ALLIED BANKING CORPORATION, Petitioner,

G.R. No. 125851 Present: QUISUMBING, J., Chairperson, CARPIO, CARPIO MORALES, TINGA, and VELASCO, JR., JJ.

receipt of which was acknowledged by the latter in its letter dated June 22, 1981. On the same date, respondents Nari Gidwani and Alcron International Ltd. (Alcron) executed their respective Letters of Guaranty, holding themselves liable on the export bill if it should be dishonored or retired by the drawee for any reason. Subsequently, the spouses Leon and Leticia de Villa and Nari Gidwani also executed a Continuing Guaranty/Comprehensive Surety (surety, for brevity), guaranteeing payment of any and all such credit accommodations which ALLIED may extend to GGS. When ALLIED negotiated the export bill to Chekiang, payment was refused due to some material discrepancies in the documents submitted by GGS relative to the exportation covered by the letter of credit. Consequently, ALLIED demanded payment from all the respondents based on the Letters of Guaranty and Surety executed in favor of ALLIED. However, respondents refused to pay, prompting ALLIED to file an action for a sum of money. In their joint answer, respondents GGS and Nari Gidwani admitted the due execution of the export bill and the Letters of Guaranty in favor of ALLIED, but claimed that they signed blank forms of the Letters of Guaranty and the Surety, and the blanks were only filled up by ALLIED after they had affixed their signatures. They also added that the documents did not cover the transaction involving the subject export bill. On the other hand, the respondents, spouses de Villa, claimed that they were not aware of the existence of the export bill; they signed blank forms of the surety; and averred that the guaranty was not meant to secure the export bill. Respondent Alcron, for its part, alleged that as a foreign corporation doing business in the Philippines, its branch in the Philippines is merely a liaison office confined to the following duties and responsibilities, to wit: acting as a message center between its office in Hongkong and its clients in the Philippines; conducting credit investigations on Filipino clients; and providing its office in Hongkong with shipping arrangements and other

- versus -

COURT OF APPEALS, G.G. SPORTSWEAR MANUFACTURING CORPORATION, NARI GIDWANI, Promulgated: SPOUSES LETICIA AND LEON DE VILLA AND ALCRON INTERNATIONAL LTD., July 11, 2006 Respondents. x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x DECISION QUISUMBING, J.: This petition for review on certiorari assails (a) the July 31, 1996 Decision[1] of the Court of Appeals, ordering respondent G.G. Sportswear Manufacturing Corp. to reimburse petitioner US $20,085; and exonerating the guarantors from liability; and (b) the January 17, 1997 Resolution[2] denying the motion for reconsideration. The facts are undisputed. On January 6, 1981, petitioner Allied Bank, Manila (ALLIED) purchased Export Bill No. BDO-81-002 in the amount of US $20,085.00 from respondent G.G. Sportswear Mfg. Corporation (GGS). The bill, drawn under a letter of credit No. BB640549 covered Mens Valvoline Training Suit that was in transit to West Germany (Uniger via Rotterdam) under Cont. #73/S0299. The export bill was issued by Chekiang First Bank Ltd., Hongkong. With the purchase of the bill, ALLIED credited GGS the peso equivalent of the aforementioned bill amounting to P151,474.52 and the

details in connection with its office in Hongkong. Respondent Alcron further alleged that neither its liaison office in the Philippines nor its then representative, Hans-Joachim Schloer, had the authority to issue Letters of Guaranty for and in behalf of local entities and persons. It also invoked laches against petitioner ALLIED. GGS and Nari Gidwani filed a Motion for Summary Judgment on the ground that since the plaintiff admitted not having protested the dishonor of the export bill, it thereby discharged GGS from liability. But the trial court denied the motion. After the presentation of evidence by the petitioner, only the spouses de Villa presented their evidence. The other respondents did not. The trial court dismissed the complaint. On appeal, the Court of Appeals modified the ruling of the trial court holding respondent GGS liable to reimburse petitioner ALLIED the peso equivalent of the export bill, but it exonerated the guarantors from their liabilities under the Letters of Guaranty. The CA decision reads as follows: For the foregoing considerations, appellee GGS is obliged to reimburse appellant Allied Bank the amount of P151,474.52 which was the equivalent of GGSs contracted obligation of US$20,085.00. The lower court however correctly exonerated the guarantors from their liability under their Letters of Guaranty. A guaranty is an accessory contract. What the guarantors guaranteed in the instant case was the bill which had been discharged. Consequently, the guarantors should be correspondingly released. WHEREFORE, judgment is hereby rendered ordering defendant-appellee G.G. Sportswear Mfg. Corporation to pay appellant the sum of P151,474.52 with interest thereon at the legal rate from the filing of the complaint, and the costs. SO ORDERED.[3] The petitioner filed a Motion for Reconsideration, but to no avail. Hence, this appeal, raising a single issue: WHETHER OR NOT RESPONDENTS NARI, DE VILLA AND ALCRON ARE LIABLE UNDER THE LETTERS OF

GUARANTY AND THE CONTINUING GUARANTY/ COMPREHENSIVE SURETY NOTWITHSTANDING THE FACT THAT NO PROTEST WAS MADE AFTER THE BILL, A FOREIGN BILL OF EXCHANGE, WAS DISHONORED.[4] The main issue raised before us is: Can respondents, in their capacity as guarantors and surety, be held jointly and severally liable under the Letters of Guaranty and Continuing Guaranty/Comprehensive Surety, in the absence of protest on the bill in accordance with Section 152 of the Negotiable Instruments Law?[5] The petitioner contends that part of the Court of Appeals decision exonerating respondents Nari Gidwani, Alcron International Ltd., and spouses Leon and Leticia de Villa as guarantors and/or sureties. Respondents rely on Section 152 of the Negotiable Instruments Law to support their contention. Our review of the records shows that what transpired in this case is a discounting arrangement of the subject export bill, between petitioner ALLIED and respondent GGS. Previously, we ruled that in a letter of credit transaction, once the credit is established, the seller ships the goods to the buyer and in the process secures the required shipping documents of title. To get paid, the seller executes a draft and presents it together with the required documents to the issuing bank. The issuing bank redeems the draft and pays cash to the seller if it finds that the documents submitted by the seller conform with what the letter of credit requires. The bank then obtains possession of the documents upon paying the seller. The transaction is completed when the buyer reimburses the issuing bank and acquires the documents entitling him to the goods. [6] However, in most cases, instead of going to the issuing bank to claim payment, the buyer (or the beneficiary of the draft) may approach another bank, termed the negotiating bank, to have the draft discounted. [7] While the negotiating bank owes no contractual duty toward the beneficiary of the draft to discount or purchase it, it may still do so. Nothing can prevent the negotiating bank from requiring additional requirements, like contracts of guaranty and surety, in consideration of the discounting arrangement.

In this case, respondent GGS, as the beneficiary of the export bill, instead of going to Chekiang First Bank Ltd. (issuing bank), went to petitioner ALLIED, to have the export bill purchased or discounted. Before ALLIED agreed to purchase the subject export bill, it required respondents Nari Gidwani and Alcron to execute Letters of Guaranty, holding them liable on demand, in case the subject export bill was dishonored or retired for any reason.[8] Likewise, respondents Nari Gidwani and spouses Leon and Leticia de Villa executed Continuing Guaranty/Comprehensive Surety, holding themselves jointly and severally liable on any and all credit accommodations, instruments, loans, advances, credits and/or other obligation that may be granted by the petitioner ALLIED to respondent GGS.[9] The surety also contained a clause whereby said sureties waive protest and notice of dishonor of any and all such instruments, loans, advances, credits and/or obligations.[10] These letters of guaranty and surety are now the basis of the petitioners action. At this juncture, we must stress that obligations arising from contracts have the force of law between the parties and should be complied with in good faith.[11] Nothing can stop the parties from establishing stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.[12] Here, Art. 2047 of the New Civil Code is pertinent. Art. 2047 states, Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship. In this case, the Letters of Guaranty and Surety clearly show that respondents undertook and bound themselves as guarantors and surety to pay the full amount of the export bill.

Respondents claim that the petitioner did not protest [13] upon dishonor of the export bill by Chekiang First Bank, Ltd. According to respondents, since there was no protest made upon dishonor of the export bill, all of them, as indorsers were discharged under Section 152 of the Negotiable Instruments Law. Section 152 of the Negotiable Instruments Law pertaining to indorsers, relied on by respondents, is not pertinent to this case. There are well-defined distinctions between the contract of an indorser and that of a guarantor/surety of a commercial paper, which is what is involved in this case. The contract of indorsement is primarily that of transfer, while the contract of guaranty is that of personal security.[14] The liability of a guarantor/surety is broader than that of an indorser. Unless the bill is promptly presented for payment at maturity and due notice of dishonor given to the indorser within a reasonable time, he will be discharged from liability thereon.[15] On the other hand, except where required by the provisions of the contract of suretyship, a demand or notice of default is not required to fix the suretys liability.[16] He cannot complain that the creditor has not notified him in the absence of a special agreement to that effect in the contract of suretyship.[17] Therefore, no protest on the export bill is necessary to charge all the respondents jointly and severally liable with G.G. Sportswear since the respondents held themselves liable upon demand in case the instrument was dishonored and on the surety, they even waived notice of dishonor as stipulated in their Letters of Guarantee. As to respondent Alcron, it is bound by the Letter of Guaranty executed by its representative Hans-Joachim Schloer. As to the other respondents, not to be overlooked is the fact that, the Suretyship Agreement they executed, expressly contemplated a solidary obligation, providing as it did that the sureties hereby guarantee jointly and severally the punctual payment of any and all such credit accommodations, instruments, loans, which is/are now or may hereafter become due or owing by the borrower. [18] It is a cardinal rule that if the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulation shall control. [19] In the present case, there can be no mistaking about respondents intent, as sureties, to be jointly and severally obligated with respondent G.G. Sportswear.

Respondents also aver that, (1) they only signed said documents in blank; (2) they were never made aware that said documents will cover the payment of the export bill; and (3) laches have set in. Respondents stance lacks merit. Under Section 3 (d), Rule 131 of the Rules of Court, it is presumed that a person takes ordinary care of his concerns. Hence, the natural presumption is that one does not sign a document without first informing himself of its contents and consequences. Said presumption acquires greater force in the case at bar where not only one document but several documents were executed at different times and at different places by the herein respondent guarantors and sureties.[20] In this case, having affixed their consenting signatures in several documents executed at different times, it is safe to presume that they had full knowledge of its terms and conditions, hence, they are precluded from asserting ignorance of the legal effects of the undertaking they assumed thereunder. It is also presumed that private transactions have been fair and regular[21] and that he who alleges has the burden of proving his allegation with the requisite quantum of evidence. [22] But here the records of this case do not support their claims. Last, we find the defense of laches unavailing. The question of laches is addressed to the sound discretion of the court and since laches is an equitable doctrine, its application is controlled by equitable considerations.[23] Respondents, however, failed to show that the collection suit against them as sureties was inequitable. Remedies in equity address only situations tainted with inequity, not those expressly governed by statutes.[24] After considering the facts of this case vis--vis the pertinent laws, we are constrained to rule for the petitioner. WHEREFORE, the instant petition is GRANTED. The assailed Decision of the Court of Appeals is hereby MODIFIED, and we hold that

respondent Alcron International Ltd. is subsidiarily liable, while respondents Nari Gidwani, and Spouses Leon and Leticia de Villa are jointly and severally liable together with G.G. Sportswear, to pay petitioner Bank the sum of P151,474.52 with interest at the legal rate from the filing of the complaint, and the costs. SO ORDERED.

SINCERE Z. VILLANUEVA, Petitioner,

G.R. No. 148211 Present: PUNO, J., Chairperson, SANDOVAL-GUTIERREZ, CORONA, AZCUNA and GARCIA, JJ.

respondent, through her representative Emily P. Abojada, remitted P235,000 to petitioner as partial payment of the loan. The balance of P174, 000 was due on or before December 8, 1994. On August 24, 1994, however, petitioner filed an action for a sum of money and damages (Civil Case No. Q-94-21495) against ABC for the full amount of the dishonored check. And in a decision dated May 23, 1997, the RTC of Quezon City, Branch 101 ruled in his favor.[2] When respondent went to ABC Salcedo Village Branch on June 30, 1997 to withdraw money from her account, she was unable to do so because the trial court had ordered ABC to pay petitioner the value of respondents ABC check. On August 25, 1997, ABC remitted to the sheriff a managers check amounting to P325,500 drawn on respondents account. The check was duly received by petitioner on the same date. Respondent then filed a petition in the CA seeking to annul and set aside the trial courts decision ordering ABC to pay petitioner the value of the ABC check.[3] The CA ruled: WHEREFORE, premises considered, the petition is GRANTED and the Decision dated May 23, 1997 of the public respondent is hereby ANNULLED and SET ASIDE for extrinsic fraud. [Petitioner] Villanueva is hereby ordered to pay [Nite]

- versus -

MARLYN P. NITE,* Respondent. Promulgated: July 25, 2006 x------------------------------------------x DECISION CORONA, J.:

In this petition for review on certiorari under Rule 45, petitioner submits that the Court of Appeals (CA) erred in annulling and setting aside the Regional Trial Court (RTC) decision on the ground of extrinsic fraud. The facts follow.[1] Respondent allegedly took out a loan of P409,000 from petitioner. To secure the loan, respondent issued petitioner an Asian Bank Corporation (ABC) check (Check No. AYA 020195) in the amount of P325,500 dated February 8, 1994. The date was later changed to June 8, 1994 with the consent and concurrence of petitioner. The check was, however, dishonored due to a material alteration when petitioner deposited the check on due date. On August 24, 1994,

1)

2) 3)

the sum of [P146,500] as actual damages plus interest at 12% per annum from August 25, 1997 until full payment; the sum of [P75,000] as moral damages; the sum of [P50,000] as exemplary damages; and

4)

the sum of [P50,000] as attorneys fees and cost of suit.

SO ORDERED.[4]

Thus, this petition. We find for respondent. Annulment of judgment is a remedy in law independent of the case where the judgment sought to be annulled is promulgated. It can be filed by one who was not a party to the case in which the assailed judgment was rendered. Section 1 of Rule 47 provides: Section 1. Coverage. This Rule shall govern the annulment by the Court of Appeals of judgments or final orders and resolutions in civil actions of Regional Trial Courts for which the ordinary remedies of new trial, appeal, petition for relief or other appropriate remedies are no longer available through no fault of the petitioner.

Barely 6 days after receipt of the partial payment of P235,000.00 and agreeing that the balance of P174,000.00 shall be paid on or before December 8, 1994, [Sincere] filed his complaint against [ABC] for the full amount of the dishonored check in the sum of P320,500.00 without impleading petitioner. The apparent haste by which [Sincere] filed his complaint and his failure to implead [Marlyn] clearly shows his intent to prevent [Marlyn] from opposing his action. [A]t the time news about [Marlyn] having left the country was widespread, appearing even in print media as early as May 1994, [Marlyn] paid [Sincere] the amount of P235,000.00 as partial payment on [August 18, 1994], through a representative. Notwithstanding the foregoing, SIX (6) days later or on [August 24, 1994, Sincere] instituted an action for collection with damages for the whole amount of the issued check. [Sincere] does not deny knowledge of such payment neither of the fact that he concurred in settling the balance of P174,000.00 on December 8, 1994. [His] actuation and pronouncement shows not only bad faith on his part but also of his fraudulent intention to completely exclude [Marlyn] from the proceedings in the court a quo. By doing what he did he prevented the [trial court] from fully appreciating the particulars of the case. [8]

Respondent may avail of the remedy of annulment of judgment under Rule 47. The ordinary remedies of new trial, appeal and petition for relief were not available to her for the simple reason that she was not made a party to the suit against ABC. Thus, she was neither able to participate in the original proceedings nor resort to the other remedies because the case was filed when she was abroad. Annulment of judgment may be based only on extrinsic fraud and lack of jurisdiction.[5] Extrinsic or collateral fraud pertains to such fraud which prevents the aggrieved party from having a trial or presenting his case to the court, or is used to procure the judgment without fair submission of the controversy.[6] This refers to acts intended to keep the unsuccessful party away from the courts as when there is a false promise of compromise or when one is kept in ignorance of the suit.[7] We uphold the appellate courts finding of extrinsic fraud:

In any event, the RTC decision may be annulled for lack of jurisdiction over the person of respondent. The pertinent provisions of the Negotiable Instruments Law are enlightening:

SEC. 185. Check, defined. A check is a bill of exchange drawn on a bank payable on demand. Except as herein otherwise provided, the provisions of this Act applicable to a bill of exchange payable on demand apply to a check.[9] (emphasis ours) SEC. 189. When check operates as an assignment. A check of itself does not operate as an assignment of any part of the funds to the credit of the drawer with the bank, and the bank is not liable to the holder, unless and until it accepts or certifies the check. (emphasis ours) If a bank refuses to pay a check (notwithstanding the sufficiency of funds), the payee-holder cannot, in view of the cited sections, sue the bank. The payee should instead sue the drawer who might in turn sue the bank. Section 189 is sound law based on logic and established legal principles: no privity of contract exists between the drawee-bank and the payee. Indeed, in this case, there was no such privity of contract between ABC and petitioner. Petitioner should not have sued ABC. Contracts take effect only between the parties, their assigns and heirs, except in cases where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. [10] None of the foregoing exceptions to the relativity of contracts applies in this case. The contract of loan was between petitioner and respondent. No collection suit could prosper without respondent who was an indispensable party. Rule 3, Sec. 7 of the Rules of Court states: Sec. 7. Compulsory joinder of indispensable parties. Parties in interest without whom no final determination can be had of an action shall be joined either as plaintiffs or defendants. (emphasis ours)

An indispensable party is one whose interest in the controversy is such that a final decree will necessarily affect his rights. The court cannot proceed without his presence.[11] If an indispensable party is not impleaded, any judgment is ineffective.[12] On this, Aracelona v. Court of [13] Appeals declared: Rule 3, Section 7 of the Rules of Court defines indispensable parties as parties-in-interest without whom there can be no final determination of an action. As such, they must be joined either as plaintiffs or as defendants. The general rule with reference to the making of parties in a civil action requires, of course, the joinder of all necessary parties where possible, and the joinder of all indispensable parties under any and all conditions, their presence being sine qua non for the exercise of judicial power. It is precisely when an indispensable party is not before the court (that) the action should be dismissed. The absence of an indispensable party renders all subsequent actions of the court null and void for want of authority to act, not only as to the absent parties but even as to those present. WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals in CA-G.R. SP No. 44971 is AFFIRMED in toto.

