated by disinterested witnesses.

Turning to the substantive legal rights and duties of the parties, we believe and so hold that, having been
notified by petitioner and the police that jewelry pawned to it was either stolen or involved in an
embezzlement of the proceeds of the pledge, private respondent pawnbroker became duty bound to hold
the things pledged and to give notice to petitioner and the police of any effort to redeem them. Such a duty
was imposed by Article 21 of the Civil Code.6 The circumstance that the pawn ticket stated that the pawn
was redeemable by the bearer, did not dissolve that duty. The pawn ticket was not a negotiable instrument
under the Negotiable Instruments Law nor a negotiable document of title under Articles 1507 et seq. of the
Civil Code. If the third person Tomasa de Leon, who redeemed the things pledged a day after petitioner and
the police had notified Long Life, claimed to be owner thereof, the prudent recourse of the pawnbroker was
to file an interpleader suit, impleading both petitioner and Tomasa de Leon. The respondent pawnbroker
was, of course, entitled to demand payment of the loan extended on the security of the pledge before
surrendering the jewelry, upon the assumption that it had given the loan in good faith and was not a "fence"
for stolen articles and had not conspired with the faithless Josefina Rocco or with Tomasa de Leon.
Respondent pawnbroker acted in reckless disregard of that duty in the instant case and must bear the
consequences, without prejudice to its right to recover damages from Josefina Rocco.

The trial court correctly held that private respondent was liable to petitioner for actual damages which
corresponded to the difference in the value of the jewelry (P48,500.00) and the amount of the loan
(P22,000.00), or the sum of P26,500.00. Petitioner is entitled to collect the balance of the value of the
jewelry, corresponding to the amount of the loan, in an appropriate action against Josefina Rocco. Private
respondent Long Life in turn is entitled to seek reimbursement from Josefina Rocco of the amount of the
damages it must pay to petitioner.

48
ACCORDINGLY, the Petition is GRANTED. The Decision of the Court of Appeals dated 23 September 1976
is hereby REVERSED and SET ASIDE. The Decision of the Court of First Instance dated 22 May 1970 is
hereby REINSTATED in toto. No pronouncement as to costs.

Fernan, C.J., Gutierrez, Jr., Bidin and Davide, Jr., JJ., concur.

49