BANK OF ISLANDS,

THE

PHILIPPINE Petitioner,

G. R. No. 137002 Present:

PANG ANI BAN, C.J, Chairman, - versus YNARES-SANTIAGO AUSTRI A-MARTINEZ, CALLEJO, SR., an d CHICO-NAZARIO, JJ. COMMISSIONER OF INTERNAL REVENUE, Respondent.

From 28 February 1986 to 8 October 1986, petitioner Bank of the Philippine Islands (BPI) sold to the Central Bank of the Philippines (now Bangko Sentral ng Pilipinas) U.S. dollars for P1,608,541,900.00. BPI instructed, by cable, its correspondent bank in New York to transfer U.S. dollars deposited in BPIs account therein to the Federal Reserve Bank in New York for credit to the Central Banks account therein. Thereafter, the Federal Reserve Bank sent to the Central Bank confirmation that such funds had been credited to its account and the Central Bank promptly transferred to the petitioners account in the Philippines the corresponding amount in Philippine pesos. [3]

Promulgated: July 27, 2006

x--------------------------------------------------x DECISION CHICO-NAZARIO, J.: This is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Court, as amended, seeking to set aside a Decision [1] of the Court of Appeals dated 14 August 2004 ordering the petitioner to pay respondent Commissioner of Internal Revenue (CIR) deficiency documentary stamp tax of P690,030 for the year 1986, inclusive of surcharge and compromise penalty, plus 20% annual interest until fully paid. The Court of Appeals in its assailed Decision affirmed the Decision [2] of the Court of Tax Appeals (CTA) dated 31 May 1994.

During the period starting 11 June 1985 until 9 March 1987, the Central Bank enjoyed tax exemption privileges pursuant to Resolution No. 35-85 dated 3 May 1985 of the Fiscal Incentive Review Board. However, in 1985, Presidential Decree No. 1994 -- An Act Further Amending Certain Provisions of the National Internal Revenue Code was enacted. This law amended Section 222 (now 173) of the National Internal Revenue Code (NIRC), by adding the foregoing:

[W]henever one party to the taxable document enjoys exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax.

In 1988, respondent CIR ordered an investigation to be made on BPIs sale of foreign currency. As a result thereof, the CIR issued a pre-assessment notice informing BPI that in accordance with Section 195 (now Section 182)[4] of the NIRC, BPI was liable for documentary stamp tax at the rate of P0.30 per P200.00 on all foreign exchange sold to the Central Bank. Total tax liability was assessed at P3,016,316.06,

which consists of a documentary stamp tax liability of P2,412,812.85, a 25% surcharge of P603,203.21, and a compromise penalty of P300.00.[5]

Regulations (Regulations No. 26), dated 26 March 1924, the implementing rules to the earlier provisions on documentary stamp tax, which provides that: [8]

BPI disputed the findings contained in the pre-assessment notice. Nevertheless, the CIR issued Assessment No. FAS-5-86-88003022, dated 30 September 1988, which BPI received on 11 October 1988. BPI formally protested the assessment, but the protest was denied. On 10 July 1990, BPI received the final notice and demand for payment of its 1986 assessment for deficiency documentary stamp tax in the amount ofP3,016,316.06. Consequently, a petition for review was filed with the CTA on 9 August 1990.[6]

What may be regarded as telegraphic transfer.a local bank cables to a certain bank in a foreign country with which bank said local bank has a credit, and directs that foreign bank to pay to another bank or person in the same locality a certain sum of money, the document for and in respect such transaction will be regarded as a telegraphic transfer, taxable under the provisions of Section 1449(i) of the Administrative Code.

On 31 May 1994, the CTA rendered the Decision holding BPI liable for documentary stamp tax in connection with the sale of foreign exchange to the Central Bank from the period 29 July 1986 to 8 October 1986only, thus substantially reducing the CIRs original assessment. The dispositive portion of the said Decision reads:

WHEREFORE, premises considered, petitioner is hereby ordered to pay respondent Commissioner of Internal Revenue, the amount of P690,030 inclusive of surcharge and compromise penalty, plus 20% annual interest until fully paid pursuant to Section 249 (cc) (sic) (3) of the Tax Code.[7]

Nevertheless, the CTA also noted that although Presidential Decree No. 1994, the law which passes the liability on to the non-exempt party, was published in the Official Gazette issue of 2 December 1985, the same was released to the public only on 18 June 1986, as certified by the National Printing Office. Therefore, Presidential Decree No. 1994 took effect only in July 1986 or 15 days after the issue of Official Gazette where the law was actually published, that is, circulated to the public. As a result of the delay, BPIs transactions prior to the effectivity of Presidential Decree No. 1994 were not subject to documentary stamp tax. Hence, the CTA reduced the assessment from P3,016,316.06 to P690,030.00, plus 20% annual interest until fully paid pursuant to Section 249(c) of the NIRC.[9]

The CTA ruled that BPIs instructions to its correspondent bank in the U.S. to pay to the Federal Reserve Bank in New York, for the account of the Central Bank, a sum of money falls squarely within the scope of Section 51 of The Revised Documentary Stamp Tax

Both parties filed their respective Motions for Reconsideration, which the CTA denied in a Resolution dated 26 September 1994. BPI filed a Petition for Review with the Court of Appeals on 11 November 1994. On 14 August 1998, the Court of Appeals affirmed the Decision of the CTA. The Court of Appeals ruled that the documentary stamp tax imposed under

Section 195 (now Section 182) is not limited only to foreign bills of exchange and letters of credit but also includes the orders made by telegraph or by any other means for the payment of money made by any person drawn in but payable out of the Philippines. The Court of Appeals also maintained that telegraphic transfers, such as the one BPI sent to its correspondent bank in the U.S., are proper subjects for the imposition of documentary stamp tax under Section 195 (now Section 182) and Section 51 of Revenue Regulation No. 26. The Court of Appeals likewise affirmed the CTAs Decision imposing a 20% delinquency on the reduced assessment, in accordance with Section 24(c)(3) of the NIRC and the case ofPhilippine Refining Company v. Court of Appeals.[10]

DEFICIENCY STAMP ASSESSMENT DESPITE A REDUCTION THEREOF BY THE COUR T OF TAX APPEALS WHICH ERRED IN ITS ORIGINAL ASSESSMENT.[12]

The first issue raised by the petitioner is whether BPI is liable for documentary stamp taxes in connection with its sale of foreign exchange to the Central Bank in 1986 under Section 195 (now Section 182) of the NIRC, quoted hereunder:

Petitioner filed a Partial Motion for Reconsideration on 9 September 1998, which the Court of Appeals denied on 29 December 1998.[11]

Hence this petition, wherein the petitioner raised the following issues:

I WHETHER OR NOT, THE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING THAT SALES OF FOREIGN EXCHANGE (SPOT CASH), AS DISTINGUISHED FROM SALES OF FOREIGN BILLS OF EXCHANGE, ARE SUBJECT TO DOCUMENTARY STAMP TAX UNDER SECTION 182 OF THE TAX CODE II WHETHER OR NOT, THE COURT OF APPEALS GRIEVOUSLY ERRED IN AFFIRMING THE IMPOSITION OF A DELINQUENCY INTEREST OF 20% ON THE REVISED

Sec. 182. Stamp tax on foreign bills of exchange and letters of credit. On all foreign bills of exchange and letters of credit (including orders, by telegraph or otherwise, for the payment of money issued by express or steamship companies or by any person or persons) drawn in but payable out of the Philippines in a set of three or more according to the custom of merchants and bankers, there shall be collected a documentary stamp tax of thirty centavos on each two hundred pesos, or fractional part thereof, of the face value of such bill of exchange or letter of credit, or the Philippine equivalent of such face value, if expressed in foreign country.

To determine what is being taxed under this section, a discussion on the nature of the acts covered by Section 195 (now Section 182) of the NIRC is indispensable. This section imposes a documentary stamp tax on (1) foreign bills of exchange, (2) letters of credit, and (3) orders, by telegraph or otherwise, for the payment of money issued by express or steamship companies or by any person or persons. This enumeration is further limited by the qualification that they should be drawn in the Philippines and payable outside of the Philippines.

thePhilippines, payable outside the Philippines, or both drawn and payable outside of the Philippines. A definition of a bill of exchange is provided by Section 39 of Regulations No. 26, the rules governing documentary taxes promulgated by the Bureau of Internal Revenue (BIR) in 1924: Sec. 129. Inland and foreign bills of exchange. -- An inland bill of exchange is a bill which is, or on its face purports to be, both drawn and payable within the Philippines. Any other bill is a foreign bill. x x x

Sec. 39. Definition of bill of exchange. The term bill of exchange denotes checks, drafts, and all other kinds of orders for the payment of money, payable at sight, or on demand or after a specific period after sight or from a stated date.

The Code of Commerce loosely defines a letter of credit and provides for its essential conditions, thus:

Section 126 of The Negotiable Instruments Law (Act No. 2031) reiterates that it is an order for the payment of money and specifies the particular requisites that make it negotiable.

Art. 567. Letters of credit are those issued by one merchant to another or for the purpose of attending to a commercial transaction.

Sec. 126. Bill of exchange defined. A bill of exchange is an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at fixed or determinable future time a sum certain in money to order or to bearer.

Art 568. The essential conditions of letters of credit shall be: 1. To be issued in favor of a definite person and not to order. To be limited to a fixed and specified amount, or to one or more undetermined amounts, but within a maximum the limits of which has to be stated exactly.

2.

Section 129 of the same law classifies bills of exchange as inland and foreign, the distinction is laid down by where the bills are drawn and paid. Thus, a foreign bill of exchange may be drawn outside

A more explicit definition of a letter of credit can be found in the commentaries:

transfer, taxable under the provisions of Section 1449(i) of the Administrative Code.

A letter of credit is one whereby one person requests some other person to advance money or give credit to a third person, and promises that he will repay the same to the person making the advancement, or accept the bills drawn upon himself for the like amount.[13]

A bill of exchange and a letter of credit may differ as to their negotiability, and as to who owns the funds used for the payment at the time payment is made. However, in both bills of exchange and letters of credit, a person orders another to pay money to a third person.

In this case, BPI ordered its correspondent bank in the U.S. to pay the Federal Reserve Bank in New York a sum of money, which is to be credited to the account of the Central Bank. These are the same acts described under Section 51 of Regulations No. 26, interpreting the documentary stamp tax provision in the Administrative Code of 1917, which is substantially identical to Section 195 (now Section 182) of the NIRC. These acts performed by BPI incidental to its sale of foreign exchange to the Central Bank are included among those taxed under Section 195 (now Section 182) of the NIRC.

The phrase orders, by telegraph or otherwise, for the payment of money used in reference to documentary stamp taxes may be found in an earlier documentary tax provision, Section 1449(i) of the Administrative Code of 1917, which was substantially reproduced in Section 195 (now Section 182) of the NIRC. Regulations No. 26, which provided the rules and guidelines for the documentary stamp tax imposed under the Administrative Code of 1917, contains an explanation for the phrase orders, by telegraph or otherwise, for the payment of money:

BPI alleges that the assailed decision must be reversed since the sale between BPI and the Central Bank of foreign exchange, as distinguished from foreign bills of exchange, is not subject to the documentary stamp taxes prescribed in Section 195 (now Section 182) of the NIRC. This argument leaves much to be desired. In this case, it is not the sale of foreign exchange per se that is being taxed under Section 195 of the NIRC. This section refers to a documentary stamp tax, which is an excise upon the facilities used in the transaction of the business separate and apart from the business itself.[14] It is not a tax upon the business itself which is so transacted, but it is a duty upon the facilities made use of and actually employed in the transaction of the business, and separate and apart from the business itself.[15]

What may be regarded as telegraphic transfer.a local bank cables to a certain bank in a foreign country with which bank said local bank has a credit, and directs that foreign bank to pay to another bank or person in the same locality a certain sum of money, the document for and in respect such transaction will be regarded as a telegraphic

Section 195 (now Section 182) of the NIRC covers foreign bills of exchange, letters of credit, and orders of payment for money, drawn in Philippines, but payable outside the Philippines. From this enumeration, two common elements need to be present: (1) drawing the instrument or ordering a drawee, within the Philippines; and (2) ordering that drawee to

pay another person a specified amount of money outside the Philippines. What is being taxed is the facility that allows a party to draw the draft or make the order to pay within the Philippines and have the payment made in another country.

A perusal of the facts contained in the record in this case shows that BPI, while in the Philippines, ordered its correspondent bank by cable to make a payment, and that payment is to be made to the Federal Reserve Bank in New York. Thus, BPI made use of the aforementioned facility. As a result, BPI need not have sent a representative to New York, nor did the Federal Reserve Bank have to go to the Philippines to collect the funds which were to be credited to the Central Banks account with them. The transaction was made at the shortest time possible and at the greatest convenience to the parties. The tax was laid upon this privilege or facility used by the parties in their transactions, transactions which they may effect through our courts, and which are regulated and protected by our government.

And as correctly stated by the trial court, the term credit in its usual meaning is a sum credited on the books of a company to a person who appears to be entitled to it. It presupposes a creditor-debtor relationship, and may be said to imply ability, by reason of property or estates, to make a promised payment. It is the correlative to debt or indebtedness, and that which is due to any person, as distinguished from that which he owes. The same is true with the term deposits in banks where the relationship created between the depositor and the bank is that of creditor and debtor.

By this definition of credit, BPIs deposit account with its correspondent bank is much the same as the credit referred to in Section 51 of Regulations No. 26. Thus, the fact that the funds transferred to the Central Banks account with the Federal Reserve Bank are from BPIs deposit account with the correspondent bank can only underline that the present case is the same situation described under Section 51 of Regulations No. 26.

BPI further alleges that since the funds transferred to the Federal Reserve Bank were taken from BPIs account with the correspondent bank, this is not the transaction contemplated under Section 51 of Regulations No. 26. BPI argues that Section 51 of Regulations No. 26, in using the phrase with which local bank has credit, involves transactions wherein the drawee bank pays with its own funds and excludes from the coverage of the law situations wherein the funds paid out by the correspondent bank are owned by the drawer. In the case of Republic of the Philippines v. Philippine National Bank,[16] the Court equated credit with the term deposits, and identified the depositor as the creditor and the bank as the debtor.

Moreover, the fact that the funds belong to BPI and were not advanced by the correspondent bank will not remove the transaction from the coverage of Section 195 (now Section 182) of the NIRC. There are transactions covered by this section wherein funds belonging to the drawer are used for payment. A bill of exchange, when drawn in the Philippines but payable in another country, would surely be covered by this section. And in the case of a bill of exchange, the funds may belong to the drawer and need not be advanced by the drawee, as in the case of a check or a draft. In the description of a draft provided hereunder, the drawee is in possession of funds belonging to the drawer of the bill:

A draft is a form of a bill of exchange used mainly in transactions between persons physically remote from each other. It is an order made by one person, say the buyer of goods, addressed to a person having in his possession funds of such buyer ordering the addressee to pay the purchase price to the seller of the goods. Where the order is made by one bank to another, it is referred to as a bank draft. [17]

In this case, the act of BPI instructing the correspondent bank to transfer the funds to the Federal Reserve Bank was performed in the Philippines. Therefore, the excise tax may be levied by the Philippine government. Section 195 (now Section 182) of the NIRC would be rendered invalid if the fact that the payment was made outside of the country can be used as a basis for nonpayment of the tax.

The second issue is whether the delinquency interest of 20% per annum, as provided under Section 249(c)(3) of the NIRC, is applicable in this case. BPI argues that the foreign exchange sold was deposited and transferred within the U.S. and is therefore outside Philippine territory. This argument is unsubstantial. The documentary stamp tax is not imposed on the sale of foreign exchange, rather it is an excise tax on the privilege or facility which the parties used in their transaction. In the case of Allied Thread Co., Inc. v. City Mayor of Manila,[18] the Court explained the scope encompassed by the power to levy an excise tax:

In the case of Philippine Refining Company v. Court of Appeals,[19] this Court categorically ruled that even if an assessment was later reduced by the courts, a delinquency interest should still be imposed from the time demand was made by the CIR. As correctly pointed out by the Solicitor General, the deficiency tax assessment in this case, which was the subject of the demand letter of respondent Commissioner dated April 11, 1989, should have been paid within thirty (30) days from receipt thereof. By reason of petitioners default thereon, the delinquency penalties of 25% surcharge and interest of 20% accrued from April 11, 1989. The fact that petitioner appealed the assessment to the CTA and that the same was modified does not relieve petitioner of the penalties incident to delinquency. The reduced amount of P237,381.25 is but a part of the original assessment of P1,892,584.00.

The tax imposition here is upon the performance of an act, enjoyment of a privilege, or the engaging in an occupation, and hence is in the nature of an excise tax.

The power to levy an excise upon the performance of an act or the engaging in an occupation does not depend upon the domicile of the person subject to the excise, nor upon the physical location of the property and in connection with the act or occupation taxed, but depends upon the place in which the act is performed or occupation engaged in (Emphasis supplied).

This doctrine is consistent with the earlier decisions of this Court justifying the imposition of additional charges and interests incident to

delinquency by explaining that the nature of additional charges is compensatory and not a penalty.

funds. Collecting such charges is mandatory. Therefore, the Decision of the Court of Appeals imposing a 20% delinquency interest over the assessment reduced by the CTA was justified and in accordance with Section 249(c)(3) of the NIRC.

The above legal provision makes no distinctions nor does it establish exceptions. It directs the collection of the surcharge and interest at the stated rate upon any sum or sums due and unpaid after the dates prescribed in subsections (b), (c), and (d) of the Act for the payment of the amounts due. The provision therefore is mandatory in case of delinquency. This is justified because the intention of the law is precisely to discourage delay in the payment of taxes due to the State and, in this sense, the surcharge and interest charged are not penal but compensatory in nature they are compensation to the State for the delay in payment, or for the concomitant use of the funds by the taxpayer beyond the date he is supposed to have paid them to the State. [20] The same principle was used in Ross v. U.S.[21] when the U.S. Supreme Court ruled that it was only equitable for the government to collect interest from a taxpayer who, by the governments error, received a refund which was not due him.

WHEREFORE, premises considered, this Court DENIES this petition and AFFIRMS the Decision of the Court of Appeals in CA-G.R. SP No. 57362 dated 14 August 1998, ordering that petitioner Bank of the Philippine Islands to pay Respondent Commissioner of Internal Revenue the deficiency documentary stamp tax in the amount of P690,030.00 inclusive of surcharge and compromise penalty, plus 20% annual interest from 7 June 1990 until fully paid. Costs against the petitioner. SO ORDERED.

Even though [the] taxpayer here did not request the refund made to him, and the situation is entirely due to an error on the part of the government, taxpayer and not the government has had the use of the money during the period involved and it is not unjustly penalizing taxpayer to require him to pay compensation for this use of money.

Based on established doctrine, these charges incident to delinquency are compensatory in nature and are imposed for the taxpayers use of the funds at the time when the State should have control of said

EQUITABLE PCI BANK (the Banking Entity into which Philippine Commercial International Bank was merged), Petitioner,

G.R. No. 156207 Present:

PANGANIBAN, C.J. Chairperson, - versus YNARES-SANTIAGO, AUSTRIA-MARTINEZ, CALLEJO, SR. and CHICO-NAZARIO, JJ. Respondent.

of these was PCI Bank Check No. 073661 dated 5 December 1991for P132,000.00 which Sarande issued to respondent Rowena Ong Owing to a business transaction. On the same day, Ong presented to PCI Bank Magsaysay Avenue Branch said Check No. 073661, and instead ofencashing it, requested PCI Bank to convert the proceeds thereof into a managers check, which the PCI Bank obliged. Whereupon, Ong was issued PCI Bank Managers Check No. 10983 dated 5 December 1991 for the sum of P132,000.00, the value of Check No. 073661. The next day, 6 December 1991, Ong deposited PCI Bank Managers Check No. 10983 in her account with Equitable Banking Corporation Davao City Branch. On 9 December 1991, she received a check return-slip informing her that PCI Bank had stopped the payment of the said check on the ground of irregular issuance. Despite several demands made by her to PCI Bank for the payment of the amount in PCI Bank Managers Check No. 10983, the same was met with refusal; thus, Ong was constrained to file a Complaint for sum of money, damages and attorneys fees against PCI Bank.[2] From PCI Banks version, TCBT-General Santos City Check No. 0249188 was returned on 5 December 1991 at 5:00 pm on the ground that the account against which it was drawn was already closed. According to PCI Bank, it immediately gave notice to Sarande and Ong about the return of Check No. 0249188 and requested Ong to return PCI Bank Managers Check No. 10983 inasmuch as the return of Check No. 0249188 on the ground that the account from which it was drawn had already been closed resulted in a failure or want of consideration for the issuance of PCI Bank Managers Check No. 10983.[3] After the pre-trial conference, Ong filed a motion for summary judgment.[4] Though they were duly furnished with a copy of the motion for summary judgment, PCI Bank and its counsel failed to appear at the scheduled hearing.[5] Neither did they file any written comment or opposition thereto. The trial court thereafter ordered Ong to formally offer her exhibits

ROWENA ONG, Promulgated:

September 15, 2006 x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

DECISION

CHICO-NAZARIO, J.: On 29 November 1991, Warliza Sarande deposited in her account at Philippine Commercial International (PCI) Bank Magsaysay Avenue, Santa Ana District, Davao City Branch, under Account No. 8502-00347-6, a PCI Bank General Santos City Branch, TCBT [1] Check No. 0249188 in the amount of P225,000.00. Upon inquiry by Serande at PCI Bank on 5 December 1991 on whether TCBT Check No. 0249188 had been cleared, she received an affirmative answer. Relying on this assurance, she issued two checks drawn against the proceeds of TCBT Check No. 0249188. One

in writing, furnishing copies of the same to PCI Bank which was directed to file its comment or objection.[6] Ong complied with the Order of the trial court, but PCI Bank failed to file any comment or objection within the period given to it despite receipt of the same order.[7] The trial court then granted the motion for summary judgment and in its Order dated 2 March 1995, it held: IN THE LIGHT OF THE FOREGOING, the motion for summary judgment is GRANTED, ordering defendant Philippine Commercial International Bank to pay the plaintiff the amount of ONE HUNDRED THIRTY-TWO THOUSAND PESOS (P132,000.00) equivalent to the amount of PCIB Managers Check No. 10983. Set the reception of the plaintiffs evidence with respect to the damages claimed in the complaint.[8]

2. To pay the plaintiff the sum of TWENTY THOUSAND PESOS (P20,000.00) as exemplary damages; 3. To pay the plaintiff the sum of THREE THOUSAND FIVE HUNDRED PESOS (P3,500.00) representing actual expenses; 4. To pay the plaintiff the sum of TWENTY THOUSAND PESOS (P20,000.00) as and for attorneys fees; and 5. To pay the costs.[11]

From this decision, PCI Bank sought recourse before the Court of Appeals. In a Decision[12] dated 29 October 2002, the appellate court denied the appeal of PCI Bank and affirmed the orders and decision of the trial court. Unperturbed, PCI Bank then filed the present petition for review before this Court and raised the following issues: 1. WHETHER OR NOT THE COURT OF APPEALS COMMITTED A GRAVE AND REVERSIBLE ERROR WHEN IT SUSTAINED THE LOWER COURTS ORDER DATED 2 MARCH 1999 GRANTING RESPONDENTS MOTION FOR SUMMARY JUDGMENT NOTWITHSTANDING THE GLARING FACT THAT THERE ARE GENUINE, MATERIAL AND FACTUAL ISSUES WHICH REQUIRE THE PRESENTATION OF EVIDENCE. 2. WHETHER OR NOT THE COURT OF APPEALS WAS IN ERROR WHEN IT SUSTAINED THE LOWER COURTS DECISION DATED 3 MAY 1999 GRANTING THE RELIEFS PRAYED FOR IN RESPONDENT ONGS COMPLAINT

PCI Bank filed a Motion for Reconsideration which the trial court denied in its Order dated 11 April 1996.[9] After the reception of Ongs evidence in support of her claim for damages, the trial court rendered its Decision[10] dated 3 May 1999 wherein it ruled: IN LIGHT OF THE FOREGOIN CONSIDERATION, and as plaintiff has preponderantly established by competent evidence her claims in the Complaint, judgment in hereby rendered for the plaintiff against the defendant-bank ordering the latter: 1. To pay the plaintiff the sum of FIFTY THOUSAND PESOS (P50,000.00) in the concept of moral damages;

INSPITE OF THE FACT THAT RESPONDENT ONG WOULD BE UNJUSTLY ENRICHED AT THE EXPENSE OF PETITIONER BANK, IF PETITIONER BANK WOULD BE REQUIRED TO PAY AN UNFUNDED CHECK. 3. WHETHER OR NOT THE COURT OF APPEALS COMMITTED REVERSIBLE ERRORS WHEN IT AFFIRMED THE COURT A QUOS DECISIION DATED 3 MAY 1999 AWARDING DAMAGES TO RESPONDENT ONG AND HOLDING THAT RESPONDENT ONG HAD PREPONDERANTLY ESTABLISHED BY COMPETENT EVIDENCE HER CLAIMS IN THE COMPLAINT INSPITE OF THE FACT THAT THE EVIDENCE ON RECORD DOES NOT JUSTIFY THE AWARD OF DAMAGES. 4. WHETHER OR NOT THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT AFFIRMED THE LOWER COURTS FACTUAL FINDING IN ITS DECISION DATED 3 MAY 1999 HOLDING RESPONDENT ONG A HOLDER IN DUE COURSE INSPITE OF THE FACT THAT THE REQUISITE OF GOOD FAITH AND FOR VALUE IS LACKING AND DESPITE THE ABSENCE OF A PROPER TRIAL TO DETERMINE SUCH FACTUAL ISSUE. 5. WHETHER OR NOT THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT UPHELD THE LOWER COURTS DECISION DATED 3 MAY 1999 DENYING PETITIONER EPCI BANKS COUNTERCLAIM INSPITE OF THE FACT THAT IT WAS SHOWN THAT RESPONDENT ONGS COMPLAINT LACKS MERIT.[13]

The provision on summary judgment is found in Section 1, Rule 35 of the 1997 Rules of Court: SECTION 1. Summary judgment for claimant. A party seeking to recover upon a claim, counterclaim, or cross-claim or to obtain a declaratory relief may, at any time after the pleading in answer thereto has been served, move with supporting affidavits, depositions or admissions for a summary judgment in his favor upon all or any part thereof.

Thus, it has been held that a summary judgment is proper where, upon a motion filed after the issues had been joined and on the basis of the pleadings and papers filed, the court finds that there is no genuine issue as to any material fact to except as to the amount of damages. A genuine issue has been defined as an issue of fact which calls for the presentation of evidence, as distinguished from an issue which is sham, fictitious, contrived and patently unsubstantial so as not to constitute a genuine issue for trial. [14] A court may grant summary judgment to settle expeditiously a case if, on motion of either party, there appears from the pleadings, depositions, admissions, and affidavits that no important issues of fact are involved, except the amount of damages.[15] Rule 35, Section 3, of the Rules of Court provides two requisites for summary judgment to be proper: (1) there must be no genuine issue as to any material fact, except for the amount of damages; and (2) the party presenting the motion for summary judgment must be entitled to a judgment as a matter of law. [16] Certainly, when the facts as pleaded appear uncontested or undisputed, then theres no real or genuine issue or question as to the facts, and summary judgment is called for.[17] By admitting it committed an error, clearing the check of Sarande and issuing in favor of Ong not just any check but a managers check for that matter, PCI Banks liability is fixed. Under the circumstances, we find that summary judgment was proper and a hearing would serve no purpose. That

We affirm the Decision of the trial court and the Court of Appeals.

summary judgment is appropriate was incisively expounded by the trial court when it made the following observation: [D]efendant-bank had certified plaintiffs PCIB Check No. 073661 and since certification is equivalent to acceptance, defendant-bank as drawee bank is bound on the instrument upon certification and it is immaterial to such liability in favor of the plaintiff who is a holder in due course whether the drawer (Warliza Sarande) had funds or not with the defendant-bank (Security vs. State Bank, 154 N.W. 282) or the drawer was indebted to the bank for more than the amount of the check (Nat. Bank vs. Schmelz, Nat. Bank, 116 S.E. 880) as the certifying bank as all the liabilities under Sec. 62 of the Negotiable Instruments Law which refers to liability of acceptor (Title Guarantee vs. Emadee Realty Corp., 240 N.Y. 36). It may be true that plaintiffs PCIB Check No. 073661 for P132,000.00 which was paid to her by Warliza Sarande was actually not funded but since plaintiff became a holder in due course, defendant-bank cannot interpose a defense of want or lack of consideration because that defense is equitable or personal and cannot prosper against a holder in due course pursuant to Section 28 of the Negotiable Instruments Law. Therefore, when the aforementioned check was endorsed and presented by the plaintiff and certified to and accepted by defendant-bank in the purchase of PCIB Managers Check No. 1983 in the amount of P132,000.00, there was a valid consideration.[18]

admissions that those issues are not genuine, but sham or fictitious, the Court is unjustified in dispensing with the trial and rendering summary judgment for plaintiff. The court is expected to act chiefly on the basis of the affidavits, depositions, admissions submitted by the movant, and those of the other party in opposition thereto. The hearing contemplated (with 10-day notice) is for the purpose of determining whether the issues are genuine or not, not to receive evidence on the issues set up in the pleadings. A hearing is not thus de riguer. The matter may be resolved, and usually is, on the basis of affidavits, depositions, admissions. This is not to say that a hearing may be regarded as a superfluity. It is not, and the Court has plenary discretion to determine the necessity therefore.[19] The second and fourth issues are inter-related and so they shall be resolved together. The second issue has reference to PCI Banks claim of unjust enrichment on the part of Ong if it would be compelled to make good the managers check it had issued. As asserted by PCI Bank under the fourth issue, Ong is not a holder in due course because the managers check was drawn against a closed account; therefore, the same was issued without consideration. On the matter of unjust enrichment, the fundamental doctrine of unjust enrichment is the transfer of value without just cause or consideration. The elements of this doctrine are: enrichment on the part of the defendant; impoverishment on the part of the plaintiff; and lack of cause. The main objective is to prevent one to enrich himself at the expense of another. [20] It is based on the equitable postulate that it is unjust for a person to retain benefit without paying for it.[21] It is well to stress that the check of Sarande had been cleared by the PCI Bank for which reason the former issued the check to Ong. A check which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor of cash in an amount equal to the amount credited to his account. [22]

The property of summary judgment was further explained by this Court when it pronounced that: The theory of summary judgment is that although an answer may on its face appear to tender issues requiring trial yet if it is demonstrated by affidavits, depositions, or

Having cleared the check earlier, PCI Bank, therefore, became liable to Ong and it cannot allege want or failure of consideration between it and Sarande. Under settled jurisprudence, Ong is a stranger as regards the transaction between PCI Bank and Sarande.[23] PCI Bank next insists that since there was no consideration for the issuance of the managers check, ergo, Ong is not a holder in due course. This claim is equally without basis. Pertinent provisions of the Negotiable Instruments Law are hereunder quoted: SECTION 52. What constitutes a holder in due course. A holder in due course is a holder who has taken the instrument under the following conditions: (a) That it is complete and regular upon its face;

Sec. 26. What constitutes holder for value. Where value has at any time been given for the instrument, the holder is deemed a holder for value in respect to all parties who become such prior to that time. Sec. 28. Effect of want of consideration. Absence or failure of consideration is a matter of defense as against any person not a holder in due course; and partial failure of consideration is a defense pro tanto, whether the failure is an ascertained and liquidated amount or otherwise.

(b) That he became the holder of it before it was overdue, and without notice it had been previously dishonored, if such was the fact; (c) That he took it in good faith and for value;

Easily discernible is that what Ong obtained from PCI Bank was not just any ordinary check but a managers check. A managers check is an order of the bank to pay, drawn upon itself, committing in effect its total resources, integrity and honor behind its issuance. By its peculiar character and general use in commerce, a managers check is regarded substantially to be as good as the money it represents.[24] A managers check stands on the same footing as a certified check.[25] The effect of certification is found in Section 187, Negotiable Instruments Law. Sec. 187. Certification of check; effect of. Where a check is certified by the bank on which it is drawn, the certification is equivalent to an acceptance. [26] The effect of issuing a managers check was incontrovertibly elucidated when we declared that: A managers check is one drawn by the banks manager upon the bank itself. It is similar to a cashiers check both as to effect and use. A cashiers check is a check of the banks

(d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.

The same law provides further: Sec. 24. Presumption of consideration. Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration; and every person whose signature appears thereon to have become a party thereto for value.

cashier on his own or another check. In effect, it is a bill of exchange drawn by the cashier of a bank upon the bank itself, and accepted in advance by the act of its issuance. It is really the banks own check and may be treated as a promissory note with the bank as a maker. The check becomes the primary obligation of the bank which issues it and constitutes its written promise to pay upon demand. The mere issuance of it is considered an acceptance thereof. x x x.[27] In the case of New Pacific Timber & Supply Co., Inc. v. Seneris[28]:

equivalent to a delivery to the creditor in cash in an amount equal to the amount credited to his account shall apply in this case x x x.

By accepting PCI Bank Check No. 073661 issued by Sarande to Ong and issuing in turn a managers check in exchange thereof, PCI Bank assumed the liabilities of an acceptor under Section 62 of the Negotiable Instruments Law which states: Sec. 62. Liability of acceptor. The acceptor by accepting the instruments engages that he will pay it according to the tenor of his acceptance; and admits (a) The existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the instrument; and (b) The existence of the payee and his then capacity to indorse.

[S]ince the said check had been certified by the drawee bank, by the certification, the funds represented by the check are transferred from the credit of the maker to that of the payee or holder, and for all intents and purposes, the latter becomes the depositor of the drawee bank, with rights and duties of one in such situation. Where a check is certified by the bank on which it is drawn, the certification is equivalent to acceptance. Said certification implies that the check is drawn upon sufficient funds in the hands of the drawee, that they have been set apart for its satisfaction, and that they shall be so applied whenever the check is presented for payment. It is an understanding that the check is good then, and shall continue good, and this agreement is as binding on the bank as its notes circulation, a certificate of deposit payable to the order of depositor, or any other obligation it can assume. The object of certifying a check, as regards both parties, is to enable the holder to use it as money. When the holder procures the check to be certified, the check operates as an assignment of a part of the funds to the creditors. Hence, the exception to the rule enunciated under Section 63 of the Central Bank Act to the effect that a check which has been cleared and credited to the account of the creditor shall be

With the above jurisprudential basis, the issues on Ong being not a holder in due course and failure or want of consideration for PCI Banks issuance of the managers check is out of sync. Section 2, of Republic Act No. 8791, The General Banking Law of 2000 decrees: SEC. 2. Declaration of Policy. The State recognizes the vital role of banks in providing an environment conducive to the sustained development of the national economy and the fiduciary nature of banking that requires high standards of integrity and performance. In furtherance thereof, the State shall promote and maintain a stable and efficient banking and

financial system that is globally competitive, dynamic and responsive to the demands of a developing economy. In Associated Bank v. Tan,[29] it was reiterated:

return of locally cleared checks, and unaware then of the error of not having sent the check through inter-regional clearing, PCI Bank advised her that Check No. 024188 is treated as cleared. x x x.[30] (Emphasis supplied.)

From the foregoing, it is palpable and readily apparent that PCI Bank failed to exercise the highest degree of care [31] required of it under the law. x x x the degree of diligence required of banks is more than that of a good father of a family where the fiduciary nature of their relationship with their depositors is concerned. Indeed, the banking business is vested with the trust and confidence of the public; hence the appropriate standard of diligence must be very high, if not the highest degree of diligence. In the case of Philippine National Bank v. Court of Appeals, [32] we declared: The banking system has become an indispensable institution in the modern world and plays a vital role in the economic life of every civilized society. Whether as mere passive entities for the safe-keeping and saving of money or as active instruments of business and commerce, banks have attained an ubiquitous presence among the people, who have come to regard them with respect and even gratitude and, most of all, confidence.

Measured against these standards, the next question that needs to be addressed is: Did PCI Bank exercise the requisite degree of diligence required of it? From all indications, it did not. PCI Bank distinctly made the following uncontested admission: 1. On 29 November 1991, one Warliza Sarande deposited to her savings account with PCI Banks Magsaysay Avenue Branch, TCBT-General Santos Branch Check No. 0249188 for P225,000.00. Said check, however, was inadvertently sent by PCI Bank through local clearing when it should have been sent through inter-regional clearing since the check was drawn at TCBT-General Santos City. 2. On 5 December 1991, Warliza Sarande inquired whether TCBT Check No. 0249188 had been cleared. Not having received any advice from the drawee bank within the regular clearing period for the

Having settled the other issues, we now resolve the question on the award of moral and exemplary damages by the trial court to the respondent. Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. Though incapable of pecuniary computation, moral damages may be recovered if they are the proximate result of the defendants wrongful act or omission. [33] The requisites for an award of moral damages are well-defined, thus, firstly, evidence of besmirched reputation or physical, mental or psychological suffering sustained by the claimant; secondly, a culpable act or omission factually established; thirdly, proof that the wrongful act or omission of the defendant is the proximate cause of the damages sustained by the claimant; and fourthly, that the case is predicated on any of the instances expressed

or envisioned by Article 2219[34] and Article 2220[35] of the Civil Code. All these elements are present in the instant case. [36] In the first place, by refusing to make good the managers check it has issued, Ong suffered embarrassment and humiliation arising from the dishonor of the said check.[37] Secondly, the culpable act of PCI Bank in having cleared the check of Serande and issuing the managers check to Ong is undeniable. Thirdly, the proximate cause of the loss is attributable to PCI Bank. Proximate cause is defined as that cause which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred.[38] In this case, the proximate cause of the loss is the act of PCI Bank in having cleared the check of Sarande and its failure to exercise that degree of diligence required of it under the law which resulted in the loss to Ong. On exemplary damages, Article 2229 of the Civil Code states: Art. 2229. Exemplary or corrective damages are imposed, by way of example or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages.

diligence is expected, and high standards of integrity and performance are even required of it.[40] Having failed in this respect, the award of exemplary damages is warranted. Article 2216 of the Civil Code provides: ART. 2216. No proof of pecuniary loss is necessary in order that moral, nominal, temperate, liquidated or exemplary damages may be adjudicated. The assessment of such damages, except liquidated ones, is left to the discretion of the court, according to the circumstances of each case.

Based on the above provision, the determination of the amount to be awarded (except liquidated damages) is left to the sound discretion of the court according to the circumstances of each case.[41] In the case before us, we find that the award of moral damages in the amount of P50,000.00 and exemplary damages in the amount of P20,000.00 is reasonable and justified. With the above disquisition, there is no necessity of further discussing the last issue on the PCI Banks counterclaim based on the supposed lack of merit of Ongs complaint. WHEREFORE, premises considered, the Petition is DENIED and the Decision of the Court of Appeals dated 29 October 2002 in CA-G.R. CV No. 65000 affirming the Decision dated 3 may 1999, of theRegional Trial Court of Davao City, Branch 14, in Civil Case No. 2145892, are AFFIRMED. SO ORDERED.

The law allows the grant of exemplary damages to set an example for the public good. The banking system has become an indispensable institution in the modern world and plays a vital role in the economic life of every civilized society. Whether as mere passive entities for the safekeeping and saving of money or as active instruments of business and commerce, banks have attained an ubiquitous presence among the people, who have come to regard them with respect and even gratitude and most of all, confidence. For this reason, banks should guard against injury attributable to negligence or bad faith on its part. [39] Without a doubt, it has been repeatedly emphasized that since the banking business is impressed with public interest, of paramount importance thereto is the trust and confidence of the public in general. Consequently, the highest degree of

THE INTERNATIONAL CORPORATE BANK, INC., Petitioner,

G.R. No. 129910 Present: QUISUMBING, J., Chairperson, CARPIO, CARPIO MORALES, TINGA, and VELASCO, JR., JJ.

the then Court of First Instance (CFI) of Manila, Branch 6. The complaint was amended on 19 March 1982. The case was eventually re-raffled to the Regional Trial Court of Manila, Branch 52 (trial court). The Ministry of Education and Culture issued 15 checks[5] drawn against respondent which petitioner accepted for deposit on various dates. The checks are as follows: Check Number 7-3694621-4 7-3694609-6 Date 7-20-81 7-27-81 8-03-81 8-07-81 8-10-81 8-10-81 8-21-81 8-21-81 8-24-81 8-24-81 9-18-81 9-18-81 10-02-81 10-02-81 10-05-81 Payee Trade Factors, Inc. Romero D. Palmares Trade Factors, Inc. Trade Factors, Inc. Antonio Lisan Antonio Lisan Golden City Trading Red Arrow Trading Antonio Lisan Antonio Lisan Ace Inc. Enterprises, Amount P 97,500.00 98,500.50 99,800.00 98,600.00 98,900.00 97,700.00 95,300.00 96,400.00 94,200.00 95,100.00 96,000.00 93,030.00 90,960.00 99,300.00 96,630.00

- versus -

COURT OF APPEALS and PHILIPPINE NATIONAL BANK, Respondents.

Promulgated: September 5, 2006 7-3666224-4 7-3528348-4 7-3666225-5 7-3688945-6 7-4535674-1 7-4535675-2 7-4535699-5 7-4535700-6 7-4697902-2 7-4697925-6 7-4697011-6 7-4697909-4 7-4697922-3

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CARPIO, J.: The Case Before the Court is a petition for review[1] assailing the 9 August 1994 Amended Decision[2] and the 16 July 1997 Resolution[3] of the Court of Appeals in CA-G.R. CV No. 25209. The Antecedent Facts The case originated from an action for collection of sum of money filed on 16 March 1982 by the International Corporate Bank, Inc. [4] (petitioner) against the Philippine National Bank (respondent). The case was raffled to

Golden City Trading Wintrade Marketing ABC Trading, Inc. Golden Enterprises

The checks were deposited on the following dates for the following accounts: Check Number 7-3694621-4 7-3694609-6 7-3666224-4 7-3528348-4 7-3666225-5 7-3688945-6 7-4535674-1 7-4535675-2 7-4535699-5 7-4535700-6 7-4697902-2 7-4697925-6 7-4697011-6 7-4697909-4 Date Deposited 7-23-81 7-28-81 8-4-81 8-11-81 8-11-81 8-17-81 8-26-81 8-27-81 8-31-81 8-24-81 9-23-81 9-23-81 10-7-81 10-7-81 Account Deposited CA 0060 02360 3 CA 0060 02360 3 CA 0060 02360 3 CA 0060 02360 3 SA 0061 32331 7 CA 0060 30982 5 CA 0060 02360 3 CA 0060 02360 3 CA 0060 30982 5 SA 0061 32331 7 CA 0060 02360 3 CA 0060 30982 5 CA 0060 02360 3 CA 0060 30982 5[6]

The trial court ruled that respondent is expected to use reasonable business practices in accepting and paying the checks presented to it. Thus, respondent cannot be faulted for the delay in clearing the checks considering the ingenuity in which the alterations were effected. The trial court observed that there was no attempt from petitioner to verify the status of the checks before petitioner paid the value of the checks or allowed withdrawal of the deposits. According to the trial court, petitioner, as collecting bank, could have inquired by telephone from respondent, as drawee bank, about the status of the checks before paying their value. Since the immediate cause of petitioners loss was the lack of caution of its personnel, the trial court held that petitioner is not entitled to recover the value of the checks from respondent. The dispositive portion of the trial courts Decision reads: WHEREFORE, judgment is hereby rendered dismissing both the complaint and the counterclaim. Costs shall, however be assessed against the plaintiff. SO ORDERED.[7] Petitioner appealed the trial courts Decision before the Court of Appeals. The Ruling of the Court of Appeals

After 24 hours from submission of the checks to respondent for clearing, petitioner paid the value of the checks and allowed the withdrawals of the deposits. However, on 14 October 1981, respondent returned all the checks to petitioner without clearing them on the ground that they were materially altered. Thus, petitioner instituted an action for collection of sums of money against respondent to recover the value of the checks.

The Ruling of the Trial Court

In its 10 October 1991 Decision,[8] the Court of Appeals reversed the trial courts Decision. Applying Section 4(c) of Central Bank Circular No. 580, series of 1977,[9] the Court of Appeals held that checks that have been materially altered shall be returned within 24 hours after discovery of the alteration. However, the Court of Appeals ruled that even if the drawee bank returns a check with material alterations after discovery of the alteration, the return would not relieve the drawee bank from any liability for its failure to return the checks within the 24-hour clearing period. The Court of Appeals explained:

Does this mean that, as long as the drawee bank returns a check with material alteration within 24 hour[s] after discovery of such alteration, such return would have the effect of relieving the bank of any liability whatsoever despite its failure to return the check within the 24- hour clearing house rule? We do not think so. Obviously, such bank cannot be held liable for its failure to return the check in question not later than the next regular clearing. However, this Court is of the opinion and so holds that it could still be held liable if it fails to exercise due diligence in verifying the alterations made. In other words, such bank would still be expected, nay required, to make the proper verification before the 24-hour regular clearing period lapses, or in cases where such lapses may be deemed inevitable, that the required verification should be made within a reasonable time. The implication of the rule that a check shall be returned within the 24-hour clearing period is that if the collecting bank paid the check before the end of the aforesaid 24-hour clearing period, it would be responsible therefor such that if the said check is dishonored and returned within the 24hour clearing period, the drawee bank cannot be held liable. Would such an implication apply in the case of materially altered checks returned within 24 hours after discovery? This Court finds nothing in the letter of the abovecited C.B. Circular that would justify a negative answer. Nonetheless, the drawee bank could still be held liable in certain instances. Even if the return of the check/s in question is done within 24 hours after discovery, if it can be shown that thedrawee bank had been patently negligent in the

performance of its verification function, this Court finds no reason why the said bank should be relieved of liability.

Although banking practice has it that the presumption of clearance is conclusive when it comes to the application of the 24-hour clearing period, the same principle may not be applied to the 24-hour period vis-a-vis material alterations in the sense that the drawee bank which returns materially altered checks within 24 hours after discovery would be conclusively relieved of any liability thereon. This is because there could well be various intervening events or factors that could affect the rights and obligations of the parties in cases such as the instant one including patent negligence on the part of the drawee bank resulting in an unreasonable delay in detecting the alterations. While it is true that the pertinent proviso in C.B. Circular No. 580 allows the drawee bank to return the altered check within the period provided by law for filing a legal action, this does not mean that this would entitle or allow the drawee bank to be grossly negligent and, inspite thereof, avail itself of the maximum period allowed by the above-cited Circular. The discovery must be made within a reasonable time taking into consideration the facts and circumstances of the case. In other words, the aforementioned C.B. Circular does not provide the drawee bank the license to be grossly negligent on the one hand nor does it preclude the collecting bank from raising available defenses even if the check is properly returned within the 24-hour period after discovery of the material alteration.[10] The Court of Appeals rejected the trial courts opinion that petitioner could have verified the status of the checks by telephone call since such imposition is not required under Central Bank rules. The dispositiveportion of the 10 October 1991 Decision reads:

PREMISES CONSIDERED, the decision appealed from is hereby REVERSED and the defendant-appellee Philippine National Bank is declared liable for the value of the fifteen checks specified and enumerated in the decision of the trial court (page 3) in the amount of P1,447,920.00 SO ORDERED.[11]

2. Whether respondent was negligent in failing to recognize within a reasonable period the altered checks and in not returning the checks within the period; and 3. Whether the motion for reconsideration filed by respondent was out of time thus making the 10 October 1991 Decision final and executory.[12]

The Ruling of This Court Respondent filed a motion for reconsideration of the 10 October 1991 Decision. In its 9 August 1994 Amended Decision, the Court of Appeals reversed itself and affirmed the Decision of the trial court dismissing the complaint. In reversing itself, the Court of Appeals held that its 10 October 1991 Decision failed to appreciate that the rule on the return of altered checks within 24 hours from the discovery of the alteration had been duly passed by the Central Bank and accepted by the members of the banking system. Until the rule is repealed or amended, the rule has to be applied. Petitioner moved for the reconsideration of the Amended Decision. In its 16 July 1997 Resolution, the Court of Appeals denied the motion for lack of merit. Hence, the recourse to this Court. The Issues Petitioner raises the following issues in its Memorandum: 1. Whether the checks were materially altered; Filing of the Petition under both Rules 45 and 65 Respondent asserts that the petition should be dismissed outright since petitioner availed of a wrong mode of appeal. Respondent cites Ybaez v. Court of Appeals[13] where the Court ruled that a petition cannot be subsumed simultaneously under Rule 45 and Rule 65 of the Rules of Court, and neither may petitioners delegate upon the court the task of determining under which rule the petition should fall. The remedies of appeal and certiorari are mutually exclusive and not alternative or successive.[14] However, this Court may set aside technicality for justifiable reasons. The petition before the Court is clearly meritorious. Further, the petition was filed on time both under Rules 45 and 65.[15] Hence, in accordance with the liberal spirit which pervades the Rules of Court and in the interest of justice,[16] we will treat the petition as having been filed under Rule 45. Alteration of Serial Number Not Material The alterations in the checks were made on their serial numbers. Sections 124 and 125 of Act No. 2031, otherwise known as the Negotiable Instruments Law, provide:

SEC. 124. Alteration of instrument; effect of. Where a negotiable instrument is materially altered without the assent of all parties liable thereon, it is avoided, except as against a party who has himself made, authorized, or assented to the alteration and subsequent indorsers. But when an instrument has been materially altered and is in the hands of a holder in due course, not a party to the alteration, he may enforce payment thereof according to its original tenor. SEC. 125. What constitutes alteration. Any alteration which changes: (a) (b) (c) (d) (e) made; a material

of a party or an unauthorized addition of words or numbers or other change to an incomplete instrument relating to the obligation of a party. In other words, a material alteration is one which changes the items which are required to be stated under Section 1 of the Negotiable Instrument[s] Law. Section 1 of the Negotiable Instruments Law provides: Section 1. Form of negotiable instruments. An instrument to be negotiable must conform to the following requirements: (a) It must be in writing and signed by the maker or drawer; (b) Must contain an unconditional promise or order to pay a sum certain in money; (c) Must be payable on demand, or at a fixed or determinable future time; (d) Must be payable to order or to bearer; and

The date; The sum payable, either for principal or interest; The time or place of payment; The number or the relations of the parties; The medium or currency in which payment is to be

or which adds a place of payment where no place of payment is specified, or any other change or addition which alters the effect of the instrument in any respect, is a material alteration.

(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty. In his book entitled Pandect of Commercial Law and Jurisprudence, Justice Jose C. Vitug opines that an innocent alteration (generally, changes on items other than those required to be stated under Sec. 1, N.I.L.) and spoliation (alterations done by a stranger) will not avoid the instrument, but the holder may enforce it only according to its original tenor. xxxx

The question on whether an alteration of the serial number of a check is a material alteration under the Negotiable Instruments Law is already a settled matter. In Philippine National Bank v. Court of Appeals, this Court ruled that the alteration on the serial number of a check is not a material alteration. Thus: An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized change in an instrument that purports to modify in any respect the obligation

The case at the bench is unique in the sense that what was altered is the serial number of the check in question, an item which, it can readily be observed, is not an essential requisite for negotiability under Section 1 of the Negotiable Instruments Law. The aforementioned alteration did not change the relations between the parties. The name of the drawer and the drawee were not altered. The intended payee was the same. The sum of money due to the payee remained the same. x x x xxxx The checks serial number is not the sole indication of its origin. As succinctly found by the Court of Appeals, the name of the government agency which issued the subject check was prominently printed therein. The checks issuer was therefore sufficiently identified, rendering the referral to the serial number redundant and inconsequential. x x x xxxx Petitioner, thus cannot refuse to accept the check in question on the ground that the serial number was altered, the same being an immaterial or innocent one.[17]

Timeliness of Filing of Respondents Motion for Reconsideration Respondent filed its motion for reconsideration of the 10 October 1991 Decision on 6 November 1991. Respondents motion for reconsideration states that it received a copy of the 10 October 1991 Decision on 22 October 1991.[18] Thus, it appears that the motion for reconsideration was filed on time. However, the Registry Return Receipt shows that counsel for respondent or his agent received a copy of the 10 October 1991Decision on 16 October 1991,[19] not on 22 October 1991 as respondent claimed. Hence, the Court of Appeals is correct when it noted that the motion for reconsideration was filed late. Despite its late filing, the Court of Appeals resolved to admit the motion for reconsideration in the interest of substantial justice.[20] There are instances when rules of procedure are relaxed in the interest of justice. However, in this case, respondent did not proffer any explanation for the late filing of the motion for reconsideration. Instead, there was a deliberate attempt to deceive the Court of Appeals by claiming that the copy of the 10 October 1991 Decision was received on 22 October 1991 instead of on 16 October 1991. We find no justification for the posture taken by the Court of Appeals in admitting the motion for reconsideration. Thus, the late filing of the motion for reconsideration rendered the 10 October 1991 Decision final and executory.

The 24-Hour Clearing Time Likewise, in the present case the alterations of the serial numbers do not constitute material alterations on the checks. Incidentally, we agree with the petitioners observation that the check in the PNB case appears to belong to the same batch of checks as in the present case. The check in the PNB case was also issued by the Ministry of Education and Culture. It was also drawn against PNB, respondent in this case. The serial number of the check in the PNB case is 7-3666-223-3 and it was issued on 7 August 1981. The Court will not rule on the proper application of Central Bank Circular No. 580 in this case. Since there were no material alterations on the checks, respondent as drawee bank has no right to dishonor them and return them to petitioner, the collecting bank. [21] Thus, respondent is liable to petitioner for the value of the checks, with legal interest from the time of filing of the complaint on 16 March 1982 until full payment.[22]Further, considering that respondents motion for reconsideration was filed late,

the 10 October 1991 Decision, which held respondent liable for the value of the checks amounting to P1,447,920, had become final andexecutory. WHEREFORE, we SET ASIDE the 9 August 1994 Amended Decision and the 16 July 1997 Resolution of the Court of Appeals. We rule that respondent Philippine National Bank is liable to petitioner International Corporate Bank, Inc. for the value of the checks amounting to P1,447,920, with legal interest from 16 March 1982 until full payment. Costs against respondent. SO ORDERED.

MELVA THERESA ALVIAR GONZALES, Petitioner,

G.R. No. 156294 Present:

- versus -

RIZAL COMMERCIAL BANKING CORPORATION, Respondent.

PUNO, J., Chairperson, SANDOVAL-GUTIERREZ, CORONA, AZCUNA, and GARCIA, JJ. Promulgated: November 29, 2006

x-----------------------------------------------x DECISION GARCIA, J.: An action for a sum of money originating from the Regional Trial Court (RTC) of Makati City, Branch 61, thereat docketed as Civil Case No. 88-1502, was decided in favor of therein plaintiff, now respondent Rizal Commercial Banking Corporation (RCBC). On appeal to the Court of Appeals (CA) in CA-G.R. CV No. 48596, that court, in a decision[1] dated August 30, 2002, affirmed the RTC minus the award of attorneys fees. Upon the instance of herein petitioner Melva Theresa Alviar Gonzales, the case is now before this Court via this petition for review on certiorari, based on the following undisputed facts as unanimously found by the RTC and the CA, which the latter summarized as follows: Gonzales was an employee of Rizal Commercial Banking Corporation (or RCBC) as New Accounts Clerk in the Retail Banking Department at its Head Office. A foreign check in the amount of $7,500 was drawn by Dr. Don Zapanta of the Ade Medical Group with address at 569 Western Avenue, Los Angeles, California, against the drawee bank Wilshire Center Bank, N.A., of Los

Angeles, California,U.S.A., and payable to Gonzales mother, defendant Eva Alviar (or Alviar). Alviar then endorsed this check. Since RCBC gives special accommodations to its employees to receive the checks value without awaiting the clearing period, Gonzales presented the foreign check to Olivia Gomez, the RCBCs Head of Retail Banking. After examining this, Olivia Gomez requested Gonzales to endorse it which she did. Olivia Gomez then acquiesced to the early encashment of the check and signed the check but indicated thereon her authority of up to P17,500.00 only. Afterwards, Olivia Gomez directed Gonzales to present the check to RCBC employee Carlos Ramos and procure his signature. After inspecting the check, Carlos Ramos also signed it with an ok annotation. After getting the said signatures Gonzales presented the check to Rolando Zornosa, Supervisor of the Remittance section of the Foreign Department of the RCBC Head Office, who after scrutinizing the entries and signatures therein authorized its encashment. Gonzales then received its peso equivalent of P155,270.85. RCBC then tried to collect the amount of the check with the drawee bank by the latter through its correspondent bank, the First Interstate Bank of California, on two occasions dishonored the check because of END. IRREG or irregular indorsement. Insisting, RCBC again sent the check to the drawee bank, but this time the check was returned due to account closed. Unable to collect, RCBC demanded from Gonzales the payment of the peso equivalent of the check that she received. Gonzales settled the matter by agreeing that payment be made thru salary deduction. This temporary arrangement for salary deductions was communicated by Gonzales to RCBC through a letter dated November 27, 1987 xxx xxx xxx xxx The deductions was implemented starting October 1987. On March 7, 1988 RCBC sent a demand letter to Alviar for the payment of her obligation but this fell on deaf ears as

RCBC did not receive any response from Alviar. Taking further action to collect, RCBC then conveyed the matter to its counsel and on June 16, 1988, a letter was sent to Gonzales reminding her of her liability as an indorser of the subject check and that for her to avoid litigation she has to fulfill her commitment to settle her obligation as assured in her said letter. On July 1988 Gonzales resigned from RCBC. What had been deducted from her salary was only P12,822.20 covering ten months. It was against the foregoing factual backdrop that RCBC filed a complaint for a sum of money against Eva Alviar, Melva Theresa AlviarGonzales and the latters husband Gino Gonzales. The spouses Gonzales filed an Answer with Counterclaim praying for the dismissal of the complaint as well as payment of P10,822.20 as actual damages, P20,000.00 as moral damages, P20,000.00 as exemplary damages, and P20,000.00 as attorneys fees and litigation expenses. Defendant Eva Alviar, on the other hand, was declared in default for having filed her Answer out of time. After trial, the RTC, in its three-page decision,[2] held two of the three defendants liable as follows: WHEREFORE, premises above considered and plaintiff having established its case against the defendants as above stated, judgment is hereby rendered for plaintiff and as against defendant EVA. P. ALVIAR as principal debtor and defendants MELVA THERESA ALVIAR GONZLAES as guarantor as follows: 1. To pay plaintiff the amount of P142,648.65 (P155,270.85 less the amount of P12,622.20, as salary deduction of [Gonzales]), representing the outstanding obligation of the defendants with interest of 12% per annum starting February 1987 until fully paid; 2. To pay the amount of P40,000.00 as and for attorneys fees; and to 3. Pay the costs of this suit. SO ORDERED.

On appeal, the CA, except for the award of attorneys fees, affirmed the RTC judgment. Hence, this recourse by the petitioner on her submission that the CA erred XXX IN FINDING [PETITIONER], AN ACCOMMODATION PARTY TO A CHECK SUBSEQUENTLY ENDORSED PARTIALLY, LIABLE TO RCBC AS GUARANTOR; XXX IN FINDING THAT THE SIGNATURE OF GOMEZ, AN RCBC EMPLOYEE, DOES NOT CONSTITUTE AS AN ENDORSEMENT BUT ONLY AN INTER-BANK APPROVAL OF SIGNATURE NECESSARY FOR THE ENCASHMENT OF THE CHECK; XXX IN NOT FINDING RCBC LIABLE ON THE COUNTERCLAIMS OF [THE PETITIONER]. The recourse is impressed with merit. The dollar-check[3] in question in the amount of $7,500.00 drawn by Don Zapanta of Ade Medical Group (U.S.A.) against a Los Angeles, California bank, Wilshire Center Bank N.A., was dishonored because of End. Irregular, i.e., an irregular endorsement. While the foreign drawee bank did not specifically state which among the four signatures found on the dorsal portion of the check made the check irregularly endorsed, it is absolutely undeniable that only the signature of Olivia Gomez, an RCBC employee, was a qualified endorsement because of the phrase up to P17,500.00 only. There can be no other acceptable explanation for the dishonor of the foreign check than this signature of Olivia Gomez with the phrase up to P17,500.00 only accompanying it. This Court definitely agrees with the petitioner that the foreign drawee bank would not have dishonored the check had it not been for this signature of Gomez with the same phrase written by her. The foreign drawee bank, Wilshire Center Bank N.A., refused to pay the bearer of this dollar-check drawn by Don Zapanta because of the defect introduced by RCBC, through its employee, Olivia Gomez. It is, therefore, a useless piece of paper if returned in that state to its original payee, Eva Alviar. There is no doubt in the mind of the Court that a subsequent party which caused the defect in the instrument cannot have any recourse against

any of the prior endorsers in good faith. Eva Alviars and the petitioners liability to subsequent holders of the foreign check is governed by the Negotiable Instruments Law as follows: Sec. 66. Liability of general indorser. - Every indorser who indorses without qualification, warrants to all subsequent holders in due course; (a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section; and (b) That the instrument is, at the time of his indorsement, valid and subsisting; And, in addition, he engages that, on due presentment, it shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it. The matters and things mentioned in subdivisions (a), (b) and (c) of Section 65 are the following: (a) That the instrument is genuine and in all respects what it purports to be; (b) That he has a good title to it;

introduced a defect on the instrument, such as respondent RCBC in this case, which qualifiedly endorsed the same, to hold prior endorsers liable on the instrument because it results in the absurd situation whereby a subsequent party may render an instrument useless and inutile and let innocent parties bear the loss while he himself gets away scot-free. It cannot be over-stressed that had it not been for the qualified endorsement (up to P17,500.00 only) of Olivia Gomez, who is the employee of RCBC, there would have been no reason for the dishonor of the check, and full payment by drawee bank therefor would have taken place as a matter of course. Section 66 of the Negotiable Instruments Law which further states that the general endorser additionally engages that, on due presentment, the instrument shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent endorser who may be compelled to pay it, must be read in the light of the rule in equity requiring that those who come to court should come with clean hands. The holder or subsequent endorser who tries to claim under the instrument which had been dishonored for irregular endorsement must not be the irregular endorser himself who gave cause for the dishonor. Otherwise, a clear injustice results when any subsequent party to the instrument may simply make the instrument defective and later claim from prior endorsers who have no knowledge or participation in causing or introducing said defect to the instrument, which thereby caused its dishonor. Courts in this jurisdiction are not only courts of law but also of equity, and therefore cannot unqualifiedly apply a provision of law so as to cause clear injustice which the framers of the law could not have intended to so deliberately cause. In Carceller v. Court of Appeals,[4] this Court had occasion to stress: Courts of law, being also courts of equity, may not countenance such grossly unfair results without doing violence to its solemn obligation to administer fair and equal justice for all.

(c) That all prior parties had capacity to contract;

Under Section 66, the warranties for which Alviar and Gonzales are liable as general endorsers in favor of subsequent endorsers extend only to the state of the instrument at the time of their endorsements, specifically, that the instrument is genuine and in all respects what it purports to be; that they have good title thereto; that all prior parties had capacity to contract; and that the instrument, at the time of their endorsements, is valid and subsisting. This provision, however, cannot be used by the party which

RCBC, which caused the dishonor of the check upon presentment to the drawee bank, through the qualified endorsement of its employee, Olivia Gomez, cannot hold prior endorsers, Alviar and Gonzales in this case, liable on the instrument. Moreover, it is a well-established principle in law that as between two parties, he who, by his acts, caused the loss shall bear the same. [5] RCBC, in this instance, should therefore bear the loss. Relative to the petitioners counterclaim against RCBC for the amount of P12,822.20 which it admittedly deducted from petitioners salary, the Court must order the return thereof to the petitioner, with legal interest of 12% per annum, notwithstanding the petitioners apparent acquiescence to such an arrangement. It must be noted that petitioner is not any ordinary client or depositor with whom RCBC had this isolated transaction. Petitioner was a rank-and-file employee of RCBC, being a new accounts clerk thereat. It is easy to understand how a vulnerable Gonzales, who is financially dependent upon RCBC, would rather bite the bullet, so to speak, and expectedly opt for salary deduction rather than lose her job and her entire salary altogether. In this sense, we cannot take petitioners apparent acquiescence to the salary deduction as being an entirely free and voluntary act on her part. Additionally, under the obtaining facts and circumstances surrounding the present complaint for collection of sum of money by RCBC against its employee, which may be deemed tantamount to harassment, and the fact that RCBC itself was the one, acting through its employee, Olivia Gomez, which gave reason for the dishonor of the dollar-check in question, RCBC may likewise be held liable for moral and exemplary damages and attorneys fees by way of damages, in the amount of P20,000.00 for each. WHEREFORE, the assailed CA Decision dated August 30, 2002 is REVERSED and SET ASIDE and the Complaint in this case DISMISSED for lack of merit. Petitioners counterclaim is GRANTED, ordering the respondent RCBC to reimburse petitioner the amount P12,822.20, with legal interest computed from the time of salary deduction up to actual payment, and to pay petitioner the total amount of P60,000.00 as moral and exemplary damages, and attorneys fees.

Costs against the respondent. SO ORDERED.

METROPOLITAN BANK AND TRUST COMPANY, Petitioner,

G.R. No. 154469 Present:

(sic) that the awards for exemplary damages and attorneys fees are hereby deleted.

PANGANIBAN, C.J. Chairperson, YNARES-SANTIAGO, - versus AUSTRIA-MARTINEZ, CALLEJO, SR., and CHICO-NAZARIO, JJ. Promulgated: RENATO D. CABILZO, Respondent. December 6, 2006 x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

Petitioner Metrobank is a banking institution duly organized and existing as such under Philippine laws.[2] Respondent Renato D. Cabilzo (Cabilzo) of Metrobanks clients who maintained with Metrobank Pasong Tamo Branch.[3] was current one account

On 12 November 1994, Cabilzo issued a Metrobank Check No. 985988, payable to CASH and postdated on 24 November 1994 in the amount of One Thousand Pesos (P1,000.00). The check was drawn against Cabilzos Account with Metrobank Pasong Tamo Branch under Current Account No. 618044873-3 and was paid by Cabilzo to a certain Mr. Marquez, as his sales commission.[4] Subsequently, the check was presented to Westmont Bank for payment. Westmont Bank, in turn, indorsed the check to Metrobank for appropriate clearing. After the entries thereon were examined, including the availability of funds and the authenticity of the signature of the drawer, Metrobank cleared the check for encashment in accordance with the Philippine Clearing House Corporation (PCHC) Rules. On 16 November 1994, Cabilzos representative was at Metrobank Pasong Tamo Branch to make some transaction when he was asked by a bank personnel if Cabilzo had issued a check in the amount ofP91,000.00 to which the former replied in the negative. On the afternoon of the same date, Cabilzo himself called Metrobank to reiterate that he did not issue a check in the amount of P91,000.00 and requested that the questioned check be returned to him for verification, to [5] which Metrobank complied. Upon receipt of the check, Cabilzo discovered that Metrobank Check No. 985988 which he issued on 12 November 1994 in the amount

DECISION

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari, filed by petitioner Metropolitan Bank and Trust Company (Metrobank) seeking to reverse and set aside the Decision[1] of the Court of Appeals dated 8 March 2002 and its Resolution dated 26 July 2002 affirming the Decision of the Regional Trial Court (RTC) of Manila, Branch 13 dated 4 September 1998. The dispositive portion of the Court of Appeals Decision reads: WHEREFORE, the assailed decision dated September 4, 1998 is AFFIRMED with modifications

of P1,000.00 was altered to P91,000.00 and 1994was changed to 14 November 1994.[6]

the

date 24

November

by virtue of which it assumed the liability of a general indorser, and thus, among others, warranted that the instrument is genuine and in all respect what it purports to be. In addition, Metrobank, in turn, claimed that Cabilzo was partly responsible in leaving spaces on the check, which, made the fraudulent insertion of the amount and figures thereon, possible. On account of his negligence in the preparation and issuance of the check, which according to Metrobank, was the proximate cause of the loss, Cabilzo cannot thereafter claim indemnity by virtue of the doctrine of equitable estoppel. Thus, Metrobank demanded from Cabilzo, for payment in the amount of P100,000.00 which represents the cost of litigation and attorneys fees, for allegedly bringing a frivolous and baseless suit. [11] On 19 April 1996, Metrobank filed a Third-Party Complaint[12] against Westmont Bank on account of its unqualified indorsement stamped at the dorsal side of the check which the former relied upon in clearing what turned out to be a materially altered check. Subsequently, a Motion to Dismiss[13] the Third-Party Complaint was then filed by Westmont bank because another case involving the same cause of action was pending before a different court. The said case arose from an action for reimbursement filed by Metrobank before the Arbitration Committee of the PCHC against Westmont Bank, and now the subject of a Petition for Review before the RTC of Manila, Branch 19. In an Order[14] dated 4 February 1997, the trial court granted the Motion to Dismiss the Third-Party Complaint on the ground of litis pendentia. On 4 September 1998, the RTC rendered a Decision[15] in favor of Cabilzo and thereby ordered Metrobank to pay the sum of P90,000.00, the amount of the check. In stressing the fiduciary nature of the relationship between the bank and its clients and the negligence of the drawee bank in failing to detect an apparent alteration on the check, the trial court ordered

Hence, Cabilzo demanded that Metrobank re-credit the amount of P91,000.00 to his account. Metrobank, however, refused reasoning that it has to refer the matter first to its Legal Division for appropriate action. Repeated verbal demands followed but Metrobank still failed to recredit the amount of P91,000.00 to Cabilzos account.[7] On 30 June 1995, Cabilzo, thru counsel, finally sent a letterdemand[8] to Metrobank for the payment of P90,000.00, after deducting the original value of the check in the amount of P1,000.00. Such written demand notwithstanding, Metrobank still failed or refused to comply with its obligation. Consequently, Cabilzo instituted a civil action for damages against Metrobank before the RTC of Manila, Branch 13. In his Complaint docketed as Civil Case No. 95-75651, Renato D. Cabilzo v. Metropolitan Bank and Trust Company, Cabilzo prayed that in addition to his claim for reimbursement, actual and moral damages plus costs of the suit be awarded in his favor.[9] For its part, Metrobank countered that upon the receipt of the said check through the PCHC on 14 November 1994, it examined the genuineness and the authenticity of the drawers signature appearing thereon and the technical entries on the check including the amount in figures and in words to determine if there were alterations, erasures, superimpositions or intercalations thereon, but none was noted. After verifying the authenticity and propriety of the aforesaid entries, including the indorsement of the collecting bank located at the dorsal side of the check which stated that, all prior indorsements and lack of indorsement guaranteed, Metrobankcleared the check.[10] Anent thereto, Metrobank claimed that as a collecting bank and the last indorser, Westmont Bank should be held liable for the value of the check. Westmont Bank indorsed the check as the an unqualified indorser,

for the payment of exemplary damages, attorneys fees and cost of litigation. The dispositive portion of the Decision reads: WHEREFORE, judgment is rendered ordering defendant Metropolitan Bank and Trust Company to pay plaintiff Renato Cabilzo the sum of P90,000 with legal interest of 6 percent per annum from November 16, 1994 until payment is made plusP20,000 attorneys fees, exemplary damages of P50,000, and costs of the suit.[16]

awards for exemplary damages and attorneys fees are hereby deleted.[18] Similarly ill-fated was Metrobanks Motion for Reconsideration which was also denied by the appellate court in its Resolution [19] issued on 26 July 2002, for lack of merit. Metrobank now poses before this Court this sole issue: THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING METROBANK, AS DRAWEE BANK, LIABLE FOR THE ALTERATIONS ON THE SUBJECT CHECK BEARING THE AUTHENTIC SIGNATURE OF THE DRAWER THEREOF.

Aggrieved, Metrobank appealed the adverse decision to the Court of Appeals reiterating its previous argument that as the last indorser, Westmont Bank shall bear the loss occasioned by the fraudulent alteration of the check. Elaborating, Metrobank maintained that by reason of its unqualified indorsement, Westmont Bank warranted that the check in question is genuine, valid and subsisting and that upon presentment the check shall be accepted according to its tenor. Even more, Metrobank argued that in clearing the check, it was not remiss in the performance of its duty as the drawee bank, but rather, it exercised the highest degree of diligence in accordance with the generally accepted banking practice. It further insisted that the entries in the check were regular and authentic and alteration could not be determined even upon close examination. In a Decision[17] dated 8 March 2002, the Court of Appeals affirmed with modification the Decision of the court a quo, similarly finding Metrobank liable for the amount of the check, without prejudice, however, to the outcome of the case between Metrobank and Westmont Bank which was pending before another tribunal. The decretal portion of the Decision reads: WHEREFORE, the assailed decision dated September 4, 1998 is AFFIRMED with the modifications (sic) that the

We resolve to deny the petition.

An alteration is said to be material if it changes the effect of the instrument. It means that an unauthorized change in an instrument that purports to modify in any respect the obligation of a party or an unauthorized addition of words or numbers or other change to an incomplete instrument relating to the obligation of a party.[20] In other words, a material alteration is one which changes the items which are required to be stated under Section 1 of the Negotiable Instruments Law.

Section 1 of the Negotiable Instruments Law provides: Section 1. Form of negotiable instruments. - An instrument to be negotiable must conform to the following requirements:

(a)

It must be in writing and signed by the maker or drawer; Must contain an unconditional promise or order to pay a sum certain in money; Must be payable on demand or at a fixed determinable future time; Must be payable to order or to bearer;

(e) is to be made;

The medium or currency in which payment

(b)

(c)

Or which adds a place of payment where no place of payment is specified, or any other change or addition which alters the effect of the instrument in any respect is a material alteration.

(d) and (e)

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

In the case at bar, the check was altered so that the amount was increased from P1,000.00 to P91,000.00 and the date was changed from 24 November 1994 to 14 November 1994. Apparently, since the entries altered were among those enumerated under Section 1 and 125, namely, the sum of money payable and the date of the check, the instant controversy therefore squarely falls within the purview of material alteration.

Also pertinent is the following provision in the Negotiable Instrument Law which states: Section 125. What constitutes material alteration. Any alteration which changes: (a) (b) interest; (c) (d) The date; The sum payable, either for principal or

Now, having laid the premise that the present petition is a case of material alteration, it is now necessary for us to determine the effect of a materially altered instrument, as well as the rights and obligations of the parties thereunder. The following provision of the Negotiable Instrument Law will shed us some light in threshing out this issue: Section 124. Alteration of instrument; effect of. Where a negotiable instrument is materially altered without the assent of all parties liable thereon, it is avoided, except as against a party who has himself made, authorized, and assented to the alteration and subsequent indorsers.

The time or place of payment; The number or the relation of the parties; But when the instrument has been materially altered and is in the hands of a holder in due course not a party to the

alteration, he may enforce the payment thereof according to its original tenor. (Emphasis ours.)

one, Metrobanks representation that it is an innocent party is flimsy and evidently, misleading. At the same time, Metrobank cannot asseverate that Cabilzo was negligent and this negligence was the proximate cause[22] of the loss in the absence of even a scintilla proof to buttress such claim. Negligence is not presumed but must be proven by the one who alleges it.[23]

Indubitably, Cabilzo was not the one who made nor authorized the alteration. Neither did he assent to the alteration by his express or implied acts. There is no showing that he failed to exercise such reasonable degree of diligence required of a prudent man which could have otherwise prevented the loss. As correctly ruled by the appellate court, Cabilzo was never remiss in the preparation and issuance of the check, and there were no indicia of evidence that would prove otherwise. Indeed, Cabilzo placed asterisks before and after the amount in words and figures in order to forewarn the subsequent holders that nothing follows before and after the amount indicated other than the one specified between the asterisks. The degree of diligence required of a reasonable man in the exercise of his tasks and the performance of his duties has been faithfully complied with by Cabilzo. In fact, he was wary enough that he filled with asterisks the spaces between and after the amounts, not only those stated in words, but also those in numerical figures, in order to prevent any fraudulent insertion, but unfortunately, the check was still successfully altered, indorsed by the collecting bank, and cleared by the drawee bank, and encashed by the perpetrator of the fraud, to the damage and prejudice of Cabilzo.

Undoubtedly, Cabilzo was an innocent party in this instant controversy. He was just an ordinary businessman who, in order to facilitate his business transactions, entrusted his money with a bank, not knowing that the latter would yield a substantial amount of his deposit to fraud, for which Cabilzo can never be faulted.

We never fail to stress the remarkable significance of a banking institution to commercial transactions, in particular, and to the countrys economy in general. The banking system is an indispensable institution in the modern world and plays a vital role in the economic life of every civilized nation. Whether as mere passive entities for the safekeeping and saving of money or as active instruments of business and commerce, banks have become an ubiquitous presence among the people, who have come to regard them with respect and even gratitude and, most of all, confidence.[24] Thus, even the humble wage-earner does not hesitate to entrust his life's savings to the bank of his choice, knowing that they will be safe in its custody and will even earn some interest for him. The ordinary person, with equal faith, usually maintains a modest checking account for security and convenience in the settling of his monthly bills and the payment of ordinary expenses. As for a businessman like the respondent, the bank is a trusted and active associate that can help in the running of his affairs, not only in the form of loans when needed but more often in the conduct of their day-to-day transactions like the issuance or encashment of checks.[25]

Verily, Metrobank cannot lightly impute that Cabilzo was negligent and is therefore prevented from asserting his rights under the doctrine of equitable estoppel when the facts on record are bare of evidence to support such conclusion. The doctrine of equitable estoppel states that when one of the two innocent persons, each guiltless of any intentional or moral wrong, must suffer a loss, it must be borne by the one whose erroneous conduct, either by omission or commission, was the cause of [21] injury. Metrobanks reliance on this dictum, is misplaced. For

In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account consists only of a few hundred pesos or of millions. The bank must record every single transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if the account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit, confident that the bank will deliver it as and to whomever he directs. [26]

to insert the said figure. The appellants employees should have again noticed why only 2 asterisks were placed before the amount in figures, while 3 asterisks were placed after such amount. The word NINETY is also typed differently and with a lighter ink, when compared with the words ONE THOUSAND PESOS ONLY. The letters of the word NINETY are likewise a little bigger when compared with the letters of the words ONE THOUSAND PESOS ONLY.[28]

The point is that as a business affected with public interest and because of the nature of its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. The appropriate degree of diligence required of a bank must be a high degree of diligence, if not the utmost diligence.[27] In the present case, it is obvious that Metrobank was remiss in that duty and violated that relationship. As observed by the Court of Appeals, there are material alterations on the check that are visible to the naked eye. Thus: x x x The number 1 in the date is clearly imposed on a white figure in the shape of the number 2. The appellants employees who examined the said check should have likewise been put on guard as to why at the end of the amount in words, i.e., after the word ONLY, there are 4 asterisks, while at the beginning of the line or before said phrase, there is none, even as 4 asterisks have been placed before and after the word CASH in the space for payee. In addition, the 4 asterisks before the words ONE THOUSAND PESOS ONLY have noticeably been erased with typing correction paper, leaving white marks, over which the word NINETY was superimposed. The same can be said of the numeral 9 in the amount 91,000, which is superimposed over a whitish mark, obviously an erasure, in lieu of the asterisk which was deleted

Surprisingly, however, Metrobank failed to detect the above alterations which could not escape the attention of even an ordinary person. This negligence was exacerbated by the fact that, as found by the trial court, the check in question was examined by the cash custodian whose functions do not include the examinations of checks indorsed for payment against drawers accounts.[29] Obviously, the employee allowed by Metrobank to examine the check was not verse and competent to handle such duty. These factual findings of the trial court is conclusive upon this court especially when such findings was affirmed the appellate court. [30] Apropos thereto, we need to reiterate that by the very nature of their work the degree of responsibility, care and trustworthiness expected of their employees and officials is far better than those of ordinary clerks and employees. Banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees. [31] In addition, the bank on which the check is drawn, known as the drawee bank, is under strict liability to pay to the order of the payee in accordance with the drawers instructions as reflected on the face and by the terms of the check. Payment made under materially altered instrument is not payment done in accordance with the instruction of the drawer. When the drawee bank pays a materially altered check, it violates the terms of the check, as well as its duty to charge its clients account only for bona fide disbursements he had made. Since the drawee bank, in the instant case, did not pay according to the original tenor of the instrument, as

directed by the drawer, then it has no right to claim reimbursement from the drawer, much less, the right to deduct the erroneous payment it made from the drawers account which it was expected to treat with utmost fidelity. Metrobank vigorously asserts that the entries in the check were carefully examined: The date of the instrument, the amount in words and figures, as well as the drawers signature, which after verification, were found to be proper and authentic and was thus cleared. We are not persuaded. Metrobanks negligence consisted in the omission of that degree of diligence required of a bank owing to the fiduciary nature of its relationship with its client. Article 1173 of the Civil Code provides: The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. x x x.

such indorsement, if any, is separate and independent from the liability ofMetrobank to Cabilzo. The reliance made by Metrobank on Westmont Banks indorsement is clearly inconsistent, if not totally offensive to the dictum that being impressed with public interest, banks should exercise the highest degree of diligence, if not utmost diligence in dealing with the accounts of its own clients. It owes the highest degree fidelity to its clients and should not therefore lightly rely on the judgment of other banks on occasions where its clients money were involve, no matter how small or substantial the amount at stake. Metrobanks contention that it relied on the strength of collecting banks indorsement may be merely a lame excuse to evade liability, or may be indeed an actual banking practice. In either case, such act constitutes a deplorable banking practice and could not be allowed by this Court bearing in mind that the confidence of public in general is of paramount importance in banking business. What is even more deplorable is that, having been informed of the alteration, Metrobank did not immediately re-credit the amount that was erroneously debited from Cabilzos account but permitted a full blown litigation to push through, to the prejudice of its client. Anyway, Metrobank is not left with no recourse for it can still run after the one who made the alteration or with the collecting bank, which it had already done. It bears repeating that the records are bare of evidence to prove that Cabilzo was negligent. We find no justifiable reason therefore why Metrobank did not immediately reimburse his account. Such ineptness comes within the concept of wanton manner contemplated under the Civil Code which warrants the imposition of exemplary damages, by way of example or correction for the public good, in the words of the law. It is expected that this ruling will serve as a stern warning in order to deter the repetition of similar acts of negligence, lest the confidence of the public in the banking system be further eroded. [32]

Beyond question, Metrobank failed to comply with the degree required by the nature of its business as provided by law and jurisprudence. If indeed it was not remiss in its obligation, then it would be inconceivable for it not to detect an evident alteration considering its vast knowledge and technical expertise in the intricacies of the banking business. This Court is not completely unaware of banks practices of employing devices and techniques in order to detect forgeries, insertions, intercalations, superimpositions and alterations in checks and other negotiable instruments so as to safeguard their authenticity and negotiability. Metrobank cannot now feign ignorance nor claim diligence; neither can it point its finger at the collecting bank, in order to evade liability. Metrobank argues that Westmont Bank, as the collecting bank and the last indorser, shall bear the loss. Without ruling on the matter between the drawee bank and the collecting bank, which is already under the jurisdiction of another tribunal, we find that Metrobank cannot rely on such indorsement, in clearing the questioned check. The corollary liability of

WHEREFORE, premises considered, the instant Petition is DENIED. The Decision dated 8 March 2002 and the Resolution dated 26 July 2002 of the Court of Appeals are AFFIRMED with modification that exemplary damages in the amount of P50,000.00 be awarded. Costs against the petitioner. SO ORDERED.

THERESA MACALALAG, Petitioner,

G.R. No. 164358

Present:

- versus -

PANGANIBAN, C.J.* YNARES-SANTIAGO, (Working Chairperson) AUSTRIA-MARTINEZ, CALLEJO, SR., and CHICO-NAZARIO, JJ. Promulgated:

PEOPLE OF THEPHILIPPINES, Respondent.

On two separate occasions, particularly on 30 July 1995 and 16 October 1995, petitioner Theresa Macalalag obtained loans from Grace Estrella (Estrella), each in the amount of P100,000.00, each bearing an interest of 10% per month. Macalalag consistently paid the interests starting 30 August 1995. Finding the interest rates so burdensome, Macalalag requested Estrella for a reduction of the same to which the latter agreed. On 16 April 1996 and 1 May 1996, Macalalag executed Acknowledgment/Affirmation Receipts promising to pay Estrella the face value of the loans in the total amount of P200,000.00 within two months from the date of its execution plus 6% interest per month for each loan. Under the two Acknowledgment/Affirmation Receipts, she further obligated herself to pay for the two (2) loans the total sum of P100,000.00 as liquidated damages and attorneys fees in the total sum of P40,000.00 as stipulated by the parties the moment she breaches the terms and conditions thereof. As security for the payment of the aforesaid loans, Macalalag issued two Philippine National Bank (PNB) Checks (Check No. C-889835 and No. 889836) on 30 June 1996, each in the amount of P100,000.00, in favor of Estrella. However, when Estrella presented said checks for payment with the drawee bank, the same were dishonored for the reason that the account against which the same was drawn was already closed. Estrella sent a notice of dishonor and demand to make good the said checks to Macalalag, but the latter failed to do so. Hence, Estrella filed two criminal complaints for Violation of Batas Pambansa Blg. 22 before the Municipal Trial Court in Cities (MTCC) of Bacolod City, docketed as Criminal Cases No. 76367 and No. 76368. When arraigned, Macalalag entered a plea of not guilty. On trial, Macalalag admitted her indebtedness and the issuance of the two PNB checks. She, however, stated that she already made payments over and above the value of the said checks. According to her, she made a total payment of P355,837.98, including the payment of P199,837.98 made during the pendency of the cases. Estrella admitted the payment ofP199,837.98 but claimed that the same amount was applied to the payment of the interest.

December 20, 2006 x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.: This Petition for Review seeks to set aside the Court of Appeals 10 October 2003 Decision[1] convicting petitioner Theresa Macalalag (Macalalag) of Violation of Batas Pambansa Blg. 22, and its 13 May 2004 Resolution denying her Motion for Reconsideration. The factual and procedural antecedents of this case are as follows:

On 5 February 2001, the MTCC of Bacolod City rendered its Decision, disposing of the case as follows: WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered declaring the accused Theresa Macalalag guilty beyond reasonable doubt of the crime charged. Pursuant however to Eduardo Vaca vs. Court of Appeals case (G.R. No. 131714, November 16, 1998[,] 298 SCRA 656) and the Rosa Lim vs. People x x x case (G.R. No. 130038, September 18, 2000) where the Supreme Court deleted these penalty of imprisonment, the penalty therefore imposable is a fine of P100,000.00 for each of the two (2) checks and subsidiary imprisonment in case of insolvency or failure to pay said fine. As she is criminally liable, she is likewise ordered to pay as civil indemnity the total amount of P200,000.00 with interest at the legal rate from the time of the filing of the informations until the amount is fully paid; less whatever amount was thus far paid and validly deducted from the principal sum originally claimed.[2]

the RegionalTrial Court of Bacolod City, Branch 43, is hereby MODIFIED to read as follows: WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered declaring the accused Theresa Macalalag guilty beyond reasonable doubt of the crime charged. Pursuant however to Eduardo Vaca vs. Court of Appeals case (G.R. No. 131714, November 16, 1998[,] 298 SCRA 659) and the Rosa Lim vs. People of the Philippines case (G.R. No. 130038, September 18, 2000) where the Supreme Court deleted the penalty of imprisonment, the penalty therefore imposable is a fine of P100,000.00 for the second check and subsidiary imprisonment in case of insolvency or failure to pay said fine. As she is criminally liable, she is likewise ordered to pay civil indemnity in the amount of P100,000.00 with interest at the legal rate from the time of the filing of the information until the amount is fully paid; less P195,837.98, the amount credited to the accused after paying the first loan, to be applied to the second loan. [3]

Petitioner Macalalag appealed with the Regional Trial Court (RTC) of Bacolod City, which affirmed in toto the MTCC Decision. Petitioner Macalalag appealed anew with the Court of Appeals, which affirmed the RTC and the MTCC decisions with modification to the effect that, among other things, accused was convicted only of one (1) count of Violation of Batas Pambansa Blg. 22, corresponding to the issuance of the second check. The decretal portion of the Court of Appeals Decision reads: WHEREFORE, foregoing premises considered, the petition is PARTLY GRANTED. Accordingly, the dispositive portion of the February 9, 2001 Decision of the Municipal Trial Court in Cities of Bacolod City, Branch 3, as affirmed by

In acquitting petitioner Macalalag of one count of violation of Batas Pambansa Blg. 22, the Court of Appeals reversed the RTC ruling which held that Medel v. Court of Appeals[4] is not applicable as it applies only in civil cases where the validity of the interest rate is in issue, and cannot be applied in criminal cases for violation of Batas Pambansa Blg. 22.[5] In Medel, we held that, while the Usury Law is now legally inexistent, the stipulated rate of interest at 5.5% per month is iniquitous or unconscionable, which the court could equitably reduce.

The Court of Appeals was correct in applying Medel to the case at bar. The criminal action for violation of Batas Pambansa Blg. 22 is deemed to include the corresponding civil action.[6] In fact, no reservation to file such civil action shall be allowed.[7] Verily then, whether the interest is unconscionable or not can be determined in the instant case. Furthermore, in all criminal prosecutions, any doubt should be resolved in favor of the accused and strictly against the State. Following this principle, the issue of whether the Medel case should be applied in favor of Macalalag should be resolved in her favor. The stipulated interest of 10% per month, and even the reduced rate of 6% per month, are higher than the interest rates declared unconscionable in Medel and in several other cases with allegations of unconscionable interests. Such cases were synthesized by then Associate Justice (now Chief Justice) Reynato Puno in Ruiz v. Court of Appeals[8]: The foregoing rates of interests and surcharges are in accord with Medel vs. Court of Appeals, Garcia vs. Court of Appeals, Bautista vs. Pilar Development Corporation, and the recent case of Spouses Solangon vs. Salazar. This Court invalidated a stipulated 5.5% per month or 66% per annum interest on a P500,000.00 loan in Medel and a 6% per month or 72% per annum interest on a P60,000.00 loan in Solangon for being excessive, iniquitous, unconscionable and exorbitant. In both cases, we reduced the interest rate to 12% per annum. We held that while the Usury Law has been suspended by Central Bank Circular No. 905, s. 1982, effective on January 1, 1983, and parties to a loan agreement have been given wide latitude to agree on any interest rate, still stipulated interest rates are illegal if they are unconscionable. Nothing in the said circular grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets. On the other hand, in Bautista vs. Pilar Development Corp., this Court upheld the validity of a 21% per annum interest on a P142,326.43 loan, and in Garcia

vs. Court of Appeals, sustained the agreement of the parties to a 24% per annuminterest on an P8,649,250.00 loan. It is on the basis of these cases that we reduce the 36% per annum interest to 12%. An interest of 12% per annum is deemed fair and reasonable. While it is true that this Court invalidated a much higher interest rate of 66% per annum in Medel and 72% in Solangon it has sustained the validity of a much lower interest rate of 21% in Bautista and 24% in Garcia. We still find the 36% per annum interest rate in the case at bar to be substantially greater than those upheld by this Court in the two (2) aforecited cases.

Applying Medel, therefore, the Court of Appeals convicted petitioner Macalalag of one count of Batas Pambansa Blg. 22 and computed her civil liability as follows: Thus, applying the Medel doctrine, the interest rate imposed by Estrella on the loans of Macalalag should be reduced to 12% per annum only plus 1% a month penalty charge as liquidated damages on each loan. We now proceed to the determination of whether Macalalag had already paid her obligations to Estrella. There is no dispute that Macalalag obtained the first P100,000.00 loan from Estrella on July 30, 1995. The said amount multiplied by 1% interest per month until July 1, 1996, the time the check representing the said amount was dishonored (P100,000.00 x 1% x 11 + P100,000.00), would be P111,000.00. The second loan of P100,000.00 was obtained on October 16, 1995 and the check that was issued for the payment of the said loan was also dishonored on July 1, 1996. Using the above formula (P100,000.00 x 1% x 8.5

+ P100,000.00), be P108,500.00.

Macalalags

obligation

would

only

Thus, when the checks were dishonored, Macalalags total obligation to Estrella was P219,500.00. In the instant case, it has been established that Macalalag made a total payment of P355,837.98 (P199,837.98 plus P156,000.00) (See 275-276, Records). The P156,000.00 was paid starting August 30, 1995 until June 15, 1996 while the amount of P199,837.98 was paid to complainant sometime in 1997 considering that the acknowledgment receipt was dated January 5, 1998. In the Acknowledgment/Affirmation Receipts, Macalalag promised to pay Estrella the principal loans within two (2) months after the execution of said documents. Thus, the two (2) loans of P100,000.00 each, or a total of P200,000.00, were demandable only on June 16, 1996 and July 1, 1996, respectively. Hence, the total amount of P156,000.00 already paid by Macalalag to Estrella could very well be applied to the face value of the first loan which fell due on June 16, 1996, including the 1% interest rate per month on the two (2) loans or a total of 2% per month. Thus, Macalalag could no longer be held liable for violation of B.P. Blg. 22 insofar as the first check is concerned since the same was already paid prior to its presentment for payment. However, with respect to the second check, there is no doubt that Macalalag is liable under B.P. Blg. 22. Macalalag admitted having issued the said check and that said check, when presented for payment for payment with the drawee bank bounced for the reason account closed. Despite notice of dishonor, Macalalag failed to make good the said check. All the elements of violation of B.P. Blg. 22, viz: a) the making, drawing or issuance of any check to apply to account or for

value; b) the knowledge of the maker[,] drawer, or issuer that at the time of the issue he does not have sufficient funds in, or credit with, the drawee bank for the payment of the check in full upon its presentment; and, c) the subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit, or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment (Sycip, Jr. vs. Court of Appeals, 328 SCRA 447), are, therefore, present. In view of the foregoing, the penalty imposed on Macalalag by the trial court should be modified. In accordance with the Vaca vs. Court of Appeals (294 SCRA 656) case, Macalalag should be meted the penalty of fine amounting to P100,000.00 only corresponding to the face value of the second check with subsidiary imprisonment in case of insolvency. Likewise, Macalalag should pay the civil indemnity in the total amount of P100,000.00 with interest at the legal rate from the time of the filing of the Information until fully satisfied less the amount of P195,837.98 which amount should be credited to her. This amount represents the balance after full payment of the first loan computed as follows: P355,837.98 - total amount paid by petitioner to private complainant (P199,837.98 and P156,000.00) LESS: P160,000.00 - to fully pay the first loan (P100,000.00 face value of the loan plus interests at P21,000.00 and P39,000.00) __________________ P195,837.98 - amount to be credited to petitioner to be applied to pay the second loan.[9]

We have repeatedly held that there is no violation of Batas Pambansa Blg. 22 if the complainant was actually told by the drawer that he has no sufficient funds in a bank.[10] Where, as in the case at bar, the checks were issued as security for a loan, payment by the accused of the amount of the check prior to its presentation for payment would certainly serve the same purpose. Batas Pambansa Blg. 22 was not intended to shelter or favor nor encourage users of the banking system to enrich themselves through the manipulation and circumvention of the noble purpose and objectives of the law.[11] Such manipulation is manifest when payees of checks issued as security for loans present such checks for payment even after the payment of such loans. Petitioner Macalalag, however, claims that she should not be convicted of even one count of Violation of Batas Pambansa Blg. 22. Petitioner Macalalag claims that: (1) the payment of the accounts before the checks became due and demandable and/or before the same are presented for payment would exempt the petitioner from Violation of Batas Pambansa Blg. 22;[12] (2) the redeemable value of the check is limited only to its face value and does not include interest; [13] and (3) partial redemption of the check will exempt the accused from criminal liability for Violation of Batas Pambansa Blg. 22.[14] Petitioner Macalalag claims that, considering that she had already paid P156,000.00 at the time the subject checks were presented for payment, the amount of P100,000.00 should be applied for redemption of the first check and the remaining amount of P56,000.00 should be treated as partial redemption of the second check. Petitioner Macalalag posits that said partial redemption exempts her from criminal liability because it was made before the check was presented for payment. The petition must fail. Even if we agree with petitioner Macalalag that the interests on her loans should not be imputed to the face value of the checks she issued,

petitioner Macalalag is still liable for Violation of Batas Pambansa Blg. 22. Petitioner Macalalag herself declares that before the institution of the two cases against her, she has made a total payment of P156,000.00. Applying this amount to the first check (No. C-889835), what will be left isP56,000.00, an amount insufficient to cover her obligation with respect to the second check. As stated above, when Estrella presented the checks for payment, the same were dishonored on the ground that they were drawn against a closed account. Despite notice of dishonor, petitioner Macalalag failed to pay the full face value of the second check issued. Only a full payment of the face value of the second check at the time of its presentment or during the five-day grace period[15] could have exonerated her from criminal liability. A contrary interpretation would defeat the purpose of Batas Pambansa Blg. 22, that of safeguarding the interest of the banking system and the legitimate public checking account user, [16] as the drawer could very well have himself exonerated by the mere expediency of paying a minimal fraction of the face value of the check. Neither could petitioner Macalalags subsequent payment of P199,837.98 during the pendency of the cases against her before the MTCC result in freeing her from criminal liability because the same had already attached after the check was dishonored. Said subsequent payments can only affect her civil, not criminal, liability. A subsequent payment by the accused would not obliterate the criminal liability theretofore already incurred.[17] It is well to note that the gravamen of Batas Pambansa Blg. 22 is the issuance of a check, not the nonpayment of an obligation. [18] The law has made the act of issuing a bum check a malum prohibitum.[19] Consequently, the lack of criminal intent on the part of the accused is irrelevant, [20] and the accused will be convicted for violation thereof as long as the following elements are proven: 1. The accused makes, draws or issues any check to apply to account or for value;

2. The accused knows at the time of the issuance that he or she does not have sufficient funds in, or credit with, the drawee bank for the payment of the check in full upon its presentment; and 3. The check is subsequently dishonored by the drawee bank for insufficiency of funds or credit, or it would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment.[21] All these elements have been conclusively proven in Court, the second element by the prima facie evidence established by Section 2 of Batas Pambansa Blg. 22, which provides: SEC. 2. Evidence of knowledge of insufficient funds. the making, drawing and issuance of a check payment of which is refused by the drawee because of insufficient funds in or credit with such bank, when presented within ninety (90) days from the date of the check, shall be prima facie evidence of knowledge of such insufficiency of funds or credit unless such maker or drawer pays the holder thereof the amount due thereon, or makes arrangements for payment in full by the drawee of such check within five (5) banking days after receiving notice that such check has not been paid by the drawee. WHEREFORE, the Petition is DENIED. The Court of Appeals Decision dated 10 October 2003 and Resolution dated 13 May 2004, affirming the conviction of petitioner Theresa Macalalag of one count of Violation of Batas Pambansa Blg. 22, are AFFIRMED. No costs. SO ORDERED.

BANK OF THE PHILIPPINEISLANDS, Petitioner,

G.R. No. 136202 Present: PUNO, C.J., Chairperson, SANDOVAL-GUTIERREZ, CORONA, AZCUNA, and GARCIA, JJ.

by substituting the name of Annabelle A. Salazar as the real party in interest in place of A.A. Salazar Construction and Engineering Services. Private respondent Salazar prayed for the recovery of the amount of Two Hundred Sixty-Seven Thousand, Seven Hundred Seven Pesos and Seventy Centavos (P267,707.70) debited by petitioner BPI from her account. She likewise prayed for damages and attorneys fees. Petitioner BPI, in its answer, alleged that on August 31, 1991, Julio R. Templonuevo, third-party defendant and herein also a private respondent, demanded from the former payment of the amount of Two Hundred Sixty-Seven Thousand, Six Hundred Ninety-Two Pesos and Fifty Centavos (P267,692.50) representing the aggregate value of three (3) checks, which were allegedly payable to him, but which were deposited with the petitioner bank to private respondent Salazars account (Account No. 0203-1187-67) without his knowledge and corresponding endorsement. Accepting that Templonuevos claim was a valid one, petitioner BPI froze Account No. 0201-0588-48 of A.A. Salazar and Construction and Engineering Services, instead of Account No. 0203-1187-67 where the checks were deposited, since this account was already closed by private respondent Salazar or had an insufficient balance. Private respondent Salazar was advised to settle the matter with Templonuevo but they did not arrive at any settlement. As it appeared that private respondent Salazar was not entitled to the funds represented by the checks which were deposited and accepted for deposit, petitioner BPI decided to debit the amount of P267,707.70 from her Account No. 02010588-48 and the sum of P267,692.50 was paid to Templonuevo by means of a cashiers check. The difference between the value of the checks (P267,692.50) and the amount actually debited from her account (P267,707.70) represented bank charges in connection with the issuance of a cashiers check to Templonuevo. In the answer to the third-party complaint, private respondent Templonuevo admitted the payment to him of P267,692.50 and argued that said payment was to correct the malicious deposit made by private

- versus -

COURT OF APPEALS, ANNABELLE A. SALAZAR, and JULIO R. TEMPLONUEVO, Respondents.

Promulgated: January 25, 2007

x-----------------------------------------------------------------------------------------x DECISION AZCUNA, J.: This is a petition for review under Rule 45 of the Rules of Court seeking the reversal of the Decision[1] dated April 3, 1998, and the Resolution[2] dated November 9, 1998, of the Court of Appeals in CA-G.R. CV No. 42241. The facts[3] are as follows:

A.A. Salazar Construction and Engineering Services filed an action for a sum of money with damages against herein petitioner Bank of the Philippine Islands (BPI) on December 5, 1991 before Branch 156 of the Regional Trial Court (RTC) of Pasig City. The complaint was later amended

respondent Salazar to her private account, and that petitioner banks negligence and tolerance regarding the matter was violative of the primary and ordinary rules of banking. He likewise contended that the debiting or taking of the reimbursed amount from the account of private respondent Salazar by petitioner BPI was a matter exclusively between said parties and may be pursuant to banking rules and regulations, but did not in any way affect him. The debiting from another account of private respondent Salazar, considering that her other account was effectively closed, was not his concern. After trial, the RTC rendered a decision, the dispositive portion of which reads thus: WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff [private respondent Salazar] and against the defendant [petitioner BPI] and ordering the latter to pay as follows: 1. The amount of P267,707.70 with 12% interest thereon from September 16, 1991 until the said amount is fully paid; The amount of P30,000.00 as and for actual

Third-party defendants [i.e., private respondent Templonuevos] counterclaim is hereby likewise DISMISSED for lack of factual basis. SO ORDERED.[4] On appeal, the Court of Appeals (CA) affirmed the decision of the RTC and held that respondent Salazar was entitled to the proceeds of the three (3) checks notwithstanding the lack of endorsement thereon by the payee. The CA concluded that Salazar and Templonuevo had previously agreed that the checks payable to JRT Construction and Trading [5] actually belonged to Salazar and would be deposited to her account, with petitioner acquiescing to the arrangement.[6] Petitioner therefore filed this petition on these grounds:

I. The Court of Appeals committed reversible error in misinterpreting Section 49 of the Negotiable Instruments Law and Section 3 (r and s) of Rule 131 of the New Rules on Evidence. II. The Court of Appeals committed reversible error in NOT applying the provisions of Articles 22, 1278 and 1290 of the Civil Code in favor of BPI. III. The Court of Appeals committed a reversible error in holding, based on a misapprehension of facts, that the account from which BPI debited the amount of P267,707.70 belonged to a corporation with a separate and distinct personality. IV.

2. damages; 3. The amount of P50,000.00 as and for moral damages; 4. The amount of P50,000.00 as and for exemplary damages; 5. The amount of P30,000.00 as and for attorneys fees; and 6. Costs of suit. The counterclaim is hereby ordered DISMISSED for lack of factual basis. The third-party complaint [filed by petitioner] is hereby likewise ordered DISMISSED for lack of merit.

The Court of Appeals committed a reversible error in holding, based entirely on speculations, surmises or conjectures, that there was an agreement between SALAZAR and TEMPLONUEVO that checks payable to TEMPLONUEVO may be deposited by SALAZAR to her personal account and that BPI was privy to this agreement. V. The Court of Appeals committed reversible error in holding, based entirely on speculation, surmises or conjectures, that SALAZAR suffered great damage and prejudice and that her business standing was eroded. VI. The Court of Appeals erred in affirming instead of reversing the decision of the lower court against BPI and dismissing SALAZARs complaint. VII. The Honorable Court erred in affirming the decision of the lower court dismissing the third-party complaint of BPI.[7]

1.

There is no presumption in law that a check payable to order, when found in the possession of a person who is neither a payee nor the indorsee thereof, has been lawfully transferred for value. Hence, the CA should not have presumed that Salazar was a transferee for value within the contemplation of Section 49 of the Negotiable Instruments Law, [8] as the latter applies only to a holder defined under Section 191of the same.[9] Salazar failed to adduce sufficient evidence to prove that her possession of the three checks was lawful despite her allegations that these checks were deposited pursuant to a prior internal arrangement with Templonuevo and that petitioner was privy to the arrangement. The CA should have applied the Civil Code provisions on legal compensation because in deducting the subject amount from Salazars account, petitioner was merely rectifying the undue payment it made upon the checks and exercising its prerogative to alter or modify an erroneous credit entry in the regular course of its business. The debit of the amount from the account of A.A. Salazar Construction and Engineering Services was proper even though the value of the checks had been originally credited to the personal account of Salazar because A.A. Salazar Construction and Engineering Services, an unincorporated single proprietorship, had no separate and distinct personality from Salazar. Assuming the deduction from Salazars account was improper, the CA should not have dismissed petitioners thirdparty complaint against Templonuevo because the latter would have the legal duty to return to petitioner the proceeds of the checks which he previously received from it.

2.

3.

4. The issues center on the propriety of the deductions made by petitioner from private respondent Salazars account. Stated otherwise, does a collecting bank, over the objections of its depositor, have the authority to withdraw unilaterally from such depositors account the amount it had previously paid upon certain unendorsed order instruments deposited by the depositor to another account that she later closed? 5. Petitioner argues thus:

6.

There was no factual basis for the award of damages to Salazar.

The petition is partly meritorious.

(d) That petitioner accepted and paid the checks on three (3) separate occasions over a span of eight months in 1990; and (e) That Templonuevo only protested the purportedly unauthorized encashment of the checks after the lapse of one year from the date of the last check.[10] Petitioner concedes that when it credited the value of the checks to the account of private respondent Salazar, it made a mistake because it failed to notice the lack of endorsement thereon by the designated payee. The CA, however, did not lend credence to this claim and concluded that petitioners actions were deliberate, in view of its admission that the mistake was committed three times on three separate occasions, indicating acquiescence to the internal arrangement between Salazar and Templonuevo. The CA explained thus: It was quite apparent that the three checks which appellee Salazar deposited were not indorsed. Three times she deposited them to her account and three times the amounts borne by these checks were credited to the same. And in those separate occasions, the bank did not return the checks to her so that she could have them indorsed. Neither did the bank question her as to why she was depositing the checks to her account considering that she was not the payee thereof, thus allowing us to come to the conclusion that defendant-appellant BPI was fully aware that the proceeds of the three checks belong to appellee. For if the bank was not privy to the agreement between Salazar and Templonuevo, it is most unlikely that appellant BPI (or any bank for that matter) would have accepted the checks for deposit on three separate times nary any question. Banks are most finicky over accepting checks for deposit without the corresponding indorsement by their payee. In fact, they hesitate to accept indorsed checks for deposit if the depositor is not one they know very well.[11]

First, the issue raised by petitioner requires an inquiry into the factual findings made by the CA. The CAs conclusion that the deductions from the bank account of A.A. Salazar Construction and Engineering Services were improper stemmed from its finding that there was no ineffective payment to Salazar which would call for the exercise of petitioners right to set off against the formers bank deposits. This finding, in turn, was drawn from the pleadings of the parties, the evidence adduced during trial and upon the admissions and stipulations of fact made during the pre-trial, most significantly the following: (a) That Salazar previously had in her possession the following checks: (1) (2) (3) Solid Bank Check No. CB766556 dated January 30, 1990 in the amount of P57,712.50; Solid Bank Check No. CB898978 dated July 31, 1990 in the amount of P55,180.00; and, Equitable Banking Corporation Check No. 32380638 dated August 28, 1990 for the amount of P154,800.00;

(b) That these checks which had an aggregate amount of P267,692.50 were payable to the order of JRT Construction and Trading, the name and style under which Templonuevo does business; (c) That despite the lack of endorsement of the designated payee upon such checks, Salazar was able to deposit the checks in her personal savings account with petitioner and encash the same;

The CA likewise sustained Salazars position that she received the checks from Templonuevo pursuant to an internal arrangement between them, ratiocinating as follows: If there was indeed no arrangement between Templonuevo and the plaintiff over the three questioned checks, it baffles us why it was only on August 31, 1991 or more than a year after the third and last check was deposited that he demanded for the refund of the total amount of P267,692.50. A prudent man knowing that payment is due him would have demanded payment by his debtor from the moment the same became due and demandable. More so if the sum involved runs in hundreds of thousand of pesos. By and large, every person, at the very moment he learns that he was deprived of a thing which rightfully belongs to him, would have created a big fuss. He would not have waited for a year within which to do so. It is most inconceivable that Templonuevo did not do this.[12]

This rule, however, is not absolute and admits of certain exceptions, namely: a) when the conclusion is a finding grounded entirely on speculations, surmises, or conjectures; b) when the inference made is manifestly mistaken, absurd, or impossible; c) when there is a grave abuse of discretion; d) when the judgment is based on a misapprehension of facts; e) when the findings of fact are conflicting; f) when the CA, in making its findings, went beyond the issues of the case and the same are contrary to the admissions of both appellant and appellee; g) when the findings of the CA are contrary to those of the trial court; h) when the findings of fact are conclusions without citation of specific evidence on which they are based; i) when the finding of fact of the CA is premised on the supposed absence of evidence but is contradicted by the evidence on record; and j) when the CA manifestly overlooked certain relevant facts not disputed by the parties and which, if properly considered, would justify a different conclusion. [16] In the present case, the records do not support the finding made by the CA and the trial court that a prior arrangement existed between Salazar and Templonuevo regarding the transfer of ownership of the checks. This fact is crucial as Salazars entitlement to the value of the instruments is based on the assumption that she is a transferee within the contemplation of Section 49 of the Negotiable Instruments Law. Section 49 of the Negotiable Instruments Law contemplates a situation whereby the payee or indorsee delivers a negotiable instrument for value without indorsing it, thus: Transfer without indorsement; effect of- Where the holder of an instrument payable to his order transfers it for value without indorsing it, the transfer vests in the transferee such title as the transferor had therein, and the transferee acquires in addition, the right to have the indorsement of the transferor. But for the purpose of determining whether the transferee is a holder in due course, the negotiation takes effect as of the time when the indorsement is actually made. [17]

Generally, only questions of law may be raised in an appeal by certiorari under Rule 45 of the Rules of Court. [13] Factual findings of the CA are entitled to great weight and respect, especially when the CA affirms the factual findings of the trial court. [14] Such questions on whether certain items of evidence should be accorded probative value or weight, or rejected as feeble or spurious, or whether or not the proofs on one side or the other are clear and convincing and adequate to establish a proposition in issue, are questions of fact. The same holds true for questions on whether or not the body of proofs presented by a party, weighed and analyzed in relation to contrary evidence submitted by the adverse party may be said to be strong, clear and convincing, or whether or not inconsistencies in the body of proofs of a party are of such gravity as to justify refusing to give said proofs weight all these are issues of fact which are not reviewable by the Court. [15]

It bears stressing that the above transaction is an equitable assignment and the transferee acquires the instrument subject to defenses and equities available among prior parties. Thus, if the transferor had legal title, the transferee acquires such title and, in addition, the right to have the indorsement of the transferor and also the right, as holder of the legal title, to maintain legal action against the maker or acceptor or other party liable to the transferor. The underlying premise of this provision, however, is that a valid transfer of ownership of the negotiable instrument in question has taken place. Transferees in this situation do not enjoy the presumption of ownership in favor of holders since they are neither payees nor indorsees of such instruments. The weight of authority is that the mere possession of a negotiable instrument does not in itself conclusively establish either the right of the possessor to receive payment, or of the right of one who has made payment to be discharged from liability. Thus, something more than mere possession by persons who are not payees or indorsers of the instrument is necessary to authorize payment to them in the absence of any other facts from which the authority to receive payment may be inferred. [18] The CA and the trial court surmised that the subject checks belonged to private respondent Salazar based on the pre-trial stipulation that Templonuevo incurred a one-year delay in demanding reimbursement for the proceeds of the same. To the Courts mind, however, such period of delay is not of such unreasonable length as to estop Templonuevo from asserting ownership over the checks especially considering that it was readily apparent on the face of the instruments [19] that these were crossed checks. In State Investment House v. IAC,[20] the Court enumerated the effects of crossing a check, thus: (1) that the check may not be encashed but only deposited in the bank; (2) that the check may be negotiated only once - to one who has an account with a bank; and (3) that the act of crossing the check serves as a warning to the holder that the check has

been issued for a definite purpose so that such holder must inquire if the check has been received pursuant to that purpose. Thus, even if the delay in the demand for reimbursement is taken in conjunction with Salazars possession of the checks, it cannot be said that the presumption of ownership in Templonuevos favor as the designated payee therein was sufficiently overcome. This is consistent with the principle that if instruments payable to named payees or to their order have not been indorsed in blank, only such payees or their indorsees can be holders and entitled to receive payment in their own right. [21] The presumption under Section 131(s) of the Rules of Court stating that a negotiable instrument was given for a sufficient consideration will not inure to the benefit of Salazar because the term given does not pertain merely to a transfer of physical possession of the instrument. The phrase given or indorsed in the context of a negotiable instrument refers to the manner in which such instrument may be negotiated. Negotiable instruments are negotiated by transfer to one person or another in such a manner as to constitute the transferee the holder thereof. If payable to bearer it is negotiated by delivery. If payable to order it is negotiated by the indorsement completed by delivery. [22] The present case involves checks payable to order. Not being a payee or indorsee of the checks, private respondent Salazar could not be a holder thereof. It is an exception to the general rule for a payee of an order instrument to transfer the instrument without indorsement. Precisely because the situation is abnormal, it is but fair to the maker and to prior holders to require possessors to prove without the aid of an initial presumption in their favor, that they came into possession by virtue of a legitimate transaction with the last holder. [23] Salazar failed to discharge this burden, and the return of the check proceeds to Templonuevo was therefore warranted under the circumstances despite the fact that Templonuevo may not have clearly demonstrated that he never authorized Salazar to deposit the checks or to encash the same. Noteworthy also is the fact that petitioner stamped on the back of the checks the words: "All prior endorsements and/or lack of endorsements guaranteed," thereby making the assurance

that it had ascertained the genuineness of all prior endorsements. Having assumed the liability of a general indorser, petitioners liability to the designated payee cannot be denied. Consequently, petitioner, as the collecting bank, had the right to debit Salazars account for the value of the checks it previously credited in her favor. It is of no moment that the account debited by petitioner was different from the original account to which the proceeds of the check were credited because both admittedly belonged to Salazar, the former being the account of the sole proprietorship which had no separate and distinct personality from her, and the latter being her personal account. The right of set-off was explained in Associated Bank v. Tan:[24] A bank generally has a right of set-off over the deposits therein for the payment of any withdrawals on the part of a depositor. The right of a collecting bank to debit a client's account for the value of a dishonored check that has previously been credited has fairly been established by jurisprudence. To begin with, Article 1980 of the Civil Code provides that "[f]ixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan. Hence, the relationship between banks and depositors has been held to be that of creditor and debtor. Thus, legal compensation under Article 1278 of the Civil Code may take place "when all the requisites mentioned in Article 1279 are present," as follows: (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind,

(3) (4) (5)

and also of the same quality if the latter has been stated; That the two debts be due; That they be liquidated and demandable; That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor.

While, however, it is conceded that petitioner had the right of set-off over the amount it paid to Templonuevo against the deposit of Salazar, the issue of whether it acted judiciously is an entirely different matter. [25]As businesses affected with public interest, and because of the nature of their functions, banks are under obligation to treat the accounts of their depositors with meticulous care, always having in mind the fiduciary nature of their relationship.[26] In this regard, petitioner was clearly remiss in its duty to private respondent Salazar as its depositor. To begin with, the irregularity appeared plainly on the face of the checks. Despite the obvious lack of indorsement thereon, petitioner permitted the encashment of these checks three times on three separate occasions. This negates petitioners claim that it merely made a mistake in crediting the value of the checks to Salazars account and instead bolsters the conclusion of the CA that petitioner recognized Salazars claim of ownership of checks and acted deliberately in paying the same, contrary to ordinary banking policy and practice. It must be emphasized that the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it, for the purpose of determining their genuineness and regularity. The collecting bank, being primarily engaged in banking, holds itself out to the public as the expert on this field, and the law thus holds it to a high standard of conduct.[27] The taking and collection of a check without the proper indorsement amount to a conversion of the check by the bank. [28] More importantly, however, solely upon the prompting of Templonuevo, and with full knowledge of the brewing dispute between

(2)

Salazar and Templonuevo, petitioner debited the account held in the name of the sole proprietorship of Salazar without even serving due notice upon her. This ran contrary to petitioners assurances to private respondent Salazar that the account would remain untouched, pending the resolution of the controversy between her and Templonuevo. [29] In this connection, the CA cited the letter dated September 5, 1991 of Mr. Manuel Ablan, Senior Manager of petitioner banks Pasig/Ortigas branch, to private respondent Salazar informing her that her account had been frozen, thus: From the tenor of the letter of Manuel Ablan, it is safe to conclude that Account No. 0201-0588-48 will remain frozen or untouched until herein [Salazar] has settled matters with Templonuevo. But, in an unexpected move, in less than two weeks (eleven days to be precise) from the time that letter was written, [petitioner] bank issued a cashiers check in the name of Julio R. Templonuevo of the J.R.T. Construction and Trading for the sum of P267,692.50 (Exhibit 8) and debited said amount from Ms. Arcillas account No. 0201-0588-48 which was supposed to be frozen or controlled. Such a move by BPI is, to Our minds, a clear case of negligence, if not a fraudulent, wanton and reckless disregard of the right of its depositor. The records further bear out the fact that respondent Salazar had issued several checks drawn against the account of A.A. Salazar Construction and Engineering Services prior to any notice of deduction being served. The CA sustained private respondent Salazars claim of damages in this regard: The act of the bank in freezing and later debiting the amount of P267,692.50 from the account of A.A. Salazar Construction and Engineering Services caused plaintiffappellee great damage and prejudice particularly when she had already issued checks drawn against the said account. As can be expected, the said checks bounced. To prove this, plaintiffappellee presented as exhibits photocopies of checks

dated September 8, 1991, October 28, 1991, and November 14, 1991 (Exhibits D, E and F respectively)[30]

These checks, it must be emphasized, were subsequently dishonored, thereby causing private respondent Salazar undue embarrassment and inflicting damage to her standing in the business community. Under the circumstances, she was clearly not given the opportunity to protect her interest when petitioner unilaterally withdrew the above amount from her account without informing her that it had already done so. For the above reasons, the Court finds no reason to disturb the award of damages granted by the CA against petitioner. This whole incident would have been avoided had petitioner adhered to the standard of diligence expected of one engaged in the banking business. A depositor has the right to recover reasonable moral damages even if the banks negligence may not have been attended with malice and bad faith, if the former suffered mental anguish, serious anxiety, embarrassment and humiliation. [31] Moral damages are not meant to enrich a complainant at the expense of defendant. It is only intended to alleviate the moral suffering she has undergone. The award of exemplary damages is justified, on the other hand, when the acts of the bank are attended by malice, bad faith or gross negligence. The award of reasonable attorneys fees is proper where exemplary damages are awarded. It is proper where depositors are compelled to litigate to protect their interest.[32]

WHEREFORE, the petition is partially GRANTED. The assailed Decision dated April 3, 1998 and Resolution dated April 3, 1998 rendered by the Court of Appeals in CA-G.R. CV No. 42241 are MODIFIEDinsofar as it ordered petitioner Bank of the Philippine Islands to return the amount of Two Hundred Sixty-seven Thousand Seven Hundred and Seven and 70/100 Pesos (P267,707.70) to respondent Annabelle A. Salazar, which portion is REVERSED and SET ASIDE. In all other respects, the same are AFFIRMED.

No costs. SO ORDERED.